<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported)
FEBRUARY 8, 1996
POPE & TALBOT, INC.
(Exact name of registrant as specified in charter)
DELAWARE 1-7852 94-0777139
(State of other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
1500 S.W. FIRST AVENUE
PORTLAND, OREGON 97201
(Address of principal executive offices) (Zip Code)
(503) 228-9161
(Registrant's telephone number, including area code)
NONE
(Former name or former address, if changed since last report.)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On December 11, 1995, Pope & Talbot, Inc., a Delaware corporation
(the "Registrant"), entered into a definitive agreement to sell
its disposable diaper business (the "Business") to Paragon Trade
Brands, Inc., a Delaware corporation ("Paragon"). The Business
manufactures private label disposable diapers at four facilities
located in Shenandoah, Georgia; Oneonta, New York; Porterville,
California and Eau Claire, Wisconsin. These disposable diapers are
sold to supermarkets, drugstores, food and drug distribution
companies and mass merchandisers.
On February 8, 1996 (the "Closing Date"), the sale was completed.
The Registrant sold substantially all the operating assets of the
Business, primarily properties and inventories, to Paragon for
$50.5 million cash and 683,157 shares of unregistered Paragon
common stock having a value at the time the transaction was closed
of approximately $14.5 million. The number of shares of Paragon
common stock is subject to certain post closing adjustments which
could reduce, but not increase, the final number of shares
received by the Registrant. Pursuant to a stockholders' agreement
between the Registrant and Paragon, Paragon exercised an option to
repurchase 227,719 shares from the Registrant, representing 33
percent of the issued shares, at $21.16 per share. It is
anticipated that this stock sale to Paragon will close on or about
March 1, 1996. The remaining shares may be registered 90 days
after the closing date. The per share price used to determine the
number of Paragon common shares received by the Registrant was
$21.22.
The sale of the Business was made pursuant to the Asset Purchase
Agreement filed as Exhibit 2.1 to this report.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Assets Acquired
Not applicable
(b) Pro Forma Financial Information
The Registrant reflected the sale of its disposable diaper
business as a discontinued operation in its 1995 consolidated
financial statements. These 1995 consolidated financial
statements are being filed herewith to comply with the Pro Forma
financial information filing requirement. In addition to the
information included in the accompanying consolidated financial
statements, in the first quarter of 1996 the Registrant will
report a gain on the disposable diaper business sale transaction.
This gain amount can not be accurately calculated at this time
and will be adjusted up or down once final post closing purchase
price adjustments are known later in the first quarter of 1996,
but is estimated to be in the range of $2 million to $4 million,
after tax.
<PAGE> 3
The following consolidated financial information is filed
herewith:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Income for each of the three years
in the period ended December 31, 1995
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1995
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1995
Notes to Consolidated Financial Statements
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Asset Purchase Agreement by and among Paragon Trade
Brands, Inc., PTB Acquisition Sub, Inc., Pope &
Talbot, Inc. and Pope & Talbot, Wis., Inc. dated
December 11, 1995.
4.1 Modification Agreement, dated as of January 22, 1996,
to the Revolving Credit Agreement, dated May 6, 1992,
among the Company and United States National Bank of
Oregon; CIBC Inc.; ABN AMRO Bank N.V.; Bank of
America Illinois; and Wachovia Bank of Georgia,
National Association.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly authorized this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on February 23, 1996.
POPE & TALBOT, INC.
By /s/ Carlos M. Lamadrid
---------------------------------
Name: Carlos M. Lamadrid
Title: Senior Vice President and
Chief Financial Officer
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Pope & Talbot, Inc.:
We have audited the accompanying consolidated balance sheets of Pope & Talbot,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pope & Talbot, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Portland, Oregon,
February 8, 1996
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pope & Talbot, Inc. and Subsidiaries
December 31 (Dollars in thousands except per share) 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,826 $ 6,847
Accounts receivable 52,931 55,333
Countervailing duty refund receivable (Note 8) - 16,144
Inventories (Notes 1, 2 and 9) 68,710 127,392
Prepaid expenses (Note 7) 15,616 17,334
Discontinued operations assets held for sale (Note 9) 56,169 -
------------ ------------
Total current assets 207,252 223,050
Properties (Notes 1, 3 and 9):
Plant and equipment 447,577 548,430
Accumulated depreciation (232,199) (276,465)
------------ ------------
215,378 271,965
Land and timber cutting rights 10,382 10,862
------------ ------------
Total properties 225,760 282,827
Other assets:
Deferred charges 18,655 13,853
Deferred income tax assets, net (Notes 1 and 7) 16,531 -
Goodwill, net of amortization 4,029 4,196
Restricted bond funds (Note 4) - 15,458
------------ ------------
Total other assets 39,215 33,507
------------ ------------
$ 472,227 $ 539,384
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 4) $ 43,000 $ 20,000
Current portion of long-term debt (Note 4) 457 928
Accounts payable 26,860 36,736
Accrued payroll and related taxes 19,459 21,074
Other accrued liabilities 19,688 16,238
Income taxes (Notes 1 and 7) 4,031 8,600
------------ ------------
Total current liabilities 113,495 103,576
Reforestation (Note 1) 16,617 15,136
Postretirement benefits (Note 6) 13,909 13,641
Long-term debt, net of current portion (Note 4) 138,514 177,471
Deferred income tax liabilities, net (Notes 1 and 7) - 1,365
Commitments and contingencies (Note 10) - -
Stockholders' equity (Notes 1, 4, 5, and 7):
Preferred stock, $10 par value, 1,500,000 shares authorized,
none issued - -
Common stock, $1 par value, 20,000,000 shares authorized,
13,971,605 issued 13,972 13,972
Additional paid-in capital 35,976 40,858
Retained earnings 156,810 191,804
Cumulative translation adjustments (5,955) (7,315)
Common stock held in treasury, at cost (11,111) (11,124)
------------ ------------
Total stockholders' equity 189,692 228,195
------------ ------------
$ 472,227 $ 539,384
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 7
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Pope & Talbot, Inc. and Subsidiaries
Years ended December 31 (Thousands except per share) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues (Note 9) $ 524,409 $ 502,807 $ 458,799
Costs and expenses (Note 9):
Cost of sales 510,663 457,737 412,593
Selling, general and administrative 21,309 22,842 18,237
Interest, net (Notes 1 and 4) 13,784 9,322 8,714
-------------------------------------------
545,756 489,901 439,544
Other gains (losses) (Note 8) - 13,845 -
-------------------------------------------
Income (loss) before income taxes, discontinued
operations and cumulative effect of
accounting changes (21,347) 26,751 19,255
Income tax provision (benefit) (Note 7) (7,551) 10,799 8,485
-------------------------------------------
Income (loss) from continuing operations (13,796) 15,952 10,770
Income (loss) from discontinued operations (net of tax provision (benefit) of
$(3,949), $(34) and $6,346 for 1995, 1994 and 1993, respectively)
(Note 9) (11,042) (55) 10,805
-------------------------------------------
Income (loss) before cumulative effect of accounting
changes (24,838) 15,897 21,575
Cumulative effect of accounting changes (Note 1) - - (562)
-------------------------------------------
Net income (loss) $ (24,838) $ 15,897 $ 21,013
===========================================
Net income (loss) per common share (Note 1):
Primary:
Income (loss) from continuing operations $ (1.03) $ 1.21 $ .92
Income (loss) from discontinued operations (.83) - .93
Cumulative effect of accounting changes - - (.05)
-------------------------------------------
Primary earnings (loss) per share $ (1.86) $ 1.21 $ 1.80
===========================================
Fully diluted:
Income (loss) from continuing operations $ (1.03) $ 1.20 $ .85
Income (loss) from discontinued operations (.83) - .86
Cumulative effect of accounting changes - - (.04)
-------------------------------------------
Fully diluted earnings (loss) per share $ (1.86) $ 1.20 $ 1.67
===========================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Pope & Talbot, Inc. and Subsidiaries
Years ended December 31 Common stock Treasury stock Additional Cumulative
------------------ ------------------ paid-in Retained translation
(Dollars in thousands except per share) Shares Amounts Shares Amounts capital earnings adjustments
- --------------------------------------- ------ ------- ------ ------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 12,429,352 $ 12,429 (818,688) $(13,499) $ 2,388 $173,620 $(2,544)
Net income - - - - - 21,013 -
Purchase of treasury stock - - (16,703) (353) - - -
Issuance of shares under stock plans - - 121,837 1,190 982 - -
Cash dividends ($.76 per share) - - - - - (8,871) -
Change in translation adjustment - - - - - - (2,034)
---------- -------- -------- -------- ------- -------- -------
Balance at December 31, 1993 12,429,352 12,429 (713,554) (12,662) 3,370 185,762 (4,578)
---------- -------- -------- -------- ------- -------- -------
Net income - - - - - 15,897 -
Convertible debenture conversion 1,542,253 1,543 - - 37,100 - -
Purchase of treasury stock - - (1,946) (63) - - -
Issuance of shares under stock plans - - 106,624 1,601 388 - -
Cash dividends ($.76 per share) - - - - - (9,855) -
Change in translation adjustment - - - - - - (2,737)
---------- -------- -------- -------- ------- -------- -------
Balance at December 31, 1994 13,971,605 13,972 (608,876) (11,124) 40,858 191,804 (7,315)
---------- -------- -------- -------- ------- -------- -------
Net loss - - - - - (24,838) -
Issuance of shares under stock plans - - 1,050 13 2 - -
Cash dividends ($.76 per share) - - - - - (10,156) -
Change in translation adjustment - - - - - - 1,360
Partnership transaction tax settlement
costs (Note 7) - - - - (4,884) - -
---------- -------- --------- -------- ------- -------- -------
Balance at December 31, 1995 13,971,605 $ 13,972 (607,826) $(11,111) $35,976 $156,810 $(5,955)
========== ======== ========= ======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Pope & Talbot, Inc. and Subsidiaries
Years ended December 31 (Thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (24,838) $ 15,897 $ 21,013
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating activities:
Depreciation and amortization 45,066 39,061 29,303
Other (gains) losses (Note 8) - (13,845) -
Cumulative effect of accounting changes (Note 1) - - 562
Changes in assets and liabilities:
Increase (decrease) in:
Accounts payable (9,876) 508 5,350
Accrued payroll and related taxes (1,615) 2,738 1,254
Other accrued liabilities 3,450 (637) (239)
Income taxes (4,569) (9,222) 9,211
Reforestation 1,042 1,010 3,280
Postretirement benefits 268 837 848
Deferred income taxes (15,912) (9,140) 150
Decrease (increase) in:
Receivables 18,546 (1,592) (8,261)
Inventories 40,872 (32,136) (18,648)
Deposits on timber purchase contracts (15) (2,154) (3,651)
Prepaid expenses (1,169) 106 (120)
Deferred charges and other (1,503) (2,004) (3,164)
----------------------------------------------
Net cash provided by (used for) operating activities 49,747 (10,573) 36,888
Cash flow from investing activities:
Capital expenditures (27,777) (55,582) (82,585)
Proceeds from sale of other properties 1,004 722 1,156
----------------------------------------------
Net cash used for investing activities (26,773) (54,860) (81,429)
Cash flow from financing activities:
Net increase in short-term borrowings 23,000 9,000 5,517
Proceeds from issuance of long-term debt - 83,800 91,000
Reduction of long-term debt, including current portion (39,428) (901) (45,500)
Change in restricted bond funds (Note 4) 15,458 (15,458) -
Partnership transaction tax settlement costs (Note 7) (4,884) - -
Proceeds from issuance of treasury stock, net 15 1,926 1,819
Cash dividends (10,156) (9,855) (8,871)
----------------------------------------------
Net cash provided by (used for) financing activities (15,995) 68,512 43,965
----------------------------------------------
Increase (decrease) in cash and cash equivalents 6,979 3,079 (576)
Cash and cash equivalents at beginning of period 6,847 3,768 4,344
----------------------------------------------
Cash and cash equivalents at end of period $ 13,826 $ 6,847 $ 3,768
==============================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pope & Talbot, Inc. and Subsidiaries
December 31, 1995, 1994 and 1993
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Pope & Talbot, Inc. and Subsidiaries (the Company), after eliminating
intercompany transactions and balances.
All assets and liabilities of the Company's Canadian subsidiary are
translated into United States dollars at the period-end exchange rate. Revenues
and expenses are translated at the average exchange rate for the year.
Translation gains and losses are reflected in stockholders' equity as cumulative
translation adjustments. Net gains and losses on foreign currency transactions,
which are not significant, are reflected in net income (loss).
INVENTORIES
Inventories are stated at the lower of cost or market. For portions of
lumber and raw material inventories, cost has been determined on the last-in,
first-out method. For remaining inventories, cost has been determined using the
first-in, first-out and average-cost methods. Inventory costs include the cost
of materials, labor and plant overhead.
PLANT AND EQUIPMENT
Plant and equipment is carried at cost and includes expenditures for
new facilities and those expenditures which substantially increase the useful
lives of existing plant and equipment. Costs of maintenance and repairs are
charged to expense as incurred. Upon sale or retirement, the related cost and
accumulated depreciation are removed from the accounts, with the resultant
gain or loss included in income.
Depreciation is computed using the straight-line method over the useful
lives of respective assets. The estimated useful lives of the principal items of
plant and equipment range from 3 to 20 years.
The Company capitalizes interest on borrowed funds during the
construction period of major capital projects. Interest capitalized is
determined by applying the Company's effective interest rate to the accumulated
capital costs during the construction period of a project. Total net interest
costs incurred were $14,040,000, $10,257,000 and $10,449,000 for 1995, 1994 and
1993, respectively. Interest capitalized was $256,000 in 1995, $935,000 in 1994
and $1,735,000 in 1993. Capitalized interest is amortized over the depreciable
life of related assets.
The Company evaluates recoverability of long-lived assets using
projections of related future cash flows. Realization of these assets is
dependent on generating sufficient future cash flows to recover the asset's
carrying value. Although realization is not assured, management believes current
long-lived asset carrying values will be recovered. These assets may become
impaired in the future, however, if estimates of future cash flows are reduced.
INTEREST
Interest in the Consolidated Statements of Income is shown net of
interest income and, as mentioned previously, capitalized interest. Interest
income was $1,740,000 in 1995, $1,760,000 in 1994 and was not significant in
1993.
TIMBER RESOURCES
In the United States, the Company obtains its timber from various
public and private sources under timber harvesting contracts. Additionally, logs
are purchased on open log markets. Liabilities for timber removed under
harvesting contracts are not recorded until the timber is cut, as the Company
generally does not incur a direct liability for, or ownership of, this timber
until it has been harvested.
The total volume committed under contract, the 1996 planned contract
harvest at contract prices and the estimated market values based on current log
markets are as follows:
<TABLE>
<CAPTION>
Thousand Amount Per thousand
board feet (Thousands) board feet
---------- ----------- ------------
<S> <C> <C> <C>
Total under contract:
At contract prices 319,000 $70,177 $220
At current log market values 319,000 81,375 255
1996 planned harvest:
At contract prices 65,000 13,691 211
At current log market values 65,000 16,713 257
</TABLE>
In Canada, the Company primarily obtains its timber from the Provincial
Government of British Columbia under timber harvesting licenses. The cost
assigned to these timber licenses is amortized over 50 years on a straight-line
basis. The Company also purchases logs in Canada on open log markets.
The Canadian timber harvesting licenses allow, but do not require, the
Company to remove timber from defined areas annually on a sustained yield basis.
Future allowable harvests may be adjusted if the Company does not remove timber
over a five year period in accordance with the grants. As in the United States,
liabilities for the cost of timber removed are not recorded until the timber is
cut as the Company does not incur a direct liability for, or ownership of, this
timber until it has been harvested.
GOODWILL
The goodwill contained in the Consolidated Balance Sheets relates to
the 1980 purchase of the Company's Eau Claire,
<PAGE> 11
Wisconsin facilities. This amount is being amortized on a straight-line basis
over 40 years.
REFORESTATION
Under the Canadian timber harvesting licenses mentioned previously, the
Company is responsible for the reforestation of the land from which timber is
harvested. A substantial portion of the costs incurred to reforest do not occur
until 10 to 15 years after the timber is harvested. The Company accrues for the
total projected cost of reforestation as the timber is removed. Actual
expenditures for reforestation are applied against this accrual when they are
made.
INCOME TAXES
Effective January 1, 1993, the Company implemented the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." SFAS No. 109 utilizes the liability method and deferred taxes are
determined based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities given the provisions
of the enacted tax laws. The principal temporary differences are related to
depreciation, net operating loss carryforwards, reforestation and postretirement
benefits.
Undistributed earnings of the Company's Canadian subsidiary totaled
$116,904,000 on December 31, 1995, which, under existing law, will not be
subject to United States tax until distributed as dividends. Since the earnings
have been, and are intended to be, reinvested in Canadian operations, no
provision has been made for any United States taxes that may be applicable
thereto. Furthermore, any taxes paid to the Canadian Government on those
earnings may be used in whole or in part, as credits against the United States
tax on any dividends distributed from such earnings. It is not practicable to
estimate the amount of unrecognized deferred United States taxes on these
undistributed earnings.
STATEMENTS OF CASH FLOWS
The Company classifies as cash and cash equivalents, unrestricted cash
on deposit in banks plus unrestricted cash invested temporarily in various
investment instruments that are part of the Company's cash management program.
The Company's cash and cash equivalents have original maturities of 90 days or
less and the related carrying amounts approximate fair values. The effect of
exchange rate changes on cash balances held in foreign currencies is not
significant. Non-cash transactions have been excluded from the accompanying
Consolidated Statements of Cash Flows. Total cash expenditures for interest, net
of capitalized interest, were $14,898,000, $11,465,000 and $8,821,000 for 1995,
1994 and 1993, respectively. Total cash expenditures for income taxes were
$5,925,000 for 1995, $26,484,000 for 1994 and $9,589,000 for 1993.
PER SHARE INFORMATION
Per share information is based on the weighted average number of common
shares outstanding during each year.
The computation for fully diluted net income (loss) per common share
assumed conversion of $40 million of 6 percent convertible debentures issued in
March 1987 until the debentures were converted to equity in the first quarter of
1994. The computation also includes the assumed issuance of common shares under
the stock option and appreciation plan, net of an assumed buyback of treasury
shares at the average market price.
The average number of shares used to calculate primary net income
(loss) per common share was 13,364,000 in 1995, 13,110,000 in 1994 and
11,685,000 in 1993. The average number of shares used to calculate fully
diluted net income (loss) per common share was 13,364,000 in 1995, 13,468,000
in 1994 and 13,492,000 in 1993.
ACCOUNTING CHANGES
In 1993, the Company changed its accounting for supplies inventories
and income taxes. The income (expense) related to the cumulative effect of these
accounting changes was as follows:
<TABLE>
<CAPTION>
(Thousands except per share) Amount Per Share
---------- ---------
<S> <C> <C>
Supplies inventories (net
of $1,168 tax provision) $ 1,764 $ .15
Income taxes (2,326) (.20)
---------- -------
$ (562) $ (.05)
========== =======
</TABLE>
Supplies inventories
Effective January 1, 1993, the Company changed its method of accounting
for supplies inventories. Prior to 1993, supplies items were expensed when
purchased. As of January 1, 1993, such supplies items were valued using the
average-cost method and were recorded as supplies inventories. Since many
supplies items are kept on hand for an extended period of time, the Company
believes that reflecting these items as inventory results in a better matching
of the cost of supplies with the timing of their use.
The cumulative effect of this change in accounting for supplies
inventories for years prior to 1993, which is reflected in the Consolidated
Statements of Income for 1993, resulted in a benefit of $1,764,000, after
related income taxes of $1,168,000, or $.15 per common share. The effect of the
change on 1993's net income before cumulative effect of accounting changes was
not significant.
<PAGE> 12
Income taxes
During the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The new
standard was adopted prospectively and a $2,326,000, or $.20 per share, charge
related to the cumulative effect of this change in accounting for income taxes
was recognized.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Reclassifications
Certain reclassifications have been made to prior years' data to
conform to the 1995 presentation.
2. INVENTORIES
<TABLE>
<CAPTION>
(Thousands) 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lumber $ 8,720 $ 16,349
Tissue, tissue products and diapers 13,407 26,842
Logs 23,195 52,028
Pulp and paper raw material 8,023 20,553
Chemicals and supplies 9,341 8,575
Other 6,024 3,045
------------ -------------
$ 68,710 $ 127,392
============ =============
</TABLE>
The portion of lumber and raw materials inventories determined using the
last-in, first-out (LIFO) method aggregated $6,120,000 and $9,607,000 at
December 31, 1995 and 1994, respectively. The cost of these LIFO inventories
valued at the lower of average cost or market, which approximates current cost,
at December 31, 1995 and 1994, was $10,437,000 and $11,931,000, respectively.
During 1994, certain inventory quantities were reduced, resulting in
liquidations of LIFO inventory quantities carried at lower costs prevailing in
prior years. The effect of these inventory quantity reductions was to increase
1994 pre-tax income by approximately $5 million.
3. PROPERTIES
<TABLE>
<CAPTION>
(Thousands) 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
Plant and equipment:
Mills, plants and improvements $ 83,679 $ 94,206
Equipment 342,928 412,277
Mobile equipment 18,629 20,510
Construction in progress 2,341 21,437
-------- --------
$447,577 $548,430
======== ========
Land and timber cutting rights:
Land $ 5,787 $ 6,247
Canadian timber cutting rights 4,595 4,615
-------- --------
$ 10,382 $ 10,862
======== ========
</TABLE>
4. DEBT
<TABLE>
<CAPTION>
(Thousands) 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
8.375% debentures, due 2013 $ 75,000 $ 75,000
State of Oregon Small Scale Energy Loan Program
(SELP) note payable, secured by related properties,
6.55%, payable monthly from 1994 through 2013 15,171 15,599
City of Eau Claire note payable, variable interest rate
(5.3% at December 31, 1995), due 2014 18,800 18,800
Revolving-credit agreement, variable
interest rate (6.7% at December 31, 1995) 73,000 65,000
Short-term line of credit, variable interest rate -- 20,000
Industrial revenue bond, retired November 1995 -- 4,000
-------- --------
Total debt 181,971 198,399
Less current debt 43,457 20,928
-------- --------
Long-term debt $138,514 $177,471
======== ========
</TABLE>
During the fourth quarter of 1994, the City of Eau Claire, Wisconsin
issued tax-exempt, adjustable rate, solid waste disposal revenue bonds. The
bonds were issued to finance a wastepaper pulping improvement project at the
Company's Eau Claire, Wisconsin tissue facility. Upon sale of the bonds, the
City of Eau Claire loaned $18,800,000 to the Company. Proceeds from the loan
were maintained in a trust account restricted as to use for the construction of
the project at December 31, 1994. The unexpended portion of such funds were
classified as restricted bond funds in the accompanying Consolidated Balance
Sheets at December 31, 1994. As of December 31, 1995, the project was complete
and all amounts in the restricted bond funds were expended.
The Company has a revolving-credit agreement with a group of five banks,
secured by inventories and accounts receivable, which provides revolving credit
until 1998. At December 31, 1995, the maximum revolving credit available was
$100,000,000, but this amount was reduced to $75,000,000 concurrent with
completion of the diaper business sale transaction on February 8, 1996 (see Note
9). On or before April 30 of any calendar year which precedes by two years the
June 1998 expiration date, the Company may request a one year extension, which
may be granted upon the affirmative vote of all involved banks. The interest
rate associated with this agreement is based, at the option of the Company, on
the Interbank (LIBOR) rate plus a variable margin ranging from 7/16 percent to
3/4 percent or the greater of the banks' prime rate during the revolving period
or the Federal Funds rate plus 1/2 percent. Without extension, the full
outstanding balance on the revolving-credit agreement will be due in 1998.
The various loan agreements contain, among other things, certain
requirements as to maintenance of working capital and interest coverage, sale of
assets, incurrence of debt and restrictions as to the payment of cash dividends.
At December 31, 1995, the Company failed to meet the interest coverage ratio
covenant of the revolving-credit agreement. As part of a
<PAGE> 13
year-end revolving-credit agreement modification, the banks waived the interest
coverage ratio covenant requirement as of December 31, 1995 and reset the
interest coverage ratios for subsequent periods. Although no assurances can be
given, management believes that the Company will be able to comply with the
reset interest coverage ratio covenants throughout 1996. The modified
revolving-credit agreement also limits the Company's capital expenditures and
investments in any calendar year beginning in 1996 and required the Company to
pay down $43,000,000 of the revolving credit borrowings upon completion of the
diaper business sale (see Note 9). The Company has classified this $43,000,000
as short-term notes payable in the Consolidated Balance Sheets. The $20,000,000
in notes payable at December 31, 1994 represented the balance outstanding under
the then existing short-term credit lines. The payment of dividends from
retained earnings under all agreements was limited to $17,200,000 at December
31, 1995.
Excluding repayments of the revolving-credit agreement, the annual
maturities of long-term debt for the five years subsequent to December 31, 1995
are: 1996 - $457,000; 1997 - $488,000; 1998 - $521,000; 1999 - $556,000 and 2000
- - $594,000.
The fair value of the 8 3/8 percent debentures at December 31, 1995 was
estimated to be $65,000,000 based upon rates currently available for debt with
similar terms. The Company's carrying value of other long-term debt approximates
its fair value.
During the first quarter of 1994, the Company initiated an underwritten
call for the redemption of all of the Company's $40,000,000, 6 percent
convertible subordinated debentures. As a result of this underwritten call, the
Company issued 1,542,253 shares of previously unissued common stock to satisfy
the $40,000,000 debt obligation. This issuance of common shares resulted in an
increase in stockholders' equity of $38,643,000 ($40,000,000 less transaction
fees and unamortized debt issuance costs). This non-cash transaction has been
excluded from the accompanying Consolidated Statements of Cash Flows.
5. STOCK OPTION AND BONUS PLANS
The Company has a stock option and appreciation plan and a restricted
stock bonus plan for officers and key employees. Both plans are administered by
the Human Resources Committee of the Board of Directors. The Committee is
composed of outside Directors who are not eligible for awards. At December 31,
1995, 377,746 shares were available for future grants under these plans.
STOCK OPTION AND APPRECIATION PLAN
The stock option and appreciation plan provides for granting both
incentive stock options and non-qualified stock options to purchase shares of
the Company's common stock at prices not less than 85 percent of fair market
value on the date of grant. Options are exercisable as stated in each individual
grant; however, no option may extend beyond ten years from the date of grant.
At the date of grant, compensation expense is accrued and is measured
as the excess, if any, of the current market value over the option price of the
stock. Stock option compensation expense was not significant in 1995, 1994 or
1993. The Company has followed the practice of using treasury stock to fulfill
its obligations under the stock option plan. When stock is issued pursuant to
the stock option plan, the difference between the cost of treasury stock issued
and the exercise price of the option is credited to additional paid-in capital.
At December 31, 1995, 356,318 options were exercisable. The following
table summarizes stock option transactions under this plan for the three years
ended December 31, 1995:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Option price range $14.00 - $30.38 $14.00 - $30.38 $14.00 - $24.63
Option shares granted 192,950 99,100 296,100
Exercised and surrendered (1,050) (106,624) (122,650)
Canceled (31,810) (37,978) (10,450)
Option shares at year-end 863,952 703,862 749,364
</TABLE>
RESTRICTED STOCK BONUS PLAN
The restricted stock bonus plan provides for issuance of restricted
shares to officers and key employees. The issued shares are covered by
restrictions as to transfer for periods of up to ten years. Compensation expense
is recognized in the year the grant is made based on the market price of the
Company's stock at the date of grant. Restricted stock bonus plan compensation
expense was not significant in 1995, 1994 or 1993. At December 31, 1995, 3,000
shares were still under restriction.
6. PENSION AND OTHER POSTRETIREMENT PLANS
PENSION PLANS
Substantially all of the Company's employees participate in
noncontributory defined-benefit pension plans. These include plans which are
administered by the Company and multi-employer plans administered by various
unions.
Certain union employees are covered under multi-employer union pension
plans. Contributions to these plans are based upon negotiated hourly rates. It
is not possible to determine the amount of accumulated benefits or net assets
available for benefits that apply solely to Company employees covered by these
plans.
All other Company participating employees are covered by noncontributory
defined-benefit pension plans administered by the Company. The pension benefit
for salaried employees is
<PAGE> 14
based on years of service and the five highest out of the last ten years of
compensation. Pension benefits for employees covered under hourly plans are
generally based on each employee's years of service.
The Company's funding policy regarding all of its Company administered
plans is to make contributions to the plans that are between the minimum amounts
required by the Employee Retirement Income Security Act (ERISA) and the maximum
amounts deductible under current income tax regulations.
Net periodic pension cost for 1995, 1994 and 1993 was composed of the
following:
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Company administered plans:
Service cost - benefits earned
by employees during the period $ 2,079 $ 2,362 $ 1,933
Interest cost on projected benefit obligation 3,602 3,287 3,116
Actual earnings from plan assets (7,273) (2,062) (5,072)
Deferral of earnings (loss) from plan assets 3,277 (1,827) 1,520
Net amortization and deferral (28) (8) (43)
Curtailment gains (691) - -
---------- ----------- -----------
Net periodic pension cost for
Company administered plans 966 1,752 1,454
Contributions to multi-employer plans 3,984 4,288 4,351
---------- ----------- -----------
Total net periodic pension cost $ 4,950 $ 6,040 $ 5,805
========== =========== ===========
</TABLE>
The following table sets forth the funded status of the Company
administered plans and the amounts recognized as an asset or liability in the
accompanying Consolidated Balance Sheets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(Thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------------
Plans having Plans having Plans having Plans having
assets in accumulated assets in accumulated
excess of benefits in excess of benefits in
accumulated excess of accumulated excess of
benefits assets benefits assets
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Vested portion $(26,707) $(17,188) $(23,782) $(14,102)
Nonvested portion (635) (1,088) (588) (955)
--------------------------------------------------------
(27,342) (18,276) (24,370) (15,057)
Effect of projected future
compensation levels (5,303) (352) (6,095) (419)
--------------------------------------------------------
Projected benefit obligation (32,645) (18,628) (30,465) (15,476)
Plan assets at fair market value 36,231 15,428 31,582 13,401
--------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 3,586 (3,200) 1,117 (2,075)
Unrecognized net (gain) loss (3,584) 1,121 (1,644) (12)
Unrecognized prior service (164) 1,300 (292) 1,462
Balance of unrecorded transition
asset from initial application of
Statement of Financial Accounting
Standards No. 87 (639) (84) (776) (89)
--------------------------------------------------------
Accrued pension liability $ (801) $ (863) $ (1,595) $ (714)
========================================================
</TABLE>
Substantially all of the pension plans' assets are invested in common
stock, fixed-income securities, cash and cash equivalents. The discount rate and
rate of increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligation were 7.5 percent and 5
percent, respectively, for 1995, and 8 percent and 5.5 percent, respectively,
for 1994. The expected long-term rate of return on plan assets was 9 percent for
1995 and 1994.
The Company has granted some former employees pension benefits which
supplement the normal Company plan. These benefits are unfunded, general
obligations of the Company. The cost associated with these grants was $78,000 in
1995, $234,000 in 1994, and $242,000 in 1993.
OTHER POSTRETIREMENT PLANS
The Company sponsors postretirement medical and life insurance plans for
certain salaried and nonsalaried employees and eligible spouses and dependents
of the employees. The medical plans pay a stated percentage of covered medical
expenses incurred after deducting co-payments made once a stated deductible has
been met. The life insurance plans pay a defined benefit. The Company's funding
policy for these plans is to not make contributions to the plans prior to the
actual incurrence of costs under the plans.
Net periodic cost in 1995, 1994 and 1993 for these plans was composed
of the following:
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits attributed
to service during the period $ 417 $ 493 $ 406
Interest cost on accumulated
benefit obligation 899 851 892
Net amortization and deferral (113) - -
Curtailment gains (385) - -
--------------------------------------------
Net periodic cost of postretirement
medical and life insurance plans $ 818 $ 1,344 $ 1,298
============================================
</TABLE>
The following table reconciles the plans' funded status to the accrued
postretirement medical and life insurance cost liability in the accompanying
Consolidated Balance Sheets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(Thousands) 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Retirees $ 2,015 $ 2,299
Other fully eligible participants 2,936 2,866
Other active participants 7,608 6,343
----------- -----------
12,559 11,508
Unrecognized actuarial gain 1,065 1,790
Unrecognized prior service 285 343
----------- -----------
Accrued postretirement medical and
life insurance cost liability $ 13,909 $ 13,641
=========== ===========
</TABLE>
For measurement purposes, 9.5 percent and 10 percent rates of increase
were assumed for health care costs in 1995 and 1994, respectively. The rate is
assumed to decline in 1/2 percent decrements every year until it reaches 5
percent in 2004 where it will remain thereafter. A 1 percent increase in the
assumed health care cost trend rates would increase the accumulated
postretirement benefit obligation by $1,500,000 at December 31, 1995. The
effect of this 1 percent increase on the service and interest cost components
of the net periodic cost of postretirement medical and life insurance
<PAGE> 15
plans would be an increase of $165,000 in 1995. The discount rate used in
determining the accumulated benefit obligation was 7.5 percent in 1995 and 8
percent in 1994.
7. INCOME TAXES
The income tax provision (benefit) consists of the following
components:
<TABLE>
<CAPTION>
(Thousands) Current Deferred Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995
Federal $ - $ (9,479) $ (9,479)
State - (1,011) (1,011)
Canada 2,986 (47) 2,939
---------------------------------------------------------
$ 2,986 $ (10,537) $ (7,551)
==========================================================
1994
Federal $ (2,357) $ (6,792) $ (9,149)
State - (1,076) (1,076)
Canada 22,334 (1,310) 21,024
---------------------------------------------------------
$ 19,977 $ (9,178) $ 10,799
=========================================================
1993
Federal $ (4,195) $ (5,432) $ (9,627)
State (17) 181 164
Canada 18,993 (1,045) 17,948
---------------------------------------------------------
$ 14,781 $ (6,296) $ 8,485
=========================================================
</TABLE>
The income tax provision (benefit) was different from the amount
computed by applying the United States statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes,
discontinued operations and
cumulative effect of accounting changes:
United States $(28,176) $(26,889) $(26,681)
Canada 6,829 53,640 45,936
----------------------------------------
$(21,347) $ 26,751 $ 19,255
========================================
United States:
U.S. statutory federal income tax $ (9,862) $ (9,411) $ (9,338)
State income and franchise taxes,
net of federal income tax benefit (208) (699) 107
Other items, net (420) (115) (232)
----------------------------------------
(10,490) (10,225) (9,463)
Canada:
</TABLE>
<TABLE>
<S> <C> <C> <C>
U.S. statutory federal income tax 2,390 18,774 16,078
Effect of Canadian tax rate different
from U.S. 264 1,792 1,878
Non-deductible interest 299 373 --
Other items, net (14) 85 (8)
---------------------------------------
2,939 21,024 17,948
---------------------------------------
$ (7,551) $ 10,799 $ 8,485
=======================================
</TABLE>
In prior years the Company was required to compute its current federal
income tax liability under the Alternative Minimum Tax (AMT) methodology as it
resulted in a greater tax payable when compared to that computed using the
standard tax system. Additional amounts paid under the AMT system can be carried
forward indefinitely as credits to be applied against regular tax. AMT
carryforwards at December 31, 1995 were $738,000. At December 31, 1995, the
Company had available $76,647,000 of net operating loss carryforwards for U.S.
federal tax purposes, expiring beginning in 2009. The tax effect of these
credits and net operating loss carryforwards are reflected as deferred tax
assets. Realization of these assets is dependent on generating sufficient U.S.
taxable income prior to expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
these deferred tax assets will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the future if estimates of
future taxable income during the carryforward period are reduced.
Following the provisions of SFAS No. 109, "Accounting for Income
Taxes," adopted January 1, 1993, deferred taxes are determined based on the
estimated future tax effects of differences between the financial statement and
tax bases of assets and liabilities given the provisions of the enacted tax
laws. The net deferred tax (liability) asset is comprised of the following:
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current deferred taxes:
Gross assets $5,959 $7,932 $5,385
Gross liabilities -- -- --
--------------------------------
Total current deferred taxes 5,959 7,932 5,385
</TABLE>
<TABLE>
<S> <C> <C> <C>
Noncurrent deferred taxes:
Gross assets 46,560 27,250 19,018
Gross liabilities (30,029) (28,615) (26,954)
------------------------------------------------
Total noncurrent deferred taxes 16,531 (1,365) (7,936)
------------------------------------------------
Net deferred tax (liability) asset $ 22,490 $ 6,567 $ (2,551)
================================================
</TABLE>
The Company's valuation allowance against deferred tax assets at
December 31, 1995 was $5,183,000. This amount relates to certain state net
operating loss carryforwards and tax credits the Company believes will not be
realized in the future. The valuation allowance was not significant at December
31, 1994 or 1993.
The tax effect of significant temporary differences representing
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(Thousands) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Postretirement benefits $ 5,089 $ 4,998 $ 4,671
Reforestation 4,970 4,599 4,458
Vacation pay 2,034 2,247 2,028
Depreciation (27,107) (26,722) (24,589)
AMT and other tax credits 4,991 3,803 6,009
Net operating loss carryforwards 29,200 10,700 663
Other, net (including valuation
allowance) 3,313 6,942 4,209
-------------------------------------------------------
Net deferred tax (liability) asset $ 22,490 $ 6,567 $ (2,551)
=======================================================
</TABLE>
In 1985, the stockholders of the Company approved a Plan of Distribution
pursuant to which all of the Company's timber properties and development
properties and related assets and liabilities in the State of Washington were
transferred to newly-formed Pope Resources, A Delaware Limited Partnership (the
Partnership). The transfer resulted in $10,266,000 of taxes currently payable in
1985, which was charged to stockholders' equity.
<PAGE> 16
The distribution value for federal income tax purposes that was assigned
to the assets transferred to the Partnership has been challenged by the Internal
Revenue Service (IRS). In January 1993, the Company petitioned the United States
Tax Court (Tax Court) in order to resolve the disputed value of the
distribution. The issue was argued before the Tax Court during the third quarter
1995 and follow-up legal briefs were then filed into December 1995. The Tax
Court will likely render a decision on the case in 1996. Primarily in 1995, the
Company incurred costs defending its tax position in this case. In 1995, these
defense costs, together with related tax settlements and interest charges
totaling $4,884,000, net of tax benefits of $1,374,000, were recognized as a
reduction in additional paid-in capital with respect to the Partnership
transaction. The Company believes, based upon consultation with independent tax
counsel, that the additional tax due in this matter, if any, will not have a
material adverse effect on the Company's financial position.
8. OTHER GAINS AND LOSSES
COUNTERVAILING DUTY REFUND
During 1992, the United States Government imposed a 6.51 percent duty
on Canadian lumber sold in the United States. After numerous studies and
appeals, the United States Government concluded there was no basis for this duty
and during 1994 terminated the duty and announced that all amounts paid under
the duty would be refunded with interest. In 1994, the Company recorded the
$13,845,000 of anticipated refunds of duty amounts paid in 1992 and 1993 as
other gains (losses) in the Consolidated Statements of Income.
9. DISCONTINUED OPERATIONS
On December 11, 1995, the Company entered into a definitive agreement
to sell its disposable diaper business to Paragon Trade Brands, Inc. (Paragon)
for a total consideration of $65,000,000, comprised of $50,500,000 cash and
Paragon common stock valued at $14,500,000. The amount of common stock received
is subject to post closing adjustments, if any. This sale was completed on
February 8, 1996.
Operating results of the disposable diaper business for 1995 until the
December 11, 1995 sale agreement date are shown separately in the Consolidated
Statements of Income as income (loss) from discontinued operations, net of tax.
The Consolidated Statements of Income have also been restated for 1994 and 1993
to reflect disposable diaper operating results as discontinued operations.
Disposable diaper sales of $144,000,000 in 1995, $157,066,000 in 1994 and
$170,127,000 in 1993 were excluded from revenues in the Consolidated Statements
of Income.
Paragon purchased the properties and inventories of the Company's
disposable diaper business. The net book value of these diaper assets at
December 31, 1995 have been shown as discontinued operations assets held for
sale in the Consolidated Balance Sheets and include inventories of $17,810,000
and plant and equipment of $38,359,000 (net of $47,640,000 accumulated
depreciation). The 1994 balance sheet has not been restated.
10. LITIGATION AND LEGAL MATTERS
The Company is a party to legal proceedings and environmental matters
generally incidental to its business. Although the final outcome of any legal
proceeding or environmental matter is subject to a great many variables and
cannot be predicted with any degree of certainty, the Company presently believes
that the ultimate outcome resulting from these proceedings and matters would not
have a material effect on the Company's current financial position, liquidity or
results of operations; however, in any given future reporting period such
proceedings or matters could have a material effect on results of operations.
11. INFORMATION ABOUT THE COMPANY'S OPERATIONS IN DIFFERENT
INDUSTRIES AND GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
By Industry
(Thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Wood products $ 265,576 $ 304,205 $ 300,035
Pulp and paper products 258,833 198,602 158,764
------------------------------------------------
$ 524,409 $ 502,807 $ 458,799
================================================
OPERATING PROFIT (LOSS):
Before other gains (losses):
Wood products $ 2,681 $ 55,224 $ 62,084
Pulp and paper products (1,508) (23,064) (26,935)
------------- ------------- -------------
1,173 32,160 35,149
Other gains (losses):
Wood products - 13,845 -
Operating profit (loss):
Wood products 2,681 69,069 62,084
Pulp and paper products (1,508) (23,064) (26,935)
------------------------------------------------
1,173 46,005 35,149
Interest expense, net (13,784) (9,322) (8,714)
General corporate expense (8,736) (9,932) (7,180)
------------------------------------------------
Income (loss) from continuing
operations, before taxes $ (21,347) $ 26,751 $ 19,255
================================================
IDENTIFIABLE ASSETS:
Wood products $ 111,879 $ 173,458 $ 130,905
Pulp and paper products 316,600 327,454 302,503
Corporate 43,748 38,472 22,413
------------------------------------------------
$ 472,227 $ 539,384 $ 455,821
================================================
CAPITAL EXPENDITURES:
Wood products $ 3,419 $ 14,141 $ 12,984
Pulp and paper products 24,358 41,441 69,601
------------------------------------------------
$ 27,777 $ 55,582 $ 82,585
================================================
DEPRECIATION AND AMORTIZATION:
Wood products $ 8,775 $ 7,822 $ 7,334
Pulp and paper products 35,291 30,200 21,270
Corporate 1,000 1,039 699
------------------------------------------------
$ 45,066 $ 39,061 $ 29,303
================================================
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
By Geographic Area
(Thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
United States $ 352,035 $ 300,351 $ 280,015
Canada 172,374 202,456 178,784
------------------------------------------------
$ 524,409 $ 502,807 $ 458,799
================================================
OPERATING PROFIT (LOSS):
Before other gains (losses):
United States $ (11,806) $ (19,403) $ (19,410)
Canada 12,979 51,563 54,559
------------------------------------------------
1,173 32,160 35,149
Other gains (losses):
Canada - 13,845 -
Operating profit (loss):
United States (11,806) (19,403) (19,410)
Canada 12,979 65,408 54,559
------------------------------------------------
1,173 46,005 35,149
Interest expense, net (13,784) (9,322) (8,714)
General corporate expense (8,736) (9,932) (7,180)
------------------------------------------------
Income (loss) from continuing
operations, before taxes $ (21,347) $ 26,751 $ 19,255
================================================
IDENTIFIABLE ASSETS:
United States $ 354,389 $ 410,990 $ 354,365
Canada 74,090 89,922 79,043
Corporate 43,748 38,472 22,413
------------------------------------------------
$ 472,227 $ 539,384 $ 455,821
================================================
</TABLE>
NOTES:
A. The Company operates principally in two industries:
1) Wood Products: Manufactures standardized and specialty lumber and
wood chips in the United States and Canada. Lumber products are sold
mainly to wholesalers and wood chips are sold to manufacturers of
pulp and paper primarily in the United States and Canada.
2) Pulp and paper products: Manufactures bleached kraft pulp and a full
line of private label consumer tissue products in the United States.
Pulp is sold mainly in the United States Pacific Northwest to writing
paper and newsprint manufacturers. One pulp customer represented 52
percent of 1995 pulp revenues and 12 percent of total Company
revenues from continuing operations. Tissue products are sold to
supermarkets, drug stores, mass merchandisers, food and drug
distribution companies and warehouse club stores nationally, although
most sales are east of the Rocky Mountains. The Company also brokers
wood chips for sale domestically and internationally.
B. Operating profit (loss) is total revenue less directly identifiable costs
and expenses. In computing operating profit (loss), none of the following items
have been included: General corporate expenses, net interest expense, income
taxes and discontinued operations.
C. Identifiable assets are those assets of the Company that are identified
with the operations in each industry or geographic area.
D. Identifiable assets, capital expenditures and depreciation and amortization
includes assets, expenditures and expenses related to assets from discontinued
operations in both the information provided by industry segment and geographic
area.
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Asset Purchase Agreement by and among Paragon Trade
Brands, Inc., PTB Acquisition Sub, Inc., Pope &
Talbot, Inc. and Pope & Talbot, Wis., Inc. dated
December 11, 1995.
4.1 Modification Agreement, dated as of January 22, 1996,
to the Revolving Credit Agreement, dated May 6, 1992,
among the Company and United States National Bank of
Oregon; CIBC Inc.; ABN AMRO Bank N.V.; Bank of
America Illinois; and Wachovia Bank of Georgia,
National Association.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
PARAGON TRADE BRANDS, INC.,
PTB ACQUISITION SUB, INC.
POPE & TALBOT, INC.
AND
POPE & TALBOT, WIS., INC.
DATED DECEMBER 11, 1995
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
ARTICLE I. PURCHASE OF ASSETS AND ASSUMPTION OF
LIABILITIES.......................................................................................... 1
1.1 Purchase of Assets............................................................................... 1
1.1.1 Equipment............................................................................. 2
1.1.2 Equipment and Other Personal Property Leases.......................................... 2
1.1.3 Inventory............................................................................. 2
1.1.4 Intellectual Property................................................................. 2
1.1.5 Licenses.............................................................................. 3
1.1.6 Contract Rights and Other Intangible Assets........................................... 3
1.1.7 Real Property......................................................................... 3
1.1.8 Books and Records..................................................................... 4
1.1.9 Other Records, Manuals and Documents.................................................. 4
1.1.10 Insurance Proceeds................................................................... 4
1.1.11 Amended Schedules.................................................................... 4
1.2 Excluded Assets.................................................................................. 4
1.2.1 Tax Refunds........................................................................... 5
1.2.2 Cash and Equivalents.................................................................. 5
1.2.3 Accounts Receivable................................................................... 5
1.2.4 Excluded Real Property................................................................ 5
1.2.5 Excluded Contracts.................................................................... 5
1.2.6 Other Excluded Assets................................................................. 5
1.2.7 Amended Schedules..................................................................... 5
1.3 Assumption of Liabilities........................................................................ 5
1.4 Excluded Liabilities............................................................................. 6
1.4.1 Excluded Real Property................................................................ 6
1.4.2 Taxes................................................................................. 6
1.4.3 Litigation............................................................................ 7
1.4.4 Claims................................................................................ 7
1.4.5 Warranties............................................................................ 7
1.4.6 Environmental Liability............................................................... 7
1.4.7 Severance Costs....................................................................... 7
1.4.8 Employee Expenses..................................................................... 8
1.4.9 Coupons and Allowances................................................................ 8
1.4.10 Claims and Adjustments............................................................... 8
1.4.11 Accrued Liabilities and Payables..................................................... 8
1.4.12 Other................................................................................ 9
1.4.13 Amended Schedules.................................................................... 9
1.5 Transfer and Other Taxes......................................................................... 9
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
1.6 Purchase Price................................................................................... 9
1.6.1 Purchase Price at Closing............................................................. 9
1.6.2 Purchase Price Adjustment............................................................. 10
1.7 Instruments of Sale and Transfer; Further Assurances............................................. 10
1.8 Allocation of Purchase Price..................................................................... 11
1.9 Assignment of Contracts and Rights............................................................... 11
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF
PTI AND PTWI......................................................................................... 12
2.1 Good Standing.................................................................................... 12
2.2 Due Execution and Enforceability................................................................. 12
2.3 No Approvals or Notices Required; No Conflicts With
Instruments................................................................................. 13
2.4 Absence of Certain Changes or Events............................................................. 13
2.5 Taxes............................................................................................ 14
2.6 Property......................................................................................... 14
2.7 Compliance With Environmental Laws............................................................... 17
2.8 Contracts and Agreements......................................................................... 19
2.8.1 Material Seller Contracts............................................................. 19
2.8.2 Customers and Suppliers............................................................... 21
2.8.3 Orders, Commitments and Returns....................................................... 21
2.9 Claims and Legal Proceedings..................................................................... 22
2.10 Labor Matters................................................................................... 22
2.11 Intellectual Property........................................................................... 23
2.12 Inventory....................................................................................... 24
2.13 Licenses, Permits, Authorizations, Etc.......................................................... 25
2.14 Applicable Laws................................................................................. 25
2.15 Insurance....................................................................................... 25
2.16 Employee Benefit Plans.......................................................................... 25
2.17 Brokerage....................................................................................... 26
2.18 Absence of Questionable Payments................................................................ 26
2.19 PTB Common Stock................................................................................ 26
2.20 Financial Statements............................................................................ 26
2.21 Compliance With Securities Laws................................................................. 27
2.22 Full Disclosure................................................................................. 27
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF
PTB AND PURCHASER.................................................................................... 27
3.1 Organization, Good Standing, Power, Etc.......................................................... 28
3.2 Due Execution and Enforceability................................................................. 28
3.3 No Approvals or Notices Required; No Conflicts With
Instruments................................................................................. 28
</TABLE>
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3.4 Capitalization................................................................................... 29
3.5 SEC Documents.................................................................................... 29
3.6 Claims and Legal Proceedings..................................................................... 29
3.7 Brokerage........................................................................................ 30
3.8 PTI Stock........................................................................................ 30
3.9 Financing........................................................................................ 30
3.10 Financial Statements; No Undisclosed Liabilities................................................ 30
ARTICLE IV. FURTHER AGREEMENTS............................................................................... 30
4.1 Schedules........................................................................................ 30
4.2 Access........................................................................................... 32
4.3 Advice of Claims................................................................................. 33
4.4 Conduct Prior to the Closing Date................................................................ 33
4.5 Management Services Agreement.................................................................... 34
4.6 Insurance; Loss of or Damage to Assets........................................................... 34
4.7 Cooperation Prior to the Closing Date............................................................ 35
4.8 Confidentiality.................................................................................. 36
4.9 Post-Closing Severance Obligations............................................................... 36
4.10 Pro-Ration; Reimbursements...................................................................... 37
4.11 Other Cooperation After the Closing Date........................................................ 38
4.12 No Shop......................................................................................... 38
4.13 Title Insurance Commitments..................................................................... 39
4.14 A.L.T.A. Surveys................................................................................ 39
4.15 Financial Statements............................................................................ 39
4.16 Inventory....................................................................................... 40
4.17 Repurchases of PTB Common Stock................................................................. 40
4.18 Certain Acquisitions............................................................................ 40
4.19 PTB Guarantee................................................................................... 40
4.20 No Solicitation of Employees.................................................................... 40
4.21 Employee Benefits Matters....................................................................... 41
4.22 Shenandoah Sublease............................................................................. 42
4.23 Demand Registration Provisions.................................................................. 43
4.24 Termination of Certain Agreements............................................................... 43
4.25 Environmental Matters........................................................................... 43
ARTICLE V. THE CLOSING; CLOSING CONDITIONS................................................................... 44
5.1 Closing.......................................................................................... 44
5.2 Conditions to Obligations of Each Party.......................................................... 44
5.2.1 Hart-Scott-Rodino..................................................................... 44
5.2.2 No Injunctions........................................................................ 44
5.3 Conditions to Obligations of Purchaser and PTB................................................... 44
5.3.1 Accuracy of Representations and Warranties............................................ 45
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5.3.2 Performance of Agreements............................................................. 45
5.3.3 Officers' Certificates................................................................ 45
5.3.4 Opinion of Counsel for Seller......................................................... 45
5.3.5 No Governmental Proceeding or Litigation.............................................. 46
5.3.6 Delivery of Documents................................................................. 46
5.3.7 Material Adverse Change............................................................... 47
5.3.8 Title to Oneonta Real Property........................................................ 48
5.3.9 Title to Porterville Real Property.................................................... 48
5.4 Conditions to Obligations of Seller.............................................................. 48
5.4.1 Accuracy of Representations and Warranties............................................ 48
5.4.2 Performance of Agreements............................................................. 48
5.4.3 Officers' Certificates................................................................ 49
5.4.4 Opinion of Counsel for Purchaser and PTB.............................................. 49
5.4.5 Delivery of Purchase Price and Documents.............................................. 49
ARTICLE VI. NONCOMPETITION................................................................................... 50
6.1 Noncompetition................................................................................... 50
6.2 Reasonableness of Restrictions; Severability..................................................... 50
ARTICLE VII. INDEMNIFICATION AND SURVIVAL.................................................................... 51
7.1 Generally........................................................................................ 51
7.2 Notice........................................................................................... 51
7.3 Procedure........................................................................................ 52
7.4 Survival......................................................................................... 53
7.5 Basket........................................................................................... 53
7.6 Specific Performance............................................................................. 53
7.7 Exclusive Remedies............................................................................... 54
ARTICLE VIII. TERMINATION.................................................................................... 54
8.1 Termination by Mutual Consent.................................................................... 54
8.2 Termination by PTB............................................................................... 54
8.3 Termination by PTI............................................................................... 54
8.4 Termination by Either PTB or PTI................................................................. 55
8.5 Certain Payments................................................................................. 55
8.6 Effect of Termination and Abandonment............................................................ 55
ARTICLE IX. DEFINITIONS...................................................................................... 56
9.1 Defined Terms.................................................................................... 56
9.2 Other Definitional Matters....................................................................... 62
ARTICLE X. GENERAL........................................................................................... 63
10.1 Expenses........................................................................................ 63
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10.2 Amendment....................................................................................... 63
10.3 Bulk Sales...................................................................................... 63
10.4 Waivers......................................................................................... 63
10.5 Counterparts.................................................................................... 64
10.6 Headings........................................................................................ 64
10.7 Applicable Law.................................................................................. 64
10.8 Parties in Interest............................................................................. 64
10.9 Notices......................................................................................... 65
10.10 Entire Understanding........................................................................... 66
</TABLE>
EXHIBITS
Exhibit 1.7(a)-1 - Form of Bill of Sale
Exhibit 1.7(a)-2 - Form of Assignment and Assumption Agreement
Exhibit 1.7(a)-3 - Form of Lease Assignment and Assumption
Exhibit 4.5 - Management Services Agreement Term Sheet
Exhibit 9.1-1 - October 31 Balance Sheet
Exhibit 9.1-2 - Form of Stockholder Agreement
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of December
11, 1995 by and among PARAGON TRADE BRANDS, INC., a Delaware corporation
("PTB"), PTB ACQUISITION SUB, INC., a Delaware corporation ("Purchaser"), POPE &
TALBOT, INC., a Delaware corporation ("PTI"), and POPE & TALBOT, WIS., INC., a
Delaware corporation ("PTWI" and, collectively with PTI, "Seller").
RECITALS
A. Seller desires and intends to sell substantially all the operating
assets and other rights relating to its disposable diaper and adult incontinence
operations (the "Disposable Diaper Business"), an operating division of Seller,
at the price and on the terms and conditions herein set forth.
B. Purchaser desires and intends to purchase substantially all the
operating assets and other rights relating to the Disposable Diaper Business and
to assume certain of the operating liabilities of the Disposable Diaper Business
at the price and on the terms and conditions herein set forth.
C. Capitalized terms used in this Agreement shall have the respective
meanings set forth in Article IX.
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as
follows:
ARTICLE I. PURCHASE OF ASSETS AND ASSUMPTION OF
LIABILITIES
1.1 PURCHASE OF ASSETS
Subject to the terms and conditions of this Agreement, Seller hereby
agrees to sell, assign, transfer, convey and deliver to Purchaser, and Purchaser
hereby agrees to purchase, acquire and accept from Seller, all tangible and
intangible assets of Seller employed primarily or exclusively in Seller's
operation of the Disposable Diaper Business as of the close of business on the
Closing Date, except for the Excluded Assets (collectively, the "Assets"),
whether or not any of such assets, properties or rights have any value for
accounting purposes or are carried or reflected on or
<PAGE> 8
specifically referred to in Seller's books or financial statements. The Assets
shall include, without limitation, the following:
1.1.1 EQUIPMENT
All machinery, equipment, furniture, computer hardware, fixtures, motor
vehicles, tooling, leasehold improvements and other tangible personal property
owned by Seller and employed primarily or exclusively in Seller's operation of
the Disposable Diaper Business as of the close of business on the Closing Date,
including, without limitation, the personal property described in Schedule 1.1.1
to the Disclosure Memorandum, such personal property and fixtures as are located
on the Excluded Real Property, and all rights to the warranties received from
the manufacturers and distributors of all such personal property and fixtures
and any related claims, credits, rights of recovery and setoffs with respect to
such personal property and fixtures.
1.1.2 EQUIPMENT AND OTHER PERSONAL PROPERTY LEASES
All of Seller's right, title and interest in, to and under the leases
and rental agreements in respect of equipment or other tangible personal
property employed primarily or exclusively in Seller's operation of the
Disposable Diaper Business as of the close of business on the Closing Date,
including, without limitation, those leases and agreements described in Schedule
1.1.2 to the Disclosure Memorandum.
1.1.3 INVENTORY
All inventory, wherever located (including inventory located on the
Excluded Real Property), including raw materials, work-in-process, packaging,
finished goods, spare parts and shop and production supplies, produced by or
employed primarily or exclusively in Seller's operation of the Disposable Diaper
Business as of the close of business on the Closing Date ("Inventory"),
including, without limitation, the types of Inventory described in Schedule
1.1.3 to the Disclosure Memorandum (which Schedule sets forth raw materials,
finished goods, packaging and other Inventory as of October 31, 1995 by net book
value and location) and all rights of Seller to the warranties received from
suppliers and distributors and any related claims, credits, rights of recovery
and setoffs with respect to such Inventory.
1.1.4 INTELLECTUAL PROPERTY
All information (whether or not protectible by patent, copyright or
trade secret rights) and intellectual property rights possessed or owned by
Seller and employed primarily or exclusively in Seller's operation of the
Disposable Diaper Business as of
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the close of business on the Closing Date, and all right, title and interest of
Seller in, to and under licenses, sublicenses or like agreements providing
Seller any right or concession to use any information or intellectual property,
and, in each case, employed primarily or exclusively in Seller's operation of
the Disposable Diaper Business as of the close of business on the Closing Date,
including all trade names, trademarks (including common-law trademarks), service
marks, art work, packaging (subject to Section 4.11(b)), plates, emblems, logos,
insignia and copyrights, and their registrations and applications, and all
goodwill associated therewith, all domestic and foreign patents and patent
applications, all technology, know-how, show-how, trade secrets, manufacturing
processes, formulae, drawings, designs, systems, forms, technical manuals, data,
computer programs, product information and development work-in-progress and all
documentary evidence of any of the foregoing, including, without limitation, the
trademarks, patents, patent applications, other assets and related agreements
described in Schedule 1.1.4 to the Disclosure Memorandum (collectively, the
"Intellectual Property").
1.1.5 LICENSES
All governmental licenses, permits, franchises, authorizations,
certificates of inspection and approvals (including any of the foregoing issued
or granted by any federal, state or local government) relating primarily or
exclusively to Seller's operation of the Disposable Diaper Business as of the
close of business on the Closing Date, to the extent actually assignable or
transferable, including, without limitation, the licenses described in Schedule
1.1.5 to the Disclosure Memorandum.
1.1.6 CONTRACT RIGHTS AND OTHER INTANGIBLE ASSETS
All of Seller's right, title and interest in, to and under all
contracts and agreements, purchase orders, sales orders, sale and distribution
agreements, supply and processing agreements and other instruments and
agreements relating primarily or exclusively to Seller's operation of the
Disposable Diaper Business as of the close of business on the Closing Date, and
all goodwill associated with the Disposable Diaper Business, including, without
limitation, Seller's right, title and interest in, to and under the contracts,
agreements and other assets described in Schedule 1.1.6 to the Disclosure
Memorandum.
1.1.7 REAL PROPERTY
All real property, and rights thereto, owned by Seller and used in the
operation of the Disposable Diaper Business as of the close of business on the
Closing Date as described in Schedule 1.1.7-1 to the Disclosure Memorandum (the
"Purchased Real
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Property") and all real property, and rights thereto, leased by Seller and used
in the operation of the Disposable Diaper Business as of the close of business
on the Closing Date as described in Schedule 1.1.7-2 to the Disclosure
Memorandum (the "Leased Real Property").
1.1.8 BOOKS AND RECORDS
All of Seller's books and records (including all discs, tapes and other
media-storage data and information) relating primarily or exclusively to
Seller's operation of the Disposable Diaper Business as of the close of business
on the Closing Date or located on the Real Property, including, without
limitation, the books and records described in Schedule 1.1.8 to the Disclosure
Memorandum.
1.1.9 OTHER RECORDS, MANUALS AND DOCUMENTS
All of Seller's mailing lists, customer lists, vendor data, equipment
maintenance records, warranty information, records of plant operations and the
source and disposition of materials used and produced in such plants, standard
forms of documents, manuals of operations or business procedures and other
similar procedures relating primarily or exclusively to Seller's operation of
the Disposable Diaper Business as of the close of business on the Closing Date
and, with respect to the Transferred Real Property, all soil test reports,
building inspection reports, building plans, blueprints, renderings and surveys.
1.1.10 INSURANCE PROCEEDS
All insurance proceeds paid or payable to Seller in respect of any
damage to or destruction or loss of any assets or rights of Seller reflected on
the Schedules referred to in this Section 1.1, including any assets of Seller
that, as far as could reasonably be foreseen, would have been included in the
Assets but for such damage, destruction or loss.
1.1.11 AMENDED SCHEDULES
All Schedules referred to in this Section 1.1 shall be deemed to
include any amendments thereto pursuant to Section 4.1(b).
1.2 EXCLUDED ASSETS
Except as otherwise provided in Section 1.1.10, Seller shall not
transfer to Purchaser and Purchaser shall not acquire from Seller the following
assets (the
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"Excluded Assets"), which are specifically excluded from the Assets and which
shall remain the property of Seller:
1.2.1 TAX REFUNDS
Seller's rights to refunds of Taxes paid with respect to the Disposable
Diaper Business for the periods on or prior to the Closing Date.
1.2.2 CASH AND EQUIVALENTS
Seller's cash, bank deposits or similar cash and cash equivalent items
existing as of the close of business on the Closing Date.
1.2.3 ACCOUNTS RECEIVABLE
Seller's accounts receivable existing as of the close of business on
the Closing Date.
1.2.4 EXCLUDED REAL PROPERTY
All of Seller's real property, and all rights and liabilities relating
thereto, described in Schedule 1.2.4 to the Disclosure Memorandum (the "Excluded
Real Property").
1.2.5 EXCLUDED CONTRACTS
All of Seller's right, title and interest in, to and under all
contracts and agreements described in Schedule 1.2.5 to the Disclosure
Memorandum.
1.2.6 OTHER EXCLUDED ASSETS
All other assets of Seller described in Schedule 1.2.6 to the
Disclosure Memorandum.
1.2.7 AMENDED SCHEDULES
All Schedules referred to in this Section 1.2 shall be deemed to
include any amendments thereto pursuant to Section 4.1(b).
1.3 ASSUMPTION OF LIABILITIES
Subject to the terms and conditions of this Agreement, Purchaser shall
assume and agree to pay, perform and fully discharge all liabilities and
obligations of Seller in
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respect of (a) the agreements and instruments listed in Schedule 1.1.6 to the
Disclosure Memorandum, as such Schedule may be amended by Purchaser prior to the
Closing pursuant to Section 4.1(b), in each case to the extent that such
liabilities and obligations arise from or relate to Purchaser's ownership and
operation of the Disposable Diaper Business after the Closing and to the extent
that such agreements and instruments are effectively assigned to Purchaser
pursuant to this Article I and subject to Section 1.9, and (b) sales allowances,
promotional spending, volume incentives and other customer incentive programs
(collectively, "Allowances") to the extent that (i) any of such liabilities and
obligations are realized with respect to sales of disposable diapers and adult
incontinence products made after the Closing Date and (ii) such Allowances were
issued or initiated by Seller on or prior to the Closing Date in the ordinary
course of business consistent with past practice and (c) liabilities and
obligations with respect to coupons issued by Seller on or prior to the Closing
Date in the ordinary course of business and consistent with past practice and
redeemed after the Closing Date to the extent such liabilities and obligations
exceed $200,000 in the aggregate (the "Assumed Liabilities"). Purchaser
acknowledges and agrees that, except as otherwise provided in this Agreement,
Purchaser shall be responsible for all liabilities and obligations of the
Disposable Diaper Business to the extent that such liabilities and obligations
are not Excluded Liabilities and arise from or relate to Purchaser's ownership
or operation of the Disposable Diaper Business after the Closing.
1.4 EXCLUDED LIABILITIES
Purchaser shall not assume any liabilities other than the Assumed
Liabilities, nor shall it assume any of the following obligations or
liabilities, which shall remain obligations and liabilities of Seller (all
obligations or liabilities not assumed by Purchaser herein are called the
"Excluded Liabilities"):
1.4.1 EXCLUDED REAL PROPERTY
Any payables, claims, liabilities, fines, rents and contractual and
other obligations, contingent or otherwise, in any way relating to the Excluded
Real Property.
1.4.2 TAXES
Except as otherwise provided in this Agreement, any liabilities for
Taxes either accruing or relating to the periods on or prior to the Closing
Date.
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1.4.3 LITIGATION
Any claim, judgment, penalty, settlement agreement or other obligation
to pay in respect of any action, suit or proceeding that is pending or
threatened on or prior to the Closing Date, including, but not limited to, those
listed in Schedule 2.9 to the Disclosure Memorandum.
1.4.4 CLAIMS
All claims, liabilities or other obligations that relate to injuries,
actions, omissions, conditions or events that occurred or existed on or prior to
the Closing Date, whether based on any act or omission of Seller, in connection
with the operation of the Disposable Diaper Business, including, without
limitation, claims based on automobile accidents, workers' compensation, product
liability, negligence, strict liability, failure to warn or defective design.
1.4.5 WARRANTIES
Seller's liabilities and obligations pursuant to warranties (express or
implied) to customers for products manufactured on or prior to the Closing Date.
1.4.6 ENVIRONMENTAL LIABILITY
All claims and liabilities arising out of or relating to (a) the
treatment, storage or disposal on or prior to the Closing Date of Hazardous
Materials by Seller or any other person (including, without limitation, any
previous owner, lessor or sublessor) on or at the Real Property or any other
real property previously owned, leased, subleased or used by Seller in the
operation of the Disposable Diaper Business, (b) Releases of Hazardous Materials
on, at or from any assets or properties, including, without limitation, the Real
Property, owned, leased, subleased or used by Seller in the operation of the
Disposable Diaper Business at any time such assets or properties were owned,
leased, subleased or used by Seller in the operation of the Disposable Diaper
Business, (c) generation or transportation of Hazardous Materials by Seller in
the operation of the Disposable Diaper Business, and (d) Releases of Hazardous
Materials by any person (including, without limitation, any previous owner,
lessee or sublessee) on or from the Real Property prior to Seller's ownership or
use thereof.
1.4.7 SEVERANCE COSTS
All severance obligations and other costs of terminating employees
wherever located resulting from any termination or cessation of employment
occurring on or prior to the Closing Date, from whatever source such obligations
and costs arise,
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including, without limitation, contractual obligations, notices to employees,
employment manuals, course of dealings, past practices, obligations relating to
Section 2806 or 4999 of the Code, or otherwise, except as provided in Section
4.9.
1.4.8 EMPLOYEE EXPENSES
All liabilities and obligations with respect to either the continuation
or the termination by Seller of any Employee Benefit Plan for the benefit of the
Disposable Diaper Business's employees, except as otherwise provided by law, and
all liabilities with respect to accrued payroll, bonuses, hourly and salary
vacation pay, workers compensation liability, year-end profit sharing, New York
State disability tax, hourly and salary profit sharing, fringe benefits and
other employee benefits with respect to or that relate to periods of employment
on or prior to the Closing Date.
1.4.9 COUPONS AND ALLOWANCES
All liabilities and obligations relating to or in respect of Allowances
to the extent that any of such liabilities and obligations are realized with
respect to sales of disposable diapers and adult incontinence products made on
or prior to the Closing Date, and all liabilities and obligations with respect
to coupons which (a) are redeemed on or prior to the Closing Date or (b) were
issued by Seller on or prior to the Closing Date in the ordinary course of
business and consistent with past practice and are redeemed after the Closing
Date to the extent such liabilities and obligations are less than or equal to
$200,000 in the aggregate.
1.4.10 CLAIMS AND ADJUSTMENTS
All liabilities and obligations relating to or in respect of (a) return
of merchandise sold by the Disposable Diaper Business on or prior to the Closing
Date or (b) offset payments with respect to sales after the Closing Date against
claims on merchandise sold on or prior to the Closing Date, in each case by
reason of alleged overshipments, defective merchandise, missed delivery dates,
incorrect quantities or otherwise, or with respect to merchandise in the hands
of customers under an understanding that such merchandise would be returnable.
1.4.11 ACCRUED LIABILITIES AND PAYABLES
All liabilities accrued on or before the Closing Date, including
without limitation property taxes, sales and use taxes, utilities, freight
expense, inventory gain/loss and all other accrued liabilities, and any trade
payable or account payable (whether or not the same has become due and payable),
accrued expense, loan, note,
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advance, credit, intercompany borrowing, liability or account allocation or
other form of indebtedness of any kind or nature incurred by the Disposable
Diaper Business on or prior to the Closing Date.
1.4.12 OTHER
All liabilities and obligations in respect of any Excluded Asset.
1.4.13 AMENDED SCHEDULES
All Schedules referred to in this Section 1.4 shall be deemed to
include any amendments thereto pursuant to Section 4.1(b).
1.5 TRANSFER AND OTHER TAXES
PTI and PTB shall share equally in the payment of all sales tax, use
tax, transfer tax, gains tax, New York real property transfer gains tax,
documentary stamp tax or other similar Tax arising out of the transfer of the
Assets. Seller shall prepare and timely file all tax returns, information
returns and reports ("Returns") for sales tax, transfer tax, gains tax, New York
real property transfer gains tax, documentary stamp tax or other similar Tax
required of Seller, which Returns shall be consistent with the allocation agreed
upon pursuant to Section 1.8. Seller shall provide Purchaser with copies of any
such Returns at least 10 days prior to their filing. With respect to the New
York real property transfer gains tax, so as to obtain the necessary clearance
from the New York State Department of Taxation and Finance prior to the Closing,
Purchaser shall sign and return to Seller the required transfer form, which will
be prepared by Seller and sent to Purchaser for signature.
1.6 PURCHASE PRICE
1.6.1 PURCHASE PRICE AT CLOSING
On the Closing Date, and subject to the terms and conditions of this
Agreement, in full consideration for the Assets and in addition to Purchaser's
assumption of the Assumed Liabilities, Purchaser shall deliver to Seller (a) in
same-day funds, fifty million five hundred thousand dollars ($50,500,000) (the
"Cash Purchase Price") and (b) a number of whole shares (the "Estimated Stock
Consideration") of common stock of PTB, par value $.01 per share (including the
associated preferred share purchase rights, the "PTB Common Stock"), rounded to
the nearest whole share, equal to fourteen million five hundred thousand dollars
($14,500,000) divided by the average closing price of PTB Common Stock on the
New York Stock Exchange for the 10 Trading Days preceding the last Trading Day
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immediately prior to the Closing Date (the "Closing Average"). Any difference
between the Estimated Stock Consideration and the Actual Stock Consideration
shall be settled in accordance with Section 1.6.2.
1.6.2 PURCHASE PRICE ADJUSTMENT
As soon as practicable after the Closing Date, but in no event later
than 30 days thereafter, Seller and Purchaser shall agree on the net book value
of the Inventory on the Closing Date, on the amount of any Inventory Shortfall
and on the Actual Stock Consideration. If the number of shares of PTB Common
Stock constituting the Estimated Stock Consideration exceeds the number of
shares of PTB Common Stock constituting the Actual Stock Consideration (such
excess number of shares being referred to herein as the "Excess Shares"), Seller
shall promptly return to PTB a stock certificate or certificates representing
the Excess Shares, together with such stock powers and other documentation as
PTB shall reasonably require in connection therewith, for cancellation.
1.7 INSTRUMENTS OF SALE AND TRANSFER; FURTHER ASSURANCES
(a) On or prior to the Closing Date, Seller shall deliver to Purchaser
and Purchaser shall deliver to Seller, as the case may be, such instruments of
sale and assignment as shall, in the reasonable judgment of Purchaser and
Seller, be effective to vest in Purchaser on the Closing Date all of Seller's
right, title and interest in and to the Assets and to evidence the assumption of
the Assumed Liabilities by Purchaser, including, without limitation, a Bill of
Sale substantially in the form of Exhibit 1.7(a)-1 (the "Bill of Sale") and an
Assignment and Assumption Agreement substantially in the form of Exhibit
1.7(a)-2 (the "Assignment and Assumption Agreement"). Title to the Purchased
Real Property shall be conveyed by bargain and sale deed with covenants against
grantor's acts in New York and grant deed in California, subject to no
exceptions other than Permitted Exceptions. Title to the Leased Real Property
shall be transferred by Assignment and Assumption of Lease substantially in the
form of Exhibit 1.7(a)-3 (the "Lease Assignment and Assumption"). Seller shall
take all reasonable additional steps as may be necessary to put Purchaser in
possession and operating control of the Assets at the Closing, and Purchaser
shall take all reasonable additional steps as may be necessary for it to assume
the Assumed Liabilities at the Closing.
(b) From time to time following the Closing, Seller and Purchaser shall
execute and deliver, or cause to be executed and delivered, to the other such
additional instruments of conveyance and transfer and evidences of assumption as
such party
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may reasonably request or as may be otherwise necessary or desirable to carry
out the purposes of this Agreement.
1.8 ALLOCATION OF PURCHASE PRICE
PTB and PTI shall timely and properly file Internal Revenue Service
Form 8594 based on the allocation of the total purchase price to be mutually
agreed upon prior to the Closing (provided that the parties hereto shall agree
no later than 45 days prior to the Closing on the amount of the total purchase
price to be allocated to the Purchased Real Property located in Oneonta, New
York). Seller and Purchaser shall further agree upon the allocation of the
purchase price for each parcel of Transferred Real Property prior to the
Closing.
1.9 ASSIGNMENT OF CONTRACTS AND RIGHTS
(a) Notwithstanding anything in this Agreement to the contrary, this
Agreement shall not constitute an agreement to assign any claim, contract,
license, real property lease, personal property lease, commitment, sales order
or purchase order or any claim, right or benefit arising thereunder or resulting
therefrom if the agreement to assign or attempt to assign, without the consent
of a third party, would constitute a breach thereof or in any way adversely
affect Purchaser's rights thereunder (the "Nonassignable Assets"). Until such
consent is obtained, or if an attempted assignment thereof would be ineffective
or would adversely affect the rights of Seller or Purchaser thereunder so that
Purchaser would not in fact receive all such rights, Purchaser and Seller shall
cooperate with each other in any arrangement designed to provide Purchaser the
benefits of any such claim, contract, license, real property lease, personal
property lease, commitment, sales order or purchase order; provided, however,
that such arrangements will be for the benefit and protection of Seller, to the
extent provided in Section 1.3, in respect of liabilities or obligations
thereunder arising after the Closing Date. Any transfer or assignment to
Purchaser by Seller of any contract or agreement that shall require the consent
or approval of any third party shall, without reducing or adversely affecting
Seller's obligations to transfer or assign such contract or agreement set forth
in this Article I or Seller's representations and warranties set forth in
Article II, be made subject to such consent or approval being obtained.
(b) To the extent permitted by applicable law, in the event consents to
the assignment thereof cannot be obtained, such Nonassignable Assets shall be
held, as of and from the Closing Date, by Seller in trust for Purchaser, and the
covenants and obligations thereunder shall be performed by Purchaser in Seller's
name and all benefits and obligations existing thereunder shall be for
Purchaser's account. Seller
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shall take or cause to be taken such action in its name or otherwise as
Purchaser may reasonably request so as to provide Purchaser the benefits of the
Nonassignable Assets and to effect collection of money or other consideration to
become due and payable under the Nonassignable Assets, and Seller shall promptly
pay over to Purchaser all money or other consideration received by it in respect
to all Nonassignable Assets. As of and from the Closing Date, Seller authorizes
Purchaser, to the extent permitted by applicable law and the terms of the
Nonassignable Assets, at Purchaser's expense, to perform all the obligations and
receive all of Seller's benefits under the Nonassignable Assets, and appoints
Purchaser its attorney-in-fact to act in its name and on its behalf with respect
thereto.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF
PTI AND PTWI
To induce PTB and Purchaser to enter into and perform this Agreement,
PTI and PTWI, jointly and severally, represent and warrant to PTB and Purchaser
(which representations and warranties shall survive the Closing as provided in
Article VII) as follows:
2.1 GOOD STANDING
PTI and PTWI are corporations duly organized, validly existing and in
good standing under the laws of the jurisdiction of their respective
incorporation. PTI and PTWI each have full power and authority to execute,
deliver and perform this Agreement and each of the Ancillary Documents to which
it is a party.
2.2 DUE EXECUTION AND ENFORCEABILITY
This Agreement has been duly executed and delivered by PTI and PTWI and
is a legal, valid and binding obligation of PTI and PTWI, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by general equitable principles (regardless of whether the
issue of enforceability is considered in a proceeding in equity or at law). Each
Ancillary Document to which PTI or PTWI is a party, when executed and delivered
by PTI or PTWI, as the case may be, will be a legal, valid and binding
obligation of PTI or PTWI, as the case may be, enforceable in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and by general equitable principles (regardless of whether the issue of
enforceability is considered in a proceeding in equity or at law).
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2.3 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the
Ancillary Documents by each of PTI and PTWI, to the extent each shall be a
party, and the consummation of the transactions contemplated hereby and thereby
will not, to the extent that the occurrence of any matter referred to in clause
(a), (c) or (d), or the nonreceipt of any consent, approval or authorization
referred to in clause (b), could (x) impair Purchaser's rights under this
Agreement or rights to or use of the Assets, (y) impair the value of the
Disposable Diaper Business to PTB, or (z) result in any liability or obligation
of PTB or Purchaser, (a) constitute a violation (with or without the giving of
notice or lapse of time, or both) of any provision of law applicable to PTI or
PTWI, (b) require any consent, approval or authorization of any person or
Governmental Body, except as described in Section 5.2.1 and Schedule 2.3 to the
Disclosure Memorandum, (c) result in a default under, an acceleration or
termination of, or the creation in any person of the right to accelerate,
terminate, modify or cancel, or in any other way affect the rights of PTB or
Purchaser (as assignee or transferee of Seller) under, any agreement, lease,
note or other restriction, Encumbrance, obligation or liability that relates to
the Disposable Diaper Business and to which either PTI or PTWI is a party or by
which either is bound or to which the Assets are subject, except as described in
Schedule 2.3 to the Disclosure Memorandum or (d) result in the creation of any
Encumbrance upon the Assets.
2.4 ABSENCE OF CERTAIN CHANGES OR EVENTS
From the Balance Sheet Date through the Closing Date, Seller has not
and will not have, with respect to the Disposable Diaper Business:
(a) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment (other than this Agreement and matters
relating hereto) not in the ordinary course of business;
(b) encumbered or disposed of any assets or made any capital
expenditures, except in the ordinary course of business;
(c) changed the compensation and terms of employment provided to the
Disposable Diaper Business's officers and principal employees, other than normal
year-end compensation adjustments in the ordinary course of business and
consistent with past practice, and except for changes made with Purchaser's
prior knowledge and prior written consent; or
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(d) entered into or agreed to enter into any transaction, agreement or
commitment, suffered the occurrence of any event or events or experienced any
change in financial condition, business, prospects, results of operations or
otherwise that, in the aggregate, has (i) interfered with the normal and usual
operations of the business or business prospects of the Disposable Diaper
Business or (ii) resulted in a Material Adverse Effect on the Disposable Diaper
Business.
2.5 TAXES
Except as described in Schedule 2.5 to the Disclosure Memorandum,
Seller has (a) duly and timely filed, including valid extensions, with the
appropriate Governmental Body all Returns for all Taxes required to have been
filed with respect to the Disposable Diaper Business, all such Returns being
true, correct and complete, (b) made available to Purchaser complete and correct
copies of all such Returns, and (c) except as otherwise provided in Section 1.5,
paid in full or provided for all Taxes that are due or claimed to be due by any
Governmental Body that, if not paid, would cause the Assets to be subject to an
Encumbrance in the hands of Purchaser or for which Purchaser would be liable
either as a "transferee" within the meaning of Section 6901 of the Code or any
similar provision of state, local or foreign law or as a result of any bulk
sale, fraudulent conveyance or similar law. Except as described in Schedule 2.5
to the Disclosure Memorandum and except as could not (x) impair Purchaser's
rights under this Agreement or rights to or use of the Assets, (y) impair the
value of the Disposable Diaper Business to PTB, or (z) result in any liability
or obligation of PTB or Purchaser, (i) Seller has made the reserves and
provisions for Taxes with respect to the Disposable Diaper Business that are
adequate for the payment of Taxes not yet due and payable, (ii) no unresolved
claim for assessment or collection of Taxes with respect to the Disposable
Diaper Business has been asserted or threatened against Seller, and (iii) no
audit or investigation by any Governmental Body is under way with respect to
such Taxes. No claim has been made by any authority in any jurisdiction where
Seller does not file Returns that Seller is or may be subject to taxation by
that jurisdiction as a result of Seller's ownership, operation or relationship
with the Disposable Diaper Business.
2.6 PROPERTY
(a) Schedules 1.1.7-1, 1.1.7-2 and 1.2.4 to the Disclosure Memorandum
collectively contain a complete and accurate list of all real property (the
"Real Property"), and Schedules 1.1.1-1.1.6 and 1.1.8 to the Disclosure
Memorandum contain a complete and accurate list of all items of personal
property exceeding $10,000 in value (the "Personal Property"), owned, leased or
otherwise used by Seller
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in the operation of the Disposable Diaper Business as of the date of such
Schedules. Seller has delivered to Purchaser true and complete copies of all
leases, subleases, rental agreements, contracts of sale, tenancies and licenses
that affect any portion of the Transferred Real Property or the Shenandoah Real
Property. The Assets and the Excluded Assets together include all property used
in the conduct of the Disposable Diaper Business as presently conducted.
(b) Seller has good and marketable title to all Transferred Real
Property (other than the Leased Real Property) in fee simple, and, as of the
Closing Date, free and clear of all Encumbrances, except those specifically
identified in Schedule 2.6(b) to the Disclosure Memorandum. The Encumbrances
described in Schedule 2.6(b) to the Disclosure Memorandum do not materially
impair the operation of the Disposable Diaper Business or the market value or
use of the Transferred Real Property.
(c) There are no zoning, building or land use codes or rules,
ordinances, regulations or other restrictions relating to zoning or land use
that currently, or, to Seller's knowledge after due inquiry with applicable
authorities, may prospectively, prevent or hinder, to a material extent, or
cause the imposition of material fines or penalties as the result of, the use of
all or any portion of the Transferred Real Property or the Shenandoah Real
Property for the conduct thereon of the Disposable Diaper Business as presently
conducted. Seller is not in default under any material covenant, condition,
restriction, easement, right-of-way or governmental approval relating to the
Transferred Real Property or the Shenandoah Real Property. Seller has received
all necessary approvals with regard to occupancy and maintenance of the
Transferred Real Property and the Shenandoah Real Property. The Transferred Real
Property and the Shenandoah Real Property are in compliance in all material
respects with all state and local subdivision laws and ordinances.
(d) Seller is not the lessor or sublessor under any leases, subleases,
service contracts, tenancies or licenses with respect to any portion of the
Shenandoah Real Property or the Transferred Real Property.
(e) The Shenandoah Lease, each lease of any portion of the Leased Real
Property, and each lease, license, rental agreement, contract of sale or other
agreement to which Personal Property is subject, is valid and in good standing,
Seller has performed all material obligations imposed on it thereunder, and
neither Seller nor, to Seller's knowledge, any other party thereto is in default
thereunder in any material respect, nor is there any event that with notice or
lapse of time, or both, would constitute a default thereunder by Seller or, to
Seller's knowledge, any other party thereto. Seller has not received notice, and
Seller is not otherwise aware, that any
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party to any such lease, license, rental agreement, contract of sale or other
agreement intends to cancel, terminate or refuse to renew the same or to
exercise or decline to exercise any option or other right thereunder. No
Transferred Real Property, Shenandoah Real Property or Personal Property is
subject to any lease, license, contract of sale or other agreement that could
reasonably be expected to have a Material Adverse Effect on the Disposable
Diaper Business.
Seller's leasehold interest in the Shenandoah Real Property is held
pursuant to that certain lease agreement dated July 31, 1989, between Shenandoah
Development Group, Ltd. and PTWI as amended by First Amendment to Lease
Agreement between such parties dated August 30, 1989, by Second Amendment to
Lease Agreement dated February 28, 1990, and assigned by Shenandoah Development
Group, Ltd. Shen-Del Investment, Inc. ("Landlord") by instrument dated March 13
1990 (the "Shenandoah Lease"). The Shenandoah Lease commenced on March 1, 1990
and the initial term thereof will expire on March 31, 2005. Seller has one
option to extend the term of the Shenandoah Lease for one additional period of
five years. The current rental payable under the Shenandoah Lease is as set
forth on Exhibit A-1 to the Second Amendment to the Lease Agreement dated
February 28, 1990. The legal description for the Shenandoah Real Property which
is set forth in Schedule 1.2.4 to the Disclosure Memorandum is true, accurate
and complete, and all of the buildings and other improvements owned or leased by
Seller pursuant to the Shenandoah Lease are located on the property described in
such legal description. No consents are required from any parties to enter into
the Shenandoah Sublease and to sublease the Shenandoah Real Property to
Purchaser as contemplated thereby, except for the consent of (i) the Landlord
and (ii) the current lender of the Shenandoah Real Property, Monumental Life
Insurance Company.
(f) Except for (i) assessments for Taxes not yet due and payable and
(ii) mechanics', materialmen's, carriers' and other similar liens securing
indebtedness that are in the aggregate less than $10,000, are not yet due and
payable, and were incurred in the ordinary course of business, the Personal
Property is free and clear of all Encumbrances, and Seller has good and
marketable title thereto.
(g) There are no material physical, structural, design or mechanical
defects in the Transferred Real Property or the Shenandoah Real Property,
including, without limitation, the plumbing, heating, air conditioning and
electrical systems, and all such items are in good operating condition and
repair, normal wear and tear excepted, and in compliance in all material
respects with all applicable governmental laws and regulations.
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(h) All water, sewer, gas, electric, telephone and drainage facilities
are connected pursuant to valid permits and are adequate to service the
Transferred Real Property and the Shenandoah Real Property for use in the
Disposable Diaper Business as presently conducted.
(i) All licenses, permits, easements and right-of-ways necessary to
ensure vehicle and pedestrian ingress to and egress from the Transferred Real
Property and the Shenandoah Real Property exist.
(j) On the October 31 Balance Sheet all Assets have been valued, and on
the Division Balance Sheet all Assets will be valued, in accordance with
generally accepted accounting principles consistently applied.
(k) No condemnation or other eminent domain proceedings have been
instituted or, to Seller's knowledge, threatened against any of the Shenandoah
Real Property or the Transferred Real Property, nor has Seller received any
notice of any pending improvements by any Governmental Body, or any special
assessments, or increases in the assessed value of any parcel of Transferred
Real Property or the Shenandoah Real Property.
(l) Seller has granted no rights of first refusal or options to
purchase any of the Transferred Real Property or the Shenandoah Real Property.
2.7 COMPLIANCE WITH ENVIRONMENTAL LAWS
Except as reasonably could not (x) impair Purchaser's rights under this
Agreement or rights to or use of the Assets, (y) impair the value of the
Disposable Diaper Business to PTB, or (z) result in any liability or obligation
of PTB or Purchaser:
(a) Seller has, to the extent required by applicable Environmental
Laws, obtained and is in compliance in all material respects with all permits,
licenses, approvals or other authorizations necessary for (i) its conduct of the
Disposable Diaper Business, whether at the Transferred Real Property or at other
locations, and (ii) its use of the Real Property, and has caused all required
registrations, reports and notifications to be made to all Governmental Bodies
with respect to its conduct of the Disposable Diaper Business.
(b) As of the date of this Agreement and at all prior times, Seller's
conduct of the Disposable Diaper Business is and has been in compliance in all
material respects with Environmental Laws. The Real Property, any other real
property
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previously owned by Seller and then used in the Disposable Diaper Business and,
during Seller's occupation thereof, any real property previously leased by
Seller and then used in the Disposable Diaper Business (collectively, the
"Disposable Diaper Properties") are and at all times have been in compliance in
all material respects with Environmental Laws.
(c) Without regard to the introductory clause of this Section 2.7,
Seller has disclosed to Purchaser in writing all material information in
Seller's possession or readily available to it regarding environmental matters
or conditions concerning the Disposable Diaper Business and the Disposable
Diaper Properties and the compliance or noncompliance of the Disposable Diaper
Properties, or of the conduct of the Disposable Diaper Business, with any
Environmental Laws.
(d) Without regard to the introductory clause of this Section 2.7,
Seller has not received any notice of (i) any alleged violation of any
Environmental Laws with respect to the Disposable Diaper Business, including,
without limitation, any violation with respect to the Disposable Diaper
Properties or Seller's conduct of the Disposable Diaper Business or (ii) its
potential responsibility for the Release of Hazardous Materials at any site.
(e) Without regard to the introductory clause of this Section 2.7, no
claim, demand, action or proceeding has been commenced or asserted or, to
Seller's knowledge, threatened and, to Seller's knowledge, no investigation has
been commenced, asserted or threatened alleging (i) any failure by Seller to
comply with any Environmental Laws with respect to the Disposable Diaper
Business, including, without limitation, any noncompliance with respect to the
Disposable Diaper Properties or Seller's conduct of the Disposable Diaper
Business, or (ii) Seller's potential responsibility with respect to the
Disposable Diaper Business for the Release of Hazardous Materials at any site.
(f) No Release of Hazardous Materials has occurred from, upon, below,
into or on the Disposable Diaper Properties. To Seller's knowledge, no Release
of Hazardous Materials has occurred on any adjacent property that has migrated
to, through or under the Disposable Diaper Properties.
(g) The Disposable Diaper Properties have not been used to generate,
manufacture, refine, transport, treat, store, use, handle, recycle, release or
dispose of any Hazardous Materials, except in accordance with applicable
Environmental Laws.
(h) The Disposable Diaper Business has not generated, transported,
treated, stored, disposed of, or arranged for the disposal of any Hazardous
Materials that has
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resulted in or contributed to a violation of any Environmental Laws or a Release
of Hazardous Materials at any site, whether or not such violation or Release may
occur, become manifest or be discovered prior to or subsequent to the Closing
Date.
(i) None of the Disposable Diaper Properties is or has been listed on
the National Priority List established by the United States Environmental
Protection Agency or on any other list maintained by any Governmental Body with
respect to sites where there has been a Release or a threatened Release of
Hazardous Materials.
(j) To Seller's knowledge, none of the Disposable Diaper Properties,
including the improvements thereon, contains as of the date of this Agreement
any (i) asbestos or asbestos-containing materials, (ii) polychlorinated
biphenyls or substances containing polychlorinated biphenyls, or (iii) urea
formaldehyde foam insulation.
(k) No tanks used at any time for the storage of any Hazardous
Materials above or below ground are present, as of the date of this Agreement,
on or at the Transferred Real Property or the Shenandoah Real Property. Any
tanks previously used for the storage of any Hazardous Materials above or below
ground on or at the Disposable Diaper Properties that have been removed or
closed by Seller were removed and closed in compliance with Environmental Laws
in effect at the time of such actions.
2.8 CONTRACTS AND AGREEMENTS
2.8.1 MATERIAL SELLER CONTRACTS
Schedule 2.8.1 to the Disclosure Memorandum contains a complete and
accurate list of all contracts, agreements and understandings, oral or written,
to which Seller is a party, which relate to the operation of the Disposable
Diaper Business, other than (x) purchase and sales orders and quotations in the
ordinary course of business (other than any such orders or quotations that vary
from Seller's standard terms) and (y) those which (1) involve obligations of or
to the Disposable Diaper Business or Seller in relation thereto of less than of
$10,000 on an annual basis or (2) are terminable by Seller at will or on no more
than 30 days' notice (other than leases relating to the Leased Real Property and
the Shenandoah Real Property) (the "Material Seller Contracts"). All Material
Seller Contracts are valid and in full force and effect, Seller has performed
all material obligations imposed on it thereunder, and there are not, under any
of such contracts, any defaults or events of default by Seller or, to Seller's
knowledge, by any other party thereto that would have a Material Adverse Effect
on the Disposable Diaper Business. Seller has not received notice, nor
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is Seller otherwise aware, that any party to any Material Seller Contract
intends to cancel, terminate or refuse to renew the same or to exercise or
decline to exercise any option or right thereunder. Except as set forth in
Schedule 2.8.1 to the Disclosure Memorandum, a true and complete copy of each
Material Seller Contact has, on or prior to the date hereof, been delivered to
Purchaser. Except as specifically set forth in Schedule 2.8.1 to the Disclosure
Memorandum, Seller has no oral or written:
(a) agreements, contracts, commitments or restrictions
requiring the Disposable Diaper Business to make any charitable contribution;
(b) purchase contracts or commitments with respect to the
Disposable Diaper Business that continue for a period of more than three months
or are in excess of the normal, ordinary and usual requirements of its business
or that are at an excessive price to the extent that such excess would be
material to the Disposable Diaper Business as a whole;
(c) outstanding sales or service contracts, commitments or
proposals of Seller with respect to the Disposable Diaper Business;
(d) restriction by agreement from carrying on the Disposable
Diaper Business anywhere in the world;
(e) liability or obligation with respect to the return of
inventory or merchandise other than on account of a defective condition,
incorrect quantities or missed delivery dates;
(f) sale agreement, distribution agreement, volume purchase
agreement or other similar agreement, including, without limitation, those
pursuant to which Seller granted or received "most favored nation" pricing
provisions or other pricing provisions outside the ordinary course of business
or exclusive marketing rights relating to any product, group of products or
territory, including all contracts with customers listed pursuant to Section
2.8.2;
(g) agreements, contracts or commitments relating to capital
expenditures and that involve future payments in respect of the Disposable
Diaper Business;
(h) agreements, contracts or commitments relating to the
disposition or acquisition of any asset (other than Inventory, but including
Intellectual Property) by Seller in respect of the Disposable Diaper Business;
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(i) security agreements, conditional sale agreements or
instruments relating to the borrowing of money;
(j) purchase orders or contracts for the purchase of raw
materials in respect of the Disposable Diaper Business;
(k) material disagreement with any of the Disposable Diaper
Business's suppliers or customers; and
(l) equipment leases relating to the Disposable Diaper Business
other than leases previously disclosed on Schedule 1.1.2 to the Disclosure
Memorandum.
2.8.2 CUSTOMERS AND SUPPLIERS
Schedule 2.8.2 to the Disclosure Memorandum sets forth: (a) an uncoded
list (to be delivered by Seller to Purchaser one day after the date of this
Agreement and deemed as of such delivery to be a part of such Schedule) of all
the Disposable Diaper Business's customers showing the approximate total sales
and volume by Seller to each such customer, itemized by plant, distribution
center and product consistent with the format of the coded customer list
previously delivered to Purchaser, during the most recent 12 months ending
November 30, 1995 and (b) a current list of all suppliers material to the
Disposable Diaper Business (including, without limitation, suppliers of raw
materials and services). Seller has no reasonable basis to expect any material
modification to the Disposable Diaper Business's relationship with any customer
or supplier named in such Schedule 2.8.2 to the Disclosure Memorandum.
2.8.3 ORDERS, COMMITMENTS AND RETURNS
The Disposable Diaper Business has no material backlog. Except as
reasonably could not (x) impair Purchaser's rights under this Agreement or
rights to or use of the Assets, (y) impair the value of the Disposable Diaper
Business to PTB, or (z) result in any liability or obligation of PTB or
Purchaser, there are no claims against Seller to (a) return merchandise produced
by the Disposable Diaper Business or (b) offset payments with respect to sales
after the Closing Date against claims on merchandise sold on or prior to the
Closing Date, in each case by reason of alleged overshipments, defective
merchandise, missed delivery dates, incorrect quantities or otherwise, or with
respect to merchandise in the hands of customers under an understanding that
such merchandise would be returnable.
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2.9 CLAIMS AND LEGAL PROCEEDINGS
Except as specifically set forth in Schedule 2.9 to the Disclosure
Memorandum, there are no claims, actions, suits, arbitrations, proceedings or
investigations pending or, to Seller's knowledge, threatened against Seller with
respect to the Disposable Diaper Business before or by any governmental or
nongovernmental department, commission, board, bureau, agency or instrumentality
or any other person. To Seller's knowledge, there is no valid basis for any
claim, action, suit, arbitration, proceeding or investigation, except as
reasonably could not (x) impair Purchaser's rights under this Agreement or
rights to or use of the Assets, (y) impair the value of the Disposable Diaper
Business to PTB, or (z) result in any liability or obligation of PTB or
Purchaser, other than as specifically set forth in Schedule 2.9 to the
Disclosure Memorandum, adverse to the Disposable Diaper Business by or before
any governmental or nongovernmental department, commission, board, bureau,
agency or instrumentality or any other person. There are no outstanding or
unsatisfied judgments, orders, decrees or stipulations to which Seller, with
respect to the operation of the Disposable Diaper Business, is a party that
involve the transactions contemplated hereby or that would alone or in the
aggregate have a Material Adverse Effect on the Disposable Diaper Business.
2.10 LABOR MATTERS
There are no material disputes, employee grievances or disciplinary
actions pending or, to Seller's knowledge, threatened between Seller and any of
the Relevant Employees. Seller, with respect to the Relevant Employees, is in
compliance in all material respects with all provisions of federal, state and
local laws relating to the employment of labor, including without limitation the
Worker Adjustment and Retraining Notification Act, ERISA and the National Labor
Relations Act (including, where necessary, any notification to labor
organizations required by statute or contract regarding the transactions
contemplated by this Agreement). Except as reasonably could not (x) impair
Purchaser's rights under this Agreement or rights to or use of the Assets, (y)
impair the value of the Disposable Diaper Business to PTB, or (z) result in any
liability or obligation of PTB or Purchaser, Seller has no incurred liability
for any arrears of wages or taxes or penalties for failure to comply with any
such laws. Seller has no knowledge of any organizational efforts being made or
threatened by or on behalf of any labor organization with respect to any
Relevant Employees.
Except as specifically set forth in Schedule 2.10 to the Disclosure
Memorandum, Seller, with respect to the Relevant Employees, is not a party to
any:
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(a) management, employment or other contract providing for the
employment or rendition of executive services;
(b) employment contract that is not terminable without penalty by
Seller on 30 days' notice;
(c) bonus, incentive, deferred compensation, severance pay, pension,
profit-sharing, retirement, stock purchase, stock option, employee benefit or
similar plan, agreement or arrangement;
(d) collective bargaining agreement or other agreement with any labor
union or other employee organization (and no such agreement is currently being
requested by or is under discussion by management with any group of employees or
others); or
(e) other employment contract or other compensation agreement or
arrangement, oral and written, affecting or relating to current or former
employees of the Disposable Diaper Business.
All such contracts and other agreements and arrangements set forth in
Schedule 2.10 to the Disclosure Memorandum are valid and in full force and
effect, Seller has performed all material obligations imposed on it thereunder,
and there are, under any of such contracts, agreements or arrangements, no
defaults or events of default by Seller or, to its knowledge, any other party
thereto that (i) would have a Material Adverse Effect on the Disposable Diaper
Business or (ii) would have a Material Adverse Effect on the relationship of
Seller or Purchaser with the Relevant Employees.
Seller has not made any loans to any officer or employee of Seller
employed in the Disposable Diaper Business.
2.11 INTELLECTUAL PROPERTY
Schedule 1.1.4 to the Disclosure Memorandum contains a full and
complete list of all Intellectual Property and all agreements, applications and
registrations of the Disposable Diaper Business with respect to the Intellectual
Property. Except as set forth in Schedule 2.11 to the Disclosure Memorandum,
Seller owns or has full and unrestricted rights to use the Intellectual Property
in connection with manufacturing, packaging, shipping, marketing, advertising,
labeling, distributing and selling all products in the manner that the same are
now being manufactured, packaged, shipped, marketed, advertised, labeled,
distributed and sold by the Disposable Diaper Business.
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To the knowledge of Seller, no third parties are infringing on any Intellectual
Property.
The manner in which the Disposable Diaper Business has manufactured,
packaged, shipped, marketed, advertised, labeled, distributed and sold its
products is in compliance with all existing and applicable laws and regulations
pertaining thereto, the failure to comply with which would have a Material
Adverse Effect on the Disposable Diaper Business. Set forth in Schedule 2.11 to
the Disclosure Memorandum is a true and complete list of any interference
actions, oppositions, nullity actions or adverse claims asserted or, to the
knowledge of Seller, threatened against Seller in respect thereof and any claims
asserted or, to the knowledge of Seller, threatened against Seller for alleged
infringement thereof. Subject to the receipt of the consents and approvals
identified in Schedule 2.3 to the Disclosure Memorandum. Seller has full power
to transfer to Purchaser all items listed in Schedule 1.1.4 to the Disclosure
Memorandum. The Disposable Diaper Business, in its manufacturing, packaging,
shipping, marketing, advertising, labeling, distributing, selling and other
operations, does not infringe upon any patent, trademark, trade name, service
mark, copyright or other intellectual property of any other person. All
agreements listed in Schedule 1.1.4 to the Disclosure Memorandum are valid and
enforceable, Seller has performed all material obligations imposed on it
thereunder, and neither Seller nor, to Seller's knowledge, any other party
thereto is in default thereunder in any material respect, nor is there any event
that with notice or lapse of time, or both, would constitute a default
thereunder by Seller or, to Seller's knowledge, any other party thereto. Seller
has not received notice that any party to any such agreement intends to cancel,
terminate or refuse to renew the same or to exercise or decline to exercise any
option or other right thereunder. Except as listed in Schedule 1.1.4 and
Schedule 1.2.5 to the Disclosure Memorandum, Seller, with respect to the
Disposable Diaper Business, has not entered into any agreement to indemnify
any person against any claim or charge of infringement of any Intellectual
Property or any other claim for infringement by a third party.
2.12 INVENTORY
All items of Inventory reflected in the October 31 Balance Sheet (a)
have been valued in accordance with generally accepted accounting principles
consistently applied, with appropriate reserves for obsolescence, and (b) are of
a quality and quantity usable and salable in the ordinary course of business.
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2.13 LICENSES, PERMITS, AUTHORIZATIONS, ETC.
Seller has received all currently required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits, whether
federal, state, local or foreign, relating to the operation of the Disposable
Diaper Business, except such approvals, authorizations, consents, licenses,
orders, registrations and permits the failure to obtain which will not, in the
aggregate, have a Material Adverse Effect on the Disposable Diaper Business.
Seller has not received any financial or other incentives, including but not
limited to property, tax benefits, or zoning decisions, that will have a
Material Adverse Effect on Purchaser's ability to operate the Disposable Diaper
Business or on Purchaser's rights to modify or cease operating any of the
locations currently within the Disposable Diaper Business.
2.14 APPLICABLE LAWS
The Disposable Diaper Business is in compliance with all federal,
state, local and foreign laws, rules, ordinances, decrees and orders applicable
to the operation of the Disposable Diaper Business or to the Transferred Real
Property or the Shenandoah Real Property, including, without limitation, the
Environmental Laws, the failure to comply with which could be reasonably
expected to, in the aggregate, have a Material Adverse Effect on the Disposable
Diaper Business. Seller has not received notification of any unasserted present
unremedied failure by Seller, with respect to the Disposable Diaper Business, to
comply with any such laws, rules, ordinances, decrees and orders.
2.15 INSURANCE
Seller maintains, with respect to the Disposable Diaper Business,
adequate insurance protection against all liabilities, claims and risks against
which it is customary for corporations engaged in the same or a similar business
similarly situated to insure, including, without limitation, products liability
insurance.
2.16 EMPLOYEE BENEFIT PLANS
Seller maintains for the benefit of current or former employees of the
Disposable Diaper Business only those Employee Benefit Plans listed on Schedule
2.16 to the Disclosure Memorandum. Seller is not now a contributing employer to
any multi-employer plan as described in Section 4001(a)(3) of ERISA with respect
to any employees of the Disposable Diaper Business. Seller has not been a
contributing employer to any multi-employer plan with respect to employees of
the Disposable Diaper Business in the past five years. Each and every pension
plan (as
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defined in Section 3(1) of ERISA) maintained by Seller for the benefit
of the employees of the Disposable Diaper Business has been issued a favorable
determination letter with respect to its qualified status under Section 401(a)
of the Code by the Internal Revenue Service, or an application for such a
determination letter has been filed with the Internal Revenue Service within the
requisite time period to allow Seller to make remedial amendments for such
qualification purposes. With respect to employees of the Disposable Diaper
Business, Seller is in compliance with the healthcare continuation coverage
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
Section 4980B of the Code and proposed regulations issued by the Internal
Revenue Service.
2.17 BROKERAGE
Seller has not retained any investment banker, broker or finder in
connection with the transactions contemplated by this Agreement other than Peter
J. Solomon Co. All fees of Peter J. Solomon Co. shall be exclusively for the
account of Seller and any investment banker's, brokerage or finder's fee due to
any investment banker, broker or finder in violation of the foregoing
representation shall be paid by Seller.
2.18 ABSENCE OF QUESTIONABLE PAYMENTS
None of Seller or any director, officer, agent, employee or other
person acting on Seller's behalf has used any of the Disposable Diaper
Business's funds for improper or unlawful contributions, payments, gifts or
entertainment or made any improper or unlawful expenditures relating to
political activity to any government official or other person. The Disposable
Diaper Business has adequate financial controls to prevent such improper or
unlawful contributions, payments, gifts, entertainment or expenditures. None of
Seller or any director, officer, agent, employee or other person acting on
behalf of Seller has accepted or received any improper or unlawful
contributions, payments, gifts or expenditures in connection with the operation
of the Disposable Diaper Business.
2.19 PTB COMMON STOCK
PTI, directly and indirectly, owns no shares of PTB Common Stock.
2.20 FINANCIAL STATEMENTS
The October 31 Balance Sheet has been, and, when delivered pursuant to
Section 4.15, the Division Financial Statements and the Division Balance Sheet
will have been, prepared in conformity with generally accepted accounting
principles
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(except, as to the October 31 Balance Sheet only, as to footnote requirements
and minor matters of presentation), prepared on a basis consistent with prior
accounting periods, and presents, and will present, fairly the financial
position (in the case of the October 31 Balance Sheet and the balance sheets
included in the Division Financial Statements), results of operations and cash
flows (in the case of the Division Financial Statements) of the Disposable
Diaper Business as of the dates and for the periods indicated.
2.21 COMPLIANCE WITH SECURITIES LAWS
Seller represents and warrants that it is acquiring the shares
constituting the Stock Consideration for its own account, for investment
purposes only and not with a view to distribution or resale to others. Seller
acknowledges being fully informed that the shares constituting the Estimated
Stock Consideration and the Actual Stock Consideration are "restricted
securities" under the 1933 Act because they are being acquired from PTB in a
transaction not involving a public offering, that such shares are not presently
being registered under the 1933 Act or under the securities laws of any state or
foreign jurisdiction, that such shares must be held indefinitely unless they are
subsequently registered under the 1933 Act and applicable state and foreign
securities laws, or unless an exemption from registration is available
thereunder, and that PTB has no obligation to register such shares except as
expressly set forth in the Stockholder Agreement.
2.22 FULL DISCLOSURE
No information contained in this Agreement (including, without
limitation, the October 31 Balance Sheet and all information in the Schedules to
the Disclosure Memorandum) or delivered or to be delivered at or prior to the
Closing is false or misleading in any material respect or contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements made or information delivered, in light of the
circumstances under which they were made, not misleading.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF
PTB AND PURCHASER
To induce Seller to enter into and perform this Agreement, PTB and
Purchaser, jointly and severally, represent and warrant to Seller (which
representations and warranties shall survive the Closing as provided in Article
VII) as follows:
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3.1 ORGANIZATION, GOOD STANDING, POWER, ETC.
PTB and Purchaser are corporations duly organized, validly existing and
in good standing under the laws of the state of Delaware, have all requisite
corporate power and authority to own, operate and lease their respective
properties and assets and to carry on their respective businesses as now
conducted and as currently proposed to be conducted, and are duly qualified and
in good standing in each jurisdiction in which they own or lease property or in
which the nature of the business transacted by them makes such qualification
necessary. PTB and Purchaser each have full power and authority to execute,
deliver and perform this Agreement and each of the Ancillary Documents to which
it is a party. Purchaser is a wholly owned subsidiary of PTB.
3.2 DUE EXECUTION AND ENFORCEABILITY
This Agreement has been duly executed and delivered by PTB and
Purchaser and is a legal, valid and binding obligation of PTB and Purchaser,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general equitable principles (regardless of
whether the issue of enforceability is considered in a proceeding in equity or
at law). Each Ancillary Document to which PTB or Purchaser is a party, when
executed and delivered by PTB or Purchaser, as the case may be, will be a legal,
valid and binding obligation of PTB or Purchaser, as the case may be,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general equitable principles (regardless of
whether the issue of enforceability is considered in a proceeding in equity or
at law).
3.3 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the
Ancillary Documents by each of PTB and Purchaser, to the extent that each shall
be a party, and the consummation of the transactions contemplated hereby and
thereby will not, to the extent that the occurrence of any matter referred to in
clause (a), (c) or (d) or the nonreceipt of any consent, approval or
authorization referred to in clause (b), reasonably could (y) impair Seller's
rights under this Agreement or (z) result in any liability or obligation of
Seller, (a) constitute a violation (with or without the giving of notice or
lapse of time, or both) of any provision of law applicable to PTB or Purchaser,
(b) require any consent, approval or authorization of any person or Governmental
Body, except as described in Section 5.2.1, (c) result in a default under,
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an acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any material agreement, lease, note or
other restriction, Encumbrance, obligation or liability to which either PTB or
Purchaser is a party or by which either is bound or to which its assets are
subject, or (d) conflict with or result in a breach of or constitute a default
under any provision of the certificate of incorporation or bylaws of PTB or
Purchaser.
3.4 CAPITALIZATION
As of the date of this Agreement, PTB's authorized capital stock
consists of 25,000,000 shares of PTB Common Stock, of which 11,606,182 shares
are issued and outstanding, and 10,000,000 shares of preferred stock, par value
$.01 per share, of which no shares are issued and outstanding. As of the date of
this Agreement, there are no outstanding options, warrants, conversion rights,
preemptive rights or other rights to purchase or acquire from PTB any shares of
its capital stock, except for the rights created by this Agreement or pursuant
to PTB's employee benefit plans and except for rights under PTB's Shareholder
Rights Agreement. As of the date of this Agreement, PTB has no outstanding
contracts to repurchase, redeem or otherwise acquire any of its equity
securities. All outstanding shares of PTB Common Stock are duly authorized,
validly issued, fully paid and nonassessable. At the Closing, the shares
constituting the Estimated Stock Consideration will be duly authorized, validly
issued, fully paid and nonassessable, and such shares have been reserved by PTB
for issuance pursuant to this Agreement.
3.5 SEC DOCUMENTS
PTB has furnished to Seller copies of the SEC Documents. None of the
SEC Documents, at the times they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. All the SEC Documents, when filed with the SEC,
complied in all material respects with the applicable requirements of the 1933
Act and the 1934 Act.
3.6 CLAIMS AND LEGAL PROCEEDINGS
Except as set forth in the SEC Documents, there are no claims, actions,
suits, arbitrations, proceedings or investigations pending or, to PTB's
knowledge, threatened against PTB or Purchaser before or by any governmental or
nongovernmental department, commission, board, bureau, agency or instrumentality
or any other person, and there are no outstanding or unsatisfied judgments,
orders, decrees or stipulations to which PTB or Purchaser is a party that
involve the transactions
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contemplated hereby or that would alone or in the aggregate have a material
adverse effect on PTB's business, assets or financial condition.
3.7 BROKERAGE
PTB and Purchaser have not retained any investment banker, broker or
finder in connection with the transactions contemplated by this Agreement other
than Merrill Lynch. All fees of Merrill Lynch are for the account of Purchaser
and any investment banker's, brokerage or finder's fee due to any investment
banker, broker or finder in violation of the foregoing representation shall be
paid by PTB.
3.8 PTI STOCK
PTB, directly and indirectly, owns no shares of capital stock of PTI.
3.9 FINANCING
PTB has available sufficient sources of financing to perform its
obligation hereunder to pay the Cash Purchase Price.
3.10 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES
PTB's financial statements contained in the SEC Documents were prepared
in conformity with generally accepted accounting principles consistently
applied, and present fairly the financial position, results of operations and
cash flows of PTB as of the dates and for the periods indicated. As of the date
of the most recent balance sheet contained in the SEC Documents, PTB had no
material liability (absolute, contingent or otherwise) that is not fully
provided for or disclosed in the notes to those financial statements. Between
September 24, 1995 and the date of this Agreement, there has been no material
adverse change in the business, properties, assets, liabilities, condition
(financial or otherwise), results of operations or prospects of PTB and its
subsidiaries taken as a whole.
ARTICLE IV. FURTHER AGREEMENTS
Purchaser and Seller each agree to perform and observe the following
agreements applicable to it:
4.1 SCHEDULES
(a) All representations and warranties contained herein shall apply to
any exhibits, schedules or certificates (including all Schedules to the
Disclosure
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Memorandum) delivered by Seller or any officer thereof to Purchaser or PTB, and
each such exhibit, schedule or certificate (including all Schedules to the
Disclosure Memorandum) shall be deemed to be a representation by Seller as to
the matters set forth therein.
(b) On or prior to the 30th day after the date of this Agreement,
Purchaser shall, in its sole discretion, specify in writing certain information
to be set forth in the following Schedules to the Disclosure Memorandum, which
Schedules shall be deemed to be amended automatically without any further action
by the parties hereto upon Purchaser's provision of such information:
(i) Schedules 1.1.1 and 1.2.4 to the Disclosure Memorandum as
to the fixtures at the Excluded Real Property that shall constitute Assets to be
transferred and conveyed to Purchaser, and
(ii) Schedules 1.1.6, 1.2.5 and any other Schedules to the
Disclosure Memorandum which reflect any contracts, agreements, personal property
or real property leases, purchase orders, sales orders, sale and distribution
agreements, supply and processing agreements or other instruments for the sole
purpose of not including as Assets, and including as Excluded Assets, any such
items that have not been provided to Purchaser as of the date of this Agreement
(together and as amended, "Contracts") and that were entered into outside the
ordinary course of business or involve obligations of the Disposable Diaper
Business in excess of $100,000.
Purchaser's right to modify the above-referenced Schedules to the
Disclosure Memorandum as provided in this Section 4.1 shall not in any way
limit, reduce or otherwise affect the obligations of Seller and Purchaser to
sell and purchase the other Assets. Seller shall deliver to Purchaser within
three business days after the date of this Agreement true and correct copies of
any Contracts which have not been provided to Purchaser prior to the date
hereof.
(c) On or prior to the Closing Date, Seller may deliver to Purchaser
one or more Schedules to the Disclosure Memorandum which are revised or updated
to reflect changes to the operations or condition of the Disposable Diaper
Business between the date hereof and the Closing. Such revisions and updates (i)
shall be effective only for the purpose of permitting Seller to deliver to
Purchaser at the Closing an officer's certificate which contains a true and
accurate restatement as of the Closing Date of the representations and
warranties of Seller as set forth herein and (ii) shall not be effective for the
purpose of determining any right to indemnification which PTB and Purchaser may
have under
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Article VII or any right to terminate, or not to consummate the Closing under,
this Agreement which PTB may have under Article VIII, which rights shall be
determined as if Seller had restated as of the Closing Date all of its
representations and warranties without any revision or update to any Schedule to
the Disclosure Memorandum.
(d) Other than as set forth in clauses (b) and (c) above, all Schedules
to the Disclosure Memorandum may be amended only as agreed to in writing by the
parties hereto.
4.2 ACCESS
Seller shall, and shall cause each of its subsidiaries to, afford,
during normal business hours during the period from the date of this Agreement
through the Closing Date, to Purchaser's accountants, counsel, financial
advisors, officers, environmental consultants and other representatives
reasonable access to, and permit them to make such inspections as may reasonably
be requested of, its properties, books, contracts, commitments and records
(including, without limitation, the internal and external audit work papers of
independent public accountants), and also permit such interviews with its
officers and employees as may be reasonably requested, in respect of the
Disposable Diaper Business, all of the foregoing to be coordinated through
Carlos Lamadrid or Ron Gasper (or their successors) or such other
representatives of Seller as Seller may designate; and, during such period,
Seller shall, and shall cause each of its subsidiaries to, promptly furnish to
Purchaser (a) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of federal
or state securities laws and (b) all other information concerning its
properties, assets, business and personnel as Purchaser may reasonably request,
in respect of the Disposable Diaper Business. From the date of this Agreement
through the Closing Date, Purchaser, PTB and Seller shall consult with each
other regarding any inquiries made by antitrust regulatory authorities,
including any issues raised by such authorities and the possible resolutions
thereof. No investigation pursuant to this Section 4.2 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto. All information obtained by
Purchaser, PTB or Seller pursuant to this Section 4.2 shall be kept confidential
in accordance with the Confidentiality Agreement. PTB shall afford, during
normal business hours during the period from the date of this Agreement through
the Closing Date, to Seller and its authorized representatives such access to
the books and records of PTB and its subsidiaries as Seller may reasonably
request.
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4.3 ADVICE OF CLAIMS
From the date of this Agreement to and including the Closing Date,
Seller will promptly advise Purchaser in writing if it has notice or knows of
the commencement or threat of any claim, litigation or proceeding against or
affecting the Disposable Diaper Business or any ruling, decree or other material
development in any claim, action or suit described in Schedule 2.9 to the
Disclosure Memorandum or arising after the date hereof.
4.4 CONDUCT PRIOR TO THE CLOSING DATE
(a) From the date of this Agreement to and including the Closing Date,
except as permitted, required or specifically contemplated by this Agreement or
otherwise as approved in writing by Purchaser (which approval shall not be
unreasonably withheld), all actions of Seller with respect to the Disposable
Diaper Business will be taken in the ordinary course of business and Seller will
take no action inconsistent with this Agreement or that will cause any
representation, warranty, exhibit to this Agreement or Schedule to the
Disclosure Memorandum to be untrue at the Closing Date, and will use
commercially reasonable efforts to cause the conditions set forth in Sections
5.2 and 5.3 to be satisfied as soon as practicable following the date hereof and
to preserve the continuity of the Disposable Diaper Business and the Disposable
Diaper Business's beneficial relationships with its employees, suppliers,
distributors, customers and others having business dealings with it. PTB and
Purchaser shall use commercially reasonable efforts to cause the conditions set
forth in Sections 5.2 and 5.4 to be satisfied as soon as practicable following
the date hereof.
Each party (the "Notifying Party") shall promptly advise the other
parties (the "Notified Parties") in writing of any event, or the nonoccurrence
of any event, (i) that has caused, or would reasonably be expected to cause, a
material breach by the Notifying Party of any representation or warranty that is
not qualified as to materiality or a breach by the Notifying Party of any
representation or warranty that is qualified by materiality, (ii) that has
caused, or would reasonably be expected to cause, any covenant, condition or
agreement contained in this Agreement or any Ancillary Document not to be
complied with or satisfied, or (iii) in the case of Seller, having, or which
would reasonably be expected to have, a Material Adverse Effect on the
Disposable Diaper Business; provided, however, that the delivery of any such
notice shall not limit or otherwise affect the remedies available hereunder to
the Notified Parties.
(b) Without limiting the generality of the foregoing or limiting or
reducing Purchaser's rights and Seller's obligations pursuant to Article I,
Seller agrees to use
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commercially reasonable efforts to obtain, prior to the Closing, written consent
to assignment (in form and substance reasonably satisfactory to Purchaser) of
all agreements listed in Schedule 2.3 to the Disclosure Memorandum.
(c) From the date of this Agreement to and including the Closing Date,
within seven days of a request from Purchaser to do so, Seller will provide to
any Relevant Employees specified by Purchaser at the location(s) specified by
Purchaser and to appropriate Governmental Bodies notices required by the Worker
Adjustment and Retraining Notification Act and any state or local law requiring
notice of employment loss. Prior to issuance of such notices, Seller will make
available to Purchaser for review the forms of notices it intends to issue.
Actions taken by Purchaser or Seller pursuant to this Section 4.4(c) shall not
modify the allocation of responsibilities and liabilities otherwise specified in
this Agreement; provided, however, that if such employment loss occurs prior to
the expiration of the required notice period, Purchaser shall indemnify, defend
and hold Seller harmless for any claim for payments required under the law
requiring such notice.
(d) From the date of this Agreement to and including the Closing Date,
without the prior written consent of PTB, Seller shall conduct all programs and
operations of the Disposable Diaper Business relating to coupons and Allowances
only in the ordinary course of business and consistent with past practice.
4.5 MANAGEMENT SERVICES AGREEMENT
Prior to the Closing, the parties shall prepare and agree upon the
definitive terms of a Management Services Agreement (the "Management Services
Agreement"), to be entered into at the Closing, containing substantially the
terms set forth in Exhibit 4.5 and any additional terms agreed upon by the
parties, the primary purpose of which shall be to facilitate the orderly
transfer of the Disposable Diaper Business from Seller to Purchaser.
4.6 INSURANCE; LOSS OF OR DAMAGE TO ASSETS
(a) Seller shall maintain, from the period commencing on the date of
this Agreement and ending on the Closing Date, the same insurance coverages it
maintained prior to the date hereof in respect of the Disposable Diaper Business
and the Assets.
(b) Seller shall give Purchaser prompt written notice of (i) any loss,
damage or destruction to any of the tangible Assets material to the operations
of the Disposable Diaper Business occurring on or after the date hereof and on
or prior to the
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Closing Date, (ii) the estimated value of the portion of the tangible Assets so
lost, damaged or destroyed, and (iii) the estimated cost of repair, replacement
or reconstruction thereof. Without regard to the limitation set forth in Section
7.5, any insurance proceeds paid to Seller in respect of any such loss, damage
or destruction shall be paid to PTB in accordance with Section 1.1.10.
4.7 COOPERATION PRIOR TO THE CLOSING DATE
(a) Each party shall fully cooperate with the other parties and their
advisors (i) in connection with any steps required to be taken as part of any
party's obligations hereunder and (ii) in order to carry out the purposes of
this Agreement.
(b) Without limiting the generality of the foregoing, except as
otherwise provided in this Agreement, Seller, Purchaser and PTB shall (i)
cooperate in the preparation and filing of such materials as may be required in
order to comply with the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and (ii) subject to the provisions of
Section 10.1(c), use commercially reasonable efforts to prevent the entry in a
judicial or administrative proceeding brought under any antitrust law of any
permanent or preliminary injunction or other order that would make consummation
of the transactions contemplated by this Agreement in accordance with the terms
hereof unlawful or would prevent, delay or impose conditions on such
consummation; provided, however, that the parties acknowledge that PTB shall
have the right to determine the course and conduct of any litigation or other
proceedings in which the parties become involved pursuant to this paragraph (b);
provided further, that PTB shall be obligated to appeal or participate in the
appeal of any injunction or other order actually entered in any such proceeding
only if PTB, in its sole discretion, determines that such appeal is in its best
interest.
(c) Notwithstanding any other provision of this Agreement, in response
to any action taken or threatened to be taken by any court or Governmental Body,
PTB shall not be required under this Agreement to sell, license or otherwise
dispose of, hold separate or otherwise divest itself of any portion of its
business or assets or any portion of the business or assets of the Disposable
Diaper Business or agree to any limitations or restrictions in connection with
its operation of such businesses which are likely to have a material effect on
the expected benefits of the transactions contemplated hereby to PTB, in order
to consummate the transactions contemplated hereby.
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4.8 CONFIDENTIALITY
The Confidentiality and Standstill Agreement, dated June 6, 1995,
between PTI and PTB (the "Confidentiality Agreement") shall remain in full force
and effect until the Closing Date, except that (a) in the event that this
Agreement shall be terminated prior to the Closing Date the one- and three-year
time periods contained in Sections 10 and 18, respectively, of the
Confidentiality Agreement shall run from the date of termination of this
Agreement and (b) Seller shall not request a return of any information or
material referred to in the Confidentiality Agreement unless this Agreement
shall be terminated prior to the Closing Date in accordance with its terms. On
the Closing Date, the Confidentiality Agreement shall terminate. From and after
the Closing Date, Seller agrees to maintain any information and material used
primarily in the Disposable Diaper Business in confidence and not to use such
information for any purpose other than internal accounting and tax return
preparation purposes, and PTB and Purchaser agree to maintain any information
and material received under the Confidentiality Agreement with respect to PTI
and its business (other than the Disposable Diaper Business) in confidence and
not use such information for any purpose. For the purposes of the foregoing,
proprietary and confidential information and documents shall not include:
(a) information that is in the public domain;
(b) information that is subsequently published, unless such
publication is a breach of this Agreement;
(c) information that prior to disclosure was in the possession of
such party, as shown by documentary evidence; and
(d) information disclosed to Seller by a third party lawfully in
possession of such information and not in violation of any contractual, legal or
fiduciary obligation with respect to such information.
4.9 POST-CLOSING SEVERANCE OBLIGATIONS
(a) Following the Closing Date, Seller shall have and maintain all
liabilities and obligations to all employees other than the Relevant Employees.
Except as provided in Section 4.4(c), with respect to all employees in the
Disposable Diaper Business, Seller shall have sole responsibility for complying
with, and shall assume all liabilities and obligations resulting from any
noncompliance with, the requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, the Worker Adjustment and Retraining Notification
Act, and any other state, federal or local
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requirements with respect to any termination of employment caused by a reduction
in work force, shutdown, plant closure or other employment termination in
connection with the transactions contemplated by this Agreement. Seller shall
use commercially reasonable efforts to minimize the termination costs and
severance obligations with respect to its employees at such facilities.
(b) PTB will reimburse Seller for the actual out-of-pocket cost of any
severance pay paid to any of the Relevant Employees who have been terminated by
Seller solely as a result of the Closing and who have not been offered
employment with PTB or Purchaser.
(c) To those salaried employees listed on Schedule 4.9 who are (i)
currently eligible for severance pay under Seller's severance pay plan; (ii)
hired by Purchaser or PTB on the Closing Date; and (iii) subsequently separated
from employment with PTB or Purchaser other than due to voluntary resignation or
gross misconduct, PTB or Purchaser will pay severance pay under the terms of
PTB's severance pay plan if the employees are otherwise eligible for such pay
under such plan. For the purposes of severance pay only, PTB will give such
employees credit under PTB's plan for their continuous period of service with
Seller as of the Closing Date.
(d) PTB's obligation to reimburse Seller under Section 4.9(b) above,
and its obligation to pay severance pay under Section 4.9(c) above, shall not
exceed one week of severance pay for each year of service for each affected
Relevant Employee, with a maximum per affected Relevant Employee of 26 weeks of
severance pay.
(e) To the extent any person seeks severance pay or other sums pursuant
to a severance pay plan or obligation maintained by Seller, Seller shall
indemnify, defend and hold Purchaser and PTB harmless for any such claims,
liabilities or obligations. This Section 4.9(e) shall not modify PTB's
obligation to reimburse Seller for severance pay actually paid as provided in
Sections 4.9(b) and (d).
4.10 PRO-RATION; REIMBURSEMENTS
Purchaser and Seller shall each pay their respective portions prorated
as of the Closing Date of (a) state and local ad valorem real and personal
property taxes payable on the Assets, (b) rental payments due on the Assets
(including the Leased Real Property), (c) charges for utility services delivered
to the Purchased Real Property and the Leased Real Property and (d) such other
charges or assessments, if any, as are customarily pro-rated in real estate
transactions comparable to those contemplated by this Agreement. Each party
shall pay to the other party any amounts owed hereunder as promptly as
practicable after such amounts are determined.
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Without regard to the limitation set forth in Section 7.5, Seller shall further
reimburse Purchaser for any liabilities or obligations incurred by Purchaser
with respect to coupons not assumed by Purchaser pursuant to Section 1.3.
4.11 OTHER COOPERATION AFTER THE CLOSING DATE
(a) The parties shall cooperate with each other to effect an orderly
and prompt transfer of title, possession and control of the Assets and the
Assumed Liabilities from Seller to Purchaser on and after the Closing Date.
(b) Seller agrees that, for a period of one year after the Closing,
Purchaser may use any and all existing labels, cartons, containers, packaging
and like materials in connection with the sale of the Disposable Diaper
Business's products, notwithstanding the existence on such labels, cartons,
containers, packaging and like materials of trademarks and other identifying
information relating to Seller, and may first use all such labels and other
materials before using newly printed materials. Seller further agrees that after
the Closing it will promptly refer to Purchaser any inquiry or correspondence
received in connection with the products or business of the Disposable Diaper
Business.
(c) In the event that, within 120 days after the Closing Date,
Purchaser provides employees with notices under the Worker Adjustment and
Retraining Notification Act of a plant closure, Seller will consider the
employees at such locations for employment at its other facilities. Purchaser
and Seller will cooperate in exchanging information about such employees in
order to allow Seller to engage in such consideration.
4.12 NO SHOP
Seller hereby agrees that, until the earlier of the Closing or the
termination of this Agreement pursuant to Article VIII, neither it nor any of
its subsidiaries shall, directly or indirectly, through any officer, director,
agent or otherwise, initiate, solicit or knowingly encourage (including by way
of furnishing nonpublic information or assistance), or take any other action
knowingly to facilitate, any inquiries or the making of any proposal that
constitutes an Acquisition Proposal, or enter into discussions or negotiate with
any person or entity in furtherance of such inquiries or to obtain an
Acquisition Proposal, or agree to or endorse any Acquisition Proposal, or
authorize or permit any of the officers, directors or employees of Seller or any
of its subsidiaries or any investment banker, financial advisor, attorney,
accountant or other agent or representative of Seller to take any such action;
provided, however, that Seller may engage in discussions or negotiations with,
or furnish information
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concerning the Disposable Diaper Business to, any person who makes a Superior
Proposal if the Board of Directors of PTI shall conclude in good faith on the
basis of advice from its outside counsel that the failure to take such action
would violate the fiduciary obligations of such Board of Directors under
applicable law. Seller will promptly notify PTB and Purchaser of any inquiry
(including the terms thereof and the identity of the person making the inquiry)
which it may receive in respect of an Acquisition Proposal and furnish to PTB
and Purchaser a copy of any such inquiry.
4.13 TITLE INSURANCE COMMITMENTS
No less than 30 days prior to the Closing Date, Seller shall deliver to
Purchaser preliminary commitments for title insurance from First American
Insurance Company (the "Title Company") showing that Seller has a fee simple
interest in the Purchased Real Property and committing the Title Company to
issue the Title Policies, the cost of such commitments to be shared equally by
PTB and PTI.
4.14 A.L.T.A. SURVEYS
No less than 30 days prior to the Closing Date, Seller shall deliver to
Purchaser as-built surveys of the Purchased Real Property (the "Surveys")
prepared in accordance with the Minimum Standard Detail Requirements for
A.L.T.A./A.C.S.M. Land Title Surveys as adopted by the American Land Title
Association on October 19, 1988 and certified to Purchaser and the Title
Company, to the extent such surveys are necessary to obtain the Title Policies,
the cost of such surveys to be shared equally by PTB and PTI.
4.15 FINANCIAL STATEMENTS
Prior to the Closing, Seller shall use commercially reasonable efforts
to prepare and deliver to Purchaser and PTB audited balance sheets and
statements of income, stockholders' equity and cash flows of the Disposable
Diaper Business as of and for the periods required by Rule 3-05 of Regulation
S-X, and accompanying notes, audited by Arthur Andersen LLP, independent
certified public accountants, and unaudited balance sheets and statements of
income, stockholders' equity and cash flows of the Disposable Diaper Business as
of and for all interim periods beginning after the last full fiscal year and
ending at least 45 days prior to the Closing (the most current such unaudited
balance sheet being the "Division Balance Sheet" and all such financial
statements being the "Division Financial Statements"). The preparation and audit
of the Division Financial Statements shall be at Seller's expense.
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4.16 INVENTORY
All changes in Inventory between the date of the October 31 Balance
Sheet and the Closing Date shall have been in the ordinary course of business
consistent with past practice. The composition of the Inventory on the Closing
Date, as between raw materials, finished goods, packaging and other Inventory,
shall be substantially consistent, on a proportionate basis, with the
composition of the Inventory in the October 31 Balance Sheet as reflected in
Schedule 1.1.3 to the Disclosure Memorandum. All items of Inventory to be
reflected in the Division Balance Sheet and on the Closing Date (a) shall have
been valued in accordance with generally accepted accounting principles
consistently applied, with appropriate reserves for obsolescence, and (b) shall
be of a quality and quantity usable and salable in the ordinary course of
business after the Closing Date.
4.17 REPURCHASES OF PTB COMMON STOCK
During the 10 Trading Days preceding the last Trading Day immediately
prior to the Closing Date, PTB and its Affiliates shall not bid for or purchase
any shares of PTB Common Stock on the New York Stock Exchange.
4.18 CERTAIN ACQUISITIONS
Prior to the Closing, PTB will not acquire or agree to acquire any
business primarily engaged in the manufacture and sale of disposable baby
diapers in the United States if such acquisition might reasonably be expected to
impair the ability of the parties to consummate the transactions contemplated by
this Agreement.
4.19 PTB GUARANTEE
PTB hereby agrees to perform or cause to be performed each of the
obligations of Purchaser hereunder, including in respect of any Assumed
Liabilities.
4.20 NO SOLICITATION OF EMPLOYEES
(a) From the date of this Agreement to and including the Closing Date,
Seller shall not (i) solicit any of the Relevant Employees for employment with
Seller outside the Disposable Diaper Business, or (ii) without the express
approval of the Vice President of Human Resources of Purchaser or another
officer of Purchaser specified to Seller in writing, offer any position of
employment outside the Disposable Diaper Business to any of the Relevant
Employees. This Section 4.20(a) shall not apply to any employee of Seller who
has received the notice of employment loss described in Section 4.4(c) above.
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(b) For one year after the Closing Date, Seller shall not (i) solicit
any employee of Purchaser who had been employed by Seller immediately prior to
the Closing Date, or any other employee of PTB or its subsidiaries, for
employment with Seller, or (ii) without the express approval of the Vice
President of Human Resources of PTB or another officer of PTB specified to
Seller in writing, offer any position of employment to any employee of Purchaser
who had been employed by Seller immediately prior to the Closing Date or any
other employee of PTB or its subsidiaries. This Section 4.20(b) shall not apply
to any employee of Purchaser who has been informed by Purchaser or PTB, in
writing, that the employee's employment will be terminated within 60 days or a
shorter period.
(c) For one year after the Closing Date, Purchaser shall not (i)
solicit employees of Seller for employment with Purchaser, or (ii) without the
express approval of an officer of PTI, offer any position of employment to
employees of Seller. This Section 4.20(c) shall not apply to any employee of
Seller who has been informed by Seller, in writing, that the employee's
employment will be terminated within 60 days or a shorter period.
4.21 EMPLOYEE BENEFITS MATTERS
(a) Each Relevant Employee and his or her dependents who are eligible
to participate in the Seller's group health plan on the Closing Date will be
eligible to enroll in PTB's group health plan if actively at work on the Closing
Date. Each other Relevant Employee and his or her dependents will be eligible to
enroll in PTB's group health plan upon meeting the eligibility requirements
thereof and will receive credit for service with Seller toward the applicable
health plan service requirement; provided, however, that the preexisting
condition exclusion of PTB's group health plan shall apply, and with respect to
any Relevant Employee or his or her dependent who is adversely affected by the
preexisting condition exclusion, Purchaser will pay on behalf of such Relevant
Employee or dependent the continuation coverage premiums required to maintain
such person's coverage under Seller's group health plan for a period which shall
not exceed the lesser of the applicable period during which the preexisting
exclusion limitation applies and six months. In no event shall any Relevant
Employee or his or her dependents become eligible for PTB's group health plan by
reason hereof if not actively at work on the Closing Date.
(b) Seller agrees that any Relevant Employee may roll over any eligible
rollover distribution from an eligible PTI retirement plan to PTB's 401(k) Plan
to the extent permitted by PTB's 401(k) Plan and pursuant to its terms.
"Eligible rollover
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distribution" and "eligible retirement plan" have the meaning given them under
Code section 402.
(c) Seller will, in accordance with the applicable provisions of each
pension, profit-sharing, 401(k) Plan or other funded welfare benefit plan
maintained by Seller, make all contributions required to be made under such
plans on behalf of the employees of the Disposable Diaper Business for their
period of employment with Seller through the Closing on or before the date those
contributions are due under each such plan.
4.22 SHENANDOAH SUBLEASE
Subject to Seller's obtaining Landlord's consent and all other
necessary third party consents, Purchaser shall sublease from Seller the
Shenandoah Real Property pursuant to a definitive sublease agreement to be
entered into by the parties as of the Closing (the "Shenandoah Sublease"). The
term of the Shenandoah Sublease shall be three and one-half years from the
Closing Date. The rental and other obligations of Purchaser under the Shenandoah
Sublease shall be substantially equal to the rental and other obligations of
Seller under the Shenandoah Lease as currently in effect; provided, however,
that if Purchaser does not occupy all or any portion of the subleased premises,
required rental payments shall be reduced by any amount the Seller receives from
another sublessee of such premises. Purchaser shall have the right to terminate
the Shenandoah Sublease on thirty (30) days prior written notice, which notice
may be given at any time after the sixth month of the sublease term; provided,
however, that if Purchaser so terminates the Shenandoah Sublease, Purchaser
shall continue to pay to Seller the rental and other payments Purchaser would
otherwise have been required to pay if the Shenandoah Sublease had not been
terminated, but such payments will (a) be offset and reduced by any amount
Seller receives from another sublessee of such premises and by any amount by
which Seller reduces its payment obligations under the Shenandoah Lease, and (b)
terminate on the earlier to occur of (i) the date the Shenandoah Sublease would
have terminated according to its terms or (ii) the date Seller assigns the
Shenandoah Lease to a third party or otherwise terminates its obligations under
the Shenandoah Lease. Purchaser shall have the right at any time during the term
of the Shenandoah Sublease to replace and/or remove any equipment, personal
property, leasehold improvements and fixtures which were conveyed by Seller to
Purchaser under this Agreement and which are located on the Shenandoah Real
Property. If Seller fails to obtain the necessary Landlord and other third party
consents prior to the Closing, Purchaser shall have no obligation with respect
to the Shenandoah Sublease or the related Shenandoah Real Property.
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4.23 DEMAND REGISTRATION PROVISIONS
For the limited purpose of allowing PTI to exercise its first demand
registration right under Section 2(a) of the Stockholder Agreement prior to
Closing, so that the registration statement relating thereto may be declared
effective as soon as practicable thereafter subject to the terms and conditions
set forth in the Stockholder Agreement, Section 2 of the Stockholder Agreement
shall be deemed to be effective as of the date of this Agreement to the extent
necessary to accomplish the foregoing.
4.24 TERMINATION OF CERTAIN AGREEMENTS
PTB, Purchaser and Seller shall cooperate to negotiate mutually
acceptable terminations, effective at or as soon as practicable after Closing,
of the agreements listed on Schedule 4.24 to the Disclosure Memorandum. Of any
amounts required to be paid after Closing to the other parties in respect of
such agreements, Seller shall be obligated to pay the first $300,000, and
Purchaser shall be obligated to pay the balance of such amounts, the total
payments to such parties not to exceed the scheduled payments remaining as of
the Closing under such agreements (as in effect on the date hereof).
4.25 ENVIRONMENTAL MATTERS
PTB shall use commercially reasonable efforts to cause any Phase I
Environmental Assessment, as such term is commonly understood in the
environmental assessment and audit field, of the Disposable Diaper Business
which PTB may elect to perform to be completed within 30 days after the date of
this Agreement. Following such Phase I Environmental Assessments, Purchaser may
undertake additional environmental assessments to the extent it deems reasonably
necessary or desirable. Following the completion of its environmental review, if
Purchaser shall in good faith not be reasonably satisfied that (i) Seller's
conduct of the Disposable Diaper Business is and has been in compliance in all
material respects with Environmental Laws, (ii) no claim, demand, action,
proceeding or investigation has been commenced, asserted or threatened alleging
any failure by Seller to comply with any Environmental Laws with respect to the
Disposable Diaper Business, including without limitation any noncompliance with
respect to the Disposable Diaper Properties or Seller's conduct of the
Disposable Diaper Business, and (iii) no Release of Hazardous Materials has
occurred from, upon, below, into or on the Disposable Diaper Properties, then
Seller, as to those matters specifically identified, shall indemnify, defend and
hold harmless (without regard to the limitations set forth in Sections 7.4 and
7.5) Purchaser and PTB for any related loss, whether such loss occurs before or
after the Closing. If the parties shall determine that any Remediation,
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either before or after Closing, is necessary in connection therewith, the
parties shall agree upon a mutually acceptable plan, to be effected at Seller's
expense, for such Remediation.
ARTICLE V. THE CLOSING; CLOSING CONDITIONS
5.1 CLOSING
Subject to the fulfillment or waiver of the conditions set forth in
this Article V, the Closing shall take place at the offices of Perkins Coie,
1201 Third Avenue, 46th Floor, Seattle, Washington on (a) the fifth business day
following the satisfaction of the conditions set forth in Sections 5.2 and 5.3.9
or (b) such other date as Purchaser and Seller may agree or as may be necessary
to permit the fulfillment or waiver of the conditions set forth in this Article
V (such date, the "Closing Date").
5.2 CONDITIONS TO OBLIGATIONS OF EACH PARTY
The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Closing of each of the following conditions, any and all of which may be waived
in whole or in part by the party being benefited thereby, to the extent
permitted by applicable law:
5.2.1 HART-SCOTT-RODINO
The parties shall have received notification of the expiration or early
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
5.2.2 NO INJUNCTIONS
There shall not be in effect any judgment, writ, order, injunction or
decree of any court or Governmental Body of competent jurisdiction restraining,
enjoining or otherwise preventing or materially delaying consummation of the
transactions contemplated by this Agreement or the Ancillary Documents.
5.3 CONDITIONS TO OBLIGATIONS OF PURCHASER AND PTB
The respective obligations of Purchaser and PTB to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the Closing of each of the following conditions, any and all of which
may be waived in whole or in part by Purchaser and PTB, as the case may be, to
the extent permitted by applicable law:
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5.3.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of Seller contained herein
(including the Schedules to the Disclosure Memorandum) shall have been true, in
the case of representations and warranties qualified as to materiality, and true
in all material respects, in the case of representations and warranties not so
qualified, when made and shall be true or true in all material respects, as the
case may be, as of the Closing Date as though made on that date, except to the
extent that such representations and warranties are made as of a specified date,
in which case such representations and warranties shall be true or true in all
material respects, as the case may be, as of the specified date; provided,
however, that a failure of the condition set forth in this paragraph shall not
be deemed to have occurred if any such failure of a representation or warranty
to be true or true in all material respects, as the case may be, results only in
an Excluded Liability and reasonably could not (x) impair Purchaser's rights
under this Agreement or rights to or use of the Assets, (y) impair the value of
the Disposable Diaper Business to PTB, or (z) result in any liability or
obligation of PTB or Purchaser.
5.3.2 PERFORMANCE OF AGREEMENTS
Seller shall have performed all obligations and agreements and complied
in all material respects with all covenants and conditions contained in this
Agreement and the Ancillary Documents to be performed and complied with by it at
or prior to the Closing.
5.3.3 OFFICERS' CERTIFICATES
PTB and Purchaser shall have received certificates of each of PTI's and
PTWI's respective President or Vice President, dated the Closing Date, in form
and substance reasonably satisfactory to PTB and Purchaser, certifying that the
conditions to PTI's and PTWI's respective obligations have been fulfilled. PTB
and Purchaser shall have received certificates of each of PTI's and PTWI's
respective Secretary or Assistant Secretary, dated the Closing Date, in form and
substance reasonably satisfactory to PTB and Purchaser.
5.3.4 OPINION OF COUNSEL FOR SELLER
Purchaser and PTB shall have received the opinion letter of Brobeck,
Phleger & Harrison, counsel for Seller, dated the Closing Date, in form and
substance reasonably satisfactory to Purchaser and PTB.
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5.3.5 NO GOVERNMENTAL PROCEEDING OR LITIGATION
In connection with the transactions contemplated by this Agreement,
there shall not have been instituted or be pending any action, investigation,
inquiry or other proceeding having a reasonable likelihood of success by or
before any Governmental Body or court of competent jurisdiction, nor shall there
be in effect any judgment, writ, decree, injunction or order of any Governmental
Body or court of competent jurisdiction, in either case, seeking or imposing any
remedy, restriction, condition or other action of the type referred to in
Section 4.7(c); provided, however, that with respect to any such judgment, writ,
decree, injunction or order PTB shall have performed its obligations under
Section 4.7(b), subject to the terms of Section 4.7(c).
5.3.6 DELIVERY OF DOCUMENTS
Seller shall deliver the following documents, agreements and supporting
papers to Purchaser at the Closing, and the delivery of each shall be a
condition to Purchaser's and PTB's performance of their respective obligations
to be performed at the Closing:
(a) An executed Bill of Sale;
(b) A counterpart of the Assignment and Assumption Agreement
executed by PTI and PTWI;
(c) Executed and acknowledged Deeds conveying title to the
Purchased Real Property, subject to no exceptions other than the Permitted
Exceptions, in due form for recordation with the appropriate Governmental Body,
and all other instruments necessary to record such Deeds, together with a
certified check for all applicable recording fees and Seller's share of any
transfer taxes and, with respect to the Real Property located in New York, any
transfer gains tax;
(d) Lease Assignment and Assumptions duly executed by all parties
thereto (other than Purchaser);
(e) Executed counterparts of one or more Assignments of Trademarks
covering each of the trademarks described in Schedule 1.1.4 to the Disclosure
Memorandum, in due form for recordation with the appropriate Governmental Body;
(f) Executed counterparts of one or more Assignments of Patents
covering each of the patents and patent applications described in Schedule 1.1.4
to the Disclosure Memorandum, in due form for recordation with the appropriate
Governmental Body;
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(g) A counterpart of the Stockholder Agreement executed by PTI;
(h) American Land Title Association policies of title insurance,
with extended coverage (owner's policy, 1987 or October 17, 1992 form), from the
Title Company (the "Title Policies"), dated as of the Closing Date, insuring
that Purchaser has fee simple title to each parcel of the Purchased Real
Property, subject to no exceptions other than standard preprinted exceptions and
Permitted Exceptions, with face values equal to the values allocated to the
Purchased Real Property under Section 1.8, together with (i) a standard New York
Endorsement (September 1, 1993) with respect to the Real Property located in
Oneonta, New York, (ii) an endorsement that the Surveys reveal no Encumbrances
other than Permitted Exceptions and (iii) such other endorsements as are
reasonably required by Purchaser and are available in New York or California, as
the case may be;
(i) Executed certificates, affidavits or other documents relating
to transfer taxes, or excise taxes, documentary stamp taxes or gains taxes
imposed by a Governmental Body due to transfer of the Real Property (other than
the Excluded Real Property);
(j) An executed nonforeign certificate in accordance with Section
1445 of the Code and the regulations issued thereunder;
(k) An executed certificate in accordance with Sections 18805,
18815 and 26131 of the California Revenue and Taxation Code and the regulations
issued thereunder;
(l) Any and all certificates of title relating to Personal
Property included within the Assets;
(m) Written consent to assignment (in form and substance
reasonably satisfactory to Purchaser) of all agreements listed on Schedule
5.3.6(m) to the Disclosure Memorandum; and
(n) Counterparts of each of the other Ancillary Documents to be
executed by PTI of PTWI executed by PTI or PTWI, as the case may be.
5.3.7 MATERIAL ADVERSE CHANGE
From the date hereof through the Closing Date, the Disposable Diaper
Business shall not have experienced a Material Adverse Change.
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5.3.8 TITLE TO ONEONTA REAL PROPERTY
Seller shall have obtained and shall deliver to Purchaser at Closing
good and marketable title to the Purchased Real Property located in Oneonta, New
York, subject only to Permitted Exceptions.
5.3.9 TITLE TO PORTERVILLE REAL PROPERTY
With respect to the Purchased Real Property located in Porterville,
California, Seller shall have obtained and shall deliver to Purchaser at Closing
a quitclaim and release in recordable form from Atchison, Topeka & Santa Fe
Railway Company (or its successor in interest), whereby such company quitclaims,
releases, and extinguishes all rights reserved under that certain Grant Deed
recorded October 20, 1976 in Book 3359, Page 923 of Official Records of Tulare
County, Document No. 49092, other than reserved mineral rights described in the
first paragraph on page 2 (Book 3359, Page 925) of such deed.
5.4 CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated
by this Agreement are subject to the fulfillment at or prior to the Closing of
each of the following conditions, any and all of which may be waived in whole or
in part by Seller, to the extent permitted by applicable law:
5.4.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of Purchaser and PTB contained
herein shall have been true when made and shall be true, in the case of
representations and warranties qualified as to materiality, and true in all
material respects, in the case of representations and warranties not so
qualified, as of the Closing Date as though made on that date, except as
affected by transactions contemplated hereby and except to the extent that such
representations and warranties are made as of a specified date, in which case
such representations and warranties shall be true or true in all material
respects, as the case may be, as of the specified date.
5.4.2 PERFORMANCE OF AGREEMENTS
Purchaser and PTB shall have performed all obligations and agreements
and complied in all material respects with all covenants and conditions
contained in this Agreement to be performed and complied with by them at or
prior to the Closing Date.
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5.4.3 OFFICERS' CERTIFICATES
Seller shall have received certificates of each of PTB's and
Purchaser's respective President or Vice President, dated the Closing Date, in
form and substance reasonably satisfactory to Seller, certifying that the
conditions to PTB's and Purchaser's respective obligations have been fulfilled.
Seller shall have received certificates of each of PTB's and Purchaser's
respective Secretary or Assistant Secretary, dated the Closing Date, in form and
substance reasonably satisfactory to Seller.
5.4.4 OPINION OF COUNSEL FOR PURCHASER AND PTB
Seller shall have received the opinion letter of Perkins Coie, counsel
for PTB and Purchaser, dated the Closing Date, in form and substance reasonably
satisfactory to Seller.
5.4.5 DELIVERY OF PURCHASE PRICE AND DOCUMENTS
Purchaser shall deliver the following funds, documents, agreements and
supporting papers to Seller at the Closing, and the delivery of each shall be a
condition to Seller's performance of its obligations to be performed at the
Closing:
(a) Payment, in same-day funds, to PTI of the full amount of the
Cash Purchase Price;
(b) A certificate or certificates representing the Estimated Stock
Consideration;
(c) A counterpart of the Assignment and Assumption Agreement
executed by Purchaser;
(d) A counterpart of Lease Assignment and Assumptions executed by
Purchaser;
(e) A counterpart of the Stockholder Agreement executed by PTB;
and
(f) Counterparts of each of the other Ancillary Documents to be
executed by Purchaser or PTB duly executed by Purchaser or PTB, as the case may
be.
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ARTICLE VI. NONCOMPETITION
6.1 NONCOMPETITION
During the Noncompetition Term and in the Noncompetition Area, neither
Seller nor any Affiliate that it controls shall in any way, by action or
inaction, directly or indirectly, for itself or for the benefit of any other
person, own, manage, advise, operate, join, Control or participate in the
ownership, management, operation or Control of, consult with or perform similar
services for, or be connected in any manner with, any Competing Business. For
purposes of this Article VI, the term "Competing Business" shall include (a) any
person or entity which, directly or indirectly, conducts a significant business
(meaning a business from which such person or entity derives at least 35% of its
sales or profits) in the manufacture, production, marketing, distribution or
sale of disposable diapers, adult incontinence products or feminine care
products and (b) any division, business unit or other operation of any person or
entity, which division, business unit or other operation, directly or
indirectly, is in the business of manufacturing, producing, marketing,
distributing or selling disposable diapers, adult incontinence products or
feminine care products. Without limiting the generality of the foregoing, Seller
shall be deemed to be related to or connected with a Competing Business if,
among other things, such entity is (a) a partnership in which Seller is a
general or limited partner, (b) a corporation or association of which Seller is
a stockholder (unless the shares of such corporation shall be publicly traded
and Seller does not own more than 2% of such corporation's outstanding shares)
or for which a director or officer of Seller is an officer, employee or
director, or (c) a partnership, corporation or association for which Seller is a
consultant or agent. This paragraph shall not be deemed to prohibit any sale by
Seller of all or any portion of its businesses to a third party.
6.2 REASONABLENESS OF RESTRICTIONS; SEVERABILITY
Each of the parties hereto agrees that all restrictions in this Article
VI are reasonable and valid, and all defenses to the strict enforcement hereof
are hereby waived. Each of the parties acknowledges that each of the time and
space restrictions contained in this Article VI are reasonable and it is the
intent that such restrictions be enforceable to the fullest extent permitted by
law. If any of the activities, time periods or geographical areas specified in
this Article VI are considered by a court of competent jurisdiction as being
unreasonable, the parties hereto agree that such court shall have authority to
limit such activities, time periods or geographical areas to such activities,
time periods or geographical areas as the court deems proper in the
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circumstances, and the parties hereto agree to enter into an amendment to this
Agreement amended in accordance with the findings of such court.
ARTICLE VII. INDEMNIFICATION AND SURVIVAL
7.1 GENERALLY
Seller agrees to indemnify and hold harmless Purchaser and PTB, their
successors and permitted assigns, and the officers, directors, Affiliates,
employees, Controlling persons and agents of the foregoing and to hold each such
party harmless against and in respect of any and all losses, damages, costs and
expenses, including reasonable attorneys' fees, incurred by any such party by
reason of a breach of any of the representations or warranties, or covenants or
agreements or other provisions, contained in this Agreement, damages suffered as
a result of Seller's failure to satisfy the Excluded Liabilities, breach of
undertakings in any other document, supplement, instrument, agreement, letter,
amendment or assignment relating to or executed in connection herewith, or in
any officers' certificate or other certificate delivered to Purchaser, PTB or
Affiliates at or in connection with the Closing. PTB and Purchaser agree,
jointly and severally, to indemnify and hold harmless Seller, its successors and
permitted assigns, and the officers, directors, Affiliates, employees,
Controlling persons and agents of the foregoing and to hold each such party
harmless against and in respect of any and all losses, damages, costs and
expenses, including reasonable attorneys' fees, incurred by such party by reason
of a breach of any of the representations or warranties, or covenants or
agreements or other provisions, contained in this Agreement or damages suffered
as a result of Purchaser's failure to satisfy the Assumed Liabilities, breach of
undertakings in any other document, supplement, instrument, agreement, letter,
amendment or assignment relating to or executed in connection herewith, or in
any officers' certificate or other certificates delivered to Seller or its
Affiliates at or in connection with the Closing. For purposes of the
indemnifications made in this Article VII, all representations and warranties
shall be deemed to have been made as of and on the Closing Date (giving effect
to any revision or update of any Schedule to the Disclosure Memorandum pursuant
to Section 4.1(b)), except to the extent that such representations and
warranties are made as of a specified date, in which case such representations
and warranties shall be true as of the specified date.
7.2 NOTICE
The Indemnitee shall promptly notify the Indemnifying Party in writing
of any matters that may give rise to the right of indemnification hereunder;
provided, however, that failure to give any such notice shall lessen the
Indemnifying Party's
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obligations under this Article VII only to the extent that such failure results
in a materially prejudicial effect.
7.3 PROCEDURE
With respect to claims made by third parties, if Purchaser, PTB or
Seller is threatened with any claim, or any claim is presented to or any action
or proceeding commenced against Purchaser, PTB or Seller that may give rise to
the right of indemnification hereunder, Purchaser, PTB or Seller, as the case
may be (the "Indemnitee"), shall give written notice thereof promptly to the
party or parties bearing the indemnification obligation (the "Indemnifying
Party"); provided, however, that failure to give any such notice shall lessen
the Indemnifying Party's obligations under this Article VII only to the extent
that such failure results in a materially prejudicial effect. The Indemnifying
Party shall have the right to participate in the defense of such claim, action
or proceeding, and, to the extent the Indemnifying Party so desires, jointly
with any other Indemnifying Party similarly notified, to assume the defense
thereof with counsel mutually satisfactory to such parties and the Indemnitee.
If the Indemnifying Party and the Indemnitee agree upon mutually satisfactory
counsel to assume the defense, the Indemnifying Party shall assume the expense
of such counsel's fees and shall no longer assume the expense of the
Indemnitee's attorneys' fees. In the event the Indemnifying Party undertakes to
compromise or defend any such liability, the Indemnifying Party shall so notify
the Indemnitee in writing promptly of its intention to do so, and the Indemnitee
shall cooperate with the Indemnifying Party and its counsel in the compromising
of or the defending against any such liabilities or claims, at the Indemnifying
Party's expense. Such cooperation shall include, but shall not be limited to,
the provision to the Indemnifying Party of reasonable access to the Indemnitee's
business records, research, documents and employees as they relate to the
defense of any indemnified claim. In response to a bona fide settlement offer,
the Indemnifying Party may settle the monetary portion of an indemnifiable
matter that it has duly elected to contest without the Indemnitee's consent
unless such settlement has an adverse effect on the Indemnitee, in which case
such matters shall only be settled with the Indemnitee's consent; provided,
however, that the Indemnifying Party shall not have the right to agree to a
settlement involving injunctive or other equitable relief without obtaining the
Indemnitee's prior written consent. In the event the Indemnitee declines to
consent to the monetary settlement described in the preceding sentence, the
Indemnitee shall have no right to indemnification beyond, and the Indemnifying
Party shall have no obligation to pay damages and attorneys' fees hereunder in
excess of, the amount of the proposed settlement.
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7.4 SURVIVAL
All the representations and warranties made by PTB and Purchaser in
Article III and by Seller in Article II shall survive the Closing for a period
ending on the last day of the month which is the eighteenth month after the
month in which the Closing occurs, except for representations and warranties for
Taxes and ERISA contained in Sections 2.5 and 2.16, which shall survive for 180
days beyond the expiration of the applicable statute of limitations, and
representations and warranties regarding environmental and intellectual property
matters, including, without limitation, those contained in Sections 2.7 and
2.11, which shall survive for five years. Unless specifically limited as to
duration, the agreements, covenants and other obligations under this Agreement
other than the representations and warranties referred to above shall survive
the Closing indefinitely. Each statement appearing in any Schedule to the
Disclosure Memorandum or this Agreement shall survive the Closing for the same
period as the provision of this Agreement to which such Schedule relates. All
indemnification claims under this Agreement shall be made by notice given during
the period specified above for survival of the provision of this Agreement on
which such claim is based. The indemnification obligations for claims that are
timely presented hereunder shall last until the matter giving rise to such
indemnification obligations, including all appeals with respect thereto, has
been fully and finally resolved.
7.5 BASKET
Except as otherwise provided in this Agreement, no claim for
indemnification shall be made by or on behalf of any party under this Article
VII until the aggregate amount of any such claim or claims then or theretofore
made by or on behalf of such party hereunder equals or exceeds $350,000, at
which time the full amount of such losses (including such $350,000) shall be
recoverable hereunder.
7.6 SPECIFIC PERFORMANCE
The parties to this Agreement acknowledge that it may be impossible to
measure in money the damages that a party would incur if any covenant or
agreement contained in this Agreement were not performed in accordance with its
terms and agree that each of the parties hereto shall be entitled to obtain an
injunction to require specific performance of, and prevent any violation of the
terms of, this Agreement, in addition to any other remedy available hereunder.
In any such action specifically to enforce any provision of this Agreement, each
party hereby waives any claim or defense therein that an adequate remedy at law
or in damages exists.
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7.7 EXCLUSIVE REMEDIES
Except with respect to claims based on fraud in the inducement, the
indemnification and specific performance remedies set forth under this Article
VII shall constitute the sole and exclusive remedies of the parties with respect
to any matters arising under or relating to this Agreement.
ARTICLE VIII. TERMINATION
8.1 TERMINATION BY MUTUAL CONSENT
This Agreement may be terminated at any time prior to the Closing
either by the mutual written consent of PTB and PTI or by mutual action of their
respective Boards of Directors.
8.2 TERMINATION BY PTB
This Agreement may be terminated at any time prior to the Closing (upon
written notice from PTB to PTI) by PTB if (a) there has been a material breach
by Seller of any representation or warranty that is not qualified as to
materiality or a breach by Seller of any representation that is qualified as to
materiality, in each case which breach has not been cured within 30 business
days after receipt by Seller of notice of the breach; provided, however, that no
right to terminate this Agreement shall arise from any such breach which results
only in an Excluded Liability and which reasonably could not (x) impair
Purchaser's rights under this Agreement or rights to or use of the Assets, (y)
impair the value of the Disposable Diaper Business to PTB, or (z) result in any
liability or obligation of PTB or Purchaser; or (b) Seller shall have failed to
comply in any material respect with any of its covenants or agreements contained
in this Agreement required to be complied with prior to the date of such
termination, which failure to comply has not been cured within 30 business days
after receipt by Seller of notice of such failure to comply.
8.3 TERMINATION BY PTI
This Agreement may be terminated at any time prior to the Closing (upon
written notice from PTI to PTB) by PTI if (a) there has been a material breach
by PTB or Purchaser of any representation or warranty that is not qualified as
to materiality or a breach by PTB or Purchaser of any representation that is
qualified as to materiality, in each case which breach has not been cured within
30 business days after receipt by PTB or Purchaser of notice of the breach or
(b) PTB or Purchaser shall have failed to comply in any material respect with
any of its covenants or agreements contained in
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this Agreement required to be complied with prior to the date of such
termination, which failure to comply has not been cured within 30 business days
after receipt by PTB and Purchaser of notice of such failure to comply.
8.4 TERMINATION BY EITHER PTB OR PTI
This Agreement may be terminated (upon notice from the terminating
party to the other parties) by action of the Board of Directors of either PTB or
PTI if (a) the Closing shall not have occurred by April 30, 1996; provided,
however, that (i) the right to terminate this Agreement under this clause (a)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure of the
Closing to occur on or before such date and (ii) such date shall be extended
through the completion of any litigation in which the parties are involved
pursuant to Section 4.7(b) in connection with a challenge to the transactions
contemplated hereby on antitrust grounds (but such extension shall terminate no
later than December 31, 1996); (b) any court of competent jurisdiction in the
United States or Governmental Body in the United States shall have issued an
order, decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Closing, and such order, decree, ruling
or other action shall have become final and nonappealable; or (c) PTI shall have
entered into a definitive agreement with respect to a Superior Proposal in a
manner not in contravention of the procedures set forth in Section 4.12.
8.5 CERTAIN PAYMENTS
Notwithstanding any provision of this Agreement to the contrary, if (a)
(i) during the term of this Agreement, Seller shall enter into any agreement in
respect of an Acquisition Proposal in compliance with the procedures set forth
in Section 4.12, and (ii) within one year thereafter Seller shall consummate the
Acquisition Proposal contemplated by such agreement or (b) Seller shall breach
any of its covenants or agreements contained in Section 4.12, then PTI shall
immediately pay to PTB an amount in cash equal to two million dollars
($2,000,000). Nothing contained in this Section 8.5 shall relieve Seller from
any liability for any breach of this Agreement.
8.6 EFFECT OF TERMINATION AND ABANDONMENT
In the event of termination of this Agreement pursuant to this Article
VIII, no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except as
expressly provided in this
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Agreement (including pursuant to Section 8.5) and except that nothing herein
will relieve any party from liability for any breach of this Agreement.
ARTICLE IX. DEFINITIONS
9.1 DEFINED TERMS
As used in this Agreement, the following terms shall have the following
meanings:
"Acquisition Proposal" means any proposal or transaction pursuant to
which a third party would acquire in one transaction or a series of related
transactions all or a substantial portion of the Disposable Diaper Business,
whether by means of a sale, lease, exchange, mortgage, pledge, transfer or other
disposition, merger, consolidation, share exchange, business combination or
other similar transaction, including, without limitation, any acquisition of PTI
(including the Disposable Diaper Business) by any such means.
"Actual Stock Consideration" means a number of whole shares of PTB
Common Stock, rounded to the nearest whole share, equal to (a) $14,500,000 minus
the amount of the Inventory Shortfall divided by (b) the Closing Average.
"Affiliate" of any person (the "Subject") means any other person which,
directly or indirectly, Controls or is Controlled by or is under common Control
with the Subject and, without limiting the generality of the foregoing,
includes, in any event, (a) any person which beneficially owns or holds 25% or
more of any class of voting securities of the Subject or 25% or more of the
legal or beneficial interest in the Subject and (b) any person of which the
Subject beneficially owns or holds 25% or more of any class of voting securities
or 25% or more of the legal or beneficial interest.
"Allowances" is defined in Section 1.3.
"Ancillary Documents" means the Stockholder Agreement, the Bill of
Sale, the Assignment and Assumption Agreement, Lease Assignment and Assumptions
for each Leased Real Property, the Assignment of Patents, the Assignment of
Trademarks, the Deeds, the Management Services Agreement and the Shenandoah
Sublease.
"Assets" is defined in Section 1.1.
"Assignment and Assumption Agreement" is defined in Section 1.7(a).
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"Assignment of Patents" means an Assignment of Patents, in form
mutually acceptable to Seller and Purchaser, covering patents and patent
applications identified in Schedule 1.1.4 to the Disclosure Memorandum as
delivered by Seller to Purchaser on the Closing Date.
"Assignment of Trademarks" means an Assignment of Trademarks, in form
mutually acceptable to Seller and Purchaser, covering trademarks identified in
Schedule 1.1.4 to the Disclosure Memorandum as delivered by Seller to Purchaser
on the Closing Date.
"Assumed Liabilities" is defined in Section 1.3.
"Balance Sheet Date" means October 31, 1995.
"Bill of Sale" is defined in Section 1.7(a).
"Cash Purchase Price" is defined in Section 1.6.1.
"Closing" means the closing of the purchase and sale of the Assets and
the assumption by Purchaser of the Assumed Liabilities on the Closing Date, in
accordance with this Agreement.
"Closing Date" is defined in Section 5.1.
"Closing Average" is defined in Section 1.6.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Competing Business" is defined in Section 6.1.
"Confidentiality Agreement" is defined in Section 4.8.
"Contract" is defined in Section 4.1(b)(ii).
"Control" (including, with correlative meanings, the terms "Controlled
by" and "under common Control with"), as used with respect to any person, means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
"Deeds" means, collectively, the grant deed relating to the Real
Property in Porterville, California, and the bargain and sale deed with
covenants against grantor's
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acts relating to the Real Property in Oneonta, New York, each in form reasonably
acceptable to Purchaser.
"Disclosure Memorandum" means that certain Disclosure Memorandum dated
the date hereof and delivered by Seller to Purchaser on the date hereof in
connection with this Agreement.
"Disposable Diaper Business" is defined in Recital A.
"Disposable Diaper Properties" is defined in Section 2.7(b).
"Division Balance Sheet" is defined in Section 4.15.
"Division Financial Statements" is defined in Section 4.15.
"Employee Benefit Plans" means all employee pension benefit plans, as
defined in Section 3(2) of ERISA, employee welfare benefit plans, as defined in
Section (3)(1) of ERISA, and any deferred compensation, performance, bonus,
incentive, vacation pay, holiday pay, severance, insurance, retirement, excess
benefit, fringe benefit or other plan, trust or arrangement, whether or not
covered by ERISA, whether written or oral, for the benefit of the Disposable
Diaper Business employees.
"Encumbrance" means any lien, mortgage, lease, pledge, deed of trust,
security interest, conditional sales agreement, charge, encumbrance or other
adverse claim or interest of any kind.
"Environmental Laws" means all federal, state and local laws (whether
under common law, statute, ordinance, rule, regulation or otherwise), permits,
orders, decrees, guidelines, standards, policies and other requirements of
Governmental Bodies, whether existing as of the Closing Date or any time prior,
relating to the protection of human health, safety or the environment.
"Estimated Stock Consideration" is defined in Section 1.6.1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Shares" is defined in Section 1.6.2.
"Excluded Assets" is defined in Section 1.2.
"Excluded Liabilities" is defined in Section 1.4.
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"Excluded Real Property" is defined in Section 1.2.4.
"Governmental Body" means any federal, state, municipal, political
subdivision or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign.
"Hazardous Materials" means all chemicals, materials, substances or
wastes that are designated, defined or included in any definition under any
Environmental Laws as dangerous, hazardous, radioactive or toxic or as a
pollutant or contaminant, including, without limitation, asbestos or
asbestos-containing materials, petroleum or petroleum products, polychlorinated
biphenyls and urea formaldehyde.
"Indemnifying Party" is defined in Section 7.4.
"Indemnitee" is defined in Section 7.4.
"Intellectual Property" is defined in Section 1.1.4.
"Inventory" is defined in Section 1.1.3.
"Inventory Shortfall" shall mean the amount, if any, by which the net
book value of the Inventory as of the Closing Date is less than $19,000,000.
"Landlord" is defined in Section 2.6.
"Lease Assignment and Assumption" is defined in Section 1.7(a).
"Leased Real Property" is defined in Section 1.1.7.
"Management Services Agreement" is defined in Section 4.5.
"Material Adverse Change" or "Material Adverse Effect" means, when used
with respect to the Disposable Diaper Business, any change or effect,
respectively, that is or would reasonably be expected (so far as can be foreseen
at the time) to be materially adverse to the business, properties, assets,
liabilities, condition (financial or otherwise), results of operation or
prospects of the Disposable Diaper Business taken as a whole; provided, however,
that for a period of six months after the date of this Agreement the loss of one
or more customers and associated sales volume after the date of this Agreement
shall not be deemed to constitute a Material Adverse Change or a Material
Adverse Effect; provided further, that after the expiration of such six-month
period, any loss of customers or sales volume after the date of this Agreement
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may be considered in determining whether a Material Adverse Change or Material
Adverse Effect has occurred.
"Material Seller Contracts" is defined in Section 2.8.1.
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Nonassignable Assets" is defined in Section 1.9.
"Noncompetition Area" means North and South America.
"Noncompetition Term" means the period commencing on the Closing Date
and ending on the earlier of (a) three years thereafter and (b) the closing of
any transaction involving a change of control of Seller, meaning that the
beneficial owners of the outstanding voting capital stock of Seller immediately
prior to such closing cease to own beneficially at least 50% of the voting
capital stock or assets of the surviving entity immediately following such
closing.
"Notified Parties" is defined in section 4.4(a).
"Notifying Party" is defined in Section 4.4(a).
"October 31 Balance Sheet" means the October 31 Balance Sheet for the
Disposable Diaper Business dated October 31, 1995 attached hereto as Exhibit
9.1-1.
"Permitted Exceptions" means (a) those matters disclosed in Schedule
2.6(b) to the Disclosure Memorandum; (b) easements, servitudes and rights-of-way
of record as do not materially reduce the market value of and are not
inconsistent with the use of the Real Property; (c) rights of the public in any
portion of the premises which may fall within any public street, way or alley;
(d) zoning laws, building lines and building restrictions of record; (e) the
lien of real estate ad valorem taxes not yet due and payable; and (f) other
matters expressly approved in writing by Purchaser.
"Person" means any individual, partnership, joint-stock company, firm,
corporation, association, unincorporated organization, joint venture, trust or
other entity.
"Personal Property" is defined in Section 2.6(a).
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"PTB Common Stock" is defined in Section 1.6.
"Purchased Real Property" is defined in Section 1.1.7.
"Real Property" is defined in Section 2.6(a).
"Release" means releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing or
dumping.
"Relevant Employees" means the employees of Seller listed on Schedule
4.9 to the Disclosure Memorandum.
"Remedy" or "Remediation" means any action to identify, eliminate or
minimize any threat or potential threat posed by Hazardous Materials to human
health, safety or the environment, including, without limitation, any
investigation, cleanup or monitoring activities.
"Returns" is defined in Section 1.5.
"SEC" means the United States Securities and Exchange Commission.
"SEC Documents" means all Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K filed by PTB with the SEC
since PTB's initial public offering, and other documents filed by PTB under
Section 13(a), 14 or 15(d) of the 1934 Act between the date hereof and the
Closing Date.
"Seller" is defined in the first paragraph of this Agreement, provided
that it shall include, for purposes of Section 2.7, Seller's predecessors,
subsidiaries and Affiliates.
"Shenandoah Lease" is defined in Section 2.6(e).
"Shenandoah Real Property" means Seller's leased Real Property located
in Shenandoah, Georgia.
"Shenandoah Sublease" is defined in Section 4.22.
"Stockholder Agreement" means the Stockholder Agreement to be entered
into between PTB and PTI in substantially the form attached hereto as Exhibit
9.1-2.
"Superior Proposal" means a bona fide, written and unsolicited proposal
(which shall include any bona fide, written proposal received from a person with
whom Seller had bona fide discussions concerning a sale of the Disposal Diaper
Business prior to
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November 30, 1995) or offer made by any person (other than PTB and Purchaser) to
acquire the Disposable Diaper Business pursuant to any Acquisition Proposal on
terms that PTI's Board of Directors unanimously determines in good faith, and in
the exercise of reasonable judgment (based on the advice of independent
financial advisors and outside counsel), to be more favorable to PTI and its
stockholders than the transactions contemplated hereby.
"Surveys" is defined in Section 4.14.
"Taxes" means all taxes, charges, fees, levies or other assessments,
including, without limitation, income, excise, gross receipts, personal
property, real property, sales, use, ad valorem, transfer, New York State Real
Property Transfer Gains, franchise, profits, license, withholding, payroll,
employment, severance, stamp, occupation, windfall profits, social security and
unemployment or other taxes imposed by the United States or any agency or
instrumentality thereof, any state, county, local or foreign government, or any
agency or instrumentality thereof, and any interest or fines, and any and all
penalties or additions relating to such taxes, charges, fees, levies or other
assessments.
"Title Company" is defined in Section 4.13.
"Title Policies" is defined in Section 5.3.6(h).
"Trading Day" means any day on which the New York Stock Exchange is
open for trading.
"Transferred Real Property" means the Purchased Real Property and the
Leased Real Property.
9.2 OTHER DEFINITIONAL MATTERS
(a) The words "this Agreement" "hereby," "herein," "hereof" and
"hereunder" and words of similar import shall refer to this Agreement as a whole
and not to any particular provision of this Agreement, and the words "Article,"
"Section," "Schedule," "Exhibit" and like references are to this Agreement,
unless otherwise specified.
(b) Singular and plural forms, as the case may be, of terms defined
herein shall have correlative meanings.
(c) Any defined term that relates to a document shall include within
its definition any amendments, modifications, renewals, restatements,
extensions,
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supplements or substitutions that may heretofore have been or that
may hereafter be executed in accordance with the terms thereof and as may be
permitted by this Agreement.
ARTICLE X. GENERAL
10.1 EXPENSES
(a) Except as otherwise set forth in this Agreement, whether or not the
transactions contemplated by this Agreement are consummated, Purchaser shall pay
its own fees, costs and expenses and Seller shall pay its own fees, costs and
expenses incident to the negotiation, preparation and carrying out of this
Agreement.
(b) Any fees payable directly to the United States government under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or to a
mutually agreed economist (except as set forth in subparagraph (c) below) in
connection with information prepared for use with respect to such filing, shall
be shared equally by Seller and Purchaser.
(c) Seller shall reimburse PTB and Purchaser for 50% of any
out-of-pocket costs and expenses incurred by them, as incurred, including
without limitation fees and expenses of counsel, economists, consultants and
expert witnesses, in connection with their performance of their obligations
under Section 4.7(b)(ii) of this Agreement.
10.2 AMENDMENT
PTB and Seller may amend, modify or supplement this Agreement at any
time, but only in a written amendment duly executed on behalf of each of the
parties.
10.3 BULK SALES
Purchaser hereby waives compliance with the Bulk Sales Laws of the
states of New York, California, Georgia, Oregon and Wisconsin and Seller agrees
to indemnify and hold Purchaser harmless from, and reimburse Purchaser for, any
and all claims, liabilities or obligations that Purchaser may suffer or incur by
virtue of such noncompliance.
10.4 WAIVERS
Any terms, covenants, representations, warranties or agreements of any
party hereto may be waived at any time by an instrument in writing executed by
the party for whose benefit such terms exist. A party's failure at any time or
times to require
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performance of any provisions hereof shall in no manner affect its right at a
later time to enforce the same. No waiver by any party of any condition or
breach of any terms, covenants, representations, warranties or agreements
contained in this Agreement shall be effective unless in writing, and no waiver
in any one or more instances shall be deemed to be a further or continuing
waiver of any other condition or any breach of any other terms, covenants,
representations, warranties or agreements.
10.5 COUNTERPARTS
This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.6 HEADINGS
The headings preceding the text of Sections of this Agreement are for
convenience only and shall not be deemed parts thereof.
10.7 APPLICABLE LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the state of Washington, as applied to contracts
among Washington residents executed and to be fully performed in such state.
10.8 PARTIES IN INTEREST
All the terms and provisions of this Agreement shall be binding on and
inure to the benefit of and be enforceable by the respective successors and
permitted assigns of the parties hereto, whether herein so expressed or not, but
this Agreement shall not be assigned by either party hereto in whole or in part
without the prior written consent of the other party; provided, however, that
Purchaser may at or after the Closing assign all or part of its right, title and
interest in, to and under this Agreement and the documents, agreements and
supporting papers delivered in connection herewith to any Affiliate of Purchaser
which succeeds to the ownership of the Assets or to any lender to Purchaser or
such successor Affiliate from time to time, provided that no such assignment
shall relieve PTB or Purchaser of their obligations hereunder. This Agreement is
not intended, nor shall it be construed, to confer any enforceable rights on any
person not a party hereto.
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10.9 NOTICES
Any notice or demand desired or required to be given hereunder shall be
in writing and deemed given when personally delivered, sent by facsimile or
deposited in the mail, postage prepaid, sent certified or registered, and
addressed to each party as set forth below, or to such other address as any
party shall have previously designated by such a notice. Any notice so delivered
personally shall be deemed to be received on the date of delivery, any notice so
sent by facsimile, on the date reception is confirmed and any notice so mailed,
three days after the date on which it was mailed.
Notices to Purchaser, PTB and Seller shall be sent as follows:
TO PURCHASER OR PTB:
(a) Paragon Trade Brands, Inc.
33325 8th Avenue South
Federal Way, Washington 98003
Attention: Alan J. Cyron
Facsimile: (206) 815-7451
with a copy to:
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Attention: L. Michelle Wilson, Esq.
Facsimile: (206) 583-8500
TO SELLER:
(b) Pope & Talbot, Inc.
1500 S.W. First Avenue
Portland, Oregon 97201
Attention: Carlos M. Lamadrid
Facsimile: (503) 220-2722
with a copy to:
Brobeck, Phleger & Harrison
Spear Street Tower
One Market
-65-
<PAGE> 72
San Francisco, CA 94105
Attention: George D. Tuttle, Esq.
Facsimile: (415) 442-1010
10.10 ENTIRE UNDERSTANDING
The terms set forth in this Agreement are intended by the parties as a
final, complete and exclusive expression of the terms of their agreement and may
not be contradicted, explained or supplemented by evidence of any prior
agreement, any contemporaneous oral agreement or any consistent additional
terms.
[This space intentionally left blank.]
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<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have entered into and signed
this Agreement this 11th day of December, 1995.
PARAGON TRADE BRANDS, INC.
By: /s/ B. V. Abraham
------------------------
Its:
-----------------
PTB ACQUISITION SUB, INC.
By: /s/ B. V. Abraham
------------------------
Its:
-----------------
POPE & TALBOT, INC.
By: /s/ Peter T. Pope
------------------------
Its: Chairman
-----------------
POPE & TALBOT, WIS., INC.
By: /s/ C. Lamadrid
------------------------
Its: Vice President
-----------------
<PAGE> 1
EXHIBIT 4.1
MODIFICATION AGREEMENT
This modification agreement is dated as of January 22, 1996,
and is among POPE & TALBOT, INC., A Delaware corporation (the "Borrower"),
UNITED STATES NATIONAL BANK OF OREGON ("U.S. Bank"), CIBC INC. ("CIBC"), ABN
AMRO BANK N.V. ("ABN"), BANK OF AMERICA ILLINOIS ("BofA"), and WACHOVIA BANK OF
GEORGIA, N.A. ("Wachovia").
Recitals
A. U.S. Bank, CIBC, ABN, BofA, and Wachovia
(individually a "Bank" and collectively the "Banks") are parties to a credit
agreement dated as of May 6, 1992, as modified (the "Credit Agreement"). All of
the capitalized terms used in this modification agreement (this "Agreement") are
defined by the Credit Agreement.
B. The Borrower has signed an agreement to sell certain
of the assets of its diaper line of business (the "Diaper Assets").
C. The Borrower and the Banks desire to enter into this
Agreement to consent to the Borrower's sale of the Diaper Assets and to make
certain modifications to the Credit Agreement.
NOW, THEREFORE, for value, the Borrower and the Banks agree
that:
1. Consent to Transfer of Assets. The Banks consent to the Borrower's sale
of the Diaper Assets subject to the Borrower's payment of at least
$43,000,000 of the net proceeds of sale to the Banks for partial
repayment of the outstanding Loans in accordance with their respective
percentages of the Aggregate Commitment ("prorata"). Upon such payment,
the Aggregate Commitment will be automatically reduced to $75,000,000
which will reduce each of the Bank's Individual Commitment on a prorata
basis.
2. Modification Fee. The Borrower will pay a modification fee of $62,500
to the Banks on the date that this Agreement is signed. The fee will be
shared by the Banks on a prorata basis. If the amount of money
specified in section 1 to be paid to the Banks from the sale of the
Diaper Assets is not received by the Agent on or before March 31, 1996,
then the Borrower will pay an additional fee of $62,500 to the Banks on
March 31 1996, which also will be shared by them on a prorata basis.
3. Interest Coverage Ratio. The Banks hereby waive the Borrower's
compliance with the Interest Coverage Ratio for the 4th quarter of the
1995 Fiscal Year. For the first three quarters of the 1996 Fiscal Year,
the Borrower's compliance with the Interest Coverage Ratio will be
tested on a cumulative, but not on a rolling four-quarter, basis and
then will revert to a rolling four-quarter basis as of the end of the
1996 Fiscal Year and for all
-1-
<PAGE> 2
quarters thereafter. The Borrower must achieve or exceed an Interest
Coverage Ratio of at least 2.25 to 1 for the 1st quarter of the 1996
Fiscal Year, 2.75 to 1 through the 2nd quarter of the 1996 Fiscal Year,
3.50 to 1 through the 3rd quarter of the 1996 Fiscal Year, and 3.50 to
1 for the entire 1996 Fiscal Year. The failure to achieve or exceed
such Interest Coverage Ratio will constitute an event of Default under
the Loan Documents.
4. Capital Expenditures and Investments. The Borrower promises and agrees
that the total of all of its consolidated capital expenditures(1)(which
will not include expenditures funded by insurance proceeds to repair or
rebuild following an insured casualty and which will net out the value
of any trade-ins on equipment items) made after January 1, 1996, and
investments (which will not include overnight or very short-term cash
management activities) made after January 1, 1996, will not exceed
$25,000,000 in the aggregate in any Fiscal Year starting with the 1996
Fiscal Year. The Borrower may not carry over the unused part of such
allowance from one fiscal year to the next. Any note that the Borrower
holds which is referred to by the Borrower and the Banks as a "Grays
Harbor note" will be excluded from the term "investments."
5. Security Interest in Inventory and Accounts. The Borrower and each
Significant Subsidiary will promptly:
a. Sign and deliver to the Agent a security agreement in the form
required by the Agent to create a security interest in such
person's present and after-acquired inventory (including raw
materials, supplies, work in process, and finished goods) and
accounts, products and proceeds, and the books and records
related thereto (the "Collateral(2)") to secure payment and
performance of the Borrower's present and future debts,
liabilities, and obligations to the Banks under the Loan
Documents and the Borrower's P&T, Wis Liability (which was
identified in the modification agreement dated as of October 16,
1995) (collectively, the "Secured Obligations");
b. Sign and deliver to the Agent financing statements (or other
appropriate filings, in the case of Canada) in the form required
by the Agent to perfect such security interest in all
appropriate jurisdictions (including Oregon, South Dakota,
Wyoming, Pennsylvania, Wisconsin, and Canada) and proper places;
and
- ---------------------------
(1)Expenditures for the acquisition or leasing of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs, and
improvements) which should be capitalized under generally accepted accounting
principles on the consolidated balance sheet.
(2)The Diaper Assets will not be included in the Collateral initially,
but the Borrower will sign and deliver documents appropriate for creating and
perfecting a security interest in the Diaper Assets to secure payment and
performance of the Secured Obligations on or about April 1, 1996, unless the
Borrower has closed the sale of the Diaper Assets and paid the $43,000,000 of
net proceeds to the Banks before that date.
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<PAGE> 3
c. Reimburse the Agent for the out-of-pocket cost and expense
incurred by the Agent in creating and perfecting such security
interest, including reasonable attorney fees.
The failure of the Borrower or any Significant Subsidiary to deliver
such security documents or to otherwise cooperate in creating and
perfecting such security interests within 15 days following preparation
of appropriate documents by the Agent and delivery of such documents to
the Borrower or the Significant Subsidiary who is to sign such
documents will be an event of Default under the Loan Documents.
Notwithstanding the foregoing, no significant Subsidiary which is a
"controlled foreign corporation" for the purposes of Section 956 of the
Internal Revenue Code (the "Code") will be required to grant a security
interest if the granting of such security interest would be deemed to
be dividend income taxable to the Borrower under Section 956 of the
code. In such event, however, the Borrower will pledge to the Agent the
maximum number of shares of stock in such Significant Subsidiary as are
possible under Section 956 of the code without triggering such tax
liability as additional security for payment and performance of the
Secured Obligations and the Significant Subsidiary separately will
promise and agree in writing with the Agent that the Significant
Subsidiary will not transfer (sell, lease, encumber, grant security
interests, or otherwise dispose of) any significant or essential part
of or interest in its assets or incur any additional debts or
liabilities in any significant amount unless such transfer or
incurrence of indebtedness occurs in the ordinary course of business,
is permitted by the Credit Agreement, or has been approved in advance
and in writing by the Agent. Such pledge and negative pledge agreement
will be signed and delivered (and the certificates for the pledged
stock delivered) within the same period of time that is allowed for
signing and delivering security documents.
6. Miscellaneous. The parties agree to issue any additional documents and
instruments reasonably necessary to effectuate the objectives of this
Agreement. The Loan Documents will continue in full force and effect as
modified by this Agreement. This Agreement may be signed in one or more
counterparts but all such counterparts will constitute but one
agreement. The Loan Documents, as modified by this Agreement, are
intended to be the complete, final, and exclusive statement of the
terms upon which the Banks make their Individual Commitments to the
Borrower and the Borrower promises to repay the Loans.
-3-
<PAGE> 4
7. Effective Date. This Agreement will become effective only when U.S.
Bank, in its capacity as administrative agent for Banks (the "Agent"),
has received (a) by facsimile the signature page signed by the Borrower
and the signature page(s) signed by the Majority Banks and (b) the
modification fee.
If the Borrower or a Bank delivers a facsimile of its signature, such
delivery will constitute the promise of such person to deliver
sufficient copies of the manually signed signature page for
distribution to each other part of the Credit Agreement.
POPE & TALBOT, INC. UNITED STATES NATIONAL BANK
OF OREGON
By /s/ Carlos M. Lamadrid By /s/ Janice T. Thede
------------------------------------ ---------------------------------
Carlos M. Lamadrid Janice T. Thede
Chief Financial Officer Vice President
CIBC INC. ABN AMRO BANK N.V.
By ABN AMRO NORTH AMERICA, Inc.,
By /s/ Ray Mendoza its agent
------------------------------------
Ray Mendoza
Vice President
By /s/ Leif Olsson
---------------------------------
By /s/ David McGinnis
---------------------------------
David McGinnis
Vice President and Director
BANK OF AMERICA ILLINOIS WACHOVIA BANK OF GEORGIA,
NATIONAL ASSOCIATION
By /s/ Michael J. Balok By /s/ William F. Hamlet
------------------------------------ ---------------------------------
Michael J. Balok William F. Hamlet
Managing Director Senior Vice President
-4-
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 8-K into the Company's previously
filed Registration Statement No. 33-34996 on Form S-8 and Registration Statement
No. 33-64764 on Form S-8.
ARTHUR ANDERSEN LLP
Portland, Oregon
February 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 13826
<SECURITIES> 0
<RECEIVABLES> 52931
<ALLOWANCES> 0
<INVENTORY> 68710
<CURRENT-ASSETS> 207252
<PP&E> 457959
<DEPRECIATION> 232199
<TOTAL-ASSETS> 472227
<CURRENT-LIABILITIES> 113495
<BONDS> 138514
0
0
<COMMON> 13972
<OTHER-SE> 175720
<TOTAL-LIABILITY-AND-EQUITY> 472227
<SALES> 524409
<TOTAL-REVENUES> 524409
<CGS> 510663
<TOTAL-COSTS> 510663
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13784
<INCOME-PRETAX> (21347)
<INCOME-TAX> (7551)
<INCOME-CONTINUING> (13796)
<DISCONTINUED> (11042)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24838)
<EPS-PRIMARY> (1.86)
<EPS-DILUTED> (1.86)
</TABLE>
