AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1994
Registration No. 33-23826, 33-43448, 33-51876 and 33-51557
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 10
POST-EFFECTIVE AMENDMENT NO. 6
POST-EFFECTIVE AMENDMENT NO. 3
AND POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENTS
UNDER
THE SECURITIES ACT OF 1933
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FORT HOWARD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 2699 39-1090992
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Code Number) Identification No.)
1919 South Broadway
Green Bay, Wisconsin 54304
(414) 435-8821
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
James W. Nellen II
Vice President and General Counsel
Fort Howard Corporation
1919 South Broadway
Green Bay, Wisconsin 54304
(414) 435-8821
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
Pursuant to Rule 429 under the Securities Act of 1933, the
Prospectus included in this Registration Statement is a combined Prospectus
and relates to Registration Statement No. 33-23826 filed by the Registrant and
declared effective June 21, 1991, to Registration Statement No. 33-43448 filed
by the Registrant and declared effective February 13, 1992, to Registration
Statement No. 33-51876 filed by the Registrant and declared effective
March 12, 1993 and to Registration Statement No. 33-51557 filed by the
Registrant and declared effective February 2, 1994. This Registration
Statement constitutes Post-Effective Amendment No. 10 to Registration
Statement No. 33-23826, Post-Effective Amendment No. 6 to Registration
Statement No. 33-43448, Post-Effective Amendment No. 3 to Registration
Statement No. 33-51876 and Post-Effective Amendment No. 2 to Registration
Statement No. 33-51557, and shall hereafter become effective concurrently with
the effectiveness of this Registration Statement and in accordance with
Section 8(c) of the Securities Act of 1933. The Prospectus included in this
Registration Statement has been prepared in accordance with the requirements
of Form S-1 and as it relates to Registration Statement No. 33-43448,
Registration Statement No. 33-51876 and Registration Statement No. 33-51557,
is filed pursuant to Rule 401 under the Securities Act of 1933. The
registration statements amended hereby are collectively referred to herein as
the "Registration Statement."
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. [ x ]
FORM S-1
REGISTRATION STATEMENT
Cross Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Item Number and Caption Caption in Prospectus
----------------------- ---------------------
1. Forepart of the Registration Statement
and Outside Front Cover Page of Prospectus.. Facing Page; Cross Reference
Sheet; Outside Front Cover
Page
2. Inside Front and Outside Back Cover
Page of Prospectus ......................... Inside Front Cover Page;
Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges ......... Prospectus Summary; The
Company; Risk Factors;
Selected Historical
Consolidated Financial Data
4. Use of Proceeds ............................ Use of Proceeds
5. Determination of Offering Price ............ Not Applicable
6. Dilution ................................... Not Applicable
7. Selling Security Holders ................... Not Applicable
8. Plan of Distribution ....................... Not Applicable
9. Description of Securities to be Registered . Prospectus Summary;
Description of the 12 5/8%
Debentures; Description of
the 14 1/8% Debentures;
Description of the 9 1/4%
Notes and the 10% Notes;
Description of the 8 1/4%
Notes and the 9% Notes;
Description of the Pass
Through Certificates;
Description of the Secured
Notes; Description of the
Recognition Instrument;
Certain Federal Income Tax
Considerations Applicable to
the 1988 Securities; Certain
Federal Income Tax
Considerations Applicable
to the 1993 Notes; Certain
Federal Income Tax
Considerations Applicable to
the 1994 Notes; Certain
Federal Income Tax
Considerations Applicable to
the Pass Through
Certificates
10. Interests of Named Experts and Counsel ..... Legal Matters
11. Information with Respect to the Registrant
(a) Description of Business ................ Prospectus Summary; The
Company; Business
(b) Description of Property ................ Business
(c) Legal Proceedings ...................... Business; Legal Proceedings
(d) Common Equity Securities ............... Not Applicable
(e) Financial Statements ................... Consolidated Financial
Statements
Item Number and Caption Caption in Prospectus
----------------------- ---------------------
(f) Selected Financial Data ................ Prospectus Summary; Selected
Historical Consolidated
Financial Data
(g) Supplementary Financial Information .... Consolidated Financial
Statements
(h) Management's Discussion and Analysis
of Financial Condition and Results of
Operations ... ....................... Management's Discussion and
Analysis of Consolidated
Financial Condition and
Results of Operations
(i) Disagreements with Accountants ......... Not Applicable
(j) Directors and Executive Officers ....... Management
(k) Executive Compensation ................. Management
(l) Security Ownership of Certain
Beneficial Owners and Management........ The Company; Management;
Ownership of Common Stock
(m) Certain Relationships and Related
Transactions ........................... Management; Ownership
of Common Stock; Certain
Transactions; Other
Transactions; Market-Making
Activities of MS&Co.
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities ................................ Not Applicable
PROSPECTUS
FORT HOWARD CORPORATION
12 5/8% Subordinated Debentures Due 2000
14 1/8% Junior Subordinated Discount Debentures Due 2004
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FORT HOWARD CORPORATION
9 1/4% Senior Notes Due 2001
10% Subordinated Notes Due 2003
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FORT HOWARD CORPORATION
8 1/4% Senior Notes Due 2002
9% Senior Subordinated Notes Due 2006
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FORT HOWARD CORPORATION
1991 Pass Through Trust
PASS THROUGH CERTIFICATES, SERIES 1991
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The 12 5/8% Debentures will mature on November 1, 2000, and may be
redeemed in whole or in part at the option of the Company at any time at the
redemption prices set forth herein. See "Description of the 12 5/8%
Debentures."
The 14 1/8% Debentures were sold at a substantial discount from their
principal amount, and there will not be any periodic payment of interest prior
to May 1, 1995. See "Certain Federal Income Tax Considerations Applicable to
the 1988 Securities" for a discussion of the federal income tax treatment of
the 14 1/8% Debentures under the original issue discount rules. The 14 1/8%
Debentures will bear interest, which will be payable in cash, at a rate of
14 1/8% from and after November 1, 1994, will mature on November 1, 2004, and
may be redeemed in whole or in part at the option of the Company at any time,
at 100% of the principal amount plus accrued interest. See "Description of
the 14 1/8% Debentures."
(Continued on following page)
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SEE "RISK FACTORS" FOR A DISCUSSION OF RISK FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING AN INVESTMENT IN THE 1988 SECURITIES, THE 1993 NOTES,
THE 1994 NOTES OR THE PASS THROUGH CERTIFICATES.
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NEITHER THE 1988 SECURITIES, THE 1993 NOTES, THE 1994 NOTES NOR THE PASS
THROUGH CERTIFICATES HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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- -----------------------, 1994
The 9 1/4% Notes will mature on March 15, 2001 and are not redeemable
prior to maturity.
The 10% Notes will mature on March 15, 2003, and are redeemable at the
option of the Company in whole or in part, at any time on or after March 15,
1998, initially at 105% of their principal amount, plus accrued interest,
declining to 100% of their principal amount, plus accrued interest, on or
after March 15, 2002. In addition, at the option of the Company at any time
prior to March 15, 1995, up to $75 million aggregate principal amount of the
10% Notes will be redeemable from the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at 110% of the principal
amount thereof, plus accrued interest. See "Description of the 9 1/4% Notes
and the 10% Notes."
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The 8 1/4% Notes will mature on February 1, 2002 and are not redeemable
prior to maturity.
The 9% Notes will mature on February 1, 2006 and are redeemable at the
option of the Company in whole or in part, at any time on or after February 1,
1999, initially at 104.5% of their principal amount, plus accrued interest,
declining to 100% of their principal amount, plus accrued interest, on or
after February 1, 2001. In addition, at the option of the Company at any time
prior to February 1, 1997, up to $227.5 million aggregate principal amount of
the 9% Notes are redeemable from the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at 109% of the principal
amount thereof, plus accrued interest. See "Description of the 8 1/4% Notes
and the 9% Notes."
The 8 1/4% Notes and the 9 1/4% Notes are senior unsecured obligations
of the Company and rank pari passu in right of payment with the Pass Through
Certificates (as defined below) and all Senior Debt (as such term is defined
in the applicable indentures of the Company). The 9% Notes, the 10% Notes,
the 12 5/8% Debentures and the 14 1/8% Debentures constitute unsecured
obligations subordinated in right of payment to all Senior Debt. In the case
of the 9% Notes, Senior Debt includes the 8 1/4% Notes, the 9 1/4% Notes and
the Pass Through Certificates. In the case of the 10% Notes and the 12 5/8%
Debentures, Senior Debt includes the 8 1/4% Notes, the 9 1/4% Notes, the 9%
Notes, and the Pass Through Certificates. In the case of the 14 1/8%
Debentures, Senior Debt includes the 8 1/4% Notes, the 9 1/4% Notes, the Pass
Through Certificates, the 9% Notes, the 10% Notes and the 12 5/8% Debentures.
As of March 31, 1994, Senior Debt was approximately $1.7 billion with respect
to the 9% Notes, $2.4 billion with respect to the 10% Notes and the 12 5/8%
Debentures, and $2.8 billion with respect to the 14 1/8% Debentures. See
"Risk Factors - Risk Factors Relating to the Company--Subordination and Effect
of Asset Encumbrances," "Description of the 12 5/8%
Debentures--Subordination," "Description of the 14 1/8% Debentures--
Subordination," "Description of the 9 1/4% Notes and the 10% Notes--
Subordination" and "Description of the 8 1/4% Notes and the 9% Notes--
Subordination."
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Each Pass Through Certificate represents a fractional undivided interest
in the Fort Howard Corporation 1991 Pass Through Trust (the "Pass Through
Trust") formed pursuant to a pass through trust agreement (the "Pass Through
Trust Agreement") by and between Fort Howard Corporation (the "Company" or the
"Lessee") and Wilmington Trust Company (the "Pass Through Trustee"), as
trustee under the Pass Through Trust Agreement. The property of the Pass
Through Trust consists of secured notes (the "Secured Notes") issued on a
nonrecourse basis by the owner trustee (the "Owner Trustee") in connection
with leveraged lease transactions to finance or refinance not more than 85% of
the cost of acquiring the Company's interest in (i) the Phase IV paper
manufacturing facility (the "Facility") (which includes a twin wire Beloit
tissue machine and related structures and equipment), (ii) the Phase IV Power
Plant (the "Power Plant") (which includes a coal-fired fluidized bed boiler
and related structures and equipment) and (iii) the "1990 Equipment" and "1991
Equipment" (which include three groups of certain paper manufacturing
production equipment, consisting of converting, shipping, pulp processing and
machine shop equipment and a package boiler) (each an "Equipment Group," and
together with the Facility and the Power Plant, the "Assets"), all located in
Effingham County, Georgia, that have been leased by the Owner Trustee to the
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Company. The Company's interest in the Assets acquired constituted a
leasehold interest pursuant to a lease with respect to, among other things,
the Assets from the Effingham County Industrial Development Authority to the
Company.
The Secured Notes were issued in series under an indenture (the "Secured
Note Indenture") with a separate series relating to each of the Facility, the
Power Plant and each Equipment Group. Interest will be passed through on the
Pass Through Certificates at the rate per annum which is the interest rate
borne by the Secured Notes. Each series of Secured Notes is secured by a
security interest in all of the Assets, the leases (the "Pass Through
Certificate Leases" or the "Leases") and certain other documents relating
thereto, including the right to receive rentals payable by the Company
pursuant to the leases. Amounts payable under the leases will be at least
sufficient to pay in full when due all payments of principal of and interest
on the Secured Notes held in the Pass Through Trust. However, neither the Pass
Through Certificates nor the Secured Notes are obligations of, or guaranteed
by, the Company. Unless the Secured Notes are earlier redeemed, on the final
distribution date 74.20% (or $62,041,625) of the principal amount of the Pass
Through Certificates will be distributed to Certificateholders. Unless the
Secured Notes are refunded, refinanced or sold to a third party on or prior to
the final distribution date, the source of payment on the final distribution
date shall be a rental payment by the Company under the leases. There can be
no assurance that the Company will have the financial ability to make such
rental payment. See "Risk Factors -- Risk Factors Relating to the Pass
Through Certificates -- Potential Inability to Make Payment on Final
Distribution Date."
Interest paid on the Secured Notes held in the Pass Through Trust will
be passed through to the Certificateholders of the Pass Through Trust on
January 2 and July 2 of each year at a rate per annum equal to 11% until the
final distribution date (January 2, 2002). Principal paid on the Secured Notes
held in the Pass Through Trust will be passed through to the
Certificateholders of the Pass Through Trust in scheduled amounts on January 2
or July 2, or both, of each year, continuing until the final distribution date
(January 2, 2002) unless earlier redeemed. The Secured Notes may not be
optionally redeemed on or prior to the seventh anniversary of the issuance of
the Pass Through Certificates, except as described below. Thereafter, they
may be redeemed at a price equal to the unpaid principal amount thereof plus
accrued interest thereon to the redemption date. In addition, the Secured
Notes are subject to redemption in whole or in part at the same price
following the occurrence of an Event of Loss to an Asset, in certain cases of
obsolescence of any Asset, and during the continuance of any Lease Event of
Default. The Owner Trustee may purchase or redeem the Secured Notes at the
same price so long as a Secured Note Indenture Event of Default resulting from
a Lease Event of Default shall have occurred and be continuing. The
Collateral Trustee may purchase the Secured Notes at the same price if both a
Lease Event of Default and an event of default under certain of the Company's
senior indebtedness shall have occurred and be continuing.
The Company's obligations under the Leases rank pari passu in right of
payment with all other general obligations of the Company. However, the
indebtedness under the Bank Credit Agreement (pursuant to which $526 million
principal amount is outstanding or committed as of March 31, 1994 and pursuant
to which $582 million principal amount may be outstanding at any one time),
the Senior Note Purchase Agreement dated as of September 11, 1991 (the "Senior
Secured Note Agreement") (pursuant to which $300 million aggregate principal
amount of Senior Secured Notes due 1997 through 2000 (the "Senior Secured
Notes") was outstanding as of March 31, 1994) and indebtedness under a term
loan agreement dated as of March 22, 1993 between the Company and Bankers
Trust Company (the "1993 Term Loan Agreement") (pursuant to which $100 million
principal amount (the "1993 Term Loan") was outstanding as of March 31, 1994)
are secured by essentially all the assets of the Company, including the
Company's leasehold interest in the Assets. The holders of such indebtedness
will be entitled to payment of their indebtedness out of the proceeds of such
collateral prior to the holders of any general unsecured obligations of the
Company, including the Leases. Other than the covenants described in Appendix
II, there are no contractual limits enforceable by the Certificateholders on
the Company's ability to incur indebtedness pari passu to the Leases and/or
secured by any or all of the Company's assets.
No employee benefit plan subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or individual retirement
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account or employee benefit plan subject to Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code"), may acquire or hold the Pass
Through Certificates. Certain governmental and non-electing church plans,
however, are not subject to Title I of ERISA or Section 4975 of the Code and,
therefore, may invest in the Pass Through Certificates. The purchase by any
person of any Pass Through Certificates constitutes a representation by such
person to the Company, the Owner Participant, the Pass Through Trustee, the
Owner Trustee and the Secured Note Indenture Trustee that such person is not
an ERISA Plan and that such person is not acquiring and has not acquired such
Pass Through Certificate with assets of an ERISA Plan.
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This Prospectus is to be used by Morgan Stanley & Co. Incorporated
("MS&Co.") in connection with offers and sales of the 1988 Securities (as
defined below), the 1993 Notes (as defined below), the 1994 Notes (as defined
below) and the Pass Through Certificates (as defined below) in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. MS&Co. may act as principal or agent in such transactions. See
"Market Making Activities of MS&Co."
No person has been authorized in connection with any offer made hereby
to give any information or to make any representations other than those
contained or incorporated by reference in this Prospectus in connection with
the offer contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or by MS&Co. This Prospectus does not constitute an
offer to sell or the solicitation of an offer to buy securities other than the
securities to which it relates or any offer to sell or the solicitation of an
offer to buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as
of any time subsequent to its date.
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TABLE OF CONTENTS
Page
Additional Information ................................................... 5
Reports to Certificateholders by the Pass Through Trustee ................ 6
Prospectus Summary ....................................................... 7
The Company .............................................................. 20
Risk Factors ............................................................. 21
Use of Proceeds .......................................................... 28
Description of Certain Indebtedness ...................................... 29
Selected Historical Consolidated Financial Data .......................... 36
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations .......................... 39
Business ................................................................. 48
Legal Proceedings ........................................................ 53
Management ............................................................... 54
Ownership of Common Stock ................................................ 58
Certain Transactions ..................................................... 59
Other Transactions ....................................................... 62
Description of the 12 5/8% Debentures..................................... 63
Description of the 14 1/8% Debentures .................................... 82
Certain Federal Income Tax Consequences Applicable to the 1988 Securities. 89
Description of the 9 1/4% Notes and the 10% Notes ........................ 94
Certain Federal Income Tax Consequences Applicable to the 1993 Notes...... 121
Description of the 8 1/4% Notes and the 9% Notes ......................... 123
Certain Federal Income Tax Consequences Applicable to the 1994 Notes ..... 150
Formation of the Pass Through Trust ...................................... 152
Diagram of Payments ...................................................... 152
Description of the Pass Through Certificates ............................. 153
Description of the Secured Notes ......................................... 163
Description of the Recognition Instrument ................................ 182
Certain Federal Income Tax Consequences Applicable
to the Pass Through Certificates ....................................... 183
Certain Delaware Taxes Relating to the Pass Through Certificates ......... 185
ERISA Considerations Applicable to Pass Through Certificates ............. 186
Marketing-Making Activities of MS&Co...................................... 186
Legal Matters............................................................. 186
Experts................................................................... 187
Index to Consolidated Financial Statements ............................... F-1
Glossary of Certain Terms ..........................................Appendix I
Description of Certain Covenants ..................................Appendix II
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits and schedules thereto) under the Securities Act, with
respect to the 1988 Securities, the 1993 Notes, the 1994 Notes and the Pass
Through Certificates (each as defined below). This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission, and to which reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Registration Statement and the exhibits and schedules thereto, as
well as all such reports and other information filed with the Commission may
be inspected at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and are also available for inspection and copying at prescribed rates at the
regional offices of the Commission located at 500 West Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048, and at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
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The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith is required to file reports and other information with
the Commission. The Company's obligation under the Exchange Act to file
periodic reports with the Commission will be suspended if each of the 8 1/4%
Notes, the 9 1/4% Notes, the 12 5/8% Debentures, the 9% Notes, the 10% Notes,
the 14 1/8% Debentures (each as defined below), the Pass Through Certificates
and each other issue of debt securities then outstanding are held of record by
fewer than 300 holders at the beginning of any fiscal year of the Company.
Accordingly, in the absence of any other obligation or undertaking to file
reports with the Commission, if there are fewer than 300 holders of each of
the 8 1/4% Notes, the 9 1/4% Notes, the 12 5/8% Debentures, the 9% Notes, the
10% Notes, the 14 1/8% Debentures, and the Pass Through Certificates as of the
beginning of any such fiscal year, the Company may cease to file reports with
the Commission in respect of such fiscal year. However, the Company will be
required to continue to file reports with the Commission for fiscal years in
which the Registration Statement or an amendment to the Registration Statement
is filed and becomes effective. In addition, the Company will be required to
continue to file reports with the Commission if any of the 1988 Securities,
the 1993 Notes, the 1994 Notes or the Pass Through Certificates are listed on
a national securities exchange or if MS&Co. is required, as an affiliate of
the Company, to deliver a prospectus in connection with market-making
activities in the 1988 Securities, the 1993 Notes, the 1994 Notes or the Pass
Through Certificates in which it engages. None of the Company's securities is
currently listed on any securities exchange.
The respective indentures under which the 1993 Notes and the 1994 Notes
were issued require the Company, and the Company intends, to file with the
Commission and distribute to the holders of the 1993 Notes and the 1994 Notes
annual reports containing consolidated financial statements and the related
report of independent public accountants and quarterly reports containing
unaudited condensed consolidated financial statements for the first three
quarters of each fiscal year for so long as any 1993 Notes or 1994 Notes are
outstanding.
In the event the Company ceases to file periodic reports with the
Commission, the Company intends to distribute to the holders of the 1988
Securities or the Pass Through Certificates annual reports containing audited
consolidated financial statements and a report thereon by the Company's
independent public accountants and, upon the request of any holder of
securities, quarterly reports for the first three quarters of each fiscal year
containing unaudited condensed consolidated financial information.
REPORTS TO CERTIFICATEHOLDERS BY THE PASS THROUGH TRUSTEE
Wilmington Trust Company, as Pass Through Trustee for the holders of the
Pass Through Certificates, will provide to such holders certain periodic
statements concerning distributions made with respect to the Pass Through
Trust. The Pass Through Trustee will include with each distribution of a
Scheduled Payment or a Special Payment (as defined herein) to
Certificateholders a statement giving effect to such distribution and setting
forth the amount of such distribution allocable to principal and interest,
Pool Balance and the Pool Factor (each as defined below). In addition, after
the end of each calendar year, the Pass Through Trustee will furnish the
Certificateholders with a statement containing the sum of the amounts
distributed to such Certificateholders allocable to principal and interest for
such calendar year, or a portion of such calendar year, and such other items
as are readily available to the Pass Through Trustee and which are necessary
for a Certificateholder's preparation of its federal income tax returns. The
information contained in such reports will not be examined or reported upon by
any independent public accountant, nor will any report of any independent
public accountant with respect to such information be included. See
"Description of the Pass Through Certificates--Reports to Certificateholders."
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by the detailed
information and consolidated financial statements found elsewhere in this
Prospectus.
THE COMPANY
Fort Howard Corporation (the "Company"), founded in 1919, is a major
manufacturer, converter and marketer of a diversified line of single-use
sanitary tissue paper products for the home and away-from-home markets. The
Company's principal products include paper towels, bath tissue, table napkins,
wipers and boxed facial tissue. The Company produces and ships its products
from manufacturing facilities located in Wisconsin, Oklahoma, Georgia, and the
United Kingdom.
The Company believes that it is the largest producer of tissue products
sold into the domestic commercial (away-from-home) market. The Company sells
a majority of its tissue products through paper and institutional food
wholesalers into commercial markets. The Company continues to expand its
domestic consumer tissue business for the home market. Tissue products for
household use are sold principally through brokers to accounts that include
major food store chains, mass merchandisers and wholesale grocers. The
Company's domestic tissue products for home use are sold under the brand names
SOFT 'N GENTLE, MARDI GRAS, GREEN FOREST, PAGE and SO-DRI.
The Company's principal markets are in the United States where the
Company believes, based on an analysis of publicly available information, that
its operating income margins are higher than those of its publicly reporting
competition. A key factor contributing to these high operating income margins
has been the Company's proprietary de-inking technology, which enables it to
use a broad range of wastepaper grades and process wastepaper efficiently to
recover the fibers which are the principal raw material in papermaking.
However, the Company's operating income margins have been adversely affected
by the adverse tissue industry operating conditions experienced since 1991,
and continue to be affected by low pricing resulting in part from relatively
low industry operating rates. Announced industry capacity additions through
1995 may offset the effects of the current general economic recovery.
Consequently, until industry operating rates improve, the Company's net
selling prices and operating income margins may continue to be adversely
affected.
The Acquisition
In 1988, FH Acquisition Corp. ("FH Acquisition") was organized on behalf
of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II") to effect
the acquisition of the Company. Pursuant to an Agreement and Plan of Merger
dated as of June 25, 1988 (the "Merger Agreement"), FH Acquisition commenced a
tender offer (the "Offer") on July 1, 1988 for all outstanding shares at $53
per share in cash, and subsequently purchased approximately 53.5 million
shares in the Offer. Thereafter, FH Acquisition was merged with and into the
Company (the "Merger"). The Offer and the Merger are referred to herein
collectively as the "Acquisition."
The Acquisition was financed in part through borrowings under an Amended
and Restated Credit Agreement dated as of October 24, 1988 (as amended, the
"Bank Credit Agreement") among FH Acquisition and a syndicate of banks (the
"Banks") and Bankers Trust Company ("Bankers Trust"), as Agent, the issuance
and sale of FH Acquisition's Series A, Series B and Series C Subordinated
Floating Rate Bridge Notes (collectively, the "Bridge Notes") and the issuance
and sale (the "Equity Financing") of shares of common stock of FH Holdings
Corp. ("Holdings"). All persons who purchased common stock of Holdings
received in connection with the Merger an equal number of shares of common
stock of the Company. All references in this Prospectus to "Common Stock"
refer to Common Stock of the Company subsequent to the Merger. Borrowings
under the Bank Credit Agreement to finance the Acquisition (other than the
Bank Bridge Loan as described below), the issuance of the 1988 Securities (as
described below), and the Equity Financing, in each case after giving effect
to the application of the proceeds therefrom, are hereinafter referred to
collectively as the "Financing." See "Use of Proceeds" and "Description of
Certain Indebtedness."
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MSLEF II, an affiliate of MS&Co., is a limited partnership formed to
finance investments in industrial and other companies. Its principal
investors include major U.S. and foreign banks, insurance companies, pension
funds and corporations. As a result of the Acquisition, the Company became
privately held by MSLEF II and other investors.
The 1988 Securities
The 12 5/8% Subordinated Debentures due 2000 (the "12 5/8% Debentures")
and the 14 1/8% Junior Subordinated Discount Debentures due 2004 (the "14 1/8%
Debentures") are collectively referred to herein as the "1988 Securities."
The 12 5/8% Debentures
Maturity Date ..................November 1, 2000.
Interest Payment Dates .........May 1 and November 1.
Optional Redemption ............The 12 5/8% Debentures may be redeemed in
whole or in part at the option of the Company at any time at the redemption
prices set forth herein.
Subordination ...................The 12 5/8% Debentures are subordinated in
right of payment to all Senior Debt (as such term is defined in the respective
indentures) of the Company, which includes the Company's obligations under the
Bank Credit Agreement, the 1993 Term Loan Agreement (as defined below), the
Senior Secured Note Agreement (as defined below), the 8 1/4% Notes (as defined
below), the 9 1/4% Notes (as defined below), and capital lease obligations,
including the Pass Through Certificate Leases (as defined below) and certain
other borrowings of the Company and are subordinate to the 9% Notes (as
defined below). The 12 5/8% Debentures rank pari passu in right of payment
with the 10% Notes (as defined below). The 12 5/8% Debentures are senior in
right of payment to the 14 1/8% Debentures. As of March 31, 1994, Senior Debt
was approximately $ 2.4 billion with respect to the 12 5/8% Debentures.
Additional Senior Debt may be incurred to the extent permitted by the Bank
Credit Agreement, the 1993 Term Loan Agreement, the Senior Secured Note
Agreement, the 1993 Note Indentures (as defined below), the 1994 Note
Indentures (as defined below) and the 12 5/8% Debenture Indenture (as defined
below). The Company's obligations to the Banks under the Bank Credit
Agreement, to the Lenders (as defined below) under the 1993 Term Loan
Agreement and to the Purchasers (as defined below) of the Senior Secured Notes
(as defined below) are secured by first liens on inventory, accounts
receivable, certain patents and trademarks, and certain stock of subsidiaries
of the Company, as well as mortgages on the Company's three domestic tissue
mills (the "Shared Collateral"). Indebtedness under capital lease
obligations, including the Pass Through Certificate Leases, and other secured
indebtedness are secured by certain assets of the Company and its
subsidiaries. The indebtedness of the Company's foreign subsidiaries is
secured by certain assets of those subsidiaries. The secured indebtedness has
priority with respect to the assets pledged as collateral to secure such
indebtedness. The Pass Through Certificates are indirectly secured by a lien
on an owner trustee's interest in a paper manufacturing facility, power plant
and certain related equipment located at the Company's tissue mill in Georgia
(the "Savannah River" mill), all of which are leased to the Company under the
Pass Through Certificate Leases. Claims of holders of the 12 5/8% Debentures,
as creditors of the Company, are junior in right of payment to existing and
future liabilities of the Company's subsidiaries including trade payables. As
of March 31,, 1994, the amount of the liabilities of all the Company's
subsidiaries was approximately $124 million, including trade payables. See
"Risk Factors--Risk Factors Relating to the Company --Subordination and Effect
of Asset Encumbrances."
Covenants .........................The 12 5/8% Debenture Indenture contains
covenants which, among other things, limit the incurrence of indebtedness and
the payment of dividends and the making of other distributions by the Company
and certain of its subsidiaries, the ability of the Company and certain of its
subsidiaries to create liens, and the ability of the Company to merge or
consolidate or to transfer substantially all its assets.
For more complete information regarding the 12 5/8% Debentures, see
"Description of the 12 5/8% Debentures."
- 8 -
The 14 1/8% Debentures
Maturity Date .....................November 1, 2004.
Yield and Interest ................The 14 1/8% Debentures were sold at a
substantial discount from their principal amount, and there will not be any
periodic payment of interest prior to May 1, 1995. For a discussion of the
federal income tax treatment of the 14 1/8% Debentures under the original
issue discount rules, see "Certain Federal Income Tax Considerations
Applicable to the 1988 Securities." The 14 1/8% Debentures were initially sold
at a Price to the Public representing a yield to maturity of 14 1/8%, computed
on the basis of semiannual compounding. From and after November 1, 1994, the
14 1/8% Debentures will bear interest which will be payable in cash at a rate
of 14 1/8% per annum.
Interest Payment Dates ............Interest is payable on May 1 and
November 1, commencing May 1, 1995.
Optional Redemption ...............The 14 1/8% Debentures may be redeemed in
whole or in part at the option of the Company at any time at 100% of the
principal amount plus accrued interest to the redemption date.
Subordination ......................The 14 1/8% Debentures are subordinated in
right of payment to all Senior Debt (as such term is defined in the 14 1/8%
Debenture Indenture) of the Company, which includes the Company's obligations
under the Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior
Secured Note Agreement, the 8 1/4% Notes, the 9 1/4% Notes, capital lease
obligations, including the Pass Through Certificate Leases and certain other
borrowings of the Company and are subordinate to the 9% Notes, the 12 5/8%
Debentures and the 10% Notes. As of March 31, 1994, Senior Debt was
approximately $2.8 billion with respect to the 14 1/8% Debentures. Additional
Senior Debt may be incurred to the extent permitted by the Bank Credit
Agreement, the 1993 Term Loan Agreement, the Senior Secured Note Agreement,
the 1993 Note Indentures, the 1994 Note Indentures and the 12 5/8% Debenture
Indenture. The Company's obligations to the Banks under the Bank Credit
Agreement, to the Lenders under the 1993 Term Loan Agreement and to the
Purchasers under the Senior Secured Note Agreement are secured by liens on
inventory, accounts receivable, certain patents and trademarks, and certain
stock of subsidiaries of the Company, as well as mortgages on the Company's
three domestic tissue mills. Claims of holders of the 14 1/8% Debentures, as
creditors of the Company, are junior in right of payment to existing and
future liabilities of the Company's subsidiaries, including trade payables.
As of March 31, 1994, the amount of the liabilities of all the Company's
subsidiaries was approximately $124 million, including trade payables. See
"Risk Factors--Risk Factors Relating to the Company--Subordination and Effect
of Asset Encumbrances."
Covenants ........................The 14 1/8% Debenture Indenture contains
certain limited covenants which restrict the Company's ability to pay
dividends on or repurchase or retire common stock prior to November 1, 1994 or
to merge or consolidate or to transfer substantially all of its assets.
For more complete information regarding the 14 1/8% Debentures, see
"Description of the 14 1/8% Debentures."
Use of Proceeds ..................Net proceeds of approximately $1,267 million
from the sale of the 1988 Securities, the 14 5/8% Junior Subordinated
Debentures due 2004 (the "Junior Debentures"), which Junior Debentures were
redeemed in April 1993, and the 12 3/8% Senior Subordinated Notes due 1997
(the 12 3/8% Notes"), which were redeemed in March 1994, together with
borrowings of $122 million under the revolving credit facility (the "Revolving
Credit Facility") provided by the Banks under the Bank Credit Agreement and
cash provided from operations, were used to repay the $400 million bridge term
loan (the "Bank Bridge Loan") provided by the Banks under the Bank Credit
Agreement, $880 million in aggregate principal amount (plus accrued and unpaid
interest) of the Bridge Notes and other outstanding indebtedness of $124
million and to pay expenses incurred by the Company in connection with the
offering of the 1988 Securities, the Junior Debentures and the 12 3/8% Notes.
In addition, $160 million principal amount of the remaining Bridge Notes (plus
accrued and unpaid interest) were exchanged for portions of the 1988
Securities, the Junior Debentures and the 12 3/8% Notes.
- 9 -
The 1993 Notes
The 9 1/4% Senior Notes due 2001 (the "9 1/4% Notes") and the 10%
Subordinated Notes due 2003 (the "10% Notes") are collectively referred to
herein as the "1993 Notes."
9 1/4% Notes
Interest Rate .....................9 1/4% per annum.
Interest Payment Dates ............March 15 and September 15.
Maturity ..........................March 15, 2001.
Redemption ........................The 9 1/4% Notes may not be redeemed prior
to maturity.
Subordination......................The 9 1/4% Notes are senior unsecured
obligations of the Company, rank pari passu in right of payment with the other
senior indebtedness of the Company, including, without limitation, the
Company's obligations under the Bank Credit Agreement, the 1993 Term Loan
Agreement, the Company's Senior Secured Note Agreement, the 8 1/4% Notes and
capital lease obligations, including the Pass Through Certificate Leases, and
other senior secured indebtedness (such other senior secured indebtedness,
together with the indebtedness under the Bank Credit Agreement, the 1993 Term
Loan Agreement, the Senior Secured Notes and capital lease obligations and
secured indebtedness of subsidiaries being, collectively, the "Secured
Indebtedness") and are senior in right of payment to all existing and future
subordinated indebtedness of the Company, including, without limitation, the
9% Notes, the 12 5/8% Debentures, the 10% Notes and the 14 1/8% Debentures.
The indenture under which the 9 1/4% Notes were issued (the "9 1/4% Note
Indenture") does not limit the Company's ability to refinance the 12 5/8%
Debentures and the 14 1/8% Debentures with indebtedness that is pari passu
with the 9 1/4% Notes. At March 31, 1994, the Company and its subsidiaries
had outstanding approximately $1.2 billion of Secured Indebtedness. The
Secured Indebtedness under the Bank Credit Agreement, the 1993 Term Loan
Agreement and the Senior Secured Notes is secured by liens on inventory,
accounts receivable, certain patents and trademarks, and certain stock of
subsidiaries of the Company, as well as by mortgages on the Company's three
domestic tissue mills, referred to herein as the "Shared Collateral."
Indebtedness under capital lease obligations, including the Pass Through
Certificate Leases, and other Secured Indebtedness are secured by certain
assets of the Company and its subsidiaries. The indebtedness of the Company's
foreign subsidiaries is secured by certain assets of those subsidiaries. The
Secured Indebtedness has priority with respect to the assets pledged as
collateral to secure the Secured Indebtedness. The Pass Through Certificates
are indirectly secured by a lien on an owner trustee's interest in a paper
manufacturing facility, power plant and certain related equipment located at
the Company's Savannah River mill, all of which are leased to the Company
under the Pass Through Certificate Leases. The 9 1/4% Notes are effectively
subordinated to existing and future liabilities of the Company's subsidiaries,
including trade payables. At March 31, 1994, the Company's subsidiaries had
outstanding liabilities of $124 million, including trade payables. See "Risk
Factors --Subordination and Effect of Asset Encumbrances."
10% Notes
Interest Rate .....................10% per annum.
Interest Payment Dates ............March 15 and September 15.
Maturity ..........................March 15, 2003.
Redemption ........................The 10% Notes may be redeemed at the option
of the Company, in whole or in part, at any time on or after March 15, 1998,
initially at 105% of their principal amount, plus accrued interest to the
redemption date, declining to 100% of their principal amount, plus accrued
interest to the redemption date, on or after March 15, 2002. In addition, at
the option of the Company at any time prior to March 15, 1995, up to $75
million aggregate principal amount of the 10% Notes are redeemable from the
proceeds of one or more Public Equity Offerings following which there is a
Public market, at 110% of the principal amount thereof, plus accrued interest,
- 10 -
if any. See "Description of the 9 1/4% Notes and the 10% Notes -- Terms of
the 10% Notes -- Optional Redemption."
Subordination......................The 10% Notes are subordinated in right of
payment to all existing and future Senior Indebtedness, as such term is
defined in the indenture under which the 10% Notes were issued (the "10% Note
Indenture"), of the Company, including, without limitation, the Company's
obligations under the Bank Credit Agreement, the 1993 Term Loan Agreement, the
Senior Secured Note Agreement, capital lease obligations, including the Pass
Through Certificate Leases, the 8 1/4% Notes, the 9 1/4% Notes and the 9%
Notes, rank pari passu with the 12 5/8% Debentures and are senior in right of
payment to the 14 1/8% Debentures. The 10% Note Indenture does not limit the
Company's ability to refinance the 12 5/8% Debentures and the 14 1/8%
Debentures with indebtedness that is senior to or pari passu with the 10%
Notes, except that the 10% Note Indenture prohibits the Company from issuing
additional subordinated indebtedness senior to the 10% Notes, other than
senior subordinated indebtedness pari passu with the 9% Notes. At March 31,
1994, approximately $2.4 billion of Senior Indebtedness of the Company was
outstanding with respect to the 10% Notes. The 10% Notes are effectively
subordinated to existing and future liabilities of the Company's subsidiaries,
including trade payables. At March 31, 1994, the Company's subsidiaries had
outstanding liabilities of $124 million, including trade payables. See "Risk
Factors -- Subordination and Effect of Asset Encumbrances" and "Description of
the 9 1/4% Notes and the 10% Notes."
Covenants .........................The 9 1/4% Note Indenture and the 10% Note
Indenture contain certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur indebtedness, pay
dividends and make other restricted payments, engage in transactions with
shareholders and affiliates, create liens, sell assets, engage in mergers and
consolidations and make investments in unrestricted subsidiaries. See
"Description of the 9 1/4% Notes and the 10% Notes--Covenants."
Use of Proceeds ...................The net proceeds from the offerings of the
1993 Notes (the "1993 Note Offerings"), along with borrowings under the 1993
Term Loan, were used to redeem all of the Company's outstanding Junior
Debentures (the "Junior Debenture Redemption"), to prepay a portion of the
term indebtedness under the Bank Credit Agreement (the "Term Loan"), to repay
a portion of the Company's indebtedness under the Revolving Credit Facility
and to pay certain fees and expenses. The 1993 Note Offerings, the 1993 Term
Loan, the Junior Debenture Redemption, the prepayment of indebtedness under
the Term Loan and the repayment of a portion of the indebtedness under the
Revolving Credit Facility are referred to herein collectively as the "1993
Refinancing." See "Use of Proceeds" and "Description of Certain
Indebtedness."
The 1994 Notes
The 8 1/4% Senior Notes due 2002 (the "8 1/4% Notes) and the 9% Senior
Subordinated Notes due 2006 (the "9% Notes") are collectively referred to
herein as the "1994 Notes."
The 8 1/4% Notes
Interest Rate......................8 1/4% per annum.
Interest Payment Dates.............February 1 and August 1 commencing
August 1, 1994.
Maturity...........................February 1, 2002.
Redemption.........................The 8 1/4% Notes may not be redeemed prior
to maturity.
Subordination......................The 8 1/4% Notes are senior unsecured
obligations of the Company, rank pari passu in right of payment with the other
senior indebtedness of the Company, including, without limitation, the
Company's obligations under the Bank Credit Agreement, the 1993 Term Loan
Agreement, the Senior Secured Notes, the 9 1/4% Notes and capital lease
obligations, including the Pass Through Certificate Leases and other Secured
Indebtedness, and are senior in right of payment to all existing and future
subordinated indebtedness of the Company, including, without limitation, the
Company's 9% Notes, the 12 5/8% Debentures, the 10% Notes and the 14 1/8%
Debentures. The indenture under which the 8 1/4% Notes were issued (the
- 11 -
"8 1/4% Note Indenture") does not limit the Company's ability to refinance the
10% Notes, the 12 5/8% Debentures and the 14 1/8% Debentures with indebtedness
that is pari passu with the 8 1/4% Notes. At March 31, 1994, the Company and
its subsidiaries had outstanding approximately $1.2 billion of Secured
Indebtedness. The Secured Indebtedness under the Bank Credit Agreement, the
1993 Term Loan Agreement and the Senior Secured Notes is secured by liens on
inventory, accounts receivable, certain patents and trademarks, and certain
stock of subsidiaries of the Company, as well as mortgages on the Company's
three domestic tissue mills (the "Shared Collateral"). Indebtedness under
capital lease obligations, including the Pass Through Certificate Leases, and
other Secured Indebtedness are secured by certain assets of the Company and
its subsidiaries. The indebtedness of the Company's foreign subsidiaries is
secured by certain assets of those subsidiaries. The Secured Indebtedness has
priority with respect to the assets pledged as collateral to secure the
Secured Indebtedness. The Pass Through Certificates are indirectly secured by
a lien on an owner trustee's interest in a paper manufacturing facility, power
plant and certain related equipment located at the Company's Savannah River
mill, all of which are leased to the Company under the Pass Through
Certificate Leases. The 8 1/4% Notes will be effectively subordinated to
existing and future liabilities of the Company's subsidiaries, including trade
payables. At March 31, 1994, the Company's subsidiaries had outstanding
liabilities of $124 million, including trade payables. See "Risk Factors--
Subordination and Effect of Asset Encumbrances."
9% Notes
Interest Rate......................9% per annum.
Interest Payment Dates.............February 1 and August 1 commencing
August 1, 1994.
Maturity...........................February 1, 2006.
Redemption.........................The 9% Notes may be redeemed at the option
of the Company, in whole or in part, at any time on or after February 1, 1999,
initially at 104.5% of their principal amount, plus accrued interest to the
redemption date, declining to 100% of their principal amount, plus accrued
interest to the redemption date, on or after February 1, 2001. In addition,
at the option of the Company at any time prior to February 1, 1997, up to
$227.5 million aggregate principal amount of the 9% Notes are redeemable from
the proceeds of one or more Public Equity Offerings following which there is a
Public Market, at 109% of the principal amount thereof, plus accrued interest.
See "Description of the 8 1/4% Notes and the 9% Notes--Terms of the 9% Notes--
Optional Redemption."
Subordination......................The 9% Notes are subordinated in right of
payment to all existing and future Senior Indebtedness (as such term is
defined in the indenture under which the 9% Notes were issued (the "9% Note
Indenture" and, together with the 8 1/4% Note Indenture, the "1994 Note
Indentures")), including, without limitation, the Company's obligations under
the Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior Secured
Notes, capital lease obligations, including the Pass Through Certificate
Leases, certain other secured indebtedness of the Company, the 8 1/4% Notes
and the 9 1/4% Notes. The 9% Notes constitute senior indebtedness with
respect to the 10% Notes, the 12 5/8% Debentures and the 14 1/8% Debentures.
The 9% Note Indenture does not limit the Company's ability to refinance the
10% Notes, the 12 5/8% Debentures and the 14 1/8% Debentures with indebtedness
that is senior to or pari passu with the 9% Notes. At March 31, 1994,
approximately $1.7 billion of Senior Indebtedness of the Company was
outstanding with respect to the 9% Notes. The 9% Notes are effectively
subordinated to existing and future liabilities of the Company's subsidiaries,
including trade payables. As of March 31, 1994, the Company's subsidiaries
had outstanding liabilities of approximately $124 million, including trade
payables. See "Risk Factors--Subordination and Effect of Asset Encumbrances"
and "Description of the 8 1/4% Notes and the 9% Notes."
Covenants..........................The 8 1/4% Note Indenture and the 9% Note
Indenture contain certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur indebtedness, pay
dividends and make other restricted payments, engage in transactions with
shareholders and affiliates, create liens, sell assets, engage in mergers and
consolidations and make investments in unrestricted subsidiaries. See
"Description of the 8 1/4% Notes and the 9% Notes--Covenants."
- 12 -
Use of Proceeds....................The net proceeds from the offerings of the
1994 Notes (the "1994 Note Offerings") were used to redeem all of the
outstanding 12 3/8% Notes (the "12 3/8% Note Redemption"), to redeem $238
million aggregate principal amount of the 12 5/8% Debentures (the "12 5/8%
Debenture Redemption"), to prepay a portion of the indebtedness under the Term
Loan, to repay a portion of the Company's indebtedness under the Revolving
Credit Facility and to pay certain fees and expenses. The 1994 Note
Offerings, the 12 3/8% Note Redemption, the 12 5/8% Debenture Redemption, the
prepayment of indebtedness under the Term Loan and the repayment of a portion
of the indebtedness under the Revolving Credit Facility are referred to herein
collectively as the "1994 Refinancing." See "Use of Proceeds" and
"Description of Certain Indebtedness."
The Pass Through Certificates
Glossary ..........................Included at the end of this Prospectus as
Appendix I is a Glossary of certain of the significant defined terms used
herein to describe the Pass Through Certificates.
1990 and 1991 Transactions ........During 1990 and 1991, the Company, as part
of the Phase IV expansion of its Savannah River mill, completed the
acquisition, construction and installation of the Facility, the Power Plant
and the Equipment. For a description of such Assets, see "Description of
Certain Indebtedness--1990 and 1991 Transactions."
In order to induce the Company to locate the Savannah River mill in Effingham
County, Georgia, the Effingham County Industrial Development Authority (the
"IDA") has entered into an arrangement with the Company whereby the Company
makes certain payments in lieu of ad valorem taxes otherwise due. In order to
effect such arrangements, the IDA holds legal title to all of the Company's
land and equipment at the mill (the "Project"), including the Facility, the
Power Plant and the Equipment, and leases the Project (including such Assets)
to the Company under a lease (the "IDA Lease") expiring on January 2, 2027.
The IDA Lease stipulates that no annual rent shall be payable thereunder and
provides that (i) the Company may remove at any time any property subject
thereto, including the Facility, the Power Plant and the Equipment and (ii)
the Company may acquire title to all of the property leased under the IDA
Lease upon payment of one dollar.
On December 23, 1990, the Company consummated a sale and leaseback transaction
(the "1990 Transaction") with respect to the 1990 Equipment by selling its
interest in the 1990 Equipment to the Owner Trustee and simultaneously leasing
the 1990 Equipment from the Owner Trustee. The Company has consummated a sale
and leaseback transaction (the "1991 Transaction") with respect to the
Facility, the Power Plant and the 1991 Equipment and to refinance the Secured
Notes issued in connection with the 1990 Transaction. The Company sold its
interest in such Assets to the Owner Trustee and simultaneously leased such
Assets from the Owner Trustee. In connection with the closing of the 1990
Transaction, the sale of the Company's interest in the 1990 Equipment was
effected, and in connection with the closing of the 1991 Transaction, the sale
of the Company's interest in the Facility, the Power Plant and the 1991
Equipment was effected, through the assignment to the Owner Trustee of all of
the Company's right, title and interest in and to such Assets, including all
of the Company's right, title and interest under the IDA Lease with respect to
such Assets (including the right to remove such Assets from the IDA Lease and
acquire title thereto). The Leases provide that the Owner Trustee will not
remove any Asset from the IDA Lease except under certain circumstances.
Certain persons have or may acquire liens on the Assets or the Company's
interest in the Assets. Such liens include tax liens, materialman's liens,
and liens arising out of certain judgments and awards against the Company.
See "Description of Certain Indebtedness--1990 and 1991 Transactions."
Pass Through Trust ................The Fort Howard Corporation 1991 Pass
Through Trust was formed pursuant to a Pass Through Trust Agreement between
the Company and the Pass Through Trustee.
Pass Through Trust Property .......The property of the Pass Through Trust
consists of secured notes (the "Secured Notes") issued on a nonrecourse basis
to finance or refinance not more than 85% of the Owner Trustee's cost of
acquiring the Company's interest in the Assets, all located in Effingham
County, Georgia, that have been leased to the Company. The Secured Notes have
been issued in series under an indenture (the "Secured Note Indenture")
- 13 -
between Shawmut Bank Connecticut, National Association (formerly The
Connecticut National Bank), as Owner Trustee, and Wilmington Trust Company, as
Secured Note Indenture Trustee, with a separate series relating to each of the
Facility, the Power Plant and each Equipment Group.
Pass Through Certificates Offered;
Book-Entry Registration .........Each Pass Through Certificate, Series 1991
(the "Pass Through Certificates") represents a fractional undivided interest
in the Pass Through Trust and have been issued in fully registered form only.
The Pass Through Certificates were registered in the name of Cede & Co.
("Cede"), as the nominee of The Depository Trust Company ("DTC"). No person
acquiring an interest in a Pass Through Certificate will be entitled to
receive a definitive certificate representing such person's interest in the
Pass Through Trust, except in the event that definitive certificates are
issued under the limited circumstances described herein. See "Description of
the Pass Through Certificates." Persons acquiring an interest in the Pass
Through Certificates registered in the name of Cede ("Certificate Owners") may
experience some delay in their receipt of payments, notices and reports, since
such payments, notices and reports will be forwarded by the Pass Through
Trustee to Cede, as nominee for DTC. DTC will distribute such payments,
notices and reports to DTC Participants (as defined below). Distributions will
be the responsibility of such DTC Participants and will be made in accordance
with customary industry practices. Certificate Owners will not be recognized
by the Pass Through Trustee as Certificateholders, as such term is used in the
Pass Through Trust Agreement, and Certificate Owners will be permitted to
exercise the rights of Certificateholders only indirectly through DTC and DTC
Participants. Further, the ability of a Certificate Owner to pledge, sell,
assign, or otherwise transfer ownership of, or other interests in, Pass
Through Certificates may be limited due to the lack of a physical certificate
for such Pass Through Certificates. See "Description of the Pass Through
Certificates--Book-Entry Registration."
Certificate Owners that are not DTC Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Pass Through Certificates may do so only through DTC
Participants and Indirect Participants. In addition, Certificate Owners will
receive all distributions of principal and interest from the Pass Through
Trustee through DTC Participants or Indirect Participants (as defined below),
as the case may be. See "Description of the Pass Through Certificates--Book-
Entry Registration."
Denominations .....................The Pass Through Certificates were issued
in minimum denominations of $1,000 and any integral multiple of $1,000. The
denomination signifies a Certificateholder's pro rata share of the aggregate
principal amount of the Secured Notes. See "Description of the Pass Through
Certificates."
Regular Distribution Dates ........January 2 and July 2.
Special Distribution Dates ........The second day of any month.
Record Dates ......................The fifteenth day preceding a Regular or
Special Distribution Date.
Final Distribution Date ...........January 2, 2002.
Distributions .....................All payments of principal and interest
received by the Pass Through Trustee on the Secured Notes will be distributed
by the Pass Through Trustee to the Certificateholders on the dates referred to
below, except in certain cases when such Secured Notes are in default.
Payments of interest on the Secured Notes are scheduled to be received in
specified amounts by the Pass Through Trustee on January 2 and July 2 of each
year and payments of principal on the Secured Notes are scheduled to be
received in specified amounts by the Pass Through Trustee on January 2 or
July 2, or both, of each year until the final distribution date (unless
earlier redeemed) and to be distributed to the Certificateholders on the
Regular Distribution Date. Pending distribution, Scheduled Payments received
by the Pass Through Trustee will be deposited in one or more non-interest
bearing accounts established and maintained by the Pass Through Trustee for
the Pass Through Trust and for the benefit of the Certificateholders.
Payments of principal and interest on the Secured Notes resulting from early
redemptions thereof, if any, will be distributed on a Special Distribution
Date after not less than 20 days' notice from the Pass Through Trustee to the
Certificateholders. Pending distribution, payments received by the Pass
- 14 -
Through Trustee on account of early redemptions of the Secured Notes will be
deposited in one or more non-interest bearing accounts maintained by the Pass
Through Trustee for the Pass Through Trust and for the benefit of
Certificateholders, and shall be invested by the Pass Through Trustee at the
direction and risk of the Company in Permitted Investments. For a discussion
of distributions upon an Event of Default, see "Description of the Pass
Through Certificates--Events of Default and Certain Rights Upon an Event of
Default."
Interest ..........................Interest is passed through on the Pass
Through Certificates at the rate per annum equal to 11%, which is the interest
rate borne by the Secured Notes. Interest is calculated on the basis of a
360-day year consisting of twelve 30-day months. See "Description of the Pass
Through Certificates--General."
Principal .........................The aggregate principal amount of the
Secured Notes held in the Pass Through Trust is the same as the aggregate
principal amount of Pass Through Certificates. The Pass Through Trust holds
Secured Notes whose principal is payable in scheduled amounts on January 2 or
July 2, or both, of each year, in accordance with the principal repayment
schedule set forth herein under "Description of the Secured Notes--Principal
and Interest Payments." See "Description of the Pass Through Certificates--
Payments and Distributions." The maturity dates of the Secured Notes occur
later than the final distribution date of the Pass Through Certificates. The
payment to be made on such final distribution date shall be made from the
proceeds of a sale of the Secured Notes or a refinancing or refunding arranged
by the Company or the Owner Participant with respect to the Secured Notes or,
in the event there is no such refinancing, refunding or sale, by application
of rent payments required under such circumstances to be made by the Company
under the Leases. The Owner Participant will under no circumstances be
obligated to utilize its own funds in connection with such transaction, or to
provide any credit support or credit enhancement or otherwise put itself at
any additional economic risk in facilitating the final distribution and,
although as beneficial owner of the Assets the Owner Participant may have an
economic incentive to facilitate such refinancing, refunding or sale and the
final distribution, Certificateholders should not assume that the Owner
Participant will in fact so facilitate such transactions or the final
distribution. See "Description of the Secured Notes--Redemptions."
Secured Notes:
Interest Payments .................Interest is payable on the Secured Notes on
the unpaid principal amount thereof on January 2 and July 2 in each year.
Secured Notes: Redemptions ........The Secured Notes may not be optionally
redeemed on or prior to the seventh anniversary of the issuance of the Pass
Through Certificates, except as provided below. Following such seventh
anniversary, the Secured Notes may be redeemed at a price equal to the unpaid
principal amount thereof, together with accrued interest thereon to the date
of redemption. The Secured Notes may be redeemed on or prior to such seventh
anniversary at such price only under the following circumstances:
(a) following the occurrence of an Event of Loss to an Asset, in which case
(i) if such Asset is the Facility or the Power Plant, all of the Secured Notes
relating to such Asset shall be redeemed and (ii) if such Asset shall be an
item of Equipment, the appropriate proportional amount of the Secured Notes
relating to the applicable Equipment Group shall be redeemed (unless such item
of Equipment is replaced);
(b) on or after January 2, 1997 with respect to the Facility, Power Plant or
any item of 1991 Equipment (or on or after January 2, 1996 with respect to any
item of 1990 Equipment) if the Company shall have determined that the
Facility, Power Plant or any item of Equipment is obsolete, uneconomic or
surplus to its needs, the related Lease is terminated and the Asset is sold or
retained by the Owner Trustee, in which case (i) if such Asset is the Facility
or the Power Plant, all of the Secured Notes relating to such Asset shall be
redeemed and (ii) if such Asset shall be an item of Equipment, the
appropriate proportional amount of the Secured Notes relating to the
applicable Equipment Group shall be redeemed; or
(c) following the occurrence and at any time during the continuance of a
Lease Event of Default.
See "Description of the Secured Notes--Redemptions."
- 15 -
In the event of any partial or complete redemption of the Secured Notes as
described above, the proceeds received by the Pass Through Trustee with
respect to such redemption shall be deposited in one or more non-interest
bearing accounts maintained by the Pass Through Trustee for the Pass Through
Trust and for the benefit of the Certificateholders, shall be invested by the
Pass Through Trustee at the direction and risk of the Company in Permitted
Investments and shall be distributed to the Certificateholders in accordance
with the terms of the Pass Through Trust Agreement on a Special Distribution
Date together with accrued interest thereon at a rate equal to the rate on the
Secured Notes held in the Pass Through Trust. In the event the Secured Notes
are not redeemed coincident with the Pass Through Certificates, the Company
will pay on the related Special Distribution Date an amount equal to the
excess of the interest that would have accrued on the Secured Notes over the
earnings from the investment and reinvestment of Permitted Investments. All
Certificateholders shall participate pro rata in any such distribution. See
"Description of the Pass Through Certificates--Payments and Distributions" and
"--Events of Default and Certain Rights upon an Event of Default."
Secured Notes: Security ...........The Secured Notes relating to the Facility,
the Power Plant or an Equipment Group are secured by, among other things, a
security interest in all of the Assets and an assignment to the Secured Note
Indenture Trustee of the Owner Trustee's rights under the Leases (including
the right to receive rentals payable and other amounts payable thereunder,
other than Excepted Payments (as defined in "Description of Secured Notes--
Security")), each Site Lease and each Support Agreement. The Assets consist
of (i) the Facility (which includes a twin wire Beloit tissue machine and
related structures and equipment), (ii) the Power Plant (which is a coal-fired
fluidized bed boiler and related structures and equipment) and (iii) the 1990
Equipment and 1991 Equipment (which include three groups of certain paper
manufacturing production equipment, consisting of converting, shipping, pulp
processing and machine shop equipment and a package boiler). For the Lessor's
Cost of the 1990 Equipment, the 1991 Equipment, the Facility and the Power
Plant, and the percentage of such Lessor's Cost financed or refinanced by the
issuance of the Secured Notes, see "Description of Certain Indebtedness--1990
and 1991 Transactions." Each series of Secured Notes is secured by a lien on
all of the Assets and, consequently, a default on one series of Secured Notes
constitutes a default under each series. The Secured Notes purchased by the
Pass Through Trustee are secured equally and ratably without preference,
priority or distinction on account of the series of such Secured Notes. See
"Description of the Pass Through Certificates" and "Description of the Secured
Notes--Security."
Although the Secured Notes are not obligations of, or guaranteed by, the
Company, the amounts unconditionally payable by the Company for lease of the
Assets (exclusive of Excepted Payments) will be sufficient to pay in full when
due all payments of principal and interest required to be made on the Secured
Notes. See "Description of the Secured Notes--General."
Secured Notes:
Intercreditor Arrangements ........Certain of the parties to the 1990 and 1991
Transactions, including the Secured Note Indenture Trustee, have entered into
an agreement setting forth the rights and obligations of such parties in
various specified circumstances with respect to, among other things, cure
rights, purchase options, the exercise of remedies under the Operative
Documents, including the Secured Note Indenture, rights to assign the
Company's interest under the Operative Documents or obtain new leases of the
Assets, and other matters. See "Description of the Recognition Instrument"
and "Risk Factors--Risk Factors Relating to the Pass Through Certificates--
Potential Inability to Fully Exercise Remedies."
Use of Proceeds ...................The proceeds from the sale of the Pass
Through Certificates were used to purchase the Secured Notes from the Owner
Trustee that were issued in order to finance or refinance not more than 85% of
the Owner Trustee's cost of acquiring the Company's interest in the Assets
that have been leased to the Company. See "Use of Proceeds."
Pass Through Trustee ............. Wilmington Trust Company acts as trustee,
paying agent and registrar for the Pass Through Certificates. Wilmington
Trust Company also acts as Secured Note Indenture Trustee for each series of
Secured Notes. See "Description of the Pass Through Certificates--The Pass
Through Trustee."
Federal Income Tax Consequences ...The Pass Through Trust should be classified
as a grantor trust for federal income tax purposes. Thus, each Certificate
- 16 -
Owner should be treated as the owner of a pro rata undivided interest in each
of the Secured Notes and any other property held in the Pass Through Trust and
should report on its federal income tax return its pro rata share of income
from such Secured Notes in accordance with such Certificate Owner's method of
accounting. See "Certain Federal Income Tax Consequences Applicable to the
Pass Through Certificates."
ERISA Considerations ..............The Pass Through Certificates are not
eligible for purchase by employee benefit plans other than certain
governmental or non-electing church plans. The purchase by any person of any
Pass Through Certificate constitutes a representation by such person that such
person is not an ERISA Plan, and that such person is not acquiring, and has
not acquired, such Pass Through Certificate with assets of an ERISA Plan. See
"ERISA Considerations Applicable to the Pass Through Certificates."
Risk Factors
For a discussion of risk factors that should be considered in evaluating
an investment in the 1988 Securities, the 1993 Notes, the 1994 Notes or the
Pass Through Certificates, including the Company's highly leveraged position
and deficiency of earnings available to cover fixed charges, competition and
pricing, covenant restrictions that may limit the Company's operating
flexibility, the subordination of the 1988 Securities, the 1993 Notes and the
1994 Notes and the effect of asset encumbrances, certain original issue
discount consequences for holders of the 14 1/8% Debentures, the potential
inability of the Company to make payment with respect to the Pass Through
Certificates on the final distribution date, the potential inability to
realize full value of the collateral upon foreclosure and possible rejection
of certain operative documents in bankruptcy with respect to the Pass Through
Certificates, the control of the Company by Morgan Stanley Group Inc. ("Morgan
Stanley Group") and its affiliates and potential conflicts of interest, the
absence of a public market and the lack of a sinking fund for any of the 1988
Securities, the 1993 Notes, the 1994 Notes or the Pass Through Certificates
and fraudulent conveyance considerations, see "Risk Factors."
Selected Historical Consolidated Financial Data
The following table sets forth selected historical consolidated
financial data of the Company for the years ended December 31, 1993, 1992,
1991, 1990 and 1989, that were derived from the consolidated financial
statements of the Company, which were audited by Arthur Andersen & Co.,
independent public accountants. The report of such accountants with respect
to the years ended December 31, 1993, 1992 and 1991 appears elsewhere in this
Prospectus. Reference is made to such report which calls attention to changes
in methods of accounting for postretirement benefits other than pensions and
income taxes. The following table also sets forth historical consolidated
financial data of the Company for the three-month periods ended March 31, 1994
and 1993. The information presented for the interim periods is unaudited but
in the opinion of management, such information reflects all adjustments
(which, with the exception of the extraordinary losses on debt repurchases in
1994 and 1993, consist only of normal recurring accruals) necessary for a fair
presentation of the financial data for the interim periods. The results for
the interim periods presented are not necessarily indicative of the results
for the full year.
The following information should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations," the audited consolidated financial statements and the
related notes thereto and the unaudited condensed consolidated financial
statements and the related notes thereto included elsewhere in this
Prospectus.
- 17 -
Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
-------------- ----------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ...................... $ 275 $ 285 $ 1,187 $1,151 $1,138 $1,151 $1,054
Cost of sales (a)............... 188 190 784 726 713 719 660
------ ------ ------- ------ ------ ------ ------
Gross income.................... 87 95 403 425 425 432 394
Selling, general, and
administrative................ 27 25 97 97 98 105 96
Amortization of goodwill........ -- 14 43 57 57 57 57
Goodwill write-off (b).......... -- -- 1,980 -- -- -- --
------ ------ ------- ------ ------ ------ ------
Operating income (loss)......... 60 56 (1,717) 271 270 270 241
Interest expense................ 84 86 342 338 371 423 410
Other (income) expense, net (c). 1 -- (3) 2 (3) (33) (11)
------ ------ ------- ------ ------ ------ ------
Loss before taxes............... (25) (30) (2,056) (69) (98) (120) (158)
Income taxes (credit)........... (10) (4) (16) -- (24) (37) 14
------ ------ ------- ------ ------ ------ ------
Loss before equity
earnings, extraordinary
items and adjustment for
accounting change............. (15) (26) (2,040) (69) (74) (83) (172)
Equity in net loss
of unconsolidated
subsidiaries (c).............. -- -- -- -- (32) (23) (67)
------ ------ ------- ------ ------ ------ ------
Net loss before extraordinary
items and adjustment for
accounting change............. (15) (26) (2,040) (69) (106) (106) (239)
Extraordinary items - loss
on debt repurchases (net
of income taxes).............. (28) (10) (12) -- (5) -- --
Adjustment for adoption of
SFAS No. 106 (net of income
taxes)(d)..................... -- -- -- (11) -- -- --
------ ------ ------- ------ ------ ------ ------
Net loss........................ $ (43) $ (36) $(2,052) $ (80) $ (111) $ (106) $ (239)
====== ====== ======= ====== ====== ====== ======
OTHER DATA:
EBDIAT (e)...................... $ 82 $ 91 $ 387 $ 410 $ 444 $ 441 $ 411
Depreciation of property,
plant, and equipment.......... 22 20 88 81 116 112 109
Amortization of goodwill and
goodwill write-off............ -- 14 2,023 57 57 57 57
Non-cash interest expense....... 21 37 101 140 141 145 132
Capital expenditures............ 30 34 166 233 144 97 101
Deficiency of earnings available
to cover fixed charges (f).... (27) (33) (2,065) (81) (103) (123) (263)
BALANCE SHEET DATA (at end of
period):
Total assets.................... $1,676 $4,033 $ 1,650 $3,575 $3,470 $3,627 $3,948
Working capital (deficit)....... 69 25 (92) (127) 2 (80) (119)
Long-term debt (including current
portion and Voting Common
Stock with put right)......... 3,378 3,608 3,234 3,104 2,947 3,125 3,333
Shareholders' equity (deficit).. (2,124) (65) (2,081) (29) 62 13 111
</TABLE>
- 18 -
(a) Effective January 1, 1992, the Company prospectively changed its estimates
of the depreciable lives of certain machinery and equipment. The change had
the effect of reducing depreciation expense by approximately $38 million and
net loss by $24 million in 1992.
(b) During the third quarter of 1993, the Company wrote off the unamortized
balance of its goodwill of $1.98 billion. See Note 4 of the Company's audited
consolidated financial statements included elsewhere in this Prospectus.
(c) In 1989, the Company transferred all the capital stock of Fort Howard Cup
Corporation to Sweetheart Holdings Inc. ("Sweetheart") for a 49.9% equity
interest in Sweetheart and other assets for a total consideration of
$620 million (the "Cup Transfer"). The Company also undertook a plan to
divest all its remaining international cup operations. As a result, the
Company recorded a $120 million charge in 1989. As of December 31, 1991, the
Company had sold all its international cup operations and had discontinued
recording equity in net losses of Sweetheart because the carrying value of the
Company's investment in Sweetheart was reduced to zero. During the third
quarter of 1993, the Company sold its remaining equity interest in Sweetheart
for $5.1 million recognizing a gain of the same amount.
(d) Reflects the cumulative effect on years prior to 1992 of adopting SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." This change in accounting principle, excluding the cumulative
effect, decreased operating income for 1992 by $1.2 million.
(e) Represents operating income plus depreciation of property, plant and
equipment, amortization of goodwill, the goodwill write-off and the effects of
employee stock compensation (credits). EBDIAT is presented here, not as a
measure of operating results, but rather as a measure of the Company's debt
service ability. Certain financial and other restrictive covenants in the
Company's Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior
Secured Note Agreement and other instruments governing the Company's
indebtedness are based on the Company's EBDIAT, subject to certain
adjustments.
(f) For purposes of these computations, earnings consist of consolidated
income (loss) before taxes plus fixed charges (excluding capitalized interest)
of both consolidated and unconsolidated subsidiaries. Amounts applicable to
unconsolidated subsidiaries are excluded from such computations commencing on
November 14, 1989, due to the Cup Transfer. Fixed charges consist of interest
on indebtedness (including capitalized interest and amortization of deferred
loan costs) plus that portion (deemed to be one-fourth) of operating lease
rental expense representative of the interest factor.
- 19 -
THE COMPANY
The Company is a major manufacturer, converter and marketer of a
diversified line of single-use sanitary tissue paper products for the home and
away-from-home markets. The Company's principal products include paper
towels, bath tissue, table napkins, wipers and boxed facial tissue. The
Company produces and ships its products from manufacturing facilities located
in Wisconsin, Oklahoma, Georgia and the United Kingdom. For an analysis of
net sales, operating income (loss) and identifiable operating assets by
geographic area, refer to Note 16 of the Company's audited consolidated
financial statements included elsewhere in this Prospectus.
The Company believes that it is the largest producer of tissue products
sold into the domestic commercial (away-from-home market). The Company sells
a majority of its tissue products through paper and institutional food
wholesalers into commercial markets. The Company continues to expand its
domestic consumer tissue business for the home market. Tissue products for
household use are sold through brokers to accounts that include major food
store chains, mass merchandisers and wholesale grocers. The Company's
domestic tissue products for home use are sold under the brand names SOFT'N
GENTLE, MARDI GRAS, GREEN FOREST, PAGE and SO-DRI.
The Company's principal markets are in the United States where the
Company believes, based on an analysis of publicly available information, that
its operating income margins are higher than those of its publicly reporting
competition. A key factor contributing to these high operating income margins
has been the Company's proprietary de-inking technology, which enables it to
use a broad range of wastepaper grades and process wastepaper efficiently to
recover the fibers which are the principal raw material in papermaking.
However, the Company's operating income margins have been adversely affected
by the adverse tissue industry operating conditions experienced since 1991,
and continue to be affected by low pricing resulting in part from relatively
low industry operating rates. Announced industry capacity additions through
1995 may offset the effects of the current general economic recovery.
Consequently, until industry operating rates improve, the Company's net
selling prices and operating income margins may continue to be adversely
affected.
Since 1984, the Company has built an entirely new facility on the
Savannah River in Georgia and has added tissue machines at Muskogee, Oklahoma
and Green Bay, Wisconsin and the United Kingdom. This additional capacity has
helped the Company to increase its market share in consumer tissue markets and
maintain its strong position in domestic commercial tissue markets.
The Company has invested heavily in its manufacturing operations,
particularly from 1986 to 1992, a period in which its manufacturing facilities
operated at or near full capacity. Capital expenditures in the Company's
tissue business were approximately $741 million for the five-year period ended
December 31, 1993. Given the Company's high leverage and adverse tissue
industry operating conditions, the Company intends to continue to maintain and
modernize existing tissue mills but does not presently intend to make capital
expenditures to add material new capacity subsequent to the start-up of a new
paper machine at the Company's Muskogee mill in the first quarter of 1994.
The Acquisition
In 1988, FH Acquisition was organized on behalf of MSLEF II to effect
the acquisition of the Company. Pursuant to the Merger Agreement, FH
Acquisition commenced the Offer on July 1, 1988 for all outstanding shares at
$53 per share in cash, and subsequently purchased approximately 53.5 million
shares in the Offer. Thereafter, FH Acquisition was merged with and into the
Company in the Merger.
MSLEF II, an affiliate of MS&Co., is a limited partnership formed to
finance investments in industrial and other companies. Its principal
investors include major U.S. and foreign banks, insurance companies, pension
funds and corporations. As a result of the Acquisition, the Company became
privately held by MSLEF II and other investors.
----------------------------------------------
- 20 -
The Company is a Delaware corporation organized in 1967 to succeed to
the business of a Wisconsin corporation founded in 1919 by Austin E. Cofrin.
The Company's principal executive offices are located at 1919 South Broadway,
Green Bay, Wisconsin 54304, telephone (414) 435-8821.
RISK FACTORS
Risk Factors Relating to the Company
Purchasers of the 1988 Securities, the 1993 Notes, the 1994 Notes and
the Pass Through Certificates should carefully consider the specific risk
factors set forth below as well as the other information set forth in this
Prospectus.
Highly Leveraged Position; Deficiency of Earnings Available to Cover
Fixed Charges; Potential Inability to Make Payments. The Company has
substantial consolidated indebtedness and has a substantial deficit in common
shareholders' equity. At March 31, 1994, the Company's consolidated debt
(consisting of current and non-current portions of long-term debt and voting
common stock with put right) was approximately $3,378 million and the deficit
in common shareholders' equity was approximately $2,124 million. For the
three-month period ended March 31, 1994 and the year ended December 31, 1993,
the Company's earnings before fixed charges (excluding the write-off of its
remaining goodwill balance of $1.98 million in 1993) were inadequate to cover
its fixed charges by $27 million and $84 million, respectively. The Company's
net loss, (excluding the write-off of its remaining goodwill balance of
$1.98 billion in 1993) for the three-month period ended March 31, 1994 and the
year ended December 31, 1993 was $43 million and $72 million, respectively.
If the Company continues to experience losses, and continues to have
inadequate earnings before fixed charges to cover fixed charges, the Company
will be less able to meet its obligations, including its obligations pursuant
to the 1988 Securities, the 1993 Notes, the 1994 Notes and the Leases. In
such event, payments with respect to the Pass Through Certificates also will
be less likely than would otherwise be the case.
The Company's indebtedness subsequent to the Acquisition bears interest
at higher average rates than the Company's indebtedness prior to the
Acquisition and the obligations of the Company under the Bank Credit Agreement
(a maximum of $582 million), the Senior Secured Note Agreement (pursuant to
which $300 million principal amount of Senior Secured Notes was outstanding at
March 31, 1994) and the 1993 Term Loan Agreement (pursuant to which $100
million principal amount was outstanding at March 31, 1994) bear interest at
floating rates, causing the Company to be sensitive to prevailing interest
rates. Interest rates have been at comparatively low levels. If interest
rates continue to rise the Company may be less able to meet its debt service
obligations, including its obligations pursuant to the 1988 Securities, the
1993 Notes, the 1994 Notes and the Leases. In such event, payments with
respect to the Pass Through Certificates also may be less likely than would
otherwise be the case.
The Company's substantial indebtedness limits its ability to respond to
market conditions (including its ability to satisfy its capital expenditure
requirements) or to meet its contractual and financial obligations, and,
therefore, may pose significant risks to holders of securities of the Company,
including holders of the 1988 Securities, the 1993 Notes, the 1994 Notes and
the Pass Through Certificates. Furthermore, the ability of the Company to
satisfy its obligations (including its obligations to pay interest on its
indebtedness) and to reduce its debt will be dependent upon the future
performance of the Company, which will be subject to prevailing economic
conditions and to financial, business and other factors, including factors
beyond the control of the Company, affecting the business and operations of
the Company. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Company will be obligated to make substantial principal and interest
payments on its indebtedness during the next several years. As a result of
the significant level of indebtedness and related debt service obligations,
the Company may be less able to meet its obligations during a further downturn
in its business, including its obligations pursuant to the 1988 Securities,
the 1993 Notes, the 1994 Notes and the Leases. In such event, payments with
- 21 -
respect to the Pass Through Certificates will also be less likely than would
otherwise be the case.
Covenant Restrictions Limit Company's Operating Flexibility. The Bank
Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured Note
Agreement contain numerous financial and operating covenants, including, among
other things, (i) a requirement that the Company maintain certain financial
ratios, (ii) restrictions on the ability of the Company and its subsidiaries
to incur indebtedness, to create or suffer to exist liens, to make certain
capital expenditures, to incur liability with respect to leases, to make
optional prepayments of any rental obligations under any Lease, to optionally
terminate any Lease, to reacquire any Asset and to amend certain Operative
Documents, and (iii) limitations on certain other corporate actions. These
restrictions could prohibit the Company from taking actions which would
otherwise be in the best interests of the Company. In the absence of improved
financial results, it is likely that the Company will be required to seek a
waiver of the cash interest coverage covenant under the Bank Credit Agreement,
the 1993 Term Loan Agreement and the Senior Secured Note Agreement as early as
the fourth quarter of 1994, because the Company's 14 1/8% Debentures will
accrue interest in cash commencing November 1, 1994 and will require payments
of interest in cash commencing May 1, 1995. There can be no assurance that
such waiver can be obtained. If the Company is not in compliance with its
obligations under the Bank Credit Agreement, the 1993 Term Loan Agreement or
the Senior Secured Note Agreement, events of default will occur thereunder,
and the entire amounts of indebtedness thereunder may be declared due and
payable immediately. Upon such declaration, virtually all other indebtedness
of the Company, including payments to be made under the 1988 Securities, the
1993 Notes, the 1994 Notes and the Leases, may also become due and payable
immediately. In such event, payments with respect to the Pass Through
Certificates also will be less likely than would otherwise be the case.
Subordination and Effect of Asset Encumbrances. The 1988 Securities,
the 9% Notes and the 10% Notes are subordinated to all Senior Debt (as defined
in each indenture) of the Company, which at March 31, 1994, includes $526
million of indebtedness under the Bank Credit Agreement, $100 million under
the 1993 Term Loan, $300 million principal amount of the Senior Secured Notes,
$100 million principal amount of the 8 1/4% Notes, $450 million principal
amount of the 9 1/4% Notes and $270 million of other borrowings of the
Company. At March 31, 1994, Senior Debt was approximately $1.7 billion with
respect to the 9% Notes, $2.4 billion with respect to the 10% Notes and the 12
5/8% Debentures and $2.8 billion with respect to the 14 1/8% Debentures.
Therefore, in the event of the bankruptcy, liquidation or reorganization of
the Company, the assets of the Company will be available to pay obligations on
the 9% Notes, the 10% Notes and the 1988 Securities only after all Senior
Indebtedness has been paid in full, and sufficient assets may not exist to pay
amounts on the 9% Notes, the 10% Notes and the 1988 Securities. The
subordination provisions of the 9% Note Indenture, the 10% Note Indenture and
the 12 5/8% Debenture Indenture provide that no cash payment may be made with
respect to the principal of or premium, if any, or interest on the 9% Notes,
the 10% Notes and the 12 5/8% Debentures, respectively, during the continuance
of a payment default under any Senior Indebtedness. In addition, if certain
non-payment defaults exist with respect to certain Senior Indebtedness, the
holders of such Senior Indebtedness will be able to block payment of the 9%
Notes and the 10% Notes for specified periods of time. See "Description of
the 12 5/8% Debentures--Limitation on Company and Subsidiary Debt,"
"Description of the 14 1/8% Debentures--Subordination," "Description of the
9 1/4% Notes and the 10% Notes--Subordination" and "Description of the 8 1/4%
Notes and the 9% Notes--Subordination."
The Company's obligations under the Bank Credit Agreement, the 1993 Term
Loan Agreement and the Senior Secured Note Agreement are secured by liens on
inventory, accounts receivable, certain patents and trademarks, and certain
stock of subsidiaries of the Company, as well as mortgages on the Company's
three domestic tissue mills. The holders of Secured Indebtedness will be
entitled to payment of their indebtedness out of the proceeds of their
collateral prior to the holders of any general unsecured obligations of the
Company, including the 1988 Securities, the 1993 Notes and the 1994 Notes.
The 8 1/4% Notes and the 9 1/4% Notes rank pari passu in right of payment with
all other general obligations of the Company and are senior in right of
payment to the 9% Notes, the 10% Notes and the 1988 Securities. See
"Description of Certain Indebtedness--The Bank Credit Agreement, --1993 Term
Loan and --Senior Secured Notes," "Description of the 12 5/8%
Debentures--Subordination," "Description of the 14 1/8%
- 22 -
Debentures--Subordination," "Description of the 9 1/4% Notes and the 10%
Notes--Subordination" and "Description of the 8 1/4% Notes and the 9% Notes--
Subordination."
Although the Pass Through Certificates are not obligations of, or
guaranteed by, the Company, holders of Pass Through Certificates will only
receive payments on the Pass Through Certificates to the extent payments are
made on or in respect of the Secured Notes. Payments on the Secured Notes
will generally only be made if the Company makes payments pursuant to its
obligations under the Leases. The Company currently accounts for the Leases
as capital leases. Capital leases rank senior in right of payment to the
Company's subordinated indebtedness including the indebtedness evidenced by
the 9% Notes, the 10% Notes and the 1988 Securities. The Company's
obligations under the Leases rank pari passu in right of payment with the
8 1/4% Notes and the 9 1/4% Notes, other sale and leaseback transactions which
are treated as capital leases and all other general obligations of the
Company. However, the indebtedness under the Bank Credit Agreement, the 1993
Term Loan Agreement and the Senior Secured Note Agreement are secured by
essentially all the assets of the Company, including the Company's leasehold
interests in the Assets. The holders of such indebtedness will be entitled to
payment of their indebtedness out of the proceeds of such collateral prior to
the holders of any general unsecured obligations of the Company, including the
Leases. An aggregate of $582 million may be outstanding at any time pursuant
to the Bank Credit Agreement. Other than the covenants described in
Appendix II, there are no contractual limits enforceable by the
Certificateholders on the Company's ability to incur indebtedness pari passu
to the Leases and/or secured by any or all of the Company's assets.
The indebtedness of the Company's foreign subsidiaries is secured by
certain assets of those subsidiaries. The 1988 Securities, the 1993 Notes and
the 1994 Notes are effectively subordinated to existing and future liabilities
of the Company's subsidiaries, including trade payables. At March 31, 1994,
the Company's subsidiaries had outstanding liabilities of $124 million, which
included trade payables.
Competition and Pricing. The manufacture and sale of tissue products
are highly competitive, and sales of tissue paper products are generally
subject to changes in the economy and competitive conduct that can
significantly impact the selling prices and, as a result, the Company's
profitability. Low industry operating rates and aggressive competitive
pricing among tissue producers resulting from the 1991-1992 recession,
additions to capacity and other factors have been adversely affecting tissue
industry operating conditions and the Company's operating results since 1991.
As a result of these current conditions, and the effects of announced industry
capacity additions through 1995, tissue industry operating rates may remain at
relatively low levels for the near term, adversely affecting industry pricing.
See "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations" and "Business--Competition."
Environmental Matters. The Company and its manufacturing operations are
subject to regulation by various federal, state and local authorities
concerned with the limitation and control of emissions and discharges to the
air and waters and the handling, use and disposal of specified chemicals and
solid waste. Financial responsibility for the clean up or other remediation
of contaminated property or for natural resource liability can extend to
previously owned properties, leased properties, waterways and properties owned
by third parties, as well as to properties currently owned and used by the
Company including those instances where contamination is attributable entirely
to prior owners. The Company is a potentially responsible party at two sites.
There can be no assurance that the Company will not be named as a potentially
responsible party at any other sites in the future or that the costs
associated with existing or future sites would not be material. Future
environmental legislation and developing regulations and the enforcement
thereof are expected to become increasingly stringent and likely to further
limit emission and discharge levels and may increase the likelihood and cost
of environmental clean-ups or related costs, all of which are likely to
require continuing and in some cases increasing levels of capital expenditures
and operating or other expenses. The laws and regulations relating to
environmental matters and the factual situations which may be impacted by
those laws and regulations are subject to change. There can be no assurance
that such costs would not be material to the Company. See "Business --
Environmental Matters."
- 23 -
Control of the Company by Morgan Stanley Group and Affiliates; Potential
Conflicts of Interest. Morgan Stanley Group and certain affiliated entities,
including MSLEF II, provided significant amounts of financing for the
Acquisition. At March 31, 1994, Morgan Stanley Group and certain affiliated
entities beneficially owned approximately 57% (on a fully diluted basis) of
the Company's Common Stock. In addition, certain persons who are affiliated
with MS&Co. comprise a majority of the directors of the Company. As a result
of these relationships, Morgan Stanley and its affiliated entities have
effective voting control and can control the business of the Company.
Circumstances could arise in which the interest of Morgan Stanley Group or
MSLEF II, as equity holders, could be in conflict with the interests of
holders of 1988 Securities, the 1993 Notes, the 1994 Notes and the Pass
Through Certificates. For example, if the Company encounters financial
difficulties, or is unable to pay certain of its debts as they mature, the
interests of the Company's equity investors might conflict with those of the
holders of the 1988 Securities, the 1993 Notes, the 1994 Notes and the Pass
Through Certificates. In addition, the equity investors may have an interest
in pursuing acquisitions, divestitures or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve risks to the holders of the 1988 Securities, the 1993 Notes, the
1994 Notes and the Pass Through Certificates. It is an event of default under
the Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured
Note Agreement, if Morgan Stanley Group, MSLEF II or their affiliates cease to
own or control at least a majority of the Company's outstanding Common Stock.
The Company has entered into an agreement with MS&Co. for financial
advisory services in consideration for which the Company pays MS&Co. an annual
fee of $1 million. MS&Co. is also entitled to reimbursement for all
reasonable expenses incurred in the performance of the foregoing services.
The Company paid MS&Co. approximately $1.0 million, $1.1 million and $1.1
million for these and other miscellaneous services in 1993, 1992 and 1991,
respectively. In connection with the sale of the 8 1/4% Notes and the 9%
Notes in 1994, MS&Co. received approximately $20.4 million of underwriting
fees. In connection with the sale of the 9 1/4% Notes and the 10% Notes in
1993, MS&Co. received approximately $19.5 million of underwriting fees. In
1992, MS&Co. received approximately $0.7 million in connection with the
underwriting of the reissuance of the Company's Development Authority of
Effingham County Pollution Control Revenue Refunding Bonds, Series 1988. In
connection with the 1990 and 1991 Transactions, MS&Co. received approximately
$2.9 million of advisory and underwriting fees. In connection with the
Company's sale of Senior Secured Notes in 1991, MS&Co. received approximately
$6.8 million of advisory fees. See "Certain Transactions--Other
Transactions."
Trading Market for the 1988 Securities, the 1993 Notes, the 1994 Notes
and the Pass Through Certificates. The Company does not intend to apply for
listing of any of the 1988 Securities, the 1993 Notes, the 1994 Notes or the
Pass Through Certificates on a national securities exchange. Although MS&Co.
currently makes a market in the 1988 Securities, the 1993 Notes, the 1994
Notes and the Pass Through Certificates, it is not obligated to do so, and any
such market-making may be discontinued at any time without notice, in its sole
discretion. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the 1988 Securities, the 1993 Notes, the 1994 Notes or
the Pass Through Certificates. See "Market-Making Activities of MS&Co."
The liquidity of, and trading market for, the 1988 Securities, the 1993
Notes, the 1994 Notes and the Pass Through Certificates may also be adversely
affected by declines in the market for high yield securities generally. Such
a decline may adversely affect such liquidity and trading market independent
of the financial performance of, and prospects for, the Company.
Fraudulent Conveyance Statutes. Various laws, including laws relating
to fraudulent conveyance, enacted for the protection of creditors may apply to
the Company's incurrence and assumption of indebtedness in connection with the
Acquisition, including the assumption of indebtedness of FH Acquisition
pursuant to the Merger and the issuance of the 1988 Securities, the 1993 Notes
and the 1994 Notes to refinance a portion of such indebtedness, and to the
Company's entering into the 1990 and 1991 Transactions. If a court were to
find, in a lawsuit by an unpaid creditor or representative of creditors of the
Company, that the Company did not receive fair consideration or reasonably
equivalent value for incurring or assuming such indebtedness or in exchange
for the Assets and, at the time of such incurrence or assumption or at the
time of entering into the 1990 and 1991 Transactions the Company (i) was
- 24 -
insolvent, (ii) was rendered insolvent by reason of such incurrence,
assumption or transaction, (iii) was engaged in a business or transaction for
which the assets remaining in the Company constituted unreasonably small
capital, or (iv) intended to incur or assume or believed it would incur or
assume debts beyond its ability to pay such debts as they mature, such court,
subject to applicable statutes of limitation, could determine to invalidate,
in whole or in part, such indebtedness or the 1990 and 1991 Transactions
between the Company and the Owner Trustee as fraudulent conveyances or
subordinate such indebtedness (including any indebtedness related to the 1990
and 1991 Transactions, if such transactions were recharacterized as loans) to
existing or future creditors of the Company and/or find that the lien granted
is unenforceable. In addition, if a court were to find that, at the time the
Company granted security interests to or for the benefit of the Banks, the
Purchasers and the Lenders, the Company did not receive fair consideration or
reasonably equivalent value for the grant of such security interests and came
within any of the foregoing clauses (i) through (iv), a creditor or
representative of creditors of the Company could seek to avoid the grant of
such security interests. This could result in an event of default with
respect to the Bank Credit Agreement, the Senior Secured Note Agreement and
the 1993 Term Loan Agreement which, under the terms thereof (subject to
applicable law), would allow the Banks, the Purchasers and the Lenders,
respectively, to accelerate such debt.
The measure of insolvency for purposes of the foregoing varies depending
on the law of the jurisdiction which is being applied. Generally, however,
the Company would be considered insolvent at a particular time if the sum of
its debts was then greater than all of its property at a fair valuation or if
the present fair saleable value of its assets was then less than the amount
that would be required to pay its probable liabilities on its existing debts
as they became absolute and matured.
With respect to the 1990 and 1991 Transactions, under Georgia law, a
conveyance is considered fraudulent and therefore void against creditors if
(i) it was made with the intention to delay or defraud creditors and such
intention was known to the party acquiring the property, (ii) the transaction
was not for valuable consideration and was made by an insolvent debtor or
(iii) the debtor was insolvent at the time and transferred or assigned its
property in trust and reserved a benefit of the property to itself.
Additionally, it is possible that a court could find that the
indebtedness incurred or assumed by the Company in connection with the
Acquisition was fraudulent and that the 1990 and 1991 Transactions and the
issuance of the 1993 Notes and the 1994 Notes were also fraudulent because the
proceeds thereof were used to refinance a portion of such indebtedness. It is
also possible that the ongoing lease payment obligations of the Company could
be considered a fraudulent conveyance to the extent the Company is insolvent
and does not receive fair consideration therefor. This situation could arise
if the rent payable under the Leases is not reasonably equivalent to the
rental value of the Assets. The Company believes that the rentals are a fair
consideration for the use of the Assets. To the extent that a federal or
state proceeding invalidates either the 1990 Transaction or the 1991
Transaction, a creditor or representative of creditors of the Company could
seek to avoid such transactions. This would result in a Secured Note
Indenture Event of Default and would allow the Secured Note Indenture Trustee
to exercise its remedies under the Secured Note Indenture.
Risk Factors Relating to the 14 1/8% Debentures
In addition to the risk factors described in "Risk Factors Relating to
the Company" above, purchasers of the 14 1/8% Debentures, should consider the
specific risk factor set forth below.
Original Issue Discount. Holders of the 14 1/8% Debentures will be
required to recognize interest income in respect of those securities for
federal income tax purposes in advance of the receipt of cash payments
attributable to that interest income. Interest income in the form of original
issue discount will be includable in the income of such holders as such
discount accrues from the issue date of such debentures, although prior to
May 1, 1995 no interest will be payable on the 14 1/8% Debentures. See
"Certain Federal Income Tax Considerations Applicable to the 1988 Securities--
The 14 1/8% Debentures."
- 25 -
Risk Factors Relating to the Pass Through Certificates
In addition to the risk factors described in "Risk Factors Relating to
the Company" above, purchasers of the Pass Through Certificates should
consider the specific risk factors set forth below.
Potential Inability to Make Payment on Final Distribution Date. The
maturity dates of the Secured Notes occur later than the final distribution
date of the Pass Through Certificates. The scheduled principal amount to be
passed through on the final distribution date equals approximately 74.20% of
the original principal amount of the Pass Through Certificates. The
scheduled payment to be made on such final distribution date shall be made
from the proceeds of a sale of the Secured Notes or a refinancing or refunding
arranged by the Company or the Owner Participant with respect to the Secured
Notes or, in the event there is no such refinancing, refunding or sale, by
application of rent payments required under such circumstances to be made by
the Company under the Leases, which will be sufficient in amount to make the
final distribution. The Owner Participant will under no circumstances be
obligated to utilize its own funds in connection with such transaction, or to
provide any credit support or credit enhancement or otherwise put itself at
any additional economic risk in facilitating the final distribution and,
although as beneficial owner of the Assets the Owner Participant may have an
economic incentive to facilitate such refinancing, refunding or sale and the
final distribution, Certificateholders should not assume that the Owner
Participant will in fact so facilitate such transactions or the final
distribution.
If the Company is required to make such rental payment, because of the
large amount of other indebtedness of the Company, as well as other factors,
it is possible that the Company will not have sufficient funds available to
make such rental payment. In such event, the Secured Note Indenture Trustee
will have the right to exercise all remedies available to it under the Secured
Note Indenture. The exercise of such remedies, however, may be constrained
pursuant to the provisions of the Secured Note Indenture and the intercreditor
agreement among the parties to the 1990 and 1991 Transactions and the
Collateral Trustee (the "Recognition Instruments"). Any such constraints on
the exercise of remedies with respect to the Assets or the Company may impair
the ability of the Secured Note Indenture Trustee, at such time as it may be
permitted to exercise remedies, to realize sufficient funds to satisfy the
then unpaid obligations with respect to the Secured Notes (and thus on the
Pass Through Certificates). This may be the case if, at the time remedies are
permitted to be exercised, the value of the Assets has decreased due to then
prevailing market conditions. See "Description of the Secured Notes--Secured
Note Indenture Events of Default, Notice and Waiver" and "Description of the
Recognition Instrument."
Potential Inability to Fully Exercise Remedies. The Collateral Trustee,
currently acting on behalf of the Banks under the Bank Credit Agreement
(pursuant to which $526 million principal amount is outstanding as of
March 31, 1994), the Purchasers of the Company's Senior Secured Notes ($300
million principal amount of which is outstanding as of March 31, 1994), and
the Lenders under the 1993 Term Loan Agreement (pursuant to which $100 million
principal amount was outstanding as of March 31, 1994) is entitled to, among
other things, receive a lien on the Company's interest in the Leases, the Site
Leases and the Support Agreements, and notice of defaults and an opportunity
to cure certain such defaults. Upon foreclosure of such lien, the Collateral
Trustee may assign the Company's interest under the Leases and the Support
Agreements. The Collateral Trustee may also postpone termination of the
Leases, the Site Leases and the Support Agreements and defer the Lessor's
exercise of other remedies following a default and in the event of a rejection
by the Company in bankruptcy of the Leases obtain new leases of the Assets
provided they undertake to cure all outstanding payment defaults and certain
nonpayment defaults. The Collateral Trustee does not have a lien on the
Assets. The Recognition Instrument sets forth the rights and obligations of
such parties in various specified circumstances with respect to such matters.
Each of the Owner Trustee under the Secured Note Indenture and the
Collateral Trustee under the Recognition Instrument has the right under
certain circumstances to cure a Secured Note Indenture Event of Default that
results from the occurrence of a Lease Event of Default under any Lease. In
general, both the Owner Trustee and the Collateral Trustee have the right to
cure all defaults by the Company subject to a limit on the number of defaults
in the payment of Basic Rent which can be cured.
- 26 -
The Secured Note Indenture provides that the Secured Note Indenture
Trustee will not exercise foreclosure remedies under the Secured Note
Indenture for a Secured Note Indenture Event of Default which results from a
Lease Event of Default unless it has exercised or is exercising material
remedies seeking to dispossess the Company under each Lease, unless exercising
such remedies under such Lease shall be prohibited by law, governmental
authority or court order. In addition, the Recognition Instrument affords the
Collateral Trustee the right to defer the Owner Trustee's and the Secured Note
Indenture Trustee's exercise of remedies following a default by the Company
(provided that within specified time periods during such deferral, among other
things, all payment defaults are cured and certain nonpayment defaults are in
the process of being cured).
The foregoing provisions relating to rights to cure and limitations on
the exercise of remedies by the Owner Trustee and the Secured Note Indenture
Trustee may delay the Owner Trustee and the Secured Note Indenture Trustee
from exercising the full range of remedies otherwise available to it. Any
such delay in the exercise of remedies with respect to the Assets or the
Company may impair the ability of the Owner Trustee and the Secured Note
Indenture Trustee, at such time as they may be permitted to exercise remedies,
to realize sufficient funds to satisfy the then unpaid obligations with
respect to the Secured Notes (and thus on the Pass Through Certificates).
This may be the case if, at the time remedies are permitted to be exercised,
the value of the Assets has decreased due to the then prevailing market
conditions or because the Company has less assets available to satisfy all of
its creditors.
In addition, the Recognition Instrument provides that, following a
default by the Company, the Collateral Trustee has the right, in connection
with the exercise of remedies by the Collateral Trustee in respect of its lien
on the Company's interest under the Operative Documents, to have the Company's
rights under the Operative Documents assigned to a new entity. The
Recognition Instrument also provides that if the Company shall be the subject
of any insolvency, bankruptcy or other similar proceeding and in connection
therewith shall elect to reject any Operative Document, the Collateral Trustee
shall have the right to require the parties to the 1990 and 1991 Transactions
to enter into similar agreements with a new entity. In such event, the
ultimate source of payments under the Leases and the other Operative Documents
(and thus on the Pass Through Certificates) would be an entity other than the
Company. There can be no assurances that any such entity could satisfy the
Company's obligations under the Operative Documents. See "Description of
Secured Notes--Remedies" and "Description of the Recognition Instrument."
Potential Inability to Realize Full Value of Collateral Upon
Foreclosure. The Secured Notes are secured by the Assets. Because the Assets
in general, and the Facility and the Power Plant in particular, are extremely
large and essentially immobile, it may be difficult or impossible in the
context of a distressed sale to sell the Assets, either individually or in the
aggregate, upon foreclosure or other exercise of remedies so as to realize
sufficient value to satisfy the then unpaid obligations with respect to the
Secured Notes. Thus, the amount passed through to the Certificateholders
might be less than the amount due on the Pass Through Certificates. See
"Description of Certain Indebtedness--1990 and 1991 Transactions" for a
description of the Assets.
In addition, the regulations of the Federal Energy Regulatory Commission
("FERC") impose significant requirements with respect to ownership and
operation of the Power Plant, the package boiler, and the other component
parts of the Savannah River Mill Cogeneration Facility ("SRMCF") at the
Company's Savannah River mill which must be met for the SRMCF to enjoy various
regulatory benefits and exemptions associated with its status as a qualifying
cogeneration facility under the Public Utility Regulatory Policies Act of 1978
("PURPA"). PURPA states that a qualifying facility must be owned by a "person
not primarily engaged in the generation or sale of electric power (other than
electric power solely from cogeneration facilities or small power production
facilities)." FERC regulations implement this restriction by limiting
electric utility or electric utility holding company ownership in a qualifying
facility to no more than a 50% equity interest. In addition, qualifying
topping-cycle cogeneration facilities such as the SRMCF must meet certain
operational requirements relating to the sequential production of electricity
and thermal energy, the production of a minimum amount of useful thermal
energy output, and the relationship between the facility's oil and/or natural
gas fuel input and its electric power and useful thermal energy outputs.
- 27 -
In the event of a foreclosure, the requirements outlined above will have
to be complied with should the Power Plant and the package boiler continue to
be operated as component parts of the SRMCF, in order to preserve the SRMCF's
status as a qualifying cogeneration facility. If the SRMCF should lose its
qualifying facility status, the owner(s) and/or operator(s) of the SRMCF in a
foreclosure context may be subject to regulation as a holding company under
the Public Utility Holding Company Act of 1935 and/or a public utility under
the Federal Power Act. The ownership and operation of the Power Plant and the
package boiler are not currently subject to regulation by the Georgia Public
Service Commission, by reason of the SRMCF's qualifying facility status and
the fact that no retail electric sales transactions are occurring with respect
to the SRMCF. However, upon foreclosure, depending upon whether the SRMCF is
a qualifying facility and/or whether retail electric sales are taking place,
the Georgia Public Service Commission may seek to regulate the ownership and
operation of the Power Plant and package boiler as part of the SRMCF.
Possible Rejection of Certain Operative Documents in Bankruptcy. If the
Company were to become a debtor in a bankruptcy or reorganization case under
the United States Bankruptcy Code, the Company or its bankruptcy trustee could
reject any Lease. Similarly, in such event, the Company or its bankruptcy
trustee could reject other Operative Documents, such as the Site Leases
(pursuant to which the Company subleases and grants easements with respect to
the Sites to the Owner Trustee) and the Support Agreements (pursuant to which
the Company agrees to provide certain services to the Owner Trustee in the
event of the termination of the Facility Lease or the Power Plant Lease).
Such rejection could limit the ability to realize full value upon foreclosure
of the Assets. In any such event, there could be no assurance that the amount
of any claim for damages that would be allowed in such bankruptcy case would
be in an amount sufficient to provide for the repayment of the Secured Notes.
In addition, under Section 502(b)(6) of the United States Bankruptcy Code, as
amended, a claim by a lessor for damages resulting from the rejection of a
lease of real property in connection with bankruptcy proceedings affecting the
lessee may be limited to an amount equal to the rent reserved under the lease,
without acceleration, for the greater of 1 year or 15 percent (but not more
than 3 years) of the remaining term of the lease, plus rent already due but
unpaid. There can be no assurance that a bankruptcy court could not find a
lessor subject to these limitations. The characterization of the property
comprising the Assets as personal or real property involves the interpretation
of Georgia law. Because there is a lack of clear precedent, the Company is
unable to predict how a bankruptcy court would rule on this question. The
rejection of a Site Lease or Support Agreement by the Company or its
bankruptcy trustee could make it impossible to operate the Assets or certain
of the Assets at the Sites and, in addition, could require the removal of some
or all of the Assets to another location. Further, there can be no assurance
that it would be economical to remove certain of the Assets to another
location. Such rejection could limit the ability of the Secured Note
Indenture Trustee to realize full value upon foreclosure of the Assets, and
thus for the Certificateholders to receive the full amounts due to them
pursuant to the Pass Through Certificates. See "Description of the Secured
Notes--Possible Rejection of Certain Operative Documents in Bankruptcy."
USE OF PROCEEDS
The net proceeds from the sale of the 1988 Securities, the Junior
Debentures and the 12 3/8% Notes were approximately $1,267 million and,
together with borrowings of approximately $122 million under the Revolving
Credit Facility and cash provided from operations, were used to repay the $400
million Bank Bridge Loan, $880 million in aggregate principal amount (plus
accrued and unpaid interest, which totaled approximately $26.2 million) of the
Bridge Notes held by Morgan Stanley International, MSLEF II and certain
institutional investors and other indebtedness of $124 million, and to pay
expenses incurred by the Company in connection with the offering of the 1988
Securities, the Junior Debentures and the 12 3/8% Notes. In addition, $160
million principal amount of the remaining Bridge Notes (plus accrued and
unpaid interest which totaled approximately $5.2 million) were exchanged for a
portion of the 1988 Securities, the Junior Debentures and the 12 3/8% Notes.
At the time of the sale of the 1988 Securities, the Junior Debentures and the
12 3/8% Notes, the Series A Bridge Notes, the Series B Bridge Notes and the
Series C Bridge Notes bore interest at the rate of 11.9375%, 12.9375% and
13.9375%, respectively.
- 28 -
The Pass Through Certificates were issued in order to facilitate the
financing or refinancing of the debt portion of the 1991 Transaction and the
1990 Transaction. The proceeds from the sale of the Pass Through Certificates
have been used by the Pass Through Trustee on behalf of the Pass Through Trust
to purchase the Secured Notes at 100% of the principal amount thereof. The
proceeds received from the sale of the Secured Notes have been used by the
Owner Trustee to finance or refinance not more than 85% of the Owner Trustee's
cost of acquiring the Company's interest in the Assets, as supported by an
independent appraisal. The aggregate amount of proceeds used in financing the
debt portion of the 1991 Transaction was $76,484,448; the aggregate amount of
proceeds used in refinancing the debt portion of the 1990 Transaction was
$7,134,861. The Series A-1 Secured Notes redeemed had a maturity date of
January 2, 2005 and the Series A-2 Secured Notes redeemed had a maturity date
of July 2, 2005. Such Series A Secured Notes had an interest rate equal to a
floating rate based upon certain specified reference rates and an aggregate
outstanding principal amount of $7,134,861. Simultaneously with the
acquisition of the Assets by the Owner Trustee, the Owner Trustee leased such
Assets to the Company. For a description of the interest of the Company in
the Assets and the acquisition thereof by the Owner Trustee, see "Description
of Certain Indebtedness--1990 and 1991 Transactions."
The Secured Notes were issued under the Trust Indenture, Assignment of
Leases, Security Agreement and Deed to Secure Debt (the "Secured Note
Indenture"), between The Connecticut National Bank, as Owner Trustee, and
Wilmington Trust Company, as Secured Note Indenture Trustee. The Owner
Participant provided to the Owner Trustee, from sources other than the Secured
Notes, at least 15% of the cost of acquiring the Company's interest in the
Assets and is the beneficial owner of the Assets. The Owner Participant,
however, will not be personally liable for any amount payable under the
Secured Note Indenture or the Secured Notes issued thereunder.
The net proceeds to the Company from the sale of the Assets have been
applied by the Company to prepay its indebtedness under the Bank Credit
Agreement and to pay its indebtedness under the 7% Notes due 1992 (the "7%
Notes") which were redeemed in February 1992, such application being pro rata
based upon the outstanding principal amount thereof.
The net proceeds received by the Company from the sale of the 1993 Notes
were $729 million, after deducting $21 million in underwriter's fees and other
expenses incurred in connection with the 1993 Note Offerings. The net
proceeds received by the Company from the sale of the 1993 Notes together with
borrowings of $100 million under the 1993 Term Loan were used to redeem all of
the outstanding Junior Debentures, at 100% of the principal amount thereof,
together with accrued and unpaid interest thereon to the date of redemption,
to prepay $250 million under the Term Loan, to repay a portion of the
Company's indebtedness under the Revolving Credit Facility and to pay certain
fees and expenses in connection with the 1993 Refinancing. The Term Loan
prepayment and the Revolving Credit Facility repayment occurred on March 23,
1993 and March 26, 1993, respectively. The Junior Debenture Redemption
occurred on April 22, 1993.
The net proceeds received by the Company from the sale of the 1994 Notes
were $730 million, after deducting $20 million in underwriter's fees and other
expenses incurred in connection with the 1994 Note Offerings.
The net proceeds received by the Company from the sale of the 1994 Notes
were used to redeem all of the outstanding 12 3/8% Notes at 105% of the
principal amount thereof, to redeem $238 million aggregate principal amount of
the outstanding 12 5/8% Debentures at 105% of the principal amount thereof, to
prepay $100 million of the $107 million Term Loan payment due in December
1994, to repay a portion of the Company's indebtedness under the Revolving
Credit Facility and to pay certain fees and expenses in connection with the
1994 Refinancing. The Term Loan prepayment and the Revolving Credit Facility
repayment occurred on February 10, 1994. The 12 3/8% Note Redemption and the
12 5/8% Debenture Redemption occurred on March 11, 1994.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the instruments governing certain indebtedness
of the Company does not purport to be complete and is qualified in its
entirety by reference to such instruments, copies of which have been filed, or
incorporated by reference, as exhibits to the Registration Statement of which
- 29 -
this Prospectus is a part. Capitalized terms used but not defined herein have
the meanings ascribed to them in such instruments.
The Bank Credit Agreement
General. The Bank Credit Agreement consists of (i) the Term Loan with
mandatory annual repayments in varying amounts with a final maturity of
December 31, 1996; and (ii) the Revolving Credit Facility with a final
maturity of December 31, 1996. The following summary of certain provisions
of the Bank Credit Agreement does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of
the Bank Credit Agreement, including the definitions of capitalized terms used
herein and not otherwise defined herein. A copy of the Bank Credit Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
As of March 31, 1994, the amount outstanding under the Term Loan was
$232 million and the Company had reduced the aggregate Revolving Credit
Facility commitment to $350 million. At March 31, 1994, the available
capacity under the Revolving Credit Facility was $56 million.
As part of the Revolving Credit Facility, the Bank Credit Agreement
provides for the issuance of letters of credit for the account of the Company
in the normal course of business of up to $50 million. In addition, a letter
of credit of up to $50 million (the "Support Letter of Credit") is available
to support the Company's obligations with respect to the refinancing of the
tax-exempt financing of a portion of the Company's tissue mill in Georgia.
Bankers Trust also provides a $75 million swing line facility within the
Revolving Credit Facility, $50 million of which is available to reimburse
draws under the Support Letter of Credit, and $25 million of which is
available for general corporate purposes. As of March 31, 1994, no
reimbursement obligations were outstanding under the Support Letter of Credit
and no letters of credit were issued under the Bank Credit Agreement.
Interest. At March 31, 1994, the Term Loan and the Revolving Credit
Facility bear interest at the Company's option at Bankers Trust's prime rate,
plus 1.50% or, subject to certain limitations, at a reserve adjusted
Eurodollar rate, plus 2.25%; the foregoing rates are subject to adjustment
downward by up to 0.75% based on certain financial criteria.
For each of the Term Loan and the Revolving Credit Facility, interest is
payable quarterly based on Bankers Trust's prime rate and on the last day of
the selected interest period (and at the end of three months in the case of
interest periods longer than three months) for loans based on the Eurodollar
rate. In each case, interest is payable in arrears and computed on the basis
of a 360-day year.
Repayment. As of March 31, 1994, the outstanding balance of the Term
Loan of $232 million was payable in installments as follows:
Principal
Installment
-----------
(In millions)
On December 31,
1994 $ 7
1995 107
1996 118
Mandatory repayments of the Term Loan and the Revolving Credit Facility
are to be made on or before the last day of March of each year in an amount
equal to 50% of Excess Cash Flow for the prior year. "Excess Cash Flow" is
defined as consolidated net income (subject to certain adjustments) plus
depreciation and other noncash charges (including deferred taxes and non-cash
accreted interest) minus the sum of regularly scheduled repayments of certain
indebtedness, scheduled capital expenditure amounts, changes in working
capital, permitted payments in respect of equity and $10 million. Excess Cash
Flow is to be applied first to the prepayment of the Term Loan applied ratably
against the remaining regularly scheduled repayments through 1996 and second,
if the Term Loan has been repaid, to the prepayment of the Revolving Credit
Facility (with a reduction of the commitment under the Revolving Credit
- 30 -
facility in an amount corresponding to the amount of prepayment). Excess cash
flow prepayments under the 1993 Term Loan Agreement are to be applied to the
1993 Term Loan.
The Term Loan and the Revolving Credit Facility also provide for
mandatory prepayments from proceeds of any Asset Sales and the commitment
under the Revolving Credit Facility is to be reduced by the amount of proceeds
of Asset Sales applied to prepay the Revolving Credit Facility. "Asset Sale"
is defined in the Bank Credit Agreement as the sale, transfer or other
disposition by the Company or any subsidiary of the Company of (i) any stock
of any subsidiary which is not Margin Stock; (ii) substantially all the assets
of any geographic or other division or line of business of the Company or any
subsidiary of the Company; or (iii) any Real Property or any other assets
having a value in excess of $2 million (excluding assets produced or purchased
for sale to others in the ordinary course of business) provided that the
aggregate amount of all such sales by the Company and its subsidiaries
occurring in any fiscal year equals at least $10 million. Excluded from Asset
Sales are sales of cash and cash equivalents in the ordinary course of
business and up to $30 million of sales of assets located in the U.K. if the
proceeds of such sales are redeployed outside the United States.
The proceeds of any Asset Sale are to be applied ratably against the
remaining regularly scheduled payments on the Term Loan except in the case of
proceeds received with respect to sale and leaseback transactions and certain
asset sales and then to prepay the Revolving Credit Facility. In connection
with an Asset Sale where the asset being sold is collateral securing the
obligations under the Bank Credit Agreement and certain other obligations
equally and ratably, the net proceeds of sale must be applied in accordance
with the terms of the Collateral Trust Agreement.
Under the Bank Credit Agreement, the Company may enter into sale and
leaseback transactions with respect to its property only if (i) the applicable
leases pertain to property acquired, constructed or placed in service after
August 8, 1988 or as otherwise permitted in connection with the sale and
leaseback transaction of the Phase IV facility at the Company's Savannah River
mill and (ii) the Company does not incur aggregate lease rental expense in
excess of annual amounts specified in the Bank Credit Agreement. The proceeds
of sale and leaseback transactions, net of costs and taxes, are required to be
applied to reduce the loans under the Bank Credit Agreement.
The Term Loan and the Revolving Credit Facility may be prepaid in whole
or in part at any time (except that Eurodollar loans are prepayable only on
the last day of the selected interest period) without premium or penalty, and
the Revolving Credit Facility commitment may be reduced by the Company in
whole or in part at any time without premium or penalty.
Guarantees and Security. The indebtedness under the Bank Credit
Agreement is secured by a first lien (subject to permitted liens) on the
Shared Collateral. Pursuant to the Collateral Trust Agreement, the 1993 Term
Loan and the Senior Secured Notes are, with certain exceptions as described
below, secured equally and ratably with the indebtedness under the Bank Credit
Agreement. See "Description of Certain Indebtedness--Senior Secured Notes--
1993 Term Loan."
Covenants; Events of Default. The Bank Credit Agreement contains several
financial covenants that require the Company to maintain certain specified
ratios at specified times. These financial covenants include:
(i) A requirement that, at all times, the Company maintain a ratio
of Consolidated Current Assets, excluding any receivable with respect to
current taxes, to Consolidated Current Liabilities, excluding any liability
for current taxes, of not less than .75 to 1.0. "Consolidated Current Assets"
are defined as the total assets of the Company and its subsidiaries on a
consolidated basis which may properly be classified as current assets in
conformity with generally accepted accounting principles ("GAAP"), excluding
cash and certain instruments defined as "cash equivalents" to the extent such
items exceed $10 million. "Consolidated Current Liabilities" are defined as
the total liabilities of the Company and its subsidiaries on a consolidated
basis which may properly be classified as current liabilities in conformity
with GAAP, excluding (a) current maturities of indebtedness, with an initial
term longer than one year or renewable at the borrower's option for more than
one year, (b) certain other indebtedness permitted under the Bank Credit
Agreement which is classified as a current liability in conformity with GAAP,
(c) taxes payable solely as a result of Asset Sales and (d) fees, costs and
- 31 -
expenses payable by the Company in connection with the transactions
contemplated by the Bank Credit Agreement (the "Transaction Costs").
(ii) A requirement that the Company maintain a ratio of (a)
Consolidated EBDIT (as defined) to (b) Consolidated Cash Interest Expense of
no less than 1.50 to 1.00 for each period of four fiscal quarters (not less
than 1.40 to 1.00 in the case of the four fiscal quarters ending March 31,
1994). "Consolidated EBDIT" is defined as the sum of (a) consolidated net
income (subject to certain adjustments), (b) provision for taxes based on
income, (c) depreciation expenses, (d) total interest expense, (e)
amortization expense and (f) other non-cash items increasing consolidated net
income, all as determined on a consolidated basis for the Company and its
subsidiaries in conformity with GAAP. "Consolidated Cash Interest Expense" is
defined as total interest expense and net costs under interest rate agreements
of the Company and its subsidiaries on a consolidated basis calculated in
conformity with GAAP, but excluding interest expense not payable in cash,
certain fees payable to the Banks and the Agent under the Bank Credit
Agreement on or prior to August 9, 1988 and the Transaction Costs in
connection with the leveraged acquisition of the Company in 1988, all as
determined in conformity with GAAP.
(iii) A requirement that the Company maintain a ratio of (a)
Consolidated Senior Debt to (b) the sum of (x) Consolidated Net Worth plus (y)
Subordinated Indebtedness, of not more than 0.85 to 1.00 for the period from
January 1, 1994 to and including December 31, 1994, not more than 0.80 to 1.00
for the period from January 1, 1995 to and including December 31, 1995, and
0.75 to 1.00 thereafter. "Consolidated Senior Debt" is defined as the sum of
(1) all indebtedness of the Company and its subsidiaries, other than
Subordinated Indebtedness, on a consolidated basis calculated in conformity
with GAAP and (2) the unutilized maximum commitment under any revolving credit
or similar facility of the Company and its subsidiaries, including without
limitation the Revolving Credit Facility. "Consolidated Net Worth" is defined
as the sum of all common stock and preferred stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of the Company
and its subsidiaries on a consolidated basis calculated in conformity with
GAAP (but excluding the effects of certain foreign currency exchange
adjustments) minus, to the extent not already excluded in accordance with
GAAP, the amount, if any, of nonrecourse loans made to provide the purchase
price paid by management for any Common Stock. "Subordinated Indebtedness" is
defined as indebtedness of the Company subordinated in right of payment to the
indebtedness outstanding under the Bank Credit Agreement, the 1993 Term Loan
and the Senior Secured Notes pursuant to documentation containing interest
rates, payment terms, maturities, amortization schedules, covenants, defaults,
remedies, subordination provisions and other material terms in form and
substance satisfactory to the Banks holding 66 2/3% or more of the aggregate
principal amount outstanding under the Bank Credit Agreement.
The Bank Credit Agreement provides that for the purposes of the
covenants set forth therein, no calculations will give effect to adjustments
in component amounts resulting from application of the purchase method of
accounting under Accounting Principles Board Opinions Nos. 16 and 17 to the
leveraged acquisition of the Company in 1988 or the amortization of expenses
in connection with such transaction or its financing.
The Bank Credit Agreement contains additional covenants which, among
other things, require the Company (i) to provide equal security to the Banks
in the event certain liens are granted on any assets of the Company or its
subsidiaries, (ii) to maintain the properties of the Company and its
subsidiaries, together with insurance thereon, (iii) to enter into interest
rate agreements with respect to a certain portion of the Bank Credit
Agreement, (iv) to provide certain reports to the Banks and permit inspections
by the Banks, (v) to cause subsidiaries accounting for more than 10% of
consolidated assets or consolidated revenues of the Company to provide a
guarantee of the Company's obligations under the Bank Credit Agreement and to
secure the same with a pledge of inventory and receivables, (vi) to pledge the
stock of, with certain exceptions, any subsidiary accounting for more than 10%
of consolidated revenues or consolidated assets of the Company (each a
"Material Subsidiary"); provided that neither the Company nor any subsidiary
shall be required to pledge more than 65% of the voting power of any
controlled foreign corporation (as defined in the Internal Revenue Code) or
any subsidiary that acts solely as a holding company for the stock of one or
more controlled foreign corporations, or certain identified subsidiaries that
act principally as holding companies for the stock of one or more controlled
foreign corporations, and in no event shall be required to pledge the stock of
- 32 -
any subsidiary to the extent such pledge would constitute an investment of
earnings in United States property under the Internal Revenue Code and (vii)
to provide equal and ratable consideration, if any, to Purchasers of the
Senior Secured Notes and Banks for amendments, modifications, supplements,
waivers or forbearance of the Senior Secured Note Agreement and the Bank
Credit Agreement, respectively.
The Bank Credit Agreement also contains covenants which, among other
things, (i) limit the ability of the Company and its subsidiaries to incur
additional indebtedness and contingent obligations or grant liens or
additional negative pledges in respect of their assets, (ii) limit the
investments and capital expenditures which may be made by the Company and its
subsidiaries, (iii) limit the ability of the Company and its subsidiaries to
make interest payments on and prepayments of subordinated debt and limit the
ability of the Company to pay dividends or make other distributions on account
of any shares of any class of its capital stock (other than dividends payable
solely in other shares of such class of capital stock), (iv) limit the ability
of the Company and its subsidiaries to incur obligations under leases or to
enter into sale and leaseback transactions, (v) prevent the Company and its
subsidiaries from selling or discounting receivables, other than certain sales
of notes received in connection with Asset Sales, (vi) limit the ability of
the Company and its subsidiaries to enter into certain transactions or
arrangements with certain affiliates of the Company or any holder of 5% or
more of any class of its equity securities or affiliates of such holders,
(vii) restrict the ability of the Company and its subsidiaries to make
fundamental changes and to enter into new lines of business and (viii) limit
the ability of the Company or its subsidiaries to dispose of their respective
assets.
Under the Bank Credit Agreement, various specified events constitute
Events of Default which permit the Banks to cease making loans and to declare
all amounts outstanding under the Term Loan and the Revolving Credit Facility
to be due and payable. These events include, among other things, failure to
pay any installment of principal under the Bank Credit Agreement when due,
failure to pay for 5 days after the due date any interest under the Bank
Credit Agreement, default in or relating to other indebtedness of the Company
or any of its subsidiaries in a principal amount of $15 million or more
individually or $30 million or more in the aggregate, breach of certain
covenants contained in the Bank Credit Agreement, any representation or
warranty in the Bank Credit Agreement proving to have been false in a material
respect when made, default in the performance of any other terms contained in
the Bank Credit Agreement or certain other related documents without being
remedied or waived within 30 days after receipt of notice of default,
bankruptcy of the Company or any of its Material Subsidiaries, a judgment or
attachment involving an amount in excess of $10 million individually or $20
million in the aggregate which is not discharged within a specified period,
certain ERISA defaults, the invalidity of any guarantee given by a subsidiary
of the Company in connection with the Bank Credit Agreement, failure to
maintain the perfection of any security interest as required under the Bank
Credit Agreement and a failure by MSLEF II, MS&Co. and their affiliates to own
or control at least a majority of the Common Stock entitled to vote for the
election of members of the Board of Directors of the Company.
Fees and Expenses. A commitment fee of 0.5% per annum on the unused
portion of each Bank's commitment under the Revolving Credit Facility is
payable to the Banks. In addition, an annual Agent's commission of $500,000
is payable to Bankers Trust. The Company agreed to pay certain of the Banks'
expenses incurred in connection with the Bank Credit Agreement and to provide
the Banks and their respective directors, officers, employees and affiliates
with customary indemnification. In addition, in connection with obtaining
amendments and consents required in connection with the issuance of the 9 1/4%
Notes and the 10% Notes, the Company paid a consent fee of 0.3% of $932
million to the Banks in 1992.
Senior Secured Notes
General. In September 1991, the Company privately placed $300 million
of Senior Secured Notes due 1997 through 2000 (the "Senior Secured Notes")
issued pursuant to a Note Purchase Agreement dated as of September 11, 1991
(the "Senior Secured Note Agreement") among the Company and certain purchasers
(such initial Purchasers, together with their successors and assigns, the
"Purchasers").
- 33 -
The Senior Secured Notes are limited to $300 million aggregate principal
amount and have been issued in five series, Series A, B, C1, C2 and D,
maturing in years 1997 through 2000. Series A, B, C1, C2 and D of the Senior
Secured Notes bear interest at three-month LIBOR plus 275 basis points, 300
basis points, 325 basis points, 300 basis points, and 350 basis points,
respectively.
The Company is required to prepay the Senior Secured Notes with the net
cash proceeds of Asset Sales to the extent indicated above under "--The Bank
Credit Agreement." In addition, subject to the consent of the Banks, the
Company may prepay the Senior Secured Notes at any time in whole or in part at
par plus accrued and unpaid interest to the prepayment date.
The Senior Secured Notes constitute Secured Indebtedness of the Company
and, except as indicated above in respect of the Bank Credit Agreement, are
secured by a first lien (subject to permitted liens) on the Shared Collateral
on an equal and ratable basis with the 1993 Term Loan, all indebtedness from
time to time outstanding under the Bank Credit Agreement, and certain
indebtedness under interest rate agreements and currency agreements.
The Senior Secured Notes contain certain restrictive and financial
covenants and events of default that are substantially similar to those
contained in the Bank Credit Agreement.
In connection with the 1993 Refinancing, the Company paid approximately
$0.9 million to the holders of the Senior Secured Notes as a consent fee and
for certain of their expenses in connection with amendments to the Senior
Secured Note Agreement and has provided such holders and their respective
directors, officers, employees and affiliates with customary indemnification
relating to liability arising from the Senior Secured Note Agreement.
1990 And 1991 Transactions
During 1990 and 1991, the Company, as part of the Phase IV expansion of
its Savannah River mill, completed the acquisition, construction and
installation of a paper machine and related structures and equipment (the
"Facility"), a fluidized bed boiler and related structures and equipment (the
"Power Plant") and three groups (each an "Equipment Group") of certain paper
manufacturing production equipment and a package boiler (the "Equipment", and
together with the Facility and the Power Plant, the "Assets"). The Facility
consists of a twin wire Beloit tissue machine and related structures and
equipment, the Power Plant consists of a coal-fired fluidized bed boiler and
related structures and equipment and the Equipment consists of various items
of converting, shipping, pulp processing and machine shop equipment and a
package boiler.
In order to induce the Company to locate its mill in Effingham County,
Georgia, the Effingham County Industrial Development Authority (the "IDA") has
entered into an arrangement with the Company whereby the Company makes certain
payments in lieu of ad valorem taxes otherwise due. In order to effect such
arrangement, the IDA holds legal title to all of the Company's land and
equipment at the mill (the "Project"), including the Facility, the Power Plant
and the Equipment, and leases the Project (including such Assets) to the
Company (or its assignee) under a lease (the "IDA Lease") expiring on
January 2, 2027. The IDA Lease stipulates that no annual rent shall be
payable thereunder and provides that (i) the Company (or its assignee) may
remove at any time any property subject thereto, including the Facility, the
Power Plant and the Equipment and (ii) the Company may acquire title to all of
the property leased under the IDA Lease upon payment of one dollar.
The IDA Lease will terminate on January 2, 2027, unless the Company
terminates the IDA Lease at any time during the term thereof. Upon
termination of the IDA Lease, the IDA agrees to convey legal title to the
Project to the Company (or its assignee) for a purchase price of one dollar.
To effectuate such conveyance, the Company and the IDA have entered into an
escrow agreement (the "IDA Escrow Agreement") with an escrow agent (the
"Escrow Agent"), pursuant to which the IDA has delivered to the Escrow Agent a
limited warranty deed (the "Deed") conveying legal title to the Project to the
Company and the Company has delivered to the Escrow Agent the one dollar
purchase price for the Project. Under the IDA Escrow Agreement, the Company
and the IDA have directed the Escrow Agent that upon termination of the IDA
Lease the Escrow Agent shall deliver the one dollar purchase price to the IDA
and shall deliver the Deed conveying the Project to the Company.
- 34 -
On December 23, 1990, the Company consummated the 1990 Transaction by
selling its interest in the 1990 Equipment to The Connecticut National Bank,
as Owner Trustee (the "Owner Trustee") under the Owner Trust Agreement, and
simultaneously leasing the 1990 Equipment from the Owner Trustee as Lessor
(the "Lessor") under an equipment lease agreement (the "1990 Equipment
Lease").
The Company has consummated a sale and leaseback transaction (the "1991
Transaction") with respect to the Facility, the Power Plant and the 1991
Equipment and to refinance the Secured Notes issued in connection with the
1990 Transaction. The Company sold its interest in such Assets to the Owner
Trustee and simultaneously leased such Assets from the Owner Trustee under
separate lease agreements for the Facility, the Power Plant and the 1991
Equipment.
The Pass Through Trustee used the proceeds of the Pass Through
Certificates offered hereby to acquire the Secured Notes issued by the Owner
Trustee. See "Use of Proceeds."
The Lessor's Cost and the percentage financed or refinanced by the
issuance of the Secured Notes (the "Debt Percentage") are set forth below:
Series of Secured Notes
Asset Relating to Such Asset Lessor's Cost Debt Percentage
----- ----------------------- ------------- ---------------
1990 Equipment A-1 and A-2 $ 9,456,147 75.45%
1991 Equipment B 14,993,208 85.00%
Facility C 46,179,000 84.79%
Power Plant D 28,923,000 85.00%
-----------
Total $99,551,355
===========
In connection with the closing of the 1990 Transaction, the sale of the
Company's interest in the 1990 Equipment was effected, and in connection with
the closing of the 1991 Transaction, the sale of the Company's interest in the
Facility, the Power Plant and the 1991 Equipment was effected, through the
assignment of all of the Company's right, title and interest in and to such
Assets, including all of the Company's right, title and interest under the IDA
Lease with respect to such Assets (including the right to remove such Assets
from the IDA Lease and acquire title) to the Owner Trustee. See "Description
of the Secured Notes--Security." Whenever the context requires, references
herein to ownership, title and related matters with respect to any Asset
subject to the IDA Lease at the relevant time shall refer to the rights in and
to such Asset of the Owner Trustee and the Company under the IDA Lease.
Notwithstanding that the Company has assigned all of its right, title
and interest in and to each Asset to the Owner Trustee, if upon termination of
the IDA Lease the IDA shall purport to convey legal title to any Asset to the
Company, the Company will cause legal title to such Asset to be conveyed to
the Owner Trustee. In addition, in connection with the closings of the 1990
and 1991 Transactions with respect to any Asset, the Company delivered to the
Owner Trustee (who in turn delivered to the Secured Note Indenture Trustee as
security), an executed deed and bill of sale to such Asset which the Owner
Trustee will be authorized to record in the event the IDA purports to convey
legal title to such Asset to the Company.
The Company has granted to a Collateral Trustee currently acting on
behalf of the Banks party to the Bank Credit Agreement and the Purchasers of
the Senior Secured Notes, a first lien pursuant to the Georgia Mill Mortgage
on, among other things, the Company's interest in the IDA Lease and its
reversionary estate in the property subject thereto. Although the Collateral
Trustee will not have a lien on the Assets, the Collateral Trustee is entitled
to, among other things, receive a lien on the Company's interest as lessee
under the Leases. The respective rights of the Collateral Trustee, the Owner
Trustee, the Secured Note Indenture Trustee and the Pass Through Trustee are
addressed in the Recognition Instrument. See "Description of the Recognition
Instrument" and "Risk Factors--Risk Factors Relating to the Pass Through
Certificates--Potential Inability to Fully Exercise Remedies."
1993 Term Loan
On April 21, 1993, the Company borrowed $100 million under the 1993 Term
Loan Agreement, from a syndicate of banks (the "Lenders") for whom Bankers
- 35 -
Trust acts as agent. The 1993 Term Loan bears interest, at the Company's
option, at Bankers Trust's prime rate, plus 1.75% or, subject to certain
limitations, at a reserve adjusted Eurodollar rate, plus 3.00%, and matures on
May 1, 1997. The 1993 Term Loan constitutes Secured Indebtedness of the
Company and, except as indicated above in respect of the Bank Credit
Agreement, is secured by a first lien (subject to permitted liens) on the
Shared Collateral on an equal and ratable basis with the Senior Secured Notes,
all indebtedness from time to time outstanding under the Bank Credit
Agreement, and certain indebtedness under interest rate agreements and
currency agreements.
The 1993 Term Loan is subject to certain mandatory and optional
prepayments. The Company is required to prepay the 1993 Term Loan with Excess
Cash Flow and with the net cash proceeds of Asset Sales to the extent
indicated above under "The Bank Credit Agreement." In addition, the Company
may prepay the 1993 Term Loan in whole or in part at any time (except that
Eurodollar loans are prepayable only on the last day of the selected interest
period) without premium or penalty. The 1993 Term Loan contains certain
restrictive and financial covenants and events of default that are
substantially similar to those contained in the Bank Credit Agreement and the
Senior Secured Note Agreement.
The Company paid Bankers Trust certain funding and commitment fees and
certain of the Lenders' expenses in connection with the 1993 Term Loan
Agreement totaling approximately $5 million. The Company also provided the
Lenders and their respective directors, officers, employees and affiliates
with customary indemnification relating to liability arising from the 1993
Term Loan Agreement.
Other Debt Of The Company
In addition to borrowings under the Bank Credit Agreement, the 1993 Term
Loan Agreement, the Senior Secured Notes, the 1993 Notes, the 1994 Notes, the
1988 Securities, and capital lease obligations of which the Company's
obligations under the Leases are a part, at March 31, 1994, the Company and
its subsidiaries had outstanding approximately $92 million of other long-term
debt (including the current portion thereof). All the Company's other
long-term debt constitutes "Senior Debt" in respect of which the 1988
Securities, the 9% Notes and the 10% Notes are expressly subordinated. See
"Description of the 12 5/8% Debentures--Subordination," "Description of the 14
1/8% Debentures--Subordination," "Description of the 9 1/4% Notes and the 10%
Notes--Subordination" and "Description of the 8 1/4% Notes and the 9% Notes--
Subordination."
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated
financial data of the Company for the years ended December 31, 1993, 1992,
1991, 1990 and 1989, that were derived from the consolidated financial
statements of the Company, which were audited by Arthur Andersen & Co.,
independent public accountants. The report of such accountants with respect
to the years ended December 31, 1993, 1992 and 1991 appears elsewhere in this
Prospectus. Reference is made to such report which calls attention to changes
in methods of accounting for postretirement benefits other than pensions and
income taxes. The following table also sets forth historical consolidated
financial data of the Company for the three-month periods ended March 31, 1994
and 1993. The information presented for the interim periods is unaudited but
in the opinion of management, such information reflects all adjustments
(which, with the exception of the extraordinary losses on debt repurchases in
1994 and 1993, consist only of normal recurring accruals) necessary for a fair
presentation of the financial data for the interim periods. The results for
the interim periods presented are not necessarily indicative of the results
for the full year.
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations," the audited consolidated financial statements and the
related notes thereto and the unaudited condensed consolidated financial
statements and the related notes thereto included elsewhere in this
Prospectus.
- 36 -
Selected Historical Consolidated Financial Data
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
-------------- -------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ...................... $ 275 $ 285 $ 1,187 $1,151 $1,138 $1,151 $1,054
Cost of sales (a)............... 188 190 784 726 713 719 660
------ ------ ------- ------ ------ ------ ------
Gross income.................... 87 95 403 425 425 432 394
Selling, general, and
administrative................ 27 25 97 97 98 105 96
Amortization of goodwill........ -- 14 43 57 57 57 57
Goodwill write-off (b).......... -- -- 1,980 -- -- -- --
------ ------ ------- ------ ------ ------ ------
Operating income (loss)......... 60 56 (1,717) 271 270 270 241
Interest expense................ 84 86 342 338 371 423 410
Other (income) expense, net (c). 1 -- (3) 2 (3) (33) (11)
------ ------ ------- ------ ------ ------ ------
Loss before taxes............... (25) (30) (2,056) (69) (98) (120) (158)
Income taxes (credit)........... (10) (4) (16) -- (24) (37) 14
------ ------ ------- ------ ------ ------ ------
Loss before equity
earnings, extraordinary
items and adjustment for
accounting change............. (15) (26) (2,040) (69) (74) (83) (172)
Equity in net loss
of unconsolidated
subsidiaries (c).............. -- -- -- -- (32) (23) (67)
------ ------ ------- ------ ------ ------ ------
Net loss before extraordinary
items and adjustment for
accounting change............. (15) (26) (2,040) (69) (106) (106) (239)
Extraordinary items - loss
on debt repurchases (net
of income taxes).............. (28) (10) (12) -- (5) -- --
Adjustment for adoption of
SFAS No. 106 (net of income
taxes)(d)..................... -- -- -- (11) -- -- --
------ ------ ------- ------ ------ ------ ------
Net loss........................ $ (43) $ (36) $(2,052) $ (80) $ (111) $ (106) $ (239)
====== ====== ======= ====== ====== ====== ======
OTHER DATA:
EBDIAT (e)...................... $ 82 $ 91 $ 387 $ 410 $ 444 $ 441 $ 411
Depreciation of property,
plant, and equipment.......... 22 20 88 81 116 112 109
Amortization of goodwill and
goodwill write-off............ -- 14 2,023 57 57 57 57
Non-cash interest expense....... 21 37 101 140 141 145 132
Capital expenditures............ 30 34 166 233 144 97 101
Deficiency of earnings available
to cover fixed charges (f).... (27) (33) (2,065) (81) (103) (123) (263)
BALANCE SHEET DATA (at end of
period):
Total assets.................... $1,676 $4,033 $ 1,650 $3,575 $3,470 $3,627 $3,948
Working capital (deficit)....... 69 25 (92) (127) 2 (80) (119)
Long-term debt (including current
portion and Voting Common
Stock with put right)......... 3,378 3,608 3,234 3,104 2,947 3,125 3,333
Shareholders' equity (deficit).. (2,124) (65) (2,081) (29) 62 13 111
</TABLE>
- 37 -
(a) Effective January 1, 1992, the Company prospectively changed its estimates
of the depreciable lives of certain machinery and equipment. The change had
the effect of reducing depreciation expense by approximately $38 million and
net loss by $24 million in 1992.
(b) During the third quarter of 1993, the Company wrote off the unamortized
balance of its goodwill of $1.98 billion. See Note 4 of the Company's audited
consolidated financial statements included elsewhere in this Prospectus.
(c) In 1989, the Company transferred all the capital stock of Fort Howard Cup
Corporation to Sweetheart Holdings Inc. ("Sweetheart") for a 49.9% equity
interest in Sweetheart and other assets for a total consideration of
$620 million (the "Cup Transfer"). The Company also undertook a plan to
divest all its remaining international cup operations. As a result, the
Company recorded a $120 million charge in 1989. As of December 31, 1991, the
Company had sold all its international cup operations and had discontinued
recording equity in net losses of Sweetheart because the carrying value of the
Company's investment in Sweetheart was reduced to zero. During the third
quarter of 1993, the Company sold its remaining equity interest in Sweetheart
for $5.1 million recognizing a gain of the same amount.
(d) Reflects the cumulative effect on years prior to 1992 of adopting SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." This change in accounting principle, excluding the cumulative
effect, decreased operating income for 1992 by $1.2 million.
(e) Represents operating income plus depreciation of property, plant and
equipment, amortization of goodwill, the goodwill write-off and the effects of
employee stock compensation (credits). EBDIAT is presented here, not as a
measure of operating results, but rather as a measure of the Company's debt
service ability. Certain financial and other restrictive covenants in the
Company's Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior
Secured Note Agreement and other instruments governing the Company's
indebtedness are based on the Company's EBDIAT, subject to certain
adjustments.
(f) For purposes of these computations, earnings consist of consolidated
income (loss) before taxes plus fixed charges (excluding capitalized interest)
of both consolidated and unconsolidated subsidiaries. Amounts applicable to
unconsolidated subsidiaries are excluded from such computations commencing on
November 14, 1989, due to the Cup Transfer. Fixed charges consist of interest
on indebtedness (including capitalized interest and amortization of deferred
loan costs) plus that portion (deemed to be one-fourth) of operating lease
rental expense representative of the interest factor.
- 38 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Acquisition was accounted for using the purchase method of
accounting. The aggregate purchase price of approximately $3.7 billion,
including related acquisition costs, was allocated first to the assets and
liabilities of the Company based upon their respective fair values, with the
remainder of approximately $2.3 billion allocated to goodwill. In the third
quarter of 1993, the Company wrote-off its remaining goodwill balance of $1.98
billion.
Results Of Operations
Three Months
Ended March 31, Year Ended December 31,
-------------- -----------------------
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
(In millions, except percentages)
Net sales:
Domestic tissue............. $229 $241 $ 1,004 $ 978 $ 994
International operations.... 33 34 143 143 110
Eliminations and other...... 13 10 40 30 34
---- ---- ------- ------ ------
Consolidated................ $275 $285 $ 1,187 $1,151 $1,138
==== ==== ======= ====== ======
Operating income (loss):
Domestic tissue(a)(b)....... $ 59 $ 53 $(1,715) $ 252 $ 251
International operations(a). -- 2 (1) 17 16
Eliminations and other(a)... 1 1 (1) 2 3
---- ---- ------- ------ ------
Consolidated(b)............. 60 56 (1,717) 271 270
Amortization of purchase
accounting.................. 3 17 57 75 85
Goodwill write-off(a)......... -- -- 1,980 -- --
Employee stock compensation... -- 1 (8) 1 1
---- ---- ------- ------ ------
Adjusted operating income... 63 74 312 347 356
Other depreciation............ 19 17 75 63 88
---- ---- ------- ------ ------
EBDIAT...................... $ 82 $ 91 $ 387 $ 410 $ 444
==== ==== ======= ====== ======
Consolidated net loss......... $(43) $(36) $(2,052) $ (80) $ (111)
==== ==== ======= ====== ======
EBDIAT as a percent of
net sales................... 29.9% 31.8% 32.6% 35.6% 39.0%
(a) See Note 4 to the audited consolidated financial statements included
elsewhere in this Prospectus.
(b) Effective January 1, 1992, the Company prospectively changed its
estimates of the depreciable lives of certain machinery and equipment.
The change had the effect of reducing depreciation expense and
increasing operating income by approximately $38 million in 1992.
A progressive decline in domestic commercial and consumer market selling
prices occurred during 1991. Low industry operating rates and aggressive
competitive pricing among tissue producers resulting from the 1991-1992
recession, additions to capacity in the industry and other factors adversely
affected tissue industry operating conditions in 1991. These conditions
persisted through 1992 and 1993 with further price declines being only
modestly recovered by net selling price increases announced in each of the
first three quarters of 1993. Business conditions remain extremely
competitive in 1994. In addition, announced industry capacity additions
through 1995 may offset the effects of the current general economic recovery.
Consequently, until industry operating rates improve, the Company's net
selling prices and operating income margins may continue to be adversely
affected.
- 39 -
Three-Months Ended March 31, 1994 Compared to Three-Months Ended
March 31, 1993
Net Sales. Consolidated net sales decreased 3.3% to $275 million in the
first quarter of 1994 compared to $285 million in the first quarter of 1993.
Domestic tissue net sales decreased 4.9% in the first quarter of 1994 compared
to the first quarter of 1993 due to volume decreases that were partially
offset by higher net selling prices. Business conditions remain extremely
competitive in 1994. During the first quarter of 1994, a period of seasonally
lower volume, the Company maintained its domestic price increases achieved
through year-end 1993, adversely affecting domestic sales volume for the first
quarter of 1994. To a lesser extent, severe weather conditions also adversely
affected domestic sales volume during the first quarter of 1994. Net sales of
the Company's international operations decreased 5.2% in the first quarter of
1994 compared to the first quarter of 1993 primarily due to significantly
lower net selling prices, partially offset by slightly higher volume.
Gross Income. For the first quarter of 1994, consolidated gross margins
decreased to 31.5% from 33.5% for the first quarter of 1993. Domestic tissue
gross margins decreased for the first quarter of 1994 compared to the first
quarter of 1993 primarily due to higher unit manufacturing costs attributable
to the underabsorption of fixed costs resulting from lower converting volume.
Gross margins of international operations also declined in the first quarter
of 1994 compared to the first quarter of 1993 principally due to the lower net
selling prices.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percent of net sales, increased to 9.7% for the
first quarter of 1994 compared to 8.9% in 1993 principally due to the effects
of lower sales volume.
Amortization of Goodwill. As a result of the goodwill write-off in the
third quarter of 1993 as described below, there was no amortization of
goodwill in the first quarter of 1994 compared to $14 million of amortization
of goodwill in the first quarter of 1993.
Operating Income. Operating income increased to $60 million in the first
quarter of 1994 compared to $56 million in the first quarter of 1993. The
depreciation of asset write-ups to fair market value in purchase accounting is
charged against the Company's cost of sales and selling, general and
administrative expenses. Excluding this purchase accounting depreciation and
amortization of goodwill, adjusted operating income (as reported in the
preceding table) was $63 million and $73 million or 22.9% and 25.8% as a
percent of net sales in the first quarters of 1994 and 1993, respectively.
Adjusted operating income as a percent of net sales decreased in the first
quarter of 1994 compared to the first quarter of 1993 principally due to lower
domestic sales volume.
EBDIAT. Earnings before depreciation, interest, amortization and taxes
("EBDIAT") decreased 9.2% to $82 million in the first quarter of 1994 from
$91 million in the first quarter of 1993. EBDIAT is reported by the Company,
not as a measure of operating results, but rather as a measure of the
Company's debt service ability. Certain financial and other restrictive
covenants in the Company's Bank Credit Agreement, Senior Secured Note
Agreement and other instruments governing the Company's indebtedness are based
on the Company's EBDIAT, subject to certain adjustments.
Income Taxes. The income tax credits for the first quarters of 1994 and
1993 principally reflect the reversal of previously provided deferred income
taxes.
Extraordinary Loss. The Company's net loss in the first quarter of 1994
was increased by an extraordinary loss of $28 million (net of income taxes of
$15 million) representing the redemption premiums on the repurchases of all
the Company's remaining 12 3/8% Notes at the redemption price of 105% of the
principal amount thereof and of $238 million of 12 5/8% Debentures at the
redemption price of 105% of the principal amount thereof on March 11, 1994,
and the write off of deferred loan costs associated with the repayment of
$100 million of the Term Loan on February 10, 1994, and the repurchases of the
12 3/8% Notes and the 12 5/8% Debentures. The Company's net loss in the first
quarter of 1993 was increased by an extraordinary loss of $10 million (net of
income taxes of $6 million) representing the write off of deferred loan costs
- 40 -
associated with the repayment of $250 million of the Term Loan on March 23,
1993 and the repurchase of all the Company's 14 5/8% Debentures on April 21,
1993.
Net Loss. For the first quarter of 1994, the Company's net loss
increased 20.5% to $43 million from $36 million in the first quarter of 1993.
Fiscal Year 1993 Compared to Fiscal Year 1992
Net Sales. Consolidated net sales for 1993 increased 3.1% compared to
1992. Domestic tissue net sales for 1993 increased 2.7% compared to 1992 due
to volume increases that were largely offset by lower net selling prices. In
mid-1992, average net selling prices rose principally as a result of an
attempted price increase in the commercial market but then fell to pre-price
increase levels in the fourth quarter of 1992 and fell again in the first
quarter of 1993, periods of seasonally lower volume shipments. Average net
selling prices held flat from the first quarter of 1993 to the second quarter
of 1993 and increased in each of the third and fourth quarters of 1993 from
the previous quarter levels. However, in spite of introductions of net
selling price increases in each of the first three quarters of 1993, average
net selling prices for 1993 were below average net selling prices for 1992.
Net sales of the Company's international operations were flat in 1993 compared
to 1992 primarily due to significantly lower net selling prices and lower
exchange rates offset by volume increases resulting from the acquisition of
Stuart Edgar and the start-up of a new paper machine. United Kingdom
retailers engaged in increasingly competitive pricing activity in 1993 across
a broad range of consumer products including disposable paper products. Such
competitive pricing activity is expected to continue into 1994.
Gross Income. Consolidated gross margins decreased to 34.0% in 1993
compared to 36.9% in 1992. Domestic tissue gross margins decreased to 37.4%
in 1993 from 40.0% in 1992 primarily due to lower net selling prices and an
increase in wastepaper costs as prices for wastepaper grades utilized by the
Company returned to pre-recession levels. Gross margins of international
operations also declined in 1993 principally due to the lower net selling
prices. Unit manufacturing costs of international operations declined in 1993
compared to 1992 as a result of the start-up of a new paper machine and
related facilities in the first quarter of 1993 at the Company's United
Kingdom tissue operations.
Selling, General and Administrative Expenses. Due to the effects of
adverse tissue industry operating conditions on its long-term earnings
forecast, the Company decreased the estimated fair market valuation of its
Common Stock. Accordingly, in 1993 the Company reversed all previously
accrued employee stock compensation expense of $8 million, resulting in a
decrease in selling, general and administrative expenses, as a percent of net
sales, to 8.2% in 1993 from 8.5% in 1992. Excluding the effects of employee
stock compensation from both years, selling, general and administrative
expenses, as a percent of net sales, would have increased slightly in 1993 to
8.8% from 8.4% for 1992.
Goodwill Write-Off. As previously reported by the Company (and as
further described below), low industry operating rates and aggressive
competitive pricing among tissue producers resulting from the 1991-1992
recession, additions to industry capacity and other factors adversely affected
tissue industry operating conditions and the Company's operating results
beginning in 1991 and through the third quarter of 1993.
Declining Selling Prices. Although sales volumes increased, industry
pricing was very competitive due to the factors discussed below. The
Company's average domestic net selling prices declined by approximately 5% in
each of 1991 and 1992. Commercial market price increases attempted in mid-
1992 were not achieved as commercial market pricing fell to pre-price increase
levels in the fourth quarter of 1992 and fell again in the first quarter of
1993, periods of seasonally lower volume shipments. Average net selling
prices held flat from the first quarter of 1993 to the second quarter of 1993
and increased from the second to the third quarter of 1993. However, in spite
of introductions of net selling price increases in each of the first three
quarters of 1993, average net selling prices for the first nine months of 1993
were below average net selling prices for the same period in 1992. Pricing in
the Company's international markets declined significantly over this time
period as well.
- 41 -
Industry Operating Rates. Based on publicly available information,
including data collected by the American Forest and Paper Association
("AFPA"), industry capacity additions in 1990 through 1992 significantly
exceeded historic capacity addition rates. Such additions and weak demand
caused industry operating rates to fall to very low levels in 1991 and 1992 in
comparison to historic rates. Tissue industry operating rates increased only
slightly during the first nine months of 1993 from the low levels experienced
in 1991 and 1992. Announced tissue industry capacity additions through 1995,
as reported by the AFPA through the first three quarters of 1993, approximated
average industry shipment growth rates after 1990. For the first nine months
of 1993, the industry shipment growth rate fell sharply from the already low
rates in 1991 and 1992. Consequently, without an improved economic recovery
and improved industry demand, tissue industry operating rates were expected to
remain at relatively low levels for the near term, adversely affecting
industry pricing.
Economic Conditions. The 1991-1992 recession and weak recovery continued
to adversely affect tissue market growth. Job formation is an important
stimulus for growth in the commercial tissue market where approximately two-
thirds of the Company's domestic tissue sales are targeted. From 1990 through
the first nine months of 1993, job formation was weak and was projected to
improve only slightly in 1994. Accordingly, demand growth was weak in 1991,
1992 and in the first nine months of 1993, and did not appear to offer any
substantial relief to the outlook for industry operating rates and pricing for
the near term.
Gross Margins. The Company's gross margins steadily declined in 1991,
1992 and 1993 as a result of the factors noted above. In the first nine
months of 1993, the Company's gross margins were also affected by increased
wastepaper costs as prices for wastepaper grades utilized by the Company
returned to pre-recession levels.
As a result of these conditions, the Company expected that the
significant pricing deterioration experienced in 1991 through mid-1993 would
be followed by average annual price increases that approximated the Company's
annual historical price increase trend for the years 1984 through 1993 of
approximately 1% per year. Accordingly, during the second quarter of 1993,
the Company commenced an evaluation of the carrying value of its goodwill for
possible impairment. The Company revised its projections and concluded its
evaluation in the third quarter of 1993 determining that its forecasted
cumulative net income before goodwill amortization was inadequate to recover
the future amortization of the Company's goodwill balance over the remaining
amortization period of the goodwill.
For a more detailed discussion of the methodology and assumptions
employed to assess the recoverability of the Company's goodwill, refer to
Note 4 of the Company's audited consolidated financial statements included
elsewhere in this Prospectus.
Operating Income (Loss). As a result of the goodwill write-off, the
Company's operating loss was $1,717 million for 1993 compared to operating
income of $271 million for 1992. The depreciation of asset write-ups to fair
market value in purchase accounting is charged against the Company's cost of
sales and selling, general and administrative expenses. Excluding this
purchase accounting depreciation, amortization of goodwill, the goodwill
write-off and the reversal of employee stock compensation, adjusted operating
income (as reported in the preceding table) declined to $312 million for 1993
from $347 million for 1992. Adjusted operating income declined in 1993
compared to 1992 principally due to the effects of lower domestic and foreign
net selling prices, higher wastepaper costs in the U.S. and lower exchange
rates.
EBDIAT. EBDIAT declined to $387 million for 1993 from $410 million for
1992.
Other Income, Net. In 1993, the Company sold its remaining equity
interest in Sweetheart for $5.1 million recognizing a gain of the same amount.
The Company had previously reduced the carrying value of its investment in
Sweetheart to zero in 1991.
Income Taxes. The income tax credit for 1993 principally reflects the
reversal of previously provided deferred income taxes. The income tax credit
for 1992 reflects the reversal of previously provided deferred income taxes
- 42 -
related to domestic tissue operations offset almost entirely by foreign income
taxes.
Extraordinary Loss and Accounting Change. The Company's net loss in 1993
was increased by an extraordinary loss of $12 million (net of income taxes of
$7 million) representing the write-off of unamortized deferred loan costs
associated with the repayment of $250 million of indebtedness under the Term
Loan, the repurchase of all the Junior Debentures and the repurchase of $50
million of the 12 3/8% Notes. The net loss for 1992 was increased by the
Company's adoption of Statement of Financial Accounting Standards ("SFAS") No.
106. The cumulative effect on years prior to 1992 of adopting SFAS No. 106 is
stated separately in the Company's unaudited condensed consolidated statement
of income for 1992 as a one-time, after-tax charge of $11 million.
Net Loss. For 1993, the Company's net loss increased, principally due to
the goodwill write-off, to $2,052 million compared to $80 million for 1992.
Fiscal Year 1992 Compared to Fiscal Year 1991
Net Sales. Domestic tissue sales decreased 1.6% in 1992 compared to
1991. The decrease was attributable to lower net selling prices which were
partially offset by volume increases.
Net sales of the Company's United Kingdom tissue operations increased
30.0% in 1992 compared to 1991. The increase primarily was due to volume
increases in both the consumer and commercial markets, and to a lesser extent,
due to the acquisition of Stuart Edgar in September 1992, partially offset by
lower net selling prices and lower exchange rates.
Gross Income. Effective January 1, 1992, the Company prospectively
changed its estimates of the depreciable lives of certain machinery and
equipment. These changes were made to better reflect the estimated periods
during which such assets will remain in service. As a result, the Company
believes, based primarily on an analysis of publicly available information,
that the lives over which the Company depreciates the cost of its operating
equipment and other capital assets more closely approximates industry norms.
For 1992, the change had the effect of reducing depreciation expense by
$38 million and reducing net loss by $24 million.
Domestic tissue gross margins increased slightly in 1992 to 40.0%
compared to 39.4% in 1991 due to lower depreciation expense and lower raw
material costs, which were largely offset by the decline in net selling
prices. Excluding the effects of the changes in depreciable lives, domestic
tissue gross margins would have declined to 36.1% in 1992. Gross margins for
international operations declined in 1992 due to purchases of parent rolls to
support volume increases in anticipation of the start-up of a new paper
machine in 1993 and the effects of the acquisition of Stuart Edgar.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percent of net sales, decreased to 8.5% in 1992
compared to 8.6% in 1991. These results occurred principally due to an
overall cost containment effort on the part of the Company, partially offset
by the effects of the lower net selling prices and higher volume.
Operating Income. Operating income of $271 million in 1992 was flat with
operating income in 1991. The depreciation of asset write-ups to fair market
value in purchase accounting is charged against the Company's cost of sales
and selling, general and administrative expenses. Excluding this purchase
accounting depreciation, amortization of goodwill and employee stock
compensation, adjusted operating income would have been $347 million and
$356 million or 30.1% and 31.3% as a percent of net sales in 1992 and 1991,
respectively. Adjusted operating income as a percent of net sales declined in
1992 from 1991 due to the effects in 1992 of lower net selling prices, the
higher volume growth rate of the lower margin international operations
compared to domestic operations and the acquisition of Stuart Edgar, partially
offset by the effects of the changes in depreciable lives.
EBDIAT. EBDIAT declined $34 million in 1992 to $410 million from
$444 million in 1991 and declined as a percent of net sales to 35.6% in 1992
from 39.0% in 1991.
Interest Expense. Interest expense declined approximately $33 million in
1992 as compared to 1991. Debt repurchased with the proceeds of a private
placement of Common Stock in 1991 reduced the Company's average outstanding
- 43 -
indebtedness in 1992 compared to 1991. Lower average interest rates, in part
due to borrowings under the Company's Revolving Credit Facility to repurchase
high yield subordinated debt, also contributed to lower interest expense in
1992 as compared to 1991.
Equity Earnings. The Company's results for 1992 exclude any equity in
the net loss of Sweetheart for the year compared to equity in net losses
totaling $32 million in 1991. The Company discontinued the recording of
equity in the net losses of Sweetheart, an unconsolidated subsidiary, when the
carrying value of its investment in Sweetheart was reduced to zero in the
fourth quarter of 1991.
Income Taxes. The lower income tax credit for 1992 reflects the
Company's lower domestic net loss for the year, offset by foreign income
taxes. The income tax credit for 1991 principally reflects the reversal of
previously provided deferred income taxes.
Extraordinary Loss and Accounting Change. Results for 1991 were impacted
by an extraordinary loss of $5 million (net of income taxes) related to debt
repurchases. As of January 1, 1992, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
standard requires that the expected cost of postretirement health care
benefits be charged to expense during the years that employees render service.
The cumulative effect on years prior to 1992 of adopting SFAS No. 106 is
stated separately in the Company's consolidated statement of income for 1992
as a one-time after-tax charge of $11 million. This change in accounting
principle, excluding the cumulative effect, decreased operating income for
1992 by $1 million.
Net Loss. For 1992, the Company's net loss decreased 27.7% to
$80 million from $111 million in 1991. Excluding the effects of the changes
in depreciable lives and the change in accounting principle for postretirement
benefits in 1992, and excluding the extraordinary item attributable to debt
repurchases and equity in net losses incurred by unconsolidated subsidiaries
in 1991, the net loss for 1992 would have increased 7.3% compared to 1991.
Liquidity And Capital Resources
For the first three months of 1994, cash increased $556,000. Capital
additions of $30 million, debt repayments of $704 million, including the
repayment of $100 million of the Term Loan and the repurchases of all the
12 3/8% Notes and of $238 million of 12 5/8% Debentures, and cash used for
operations of $44 million, were funded by net proceeds of the sale of 8 1/4%
Notes and 9% Notes of $728 million and net Revolving Credit Facility
borrowings of $51 million.
Interest payable and other current liabilities declined $22 million and
$25 million, respectively, during the first quarter of 1994. Interest payable
declined due to acceleration of interest payments resulting from debt
repurchases during the quarter. Other current liabilities declined as a
result of the payment of annual employee bonuses and profit sharing
contributions and other annual payments to customers. As a result of the
reductions in interest payable and other current liabilities and of the
repayment of $100 million of the $107 million scheduled 1994 Term Loan payment
from the proceeds of the 1994 Notes, net working capital increased to
$69 million at March 31, 1994 from a deficit of $92 million at December 31,
1993.
Cash provided from operations declined in the first quarter of 1994
compared to the first quarter of 1993 principally due to changes in the timing
of interest payment obligations. The liability for interest payable declined
in the first quarter of 1994 due to the acceleration of interest payments into
the first quarter resulting from the 1994 debt repurchases from the proceeds
of the 1994 Notes, compared to an increase in the liability for interest
payable in the first quarter of 1993 resulting from the repurchases of all the
14 5/8% Debentures (which accrued interest in kind) from the proceeds of the
1993 Notes (which accrue interest in cash). Cash provided from operations was
further impacted by a decline in other current liabilities and lower earnings.
During 1993, cash increased $39,000. Capital additions of $166 million
and debt repayments of $841 million, including the repayment of $250 million
of the Term Loan, the repurchase of all the Junior Debentures, and the
repurchase of $50 million of the 12 3/8% Notes, were funded principally by
cash provided from operations of $151 million, net proceeds from the sale of
- 44 -
the 1993 Notes of $729 million, net proceeds of the 1993 Term Loan of $95
million, borrowings of $28 million under the Revolving Credit Facility and
Fort Sterling Limited ("Fort Sterling"), the Company's United Kingdom tissue
operations, borrowings of $9 million.
Inventories and interest payable increased $17 million and $22 million,
respectively, during 1993. The Company increased inventories principally to
improve its service levels, and secondarily due to the effects of lower volume
resulting from increases to net selling prices in the third quarter of 1993,
immediately preceding a period of seasonally lower volume. Interest payable
increased in 1993 principally due to the repurchase of all the 14 5/8%
Debentures (which accrued interest in kind) from the proceeds of the 1993
Notes (which accrue interest in cash). The net working capital deficit
declined $32 million from $124 million at December 31, 1992 to $92 million at
December 31, 1993, principally due to a $25 million reduction in the current
portion of long-term debt as a result of lower current maturities under the
Term Loan.
During 1992, cash decreased $9 million. Capital additions of
$233 million, the acquisition of Stuart Edgar for $8 million (net of debt
assumed of $17 million) and debt repayments of $168 million, principally for
the retirement of the 7% Notes, were funded principally by cash provided from
operations of $210 million, borrowings under the Revolving Credit Facility of
$141 million and borrowings of $49 million by Fort Sterling.
Receivables and accounts payable increased $13 million and $23 million,
respectively, in 1992. Receivables increased principally at the Fort Sterling
operations as sales increased in advance of the start-up of a new paper
machine in the first quarter of 1993. Accounts payable increased as a result
of higher accruals for capacity expansions at the Company's Green Bay,
Wisconsin, Muskogee, Oklahoma and United Kingdom mills. As a result of the
issuance of $300 million of Senior Secured Notes in 1991, the scheduled 1992
Term Loan payment was accelerated into 1991 resulting in reduced current
maturities of long-term debt and net working capital of $2 million at
December 31, 1991, compared to a net working capital deficit of $124 million
at December 31, 1992, which reflected a scheduled 1993 Term Loan maturity of
$132 million.
Long-term other liabilities increased $26 million in 1992 due to an
accrual of $18 million related to the adoption of SFAS No. 106 and due to the
accrual of a long-term liability related to the capacity expansion at the
United Kingdom mill.
Obligations under the Bank Credt Agreement, the 1993 Term Loan Agreement
and the Senior Secured Notes bear interest at floating rates. The Company's
policy is to enter into interest rate cap and swap agreements as a hedge to
effectively fix or limit its exposure to floating interest rates to, at a
minimum, comply with the terms of these senior secured debt agreements. The
Company is a party to interest rate cap agreements which limit the interest
cost to the Company to 8.25% (including the Company's borrowing margin on
Eurodollar rate loans) until June 1, 1996 with respect to $500 million of
obligations under the Bank Credit Agreement. The Company is also a party to
an interest rate cap agreement which limits the interest cost to the Company
to rates between 11.25% and 12.00% until September 11, 1994 with respect to
the $300 million received through the issuance of the Senior Secured Notes.
The Company monitors the risk of default by the counterparties to the interest
rate cap and swap agreements and does not anticipate nonperformance. Because
current market interest rates are substantially lower than the rates in the
Company's interest rate cap and swap agreements, nonperformance by the other
parties to the interest rate cap and swap agreements would not result in a
material loss to the Company. See Note 8 to the Company's audited
consolidated financial statements included elsewhere in this Prospectus for
additional information concerning the agreements.
On March 22, 1993, the Company sold $450 million principal amount of
9 1/4% Notes due 2001 and $300 million principal amount of 10% Notes due 2003
in a registered public offering. On April 21, 1993, the Company borrowed
$100 million pursuant to the 1993 Term Loan. Proceeds from the sale of the
1993 Notes and from the 1993 Term Loan were applied to the prepayment of
$250 million of the Term Loan, to the repayment of a portion of the Company's
indebtedness under the Revolving Credit Facility, to the repurchase of all the
Company's outstanding Junior Debentures and to the payment of fees and
expenses.
- 45 -
The 9 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. The 10% Notes are subordinated in right of payment to all existing
and future senior indebtedness of the Company, rank equally with the 12 5/8%
Debentures and constitute senior indebtedness with respect to the 14 1/8%
Debentures. The 1993 Term Loan bears interest, at the Company's option, at
Bankers Trust's prime rate, plus 1.75% or, subject to certain limitations, at
a reserve adjusted Eurodollar rate, plus 3.00%, and matures May 1, 1997. The
1993 Term Loan constitutes senior secured indebtedness of the Company.
In connection with the sale of the 1993 Notes and the borrowing under the
1993 Term Loan, the Company amended the Bank Credit Agreement and the Senior
Secured Note Agreement. Among other changes, the amendments reduced domestic
capital spending limits for 1993 and future years. In addition, the Company's
required ratios of earnings before non-cash charges, interest and taxes to
cash interest for 1993 and subsequent years were lowered to give effect to the
greater amount of the Company's cash interest payments as a result of the
issuance of the 9 1/4% Notes and the 10% Notes and subsequent repurchases of
Junior Debentures.
The Company redeemed $50 million of its 12 3/8% Notes at the redemption
price of 105% of the principal amount thereof on November 1, 1993, the first
date that such notes were redeemable. The redemption was funded principally
from excess funds from the sale of the 1993 Notes. In connection with the
redemption, the Company incurred an extraordinary loss in the fourth quarter
of 1993 of $2 million (net of income taxes), representing the redemption
premium and unamortized deferred loan costs.
On February 9, 1994, the Company sold $100 million principal amount of
8 1/4% Senior Unsecured Notes due 2002 and $650 million principal amount of 9%
Senior Subordinated Notes due 2006 in a registered public offering. Proceeds
from the sale of the 1994 Notes were applied to the repurchase of all the
remaining 12 3/8% Notes at the redemption price of 105% of the principal
thereof, to the repurchase of $238 million of 12 5/8% Debentures at the
redemption price of 105% of the principal thereof, to the prepayment of $100
million of the Term Loan, to the repayment of a portion of the Company's
indebtedness under the Revolving Credit Facility and to the payment of fees
and expenses.
The 8 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. The 9% Notes are subordinated in right of payment to all existing
and future senior indebtedness of the Company, and constitute senior
indebtedness with respect to the 10% Notes, the 12 5/8% Debentures and the
14 1/8% Debentures.
In connection with the sale of the 1994 Notes, the Company amended the
Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured
Note Agreement. Among other changes, the amendments reduced the required
ratio of earnings before non-cash charges, interest and taxes to cash interest
for the four fiscal quarters ending March 31, 1994, from 1.50 to 1.00 to 1.40
to 1.00.
The Company incurred an extraordinary loss of $28 million (net of income
tax credits of $15 million) in the first quarter of 1994 representing the
redemption premiums on the repurchases of the 12 3/8% Notes and the 12 5/8%
Debentures, and the write-off of deferred loan costs associated with the
repayment of the $100 million of the Term Loan and the repurchases of the
12 3/8% Notes and the 12 5/8% Debentures.
In 1991, Fort Sterling entered into a credit agreement to provide
financing for the addition of a third paper machine and related equipment at
its tissue mill. The facility consists of a 20 million pound sterling
(approximately $30 million) term loan due March 2001, and a 5 million pound
sterling (approximately $7 million) revolving credit facility due March 1996.
In 1992, Fort Sterling entered into a second credit agreement to finance the
acquisition of Stuart Edgar. This facility consists of a remaining term loan
due December 1997 with 3.4 million pounds sterling (approximately $5 million)
outstanding at March 31, 1994, and a second remaining term loan due December
1997 with 6.8 million pounds sterling (approximately $10 million) outstanding
- 46 -
at March 31, 1994. Both credit agreements bear interest at floating rates and
are secured by certain assets of Fort Sterling and Stuart Edgar but are
nonrecourse to the Company. At March 31, 1994, $45 million was outstanding
under these credit agreements.
The Company's principal use of funds for the next several years will be
for the repayment of indebtedness under the Bank Credit Agreement, the
repurchase of the 12 5/8% Debentures and the 14 1/8% Debentures, capital
expenditures, including capital expenditures to comply with environmental
regulations, the repurchase of its subordinated debt securities generally as
described below, and support of the Company's working capital requirements.
The Term Loan matures and the Revolving Credit Facility expires in 1996. In
connection with the sale of the 1994 Notes, the Company prepaid $100 million
of the $107 million mandatory payment due under the Term Loan in 1994,
repurchased all the 12 3/8% Notes that were due in 1997 and repurchased $238
million principal amount of the 12 5/8% Debentures due in 2000. The Company
is required to make repayments of the Term Loan of $107 million in 1995 and
$118 million in 1996. The 1993 Term Loan matures in 1997. The Company
intends to use funds generated from operations and borrowings under the Bank
Credit Agreement or from other sources to meet its principal needs for funds.
Given the Company's high leverage and adverse tissue industry operating
conditions, the Company intends to continue to maintain and modernize existing
tissue mills but does not currently intend to make capital expenditures to add
material new capacity. Capital expenditures were $166 million, $233 million
and $144 million in 1993, 1992 and 1991, respectively. Capital expenditures
are projected to approximate $55-$80 million annually over the next ten years,
plus $32 million in 1994 to complete the Muskogee mill expansion and another
$32 million over 1994 and 1995 for a new coal-fired boiler under construction
at the Company's Savannah River mill. The Bank Credit Agreement, the 1993
Term Loan Agreement and the Senior Secured Note Agreement impose limits for
domestic capital expenditures, subject to certain exceptions, of $175 million
for 1994, $100 million for 1995 and $100 million for 1996 (with lower
sublimits for foreign subsidiaries). In addition, the Company may carryover
to one or more years (thereby increasing the scheduled permitted limit for
capital expenditures in respect of such year) the sum of all previously
unutilized amounts in 1993 and subsequent years (up to $400 million per year)
by which the scheduled permitted limit for each prior year exceeded the
capital expenditures actually made in respect of such prior year. The Company
does not believe such limitations impair its plans for capital expenditures.
For a discussion of the Company's capital expenditures in connection with
environmental control matters, see "Business - Environmental Matters."
Market conditions with respect to high yield debt securities may from
time to time be such that it is to the Company's advantage to repurchase some
or all of its subordinated debt securities in privately negotiated
transactions or in the open market. However, the repurchase of subordinated
debt securities is limited by certain provisions contained in the Company's
senior debt agreements and the indentures under which such subordinated debt
securities were issued. As of March 31, 1994, the Company may borrow up to
$39 million to repurchase 14 1/8% Debentures and may also borrow up to $75
million to repurchase 12 5/8% Debentures, until June 30, 1995. Subject to and
in compliance with the limitations contained in the Company's debt agreements,
and depending upon market conditions, prevailing prices and cash available,
the Company may from time to time repurchase subordinated debt.
The Company has a $350 million Revolving Credit Facility (including
letters of credit) under the Bank Credit Agreement with a final maturity of
December 31, 1996, which may be used for general corporate purposes. At
March 31, 1994, the Company had $56 million in available capacity under the
Revolving Credit Facility.
The Company believes that, notwithstanding the adverse tissue industry
operating conditions and the non-cash charge to write-off the remaining
balance of the Company's goodwill discussed above, cash provided by operations
and access to debt financing in the public and private markets will be
sufficient to enable it to fund maintenance and modernization capital
expenditures and meet its debt service requirements for the foreseeable
future. However, in the absence of improved financial results, it is likely
that the Company will be required to seek a waiver of the cash interest
coverage covenant under the Bank Credit Agreement, the 1993 Term Loan
Agreement and the Senior Secured Note Agreement as early as the fourth quarter
of 1994, because the Company's 14 1/8% Debentures will accrue interest in cash
- 47 -
commencing on November 1, 1994 and will require payments of interest in cash
on May 1, 1995. Although the Company believes that it will be able to obtain
appropriate waivers from its lenders, there can be no assurance that this will
be the case.
During 1993, 1992, and 1991, a slightly higher amount of the Company's
revenues and operating income have been recognized during the second and third
quarters. The Company expects to fund seasonal working capital needs from the
Revolving Credit Facility.
The Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior
Secured Note Agreement, and the Fort Sterling credit agreements impose certain
limitations on the liquidity of the Company that include restrictions on the
Company's ability to incur additional indebtedness and mandatory principal
repayment requirements, including scheduled principal repayments and
repayments out of excess cash flow and from proceeds of asset sales. See
"Description of Certain Indebtedness--The Bank Credit Agreement,--Senior
Secured Notes and--1993 Term Loan.".
The limitations contained in the Bank Credit Agreement, the 1993 Term
Loan Agreement, the Senior Secured Note Agreement, and in the Company's
indentures on the ability of the Company and its subsidiaries to incur
indebtedness, together with the highly leveraged position of the Company,
could limit the Company's ability to effect future financings and may
otherwise restrict corporate activities, including the Company's ability to
take advantage of business opportunities which may arise or to take actions
that require funds in excess of those available to the Company. In addition,
as a result of the Company's highly leveraged position and related debt
service obligations, the Company will be less able to meet its obligations
during a further downturn in its business.
Refer to Note 7 to the audited consolidated financial statements included
elsewhere in this Prospectus for a description of certain matters related to
income taxes.
BUSINESS
General
The Company, founded in 1919, is a major manufacturer, converter and
marketer of a diversified line of single-use sanitary tissue paper products
for the home and away-from-home markets. The Company's principal products
include paper towels, bath tissue, table napkins, wipers and boxed facial
tissue. The Company produces and ships its products from manufacturing
facilities located in Wisconsin, Oklahoma, Georgia and the United Kingdom.
For an analysis of net sales, operating income (loss) and identifiable
operating assets by geographic area, refer to Note 16 of the Company's audited
consolidated financial statements included elsewhere in this Prospectus.
The Company believes that it is the largest producer of tissue products
sold into the domestic commercial (away-from-home) market. The Company sells
a majority of its tissue products through paper and institutional food
wholesalers into commercial markets. The Company continues to expand its
domestic consumer tissue business for the home market. Tissue products for
household use are sold principally through brokers to accounts that include
major food store chains, mass merchandisers and wholesale grocers. The
Company's domestic tissue products for home use are sold under the brand names
SOFT 'N GENTLE, MARDI GRAS, GREEN FOREST, PAGE AND SO-DRI.
Domestic Tissue Operations
The Company's principal markets are in the United States where the
Company believes, based on an analysis of publicly available information, that
its operating income margins are higher than those of its publicly reporting
competition. A key factor contributing to these high operating income margins
has been the Company's proprietary de-inking technology, which enables it to
use a broad range of wastepaper grades and process wastepaper efficiently to
recover the fibers which are the principal raw material in papermaking.
However, the Company's operating income margins have been adversely affected
by the adverse tissue industry operating conditions experienced since 1991,
and continue to be affected by low pricing resulting in part from relatively
low industry operating rates. Announced industry capacity additions through
- 48 -
1995 may offset the effects of the current general economic recovery.
Consequently, until industry operating rates improve, the Company's net
selling prices and operating income margins may continue to be adversely
affected.
Commercial Tissue. The Company believes it is the leading manufacturer
of tissue products for the commercial segment of the U.S. tissue market. The
Company believes, based upon industry data, including data collected by the
American Forest and Paper Association, that the commercial market represents
approximately 40% of the total United States tissue market. The Company's
primary thrust in the tissue business has been in the commercial segment
which, though smaller in total size than the consumer segment, grew
significantly faster than the consumer segment from 1987 to 1990. From 1991
through 1993, the commercial segment grew at a slower rate than the consumer
segment due in part to the effects of the recession and weak recovery. The
commercial segment of the Company's tissue business includes folded and roll
towels, bath and facial tissue, bulk and dispenser napkins, disposable wipers
and specialty printed merchandise. The Company also offers a line of tissue
products under the ENVISION brand name which meets U.S. Environmental
Protection Agency ("U.S. EPA") guidelines for tissue products containing
postconsumer recovered wastepaper. Based primarily on the Company's analysis
of publicly available information, the Company estimates that in 1993 its
market share in the United States for sales of commercial tissue products was
approximately 28%.
Consumer Tissue. The Company's consumer tissue business has experienced
significant growth over the past fifteen years. Based primarily on the
Company's analysis of publicly available information, the Company estimates
that its market share in the United States for sales of consumer tissue
products has grown from 1% in the late 1970's to approximately 9% in the most
recent years. The Company's retail line includes bath and facial tissue,
household roll towels and table napkins. The Company's brands include SOFT 'N
GENTLE, MARDI GRAS, GREEN FOREST, PAGE AND SO-DRI. GREEN FOREST bath tissue,
napkins and towels, which are made with 100% recycled fibers, are marketed to
the environmentally conscious consumer. In addition, the Company has become a
major supplier of private label tissue products to the retail grocery trade.
The market share information presented herein reflects the Company's best
estimates based on publicly available information, and no assurance can be
given regarding the accuracy of such estimates.
International Tissue Operations
The Company's international operations consist of tissue facilities in
the United Kingdom which manufacture and sell a broad line of tissue products.
The Company's principal brand in the United Kingdom is NOUVELLE.
Capital Expenditures
The Company has invested heavily in its manufacturing operations.
Capital expenditures in the Company's tissue business were approximately
$741 million for the five-year period ended December 31, 1993. Given the
Company's high leverage and adverse tissue industry operating conditions, the
Company intends to continue to maintain and modernize existing tissue mills
but does not currently intend to make capital expenditures to add material new
capacity. Total capital expenditures after 1993 are projected to approximate
$55-$80 million annually over the next ten years, plus $32 million in 1994 to
complete the Muskogee mill expansion and an additional $32 million over 1994
and 1995 for a new coal-fired boiler under construction at the Company's
Savannah River mill.
A significant portion of the Company's capital budget in recent years has
been invested in the Savannah River mill located in Effingham County, near
Savannah, Georgia, which was completed in 1991. Total expenditures for the
Savannah River mill were $570 million.
In 1993, the Company completed an expansion of its Green Bay, Wisconsin
tissue mill. The expansion includes a new paper machine and related
environmental protection, pulp processing, converting, and steam generation
equipment. The new paper machine commenced production on August 31, 1992.
Total expenditures for the expansion were $180 million.
In 1992, the Company began the installation of a fifth paper machine,
environmental protection equipment and associated facilities at its Muskogee,
- 49 -
Oklahoma tissue mill. The expansion is planned for completion in 1994 at an
estimated cost of $140 million. Total expenditures for the expansion through
March 31, 1994 were $124 million. The new paper machine commenced production
on March 14, 1994.
In 1993, the Company completed an expansion of its United Kingdom tissue
mill. The expansion included a new paper machine and related environmental
protection, pulp processing and converting equipment. The new paper machine
commenced production on February 7, 1993. Total expenditures for the
expansion were $96 million. See "Properties" below.
On September 4, 1992, Fort Sterling acquired for $25 million, Stuart
Edgar, a United Kingdom converter of consumer tissue products with annual net
sales approximating $43 million. Stuart Edgar acquires a majority of its
paper requirements from Fort Sterling.
Energy Sources
The Company's major sources of energy for its Green Bay, Wisconsin;
Muskogee, Oklahoma and Savannah River tissue mills are coal and other fuels
which are burned to produce the heat necessary to dry paper, process
wastepaper, provide steam and produce virtually all the electric power at
those mills. Coal is received in Green Bay in self-unloading vessels during
the Great Lakes shipping season and at the Muskogee and Savannah River mills
by truck and rail. The Company maintains inventories of coal and other fuels
at all mills. The Savannah River mill can also generate electrical power by
burning natural gas in combustion turbines. The primary sources of energy for
the Company's United Kingdom tissue facilities are purchased electrical power
and natural gas.
Raw Materials And Supplies
The principal raw materials and supplies used to manufacture tissue
products are wastepaper (which is processed to reclaim fiber), chemicals,
corrugated shipping cases and packaging materials. A substantial majority of
the Company's products are made with 100% recycled fiber derived from
wastepaper. The de-inking technology employed by the Company allows it to use
a broad range of wastepaper grades, which effectively increases both the
number of sources and the quantity of wastepaper available for its
manufacturing process. The Company manufactures some of the process chemicals
required for the Company's tissue production at each of its domestic mill
locations. The balance of its chemical requirements is purchased from outside
sources. The Company also purchases significant quantities of coal for
generation of electrical power and steam at all three of its domestic tissue
mills. The Company seeks to maintain inventories of wastepaper, other raw
materials and supplies which are adequate to meet its anticipated
manufacturing needs.
Competition
All the markets in which the Company sells its products are extremely
competitive. The Company's tissue products compete directly with those of
Georgia-Pacific Corporation, James River Corporation of Virginia, Kimberly-
Clark Corporation, Pope & Talbot, Inc., Scott Paper Company, The Procter &
Gamble Company, Wisconsin Tissue Mills (owned by Chesapeake Corporation), as
well as regional manufacturers, including converters of tissue into finished
products who buy tissue directly from tissue mills. Although customers
generally take into account price, quality, distribution and service as
factors when considering purchasing products from the Company, over the last
three years, pricing has become a more dominant competitive factor.
Customers
The Company principally markets its products to customers in the United
States and the United Kingdom. The business of the Company is not dependent
on a single customer.
Backlog
The Company's products are manufactured with relatively short production
time from basic materials. Products marketed under the Company's trademarks
and stock items are sold from inventory. The backlog of customer orders is
not significant in relation to sales.
- 50 -
Research
The Company maintains laboratory facilities with a permanent staff of
engineers, scientists and technicians who are responsible for product quality,
process control, improvement of existing products, development of new products
and processes and provision of technical assistance in adhering to regulatory
standards. Continuing emphasis is placed upon expanding the Company's
capability to de-ink a broader range of wastepaper grades, further automation
of manufacturing operations, the development of improved manufacturing and
environmental processes and the design of new products.
Patents, Licenses, Trademarks And Trade Names
While the Company owns or is a licensee of a number of patents, its
operations and products are not materially dependent on any patent. The
Company's domestic tissue products for home use are sold under the principal
brand names SOFT 'N GENTLE, MARDI GRAS, GREEN FOREST, PAGE AND SO-DRI. For
the Company's domestic commercial tissue business, principal brand names
include ENVISION and GENERATION II. All brand names are registered trademarks
of the Company. A portion of the Company's tissue products are sold under
private labels or brand names owned by customers.
Employees And Employee Relations
At March 31, 1994, the Company's world-wide employment was approximately
6,800. There is no union representation at any of the Company's domestic
facilities. The Company considers its relationship with its employees to be
good.
Environmental Matters
The Company's domestic manufacturing operations are subject to regulation
by various federal, state and local authorities concerned with the limitation
and control of emissions and discharges to the air and waters and the
handling, use and disposal of specified chemicals and solid waste. The
Company's United Kingdom operations are subject to similar regulation.
The Company has made significant capital expenditures in the past to
comply with environmental regulations and will continue to do so in the
future. In 1993, the Company made capital expenditures of $13.2 million with
respect to pollution abatement and environmental compliance. The Company
expects to commit to approximately $15.1 million of capital expenditures to
maintain compliance with environmental control standards at its facilities
over 1994 and 1995. Included in the 1993 capital expenditures was $11.1
million for pollution abatement equipment in connection with mill expansions
in Green Bay, Wisconsin; Muskogee, Oklahoma; Effingham County, Georgia and the
United Kingdom. Included in the 1994-1995 expected expenditures is $5.7
million for pollution abatement equipment in connection with completing
projects initiated in 1993 and prior years.
Future environmental legislation and developing regulations are expected
to further limit emission and discharge levels and to expand the scope of
regulation, all of which will require continuing capital expenditures. The
U.S. EPA has proposed Great Lakes Water Quality Guidance regarding the
development of water quality standards for the Great Lakes and its
tributaries. That same agency has also indicated that it intends to propose
air emission standards in 1995 under the federal Clean Air Act Amendments for
the de-inking portion of the pulp and paper industry. Further, the U.S. EPA
has proposed technology based effluent discharge standards for the de-inking
portion of the pulp and paper industry. The Company is awaiting the issuance
of final regulations, as well as, in certain instances, implementing
regulations by state environmental authorities to determine the nature and
stringency of these several regulatory initiatives, including the period over
which new standards are to be achieved and the impact of those regulatory
initiatives on the Company's results of operations and capital expenditures.
There can be no assurance that such costs would not be material to the
Company. Pursuant to the requirements of applicable federal, state and local
statutes and regulations, the Company has received or applied for all the
environmental permits and approvals material to the operation of its
manufacturing facilities. The impact of any modifications that may be
required in the future to the Company's existing permits will be determined by
the environmental standards specified in such permits, upon renewal or
modification, and the time period over which new standards are to be achieved.
- 51 -
In March 1990, the Company began a remedial investigation of its
Green Bay, Wisconsin landfill. The investigation is being overseen by the
U.S. EPA under authority granted to the agency by the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), commonly
known as the "Superfund Act." A Preliminary Health Assessment released by the
United States Department of Health and Human Services in January 1992 reported
that the Company's Green Bay landfill does not pose any apparent public health
hazard. Based upon the results of the remedial investigation through
December 31, 1993, the Company believes that costs or expenditures associated
with any future remedial action, were it to be required, would not have a
material adverse effect on the Company's financial condition.
The Company is participating with a coalition consisting of industry,
local government, state regulatory commission and public interest members
studying the nature and extent of sediment contamination of the Fox River in
northeastern Wisconsin. The objective of the coalition is to identify,
recommend and implement cost effective remediation of contaminated deposits
which can be implemented on a voluntary basis. One of the industry coalition
members in cooperation with the Wisconsin Department of Natural Resources has
undertaken a demonstration project designed to remediate one sediment deposit
located approximately 38 miles upstream from the Company's Green Bay,
Wisconsin facility. The costs to remediate the deposit are being borne by
parties whose operations are contiguous to or are otherwise potentially
responsible for remediation of that site. The Company's participation in the
studies undertaken by the coalition is voluntary and its contributions to
funding those activities, to date, have not been significant. On June 20,
1994 the United States Department of Interior, Fish and Wildlife Service
("FWS"), a federal natural resources trustee, informed the Company that it has
identified the Company and four other companies with facilities located along
the Fox River as potentially responsible parties for purposes of natural
resource liability under CERCLA and the Federal Water Pollution Control Act
arising from alleged releases of hazardous substances to the Fox River and
Green Bay system. The FWS alleges that natural resources including endangered
species, fish, birds and tribal lands or lands held by the United States in
trust for various tribes have been exposed to PCBs (polychlorinated biphenyls)
that were released from facilities located along a 38 mile segment of the Fox
River. The FWS has stated that it intends to undertake an assessment to
determine and quantify the nature and extent of injury to natural resources.
The FWS has invited the Company and the other potentially responsible parties
to participate in the development of the type and scope of the assessment and
in the performance of the assessment, pursuant to federal regulations. It is
anticipated that the assessment will require considerable time to complete.
It is not possible at this time to estimate the Company's potential liability
in the matter. Based upon all of the information available, the Company is
presently unable to estimate the financial impact of any future remediation or
natural resource damages liability but cannot conclude that such impact would
not be material.
Except for the Green Bay landfill site and the FWS assessment of the Fox
River and the Green Bay system, the Company is not presently named as a
potentially responsible party at any other CERCLA-related sites; however,
there can be no certainty that the Company will not be named as a potentially
responsible party at any other sites in the future or that the costs
associated with existing or future sites would not be material.
On July 15, 1992, Region V of the U.S. EPA issued a Finding of Violation
to the Company concerning the No. 8 boiler at its Green Bay, Wisconsin mill.
The Finding alleges violation of regulations issued by the U.S. EPA under the
Clean Air Act relating to New Source Performance Standards for Fossil-
Fuel-Fired Steam Generators. In response to an accompanying Request for
Information, the Company furnished certain information concerning the
operation of the boiler. The Company met with representatives of the U.S. EPA
in August 1992 and February 1993 to discuss the alleged violations. On
January 11, 1994, the U.S. EPA informally advised the Company that, due to its
internal guidelines that limit the authority of the agency to administratively
resolve matters that include alleged violations extending over a period of
more than one year, disposition of the Finding of Violation is being
transferred to the U.S. Department of Justice. The Company believes the
operation of its No. 8 boiler has been in continuous compliance with the
applicable rules. Although the ultimate disposition of this matter cannot be
predicted with certainty, the Company believes that it will not have a
material adverse effect on the Company's financial condition.
- 52 -
Properties
The Company's Green Bay, Wisconsin tissue mill includes a coal-fired
cogenerating power plant; a de-inking and pulp processing plant; a chemical
plant; papermaking machines and related drying equipment; nonwoven and dry
form manufacturing machines; and converting equipment for cutting, folding,
printing and packaging paper and nonwovens into the Company's finished
products. The Company's Green Bay mill is well maintained and considered
suitable for its intended purpose.
A second domestic tissue mill is located in Muskogee, Oklahoma. This
mill includes a coal-fired cogenerating power plant; a de-inking and pulp
processing plant; a chemical plant; papermaking machines and related drying
equipment; and converting equipment for cutting, folding, printing and
packaging paper into the Company's finished products. The Muskogee mill was
specifically designed for its purpose.
A third domestic tissue mill, the Savannah River mill, is located in
Effingham County, near Savannah, Georgia. This mill includes a de-inking and
pulp processing plant; a chemical plant; papermaking machines and related
drying equipment; and converting equipment for the cutting, folding, printing
and packaging of paper into the Company's finished products. The Savannah
River mill also contains coal-fired cogenerating power equipment and
combustion turbines for the production of electrical power and steam. The
Savannah River mill was specifically designed for its purpose.
The Company's tissue manufacturing facilities in the United Kingdom
include a de-inking and pulp processing plant; papermaking machines and
related drying equipment; and converting equipment for the cutting, folding,
printing and packaging of paper into the Company's finished products. The
Company's United Kingdom operations are well maintained and considered
suitable for their intended purpose.
Except for certain facilities and equipment constructed or acquired in
connection with sale and leaseback transactions pursuant to which the Company
continues to possess and operate such facilities and equipment, substantially
all the Company's manufacturing facilities and equipment are owned in fee.
The Company's domestic and United Kingdom tissue manufacturing facilities are
pledged as collateral under the terms of the Company's debt agreements. See
Note 8 to the audited consolidated financial statements included elsewhere in
this Prospectus.
The Green Bay, Muskogee, Savannah River and United Kingdom facilities
generally operate paper machines at full capacity seven days per week.
Converting facilities are generally operated on a 3-shift, 5-day per week
basis or a 7-day per week schedule. Converting capacity could be expanded by
working additional hours and/or adding converting equipment.
LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to lawsuits and state and
federal administrative proceedings in connection with their businesses.
Although the final results in such suits and proceedings cannot be predicted
with certainty, the Company believes that they will not have a material
adverse effect on the Company's financial condition.
The Internal Revenue Service ("IRS") issued a statutory notice of
deficiency ("Notice") to the Company in March 1992 for additional income tax
for the 1988 tax year. The Notice resulted from an audit of the Company's
1988 tax year wherein the IRS adjusted income and disallowed deductions,
including deductions for fees and expenses related to the Acquisition. The
IRS also disallowed deductions for fees and expenses related to 1988 debt
financing and refinancing transactions. In March 1992, the Company filed a
petition in the U.S. Tax Court opposing substantially all of the claimed
deficiency and the case was tried in September 1993. After the trial, the
Company and the IRS executed an agreed Supplemental Stipulation of Facts by
which the IRS and the Company partially settled the case by agreeing that
certain fees and expenses (previously disallowed by the IRS and potentially
representing approximately $26 million of tax liability) were properly
deductible by the Company over the term of the 1988 debt financing and
refinancing. In addition, the Company agreed to capitalize certain amounts
identified by the IRS and paid additional federal income tax of approximately
$5 million representing its liability with respect to the agreed adjustments.
The U.S. Tax Court has not yet decided the points that remain in dispute in
- 53 -
the case after the partial settlement. The Company estimates that if the IRS
were to prevail in disallowing deductions for the fees and expenses remaining
in dispute before the trial judge, the potential amount of additional taxes
due the IRS on account of such disallowance for the period 1988 through 1993
would be approximately $31 million and for the periods after 1993 (assuming
current statutory tax rates) would be approximately $11 million, in each case
exclusive of IRS interest charges. Since the Company's 1988 tax case involves
disputed issues of law and fact, the Company is unable to predict its final
result with certainty. The Company believes, however, that its ultimate
resolution will not have a material adverse effect on the Company's financial
condition.
MANAGEMENT
Directors Of The Company
The following table provides certain information about each of the
current directors of the Company. All directors hold office until the next
annual meeting of shareholders of the Company and until their successors are
duly elected and qualified.
<TABLE><CAPTION>
Name and Position Present Principal Occupation or Employment; Five-
with the Company Age Year Employment History and other Directorships
----------------- --- -------------------------------------------------
<S> <C> <C>
Donald H. DeMeuse 58 Chairman of the Board of Directors and Chief
Chairman of the Board Executive Officer since March 1992; President and
Chief Executive Officer from July 1990 to March
1992. Prior to March 1992, President for more than
five years. Director of Associated Bank Green Bay.
Kathleen J. Hempel 43 Vice Chairman and Chief Financial Officer since
Vice Chairman March 1992; Senior Executive Vice President and
Chief Financial Officer prior to that time.
Director of Whirlpool Corporation.
Michael T. Riordan 43 President and Chief Operating Officer since March
Director 1992; Vice President prior to that time.
Donald P. Brennan 53 Managing Director of MS&Co. since prior to 1988 and
Director head of MS&Co.'s Merchant Banking Division.
Chairman and President of Morgan Stanley Leveraged
Equity Fund II, Inc. ("MSLEF II, Inc.") and Chairman
of Morgan Stanley Capital Partners III, Inc. ("MSCP
III"). Director of Agricultural Minerals and
Chemicals Inc., Agricultural Minerals Corporation,
A/S Bulkhandling, Beaumont Methanol Corporation,
BMC Holdings Inc., Coltec Industries Inc., Container
Corporation of America, Hamilton Services Limited,
Jefferson Smurfit Corporation, PSF Finance Holdings,
Inc., Shuttleway, SIBV/MS Holdings, Inc., Stanklav
Holdings, Inc., Waterford Wedgewood plc (Deputy
Chairman) and Waterford Wedgwood U.K. plc.
Frank V. Sica 43 Managing Director of MS&Co. since 1988. Vice
Director President and Director of MSLEF II, Inc. since 1989
and Vice Chairman of MSCP III. Director of ARM
Financial Group, Inc., Consolidated Hydro, Inc.,
Emmis Broadcasting Corporation, Integrity Life
Insurance Company, Interstate Natural Gas Company,
Kohl's Corporation, Kohl's Department Stores, Inc.,
National Integrity Life Insurance Company, PageMart,
Inc., Southern Pacific Rail Corporation, Sullivan
Communications, Inc. and Sullivan Graphics, Inc.
Robert H. Niehaus 38 Managing Director of MS&Co. since 1990. Principal
Director of MS&Co. prior to that time. Vice President and
Director of MSLEF II, Inc. and Vice Chairman of
MSCP III. Director of American Italian Pasta
Company, MS Distribution Inc., Randall's Food
Markets, Inc., Shuttleway, Silgan Corporation,
Silgan Holdings Inc., Tennessee Valley Steel Corp.,
Waterford Wedgwood plc, Waterford Wedgwood U.K. plc
(Chairman) and Waterford Crystal Ltd.
- 54 -
Name and Position Present Principal Occupation or Employment; Five-
with the Company Age Year Employment History and other Directorships
----------------- --- -------------------------------------------------
James S. Hoch 34 Principal of MS&Co. since February 1993; Vice
Director President of MS&Co. from January 1991 to February
1993; Associate of MS&Co. prior to that time.
Director of Silgan Corporation, Silgan Holdings
Inc. and Sullivan Communications, Inc.
</TABLE>
Executive Officers Of The Company
The following table provides certain information about each of the
current executive officers of the Company. All executive officers are elected
by, and serve at the discretion of, the Board of Directors. None of the
executive officers of the Company is related by blood, marriage or adoption to
any other executive officer or director of the Company.
Present Principal Occupation or Employment;
Name and Position Five-Year Employment History
with the Company Age and other Directorships
----------------- --- -------------------------------------------
Donald H. DeMeuse 58 See description under "Directors"
Chairman of the Board and
Chief Executive Officer
Kathleen J. Hempel 43 See description under "Directors of the
Vice Chairman and Chief Company" above.
Financial Officer
Michael T. Riordan 43 See description under "Directors of the
President and Chief Company" above.
Operating Officer
Andrew W. Donnelly 51 Executive Vice President for more than
Executive Vice President five years.
John F. Rowley 53 Executive Vice President for more than
Executive Vice President five years.
George F. Hartmann, Jr. 51 Vice President for more than five years.
Vice President
James W. Nellen II 46 Vice President and Secretary for more
Vice President and than five years.
Secretary
Daniel J. Platkowski 44 Vice President for more than five years.
Vice President
Timothy G. Reilly 43 Vice President for more than five years.
Vice President
Donald J. Schneider 57 Vice President since July 1989. Director
Vice President of Research and Development prior to that
time.
David K. Wong 44 Vice President since June 1993; Director of
Vice President Personnel from September 1990 until June
1993. Director of Recruiting and Training
prior to that time.
R. Michael Lempke 41 Treasurer since November 1989; Assistant
Treasurer Treasurer prior to that time.
Charles L. Szews 37 Controller since November 1989; Director
Controller of Financial Reporting prior to that time.
David A. Stevens 45 Assistant Vice President for more than
Assistant Vice President five years.
- 55 -
Compensation Of Executive Officers And Directors
The following table presents information concerning compensation paid for
services to the Company during the last three fiscal years to the Chief
Executive Officer and the four other most highly compensated executive
officers (the "Named Executive Officers") of the Company.
Summary Compensation Table
<TABLE><CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
---------------------------------- ------------
Number of
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(a) Options/SARs Compensation(b)
- ------------------ ---- ------ ----- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald H. DeMeuse 1993 $653,846 $55,250 $4,840 -- $62,742
Chairman and 1992 675,000 55,250 3,831 -- 57,480
Chief Executive 1991 525,000 -- 3,125 17,000 50,383
Officer
Kathleen J. Hempel 1993 $453,077 $38,381 -- -- $27,388
Vice Chairman and 1992 456,923 37,400 -- -- 27,222
Chief Financial 1991 404,616 -- -- 5,000 27,610
Officer
Michael T. Riordan 1993 $302,885 $25,500 -- 7,500 $18,437
President and 1992 248,846 20,171 $ 317 -- 15,028
Chief Operating 1991 161,346 -- -- 7,000 11,323
Officer
Andrew W. Donnelly 1993 $350,000 $29,750 -- -- $20,859
Executive Vice 1992 342,692 28,050 -- -- 20,133
President 1991 293,077 -- -- 8,000 19,693
John F. Rowley 1993 $255,000 $21,675 -- -- $15,111
Executive Vice 1992 244,039 19,975 -- -- 14,561
President 1991 210,962 -- -- 7,000 14,405
</TABLE>
(a) Includes amounts reimbursed for the payment of taxes.
(b) Company contributions to the Company's profit sharing plan and
supplemental retirement plan, including Company contributions to the Company's
supplemental retirement plan which were paid to the participant.
The following table presents information concerning individual grants of
stock options made during the last completed fiscal year to each of the Named
Executive Officers.
<TABLE>
Option/Sar Grants In Last Fiscal Year
<CAPTION>
Potential Realisable
Individual Grants Value at Assumed
- -------------------------------------------------------------------------- Annual Rates of
Percent of Stock Price
Number of Total Appreciation For
Securities Options/ Option Term
Underlying SARs Granted Exercise or --------------------
Options/SARs to Employees Base Price Expiration
Name Granted in Fiscal Year ($/Sh) Date 5% 10%
---- ------------ -------------- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Donald H. DeMeuse -- -- -- -- -- --
Kathleen J. Hempel -- -- -- -- -- --
Michael T. Riordan 7,500(a) 49% $120 4/30/03 $566,005 $1,434,368
Andrew W. Donnelly -- -- -- -- -- --
John F. Rowley -- -- -- -- -- --
</TABLE>
(a) The stock options granted in 1993 to Equity Investors (as defined below
under "Certain Transactions--Management Equity Plan"), including the options
- 56 -
granted to Mr. Riordan, were granted pursuant to the Management Equity Plan
(as defined below under "Certain Transactions--Management Equity Plan"). The
options vest and become exercisable at a rate of 20% per year, subject to
partial acceleration of vesting in the event of death or disability. Subject
to certain exceptions, Equity Investors who terminate their employment with
the Company before the later of (i) the fifth anniversary of the date on which
the options were granted, and (ii) the date on which 15% or more of the Common
Stock has been sold in one or more public offerings, must sell their vested
options to the Company or its designee. In addition, Equity Investors may put
specified percentages of their vested options to the Company annually during
the period from the fifth anniversary of the date the options were granted to
the date on which 15% or more of the Common Stock has been sold in one or more
public offerings. See "Certain Transactions -- Management Equity Plan."
The following table presents information concerning unexercised stock
options for the Named Executive Officers. No stock options were exercised by
the Named Executive Officers during 1993.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
Value of Unexercised
Number of Unexercised Options In-the-money Options Held
Held at December 31, 1993 at December 31, 1993 (a)
----------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- -------------- ----------- -------------
Donald H. DeMeuse 74,375 9,200 -- --
Kathleen J. Hempel 85,515 3,000 -- --
Michael T. Riordan 15,409 11,300 -- --
Andrew W. Donnelly 20,235 4,200 -- --
John F. Rowley 14,342 3,800 -- --
a) The Common Stock of the Company is not registered or publicly traded and,
therefore, a public market price for the stock is not available. The Company
believes that none of the exercisable or unexercisable stock options held at
December 31, 1993 were in-the-money as of such date. See Notes 12 and 13 of
the Company's audited consolidated financial statements included elsewhere in
this Prospectus.
Director's Compensation
Directors of the Company do not receive any compensation for services on
the Board of Directors.
Employment Agreements
The Named Executive Officers have three-year employment agreements with
the Company (the "Employment Agreements") which took effect in 1993. The
Employment Agreements contain customary employment terms, have an initial
duration of three years beginning October 15, 1993 for Mr. DeMeuse, Ms. Hempel
and Mr. Riordan and December 10, 1993 for Mr. Donnelly and Mr. Rowley, provide
for automatic one-year extensions (unless notice not to extend is given by
either party at least six months prior to the end of the effective term), and
provide for base annual salaries and annual incentive bonuses. In addition,
the Employment Agreements for Mr. DeMeuse, Ms. Hempel and Mr. Riordan provide
for participation in additional bonus arrangements which may be agreed upon in
good faith from time to time with the Company. The Employment Agreements
provide that certain payments in lieu of salary and bonus are to be made and
certain benefits are to be continued for a stated period following termination
of employment. The time periods for such payments vary depending on the cause
of termination. The amount of the payments to be made to each individual
would vary depending upon such individual's level of compensation and benefits
at the time of termination and whether such employment is terminated prior to
the end of the term by the Company for "cause" or by the employee for "good
reason" (as such terms are defined in the Employment Agreements) or otherwise
during the term of the agreements. In addition, the Employment Agreements for
Mr. DeMeuse, Ms. Hempel and Mr. Riordan include noncompetition and
confidentiality provisions.
Compensation Committee Interlocks and Insider Participation
The Executive Committee of the Board of Directors of the Company (the
"Executive Committee") acts as a compensation committee for determining
- 57 -
certain aspects of the compensation of the executive officers of the Company.
The members of the Executive Committee are Donald H. DeMeuse, the Company's
Chairman and Chief Executive Officer, and Donald P. Brennan.
The Executive Committee administers the Management Equity Plan which
provides for the offer of Common Stock and the grant of options to purchase
Common Stock to executive officers and certain other key employees of the
Company. See "Certain Transactions -- Management Equity Plan." The Executive
Committee selects the officers and key employees to whom Common Stock will be
offered or options will be granted.
The Executive Committee also administers the Company's Management
Incentive Plan under which annual cash awards are paid to employees serving in
key executive, administrative, professional and technical capacities. Awards
are based upon the extent to which the Company's financial performance during
the year has met or exceeded certain performance goals specified by the
Executive Committee.
Salaries and employment contract terms are determined by the entire Board
of Directors for the Chief Executive Officer, by the Executive Committee for
other executive officers who also serve as directors of the Company and by the
Company's Chief Executive Officer for other executive officers of the Company.
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 31, 1994 by
holders having beneficial ownership of more than 5% of the Company's Common
Stock, by certain other principal holders, by each of the Company's directors,
by the Named Executive Officers, and by all directors and all executive
officers of the Company as a group.
Shares Beneficially Owned
-----------------------------
Number of Percentage
Name Shares of Class
---- --------- ----------
THE MORGAN STANLEY LEVERAGED
EQUITY FUND II, L.P.......................2,850,000 (a) 48.6
1251 Avenue of the Americas
New York, New York 10020
FIRST PLAZA GROUP TRUST...................1,033,155 17.6
c/o Mellon Bank, N.A., as Trustee
1 Mellon Bank Center
Pittsburgh, Pennsylvania 15258
LEEWAY & CO............................... 516,577 8.8
1 Monarch Drive
North Quincy, Massachusetts 02177
MORGAN STANLEY GROUP INC.................. 467,213 (b) 8.0
1251 Avenue of the Americas
New York, New York 10020
FORT HOWARD EQUITY INVESTORS II, L.P...... 261,737 (c) 4.5
1251 Avenue of the Americas
New York, New York 10020
FORT HOWARD EQUITY INVESTORS, L.P......... 102,000 (d) 1.7
1251 Avenue of the Americas
New York, New York 10020
Donald H. DeMeuse......................... 102,500 (e) 1.7
Kathleen J. Hempel........................ 91,491 (f) 1.5
Michael T. Riordan........................ 20,434 (g) less than 1
Donald P. Brennan......................... 0 --
- 58 -
Shares Beneficially Owned
-----------------------------
Number of Percentage
Name Shares of Class
---- --------- ----------
Frank V. Sica............................. 0 --
Robert H. Niehaus......................... 0 --
James S. Hoch............................. 0 --
Andrew W. Donnelly........................ 23,735 (h) less than 1
John F. Rowley............................ 17,042 (i) less than 1
Directors and Executive Officers.......... 359,294 (j) 5.8
as a Group
(a) MSLEF II, Inc. is the sole general partner of MSLEF II and is a wholly
owned subsidiary of Morgan Stanley Group.
(b) Includes 40,000 shares for which Morgan Stanley Group exercises
exclusive voting rights but as to which it disclaims beneficial
ownership.
(c) Morgan Stanley Equity Investors Inc. is the sole general partner of Fort
Howard Equity Investors II, L.P. and is a wholly owned subsidiary of
Morgan Stanley Group.
(d) Morgan Stanley Equity Investors Inc. is the sole general partner of Fort
Howard Equity Investors, L.P. and is a wholly owned subsidiary of Morgan
Stanley Group.
(e) Includes 76,775 shares subject to acquisition within 60 days by exercise
of employee stock options.
(f) Includes 86,515 shares subject to acquisition within 60 days by exercise
of employee stock options.
(g) Includes 17,909 shares subject to acquisition within 60 days by exercise
of employee stock options.
(h) Includes 21,235 shares subject to acquisition within 60 days by exercise
of employee stock options.
(i) Includes 15,342 shares subject to acquisition within 60 days by exercise
of employee stock options.
(j) Includes 296,333 shares subject to acquisition within 60 days by
exercise of employee stock options.
Certain affiliates of Morgan Stanley Group are entitled, subject to the
satisfaction of certain conditions, to receive up to 20% of certain gains
realized by MSLEF II on its investment in Common Stock, up to 10% of certain
gains realized by Fort Howard Equity Investors, L.P. and up to 10% of certain
gains realized by Fort Howard Equity Investors II, L.P.
CERTAIN TRANSACTIONS
Management Equity Plan
Effective as of April 29, 1991, the Board of Directors adopted the Fort
Howard Corporation Management Equity Plan (the "Management Equity Plan"). The
Management Equity Plan provides for the offer of Common Stock and the grant of
options to purchase Common Stock to executive officers and certain other key
employees of the Company.
Executive officers or other key employees of the Company who purchase
shares of Common Stock or are granted options pursuant to the Management
Equity Plan ("Equity Investors") are required to enter into a Management
Equity Plan Agreement with the Company, and to become bound by the terms of
the Company's stockholders agreement. See "Certain Transactions--Stockholders
Agreement."
Options granted pursuant to the Management Equity Plan vest in accordance
with a schedule determined at the time of grant and set forth in the
applicable Management Equity Plan Agreement. Any such options will be subject
to partial acceleration of vesting in the event of death or disability.
Shares of Common Stock purchased pursuant to the Management Equity Plan,
as well as options that have become vested, may not be transferred for an
extended period of time, except in certain limited circumstances. Options
which have not vested are not transferable.
- 59 -
Subject to certain exceptions, under the Management Equity Plan, Equity
Investors who terminate their employment with the Company before the later of
(i) the fifth anniversary of the date on which shares of Common Stock were
purchased or options were granted, as the case may be, and (ii) the date on
which 15% or more of the Common Stock has been sold in one or more public
offerings, must sell their shares of Common Stock and vested options to the
Company or its designee. The terms and conditions of such repurchases by the
Company (including the determination of the applicable repurchase price) are
substantially similar to those prescribed for the repurchase by the Company of
shares of Common Stock and vested options acquired by certain executive
officers and other key employees of the Company pursuant to the Management
Equity Participation Agreement (as defined below). See "Certain
Transactions--Management Equity Participation." Subject to certain
exceptions, options which have not vested at the time an Equity Investor's
employment is terminated are forfeited to the Company.
The Management Equity Plan also provides that Equity Investors may put
specified percentages of their shares of Common Stock and vested options to
the Company annually during the period from the fifth anniversary of the date
on which such shares were purchased or options were granted, as the case may
be, to the date on which 15% or more of the Common Stock has been sold in one
or more public offerings. The terms and conditions governing such put option
are substantially similar to those prescribed for the exercise of the put
option set forth in the Management Equity Participation Agreement.
In April 1991, certain executive officers and other key employees of the
Company purchased an aggregate of 6,200 shares of Common Stock at $120 per
share pursuant to the Management Equity Plan. In addition, options to
purchase a total of 111,100 shares of Common Stock at an exercise price of
$120 per share were granted in 1991, 1992 and 1993 pursuant to the Management
Equity Plan to certain executive officers and other key employees of the
Company. Such options vest at the rate of 20% per year. Further, the terms
and conditions of options to purchase 15,500 shares of Common Stock granted in
December 1988 at an exercise price of $100 per share pursuant to a predecessor
plan are now governed by the Management Equity Plan.
Management Equity Participation
Mr. DeMeuse, Ms. Hempel, Mr. Riordan and other current executive officers
and members of the Company's senior management (the "Management Investors")
are parties to an Amended and Restated Management Equity Participation
Agreement, as amended, with the Company, Morgan Stanley Group and MSLEF II
(the "Management Equity Participation Agreement"), pursuant to which the
Management Investors purchased 63,107 shares of Common Stock in 1988 and 4,896
shares of Common Stock in 1990 at $100 and $135 per share, respectively.
Management Investors who purchased shares of Common Stock pursuant to the
Management Equity Participation Agreement were also granted stock options to
acquire 278,052 and 42,460 shares of Common Stock pursuant to the Management
Equity Participation Agreement at exercises prices of $100 and $120 per share,
respectively. Such options vest at the rate of 20% per year and are subject
to partial acceleration of vesting in the event of death or disability.
Certain of the Management Investors have also purchased shares of Common Stock
and have been granted options to acquire additional shares of Common Stock
pursuant to the terms of the Management Equity Plan. See "Certain
Transactions--Management Equity Plan."
The Management Equity Participation Agreement prohibits for an extended
period of time, except in certain limited circumstances, the transfer of
Common Stock and rights to acquire Common Stock, including options that have
become vested ("Vested Options"), held by the Management Investors. Options
which have not vested are not transferable. Subject to certain exceptions
relating to death and disability, the Management Equity Participation
Agreement also provides that Management Investors who terminate their
employment with the Company within five years of the date (the "Effective
Date") on which shares of Common Stock were purchased and options were granted
shall sell their shares of Common Stock and Vested Options to the Company or
its designee. In the case of termination by the Company without "cause" (as
defined), termination as a result of death or disability or retirement at an
age of at least 55 years, or, only in the case of Mr. DeMeuse or Ms. Hempel,
the voluntary termination of employment by a Management Investor for "good
reason" (as defined), the purchase price to be paid by the Company for shares
of Common Stock is equal to the greater of the consideration paid for each
share or the fair market value of such shares (except that the purchase price
is equal to fair market value with respect to shares acquired in 1990 by
- 60 -
Management Investors other than Mr. DeMeuse). (Under the Management Equity
Plan, the purchase price upon such a termination of employment is in all cases
equal to fair market value.) In all other cases, the purchase price to be
paid by the Company for shares of Common Stock is equal to the lesser of the
consideration paid for each share or the fair market value of such shares.
Without regard to the reason for termination, the purchase price to be paid by
the Company for Vested Options is equal to the fair market value of the shares
subject to the options, minus the aggregate exercise price. The Management
Equity Participation Agreement also provides that Management Investors shall
sell to the Company or its designee the shares of Common Stock and Vested
Options held by them if they terminate their employment with the Company after
the date which is five years from the Effective Date unless as of such date
15% or more of the Common Stock has been sold in one or more public offerings.
In such event, the purchase price to be paid by the Company for shares of
Common Stock and Vested Options is equal to their fair market value. Subject
to certain exceptions, any options which have not vested at the time a
Management Investor's employment is terminated are forfeited to the Company.
The Management Equity Participation Agreement also provides that the
Management Investors may put to the Company annually during the period from
the fifth anniversary of the Effective Date to the date on which 15% or more
of the Common Stock has been sold in one or more public offerings, specified
percentages of their shares of Common Stock and Vested Options at a price
equal to their fair market value. In certain circumstances and subject to
certain limitations, Mr. DeMeuse and Ms. Hempel may require MSLEF II or Morgan
Stanley Group to fulfill the Company's purchase obligations upon any
termination of employment or exercise of the put option.
The Management Equity Participation Agreement also provides that the
Company will indemnify Management Investors for taxes on income which may be
recognized upon the vesting of shares of Common Stock under certain
circumstances. The indemnity is limited to the tax benefit to the Company,
and if the tax benefit has not yet been received by the Company in cash at the
time when the taxes must be paid by a Management Investor, the Company will
make a nonrecourse loan to the Management Investor (secured by Common Stock
and Vested Options) until the time the tax benefit is actually received.
The Management Equity Participation Agreement contains noncompetition
provisions applicable to each Management Investor except Mr. DeMeuse,
Ms. Hempel and Mr. Riordan, whose noncompetition agreements are contained in
their respective Employment Agreements. (Similar noncompetition provisions
are applicable to the Equity Investors under the Management Equity Plan.) The
Company's obligation to make nonrecourse loans under the Management Equity
Participation Agreement or purchase shares of Common Stock for cash pursuant
to the Management Equity Participation Agreement or the Management Equity Plan
is subject to restrictions contained in any debt or lease agreements to which
it is a party.
In 1988 and 1990, the Company's former chairman of the board and chief
executive officer acquired shares of Common Stock and was granted options to
acquire additional shares of Common Stock pursuant to the Management Equity
Participation Agreement. Under the terms of an agreement entered into with
the Company at the time of his resignation in July 1990, he retained his
entire interest in the Company's Common Stock and all options to acquire
additional shares thereof granted to him pursuant to the Management Equity
Participation Agreement were vested. In addition, all the shares of the
Company's Common Stock then owned by him became putable to the Company, and he
retained certain other put rights previously granted to him with respect to
such options and the shares issuable upon the exercise thereof. Except as set
forth above, the former chairman and chief executive officer's interest in the
Company's Common Stock remains subject to terms substantially equivalent to
the relevant terms of the Management Equity Participation Agreement.
Stockholders Agreement
The Company, Morgan Stanley Group, MSLEF II, certain other investors and
the Management Investors have entered into a stockholders agreement (the
"Stockholders Agreement"), which contains certain restrictions with respect to
the transferability of Common Stock by the parties thereunder, certain
registration rights granted by the Company with respect to such shares and
certain voting arrangements. The Stockholders Agreement will terminate as of
such time as more than 50% of the shares of Common Stock then outstanding have
been sold pursuant to one or more public offerings.
- 61 -
Pursuant to the terms of the Stockholders Agreement, no holder of Common
Stock who is a party or becomes a party to the Stockholders Agreement (a
"Holder") may sell or otherwise encumber Common Stock beneficially owned by
such Holder unless such transfer is to (i) certain permitted transferees
(related persons or affiliated entities) of such Holder, (ii) the Company, or
in certain cases its designees, (iii) subject to certain rights of first
refusal by the other Holders and the Company, any person if immediately after
such sale the transferee and its affiliates do not in the aggregate
beneficially own more than 15% of the Common Stock then outstanding, subject
to receipt of a legal opinion that such sale does not require the Common Stock
to be registered under the Securities Act of 1933, and such transferee is not
determined by the Board of Directors of the Company to be an "Adverse Person"
(as defined in the Stockholders Agreement), (iv) any person pursuant to a
public offering, or (v) any person pursuant to Rule 144 under the Securities
Act of 1933 after 15% or more of the Common Stock has been sold pursuant to
one or more underwritten public offerings. Notwithstanding the above,
however, Morgan Stanley Group and MSLEF II, have the right to transfer all or
any portion of the Common Stock beneficially owned by them (i) at any time in
connection with the refinancing of the Company's outstanding indebtedness, or
(ii) at any time in connection with one transaction or a series of
transactions in which Morgan Stanley Group and/or MSLEF II intends to sell
such number of shares of Common Stock then constituting a majority of the
outstanding shares of Common Stock subject to the Stockholders Agreement.
In the event that one or more Holders (each a "Controlling Stockholder")
sell a majority of the shares of Common Stock subject to the Stockholders
Agreement to a third party, each other Holder has the right to elect to sell
on the same terms the same percentage of such other Holder's shares to the
third party as the Controlling Stockholder is selling of its shares of Common
Stock. In addition, if a Controlling Stockholder sells all of its shares of
Common Stock to a third party, the Controlling Stockholder has the right to
require that the remaining Holders sell all of their shares to the third party
on the same terms.
Pursuant to the terms of the Stockholders Agreement, Holders of specified
percentages of Common Stock will be entitled to certain demand registration
rights ("Demand Rights") with respect to shares of Common Stock held by them;
provided, however, that the Company (or purchasers designated by the Company)
shall have the right to purchase at fair market value the shares which are the
subject of Demand Rights in lieu of registering such shares of Common Stock.
In addition to the Demand Rights, Holders are, subject to certain limitations,
entitled to register shares of Common Stock in connection with a registration
statement prepared by the Company to register its equity securities. The
Stockholders Agreement contains customary terms and provisions with respect
to, among other things, registration procedures and certain rights to
indemnification granted by parties thereunder in connection with the
registration of Common Stock subject to such agreement.
The Stockholders Agreement also requires the Holders to vote for director
designees of Morgan Stanley Group and its affiliates (including one director
designated by MSLEF II) ensuring Morgan Stanley Group and its affiliates
majority board representation for so long as they own a majority of the
outstanding Common Stock.
Pursuant to the Stockholders Agreement, Holders have certain preemptive
rights, subject to certain exceptions, with respect to future issuances of
shares or share equivalents of Common Stock so that such Holders may maintain
their proportional equity ownership interest in the Company.
OTHER TRANSACTIONS
The Company has entered into an agreement with MS&Co. for financial
advisory services in consideration for which the Company pays MS&Co. an annual
fee of $1 million. MS&Co. is also entitled to reimbursement for all
reasonable expenses incurred in performance of the foregoing services. The
Company paid MS&Co. approximately $1.0 million, $1.1 million and $1.1 million
for these and other miscellaneous services in 1993, 1992 and 1991,
respectively.
MS&Co. served as lead underwriter for the initial public offering of the
1988 Securities, the 1993 Notes, the 1994 Notes, the 12 3/8% Notes and the
Junior Debentures and is a market-maker with respect to the 1988 Securities,
- 62 -
the 1993 Notes, the 1994 Notes and the Pass Through Certificates. In
connection with the sale of the 8 1/4% Notes and the 9% Notes in 1994, MS&Co.
received approximately $20.4 million of underwriting fees. In connection with
the sale of the 9 1/4% Notes and the 10% Notes in 1993, MS&Co. received
approximately $19.5 million of underwriting fees. In 1992, MS&Co. received
approximately $0.7 million in connection with the underwriting of the
reissuance of the Company's Development Authority of Effingham County
Pollution Control Revenue Refunding Bonds, Series 1988. In connection with
the 1990 and 1991 Transactions, MS&Co. received approximately $2.9 million of
advisory and underwriting fees. In connection with the Company's sale of
Senior Secured Notes in 1991, MS&Co. received approximately $6.8 million of
advisory fees.
Based on transactions of similar size and nature, the Company believes
the foregoing fees received by MS&Co. are no less favorable to the Company
than would be available from unaffiliated third parties.
In connection with the repurchases of certain of the Company's
securities during 1991, $52.8 million aggregate principal amount at maturity
of the Junior Debentures and $132.7 million aggregate principal amount at
maturity of the 14 1/8% Debentures were purchased through MS&Co. In addition,
$46.5 million and $77.5 million aggregate principal amount at maturity of the
14 1/8% Debentures were purchased from Leeway & Co. and First Plaza Group
Trust, respectively, shareholders of the Company. The purchases were made in
negotiated transactions at market prices.
DESCRIPTION OF THE 12 5/8% DEBENTURES
The 12 5/8% Debentures were issued under an Indenture dated as of
November 1, 1988 (the "12 5/8% Debenture Indenture"), between the Company and
United States Trust Company of New York, as Trustee (the "12 5/8% Debenture
Trustee").
The following summary of certain provisions of the 12 5/8% Debenture
Indenture does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the 12 5/8% Debenture
Indenture, including the definitions of certain terms included therein.
Wherever particular sections or defined terms of the 12 5/8% Debenture
Indenture are referred to herein, such sections or defined terms shall be
incorporated herein by reference. Unless the context otherwise requires,
reference to Sections and defined terms refer to Sections and defined terms of
the 12 5/8% Debenture Indenture. A copy of the 12 5/8% Debenture Indenture
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Principal of, premium, if any, and interest on the 12 5/8% Debentures
are payable, and the 12 5/8% Debentures are exchangeable and transferable, at
the office or agency of the Company in The City of New York; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Person entitled thereto as shown on the register for the
12 5/8% Debentures. The 12 5/8% Debentures are issued only in fully
registered form without coupons, in denominations of $1,000 and any integral
multiple thereof. No service charge will be made for any registration of
transfer or exchange of 12 5/8% Debentures, except for any tax or other
governmental charge that may be imposed in connection therewith. The 12 5/8%
Debenture Indenture and the 12 5/8% Debentures are governed by and construed
in accordance with the laws of the State of New York except as may otherwise
be required by mandatory provisions of law.
Terms of the 12 5/8% Debentures
The 12 5/8% Debentures constitute unsecured subordinated obligations of
the Company, limited to $145,815,000 aggregate principal amount currently
outstanding and will mature on November 1, 2000. The 12 5/8% Debentures bear
interest at the rate per annum equal to 12 5/8% from the date of issuance of
the 12 5/8% Debentures or from the most recent Interest Payment Date to which
interest has been paid or duly provided for. Interest is payable semiannually
(to the Holders of record at the close of business on the April 15 or October
15 immediately preceding the Interest Payment Date), on May 1 and November 1
of each year.
Optional Redemption. The 12 5/8% Debentures are redeemable, in whole or
in part, at the option of the Company, upon not less than 30 nor more than 60
- 63 -
days' prior notice mailed first class to a Holder's last address, as it shall
appear upon the registry book, at the following redemption prices (expressed
in percentages of principal amount), together with accrued and unpaid interest
to the redemption date, if redeemed during the 12-month period commencing
Redemption
November 1, Prices
----------- ----------
1993 105.0%
1994 102.5%
and thereafter at 100% of the principal amount.
In the case of a partial redemption, selection of 12 5/8% Debentures for
redemption will be made by the 12 5/8% Debenture Trustee in such manner as in
its sole discretion it shall deem appropriate and fair. If any 12 5/8%
Debenture is to be redeemed in part only, the notice of redemption that
relates to such 12 5/8% Debenture shall state the portion of the principal
amount to be redeemed. A new 12 5/8% Debenture in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original 12 5/8% Debenture.
The Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior
Secured Note Agreement each contain provisions restricting the optional
redemption of the 12 5/8% Debentures.
Subordination
Upon any payment or distribution of assets or securities of the Company,
as the case may be, of any kind or character, whether in cash, property or
securities, upon any dissolution or winding up or total or partial liquidation
or reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or
to become due with respect to the Senior Debt (including any interest accruing
subsequent to an event of bankruptcy to the extent that such interest is an
allowed claim enforceable against the debtor under the United States
bankruptcy code) shall first be paid in full in cash or cash equivalents, or
payment provided for in cash or cash equivalents, before the Holders or the
12 5/8% Debenture Trustee on behalf of the Holders shall be entitled to
receive any payment by the Company of the principal of, premium, if any, or
interest on the 12 5/8% Debentures, or any payment to acquire any of the 12
5/8% Debentures for cash, property or securities, or any distribution with
respect to the 12 5/8% Debentures of any cash, property or securities. Before
any payment may be made by, or on behalf of, the Company of the principal of,
premium, if any, or interest on the 12 5/8% Debentures upon any such
dissolution or winding up or liquidation or reorganization, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, to which the Holders of the 12 5/8%
Debentures or the 12 5/8% Debenture Trustee on their behalf would be entitled,
but for the subordination provisions of the 12 5/8% Debenture Indenture, shall
be made by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, directly
to the Holders of the Senior Debt (pro rata to such Holders on the basis of
the respective amounts of Senior Debt held by such Holders) or their
representatives or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear, to the extent necessary to pay all such Senior Debt in
full in cash or cash equivalents after giving effect to any concurrent
payment, distribution or provision therefor, to or for the Holders of such
Senior Debt.
No direct or indirect payment by or on behalf of the Company of
principal of, premium, if any, or interest on the 12 5/8% Debentures whether
pursuant to the terms of the 12 5/8% Debentures or upon acceleration or
otherwise, shall be made if, at the time of such payment, there exists a
default in the payment of all or any portion of the obligations on any Senior
Debt (and the 12 5/8% Debenture Trustee has received written notice thereof),
and such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the Holders of such Senior Debt. In
addition, during the continuance of any other event of default with respect to
(i) the Bank Credit Agreement pursuant to which the maturity thereof may be
accelerated, (a) from and after the date of receipt by the 12 5/8% Debenture
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Trustee of written notice from the Agent or (b) if such event of default
results from the acceleration of the 12 5/8% Debentures, from and after the
date of such acceleration, no such payment may be made by or on behalf of the
Company upon or in respect of the 12 5/8% Debentures for a period ("Payment
Blockage Period") commencing on the earlier of the date of receipt of such
notice or the date of such acceleration and ending 159 days thereafter (unless
such Payment Blockage Period shall be terminated by written notice to the
12 5/8% Debenture Trustee from the Agent), or (ii) any other Designated Senior
Debt, upon receipt by the 12 5/8% Debenture Trustee of written notice from the
trustee or other representative for the Holders of such Designated Senior Debt
(or the Holders of at least a majority in principal amount of such Designated
Senior Debt then outstanding), no such payment may be made by or on behalf of
the Company upon or in respect of the 12 5/8% Debentures for a Payment
Blockage Period commencing on the date of receipt of such notice and ending
119 days thereafter (unless such Payment Blockage Period shall be terminated
by written notice to the 12 5/8% Debenture Trustee from such trustee or other
representative of such Holders). Not more than one Payment Blockage Period
may be commenced with respect to the 12 5/8% Debentures during any period of
360 consecutive days; provided, that the commencement of a Payment Blockage
Period by the representatives for, or the Holders of, Designated Senior Debt
other than under the Bank Credit Agreement shall not bar the commencement of
another Payment Blockage Period by the Agent within such period of 360 days.
No event of default which existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Debt initiating such Payment Blockage Period shall be, or be made, the
basis for the commencement of a second Payment Blockage Period by the
representative for, or the Holders of, such Designated Senior Debt whether or
not within a period of 360 consecutive days unless such event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
As defined in the 12 5/8% Debenture Indenture, "Senior Debt" means the
following obligations of the Company: (i) all Debt and other monetary
obligations of the Company under the Bank Credit Agreement (including the
Additional Bank Credit Amount (as defined below)) and the Company's Guarantee
of any Debt or monetary obligation of any of its subsidiaries under the Bank
Credit Agreement, (ii) all Debt of the Company, unless such Debt, by its terms
or the terms of the instrument creating or evidencing it, is subordinate in
right of payment to, or pari passu with, the 12 3/8% Notes and (iii) all fees,
expenses and indemnities payable in connection with the Bank Credit Agreement
and, if applicable, Currency Agreements and Interest Rate Agreements; provided
that the term Senior Debt shall not include (a) any Debt of the Company which,
when incurred and without respect to any election under Section 1111(b) of
Title 11, United States Code, was without recourse to the Company, (b) any
Debt of the Company to a Subsidiary, (c) any Debt of the Company not
otherwise permitted by the "Limitation on Company and Subsidiary Debt"
covenant described below, (d) Debt to any employee of the Company, (e) any
liability for federal, state, local or other taxes owed or owing by the
Company and (f) Trade Payables.
As defined in the 12 5/8% Debenture Indenture, "Designated Senior Debt"
means (i) Debt under the Bank Credit Agreement (including the Additional Bank
Credit Amount) and (ii) any other Debt constituting Senior Debt which, at the
time of determination has an aggregate principal amount of at least
$75 million and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company. Designated Senior
Debt includes the Senior Secured Notes, the 1993 Term Loan Agreement, the
8 1/4% Notes, the 9 1/4% Notes and the Pass Through Certificates Leases.
By reason of the subordination provisions described above, in the event
of insolvency, funds which would otherwise be payable to Holders of the 12
5/8% Debentures will be paid to the Holders of Senior Debt to the extent
necessary to pay the Senior Debt in full, and the Company may be unable to
fully meet its obligations with respect to the 12 5/8% Debentures.
At March 31, 1994, there was approximately $2.4 billion of Senior Debt
with respect to the 12 5/8% Debentures. Subject to the restrictions set forth
in the Bank Credit Agreement, the Senior Secured Note Agreement, the 1993 Term
Loan Agreement, the 1993 Note Indentures, the 1994 Note Indentures and the
12 5/8% Debenture Indenture, in the future, the Company may issue additional
Senior Debt to finance acquisitions, to refinance existing indebtedness, or
for other corporate purposes.
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The claims of Holders of the 12 5/8% Debentures, as creditors of the
Company, will be junior in right of payment to all liabilities (whether or not
for borrowed money) of all the Subsidiaries of the Company. At March 31,
1994, the amount of the liabilities of all the subsidiaries of the Company was
approximately $124 million.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the 12 5/8% Debenture Indenture. Reference is made to
the 12 5/8% Debenture Indenture for the full definition of all terms as well
as any other capitalized terms used herein for which no definition is
provided.
"Accreted Value" as of any date with respect to any Junior Discount
Debenture (defined as the 14 1/8% Debentures in this Prospectus) means an
amount equal to the sum of (i) the issue price of such Junior Discount
Debenture as determined in accordance with Section 1273 of the Code and (ii)
the aggregate of the portions of the original issue discount (the excess of
the amounts considered as part of the "stated redemption price at maturity" of
such Junior Discount Debentures within the meaning of Section 1273(a)(2) of
the Code, whether denominated as principal or interest, over the issue price
of such Junior Discount Debenture) which shall theretofore have accrued
pursuant to Section 1272 of the Code (without regard to Section 1272(a)(7) of
the Code) from the date of issue of such Junior Discount Debenture to the date
of determination, minus (iii) any amount considered as part of the "stated
maturity price" of such Junior Discount Debenture which has been paid on such
Junior Discount Debenture from the date of issue to the date of determination.
"Acquired Debt" means Debt of a Person existing at the time such Person
became a Subsidiary.
"Additional Bank Credit Amount" has the meaning specified in clause (i)
of the second paragraph of the "Limitation on Company and Subsidiary Debt"
covenant described below.
"Adjusted Consolidated Net Worth" of any Person means, as of any date,
the Consolidated Net Worth of such Person less any amount attributable to
Preferred Stock or any other Capital Stock of such Person (other than
Redeemable Stock, which is not included in Consolidated Net Worth) which is
exchangeable or convertible into a debt security of such Person or any of its
Subsidiaries at the option of such Person or any of its Subsidiaries.
"Affiliate" as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under
common control with"), as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of
voting securities, by contract or otherwise. For purposes of this definition,
neither Bankers Trust New York Corporation, nor any Bank nor any Affiliate of
any of them shall be deemed to be an Affiliate of the Company.
"Agent" means the agent under the Bank Credit Agreement or any successor
agent appointed pursuant to the terms of such agreement.
"Asset Sale" means the sale or other disposition by the Company or any
of its Subsidiaries to any Person other than the Company or one of its
Subsidiaries of (i) any of the Capital Stock of any of the Company's
Subsidiaries or (ii) substantially all of the assets of any division or line
of business of the Company or any of its Subsidiaries.
"Average Life" means, as of the date of determination, with respect to
any debt security, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such debt security
multiplied by the amount of such principal payment by (ii) the sum of all such
principal payments.
"Bank Credit Agreement" means the Amended and Restated Credit Agreement
dated as of October 24, 1988 among FH Acquisition Corp., the Lenders listed
therein, and Bankers Trust Company, as Agent, as such Agreement may be
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amended, restated, supplemented or otherwise modified from time to time, and
includes any agreement extending the maturity of, or restructuring (including,
but not limited to, the inclusion of additional borrowers thereunder that are
subsidiaries of the Company and whose obligations are guaranteed by the
Company thereunder) all or any portion of, the Debt under such Agreement or
any successor agreements and any agreement with one or more banks refinancing
all or any portion of the Debt under such Agreement or any successor
agreements.
"Banks" means the lenders who are parties to the Bank Credit Agreement.
"Board of Directors" means the Board of Directors for the Company or any
committee of such Board duly authorized to act hereunder.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"Capital Funds Ratio" means, as of the date of determination, the ratio
of (i) the sum of the Consolidated Net Worth of the Company on such date plus
the outstanding aggregate amount of Debt (which, in the case of the Junior
Discount Debentures (defined as the 14 1/8% Debentures in this Prospectus),
shall be their Accreted Value) of the Company which is subordinated in right
of payment to the Senior Subordinated Notes (defined as the 12 3/8% Notes in
this Prospectus) or Subordinated Debentures (defined as the 12 5/8% Debentures
in this Prospectus), as the case may be, and which has a remaining Average
Life equal to or greater than the remaining Average Life of the Senior
Subordinated Notes or the Subordinated Debentures, as the case may be, to
(ii) the then outstanding principal amount of the Senior Subordinated Notes or
the Subordinated Debentures, as the case may be.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock including, without limitation, all Common Stock and
Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such Person as lessee under which, in conformity with
GAAP, is required to be capitalized on the balance sheet of that Person and
"Capitalized Lease Obligation" means the rental obligations, as aforesaid,
under such lease.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock and includes, without
limitation, all series and classes of such common stock.
"Consolidated Capital Expenditures" means expenditures (whether paid in
cash or accrued as liabilities and including Capitalized Lease Obligations) of
the Company and its Subsidiaries that, in conformity with GAAP, are included
in the property, plant or equipment reflected in the consolidated balance
sheet of the Company and its Subsidiaries.
"Consolidated Cash Flow Available for Fixed Charges" means, for any
period, the sum of the amounts for such period of (i) Consolidated Net
Operating Income, (ii) Consolidated Interest Expense, (iii) provisions for
taxes based on income, (iv) depreciation expense, (v) amortization expense,
and (vi) all other non-cash items reducing Consolidated Net Operating Income,
minus all non-cash items increasing Consolidated Net Operating Income, all as
determined on a consolidated basis for any Person and its Subsidiaries in
conformity with GAAP; provided that if, during such period, such Person or any
of its Subsidiaries shall have made any Asset Sales, Consolidated Cash Flow
Available for Fixed Charges of such Person and its Subsidiaries for such
period shall be reduced by an amount equal to the Consolidated Cash Flow
Available for Fixed Charges (if positive) directly attributable to the assets
which are the subject of such Asset Sales for such period or increased by an
amount equal to the Consolidated Cash Flow Available for Fixed Charges (if
negative) directly attributable thereto for such period.
"Consolidated Fixed Charge Ratio" means the ratio, on a pro forma basis,
giving effect to any Debt to be incurred as if it had been incurred on the
first day of the four-fiscal-quarter period referred to in clause (i), of (i)
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the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of
any Person for the four fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Ratio (the
"Transaction Date") to (ii) the aggregate Consolidated Fixed Charges of such
Person during such four fiscal quarters; provided, that in making such
computation, (x) Consolidated Interest Expense attributable to interest on any
Debt (whether existing or being incurred) computed on a pro forma basis and
bearing a floating interest rate shall be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period,
(y) there shall be excluded from Consolidated Interest Expense any Interest
Expense related to Debt which was outstanding during such four fiscal quarters
but is not outstanding on the Transaction Date ("Repaid Debt"), unless the
Company may again incur, create or assume such Repaid Debt in an amount equal
to the weighted average amount of Repaid Debt outstanding during such four
fiscal quarters (the "Weighted Average Amount") pursuant to clauses (i), (v),
(vi), (x), (xi), (xii), (xiii) or (xv) of the second paragraph of the
"Limitation on Company and Subsidiary Debt" covenant described below, in which
case such Interest Expense shall not be excluded (it being understood that if
the Company can again so incur, create or assume an amount of Repaid Debt
which is less than the Weighted Average Amount, then a portion of such
Interest Expense shall be excluded equivalent to a fraction of which the
numerator shall be the difference between the Weighted Average Amount and the
amount of such Repaid Debt which the Company can again so incur, create or
assume, and of which the denominator shall be the Weighted Average Amount) and
(z) if such Person or any of its Subsidiaries shall have made any Asset Sales
subsequent to such four fiscal quarters and prior to the Transaction Date,
such Asset Sales will be deemed to have been made during such four fiscal
quarters.
"Consolidated Fixed Charges" of any Person means, for any period,
Consolidated Interest Expense; provided that if, during such period, such
Person or any of its Subsidiaries shall have made any Asset Sales, Consolida-
ted Fixed Charges of such Person and its Subsidiaries for such period shall be
reduced by an amount equal to the Consolidated Fixed Charges directly attribu-
table to the assets which are the subject of such Asset Sales for such period.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate Interest Expense of such Person and its Subsidiaries, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period taken as one accounting
period, the net income (or loss) of any Person and its Subsidiaries on a
consolidated basis for such period determined in conformity with GAAP;
provided that there shall be excluded (i) the income (or loss) of any Person
(other than a Subsidiary of such Person) in which any other Person (other than
such Person or any of its Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to such
Person or any of its Subsidiaries by such other Person during such period,
(ii) except to the extent includible pursuant to the foregoing clause (i), the
income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary of such Person or is merged into or consolidated with such Person
or any of its Subsidiaries or that Person's assets are acquired by such Person
or any of its Subsidiaries, (iii) the income of any Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary, and
(iv) any gains or losses attributable to Asset Sales.
"Consolidated Net Operating Income" of any Person means, for any period
taken as one accounting period, the aggregate Consolidated Net Income of such
Person and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP, adjusted by excluding (to the extent not otherwise excluded in
calculating Consolidated Net Income) any net extraordinary gain or net
extraordinary loss, as the case may be, during such period except that no
adjustment shall be made for extraordinary items consisting of income tax
effects associated with net operating loss carryforwards incurred by such
Person after the Effective Time and prior to any reporting of positive
Consolidated Net Income.
"Consolidated Net Worth" of any Person means, as at any date of
determination, the sum of the Capital Stock and additional paid-in capital
plus retained earnings (or minus accumulated deficit) of such Person and its
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Subsidiaries on a consolidated basis, less amounts attributable to Redeemable
Stock, each item to be determined in conformity with GAAP (excluding the
effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to
or under which the Company or any of its Subsidiaries is a party or a
beneficiary.
"Debt" of any Person means at any date, without duplication, (i) all
obligations, contingent or otherwise, of such Person in respect of borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such Person or only to a portion thereof), (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person in respect of letters of credit or other
similar instruments (or reimbursement obligations with respect thereto), (iv)
all obligations of such Person to pay the deferred and unpaid purchase price
of property or services which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade Payables, (v) all
obligations of such Person as lessee under Capitalized Leases, (vi) all Debt
of others secured by a Lien on any asset of such Person, whether or not such
Debt is assumed by such Person, (vii) all Debt of others Guaranteed by such
Person and (viii) to the extent not otherwise included, obligations under
Currency Agreements and Interest Rate Agreements. The amount of Debt of any
Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such contingent obligations at such date.
"Debt to Net Worth Ratio" means, as at any date of determination, the
ratio of (i) the outstanding aggregate amount of Debt of the Company and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP, to
(ii) the Consolidated Net Worth of the Company.
"Domestic Subsidiary" means a Subsidiary of the Company which is not a
Foreign Subsidiary.
"Effective Time" means the date and time the Merger became effective as
set forth in the Merger Agreement.
"Financing" means the financing of the Tender Offer and the Merger.
"Foreign Subsidiary" means any subsidiary of the Company which is
organized under the laws of a jurisdiction other than the United States of
America or any State thereof and more than 80% of the sales, earnings or
assets (determined on a consolidated basis in accordance with GAAP) of which
are located or derived from operations located in territories of the United
States of America and jurisdictions outside the United States of America.
"GAAP" means generally accepted accounting principles in the United
States as in effect as of the date of the relevant Subordinated Indenture
(defined as the 12 3/8% Notes, the 12 5/8% Debentures and the 14 1/8%
Debentures, respectively, in this Prospectus), including, without limitation,
those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as approved by a significant
segment of the accounting profession; provided, that all ratios and
computations based on GAAP contained in the Subordinated Indentures shall be
computed in accordance with GAAP except that calculations made for the purpose
of determining compliance with the terms of the covenants set forth below and
other provisions of the Subordinated Indentures shall be made, except as
otherwise provided herein, without giving effect to adjustments in component
amounts required or permitted by Accounting Principles Board Opinion Nos. 16
and 17 as a result of the Tender Offer and the Merger and for the amortization
of any expenses incurred in connection with the Tender Offer, the Merger or
the Financing.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
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foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation of such other Person
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered
into for the purpose of assuring in any other manner the obligee of such Debt
or other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); provided that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Interest Expense" of any Person means, for any period taken as one
accounting period, the aggregate amount of interest in respect of Debt
(including all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and the net
costs associated with Interest Rate Agreements) and all but the principal
component of rentals in respect of Capitalized Lease Obligations, paid or
accrued by such Person during such period, excluding, however, interest
expense not required to be paid in cash (including amortization of discount)
and which such Person did not in fact pay in cash (or, in the case of interest
accrued for which payment has not become due at the time of determination,
which such Person does not intend to pay in cash), all as determined in
accordance with GAAP.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement
designed to protect the Company or any of its Subsidiaries against
fluctuations in interest rates, to or under which the Company or any of its
Subsidiaries is a party or a beneficiary.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that, as to any such arrangement in corporate form, such corporation shall
not, as to any Person of which such corporation is a Subsidiary, be considered
to be a Joint Venture to which such Person is a party.
"Junior Discount Debenture Indenture" (defined as the 14 1/8% Debenture
Indenture in this Prospectus) means the indenture dated as of November 1, 1988
between the Company and Ameritrust Company National Association, as trustee,
pursuant to which the Junior Discount Debentures (defined as the 14 1/8%
Debentures in this Prospectus) were issued.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including any conditional sale agreement, capital lease or other title
retention agreement relating to such asset).
"Material Subsidiary" means each and any Subsidiary which (i) for the
most recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company, or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Company, all as shown on the consolidated financial statements of the Company
for such fiscal year.
"Merger" means the merger of FH Acquisition Corp. into the Company
pursuant to the Merger Agreement.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor; (ii) statutory Liens of landlords and
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's,
or other like Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
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of social security; (iv) Liens created or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance and return-of-money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, restrictions and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any of
its Material Subsidiaries incurred in the ordinary course of business; (vi)
Liens (including extensions and renewals thereof) upon real or tangible
personal property acquired after the Effective Time; provided that (a) any
such Lien is created solely for the purpose of securing Debt representing, or
incurred to finance, refinance or refund, the cost (including the cost of
improvement or construction) of the item of property subject thereto, (b) the
principal amount of the Debt secured by such Lien does not exceed 100% of such
cost, (c) such Lien does not extend to or cover any other property other than
such item of property and any improvements on such item and (d) the incurrence
of such Debt is permitted by the "Limitation on Company and Subsidiary Debt"
covenant; (vii) Liens upon specific items of inventory or other goods and
proceeds of the Company or its Subsidiaries securing the Company's or any
Subsidiary's obligations in respect of bankers' acceptances issued or created
for the account of any such Person to facilitate the purchase, shipment or
storage of such inventory or other goods; (viii) Liens securing reimbursement
obligations with respect to letters of credit which encumber documents and
other property relating to such letters of credit and the products and
proceeds thereof; (ix) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (x) judgment and attachment Liens not giving
rise to an Event of Default; (xi) leases or subleases granted to others not
interfering in any material respect with the business of the Company or any of
its Subsidiaries; (xii) Liens encumbering property or assets under
construction arising from progress or partial payments by a customer of the
Company or one of its Subsidiaries relating to such property or assets; (xiii)
Liens encumbering customary initial deposits and margin deposits, and other
Liens incurred in the ordinary course of business and which are either within
the general parameters customary in the industry or otherwise approved by
requisite Banks, in each case securing Debt under Interest Rate Agreements and
Currency Agreements and forward contracts, options, futures contracts, futures
options or similar agreements or arrangements designed to protect the Company
or any of its Subsidiaries from fluctuations in the price of commodities;
(xiv) Liens encumbering deposits made to secure obligations arising from
statutory or regulatory requirements of the Company or its Subsidiaries; (xv)
Liens arising out of consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Subsidiaries prior to the Effective Time; (xvi) any interest or title of a
lessor in the property subject to any Capitalized Lease Obligation or
operating lease; (xvii) Liens on the assets of any entity existing at the time
such assets are acquired, whether by merger, consolidation, purchase of
assets or otherwise; provided that such Liens do not extend to any other
assets of the Company or any of its subsidiaries; and (xviii) Liens arising
from filing UCC financing statements regarding leases.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, and includes, without limitation, all
classes and series of preferred or preference stock.
"Redeemable Stock" means any class or series of Capital Stock that by
its terms or otherwise is required to be redeemed prior to the stated maturity
of the Senior Subordinated Notes (defined as the 12 3/8% Notes in this
Prospectus) or the Subordinated Debentures (defined as the 12 5/8% Debentures
in this Prospectus), or is redeemable at the option of the Holder thereof at
any time prior to stated maturity of any of the Senior Subordinated Notes or
the Subordinated Debentures.
"Subsidiary" means any corporation, association or other business entity
of which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the other
subsidiaries of that Person or a combination thereof. (Section 1.1)
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Covenants
The 12 5/8% Debenture Indenture contains, among others, the following
covenants.
Limitation on Company and Subsidiary Debt. The 12 5/8% Debenture
Indenture provides that the Company shall not, and shall not permit any of its
Subsidiaries to, incur, create, assume, guarantee or in any other manner
become liable with respect to, or extend the maturity of or become responsible
for the payment of, any Debt unless, after giving effect to the incurrence of
such Debt and the receipt and application of the proceeds thereof, the
Consolidated Fixed Charge Ratio of the Company would be greater than 1.5 to 1
if such determination is made after December 31, 1993; provided that if the
Debt which is the subject of a determination is Acquired Debt, then the
Consolidated Cash Flow Available for Fixed Charges of the Company shall be
determined giving pro forma effect to both the incurrence or assumption of
such Acquired Debt by the Company or such Subsidiary and the inclusion in the
Consolidated Cash Flow Available for Fixed Charges of the Company of the
Consolidated Cash Flow Available for Fixed Charges of the Person whose Debt
would constitute such Acquired Debt.
Notwithstanding the foregoing, the Company and its Subsidiaries may
incur, create, assume or guarantee each and all of the following: (i) Debt
under the Bank Credit Agreement in an aggregate principal amount not to exceed
the sum of (A) $2,200 million at any one time outstanding, less (x) any
mandatory principal payments made by the Company pursuant to the Bank Credit
Agreement other than mandatory principal payments expressly required to be
made from excess cash flow; provided that to the extent any mandatory
principal payments expressly required to be made from excess cash flow reduce
any other mandatory principal payment obligation of the Company, then at the
time such other mandatory principal payment is made (or would have been made
but for the earlier payment in full from excess cash flow), less the full
amount of such mandatory principal payment obligation as if such amount had
not been reduced by such mandatory principal payment from excess cash flow and
(y) any amounts by which the revolving credit facility commitments are
permanently reduced, (B) an amount (the "Additional Bank Credit Amount") equal
to $500 million, and (C) an amount equal to Debt, arising by virtue of letters
of credit or other facilities, permitted by clause (ix) of this "Limitation on
Company and Subsidiary Debt" covenant; (ii) Debt evidenced by the 12 5/8%
Debentures, the 14 1/8% Debentures and the obligations under the 12 5/8%
Debentures Indenture and the 14 1/8% Debenture Indenture; (iii) Debt of the
Company to any of its Subsidiaries or of a Subsidiary to the Company or to a
Subsidiary; (iv) Debt the proceeds of which are used to refinance outstanding
Debt of the Company or any of its Subsidiaries in an amount (or, if such new
Debt provides for an amount less than the principal amount thereof to be due
and payable upon a declaration of acceleration thereof, with an original issue
price) not to exceed the amount so refinanced (plus, accrued interest and fees
and expenses and, with respect to refinancings of the Bank Credit Agreement or
any successor or replacement facility, any Additional Bank Credit Amount not
previously borrowed pursuant to clause (i) above or this clause (iv)),
provided that Debt the proceeds of which are used to refinance the 12 5/8%
Debentures, the 14 1/8% Debentures or other Debt of the Company which is
subordinated in right of payment to the 12 5/8% Debentures shall only be
permitted (1) if, in case the 12 5/8% Debentures are refinanced in part, such
Debt is expressly made pari passu or subordinate in right of payment to the
remaining 12 5/8% Debentures, (2) if, in case the Debt to be refinanced is
subordinated in right of payment to the 12 5/8% Debentures, such Debt is
subordinated in right of payment to the 12 5/8% Debentures at least to the
extent that the Debt to be refinanced is subordinated to the 12 5/8%
Debentures, and (3) if, in case the 12 5/8% Debentures are refinanced in part
or the Debt to be refinanced is subordinated in right of payment to the 12
5/8% Debentures, such Debt determined as of the date of incurrence of such new
Debt does not mature prior to the final scheduled maturity date of the 12 5/8%
Debentures and the Average Life of such Debt is equal to or greater than the
remaining Average Life of the 12 5/8% Debentures; and provided, further, that
in no event may Debt of the Company (other than Senior Debt) be refinanced by
means of Debt of any Subsidiary of the Company pursuant to this clause (iv)
and provided, further, that the two foregoing provisos of this clause (iv)
shall not be applicable to Debt incurred to refinance (A) up to $352,709,000
aggregate principal amount of Junior Debentures plus any additional Junior
Debentures issued in lieu of cash interest on such amount of Junior Debentures
(less any amount incurred pursuant to (B) of this clause (iv)) and (B) up to
$827 million in aggregate principal amount of 14 1/8% Debentures in an amount
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not to exceed the Accreted Value of the 14 1/8% Debentures so refinanced at
the time of such refinancing (less any amount incurred pursuant to (A) of this
clause (iv)) (provided that no refinancings may be effected pursuant to this
third proviso if, after giving effect to such refinancing, the Consolidated
Net Worth of the Company plus the aggregate amount of Debt of the Company
which is subordinated to the 12 5/8% Debentures and which has an Average Life
equal to or greater than the remaining Average Life of the 12 5/8% Debentures
would be less than $430 million); (v) Debt up to an aggregate principal amount
(or, if such Debt provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
entirety thereof, with an original issue price) of $500 million at any one
time outstanding less the outstanding Additional Bank Credit Amount; (vi) Debt
under Currency Agreements and Interest Rate Agreements, provided that in the
case of Currency Agreements which relate to other Debt, such Currency
Agreements do not increase the Debt of the Company outstanding other than as a
result of fluctuations in foreign currency exchange rates or by reason of
fees, indemnities and compensation payable thereunder; (vii) Debt incurred in
connection with (x) the repurchase of shares of, or options to purchase shares
of, the Common Stock from employees of the Company or any of its Subsidiaries
or (y) Guarantees of borrowings made by employees exclusively for the purpose
of exercising options to purchase shares of Common Stock and paying any
associated tax liability, in each case pursuant to the terms of the form of
agreements under which such employees purchase, or are granted the option to
purchase, shares of the Common Stock; (viii) Debt which by its terms, or by
the terms of any agreement or instrument pursuant to which such Debt is
issued, (1) is subordinate in right of payment to the 12 5/8% Debentures, at
least to the extent the 12 5/8% Debentures are subordinate to Senior Debt, and
(2) provides that no payments of principal of such Debt by way of sinking
fund, mandatory redemption or otherwise (including defeasance) may be made by
the Company (including, without limitation, at the option of the Holder
thereof) at any time prior to the maturity of the 12 5/8% Debentures,
provided, however, that after giving effect to the incurrence of such Debt,
the Consolidated Fixed Charge Ratio of the Company would be at least 1.5 to 1;
(ix) Debt arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of the
Company or any Subsidiary pursuant to such agreements, in any case incurred or
assumed in connection with the disposition of any business, assets or
Subsidiary of the Company, other than Guarantees of Debt incurred by any
Person acquiring all or any portion of such business, assets or Subsidiary for
the purpose of financing such acquisition; (x) Debt in an aggregate amount not
to exceed $75 million at any one time outstanding under Guarantees of Debt
incurred in the ordinary course of business to suppliers, licensees,
franchisees, or customers; (xi) Debt in an aggregate amount not to exceed $100
million at any one time outstanding in respect of performance bonds and surety
bonds provided in the ordinary course of business, and refinancings thereof;
(xii) Debt under Guarantees in respect of obligations of Foreign Subsidiaries
and Joint Ventures in an aggregate principal amount not to exceed $200 million
at any one time outstanding; (xiii) Debt of the Company in respect of letters
of credit not to exceed an aggregate amount of $200 million at any time
outstanding plus any letters of credit from time to time outstanding with
respect to pollution control revenue bonds issued by the Development Authority
of Effingham County for the benefit of the Company; (xiv) Debt directly
incurred to finance Consolidated Capital Expenditures in an aggregate amount
not to exceed in any fiscal year of the Company the amount indicated below:
Maximum
Fiscal Year Amount
----------- -------
(In Millions)
1994 $250
1995 250
1996 and thereafter 275
provided, however, that the amount of Debt which may be incurred in any fiscal
year pursuant to this clause (xiv) shall be increased by the amount of Debt
which could have been incurred in the prior fiscal year pursuant to this
clause (xiv) but which was not so incurred; and (xv) Debt of Foreign
Subsidiaries in an aggregate principal amount not to exceed $200 million at
any one time outstanding.
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For purposes of determining any particular amount of Debt under this
"Limitation on Company and Subsidiary Debt" covenant, Guarantees of (or
obligations with respect to letters of credit supporting) Debt otherwise
included in the determination of such amount shall also not be included. For
the purpose of determining compliance with this "Limitation on Company and
Subsidiary Debt" covenant, (A) in the event that an item of Debt meets the
criteria of more than one of the types of Debt described in the above clauses,
the Company, in its sole discretion, shall classify such item of Debt and only
be required to include the amount and type of such Debt in one of such clauses
and (B) the amount of Debt issued at a price which is less than the principal
amount thereof will be equal to the amount of the liability in respect thereof
determined in accordance with GAAP. (Section 3.5)
Limitation on Preferred Stock of Domestic Subsidiaries and Subsidiary
Distributions. The 12 5/8% Debenture Indenture provides that the Company will
not permit any Domestic Subsidiary of the Company to, directly or indirectly,
issue or sell any Preferred Stock (except to the Company or a Domestic
Subsidiary). In addition, the 12 5/8% Debenture Indenture provides that the
Company will not permit any Domestic Subsidiary of the Company to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on the
Capital Stock of such Domestic Subsidiary or to the Holders of such Domestic
Subsidiary's Capital Stock (other than dividends or distributions payable in
Common Stock of such Domestic Subsidiary) or (ii) purchase, redeem or
otherwise acquire or retire for value, any such Capital Stock; provided, that
this covenant shall not prevent (A) the payment by any Domestic Subsidiary of
dividends or other distributions to the Company or a wholly owned Domestic
Subsidiary of the Company or the redemption or repurchase by any Domestic
Subsidiary of any of its Capital Stock owned by the Company or a wholly owned
Domestic Subsidiary of the Company, (B) the payment of dividends to Holders of
the Common Stock of a Domestic Subsidiary, following an initial public
offering of such Domestic Subsidiary's Common Stock, of up to 6% per annum of
the net proceeds received by such Domestic Subsidiary in such public offering
or (C) the payment of pro rata dividends to Holders of minority interests in
the Capital Stock of a Domestic Subsidiary of the Company up to an aggregate
of $50 million (excluding amounts paid pursuant to clause (B) above), provided
that, in the case of clauses (B) and (C), no Event of Default or event or
condition which through the giving of notice or lapse of time or both would
become an Event of Default shall have occurred and be continuing or occur as a
consequence thereof and provided, further, that nothing contained in this
paragraph shall prevent any Domestic Subsidiary from making any payment at any
time up to the amount of Restricted Payments that the Company could make at
that time pursuant to the first paragraph of the "Limitation on Restricted
Payments" covenant described below. (Section 3.6)
Limitation on Restricted Payments. The 12 5/8% Debenture Indenture
provides that the Company will not directly or indirectly (i) declare or pay
any dividend or make any distribution on its Capital Stock or to the Holders
of its Capital Stock (other than dividends or distributions payable in its
Common Stock, in shares of Capital Stock, other than Redeemable Stock, of the
same class held by such Holders or in options, warrants or other rights to
purchase Common Stock or such Capital Stock), (ii) purchase, redeem or
otherwise acquire or retire for value, or permit any Subsidiary of the Company
to, directly or indirectly, purchase, redeem or otherwise acquire or retire
for value, any such Capital Stock (including options, warrants or other rights
to acquire such Capital Stock), or (iii) redeem, repurchase, defease
(including, but not limited to, in-substance or legal defeasance) or otherwise
acquire or retire for value, or permit any Subsidiary of the Company to,
directly or indirectly, redeem, repurchase, defease (including, but not
limited to, in-substance or legal defeasance) or otherwise acquire or retire
for value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, Debt of the Company which is pari passu or subordinate
(whether pursuant to its terms or by operation of law) in right of payment to
the 12 5/8% Debentures and which was scheduled to mature on or after the
maturity date of the 12 5/8% Debentures (the foregoing actions, set forth in
clauses (i) through (iii), being referred to as "Restricted Payments"), if:
(a) at the time of such Restricted Payment or after giving effect thereto, an
Event of Default or an event or condition which through the giving of notice
or lapse of time or both would become an Event of Default shall have occurred
and be continuing; or (b) after giving effect to such Restricted Payment, the
aggregate amount expended for all Restricted Payments (the amount so expended,
if other than in cash, to be determined by the Board of Directors, whose
reasonable determination shall be conclusive and evidenced by a resolution of
the Board of Directors certified by delivery of an Officers' Certificate to
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the Trustee) shall exceed the sum (without duplication) of (1) 50% of the
aggregate Consolidated Net Operating Income of the Company accrued on a
cumulative basis for the period (taken as one accounting period) beginning
with the first full fiscal quarter following the date of issuance of the 12
5/8% Debentures to the last day of the quarter immediately preceding the
quarter in which the Restricted Payment is proposed to be made; provided that
if Consolidated Net Operating Income for such period is a loss, then 100% of
such loss; plus (2) the aggregate net proceeds, including the fair market
value of property other than cash (as determined by the Board of Directors,
whose reasonable determination shall be conclusive and evidenced by a
resolution of the Board of Directors certified by delivery of an Officers'
Certificate to the Trustee), received by the Company from the issuance and
sale (other than to a Subsidiary) after the date of issuance of the 12 5/8%
Debentures of the Company's Capital Stock (other than Redeemable Stock),
including the issuance or sale for cash or upon the conversion or exchange of
any Debt or other securities of the Company (which Debt or other securities
are, by their terms, convertible into Capital Stock of the Company) or from
the exercise of any options, warrants or other rights to acquire Capital Stock
of the Company, minus (3) the aggregate amount of payments previously made by
all Domestic Subsidiaries pursuant to the third proviso of the "Limitation on
Preferred Stock of Domestic Subsidiaries and Domestic Subsidiary
Distributions" covenant. For purposes of any calculation pursuant to the
preceding sentence which is required to be made in respect of a dividend
payment to be made within 60 days after the declaration of such dividend by
the Company, such dividend shall be deemed to be paid at the date of
declaration. For purposes of clause (2) above, the proceeds received by the
Company (x) from the issuance of its Capital Stock upon the conversion of, or
exchange for, Debt shall be equal to the aggregate amount of the Debt
converted or exchanged and (y) upon the conversion or exchange of other
securities of the Company shall be equal to the aggregate net proceeds of the
original sale of the securities so converted or exchanged (if such proceeds of
such original sale were not previously included in any calculation for the
purposes of clause (2) above) plus any additional sums payable upon conversion
or exchange.
The foregoing provision shall not be violated by reason of (1) the
payment of any dividend within 60 days after the date of declaration thereof,
if at said date of declaration such payment would comply with the foregoing
provision, (2) redemptions or repurchases of Preferred Stock of the Company,
the 14 1/8% Debentures or other Debt of the Company which is pari passu or
subordinated in right of payment to the 12 5/8% Debentures and which was
scheduled to mature on or after the maturity date of the 12 5/8% Debentures,
provided that this clause (2) shall only be applicable (x) to the redemption
or repurchase of (A) up to $352,709,000 in aggregate principal amount of
Junior Debentures plus any additional Junior Debentures issued in lieu of cash
interest on such amount of Junior Debentures (less the amount redeemed or
repurchased pursuant to (B) of this clause (x)) and (B) up to $827 million in
aggregate principal amount of 14 1/8% Debentures in an amount not to exceed
the Accreted Value of the 14 1/8% Debentures redeemed or repurchased at the
time of such redemption or repurchase (less the amount redeemed or repurchased
pursuant to (A) of this clause (x)) and (y) with respect to each additional
redemption or repurchase pursuant to this clause (2) beyond those that could
be made pursuant to clause (x) above, if after giving effect to such
redemption or repurchase, the Company could incur at least $1.00 of Debt
pursuant to the first paragraph of the "Limitation on Company and Subsidiary
Debt" covenant and the Company would have a Capital Funds Ratio equal to or
greater than 1.5 to 1 (provided, that no redemptions or repurchases may be
effected pursuant to this clause (2) if, after giving effect to such
redemption or repurchase, the Consolidated Net Worth of the Company plus the
aggregate amount of Debt of the Company which is subordinate to the 12 5/8%
Debentures and which has an Average Life equal to or greater than the
remaining Average Life of the 12 5/8% Debentures is less than or equal to $430
million), (3) the payment of accrued and unpaid dividends on Preferred Stock
of the Company, (4) the payment of dividends on Common Stock, following an
initial public offering of Common Stock, of up to 6% per annum of the net
proceeds received by the Company in such public offering, (5) the acquisition,
redemption or retirement of Preferred Stock of the Company in exchange for
Debt then permitted to be incurred under the first paragraph or under clause
(viii) of the "Limitation on Company and Subsidiary Debt" covenant, (6) the
repurchase of shares of, or options to purchase shares of, Common Stock from
employees of the Company or any of its Subsidiaries pursuant to the terms of
the form of agreements under which employees purchase, or are granted the
option to purchase, shares of Common Stock, (7) the acquisition of 14 1/8%
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Debentures or other Debt of the Company which is pari passu or subordinated in
right of payment to the 12 5/8% Debentures in exchange for shares of the
Common Stock, (8) the redemption or repurchase of the 14 1/8% Debentures with
the proceeds of Debt incurred pursuant to the first paragraph or under clause
(viii) of the second paragraph of the "Limitation on Company or Subsidiary
Debt" covenant or (9) the repurchase of Common Stock owned by Morgan Stanley
for immediate resale, provided that in each case no Event of Default or event
or condition which through the giving of notice or lapse of time or both would
become an Event of Default shall have occurred and be continuing or occur as a
consequence thereof. (Section 3.7)
Limitation on Payment Restrictions Affecting Subsidiaries. The 12 5/8%
Debenture Indenture provides that the Company will not, and will not permit
any Subsidiary of the Company to, create or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction on the right of
any such Subsidiary to (i) pay dividends or make any other distributions on
such Subsidiary's Capital Stock or pay any Debt owed to the Company or any
Subsidiary of the Company, (ii) make any loans or advances to the Company or
any Subsidiary of the Company or (iii) transfer any of its property or assets
to the Company or any Subsidiary of the Company, except (a) any restrictions
existing under agreements in effect, or entered into, on the date of issuance
of the 12 5/8% Debentures, or any renewals or extensions thereof, provided
that the terms and conditions of any such renewals or extensions are no less
favorable to Holders of the 12 5/8% Debentures than the agreements being
renewed or extended, (b) any restrictions existing under any agreement which
refinances the Bank Credit Agreement, provided that the terms and conditions
of any such agreement are no less favorable to the Holders of the 12 5/8%
Debentures than those under or pursuant to the Bank Credit Agreement as in
effect on the date of issuance of the 12 5/8% Debentures, (c) any restrictions
existing under any agreement which refinances any 12 5/8% Debentures, provided
that the terms and conditions of any such agreement are no less favorable to
Holders of the 12 5/8% Debentures than those under or pursuant to the 12 5/8%
Debentures, (d) any restrictions existing with respect to Debt of a Person at
the time it becomes a Subsidiary and (e) any restrictions set forth in the
Bank Credit Agreement, provided such restrictions are no more restrictive on
the Company and its Subsidiaries than the provisions described in this
paragraph. Nothing contained in this covenant shall prevent the Company from
entering into any agreement providing for the incurrence of Liens permitted by
the "Limitation on Liens" covenant described below. (Section 3.8)
Limitations on Liens. The 12 5/8% Debenture Indenture provides that the
Company will not, and will not permit any Subsidiary of the Company to,
create, incur, assume or suffer to exist any Liens upon any of their
respective assets unless the 12 5/8% Debentures are equally and ratably
secured, except for (i) Liens existing as of or immediately after the date of
issuance of the 12 5/8% Debentures, including Liens with respect to the
Financing and Liens otherwise required under the Collateral Documents (as
defined in the Bank Credit Agreement) as in effect as of, or immediately
after, the date of issuance of the 12 5/8% Debentures or under substantially
similar agreements securing the Bank Credit Agreement; (ii) Liens created
after the date of issuance of the 12 5/8% Debentures, on any assets or Capital
Stock of the Company or its Subsidiaries created in favor of the Holders of
the 12 5/8% Debentures and successor or replacement facilities thereof; (iii)
Liens granted after the date of issuance of the 12 5/8% Debentures on any
assets or Capital Stock of the Company or its Subsidiaries created in favor of
any of the Banks under the Bank Credit Agreement and successor or replacement
facilities thereof, provided that the 12 5/8% Debentures are secured by Liens
on such assets or Capital Stock, which are subordinated to the Liens securing
the Debt under the Bank Credit Agreement or any successor or replacement
facilities thereof; provided, further, that the foregoing proviso will not
apply to (A) Liens granted or arising in connection with the Merger or the
Financing, (B) Liens securing Debt permitted under clause (ix) of the second
paragraph of the "Limitation on Company or Subsidiary Debt" covenant (or the
obligations arising under the agreements referred to in clause (ix) of the
second paragraph of the "Limitation on Company or Subsidiary Debt" covenant),
or (C) Liens granted pursuant to, or to carry out the provisions of, Section
5.14 of the Bank Credit Agreement as in effect on the date of the 12 5/8%
Debenture Indenture, or any provision in a successor or replacement facility
that is substantially identical to such Section 5.14; (iv) Liens securing the
payment of Debt permitted to be incurred under the first paragraph or by
clauses (iii), (v), (vi) or (xiv) of the second paragraph of the "Limitation
on Company or Subsidiary Debt" covenant and Liens securing Senior Debt
incurred under clause (iv) of the second paragraph of the "Limitation on
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Company and Subsidiary Debt" covenant; (v) Liens with respect to Acquired Debt
provided that such Liens do not extend to or cover any property or assets of
the Company or any Subsidiary of the Company, other than the property or
assets acquired; (vi) Liens with respect to the assets of a Subsidiary of the
Company granted by such Subsidiary to the Company to secure Debt owing to the
Company by such Subsidiary; (vii) Liens securing the Additional Bank Credit
Amount and Liens securing any obligation in respect of Senior Debt issued to
any Bank (including, without limitation, any Lien granted under the Bank
Credit Agreement); (viii) Liens securing all or any portion of Debt which is
incurred to refinance secured Debt and is permitted to be incurred under
clause (iv) of the second paragraph of the "Limitation on Company or
Subsidiary Debt" covenant, provided that such Liens do not extend to or cover
any property or assets of the Company or any Subsidiary of the Company other
than the property or assets securing the Debt being refinanced; (ix) Liens
securing Debt existing as of the date of issuance of the 12 5/8% Debentures or
any refinancing thereof, which is unsecured as of the date of issuance of the
12 5/8% Debentures, provided that the aggregate amount of such secured Debt
does not exceed $100 million, (x) Liens securing Debt with respect to property
or assets with an aggregate fair market value of not more than $50 million;
(xi) Permitted Liens; and (xii) Liens securing any Debt required to be secured
equally and ratably with any Debt secured by Liens permitted by clauses (i)
through (xi) hereof. (Section 3.9)
Transactions with Stockholders and Affiliates. The 12 5/8% Debenture
Indenture provides that, following the Merger, the Company will not, and will
not permit any Subsidiary of the Company to, directly or indirectly, enter
into any transactions (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Holder of 5% or more of any class of Capital Stock of the Company (excluding
The Bankers Trust New York Corporation and any of its Subsidiaries or
Affiliates) or with any Affiliate of the Company or of any such Holder, on
terms that are less favorable to the Company or such Subsidiary, as the case
may be, than those which might be obtained at the time of such transaction
from a Person who is not such a Holder or Affiliate; provided, however, that
the purchase, sale or lease of any property to, or exchange of any property
with, or other disposition of any property to any such Holder of 5% or more of
any class of Capital Stock of the Company or any Affiliate of the Company or
of any such Holder shall be deemed to be on terms that are no less favorable
to the Company or such Subsidiary, as the case may be, than those obtainable
at the time of the transaction from a Person who is not such a Holder or
Affiliate if the Board of Directors shall have received a written opinion of a
nationally recognized investment banking firm stating that the transaction is
fair to the Company from a financial point of view, and provided, further
however, that this covenant shall not limit, or be applicable to, (i) the
payment of fees to MS&Co. and its Affiliates for financial and consulting
services, (ii) transactions between the Company or any of its Subsidiaries and
any employee of the Company or any of its Subsidiaries that are approved by
the Board of Directors, (iii) the payment of reasonable and customary regular
fees to directors of the Company who are not employees of the Company or (iv)
any transaction between the Company and any of its wholly owned Subsidiaries
or between any of its wholly owned Subsidiaries. (Section 3.10)
Mergers and Consolidations
The 12 5/8% Debenture Indenture provides that the Company may not
consolidate with, merge with or into or transfer all or substantially all of
its assets (as an entirety or substantially as an entirety in one transaction
or a series of related transactions), to any Person (except a wholly owned
Subsidiary of the Company with a positive Consolidated Net Worth) unless: (i)
the Company shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
to which properties and assets of the Company are transferred shall be a
solvent corporation organized and existing under the laws of the United States
or any State thereof or the District of Columbia and shall expressly assume,
by supplemental indenture, executed and delivered to the 12 5/8% Debenture
Trustee, in form satisfactory to the 12 5/8% Debenture Trustee, all of the
obligations of the Company under the 12 5/8% Debentures and the 12 5/8%
Debenture Indenture; (ii) immediately before and immediately after giving
effect to such transaction, no Event of Default or event or condition which
through the giving of notice or lapse of time or both would become an Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Adjusted Consolidated Net
Worth of the surviving entity would be at least equal to the Adjusted
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Consolidated Net Worth of the Company immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma basis,
the Consolidated Fixed Charge Ratio of the surviving entity would be at least
1 to 1; provided, that, if the Consolidated Fixed Charge Ratio of the Company
is within the range set forth in column (A) below, then the pro forma
Consolidated Fixed Charge Ratio of the surviving entity shall be at least
equal to the percentage of the Consolidated Fixed Charge Ratio of the Company
set forth in column (B) below:
(A) (B)
--- ---
1.11:1 to 1.99:1 90%
2.00:1 to 2.99:1 80%
3.00:1 to 3.99:1 70%
4.00:1 to 4.99:1 60%
5.00:1 to 5 or more 50%
and provided, further, that if the pro forma Consolidated Fixed Charge Ratio
of the surviving entity is 3 to 1 or more, the calculation in the preceding
proviso shall be inapplicable and such transaction shall be deemed to have
complied with the requirements of this clause (iv); and (v) the Company has
delivered to the 12 5/8% Debenture Trustee an Officers' Certificate (attaching
the arithmetic computations to demonstrate compliance with clause (iv)) and an
Opinion of Counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture comply with the provisions of the 12 5/8%
Debenture Indenture and that all conditions precedent therein provided for
relating to such transaction have been complied with.
If, as a result of any such merger or consolidation, or upon any
conveyance, lease or transfer of the property of the Company substantially as
an entirety to any other corporation, any of the property or assets held by
the Company prior to such event would thereupon become subject to any Lien,
then, unless such Lien could be created pursuant to the "Limitation on Liens"
covenant without securing the 12 5/8% Debentures in the manner provided in
such covenant, the 12 5/8% Debentures outstanding shall be secured in the
manner required in the "Limitation on Liens" covenant pursuant to
documentation providing that the Holders (or the 12 5/8% Debenture Trustee on
their behalf) are entitled to vote as their interests appear in connection
with the release of or enforcement against any property or assets subject to
such Lien. (Sections 9.1 and 9.3)
Events of Default
The 12 5/8% Debenture Indenture defines an "Event of Default" as being:
(i) default in the payment of any interest on any of the 12 5/8% Debentures
when the same becomes due and payable and the default continues for a period
of 30 days; (ii) default in the payment of the principal of (or premium, if
any, on) any of the 12 5/8% Debentures, as the case may be, when the same
becomes due and payable at maturity, upon any redemption, by declaration or
otherwise, (iii) failure on the part of the Company duly to observe or perform
any covenant or agreements contained in the 12 5/8% Debentures or the 12 5/8%
Debenture Indenture, and the continuance of such failure for a period of 60
days after written notice as set forth in the 12 5/8% Debenture Indenture;
(iv) there shall have occurred with respect to any issue or issues of Debt of
the Company and/or one or more Material Subsidiaries having an outstanding
principal amount of $50 million or more individually, or $100 million or more
in the aggregate for all such issues of all such Persons, whether such Debt
now exists or shall hereafter be created, an event of default which has caused
the Holders thereof to declare such Debt to be due and payable prior to its
stated maturity and such Debt has not been discharged in full or such
acceleration has not been rescinded or annulled within 60 days of such
acceleration; (v) any judgment or order (not covered by insurance) for the
payment of money shall be rendered against the Company or any Material
Subsidiary of the Company in excess of $50 million individually, or $100
million in the aggregate for all such judgments or orders against all such
Persons (treating any deductibles, self insurance or retention as not so
covered) that shall not be discharged, and all such judgments and orders
remain outstanding and there shall be any period of 60 consecutive days
following entry of the judgment or order in excess of $50 million or the
judgment or order which causes the aggregate amount described above to exceed
$100 million during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; (vi) there
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shall have occurred certain events of bankruptcy, insolvency or reorganization
with respect to the Company or a Material Subsidiary; or (vii) the Company
and/or one or more Material Subsidiaries shall have failed to make (A) at the
final (but not any interim) fixed maturity of any issue of Debt a principal
payment of $50 million or more or (B) at the final (but not any interim) fixed
maturity of more than one issue of such Debt principal payments aggregating
$100 million or more and, in the case of clause (A), such defaulted payment
shall not have been made within 60 days of such payment default and, in the
case of clause (B), all such defaulted payments shall not have been made
within 60 days of the payment default which causes the amount described in
clause (B) to exceed $100 million. (Section 5.1)
If an Event of Default (other than an Event of Default specified in
clause (vi) above) occurs and is continuing under the 12 5/8% Debenture
Indenture, the 12 5/8% Debenture Trustee thereunder or the Holders of at least
a majority (or at least 40% in the case of an Event of Default specified in
clause (i) or (ii) above) of the principal amount of the 12 5/8% Debentures
then Outstanding (as defined), by written notice to the Company and the Agent
(and to the 12 5/8% Debenture Trustee if such notice is given by the Holders),
may, and the 12 5/8% Debenture Trustee at such request of such Holders shall,
declare all unpaid principal of, premium, if any, and accrued interest on the
12 5/8% Debentures, to be due and payable immediately, as specified below.
Upon a declaration of acceleration, such principal, premium, if any, and
accrued interest shall be due and payable upon the first to occur of an
acceleration under the Bank Credit Agreement or five Business Days after
receipt by the Company and the Agent of such written notice given hereunder.
In the event of a declaration of acceleration under the 12 5/8% Debenture
Indenture because an Event of Default set forth in clause (iv) or (vii) above
has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (iv) or (vii) shall be remedied, cured by
the Company or waived by the Holders of the relevant debt. If an Event of
Default specified in clause (vi) above occurs, all unpaid principal of,
premium, if any, and accrued interest on the 12 5/8% Debentures then
outstanding shall become and be immediately due and payable without any
declaration or other act on the part of the 12 5/8% Debenture Trustee or any
Holder. The Holders of at least a majority in principal amount of the
outstanding 12 5/8% Debentures by notice to the 12 5/8% Debenture Trustee may
rescind an acceleration and its consequences if all existing Events of
Default, other than the nonpayment of the principal of and interest on such 12
5/8% Debentures which became due solely by such declaration of acceleration,
have been cured or waived. (Section 5.1)
The Holders of at least a majority in aggregate principal amount of the
outstanding 12 5/8% Debentures may direct the time, method and place of
conducting any proceeding or any remedy available to the 12 5/8% Debenture
Trustee or exercising any trust or power conferred on such 12 5/8% Debenture
Trustee. However, the 12 5/8% Debenture Trustee under the 12 5/8% Debenture
Indenture may refuse to follow any direction that conflicts with law or the
12 5/8% Debenture Indenture, or that may involve the 12 5/8% Debenture Trustee
in personal liability. (Section 5.9) A Holder may not pursue any remedy with
respect to the 12 5/8% Debenture Indenture unless: (i) the Holder gives to
the 12 5/8% Debenture Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least a majority in principal amount of outstanding 12
5/8% Debentures make a written request to the 12 5/8% Debenture Trustee to
pursue the remedy; (iii) such Holder or Holders offer to the 12 5/8% Debenture
Trustee indemnity satisfactory to such 12 5/8% Debenture Trustee against any
cost, liability or expense; (iv) such 12 5/8% Debenture Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period the Holders of a
majority in principal amount of the outstanding 12 5/8% Debentures do not give
such 12 5/8% Debenture Trustee a direction which is inconsistent with the
request. (Section 5.6)
The 12 5/8% Debenture Indenture requires certain officers of the Company
to certify, on or before a date not more than 120 days after the end of each
fiscal year, that a review has been conducted of the activities of the Company
and its Subsidiaries and the Company's and its Subsidiaries' performance under
the 12 5/8% Debenture Indenture and that the Company has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Company will also be obligated to notify the 12 5/8% Debenture
Trustee of any default or defaults in the performance of any covenants or
agreements under the 12 5/8% Debenture Indenture. (Section 3.11)
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Amendments and Supplements
The 12 5/8% Debenture Indenture contains provisions permitting the
Company and the 12 5/8% Debenture Trustee, with the consent of the Holders of
not less than a majority in aggregate principal amount of the 12 5/8%
Debentures at the time outstanding, to amend or supplement such 12 5/8%
Debenture Indenture or any supplemental indenture or modify the rights of such
Holders, provided that no such modification may, without the consent of each
such Holder affected thereby, (i) reduce the rate of or extend the time for
payment of interest on any 12 5/8% Debenture, reduce the principal amount of
or extend the final maturity of any 12 5/8% Debenture, reduce any amount
payable on redemption of the 12 5/8% Debentures or impair or affect the right
of any such Holder to institute suit for the payment therefor or (ii) reduce
the percentage of 12 5/8% Debentures, as the case may be, whose Holders must
consent to any amendment, supplement or waiver. (Section 8.2)
Satisfaction and Discharge of the
12 5/8% Debenture Indenture; Covenant Defeasance
The 12 5/8% Debenture Indenture will cease to be of further effect as to
all outstanding 12 5/8% Debentures (except as to (i) rights of registration of
transfer and exchange, and the Company's right of optional redemption, (ii)
rights of Holders to receive payments of principal of and interest on the 12
5/8% Debentures and any other rights of such Holders with respect to the
amounts deposited with the 12 5/8% Debenture Trustee under the provisions
referred to in this paragraph, (iii) the rights, obligations and immunities of
the 12 5/8% Debenture Trustee under the 12 5/8% Debenture Indenture and (iv)
certain other specified provisions in such 12 5/8% Debenture Indenture) and
the Company will be deemed to have paid and discharged its entire indebtedness
on all outstanding 12 5/8% Debentures if (i) all outstanding 12 5/8%
Debentures theretofore authenticated (except lost, stolen or destroyed 12 5/8%
Debentures which have been replaced or paid) have been delivered to the
12 5/8% Debenture Trustee for cancellation or (ii) the Company shall have paid
or caused to be paid the principal of and interest on all outstanding 12 5/8%
Debentures as and when the same shall have become due and payable or (iii) (a)
the 12 5/8% Debentures not previously delivered to the 12 5/8% Debenture
Trustee for cancellation shall have become due and payable, or are by their
terms to become due and payable within one year, or are to be called for
redemption under arrangements satisfactory to the 12 5/8% Debenture Trustee
upon delivery of notice and (b) the Company shall have irrevocably deposited
or caused to be deposited with the 12 5/8% Debenture Trustee, as trust funds,
the entire amount in cash sufficient to pay principal of and interest on the
outstanding 12 5/8% Debentures to maturity or redemption, as the case may be.
(Section 10.1)
The 12 5/8% Debenture Indenture will also cease to be in effect (except
as aforesaid) on the 123rd day after the irrevocable deposit by the Company
with the 12 5/8% Debenture Trustee, in trust for the benefit of the relevant
Holders, (i) money in an amount or, (ii) U.S. Government Obligations which
through the payment of interest and principal will provide, not later than one
day before the due dates of payments in respect of the 12 5/8% Debentures,
money in an amount, or (iii) a combination thereof, sufficient to pay or
discharge without consideration of the reinvestment of interest and after
payment of all federal, state and local taxes or other charges and assessments
in respect thereof payable by the 12 5/8% Debenture Trustee, the principal of
and interest on the 12 5/8% Debentures then outstanding at the maturity date
of such principal or interest. Such a trust may only be established if the
Company has delivered to the 12 5/8% Debenture Trustee (i) either (A) a ruling
directed to such 12 5/8% Debenture Trustee received from the Internal Revenue
Service to the effect that the Holders of the 12 5/8% Debentures will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option to create such a trust and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such option had not been
exercised or (B) an opinion of counsel to the same effect as the ruling
described in clause (A) and (ii) an opinion of counsel to the effect that, (A)
the trust funds will not be subject to any rights of Holders of Senior Debt,
including without limitation those arising under Article Thirteen of the
relevant 12 5/8% Debenture Indenture, and (B) after the passage of 123 days
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally. The 12 5/8% Debenture Indenture will
not be discharged if, among other things, (i) an Event of Default, or an event
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which with notice or lapse of time would become an Event of Default, with
respect to the 12 5/8% Debentures shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after such
date, (ii) such deposit would cause the 12 5/8% Debenture Trustee to have a
conflicting interest, as defined in the respective 12 5/8% Debenture
Indenture, for purposes of the Trust Indenture Act of 1939 (the "Trust
Indenture Act") and (iii) such deposit would result in a breach or violation
of, or constitute a default under, the 12 5/8% Debenture Indenture or any
other agreement or instrument to which the Company is a party or by which it
is bound. In the event of any such defeasance and discharge, affected Holders
will thereafter be able to look only to such trust fund for payment of
principal and interest on the 12 5/8% Debentures. (Section 10.2)
The 12 5/8% Debenture Indenture provides that the Company may cease to
comply with the covenants set forth above under "Covenants," including,
without limitation, the incurrence of additional Debt or the making of
Restricted Payments, if the Company irrevocably deposits with the 12 5/8%
Debenture Trustee as trust funds in trust, specifically pledged as security
for, and dedicated solely to, the benefit of the relevant Holders (i) money in
an amount or (ii) U.S. Government Obligations, which, through the payment of
interest and principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment in respect
of the 12 5/8% Debentures money in an amount or (iii) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the 12 5/8% Debenture Trustee, to pay and discharge without consideration of
the reinvestment of such interest and after payment of all federal, state and
local taxes or other charges and assessments in respect thereof payable by the
12 5/8% Debenture Trustee, the principal of and interest on the outstanding 12
5/8% Debentures at the maturity date of such principal or interest. The
obligations of the Company under the 12 5/8% Debenture Indenture other than
with respect to the covenants referred to above shall remain in full force and
effect. Such a trust may only be established if, among other things, the
Company has delivered to the 12 5/8% Debenture Trustee an opinion of counsel
acceptable to such 12 5/8% Debenture Trustee (who may be counsel to the
Company) to the effect that (i) the deposit and related covenant defeasance
will not be deemed, or result in, a taxable event with respect to the affected
Holders, (ii) the creation of the trust will not violate the Investment
Company Act of 1940 and (iii) Holders of the 12 5/8% Debentures will have a
valid first-priority security interest in the trust funds. (Section 10.3)
In the event the Company takes the necessary action to enable it to omit
to comply with the covenants of the 12 5/8% Debenture Indenture as described
above and the 12 5/8% Debentures are declared due and payable because of the
occurrence of an Event of Default with respect thereto, the amount of money
and U.S. Government obligations on deposit with the 12 5/8% Debenture Trustee
will be sufficient to pay amounts due on the 12 5/8% Debentures at the time of
their stated maturity but may not be sufficient to pay amounts due on the 12
5/8% Debentures at the time of the acceleration resulting from such Event of
Default. In such event, the Company will remain liable for such payments.
The Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior
Secured Note Agreement each contain provisions that restrict the defeasance of
the 12 5/8% Debentures.
The 12 5/8% Debenture Trustee
The 12 5/8% Debenture Indenture provides that, except during the
continuance of an Event of Default with respect thereto, the 12 5/8% Debenture
Trustee thereunder will perform only such duties as are specifically set forth
in such 12 5/8% Debenture Indenture. During the existence of an Event of
Default, the 12 5/8% Debenture Trustee will exercise such rights and powers
vested in it under the 12 5/8% Debenture Indenture and use the same degree of
care and skill in their exercise as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
The 12 5/8% Debenture Indenture and the provisions of the Trust
Indenture Act contain limitations on the rights of the 12 5/8% Debenture
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The 12 5/8%
Debenture Trustee is permitted to engage in other transactions; provided, that
if it acquires any conflicting interest (as defined) it must eliminate such
conflict or resign. (Article Six)
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Reports
So long as 12 5/8% Debentures are outstanding, the Company will furnish
to the relevant Holders quarterly and annual financial reports that the
Company is required to file with the Commission under the Exchange Act (or
similar reports in the event the Company is not at the time required to file
such reports with the Commission).
DESCRIPTION OF THE 14 1/8% DEBENTURES
The 14 1/8% Debentures were issued under an Indenture dated as of
November 1, 1988 (the "14 1/8% Debenture Indenture"), between the Company and
Ameritrust Company National Association, Trustee (the "14 1/8% Debenture
Trustee").
The following summary of certain provisions of the 14 1/8% Debenture
Indenture hereunder does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the 14 1/8%
Debenture Indenture, including the definitions therein of certain terms
included therein. Wherever particular sections or defined terms of the 14
1/8% Debenture Indenture are referred to herein, such sections or defined
terms shall be incorporated herein by reference. Unless the context otherwise
requires, references to Sections and defined terms refer to Sections and
defined terms of the 14 1/8% Debenture Indenture. A copy of the 14 1/8%
Debenture Indenture has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
For federal income tax purposes, Holders of the 14 1/8% Debentures will
be required to recognize interest income in respect of those debentures in
advance of the receipt of cash payments attributable to interest income on
such debentures.
Principal of, premium, if any, and interest on the 14 1/8% Debentures is
payable, and the 14 1/8% Debentures are exchangeable and transferable, at the
office or agency of the Company in The City of New York; provided, however,
that payment of interest may be made at the option of the Company by check
mailed to the Person entitled thereto as shown on the registers for the 14
1/8% Debentures. The 14 1/8% Debentures are issued only in fully registered
form without coupons, in denominations of $1,000 and any integral multiple
thereof. No service charge will be made for any registration of transfer or
exchange of 14 1/8% Debentures, except for any tax or other governmental
charge that may be imposed in connection therewith. The 14 1/8% Debenture
Indenture and the 14 1/8% Debentures are governed by and construed in
accordance with the laws of the State of New York, except as may otherwise be
required by mandatory provisions of law.
Terms of the 14 1/8% Debentures
The 14 1/8% Debentures constitute unsecured junior subordinated
obligations of the Company, limited to $568 million aggregate principal amount
and will mature on November 1, 2004. Although for federal income tax purposes
a significant amount of original issue discount, taxable as ordinary interest
income, will be recognized by a Holder of 14 1/8% Debentures as such discount
accrues from their issue date, no interest will be payable on the 14 1/8%
Debentures prior to May 1, 1995. From and after November 1, 1994 interest on
the 14 1/8% Debentures will accrue at a rate per annum equal to 14 1/8%,
payable semiannually (to Holders of record at the close of business on the
April 15 or October 15 immediately preceding the Interest Payment Date) on
each May 1 and November 1, commencing on May 1, 1995.
Optional Redemption. The 14 1/8% Debentures are redeemable, in whole or
in part, at any time at the option of the Company at a redemption price equal
to the outstanding principal amount, together with accrued and unpaid
interest, if any, to the redemption date, upon not less than 30 nor more than
60 days' prior notice mailed by first class mail to a Holder's last address as
it shall appear upon the registry book.
In the case of a partial redemption, selection of the 14 1/8% Debentures
for redemption will be made by the 14 1/8% Debenture Trustee in such manner as
in its sole discretion it shall deem appropriate and fair. If any 14 1/8%
Debenture is to be redeemed in part only, the notice of redemption that
relates to such 14 1/8% Debenture shall state the portion of the principal
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amount to be redeemed. A new 14 1/8% Debenture in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original 14 1/8% Debenture.
The Bank Credit Agreement, the 1993 Term Loan Agreement, and the Senior
Secured Note Agreement each contain provisions restricting the optional
redemption of the 14 1/8% Debentures.
Subordination
Upon any payment or distribution of assets or securities of the Company,
as the case may be, of any kind or character, whether in cash, property or
securities, upon any dissolution or winding up or total or partial liquidation
or reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due or
to become due with respect to the Senior Debt (including any interest accruing
subsequent to an event of bankruptcy to the extent that such interest is an
allowed claim enforceable against the debtor under the United States
bankruptcy code) shall first be paid in full in cash or cash equivalents, or
payment provided for in cash or cash equivalents, before the Holders or the 14
1/8% Debenture Trustee on behalf of the Holders shall be entitled to receive
any payment by the Company of the principal of, premium, if any, or interest
on the 14 1/8% Debentures or any payment to acquire any of the 14 1/8%
Debentures for cash, property or securities or distribution of any cash,
property or securities. Before any payment may be made by the Company of the
principal of, premium, if any, or interest on the 14 1/8% Debentures upon any
such dissolution or winding up or liquidation or reorganization, any payment
or distribution of assets or securities of the Company of any kind or
character, whether in cash, property or securities, to which the Holders of
the 14 1/8% Debentures or the 14 1/8% Debenture Trustee on their behalf would
be entitled, but for the subordination provisions of the 14 1/8% Debenture
Indenture, shall be made by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, directly to the Holders of the Senior Debt or their
representatives to the extent necessary to pay all such Senior Debt in full
after giving effect to any concurrent payment or distribution to the Holders
of such Senior Debt.
No direct or indirect payment by or on behalf of the Company of
principal of, premium, if any, or interest on the 14 1/8% Debentures whether
pursuant to the terms of the 14 1/8% Debentures or upon acceleration or
otherwise, shall be made if, at the time of such payment, there exists a
default in the payment of all or any portion of the obligations on any Senior
Debt (and the 14 1/8% Debenture Trustee has received written notice thereof),
and such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the Holders of such Senior Debt. In
addition, during the continuance of any other event of default with respect to
(i) the Bank Credit Agreement pursuant to which the maturity thereof may be
accelerated, (a) from and after the date of receipt by the respective Trustees
of written notice from the Agent or (b) if such event of default results from
the acceleration of the 14 1/8% Debentures, from and after the date of such
acceleration, no such payment may be made by or on behalf of the Company upon
or in respect of the 14 1/8% Debentures for a period ("Payment Blockage
Period") commencing on the date of receipt of such notice or the date of such
acceleration and ending 159 days thereafter (unless such Payment Blockage
Period shall be terminated by written notice to the 14 1/8% Debenture Trustee
from the Agent) or (ii) any other Designated Senior Debt, upon receipt by the
14 1/8% Debenture Trustee of written notice from the trustee or other
representative for the Holders of such Designated Senior Debt (or the Holders
of at least a majority in principal amount of such other Designated Senior
Debt then outstanding), no such payment may be made by or on behalf of the
Company upon or in respect of the 14 1/8% Debentures for a Payment Blockage
Period commencing on the date of receipt of such notice and ending 119 days
thereafter (unless such Payment Blockage Period shall be terminated by written
notice to the respective Trustees from such trustee or other representative or
such Holders. Not more than one Payment Blockage Period may be commenced with
respect to the 14 1/8% Debentures during any period of 360 consecutive days;
provided that the commencement of a Payment Blockage Period by representatives
for or the Holders of Designated Senior Debt other than under the Bank Credit
Agreement shall not bar the commencement of another Payment Blockage Period by
the Agent under the Bank Credit Agreement within such period of 360
consecutive days. No Event of Default which existed or was continuing on the
date of the commencement of any Payment Blockage Period with respect to the
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Designated Senior Debt initiating such Payment Blockage Period shall be, or be
made, the basis for the commencement of a second Payment Blockage Period by
the representative for, or the Holders of, such Designated Senior Debt whether
or not within a period of 360 consecutive days unless such event of default
shall have been cured or waived for a period of not less than 90 consecutive
days.
As defined in the 14 1/8% Debenture Indenture, "Senior Debt" means (i)
all Debt and other monetary obligations of the Company under the Bank Credit
Agreement (including the Additional Bank Credit Amount), the 12 3/8% Notes,
the 12 5/8% Debentures, and the Company's Guarantee of any Debt or monetary
obligation of any of its subsidiaries under the Bank Credit Agreement, (ii)
all Debt of the Company (other than the 14 1/8% Debentures), unless such Debt,
by its terms or the terms of the instrument creating or evidencing it, is
subordinate in right of payment to, or pari passu with, the 14 1/8% Debentures
and (iii) all fees, expenses and indemnities payable in connection with the
Bank Credit Agreement and, if applicable, Currency Agreements and Interest
Rate Agreements; provided that the term Senior Debt shall not include (a) any
Debt of the Company which, when incurred and without respect to any election
under Section 1111(b) of Title 11 of the United States Code, was without
recourse to the Company, (b) any Debt of the Company to any of its
Subsidiaries, (c) Debt to any employee of the Company, (d) any liability for
federal, state, local or other taxes owed or owing by the Company and (e) any
Trade Payable.
The 12 5/8% Debentures are Senior Debt with respect to the 14 1/8%
Debentures.
As defined in the 14 1/8% Debenture Indenture, "Designated Senior Debt"
means (i) Debt under the Bank Credit Agreement (including the Additional Bank
Credit Amount) and (ii) any other Debt constituting Senior Debt which, at the
time of determination has an aggregate principal amount of at least $75
million and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.
As defined in the 14 1/8% Debenture Indenture, "Debt" of any Person
means at any date, without duplication, (i) all obligations, contingent or
otherwise, of such Person in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to
a portion thereof), (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (or
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services
which purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under capital leases, (vi) all Debt of others secured by
a Lien on any asset of such Person, whether or not such Debt is assumed by
such Person, (vii) all Debt of others Guaranteed by such Person and (viii) to
the extent not otherwise included, obligations under Currency Agreements and
Interest Rate Agreements. The amount of Debt of any Person at any date shall
be the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability of any such contingent obligations
at such date.
By reason of the subordination provisions described above, in the event
of insolvency, funds which would otherwise be payable to Holders of the 14
1/8% Debentures will be paid to the Holders of Senior Debt to the extent
necessary to pay the Senior Debt in full and the Company may be unable to
fully meet its obligations with respect to the 14 1/8% Debentures.
As of March 31, 1994, there was approximately $2.8 billion of Senior
Debt with respect to the 14 1/8% Debentures. Subject to the restrictions set
forth in the Bank Credit Agreement, the Senior Secured Note Agreement, the
1993 Term Loan Agreement, the 1993 Note Indentures, the 1994 Note Indentures
and the 12 5/8% Note Indentures, in the future, the Company may issue
additional Senior Debt to finance acquisitions, to refinance existing Debt, or
for other corporate purposes.
The claims of Holders of the 14 1/8% Debentures, as creditors of the
Company, will be junior in right of payment to all liabilities (whether or not
for borrowed money) of all the Subsidiaries of the Company. As of March 31,
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1994, the amount of the liabilities of all the Subsidiaries of the Company was
approximately $124 million.
Covenants
Limitation on Common Stock Dividends. The 14 1/8% Debenture Indenture
provides that prior to the sixth anniversary of the date of the original
issuance of the 14 1/8% Debentures, the Company shall not effect the
declaration, payment or setting apart for payment of any dividend on any of
the Common Stock or effect or make any payment on account of the purchase,
redemption or other retirement, of any of the Common Stock, or make any
distribution in respect thereof, either directly or indirectly, and whether in
cash, obligations or shares of the Company or other property, and shall not
permit any corporation or other entity directly or indirectly controlled by
the Company to purchase or redeem or otherwise retire any of the Common Stock
other than distributions, dividends or interest payable in the Common Stock to
the Holders of the Common Stock, and the repurchase of shares of, or options
to purchase shares of, the Common Stock from employees of the Company or any
of its Subsidiaries pursuant to the terms of the form of agreements under
which employees purchase, or are granted options to purchase, shares of the
Common Stock; provided, however, that nothing in the foregoing provision shall
prevent the payment of dividends on the Common Stock following an initial
public offering of the Common Stock of up to 6% per annum of the net proceeds
received by the Company in such public offering; and provided, further, that
nothing in this provision will prohibit any transaction that would be
permitted by the "Limitation on Restricted Payments" covenant set forth in the
1988 Securities Indentures. (Section 3.5)
Mergers and Consolidations
The 14 1/8% Debenture Indenture provides that the Company may not
consolidate or merge with or into, or sell, lease or convey all or
substantially all of its assets (as determined at the time of such transfer
without regard to any prior transfer or series of transfers), to any Person
unless: (i) the Company or a Subsidiary of the Company shall be the
continuing Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which the properties
and assets of the Company substantially as an entirety are transferred shall
be a solvent corporation or partnership organized under the laws of the United
States or any State thereof or the District of Columbia and shall expressly
assume, by supplemental indenture (satisfactory in form to the 14 1/8%
Debenture Trustee), all of the obligations of the Company under the 14 1/8%
Debentures and the 14 1/8% Debenture Indenture; (ii) immediately after giving
effect to such transaction no Event of Default or event or condition which
through the giving of notice or lapse of time or both could become an Event of
Default shall have occurred and be continuing; (iii) such Person formed by
such consolidation or into which the Company is merged or to which the
properties and assets of the Company substantially as an entirety are
transferred shall, on a pro forma basis after giving effect to such
consolidation, merger or transfer, have a ratio of (a) consolidated
shareholders' equity and indebtedness which is subordinated by its terms to
the 14 1/8% Debentures to (b) consolidated liabilities and consolidated
shareholders' equity at least equal to such ratio of the Company at the
effective time of the Merger; and (iv) the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture comply
with the provisions of the 14 1/8% Debenture Indenture and that all conditions
precedent therein provided for relating to such transaction have been complied
with. (Section 9.1)
Events of Default
The 14 1/8% Debenture Indenture defines an "Event of Default" as being:
(i) default in the payment of any interest on any 14 1/8% Debentures, when the
same becomes due and payable and the default continues for a period of 30
days; (ii) default in the payment of the principal of any 14 1/8% Debentures
when the same becomes due and payable at maturity, upon redemption by
declaration or otherwise; (iii) failure by the Company to observe or perform
any covenant or agreement contained in the 14 1/8% Debentures or the 14 1/8%
Debenture Indenture for a period of 60 days after notice has been given as set
forth in the 14 1/8% Debenture Indenture; (iv) there shall have occurred with
respect to any issue or issues of Debt of the Company and/or one or more
Material Subsidiaries having an outstanding principal amount of $50 million or
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more individually, or $100 million or more in the aggregate for all such
issues of all such Persons, whether such Debt now exists or shall hereafter be
created, an event of default which has caused the Holder thereof to declare
such Debt to be due and payable prior to its stated maturity and such Debt has
not been discharged in full or such acceleration has not been rescinded or
annulled within 60 days of such acceleration; (v) any judgment or order (not
covered by insurance) for the payment of money shall be rendered against the
Company or a Material Subsidiary of the Company in excess of $50 million
individually, or $100 million in the aggregate for all such judgments or
orders against all such Persons (treating any deductibles, self insurance or
retention as not so covered) that shall not be discharged and all such
judgments and orders remain outstanding and there shall be any period of 60
consecutive days following entry of the judgment or order in excess of $50
million or the judgment or order which causes the aggregate amount described
above to exceed $100 million during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; (vi) there shall have occurred certain events of bankruptcy,
insolvency or reorganization with respect to the Company or a Material
Subsidiary; or (vii) the Company and/or one or more Material Subsidiaries
shall have failed to make (A) at the final (but not any interim) fixed
maturity of any issue of Debt a principal payment of $50 million or more or
(B) at the final (but not any interim) fixed maturity of more than one issue
of such Debt principal payments aggregating $100 million or more and, in the
case of clause (A), such defaulted payment shall not have been made within 60
days of such payment default and, in the case of clause (B), all such
defaulted payments shall not have been made within 60 days of the payment
default which causes the amount described in clause (B) to exceed $100
million. (Section 5.1)
If the Event of Default (other than an Event of Default specified in
clause (vi) above) occurs and is continuing under the 14 1/8% Debenture
Indenture, the 14 1/8% Debenture Trustee thereunder or the Holders of at least
a majority (or at least 40% in case of an Event of Default specified in clause
(i) or (ii) above) in principal amount of the then Outstanding 14 1/8%
Debentures, by written notice to the Company (and to the 14 1/8% Debenture
Trustee if such notice is given by the Holders), may, and the 14 1/8%
Debenture Trustee at such request of such Holders shall, declare the Default
Amount (as defined below), to be due and payable immediately, as specified
below. Upon a declaration of acceleration, such Default Amount shall be due
and payable upon the first to occur of an acceleration under the Bank Credit
Agreement or five Business Days after receipt by the Company and the Agent of
such written notice of acceleration given pursuant to this paragraph. In the
event of a declaration of acceleration under the respective indentures because
an Event of Default set forth in clause (iv) or (vii) above has occurred and
is continuing, such declaration of acceleration shall be automatically
annulled if the event of default triggering such Event of Default pursuant to
clause (iv) or (vii) shall be remedied, cured by the Company or waived by the
Holders of the relevant Debt. If an Event of Default specified in clause (vi)
above occurs, all unpaid principal of, premium, if any, and accrued interest
(or, in the case such event occurs prior to November 1, 1994, the Default
Amount) shall become and be immediately due and payable without any
declaration or other act on the part of the 14 1/8% Debenture Trustee or any
Holder. Upon payment to the Holders of all the amounts set forth above, all
the Company's obligations with respect to the 14 1/8% Debentures and the
14 1/8% Debenture Indenture, other than its obligations with respect to the
compensation, reimbursement and indemnification of the 14 1/8% Debenture
Trustee, shall terminate. The Holders of at least a majority in principal
amount of the respective outstanding 14 1/8% Debentures, by notice to the
14 1/8% Debenture Trustee, may rescind an acceleration and its consequences if
all existing Events of Default, other than the nonpayment of the principal of,
premium, if any, and accrued interest (or, in the case such event occurs prior
to November 1, 1994, the Default Amount) which became due solely by such
declaration of acceleration, have been cured or waived. (Section 5.1)
As defined in the 14 1/8% Debenture Indenture, the "Default Amount" for
each $1,000 principal amount of 14 1/8% Debentures will be:
Default Amount
(Per $1,000
Semi-Annual Accrual Date Principal Amount)
------------------------ -----------------
November 1, 1993 $ 872.42
May 1, 1994 934.03
November 1, 1994 and thereafter 1,000.00
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If the date of acceleration occurs between two Semi-Annual Accrual
Dates, the Default Amount will be the sum of (1) the Default Amount for the
Semi-Annual Accrual Date immediately preceding the date of acceleration, and
(2) the Proportionate Share (as defined below). The "Proportionate Share" is
an amount equal to the product of (i) the Default Amount for the immediately
following Semi-Annual Accrual Date less the Default Amount for the immediately
preceding Semi-Annual Accrual Date times (ii) a fraction, the numerator of
which is the number of days from the immediately preceding Semi-Annual Accrual
Date, or the original date of issuance of the 14 1/8% Debentures (the "Issue
Date"), as the case may be, to the date of acceleration, using a 360-day year
of twelve 30-day months, and the denominator of which is 180 or the number of
days elapsed from the Issue Date to the first Semi-Annual Accrual Date, as the
case may be; provided that in the case of an acceleration prior to the first
Semi-Annual Accrual Date, the amount subtracted referred to in clause (i)
shall be the dollar amount referred to below. If the date of acceleration
occurs prior to the first Semi-Annual Accrual Date, the Default Amount will be
the sum of (1) $440.91 and (2) the Proportionate Share. (Section 5.1)
The Holders of at least a majority in principal amount of the respective
outstanding 14 1/8% Debentures may direct the time, method and place of
conducting any proceeding or any remedy available to the 14 1/8% Debenture
Trustee or exercising any trust or power conferred on such 14 1/8% Debenture
Trustee. However, the 14 1/8% Debenture Trustee may refuse to follow any
direction that conflicts with law or the 14 1/8% Debenture Indenture, that may
involve the 14 1/8% Debenture Trustee in personal liability, or which in such
Trustee's good faith judgment, would unduly prejudice the interests of Holders
of 14 1/8% Debentures not joining in the giving of said direction. (Section
5.9) A Holder may not pursue any remedy with respect to the 14 1/8% Debenture
Indenture or the 14 1/8% Debentures unless: (i) the Holder gives to the 14
1/8% Debenture Trustee written notice of a continuing Event of Default; (ii)
the Holders of at least a majority in principal amount of the outstanding 14
1/8% Debentures make a written request to the 14 1/8% Debenture Trustee to
pursue the remedy; (iii) such Holder or Holders offer to the 14 1/8% Debenture
Trustee indemnity satisfactory to such 14 1/8% Debenture Trustee against any
loss, liability or expense; (iv) such 14 1/8% Debenture Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period the Holders of a
majority in principal amount of the respective outstanding 14 1/8% Debentures,
do not give such 14 1/8% Debenture Trustee a direction which is inconsistent
with the request. (Section 5.6)
The 14 1/8% Debenture Indenture requires certain officers of the Company
to certify, on or before a date not more than 120 days after the end of each
fiscal year, that a review has been conducted of the activities of the Company
and its Subsidiaries and the Company's and its Subsidiaries' performance under
the 14 1/8% Debenture Indenture and that the Company has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment in
any such obligation, specifying such default and the nature and status
thereof. The Company will also be obligated to notify the 14 1/8% Debenture
Trustee of any default or defaults in the performance of any covenants or
agreements under the 14 1/8% Debenture Indenture. (Section 3.6)
Amendments and Supplements
14 1/8% Debenture Indenture contains provisions permitting the Company
and the relevant 14 1/8% Debenture Trustee, with the consent of the Holders of
not less than a majority in aggregate principal amount of Outstanding 14 1/8%
Debentures to amend or supplement such 14 1/8% Debenture Indenture or any
supplemental indenture or modify the rights of the relevant Holders, provided
that no such modifications may, without the consent of each Holder affected
thereby, (i) reduce the rate of, or extend the time for, payment of interest
on any 14 1/8% Debenture, reduce the principal amount of or change the manner
of computing the amount due in the event of acceleration of the 14 1/8%
Debentures or extend the final maturity of any 14 1/8% Debenture, reduce any
amount payable on redemption of any 14 1/8% Debenture or impair or affect the
right of any Holder to institute suit for the payment of any 14 1/8% Debenture
or (ii) reduce the percentage of 14 1/8% Debentures whose holders must consent
to any amendment, supplement or waiver and provided, further, that no
amendment or supplement shall modify any provision of the 14 1/8% Debenture
Indenture so as to adversely affect the rights of any holder of Senior Debt at
the time outstanding to the benefits of subordination hereunder without the
consent of such Holders. (Section 8.2)
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Satisfaction and Discharge of the
14 1/8% Debenture Indenture; Covenant Defeasance
The 14 1/8% Debenture Indenture will cease to be of further effect as to
all outstanding 14 1/8% Debentures (except as to (i) rights of registration of
transfer and exchange and the Company's right of optional redemption, (ii)
rights of Holders to receive payments of principal of and interest on the 14
1/8% Debentures and any other rights of the Holders with respect to the
amounts deposited with the 14 1/8% Debenture Trustee under the provisions
referred to in this paragraph, (iii) the rights, obligations and immunities of
the 14 1/8% Debenture Trustee under the 14 1/8% Debenture Indenture and (iv)
certain other specified provisions in the 14 1/8% Debenture Indenture) and the
Company will be deemed to have paid and discharged its entire Debt on all
outstanding 14 1/8% Debentures if (i) all outstanding 14 1/8% Debentures
(except lost, stolen or destroyed 14 1/8% Debentures which have been replaced
or paid) have been delivered to the 14 1/8% Debenture Trustee for cancellation
or (ii) the Company shall have paid or caused to be paid the principal of and
interest on the 14 1/8% Debentures as and when the same shall have become due
and payable or (iii) (a) the 14 1/8% Debentures not previously delivered to
the 14 1/8% Debenture Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or
are to be called for redemption under arrangements satisfactory to the 14 1/8%
Debenture Trustee upon delivery of notice and (b) the Company shall have
deposited with the 14 1/8% Debenture Trustee, as trust funds, the entire
amount in cash sufficient to pay principal of and interest on the outstanding
14 1/8% Debentures to maturity or redemption, as the case may be. (Section
10.1)
The 14 1/8% Debenture Indenture will also cease to be in effect (except
as aforesaid) on the 123rd day after the irrevocable deposit by the Company
with the 14 1/8% Debenture Trustee, in trust for the benefit of the relevant
Holders, (i) money in an amount or (ii) U.S. government obligations which
through the payment of interest and principal will provide, not later than one
day before the due date of payments in respect of the 14 1/8% Debentures money
in an amount, or (iii) a combination thereof, sufficient to pay and discharge,
without consideration of reinvestment of interest and after payment of all
federal, state and local taxes or other charges and assessments in respect
thereof payable by the 14 1/8% Debenture Trustee, the principal of and
interest on the 14 1/8% Debentures then outstanding at the maturity date of
such principal or interest. Such a trust may only be established if certain
conditions are satisfied, which conditions include, among other things, the
Company delivering to the 14 1/8% Debenture Trustee (i) either (A) a ruling
directed to such Trustee received from the Internal Revenue Service to the
effect that the Holders of the 14 1/8% Debentures will not recognize income,
gain or loss for federal income tax purposes as a result of the Company's
exercise of its option to create such a trust and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such option had not been exercised or (B) an
opinion of counsel to the same effect as the ruling described in clause (A)
and (ii) an opinion of counsel to the effect that, (A) the trust funds will
not be subject to any rights of Holders of Senior Debt, including without
limitation those arising under Article Thirteen of the 14 1/8% Debenture
Indenture, and (B) after the passage of 123 days following the deposit, the
trust funds will not, with respect to the Company, be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally. The 14 1/8% Debenture Indenture will
not be discharged if, among other things, an Event of Default, or an event
which with notice or lapse of time would have become an Event of Default, with
respect thereto shall have occurred and be continuing on the date of such
deposit or during the period ending on the 123rd day after such date. In the
event of any such defeasance and discharge, affected 14 1/8% Debentureholders
will thereafter be able to look only to such trust fund for payment of
principal and interest on the 14 1/8% Debentures. (Section 10.2)
The Bank Credit Agreement, the 1993 Term Loan Agreement, and the Senior
Secured Note Agreement each contains a provision that prohibits the defeasance
of the 14 1/8% Debentures.
The 14 1/8% Debenture Trustee
The 14 1/8% Debenture Indenture provides that, except during the
continuance of an Event of Default, the 14 1/8% Debenture Trustee thereunder
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will perform only such duties as are specifically set forth in the 14 1/8%
Debenture Indenture. During the existence of an Event of Default, such 14
1/8% Debenture Trustee will exercise such rights and powers vested in it under
the 14 1/8% Debenture Indenture and use the same degree of care and skill in
their exercise as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.
The 14 1/8% Debenture Indenture and provisions of the Trust Indenture
Act contain limitations on the rights of the 14 1/8% Debenture Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. With respect to the 14
1/8% Debenture Indenture, the 14 1/8% Debenture Trustee is permitted to engage
in other transactions; provided, that if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign. (Article Six)
Reports
So long as 14 1/8% Debentures are outstanding, the Company will furnish
to the relevant Holders quarterly and annual financial reports that the
Company is required to file with the Commission under the Exchange Act (or
similar reports in the event the Company is not at the time required to file
such reports with the Commission).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
APPLICABLE TO THE 1988 SECURITIES
The following discussion is a summary of certain federal income tax
considerations relevant to the purchase, ownership and disposition of the 1988
Securities but does not purport to be a complete analysis of all the potential
tax effects of such purchase, ownership and disposition. The discussion is
based upon the Code, Treasury regulations, IRS rulings and judicial decisions
now in effect, all of which are subject to change at any time by legislative,
judicial or administrative action, and any such changes may be retroactively
applied in a manner that could adversely affect a Holder of one or more of the
1988 Securities. No information is provided in this discussion with respect
to foreign, state or local tax laws or estate and gift tax considerations.
This information is directed to investors who will hold the 1988 Securities as
"capital assets" within the meaning of Section 1221 of the Code. In addition,
the tax consequences to a particular person may be affected by matters not
addressed in this discussion. For example, certain types of investors
(including life insurance companies, tax exempt organizations, banks and
dealers in securities) may be subject to special rules that are not addressed
in this discussion. The Company has not sought, nor does it intend to seek, a
ruling from the IRS that its position as reflected in the following discussion
will be accepted by the IRS. Each prospective investor should consult his own
tax advisor concerning the tax consequences of the purchase, ownership and
disposition of the 1988 Securities.
In 1986, the IRS issued proposed Treasury regulations addressing the
federal income tax treatment of debt instruments with original issue discount
(the "Proposed Regulations"). On December 21, 1992, the IRS withdrew the
Proposed Regulations and promulgated a new set of proposed Treasury
regulations (the "New Proposed Regulations") which were proposed to govern the
federal income tax treatment of debt instruments with original issue discount
issued on or after the date that was 60 days after the New Proposed
Regulations are finalized. In the preamble to the New Proposed Regulations,
the IRS stated its intention to treat the Proposed Regulations as authority
under Code section 6662 (protection against accuracy-related penalties) for
debt instruments issued prior to the withdrawal of the Proposed Regulations in
December 1992 and for sales that occurred prior to such withdrawal. In
February 1994, the IRS published final Treasury regulations for original issue
discount debt instruments (the "Final Regulations") which largely replaced the
New Proposed Regulations and which, with certain exceptions, generally may be
relied upon by taxpayers for debt instruments issued, or sold or exchanged,
after December 21, 1992.
The discussion below as to the rules for the calculation and taxation of
original issue discount on the 1988 Securities is based upon the Proposed
Regulations (which were the outstanding regulations published by the IRS when
the 1988 Securities were originally issued), with references to the Final
Regulations where they clarify ambiguities in the Proposed Regulations.
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Under the Final Regulations, a holder of a debt instrument acquired on or
after April 4, 1994 may elect to include in gross income interest that accrues
on the debt instrument by using the constant yield method. For purposes of
this election, interest on a debt instrument includes stated interest,
original issue discount and market discount (including any de minimis
amounts), adjusted as applicable by any premium. Such election may be revoked
only with the consent of the IRS. Taxpayers should consult with their
advisors regarding the effect of such an election on any other debt
instruments held by such taxpayer and the advantages and disadvantages of
making this election.
The 1988 Securities should be treated as debt for federal income tax
purposes. If any of the 1988 Securities ultimately were treated as equity,
the amount treated as a distribution on any such 1988 Security would first be
taxable to the Holder as dividend income to the extent of the Company's
current and accumulated earnings and profits and would next be treated as a
return of capital to the extent of the Holder's tax basis in the 1988
Security, with any remaining amount treated as a gain from the sale of the
1988 Security. In addition, in such event, the Company would not be entitled
to deduct interest and original issue discount on such 1988 Securities for
federal income tax purposes.
The 14 1/8% Debentures
The 14 1/8% Debentures bear "original issue discount" within the meaning
of Section 1273(a)(1) of the Code. The total amount of original issue
discount with respect to a 14 1/8% Debenture is equal to the excess of its
"stated redemption price at maturity" over its "issue price." The Proposed
Regulations provide that the interest payments required on the 14 1/8%
Debentures do not constitute "qualified periodic interest payments" (because
no interest is payable until 1995) and therefore that all payments of
principal and interest required to be made on the 14 1/8% Debentures will be
considered components of the stated redemption price at maturity of the
14 1/8% Debentures. As a result, each 14 1/8% Debenture bears original issue
discount in an amount equal to the excess of (i) the sum of its face amount
and all stated interest payments, over (ii) its issue price.
A Holder of a 14 1/8% Debenture is required to include in income as
interest the original issue discount on the 14 1/8% Debenture, but (except as
discussed below with respect to market discount) will not be required to
include in income any cash payments received by such Holder on the 14 1/8%
Debenture, even if denominated as interest. The amount required to be
included in a Holder's income as original issue discount in a taxable year
will be determined by allocating to each day during such taxable year on which
the Holder holds the 14 1/8% Debenture a pro rata portion of the original
issue discount on the 14 1/8% Debenture attributable to the "accrual period"
(i.e., the six-month period (or shorter period from the issue date of the
14 1/8% Debentures) that ends on a day of the calendar year corresponding to
the maturity date or the date six months before such maturity date) in which
such day is included. For purposes of determining the accrual period, if the
maturity date is the first day of a month, the Company may consider the
maturity date to be the last day of the preceding month. The amount of
original issue discount attributable to an accrual period with respect to the
14 1/8% Debentures will be the product of (i) the "adjusted issue price" at
the beginning of such accrual period (i.e., the issue price plus original
issue discount attributable to prior accrual periods, disregarding any
reduction on account of acquisition premium, described below, less any cash
payments on the 14 1/8% Debenture during such prior accrual periods)
multiplied by (ii) their yield to maturity of 14 1/8% (determined on the basis
of semiannual compounding). If a Holder pays an "acquisition premium," as
defined below, for a 14 1/8% Debenture, the amount of such premium will reduce
the amount of original issue discount that such Holder must include in income
with regard to that 14 1/8% Debenture.
A Holder's initial tax basis in a 14 1/8% Debenture will be equal to the
price paid for such 14 1/8% Debenture. A Holder's tax basis in a 14 1/8%
Debenture will be increased by the amount of any original issue discount
includible in the Holder's income under the rules discussed above (and by any
market discount includible in the Holder's income under the rules discussed
below) and decreased by any cash payments received by such Holder with respect
to the 14 1/8% Debenture.
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The 12 5/8% Debentures
Subject to the discussion in the next succeeding paragraph, the 12 5/8%
Debentures were not issued with original issue discount. A Holder of a 12
5/8% Debenture is required to include in income the stated amount of interest
on the 12 5/8% Debenture (which will constitute "qualified periodic interest
payments") in accordance with the Holder's method of tax accounting. A Holder
of a 12 5/8% Debenture using the cash method of accounting for tax purposes
generally will be required to include such interest in income when cash
payments are actually received (or made available for receipt if earlier). A
Holder of a 12 5/8% Debenture using the accrual method of accounting for tax
purposes generally will be required to include such interest in income as it
accrues.
Additional Original Issue Discount Considerations
The Proposed Regulations contain certain aggregation rules that could
under certain circumstances be interpreted to require that some or all of the
12 5/8% Debentures, the 14 1/8% Debentures and certain other debt instruments
issued contemporaneously with the 1988 Securities and thereafter redeemed, be
treated together as a single debt instrument, which, for purposes of
calculating and amortizing any original issue discount, has a single issue
price, maturity date, stated redemption price at maturity and yield to
maturity, and, in addition, such treatment could be more likely in the case of
1988 Securities first registered in 1991. If those aggregation rules were to
apply to the 1988 Securities, such 1988 Securities could be treated as a
single debt instrument. That treatment could result in a distortion in the
amount of original issue discount included in the income of the Holders of the
1988 Securities that have original issue discount and in original issue
discount being included in the income of the Holders of 1988 Securities that
would otherwise not have original issue discount. In any event, under an
exception in the Proposed Regulations, a Holder of 14 1/8% Debentures who does
not hold 12 5/8% Debentures should not be subject to these aggregation rules
if the 14 1/8% Debentures are treated as separately traded on an established
securities market for purposes of such rules. Absent further clarification of
the Proposed Regulations, the Company does not intend to treat any of the 1988
Securities as being subject to these aggregation rules for purposes of
computing original issue discount. Apart from providing a similar exception
for traded debt, the aggregation rule in the Final Regulations does not apply
where a Holder owns only debt instruments of a single series or where a
substantial part of multiple series of debt instruments are issued to
different Holders.
If the Company is considered to have issued the 1988 Securities that
have original issue discount with an intention to call such 1988 Securities
prior to maturity, then any gain realized on the sale or redemption of such
1988 Securities would be treated as ordinary income to the extent that the
entire original issue discount on such 1988 Securities exceeded the original
issue discount previously includible in the income of any Holder (disregarding
any reduction on account of acquisition premium, as defined below). The
Proposed Regulations do not describe what constitutes an intention to call
prior to maturity. Although the Company had no intention at the time of
original issue to call the 1988 Securities prior to maturity, the existence of
the optional redemption features of the 1988 Securities could be interpreted
by the IRS as indicating such an intention. The Final Regulations exempt
registered debt instruments, such as the 1988 Securities, from the intention
to call prior to maturity provision.
Market Discount and Acquisition Premium
Under Sections 1276 through 1278 of the Code, (i) in the case of the
12 5/8% Debentures, if the stated redemption price at maturity of the
Debenture exceeds a Holder's tax basis in such Debenture and (ii) in the case
of the 14 1/8% Debentures, if the "revised issue price" of the Debenture
exceeds a Holder's tax basis in such Debenture, such excess will be considered
"market discount" within the meaning of Section 1278(a)(2) of the Code,
subject in either case to a de minimis exception. As a general rule and
subject to the discussion set forth below, the "revised issue price" of the
14 1/8% Debentures equals the issue price plus the original issue discount
includible in the income of all Holders for periods before a Holder's
acquisition of the Debenture (disregarding any reduction on account of
acquisition premium, as defined below), less any cash payments (other than
"qualified periodic interest payments") on such Debenture.
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If a Holder realized a gain upon disposition of the 1988 Security, the
lesser of (i) the excess of the amount received on such disposition (or fair
market value of the 1988 Security in the case of certain dispositions such as
gifts) over the Holder's tax basis in the 1988 Security or (ii) the portion of
the market discount that accrued while the 1988 Security was held by such
Holder and was not previously included in income generally will be treated as
interest at the time of disposition. Market discount will be treated as
accruing ratably unless the Holder elects to accrue it on a constant yield
method. Furthermore, if a cash payment other than a qualified periodic
interest payment is received by a Holder, the portion of the unrecognized
market discount that accrued prior to the receipt of such cash payment (up to
the amount of such cash payment) is includible for federal income tax purposes
in the Holder's income at the time such cash payment is received. For
purposes of this rule, market discount will accrue in a manner provided in
future Treasury regulations, but the legislative history accompanying the Tax
Reform Act of 1986 provides that until such regulations are issued, such
Market Discount would accrue at the election of the Holder either on the basis
of a constant interest rate or (i) for debt instruments with original issue
discount, in the ratio of original issue discount accrued for the relevant
period to the total remaining original issue discount at the beginning of such
period, and (ii) for debt instruments without original issue discount, in the
proportion that stated interest paid on the obligation for the current period
bears to the total stated interest remaining to be paid on the obligation at
the beginning of such period.
The Code also provides that a Holder of a 1988 Security who acquires it
at a market discount may be required to defer the deduction of a portion of
the interest paid or accrued on indebtedness incurred or continued to purchase
or carry the 1988 Security until the Holder disposes of the 1988 Security in a
taxable transaction. A Holder of a 1988 Security may elect to include market
discount in income as the discount accrues. If a Holder so elects, the
foregoing rules regarding the treatment as interest income of gain upon
disposition of the 1988 Security and upon receipt of certain cash payments,
and regarding the deferral of interest deductions on indebtedness related to
the 1988 Security would not apply.
Treasury regulations implementing the market discount rules of the Code
have not been promulgated. Therefore, the treatment of the 14 1/8% Debentures
under those market discount rules is not entirely clear and Holders are urged
to consult their own tax advisors with respect to such treatment, including
the application of the de minimis rule.
A Holder who pays an "acquisition premium" within the meaning of Section
1272(a)(7) of the Code for a 1988 Security that has original issue discount
will be entitled to a reduction in the amount of original issue discount
includible in such Holder's income. "Acquisition premium" is any amount paid
for such 1988 Security in excess of its revised issue price at the time of its
acquisition.
If a Holder's tax basis in a 1988 Security exceeds the remaining stated
redemption price at maturity of the 1988 Security, such excess generally
constitutes amortizable bond premium and the Holder may elect to amortize and
deduct such premium as an offset to interest income pursuant to Section 171 of
the Code. In general, such bond premium would be amortized using a constant
yield method over the remaining term of the 1988 Security. However, if the
1988 Security may be optionally redeemed after it is acquired by the Holder at
a price in excess of its stated redemption price at maturity, special rules
would apply which could result in a deferral of the amortization of some of
the bond premium until later in the term of the 1988 Security. The Holder's
tax basis in the 1988 Security will be decreased by the amount of the
amortized bond premium. An election to amortize bond premium applies to all
taxable debt obligations then owned and thereafter acquired by the Holder and
may be revoked only with the permission of the IRS.
Disposition of 1988 Securities
Upon a redemption, sale or exchange of a 1988 Security, its Holder will
recognize gain or loss measured by the difference between the amount received
in exchange therefor and such Holder's adjusted tax basis in the 1988
Security. Any gain or loss recognized on the redemption, sale or exchange of
a 1988 Security will ordinarily be capital gain or loss if such 1988 Security
is held as a capital asset (except as noted above with respect to Holders who
acquire a 1988 Security at a market discount). Such capital gain or loss will
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be long-term capital gain or loss if the 1988 Security was held for more than
one year at the time of such redemption, sale or exchange.
Foreign Holders
The following discussion is a summary of certain United States federal
income tax consequences to a Foreign Person that holds a 1988 Security. The
term "Foreign Person" means a nonresident alien individual or a foreign
corporation (as such terms are defined for United States tax purposes), but
only if the income or gain on the 1988 Security is not "effectively connected
with the conduct of a trade or business within the United States" within the
meaning of Section 864 of the Code. If the income or gain on the 1988
Security is "effectively connected with the conduct of a trade or business
within the United States," then the nonresident alien individual or foreign
corporation will be subject to tax in essentially the same manner as a United
States citizen or resident or a domestic corporation, as discussed above, and
in the case of a foreign corporation, may also be subject to the branch
profits tax.
The 1988 Securities should be treated as debt for federal income tax
purposes. Accordingly, no tax will be withheld from payments to Foreign
Persons who are eligible for the "portfolio interest" exception and comply
with the certification requirements described below. However, if any of the
1988 Securities ultimately were treated as equity rather than debt, then the
"portfolio interest" exception would not apply to such 1988 Securities and
withholding tax at a flat rate of 30% (or a lower rate under an applicable
income tax treaty) would be imposed on amounts treated as distributions on
such 1988 Securities out of current and accumulated earnings and profits or on
the entire distribution if the withholding agent does not know the amount of
such earnings and profits. Further, any such withholding could commence when
the IRS first asserted that the 1988 Security constituted equity; in such
event, if the IRS did not ultimately prevail, the Holder would be able to
recover the tax withheld by filing a claim for refund with the IRS.
Under the "portfolio interest" exception to the general rules for the
withholding of tax on interest and original issue discount paid to Foreign
Persons, a Foreign Person will not be subject to United States tax (or to
withholding) on interest or original issue discount on a 1988 Security,
provided that (i) the Foreign Person does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote and is not a controlled foreign corporation with
respect to the United States that is related to the Company through stock
ownership, and (ii) the Company, its paying agent or the person who would
otherwise be required to withhold tax receives either (A) a statement (an
"Owner's Statement") signed under penalties of perjury by the beneficial owner
of the 1988 Security in which the owner certifies that the owner is not a
United States person and which provides the owner's name and address, or (B) a
statement signed under penalties of perjury by the Financial Institution
holding the 1988 Security on behalf of the beneficial owner in which the
Financial Institution certifies that it has received the Owner's Statement
from the beneficial owner, together with a copy of the Owner's Statement. The
term "Financial Institution" means a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business and that holds a 1988 Security on behalf of
the beneficial owner of the 1988 Security.
A Foreign Person who does not qualify for the "portfolio interest"
exception would under current law generally be subject to United States
withholding tax at a flat rate of 30% (or a lower treaty rate) on interest
payments and payments (including redemption proceeds) attributable to original
issue discount on the 1988 Securities.
In general, gain recognized by a Foreign Person upon the redemption,
sale or exchange of a 1988 Security (including any gain representing accrued
market discount) will not be subject to United States tax. However, a Foreign
Person may be subject to United States tax at a flat rate of 30% (unless
exempt by applicable treaty) on any such gain if the Foreign Person is an
individual present in the United States for 183 days or more during the
taxable year in which the 1988 Security is redeemed, sold or exchanged.
- 93 -
Backup Withholding
Under federal income tax backup withholding rules, unless an exception
applies under the applicable law and regulations, the Company, its paying
agent or other withholding agent may be required to withhold and remit to the
Treasury 31% of the interest payments on, or sales proceeds with respect to,
the 1988 Securities if the IRS notifies the Company, its paying agent or other
withholding agent that the Holder is subject to backup withholding or if the
Holder fails to provide his taxpayer identification number (employer
identification number or social security number), to certify that such Holder
is not subject to backup withholding, or to otherwise comply with applicable
requirements of the backup withholding rules. Certain Holders (including,
among others, corporations and foreign individuals who comply with the
certification requirements described under "Foreign Holders" above) are not
subject to these backup withholding and reporting requirements.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
ONE OR MORE OF THE 1988 SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN FEDERAL OR OTHER TAX LAWS.
DESCRIPTION OF THE 9 1/4% NOTES AND THE 10% NOTES
The 9 1/4% Notes were issued under an Indenture, dated as of March 15,
1993 (the "9 1/4% Note Indenture"), between the Company and Norwest Bank
Wisconsin, N.A., as Trustee (the "9 1/4% Note Trustee"). The 10% Notes were
issued under an Indenture, dated as of March 15, 1993 (the "10% Note
Indenture"), between the Company and United States Trust Company of New York,
as Trustee (the "10% Note Trustee"). The 9 1/4% Note Indenture and the 10%
Note Indenture are hereinafter referred to collectively as the "1993 Note
Indentures." The 9 1/4% Note Trustee and the 10% Note Trustee are sometimes
hereinafter referred to collectively as the "1993 Note Trustees." Any
reference to a "1993 Note Trustee" means the 9 1/4% Note Trustee or the 10%
Note Trustee, as the context may require.
A copy of the form of each 1993 Note Indenture is filed as an exhibit to
the Registration Statement of which this Prospectus is a part and is available
as described under "Additional Information." The following summaries of
certain provisions of the respective 1993 Note Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the respective 1993 Note Indentures, including the
definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act of 1939, as amended. Wherever particular Sections or
defined terms of the 1993 Note Indentures not otherwise defined herein are
referred to, such Sections or defined terms shall be incorporated herein by
reference.
General
Principal of, premium, if any, and interest on the 1993 Notes are
payable, and the 9 1/4% Notes and the 10% Notes may be exchanged or
transferred, at the office or agency of the Company in the Borough of
Manhattan, The City of New York (which, for the 9 1/4% Notes, initially shall
be the corporate trust office of the 9 1/4% Note Trustee, at 3 New York Plaza,
15th Floor, New York, New York 10004 and, for the 10% Notes, initially shall
be the corporate trust office of the 10% Note Trustee, at 114 West 47th
Street, 15th Floor, New York, New York 10036); provided that, at the option of
the Company, payment of interest may be made by check mailed to the address of
the Holders as such address appears in the Security Register. (Sections 2.01
and 2.03)
The 1993 Notes are issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000.
(Section 2.02) No service charge shall be made for any registration of
transfer or exchange of the 1993 Notes, but the Company may require payment of
a sum sufficient to cover any transfer tax or other similar governmental
charge payable in connection therewith. (Section 2.05)
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Terms Of The 9 1/4% Notes
The 9 1/4% Notes constitute unsecured senior obligations of the Company,
limited to $450 million aggregate principal amount, and will mature on
March 15, 2001. Each 9 1/4% Note bears interest at a rate per annum equal to
9 1/4% from March 22, 1993 or from the most recent Interest Payment Date to
which interest has been paid or provided for. Interest is payable
semiannually (to Holders of record at the close of business on the March 1 or
September 1 immediately preceding the Interest Payment Date) on March 15 and
September 15 of each year. The 9 1/4% Notes will not be redeemable prior to
maturity.
Terms Of The 10% Notes
The 10% Notes constitute unsecured subordinated obligations of the
Company, limited to $300 million aggregate principal amount, and will mature
on March 15, 2003. Each 10% Note bears interest at a rate per annum equal to
10% from March 22, 1993 or from the most recent Interest Payment Date to which
interest has been paid or provided for. Interest is payable semiannually (to
the Holders of record at the close of business on the March 1 or September 1
immediately preceding the Interest Payment Date) on March 15 and September 15
of each year.
Optional Redemption. The 10% Notes are redeemable, at the Company's
option, in whole or in part, at any time on or after March 15, 1998 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice mailed
by first class mail to each Holder's last address as it appears in the
Security Register, at the following Redemption Prices (expressed in
percentages of principal amount), plus accrued interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date), if redeemed during the 12-month period commencing on or
after March 15 of the years set forth below:
REDEMPTION
YEAR PRICE
---------- -----
1998............... 105.00%
1999............... 103.75%
2000............... 102.50%
2001............... 101.25%
and, after March 15, 2002, at 100% of principal amount. (Section 10.01)
In addition, at any time prior to March 15, 1995, the Company may redeem
up to $75 million aggregate principal amount of 10% Notes with the proceeds of
one or more Public Equity Offerings following which there is a Public Market,
at any time or from time to time, at a redemption price (expressed as a
percentage of principal amount) of 110%, plus accrued interest to the
redemption date.
Selection. In the case of any partial redemption, selection of the 10%
Notes for redemption will be made by the 10% Note Trustee in compliance with
the requirements of the principal national securities exchange, if any, on
which the 10% Notes are listed or, if the 10% Notes are not listed on a
national securities exchange, on a pro rata basis, by lot or by such other
method as the 10% Note Trustee in its sole discretion shall deem to be fair
and appropriate; provided that no 10% Note of $1,000 in original principal
amount or less shall be redeemed in part. If any 10% Note is to be redeemed in
part only, the notice of redemption relating to such 10% Note shall state the
portion of the principal amount thereof to be redeemed. A new 10% Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original 10% Note.
The Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior
Secured Note Agreement each contain provisions prohibiting the optional
redemption of the 10% Notes without the consent of a specified percentage in
interest of lenders under the Bank Credit Agreement and the 1993 Term Loan
Agreement, and of Holders of Senior Secured Notes. The 8 1/4% Note Indenture,
the 9 1/4% Note Indenture, the 9% Note Indenture, the 12 5/8% Debenture
Indenture and the Pass Through Certificate Leases also contain covenants
limiting the optional redemption of the 10% Notes.
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Subordination
The Indebtedness evidenced by the 9 1/4% Notes ranks pari passu in right
of payment with all other senior indebtedness of the Company, including,
without limitation, the Company's obligations under the Bank Credit Agreement,
the 1993 Term Loan Agreement, the Pass Through Certificate Leases, certain
other leases resulting from sale and leaseback transactions, the Senior
Secured Notes (including any agreement pursuant to which the Senior Secured
Notes are issued) and the 8 1/4% Notes.
The Company's obligations under the Bank Credit Agreement, the 1993 Term
Loan Agreement and the Senior Secured Note Agreement are secured by a first
lien (subject to permitted liens) on the Shared Collateral. The Pass Through
Certificates are indirectly secured by a lien on the Pass Through Assets,
which consist of an owner trustee's interest in a paper manufacturing
facility, power plant and certain equipment related thereto located at the
Company's Savannah River mill, all of which are leased to the Company by such
owner trustee under the Pass Through Certificate Leases. The Pass Through
Certificate Leases are treated as capital leases pari passu with the 9 1/4%
Notes. In addition, the Company has obligations resulting from other sale and
leaseback transactions which are treated as capital leases pari passu with the
9 1/4% Notes. The 1993 Notes are not secured. The Holders of Secured
Indebtedness will be entitled to payment of their Indebtedness out of the
proceeds of their collateral prior to the Holders of any unsecured obligations
of the Company, including the 1993 Notes. At March 31, 1994, the Company and
its subsidiaries had outstanding approximately $1.2 billion of Secured
Indebtedness and an additional $56 million available for borrowing under the
Revolving Credit Facility. See "Risk Factors -- Subordination and Effect of
Asset Encumbrances" and "Selected Historical Consolidated Financial Data."
At March 31, 1994, the Company's subsidiaries had outstanding
liabilities of $124 million, including trade payables. The 1993 Notes will be
effectively subordinated to liabilities of the Company's subsidiaries,
including trade payables.
The payment of the Subordinated Obligations, to the extent set forth in
the 10% Note Indenture, is subordinated in right of payment to the prior
payment in full, in cash or cash equivalents, of all Senior Indebtedness,
including, without limitation, the Company's obligations under the Bank Credit
Agreement, the 1993 Term Loan, the Senior Secured Notes, the Pass Through
Certificate Leases (to the extent required to pay the Pass Through
Certificates in full), the 8 1/4% Notes and the 9 1/4% Notes. The 10% Notes
are subordinate to the 9% Notes. At March 31, 1994, approximately $2.4
billion of Senior Indebtedness of the Company was outstanding with respect to
the 10% Notes. The 10% Notes rank pari passu with the 12 5/8% Debentures and
senior in right of payment to the 14 1/8% Debentures. See "Selected
Historical Consolidated Financial Data."
To the extent any payment of Senior Indebtedness (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside
or required to be paid to any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then, if such payment is
recovered by, or paid over to, such receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person, the Senior Indebtedness or
part thereof originally intended to be satisfied shall be deemed to be
reinstated and outstanding as if such payment had not occurred. To the extent
the obligation to repay any Senior Indebtedness is declared to be fraudulent,
invalid, or otherwise set aside under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then the obligation so
declared fraudulent, invalid or otherwise set aside (and all other amounts
that would come due with respect thereto had such obligation not been so
affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred. Upon any payment or distribution of assets or
securities of the Company of any kind or character, whether in cash, property
or securities, upon any dissolution or winding up or total or partial
liquidation or reorganization of the Company, whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, all amounts
due or to become due upon all Senior Indebtedness (including any interest
accruing subsequent to an event of bankruptcy, whether or not such interest is
an allowed claim enforceable against the debtor under the United States
- 96 -
Bankruptcy Code) shall first be paid in full, in cash or cash equivalents,
before the Holders of the 10% Notes or the 10% Note Trustee on behalf of the
Holders of the 10% Notes shall be entitled to receive any payment by the
Company on account of Subordinated Obligations, or any payment to acquire any
of the 10% Notes for cash, property or securities, or any distribution with
respect to the 10% Notes of any cash, property or securities. Before any
payment may be made by, or on behalf of, the Company of any Subordinated
Obligations upon any such dissolution, winding up, liquidation or
reorganization, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the 10% Notes or the 10% Note Trustee on behalf of the
Holders of the 10% Notes would be entitled, but for the subordination
provisions of the 10% Note Indenture, shall be made by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person making such payment or distribution or by the Holders of the 10% Notes
or the 10% Note Trustee if received by them or it, directly to the Holders of
the Senior Indebtedness (pro rata to such Holders on the basis of the
respective amounts of Senior Indebtedness held by such Holders) or their
representatives or to the trustee or trustees under any indenture pursuant to
which Senior Indebtedness may have been issued, as their respective interests
appear, to the extent necessary to pay all such Senior Indebtedness in full,
in cash or cash equivalents, after giving effect to any concurrent payment,
distribution or provision therefor to or for the Holders of such Senior
Indebtedness.
No direct or indirect payment by or on behalf of the Company of
Subordinated Obligations, whether pursuant to the terms of the 10% Notes or
upon acceleration or otherwise shall be made if, at the time of such payment,
there exists a default in the payment of all or any portion of the obligations
on any Senior Indebtedness, and such default shall not have been cured or
waived or the benefits of this sentence waived by or on behalf of the Holders
of such Senior Indebtedness. In addition, during the continuance of any other
event of default with respect to (i) the Bank Credit Agreement, the Senior
Secured Note Agreement or the 1993 Term Loan Agreement pursuant to which the
maturity thereof may be accelerated and (a) upon receipt by the 10% Note
Trustee of written notice from any Bank Agent or (b) if such event of default
under the Bank Credit Agreement, the Senior Secured Note Agreement or the 1993
Term Loan Agreement results from the acceleration of the 10% Notes, from and
after the date of such acceleration, no such payment may be made by or on
behalf of the Company upon or in respect of the 10% Notes for a period (a
"Payment Blockage Period") commencing on the earlier of the date of receipt of
such notice or the date of such acceleration and ending 159 days thereafter
(unless such Payment Blockage Period shall be terminated by written notice to
the 10% Note Trustee from any Bank Agent or such event of default has been
cured or waived) or (ii) any other Designated Senior Indebtedness pursuant to
which the maturity thereof may be accelerated, upon receipt by the 10% Note
Trustee of written notice from the trustee or other representative for the
Holders of such other Designated Senior Indebtedness (or the Holders of at
least a majority in principal amount of such other Designated Senior
Indebtedness then outstanding), no such payment may be made by or on behalf of
the Company upon or in respect of the 10% Notes for a Payment Blockage Period
commencing on the date of receipt of such notice and ending 119 days
thereafter (unless, in each case, such Payment Blockage Period shall be
terminated by written notice to the 10% Note Trustee from such trustee of, or
other representatives for, such Holders). Not more than one Payment Blockage
Period may be commenced with respect to the 10% Notes during any period of 360
consecutive days; provided that, subject to the limitations set forth in the
next sentence, the commencement of a Payment Blockage Period by the
representatives for, or the Holders of, Designated Senior Indebtedness other
than under the Bank Credit Agreement or the 1993 Term Loan Agreement or under
clause (i)(b) of this paragraph shall not bar the commencement of another
Payment Blockage Period by the Bank Agents within such period of 360
consecutive days. Notwithstanding anything in the 10% Note Indenture to the
contrary, there must be 180 consecutive days in any 360-day period in which no
Payment Blockage Period is in effect. No event of default (other than an event
of default pursuant to the financial maintenance covenants under the Bank
Credit Agreement, the Senior Secured Note Agreement or the 1993 Term Loan
Agreement) that existed or was continuing (it being acknowledged that any
subsequent action that would give rise to an event of default pursuant to any
provision under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose) on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or shall
- 97 -
be made, the basis for the commencement of a second Payment Blockage Period by
the representative for, or the Holders of, such Designated Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such event of default shall have been cured or waived for a period of not less
than 90 consecutive days. (Article Eleven)
By reason of the subordination provisions described above, in the event
of liquidation or insolvency, creditors of the Company who are not Holders of
Senior Indebtedness may recover less ratably than Holders of Senior
Indebtedness and may recover more ratably than Holders of the 10% Notes.
"Subordinated Obligations" is defined to mean any principal of, premium,
if any, and interest on the 10% Notes payable pursuant to the terms of the 10%
Notes or upon acceleration, including any amounts received upon the exercise
of rights of rescission or other rights of action (including claims for
damages) or otherwise, to the extent relating to the purchase price of the 10%
Notes or amounts corresponding to such principal, premium, if any, or interest
on the 10% Notes.
"Senior Indebtedness" under the 10% Note Indenture is defined to mean
the following obligations of the Company, whether outstanding on the date of
the 10% Note Indenture or thereafter Incurred: (i) all Indebtedness and other
monetary obligations of the Company under the Bank Credit Agreement, the 1993
Term Loan Agreement, any Interest Rate Agreement or any Currency Agreement and
the Company's Guarantee of any Indebtedness or monetary obligation of any of
its Subsidiaries under the Bank Credit Agreement, the 1993 Term Loan
Agreement, any Interest Rate Agreement or any Currency Agreement, (ii) any
principal of, premium, if any, and interest on the Senior Secured Notes, the
9 1/4% Notes, and the 12 3/8% Notes, (iii) all other Indebtedness of the
Company (other than the 10% Notes), including principal and interest on such
Indebtedness, unless such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, is pari
passu with, or subordinated in right of payment to, the 10% Notes and (iv) all
fees, expenses and indemnities payable in connection with the Bank Credit
Agreement, the 1993 Term Loan Agreement and the Senior Secured Notes
(including any agreement pursuant to which the Senior Secured Notes are
issued) and, if applicable, Currency Agreements and Interest Rate Agreements;
provided that the term "Senior Indebtedness" shall not include (a) the 12 5/8%
Debentures, the 14 1/8% Debentures, or the Junior Debentures or any amounts
payable under the indentures relating thereto, or amounts payable under the
Pass Through Certificate Leases in excess of the amount necessary to pay the
outstanding Pass Through Secured Notes (including accrued and unpaid interest)
in full on the date of payment, (b) any Indebtedness of the Company that, when
Incurred and without respect to any election under Section 1111(b) of the
United States Bankruptcy Code, was without recourse to the Company, (c) any
Indebtedness of the Company to a Subsidiary of the Company or to a joint
venture in which the Company has an interest, (d) any Indebtedness of the
Company (other than such Indebtedness already described in clause (i) above)
of the type described in clause (iii) above and not permitted by the
"Limitation on Indebtedness" covenant described below, (e) any repurchase,
redemption or other obligation in respect of Redeemable Stock, (f) any
Indebtedness to any employee of the Company or any of its Subsidiaries, (g)
any liability for federal, state, local or other taxes owed or owing by the
Company and (h) any Trade Payables. Senior Indebtedness will also include
interest accruing subsequent to events of bankruptcy of the Company and its
Subsidiaries at the rate provided for in the document governing such Senior
Indebtedness, whether or not such interest is an allowed claim enforceable
against the debtor in a bankruptcy case under federal bankruptcy law. (Section
1.01)
"Designated Senior Indebtedness" under the 10% Note Indenture is defined
to mean (i) Indebtedness under the Bank Credit Agreement, the 1993 Term Loan
Agreement or the Senior Secured Notes (including any agreement pursuant to
which the Senior Secured Notes are issued) and (ii) any other Indebtedness
constituting Senior Indebtedness that, at any date of determination, has an
aggregate principal amount of at least $100 million and is specifically
designated by the Company in the instrument creating or evidencing such Senior
Indebtedness as "Designated Senior Indebtedness"; provided that, at the time
of such designation, the aggregate outstanding amount (plus any unutilized
commitments) under the Bank Credit Agreement shall be $200 million or less.
(Section 1.01)
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Except as set forth in the 10% Note Indenture, the subordination
provisions described above will cease to be applicable to the 10% Notes upon
any defeasance of the 10% Notes as described under "--Defeasance." (Article
Seven)
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the 1993 Note Indentures. Reference is made
to the appropriate 1993 Note Indenture for the full definition of all such
terms as well as any other capitalized terms used herein for which no
definition is provided. (Section 1.01)
"Acquired Indebtedness" is defined to mean Indebtedness of a Person
existing at the time such Person became a Subsidiary and not Incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary.
"Adjusted Consolidated Assets" is defined to mean the total amount of
assets of the Company and its Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), after deducting therefrom all
current liabilities of the Company and its consolidated Subsidiaries, all as
set forth on the most recently available consolidated balance sheet of the
Company and its consolidated Subsidiaries, prepared in conformity with GAAP.
"Adjusted Consolidated Net Income" is defined to mean, for any period,
the aggregate net income (or loss) of any Person and its consolidated
Subsidiaries for such period determined in conformity with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income (or loss) of such Person
(other than a Subsidiary of such Person) in which any other Person (other than
such Person or any of its Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to such
Person or any of its Subsidiaries by such other Person during such period,
(ii) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below (and in such
case, except to the extent includible pursuant to the foregoing clause (i)
above), the net income (or loss) of such Person accrued prior to the date it
becomes a Subsidiary of any other Person or is merged into or consolidated
with such other Person or any of its Subsidiaries or all or substantially all
of the property and assets of such Person are acquired by such other Person or
any of its Subsidiaries, (iii) the net income (or loss) of any Subsidiary of
such Person to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary of such net income is not at the time
permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
and (iv) all extraordinary gains and extraordinary losses; provided that,
solely for purposes of calculating the Interest Coverage Ratio (and in such
case, except to the extent includible pursuant to clause (i) above), Adjusted
Consolidated Net Income of the Company shall include the amount of all cash
dividends received by the Company or any Subsidiary of the Company from an
Unrestricted Subsidiary.
"Administrative Agent" is defined to mean the Bank Agent under the Bank
Credit Agreement or the 1993 Term Loan Agreement, or any successor thereto.
"Affiliate" is defined to mean, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person, is
defined to mean 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. For
purposes of this definition, no Bank Agent, Administrative Agent or Bank and
no affiliate of any of them shall be deemed to be an Affiliate of the Company.
"Asset Acquisition" is defined to mean (i) an investment by the Company
or any of its Subsidiaries in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any of its Subsidiaries or shall
be merged into or consolidated with the Company or any of its Subsidiaries or
(ii) an acquisition by the Company or any of its Subsidiaries of the assets of
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any Person other than the Company or any of its Subsidiaries that constitute
substantially all of a division or line of business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by
the Company or any of its Subsidiaries (other than to the Company or another
Subsidiary of the Company) of (i) all or substantially all of the Capital
Stock of any Subsidiary of the Company or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Subsidiaries.
"Asset Sale" is defined to mean with respect to any Person, any sale,
transfer or other disposition (including by way of merger, consolidation or
sale-leaseback transactions) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other
than the Company or any of its Subsidiaries of (i) all or any of the Capital
Stock of any Subsidiary of such Person, (ii) all or substantially all of the
assets of a division or line of business of such Person or any of its
Subsidiaries or (iii) any other assets of such Person or any of its
Subsidiaries outside the ordinary course of business of such Person or such
Subsidiary and in each case, that is not governed by the provisions of the
Indentures applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company; provided that,
for the purposes of determining the restrictions under the "Limitation on
Asset Sales" covenant described below, the Company may disregard sales or
other dispositions of inventory, receivables and other current assets.
"Attributable Indebtedness" is defined to mean, when used in connection
with a sale-leaseback transaction referred to in the "Limitation on Sale-
Leaseback Transactions" covenant described below, at any date of
determination, the product of (i) the net proceeds from such sale-leaseback
transaction and (ii) a fraction, the numerator of which is the number of full
years of the term of the lease relating to the property involved in such sale-
leaseback transaction (without regard to any options to renew or extend such
term) remaining at the date of the making of such computation and the
denominator of which is the number of full years of the term of such lease
(without regard to any options to renew or extend such term) measured from the
first day of such term.
"Average Life" is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the product of (A) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security
multiplied by (B) the amount of such principal payment by (ii) the sum of all
such principal payments.
"Bank Agent" is defined to mean Bankers Trust Company, as agent for the
Banks pursuant to the Bank Credit Agreement or the 1993 Term Loan Agreement,
and any successor or successors thereto.
"Bank Credit Agreement" is defined to mean the Credit Agreement, dated
as of October 24, 1988, among the Company, the Banks party thereto and the
Bank Agents party thereto, as amended to date, together with the related
documents thereto (including, without limitation, any Guarantees and security
documents), in each case, as such agreements may be amended (including any
amendment and restatement thereof), supplemented, replaced or otherwise
modified from time to time, including any agreement extending the maturity of,
refinancing or otherwise restructuring (including, but not limited to, the
inclusion of additional borrowers or Guarantors thereunder that are
Subsidiaries of the Company and whose obligations are Guaranteed by the
Company thereunder) all or any portion of the Indebtedness under such
agreements or any successor agreements; provided that, with respect to any
agreement providing for the refinancing of Indebtedness under the Bank Credit
Agreement, such agreement shall be the Bank Credit Agreement under the
Indentures only if a notice to that effect is delivered to the Trustees; and
provided further that there shall be at any one time only one instrument,
together with any related documents (including, without limitation, any
Guarantees or security documents), that is the Bank Credit Agreement under the
Indentures.
"Banks" is defined to mean the lenders who are from time to time parties
to the Bank Credit Agreement or the 1993 Term Loan Agreement.
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"Board of Directors" is defined to mean the Board of Directors of the
Company or any committee of such Board of Directors duly authorized to act
under the Indentures.
"Business Day" is defined to mean any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or in the city of
the Corporate Trust Office of the respective Trustees, are authorized by law
to close.
"Capital Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's capital stock,
whether now outstanding or issued after the date of the Indentures, including,
without limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any property (whether real, personal or mixed) of which the
discounted present value of the rental obligations of such Person as lessee,
in conformity with GAAP, is required to be capitalized on the balance sheet of
such Person; and "Capitalized Lease Obligation" is defined to mean the rental
obligations, as aforesaid, under such lease.
"Closing Date" is defined to mean the date on which the Senior Notes
(defined as the 9 1/4% Notes in this Prospectus) or the Subordinated Notes
(defined as the 10% Notes in this Prospectus), as the case may be, are
originally issued under their respective Indentures.
"Common Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's common stock,
whether now outstanding or issued after the date of the Indentures, including,
without limitation, all series and classes of such common stock.
"Consolidated Capital Expenditures" means expenditures (whether paid in
cash or accrued as liabilities and including Capitalized Lease Obligations) of
the Company and its Subsidiaries that, in conformity with GAAP, are included
in the property, plant or equipment reflected in the consolidated balance
sheet of the Company and its Subsidiaries.
"Consolidated EBITDA" is defined to mean, with respect to any Person for
any period, the sum of the amounts for such period of (i) Adjusted
Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) income
taxes (other than income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or sales of assets), (iv)
depreciation expense, (v) amortization expense and (vi) all other non-cash
items reducing Adjusted Consolidated Net Income, less all non-cash items
increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for such Person and its Subsidiaries in conformity with
GAAP; provided that, if a Person has any Subsidiary that is not a Wholly Owned
Subsidiary, Consolidated EBITDA of such Person shall be reduced by an amount
equal to (A) the Adjusted Consolidated Net Income of such Subsidiary
multiplied by (B) the quotient of (1) the number of shares of outstanding
Common Stock of such Subsidiary not owned on the last day of such period by
such Person or any Subsidiary of such Person divided by (2) the total number
of shares of outstanding Common Stock of such Subsidiary on the last day of
such period.
"Consolidated Interest Expense" is defined to mean, with respect to any
Person for any period, the aggregate amount of interest in respect of
Indebtedness (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; and the net costs associated with
Interest Rate Agreements) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by such Person and its consolidated subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Subsidiary
of such Person if the net income (or loss) of such Subsidiary is excluded in
the calculation of Adjusted Consolidated Net Income for such Person pursuant
to clause (iii) of the definition thereof (but only in the same proportion as
the net income (or loss) of such Subsidiary is excluded from the calculation
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of Adjusted Consolidated Net Income for such Person pursuant to clause (iii)
of the definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the Acquisition and the
Refinancing (defined as the 1993 Refinancing in this Prospectus), all as
determined in conformity with GAAP.
"Consolidated Net Worth" is defined to mean, at any date of
determination, shareholders equity as set forth on the most recently available
consolidated balance sheet of the Company and its consolidated Subsidiaries
(which shall be as of a date not more than 60 days prior to the date of such
computation), less, to the extent required in conformity with GAAP, any
amounts attributable to Redeemable Stock or any equity security convertible
into or exchangeable for Indebtedness, the cost of treasury stock and the
principal amount of any promissory notes receivable from the sale of Capital
Stock of the Company or any Subsidiary of the Company (excluding the effects
of foreign currency exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52).
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Subsidiaries against fluctuations in
currency values to or under which the Company or any of its Subsidiaries is a
party or a beneficiary on the date of the Indentures or becomes a party or a
beneficiary thereafter.
"Domestic Subsidiary" is defined to mean any Subsidiary of the Company
other than a Foreign Subsidiary.
"Foreign Subsidiary" is defined to mean any Subsidiary of the Company
that is organized under the laws of a jurisdiction other than the United
States of America or any state thereof and more than 80% of the sales,
earnings or assets (determined on a consolidated basis in conformity with
GAAP) of which are located or derived from operations located in territories
outside of the United States of America and jurisdictions outside the United
States of America.
"GAAP" is defined to mean generally accepted accounting principles in
the United States of America as in effect as of the date of the Indentures,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as approved by a significant segment of the accounting profession. All
ratios and computations based on GAAP contained in the Indentures shall be
computed in conformity with GAAP, except that calculations made for purposes
of determining compliance with the terms of the covenants described below and
with other provisions of the Indentures shall be made without giving effect to
(i) the amortization of any expenses incurred in connection with the
Acquisition or the Refinancing (defined as the 1993 Refinancing in this
Prospectus) and (ii) except as otherwise provided, the amortization of any
amounts required or permitted by Accounting Principles Board Opinion Nos. 16
and 17.
"Guarantee" is defined to mean any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-
pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided that
the term "Guarantee" shall not include endorsements for collection or deposit
in the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Holder" or "Securityholder" is defined to mean the registered holder of
any Senior Note or Subordinated Note (defined as the 9 1/4% Note and the 10%
Note, respectively, in this Prospectus), as the case may be.
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"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with
respect to or extend the maturity of or become responsible for, the payment
of, contingently or otherwise, such Indebtedness; provided that neither the
accrual of interest (whether such interest is payable in cash or kind) nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any
date of determination (without duplication), (i) all indebtedness of such
Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations
of such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade Payables, (v) all
obligations of such Person as lessee under Capitalized Leases, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided that the
amount of such Indebtedness shall be the lesser of (A) the fair market value
of such asset at such date of determination and (B) the amount of such
Indebtedness of such other Persons, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed by
such Person, (viii) all obligations in respect of borrowed money under the
Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior Secured Notes,
the Notes (defined as the 1993 Notes in this Prospectus)(including any
agreements pursuant to which the Notes are issued) and any Guarantees thereof
and (ix) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date; provided that the
amount outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at
such time as determined in conformity with GAAP.
"Interest Coverage Ratio" is defined to mean, with respect to any Person
on any Transaction Date, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the four fiscal quarters for which financial
information in respect thereof is available immediately prior to such
Transaction Date to (ii) the aggregate Consolidated Interest Expense of such
Person during such four fiscal quarters. In making the foregoing calculation,
(A) pro forma effect shall be given to (1) any Indebtedness Incurred
subsequent to the end of the four-fiscal-quarter period referred to in clause
(i) and prior to the Transaction Date (other than Indebtedness Incurred under
a revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement)
on the last day of such period), (2) any Indebtedness Incurred during such
period to the extent such Indebtedness is outstanding at the Transaction Date
and (3) any Indebtedness to be Incurred on the Transaction Date, in each case
as if such Indebtedness had been Incurred on the first day of such four-
fiscal-quarter period and after giving effect to the application of the
proceeds thereof; (B) Consolidated Interest Expense attributable to interest
on any Indebtedness (whether existing or being Incurred) computed on a pro
forma basis and bearing a floating interest rate shall be computed as if the
rate in effect on the date of computation (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months) had been the applicable rate for
the entire period; (C) there shall be excluded from Consolidated Interest
Expense any Consolidated Interest Expense related to any amount of
Indebtedness that was outstanding during such four-fiscal-quarter period or
thereafter but that is not outstanding or is to be repaid on the Transaction
Date, except for Consolidated Interest Expense accrued (as adjusted pursuant
to clause (B)) during such four-fiscal-quarter period under a revolving credit
or similar arrangement to the extent of the commitment thereunder (or under
any successor revolving credit or similar arrangement) on the Transaction
Date; (D) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions that occur during such four-fiscal-quarter period or thereafter
and prior to the Transaction Date (including any Asset Acquisition to be made
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with the Indebtedness Incurred pursuant to clause above) as if they had
occurred on the first day of such four-fiscal-quarter period; (E) with respect
to any such four-fiscal-quarter period commencing prior to the Refinancing
(defined as the 1993 Refinancing in this Prospectus), the Refinancing shall be
deemed to have taken place on the first day of such period; and (F) pro forma
effect shall be given to asset dispositions and asset acquisitions that have
been made by any Person that has become a Subsidiary of the Company or has
been merged with or into the Company or any Subsidiary of the Company during
the four-fiscal-quarter period referred to above or subsequent to such period
and prior to the Transaction Date and that would have been Asset Dispositions
or Asset Acquisitions had such transactions occurred when such Person was a
Subsidiary of the Company as if such asset dispositions or asset acquisitions
were Asset Dispositions or Asset Acquisitions that occurred on the first day
of such period.
"Interest Rate Agreement" is defined to mean any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement designed to protect the Company or any of its
Subsidiaries against fluctuations in interest rates to or under which the
Company or any of its Subsidiaries is a party or a beneficiary on the date of
the Indentures or becomes a party or a beneficiary thereafter.
"Investment" is defined to mean any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of any Person or its
Subsidiaries) or other extension of credit or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by any other Person. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, (i) "Investment" shall include the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary
of the Company is designated an Unrestricted Subsidiary and shall exclude the
fair market value of the net assets of any Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Subsidiary of the Company
and (ii) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in each case
as determined by the Board of Directors in good faith.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller).
"Net Cash Proceeds" is defined to mean, with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes (whether or not such taxes will actually be paid or are payable)
as a result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Subsidiaries, taken as a whole, (iii)
payments made to repay Indebtedness or any other obligation outstanding at the
time of such Asset Sale that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Company or any Subsidiary of the
Company as a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP.
"1993 Term Loan Agreement" is defined to mean the Term Loan Agreement,
dated as of March 22, 1993, among the Company, the Banks party thereto and the
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Bank Agents party thereto, together with the related documents thereto
(including, without limitation, any Guarantees and security documents), in
each case, as such agreements may be amended (including any amendment and
restatement thereof), supplemented, replaced or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing or
otherwise restructuring (including, but not limited to, the inclusion of
additional borrowers or Guarantors thereunder that are Subsidiaries of the
Company and whose obligations are Guaranteed by the Company thereunder) all or
any portion of the Indebtedness under such agreements or any successor
agreements; provided that, with respect to any agreement providing for the
refinancing of Indebtedness under the 1993 Term Loan Agreement, such agreement
shall be the 1993 Term Loan Agreement under the Indentures only if a notice to
that effect is delivered to the Trustees; and provided further that there
shall be at any one time only one instrument, together with any related
documents (including, without limitation, any Guarantees or security
documents), that is the 1993 Term Loan Agreement under the Indentures.
"Operating Lease" is defined to mean, as applied to any Person, any
lease of any property (whether real, personal or mixed) that is not a
Capitalized Lease.
"Pass Through Certificates" is defined to mean the Pass Through
Certificates, Series 1991, representing fractional undivided interests in the
Fort Howard Corporation 1991 Pass Through Trust formed pursuant to a pass
through trust agreement by and between the Company and Wilmington Trust
Company, as trustee.
"Pass Through Certificate Leases" is defined to mean the leases under
which the Company leases the Phase IV paper manufacturing facility, the Phase
IV power plant and certain paper manufacturing production equipment, all
located in Effingham County, Georgia.
"Pass Through Certificate Secured Notes" is defined to mean the secured
notes issued on a nonrecourse basis by the owner trustee in connection with
its acquisition of the Company's interest in the Phase IV paper manufacturing
facility, the Phase IV power plant and certain paper manufacturing production
equipment, all located in Effingham County, Georgia.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return of money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its Subsidiaries; (vi) Liens (including extensions and
renewals thereof) upon real or tangible personal property acquired after the
Closing Date; provided that (a) such Lien is created solely for the purpose of
securing Indebtedness Incurred (1) to finance the cost (including the cost of
improvement or construction) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within 12 months after
the later of the acquisition, the completion of construction or the
commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii)
leases or subleases granted to others that do not materially interfere with
the ordinary course of business of the Company or any of its Subsidiaries;
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(viii) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of the Company or any of its
Subsidiaries relating to such property or assets, (ix) any interest or title
of a lessor in the property subject to any Capitalized Lease or Operating
Lease; provided that, in the case of the Senior Notes (defined as the 9 1/4%
Notes in this Prospectus), any sale-leaseback transaction related thereto
complies with the "Limitation on Sale-Leaseback Transactions" covenant
described below; (x) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (xi) Liens on property of, or on shares
of stock or Indebtedness of, any corporation existing at the time such
corporation becomes, or becomes a part of, any Restricted Subsidiary; (xii)
Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
securing any real property or other assets of the Company or any Subsidiary of
the Company in favor of the United States of America or any State, or any
department, agency, instrumentality or political subdivision thereof, in
connection with the financing of industrial revenue bond facilities or of any
equipment or other property designed primarily for the purpose of air or water
pollution control; provided, however, that any such Lien on such facilities,
equipment or other property shall not apply to any other assets of the Company
or such Subsidiary of the Company; (xiv) Liens arising from the rendering of a
final judgment or order against the Company or any Subsidiary of the Company
that does not give rise to an Event of Default; (xv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof; (xvi) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xvii) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are either within
the general parameters customary in the industry and incurred in the ordinary
course of business or otherwise permitted under the terms of the Bank Credit
Agreement or the 1993 Term Loan Agreement, in each case securing Indebtedness
under Interest Rate Agreements and Currency Agreements and forward contracts,
options, futures contracts, futures options or similar agreements or
arrangements designed to protect the Company or any of its Subsidiaries from
fluctuations in the price of commodities; (xviii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Subsidiaries in the
ordinary course of business in accordance with the past practices of the
Company and its Subsidiaries prior to the Closing Date; and (xix) Liens on or
sales of receivables.
"Person" is defined to mean an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plans" is defined to mean any employee benefit plan, pension plan,
stock option plan or similar plan or arrangement of the Company or any
Subsidiary of the Company, or any successor plan thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any
and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's preferred or
preference stock, whether now outstanding or issued after the date of the
Indentures, including, without limitation, all series and classes of such
preferred or preference stock.
"Principal Property" is defined to mean any manufacturing or processing
plant, warehouse or other building used by the Company or any Restricted
Subsidiary, other than a plant, warehouse or other building that, in the good
faith opinion of the Board of Directors as reflected in a Board Resolution, is
not of material importance to the respective businesses conducted by the
Company or any Restricted Subsidiary as of the date such Board Resolution is
adopted.
"Public Equity Offering" means an underwritten primary public offering
of equity securities of the Company pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has
been consummated and (y) at least 15% of the total issued and outstanding
common stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
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"Redeemable Stock" is defined to mean any class or series of Capital
Stock of any Person that by its terms or otherwise is (i) required to be
redeemed prior to the Stated Maturity of the Notes (defined as the 1993 Notes
in this Prospectus), (ii) redeemable at the option of the holder of such class
or series of Capital Stock at any time prior to the Stated Maturity of the
Notes or (iii) convertible into or exchangeable for Capital Stock referred to
in clause (i) or (ii) above or Indebtedness having a scheduled maturity prior
to the Stated Maturity of the Notes; provided that any Capital Stock that
would not constitute Redeemable Stock but for provisions thereof giving
Holders thereof the right to require the Company to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" occurring prior to the
Stated Maturity of the Notes shall not constitute Redeemable Stock if the
asset sale provisions applicable to such Capital Stock are no more favorable
to the Holders of such Capital Stock than the provisions contained in the
"Limitation on Asset Sales" covenant described below and such Capital Stock
specifically provides that the Company will not repurchase or redeem any such
stock pursuant to such provisions prior to the Company's repurchase of such
Notes as are required to be repurchased pursuant to the provisions of the
"Limitation on Asset Sales" covenant described below.
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Senior Secured Notes" is defined to mean the Company's Senior Secured
Notes due 1997 through 2000, issued in 1991 and having an aggregate principal
amount of $300 million.
"Significant Subsidiary" is defined to mean, at any date of
determination, any Subsidiary of the Company that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Company, accounted
for more than 10% of the consolidated revenues of the Company or (ii) as of
the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company, all as set forth on the most recently
available consolidated financial statements of the Company for such fiscal
year.
"Stated Maturity" is defined to mean, with respect to any debt security
or any installment of interest thereon, the date specified in such debt
security as the fixed date on which any principal of such debt security or any
such installment of interest is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of
the outstanding Voting Stock is owned, directly or indirectly, by the Company
or by one or more other Subsidiaries of the Company, or by such Person and one
or more other Subsidiaries of such Person; provided that, except as the term
"Subsidiary" is used in the definition of "Unrestricted Subsidiary" described
below, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary of
the Company for purposes of the Indentures.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by the Company or any of its Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if
such Subsidiary has assets greater than $1,000, that such designation would be
permitted under the "Limitation on Restricted Payments" covenant described
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below; and provided further that, for purposes of valuing the amount of an
Investment in any Foreign Subsidiary being made by reason of such designation,
the amount that shall be taken into account (instead of the fair market value
of the net assets of such Subsidiary (which shall apply in the case of a
Domestic Subsidiary)) shall be the sum of (1) the amount of Investments that
have been made by the Company or any Restricted Subsidiary in such Foreign
Subsidiary during the period from the Closing Date to the date of such
designation plus (2) the amount, determined pursuant to clause (C)(1) of the
first paragraph of such "Limitation on Restricted Payments" covenant, in
respect of the Adjusted Consolidated Net Income of the Company attributable to
such Foreign Subsidiary during the period (taken as one accounting period)
beginning on April 1, 1993 and ending on the last day of the last fiscal
quarter preceding the Transaction Date and not previously dividended or
distributed to the Company or any other Restricted Subsidiary. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company; provided that immediately after giving effect to
such designation (x) the Company could Incur $1.00 of additional Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant
described below and (y) no Event of Default, or event that after notice or
passage of time or both would become an Event of Default, shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustees by promptly filing with each of the Trustees a copy
of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"Voting Stock" is defined to mean Capital Stock of any class or kind
ordinarily having the power to vote for the election of directors of the
Company.
"Wholly Owned Subsidiary" is defined to mean, with respect to any
Person, any Subsidiary of such Person if all of the Common Stock or other
similar equity ownership interests (but not including Preferred Stock) in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly or indirectly
by such Person.
Covenants
Limitation on Indebtedness. Under the terms of the 1993 Note
Indentures, the Company shall not, and shall not permit any Restricted
Subsidiary to, Incur any Indebtedness (other than the 1993 Notes (including
any agreements pursuant to which the 1993 Notes are issued) and Indebtedness
existing on the Closing Date); provided that the Company may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness
and the receipt and application of the proceeds therefrom, the Interest
Coverage Ratio of the Company would be greater than (a) prior to or on
December 31, 1996, 1.5:1 and (b) after December 31, 1996, 1.75:1.
Notwithstanding the foregoing, under each of the 1993 Note Indentures
(except as expressly provided otherwise below), the Company and any Restricted
Subsidiary may Incur each and all of the following: (i) Indebtedness
outstanding at any time in an aggregate principal amount not to exceed the sum
of the outstanding Indebtedness and the unused commitment under the Bank
Credit Agreement and the 1993 Term Loan Agreement as of the Closing Date; (ii)
Indebtedness outstanding at any time in an aggregate principal amount not to
exceed $400 million; provided that, solely in the case of the 9 1/4% Note
Indenture, (A) the amount of such Indebtedness outstanding at any time of
Restricted Subsidiaries under this clause (ii) shall not exceed $200 million
and (B) the amount of such Indebtedness outstanding at any time of Domestic
Subsidiaries under this clause (ii) shall not exceed $100 million; (iii)
Indebtedness of the Company to any of its Restricted Subsidiaries that is a
Wholly Owned Subsidiary of the Company, or of a Restricted Subsidiary to the
Company or to any other Restricted Subsidiary that is a Wholly Owned
Subsidiary of the Company; (iv) Indebtedness issued in exchange for, or the
net proceeds of which are used to refinance, outstanding Indebtedness of the
Company or any of its Restricted Subsidiaries, other than Indebtedness
Incurred under clauses (i), (ii), (vii), (viii) or (x) and any refinancings
thereof, in an amount (or, if such new Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, with an original issue price) not to
exceed the amount so exchanged or refinanced (plus premiums, accrued interest,
fees and expenses); provided that Indebtedness issued in exchange for or the
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net proceeds of which are used to refinance the 9 1/4% Notes or the 10% Notes,
as the case may be, or other Indebtedness of the Company that is subordinated
in right of payment to the 9 1/4% Notes or the 10% Notes, as the case may be,
shall only be permitted under this clause (iv) if (A) in case the 9 1/4% Notes
or the 10% Notes, as the case may be, are exchanged or refinanced in part,
such Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is expressly made pari passu
with, or subordinate in right of payment to, the remaining 9 1/4% Notes or 10%
Notes, as the case may be, (B) in case the Indebtedness to be exchanged or
refinanced is subordinated in right of payment to the 9 1/4% Notes or the 10%
Notes, as the case may be, such Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such Indebtedness is issued, is
expressly made subordinate in right of payment to the 9 1/4% Notes or the 10%
Notes, as the case may be, at least to the extent that the Indebtedness to be
exchanged or refinanced is subordinated to the 9 1/4% Notes or the 10% Notes,
as the case may be, and (C) in case the 9 1/4% Notes or the 10% Notes, as the
case may be, are exchanged or refinanced in part or the Indebtedness to be
exchanged or refinanced is subordinated in right of payment to the 9 1/4%
Notes or the 10% Notes, as the case may be, such Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, does not mature prior to
six months after the Stated Maturity of the 9 1/4% Notes or the 10% Notes, as
the case may be, and the Average Life of such Indebtedness is equal to or
greater than the sum of the remaining Average Life of the 9 1/4% Notes or the
10% Notes, as the case may be, plus six months; provided further that in no
event may Indebtedness of the Company that is pari passu with, or subordinated
in right of payment to, the 9 1/4% Notes or the 10% Notes, as the case may be,
be exchanged or refinanced by means of Indebtedness of any Subsidiary of the
Company pursuant to this clause (iv); and provided further that the two
foregoing provisos of this clause (iv) shall not be applicable to Indebtedness
Incurred in exchange for or to refinance the 12 3/8% Notes, the 12 5/8%
Debentures, the 14 1/8% Debentures or the Junior Debentures (including in each
case redemption or other premiums, consent or other fees, and expenses
incurred in connection therewith); (v) Indebtedness Incurred by the Company in
connection with (x) the repurchase of shares of, or options to purchase shares
of, the Common Stock of the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors) or (y) Guarantees of borrowings made by such
Persons exclusively for the purpose of exercising options to purchase or sell
such shares of Common Stock and paying any associated tax liability, in each
case pursuant to the terms of the form of agreements or plans (or amendments
thereto) under which such Persons purchase or sell, or are granted the option
to purchase, shares of such Common Stock; (vi) Indebtedness (A) in respect of
performance bonds, bankers' acceptances, letters of credit and surety or
appeal bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that, in the case of
Currency Agreements that relate to other Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company outstanding at any
time other than as a result of fluctuations in foreign currency exchange rates
or by reason of fees, indemnities and compensation payable thereunder and (C)
arising from agreements providing for indemnification, adjustment of purchase
price or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any
Subsidiary of the Company pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Subsidiary of the
Company, other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Subsidiary of the
Company for the purpose of financing such acquisition; (vii) Indebtedness
under Guarantees incurred by the Company in respect of obligations of
Unrestricted Subsidiaries outstanding at any time in an aggregate amount not
to exceed $50 million; (viii) Acquired Indebtedness; provided that, at the
time of the Incurrence thereof, the Company could Incur at least $1.00 of
Indebtedness under the first paragraph of this "Limitation on Indebtedness"
covenant and refinancings thereof; provided that such refinancing Indebtedness
may not be Incurred by any Person other than the Company or the Restricted
Subsidiary that is the obligor on such Acquired Indebtedness; (ix)
Indebtedness directly Incurred to finance Consolidated Capital Expenditures in
an aggregate amount not to exceed in any fiscal year of the Company the amount
indicated below:
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FISCAL MAXIMUM
YEAR AMOUNT
------ -------
(In Millions)
1994 ................... $250
1995 ................... 250
1996 and thereafter..... 275
provided, however, that the amount of Indebtedness which may be Incurred in
any fiscal year pursuant to this clause (ix) shall be increased by the amount
of Indebtedness which could have been Incurred in the prior fiscal year
pursuant to this clause (ix) but which was not so Incurred; or (x)
Indebtedness of the Company outstanding at any time in an aggregate amount not
to exceed $175 million; provided that such Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such Indebtedness
is issued, (A) is expressly made subordinate in right of payment to the 9 1/4%
Notes or the 10% Notes, as the case may be, at least to the extent the 10%
Notes are subordinated to Senior Indebtedness and (B) provides that no
payments of principal of such Indebtedness by way of sinking fund, mandatory
redemption or otherwise (including defeasance) may be made by the Company
(including, without limitation, at the option of the Holder thereof, other
than an option given to such Holder pursuant to an "asset sale" provision that
is no more favorable to such Holders of such Indebtedness than the provisions
contained in the "Limitation on Asset Sales" covenant described below and such
Indebtedness specifically provides that the Company will not purchase or
redeem such Indebtedness pursuant to such provision prior to the Company's
repurchase of the 1993 Notes required to be repurchased by the Company under
the "Limitation on Asset Sales" covenant) at any time prior to the Stated
Maturity of the 9 1/4% Notes or the 10% Notes, as the case may be.
Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, (i) the maximum amount of Indebtedness that the Company or any
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies, (ii) for purposes of
calculating the amount of Indebtedness outstanding at any time under clause
(ii) of the second paragraph of this "Limitation on Indebtedness" covenant, no
amount of Indebtedness of the Company or any Subsidiary of the Company
outstanding on the Closing Date shall be considered to be outstanding, and
(iii) in the case of the 9 1/4% Notes, the Company shall not Incur any
Indebtedness that is expressly subordinated to any other Indebtedness of the
Company unless such Indebtedness, by its terms or the terms of any agreement
instrument pursuant to which such Indebtedness is issued, is also expressly
made subordinate to the 9 1/4% Notes at least to the extent it is subordinated
to such other Indebtedness, except that the 9 1/4% Notes shall not be required
to become Designated Senior Indebtedness or its equivalent due solely to the
Incurrence of such other Indebtedness in accordance with this clause (iii).
For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred pursuant
to the Bank Credit Agreement or the 1993 Term Loan Agreement prior to or on
the Closing Date shall be treated as Incurred pursuant to clause (i) of the
second paragraph of this "Limitation on Indebtedness" covenant, (2) Guarantees
of, or obligations with respect to letters of credit supporting, Indebtedness
otherwise included in the determination of such particular amount shall not be
included and (3) any Liens granted pursuant to the equal and ratable
provisions referred to in the first paragraph of the "Limitation on Liens"
covenant shall not be treated as Indebtedness. For purposes of determining
compliance with this "Limitation on Indebtedness" covenant, (x) in the event
that an item of Indebtedness meets the criteria of more than one of the types
of Indebtedness described in the above clauses, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses and
(y) the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in conformity with GAAP. (Section 3.03)
Limitation on Restricted Payments. Under the terms of the 1993 Note
Indentures, the Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on its Capital Stock (other than dividends or distributions
payable solely in shares of its or such Subsidiary's Capital Stock (other than
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Redeemable Stock) of the same class held by such Holders or in options,
warrants or other rights to acquire such shares of Capital Stock) held by
Persons other than the Company or another Restricted Subsidiary, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of the Company, any Restricted Subsidiary or any Unrestricted Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Company or another Restricted
Subsidiary, (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other acquisition
or retirement for value, of Indebtedness of the Company that is subordinated
in right of payment to the 9 1/4% Notes or the 10% Notes, as the case may be,
or (iv) make any Investment in any Unrestricted Subsidiary (such payments or
any other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment: (A) an Event of Default or event that, after
notice or passage of time or both would become an Event of Default, shall have
occurred and be continuing, (B) the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant or (C) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good faith by
the Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) after the date of the 1993 Note Indentures shall exceed
the sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of
such amount) of the Company (determined by excluding income resulting from the
transfers of assets received by the Company or a Restricted Subsidiary from an
Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on April 1, 1993 and ending on the
last day of the last fiscal quarter preceding the Transaction Date plus (2)
the aggregate net proceeds (including the fair market value of non-cash
proceeds as determined in good faith by the Board of Directors whose
determination shall be conclusive and evidenced by a Board Resolution)
received by the Company from the issuance and sale permitted by the 1993 Note
Indentures of its Capital Stock (not including Redeemable Stock) to a Person
who is not a Subsidiary of the Company, including an issuance or sale
permitted by the 1993 Note Indentures for cash or other property upon the
conversion of any Indebtedness of the Company subsequent to the Closing Date,
or from the issuance of any options, warrants or other rights to acquire
Capital Stock of the Company (in each case, exclusive of any Redeemable Stock
or any options, warrants or other rights that are redeemable at the option of
the Holder, or are required to be redeemed, prior to the Stated Maturity of
the 9 1/4% Notes or 10% Notes, as the case may be) plus (3) an amount equal to
the net reduction in Investments in Unrestricted Subsidiaries resulting from
payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of "Investments"), not to exceed in the case of
any Unrestricted Subsidiary the amount of Investments previously made by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary plus (4)
$75 million.
The foregoing provision shall not take into account, and shall not be
violated by reason of: (i) the payment of any dividend within 60 days after
the date of declaration thereof if, at such date of declaration, such payment
would comply with the foregoing provision; (ii) the redemption, repurchase,
defeasance or other acquisition or retirement for value of Indebtedness that
is subordinated in right of payment to the 9 1/4% Notes or 10% Notes, as the
case may be, including premium, if any, with the proceeds of Indebtedness
Incurred under the first paragraph of the "Limitation on Indebtedness"
covenant or clause (iv) or (x) of the second paragraph of the "Limitation on
Indebtedness" covenant; (iii) the payment of dividends on the Capital Stock of
the Company, following any issuance of the Capital Stock of the Company, of up
to 6% per annum of the net proceeds received by the Company in such issuance
of the Capital Stock of the Company; (iv) the repurchase of shares of, or
options to purchase shares of, Common Stock of the Company or any of its
Subsidiaries from employees, former employees, directors or former directors
of the Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant to the
terms of the form of agreements or plans (or amendments thereto) under which
such Persons purchase or sell, or are granted the option to purchase or sell,
shares of such Common Stock; (v) the repurchase, redemption or other
acquisition of Capital Stock of the Company in exchange for, or out of the
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proceeds of a substantially concurrent offering of, shares of Capital Stock of
the Company (other than Redeemable Stock); (vi) the acquisition of
Indebtedness of the Company that is subordinated in right of payment to the 9
1/4% Notes or the 10% Notes, as the case may be, in exchange for, or out of
the proceeds of a substantially concurrent offering of, shares of the Capital
Stock of the Company (other than Redeemable Stock); (vii) payments or
distributions pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the 1993 Note
Indentures applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company; (viii) the
purchase, redemption, acquisition, cancellation or other retirement for a
nominal value per right (as determined in good faith by the Board of
Directors) of any rights granted to all the Holders of Common Stock of the
Company pursuant to any shareholders' rights plan (i.e., a "poison pill")
adopted for the purpose (determined in good faith by the Board of Directors)
of protecting shareholders from unfair takeover tactics; provided that any
such purchase, redemption, acquisition, cancellation or other retirement of
such rights shall not be for the purpose of evading the limitations of this
"Limitation on Restricted Payments" covenant (all as determined in good faith
by the Board of Directors); or (ix) the purchase of shares of Capital Stock of
the Company or any Restricted Subsidiary for the purpose of contributing such
shares to the Plans, or permitting the Plans to make payments to participants
therein in cash rather than shares of Capital Stock of the Company or such
Restricted Subsidiary; provided that such purchases do not in any one fiscal
year of the Company exceed an aggregate amount of $30 million; and provided
that, in the case of clauses (ii) through (iv) and (vi), no Event of Default,
or event that after notice or passage of time or both would become an Event of
Default, shall have occurred and be continuing or shall occur as a consequence
thereof. (Section 3.04)
Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries. Under the terms of each of the 1993 Note Indentures,
the Company will not, and will not permit any Restricted Subsidiary (other
than a Foreign Subsidiary) to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other
Restricted Subsidiary or (iv) transfer, subject to certain exceptions, any of
its property or assets to the Company or any other Restricted Subsidiary.
The foregoing provision shall not restrict or prohibit any encumbrances
or restrictions existing: (i) in the Bank Credit Agreement, the 1993 Term Loan
Agreement, the Senior Secured Notes (including any agreement pursuant to which
the Senior Secured Notes are issued) or any other agreements in effect on the
Closing Date, including extensions, refinancings, renewals or replacements
thereof; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in
any material respect to the Holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed or
replaced; (ii) under any other agreement providing for the Incurrence of
Indebtedness; provided that the encumbrances and restrictions in any such
agreement are no less favorable in any material respect to the Holders than
those encumbrances and restrictions contained in the Bank Credit Agreement,
the Senior Secured Notes (including any agreement pursuant to which the Senior
Secured Notes are issued) or the 1993 Term Loan Agreement as of the Closing
Date; (iii) under or by reason of applicable law; (iv) with respect to any
Person or the property or assets of such Person acquired by the Company or any
Restricted Subsidiary and existing at the time of such acquisition, which
encumbrances or restrictions are not applicable to any Person or the property
or assets of any Person other than such Person or the property or assets of
such Person so acquired; (v) in the case of clause (iv) of the first paragraph
of this "Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by virtue of
any transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any Restricted Subsidiary
not otherwise prohibited by the 1993 Note Indentures or (C) arising or agreed
to in the ordinary course of business and that do not, individually or in the
aggregate, detract from the value of property or assets of the Company or any
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Restricted Subsidiary in any manner material to the Company or such Restricted
Subsidiary; or (vi) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or property
and assets of, such Restricted Subsidiary. Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent the Company or any Restricted Subsidiary
from (1) entering into any agreement permitting the incurrence of Liens
otherwise permitted in the "Limitation on Liens" covenant or (2) restricting
the sale or other disposition of property or assets of the Company or any of
its Subsidiaries that secure Indebtedness of the Company or any of its
Subsidiaries. (Section 3.05)
Limitation on Additional Tiers of Senior Subordinated Indebtedness.
Under the terms of the 10% Note Indenture, the Company will not Incur any
Indebtedness that is expressly made subordinate in right of payment to any
Senior Indebtedness unless such Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such Indebtedness is issued, (i)
is expressly made pari passu with, or subordinate in right of payment to, the
10% Notes pursuant to provisions substantially similar to those contained in
Article Eleven of the 10% Note Indenture, (ii) is the only issue of
subordinated Indebtedness senior in right of payment to the 10% Notes, or
(iii) is pari passu with such other subordinated Indebtedness described in
clause (ii) and subordinate in right of payment to the same Senior
Indebtedness as such other subordinated Indebtedness pursuant to provisions
substantially similar to those applicable to such other subordinated
Indebtedness; provided, however, that the foregoing limitation shall not apply
to distinctions between categories of unsubordinated Indebtedness that exist
by reason of any Liens or Guarantees arising or created in respect of some but
not all of such unsubordinated Indebtedness. (Section 3.06)
Limitation on the Issuance of Capital Stock of Domestic Restricted
Subsidiaries. Under the terms of the 9 1/4% Note Indenture, the Company will
not permit any Domestic Subsidiary that is a Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock (including
options, warrants or other rights to purchase shares of such Capital Stock)
except (i) to the Company or another Restricted Subsidiary that is a Wholly
Owned Subsidiary of the Company or (ii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary for purposes of the 9 1/4% Note Indenture. (Section
3.06)
Limitation on Transactions with Shareholders and Affiliates. Under the
terms of each of the 1993 Note Indentures, the Company will not, and will not
permit any Subsidiary of the Company to, directly or indirectly, enter into,
renew or extend any transaction (including, without limitation, the purchase,
sale, lease or exchange of property or assets, or the rendering of any
service) with any Holder (or any Affiliate of such Holder) of 5% or more of
any class of Capital Stock of the Company or any Subsidiary of the Company or
with any Affiliate of the Company or any Subsidiary of the Company (other than
the Plans), except upon fair and reasonable terms no less favorable to the
Company or such Subsidiary of the Company than could be obtained in a
comparable arm's-length transaction with a Person that is not such a Holder or
an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Subsidiary delivers to
the 1993 Note Trustees a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Subsidiary of the Company from a financial point of view; (ii) any transaction
between the Company and any Restricted Subsidiary or between Restricted
Subsidiaries; (iii) the payment of reasonable and customary regular fees to
directors of the Company who are not employees of the Company; or (iv) any
Restricted Payments not prohibited by the "Limitation on Restricted Payments"
covenant. (Section 3.07)
Limitation on Liens. Under the terms of each of the 1993 Note
Indentures, the Company will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Lien on any
Principal Property, or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the 1993
Notes and all other amounts due under the 1993 Note Indentures to be directly
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secured equally and ratably with (or prior to) the obligation or liability
secured by such Lien unless, after giving effect thereto, the aggregate amount
of any Indebtedness so secured, plus, in the case of the 9 1/4% Notes, the
Attributable Indebtedness for all sale-leaseback transactions restricted as
described in the "Limitation on Sale-Leaseback Transactions" covenant, does
not exceed 15% of Adjusted Consolidated Assets.
Under the terms of the 9 1/4% Note Indenture, the foregoing limitation
does not apply to, and any computation of Indebtedness secured under such
limitation shall exclude, (i) Liens securing (A) obligations under the Bank
Credit Agreement or the 1993 Term Loan Agreement up to the amount of
Indebtedness permitted to be Incurred under clause (i) of the second paragraph
of the "Limitation on Indebtedness" covenant or (B) the Senior Secured Notes
up to the amount thereof outstanding on the Closing Date; (ii) other Liens
existing on the Closing Date; (iii) Liens securing Indebtedness of Restricted
Subsidiaries (other than Acquired Indebtedness and refinancings thereof); (iv)
Liens securing Indebtedness (other than subordinated Indebtedness) Incurred
under clause (ii) (except that the sum of (A) the amount of Indebtedness
Incurred by the Restricted Subsidiaries plus (B) the amount of secured
Indebtedness (without duplication of any amount Incurred under subclause (A)
of this clause (iv)) shall not exceed $200 million outstanding at any time) or
(vi) of the second paragraph of the "Limitation on Indebtedness" covenant; (v)
Liens granted in connection with the extension, renewal or refinancing, in
whole or in part, of any Indebtedness described in clauses (i) through (iv)
above; provided that the amount of Indebtedness secured by such Lien is not
increased thereby (except to the extent that Indebtedness under the Bank
Credit Agreement is increased to the extent permitted by clause (i) of the
second paragraph of the "Limitation on Indebtedness" covenant); and provided
further that the extension, renewal or refinancing of Indebtedness of the
Company may not be secured by Liens on assets of any Restricted Subsidiary
other than to the extent the Indebtedness being extended, renewed or
refinanced was at any time previously secured by Liens on assets of such
Restricted Subsidiary; (vi) Liens with respect to Acquired Indebtedness and
refinancings thereof permitted under clause (viii) of the second paragraph of
the "Limitation on Indebtedness" covenant; provided that such Liens do not
extend to or cover any property or assets of the Company or any Subsidiary of
the Company other than the property or assets of the Subsidiary acquired; or
(vii) Permitted Liens.
Under the terms of the 10% Note Indenture, the limitation set forth in
the first paragraph of this "Limitation on Liens" covenant does not apply to
(i) Liens described in the preceding paragraph of this "Limitation on Liens"
covenant or (ii) Liens securing Senior Indebtedness. (Section 3.08)
Limitation on Sale-Leaseback Transactions. Under the terms of the
9 1/4% Note Indenture, the Company will not, and will not permit any
Restricted Subsidiary to, enter into any sale-leaseback transaction involving
any Principal Property, unless the aggregate amount of all Attributable
Indebtedness with respect to such transactions, plus all Indebtedness secured
by Liens on Principal Properties (excluding secured Indebtedness that is
excluded as described in the "Limitation on Liens" covenant), does not exceed
15% of Adjusted Consolidated Assets.
The foregoing restriction does not apply to, and any computation of
Attributable Indebtedness under such limitation shall exclude, any sale-
leaseback transaction if (i) the lease is for a period, including renewal
rights, of not in excess of three years; (ii) the sale or transfer of the
Principal Property is entered into prior to, at the time of, or within 12
months after the later of the acquisition of the Principal Property or the
completion of construction thereof; (iii) the lease secures or relates to
industrial revenue or pollution control bonds; (iv) the transaction is between
the Company and any Restricted Subsidiaries or between Restricted
Subsidiaries; or (v) the Company or such Restricted Subsidiary, within 12
months after the sale of any Principal Property is completed, applies an
amount not less than the net proceeds received from such sale to the
retirement of Senior Indebtedness, to Indebtedness of a Restricted Subsidiary
or to the purchase of other property that will constitute Principal Property
or improvements thereto. (Section 3.10)
Limitation on Asset Sales. Under the terms of each of the 1993 Note
Indentures, in the event and to the extent that the Net Cash Proceeds received
by the Company or any of its Restricted Subsidiaries from one or more Asset
Sales occurring on or after the Closing Date in any period of 12 consecutive
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months (other than Asset Sales by the Company or any Restricted Subsidiary to
the Company or another Restricted Subsidiary) exceed 15% of Adjusted
Consolidated Assets in any one fiscal year (determined as of the date closest
to the commencement of such 12-month period for which a balance sheet of the
Company and its Subsidiaries has been prepared), then the Company shall (i)
within 12 months (or, in the case of Asset Sales of plants or facilities, 24
months) after the date Net Cash Proceeds so received exceed 15% of Adjusted
Consolidated Assets in any one fiscal year (determined as of the date closest
to the commencement of such 12-month period for which a balance sheet of the
Company and its Subsidiaries has been prepared) (A) apply an amount equal to
such excess Net Cash Proceeds to repay Senior Indebtedness (in the case of the
10% Note Indenture) or unsubordinated Indebtedness (in the case of the 9 1/4%
Note Indenture) or, in the case of either 1993 Note Indenture, Indebtedness of
any Restricted Subsidiary, in each case owing to a Person other than the
Company or any of its Subsidiaries or (B) invest an equal amount, or the
amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement), in property or assets that are of a nature or type or are used in
a business (or in a company having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, the Company and its Subsidiaries
existing on the date thereof (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) apply such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraphs of
this "Limitation on Asset Sales" covenant. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period or 24-month period, as the case may be, as set forth in clause
(A) or (B) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $10 million, the Company must, not later than
the fifteenth Business Day of such month, make an offer (an "Excess Proceeds
Offer") to purchase from the Holders on a pro rata basis an aggregate
principal amount of 1993 Notes equal to the Excess Proceeds on such date, at a
purchase price equal to 101% of the principal amount of such 1993 Notes, plus,
in each case, accrued interest (if any) to the date of purchase (the "Excess
Proceeds Payment"); provided, however, that no Excess Proceeds Offer shall be
required to be commenced with respect to the 10% Notes until the Business Day
following the Excess Proceeds Payment Date (as defined below) with respect to
the 9 1/4% Notes and need not be commenced if the Excess Proceeds remaining
after application to the 9 1/4% Notes purchased in the Excess Proceeds Offer
applicable thereto are less than $10 million; and provided further, however
that no 10% Notes may be purchased under this "Limitation on Asset Sales"
covenant unless the Company shall have purchased all 9 1/4% Notes tendered
pursuant to the Excess Proceeds Offer applicable thereto.
Notwithstanding the foregoing, (i) to the extent that any or all of the
Net Cash Proceeds of any Asset Sale are prohibited or delayed by applicable
local law from being repatriated to the United States of America, the portion
of such Net Cash Proceeds so affected will not be required to be applied
pursuant to this "Limitation on Asset Sales" covenant but may be retained for
so long, but only for so long, as the applicable local law will not permit
repatriation to the United States of America (the Company hereby agrees to
promptly take all reasonable actions required by the applicable local law to
permit such repatriation) and once such repatriation of any such affected Net
Cash Proceeds is permitted under the applicable local law, such repatriation
will be immediately effected and such repatriated Net Cash Proceeds will be
applied in the manner set forth in this "Limitation on Asset Sales" covenant
as if such Asset Sale had occurred on the date of repatriation; and (ii) to
the extent that the Board of Directors has determined in good faith that
repatriation of any or all of the Net Cash Proceeds would have an adverse tax
consequence to the Company, the Net Cash Proceeds so affected may be retained
outside the United States of America for so long as such adverse tax
consequence would continue.
The Company shall commence an Excess Proceeds Offer by mailing a notice
to the 1993 Note Trustee or 1993 Note Trustees, as the case may be, and each
Holder stating: (i) that the Excess Proceeds Offer is being made pursuant to
this "Limitation on Asset Sales" covenant and that all 1993 Notes validly
tendered will be accepted for payment on a pro rata basis; (ii) the purchase
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price and the date of purchase (which shall be a Business Day no earlier than
30 days nor later than 40 days from the date such notice is mailed) (the
"Excess Proceeds Payment Date"); (iii) that any 1993 Note not tendered will
continue to accrue interest; (iv) that, unless the Company defaults in the
payment of the Excess Proceeds Payment, any 1993 Note accepted for payment
pursuant to the Excess Proceeds Offer shall cease to accrue interest after the
Excess Proceeds Payment Date; (v) that Holders electing to have a 1993 Note
purchased pursuant to the Excess Proceeds Offer will be required to surrender
the 1993 Note, together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of the 1993 Note completed, to the Paying Agent
at the address specified in the notice prior to the close of business on the
Business Day immediately preceding the Excess Proceeds Payment Date; (vi) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the third Business Day
immediately preceding the Excess Proceeds Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of such Holder, the
principal amount of 1993 Notes delivered for purchase and a statement that
such Holder is withdrawing his election to have such 1993 Notes purchased; and
(vii) that Holders whose 1993 Notes are being purchased only in part will be
issued new 1993 Notes equal in principal amount to the unpurchased portion of
the 1993 Notes surrendered; provided that each 1993 Note purchased and each
new 1993 Note issued shall be in an original principal amount of $1,000 or
integral multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis 1993 Notes or portions thereof tendered pursuant
to the Excess Proceeds Offer; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all 1993 Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the 1993 Note
Trustee or 1993 Note Trustees, as the case may be, 1993 Notes or portions
thereof so accepted together with an Officers' Certificate specifying the 1993
Notes or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail to the Holders of 1993 Notes so accepted payment in
an amount equal to the purchase price, and the appropriate 1993 Note Trustee
shall promptly authenticate and mail to such Holders a new 1993 Note equal in
principal amount to any unpurchased portion of the 1993 Note surrendered;
provided that each 1993 Note purchased and each new 1993 Note issued shall be
in an original principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Excess Proceeds Offer as
soon as practicable after the Excess Proceeds Payment Date. For purposes of
this "Limitation on Asset Sales" covenant, the respective 1993 Note Trustee
for the 9 1/4% Notes or the 10% Notes, as the case may be, shall act as the
Paying Agent. (Section 3.09)
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are
received by the Company under this "Limitation on Asset Sales" covenant and
the Company is required to repurchase 1993 Notes as described above.
Events Of Default
The following events will be defined as "Events of Default" in each 1993
Note Indenture: (a) the Company defaults in the payment of principal of (or
premium, if any, on) any 9 1/4% Note or 10% Note, as the case may be, when the
same becomes due and payable at maturity, upon acceleration, redemption or
otherwise, whether or not, in the case of the 10% Notes, such payment is
prohibited by Article Eleven of the 10% Note Indenture; (b) the Company
defaults in the payment of interest on any 9 1/4% Note or 10% Note, as the
case may be, when the same becomes due and payable, and such default continues
for a period of 30 days, whether or not, in the case of the 10% Notes, such
payment is prohibited by Article Eleven of the 10% Note Indenture; (c) the
Company defaults in the performance of or breaches any other covenant or
agreement of the Company in the applicable 1993 Note Indenture or under the 9
1/4% Notes or 10% Notes, as the case may be, and such default or breach
continues for a period of 30 consecutive days after written notice by the
respective 1993 Note Trustee or the Holders of 25% or more in aggregate
principal amount of the 9 1/4% Notes or 10% Notes, as the case may be; (d)
there occurs with respect to any issue or issues of Indebtedness of the
Company and/or one or more Significant Subsidiaries having an outstanding
principal amount of $50 million or more individually or $100 million or more
in the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, an event of default
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that has caused the Holder or Holders thereof, or representatives of such
Holder or Holders, to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration; (e) any final judgment or order (not covered by insurance) for
the payment of money in excess of $50 million individually or $100 million in
the aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered)
shall be rendered against the Company or any Significant Subsidiary and shall
not be discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order in excess of $50 million
individually or that causes the aggregate amount for all such final judgments
or orders outstanding against all such Persons to exceed $100 million during
which a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; (f) a court having
jurisdiction in the premises enters a decree or order for (i) relief in
respect of the Company or any Significant Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (iii) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and,
in each case, such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; (g) the Company or any Significant Subsidiary
(i) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (ii) consents to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (iii) effects any
general assignment for the benefit of creditors; or (h) the Company and/or one
or more Significant Subsidiaries fails to make (i) at the final (but not any
interim) fixed maturity of any issue of Indebtedness a principal payment of
$50 million or more or (ii) at the final (but not any interim) fixed maturity
of more than one issue of such Indebtedness principal payments aggregating
$100 million or more and, in the case of clause (i), such defaulted payment
shall not have been made, waived or extended within 30 days of the payment
default and, in the case of clause (ii), all such defaulted payments shall not
have been made, waived or extended within 30 days of the payment default that
causes the amount described in clause (ii) to exceed $100 million.
(Section 5.01)
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above that occurs with respect to the Company) occurs and is
continuing under the 1993 Note Indentures, the respective 1993 Note Trustee
thereunder or the Holders of at least 25% in aggregate principal amount of the
9 1/4% Notes or 10% Notes, as the case may be, then outstanding, by written
notice to the Company (and to the respective 1993 Note Trustee if such notice
is given by such Holders (the "Acceleration Notice")), may, and the 1993 Note
Trustee at the request of the Holders shall, declare the entire unpaid
principal of, premium, if any, and accrued interest on the 9 1/4% Notes or 10%
Notes, as the case may be, to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable; provided that, in the case of
the 10% Notes, for so long as the Bank Credit Agreement or the 1993 Term Loan
Agreement is in effect, such declaration shall not become effective until the
earlier of (i) five Business Days after receipt of the Acceleration Notice by
each Administrative Agent and the Company or (ii) acceleration of the
Indebtedness under the Bank Credit Agreement or the 1993 Term Loan Agreement;
and provided further that such acceleration shall automatically be rescinded
and annulled without any further action required on the part of the Holders of
the 10% Notes in the event that any and all Events of Default specified in the
Acceleration Notice under the 10% Note Indenture shall have been cured, waived
or otherwise remedied as provided in the 10% Note Indenture prior to the
expiration of the period referred to in the preceding clauses (i) and (ii). In
the event of a declaration of acceleration because an Event of Default set
forth in clause (d) or (h) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (d)
or (h) shall be remedied, cured by the Company or waived by the Holders of the
relevant Indebtedness within 60 days after the declaration of acceleration
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with respect thereto. If an Event of Default specified in clause (f) or (g)
above occurs with respect to the Company, all unpaid principal of, premium, if
any, and accrued interest on the 9 1/4% Notes or 10% Notes, as the case may
be, then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the respective
1993 Note Trustee or any Holder. The Holders of at least a majority in
principal amount of the respective outstanding 9 1/4% Notes or 10% Notes, as
the case may be, by written notice to the Company and to their respective 1993
Note Trustee, may waive all past defaults and rescind and annul a declaration
of acceleration and its consequences if (i) all existing Events of Default,
other than the non-payment of the principal of, premium, if any, and interest
on the 9 1/4% Notes or 10% Notes, as the case may be, that have become due
solely by such declaration of acceleration, have been cured or waived and (ii)
the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. (Sections 5.02 and 5.04) For information as to the
waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding 9 1/4% Notes or 10% Notes, as the case may be, may direct the
time, method and place of conducting any proceeding for any remedy available
to their respective 1993 Note Trustee or exercising any trust or power
conferred on such 1993 Note Trustee. However, the 1993 Note Trustee under each
1993 Note Indenture may refuse to follow any direction that conflicts with law
or such 1993 Note Indenture, that may involve the 1993 Note Trustee in
personal liability, or that the 1993 Note Trustee determines in good faith may
be unduly prejudicial to the rights of Holders of 9 1/4% Notes or 10% Notes,
as the case may be, not joining in the giving of such direction. (Section
5.05) A Holder may not pursue any remedy with respect to its respective 1993
Note Indenture or the 9 1/4% Notes or 10% Notes, as the case may be, unless:
(i) the Holder gives to its respective 1993 Note Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount of outstanding 9 1/4% Notes or 10% Notes, as the case may be,
make a written request to their respective 1993 Note Trustee to pursue the
remedy; (iii) such Holder or Holders offer to their respective 1993 Note
Trustee indemnity satisfactory to their respective 1993 Note Trustee against
any costs, liability or expense; (iv) such 1993 Note Trustee does not comply
with the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding 9 1/4% Notes or 10% Notes, as
the case may be, do not give their respective 1993 Note Trustee a direction
that is inconsistent with the request. (Section 5.06) However, such
limitations do not apply to the right of any Holder of a 9 1/4% Note or 10%
Note, as the case may be, to receive payment of the principal of, premium, if
any, or interest on, such 9 1/4% Note or 10% Note, as the case may be, or to
bring suit for the enforcement of any such payment, on or after the respective
due dates expressed in the 9 1/4% Notes or 10% Notes, as the case may be,
which right shall not be impaired or affected without the consent of the
Holder. (Section 5.07)
The 1993 Note Indentures will require certain officers of the Company to
certify, on or before a date not more than 90 days after the end of each
fiscal year, that a review has been conducted of the activities of the Company
and its Subsidiaries and the Company's and its Subsidiaries' performance under
the 1993 Note Indentures and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof.
The Company will also be obligated to notify the 1993 Note Trustees of any
default or defaults in the performance of any covenants or agreements under
the 1993 Note Indentures. (Section 3.14)
Consolidation, Merger And Sale Of Assets
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of
its property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than a
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company with a
positive net worth; provided that, in connection with any merger of the
Company with a Restricted Subsidiary that is a Wholly Owned Subsidiary of the
Company, no consideration (other than Common Stock in the surviving Person or
the Company) shall be issued or distributed to the stockholders of the
Company) or permit any Person to merge with or into the Company unless:(i) the
Company shall be the continuing Person, or the Person (if other than the
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Company) formed by such consolidation or into which the Company is merged or
that acquired or leased such property and assets of the Company shall be a
corporation organized and validly existing under the laws of the United States
of America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the 1993 Note Trustees, in
form satisfactory to the 1993 Note Trustees, all of the obligations of the
Company on all of the 1993 Notes and under the 1993 Note Indentures; (ii)
immediately after giving effect to such transaction, no Event of Default and
no event that, after notice or passage of time or both will become an Event of
Default, shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Interest Coverage Ratio
of the Company (or any Person becoming the successor obligor of the 1993
Notes) is at least 1:1; provided that, if the Interest Coverage Ratio of the
Company before giving effect to such transaction is within the range set forth
in column (A) below, then the pro forma Interest Coverage Ratio of the Company
(or any Person becoming the successor obligor of the 1993 Notes) shall be at
least equal to the lesser of (1) the ratio determined by multiplying the
percentage set forth in column (B) below by the Interest Coverage Ratio of the
Company prior to such transaction and (2) the ratio set forth in column (C)
below:
(A) (B) (C)
1.11:1 to 1.99:1 .......................90% 1.5:1
2:00:1 to 2.99:1 .......................80% 2.1:1
3.00:1 to 3.99:1 .......................70% 2.4:1
4.00:1 or more .......................60% 2.5:1
; and provided further that, if the pro forma Interest Coverage Ratio of the
Company (or any Person becoming the successor obligor of the 1993 Notes) is
3:1 or more, the calculation in the preceding proviso shall be inapplicable
and such transaction shall be deemed to have complied with the requirements of
this clause (iii); (iv) immediately after giving effect to such transaction on
a pro forma basis, the Company (or any Person that becomes the successor
obligor of the 1993 Notes) shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to
such transaction; and (v) the Company delivers to the 1993 Note Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (iii) and (iv)) and Opinion of Counsel, in each case
stating that such consolidation, merger or transfer and such supplemental
indenture comply with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors, whose determination shall
be evidenced by a Board Resolution, the principal purpose of such transaction
is to change the state of incorporation of the Company; and provided further
that any such transaction shall not have as one of its purposes the evasion of
the foregoing limitations. (Section 4.01)
Defeasance
Defeasance and Discharge. Each 1993 Note Indenture provides that the
Company will be deemed to have paid and will be discharged from any and all
obligations in respect of the 9 1/4% Notes or the 10% Notes, as the case may
be, and the provisions of such 1993 Note Indenture will no longer be in effect
with respect to the 9 1/4% Notes or the 10% Notes, as the case may be, on the
123rd day after the deposit described below (except for, among other matters,
certain obligations to register the transfer or exchange of the 9 1/4% Notes
or the 10% Notes, as the case may be, to replace stolen, lost or mutilated 9
1/4% Notes or 10% Notes, as the case may be, to maintain paying agencies and
to hold monies for payment in trust) if, among other things, (A) the Company
has deposited with the relevant 1993 Note Trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
the 9 1/4% Notes or the 10% Notes, as the case may be, on the Stated Maturity
of such payments in accordance with the terms of the relevant 1993 Note
Indenture and the 9 1/4% Notes or the 10% Notes, as the case may be, (B) the
Company has delivered to the relevant 1993 Note Trustee either an Opinion of
Counsel to the effect that Holders of the 9 1/4% Notes or the 10% Notes, as
the case may be, will not recognize income, gain or loss for federal income
tax purposes as a result of the Company's exercise of its option under this
"Defeasance" provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the
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case if such deposit, defeasance and discharge had not occurred, which Opinion
of Counsel must be accompanied by a ruling of the Internal Revenue Service to
the same effect or a change in applicable federal income tax law after the
date of such 1993 Note Indenture or a ruling directed to the Company or such
1993 Note Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or event
that after the giving of notice or lapse of time or both would become an Event
of Default, shall have occurred and be continuing on the date of such deposit
or during the period ending on the 123rd day after the date of such deposit,
and such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company is a
party or by which the Company is bound, and (D) in the case of the 10% Note
Indenture, the Company is not prohibited from making payments in respect of
the 10% Notes by the provisions described under "Subordination," above.
(Section 7.02)
Defeasance of Certain Covenants and Certain Events of Default. Each
1993 Note Indenture further provides that the provisions of such 1993 Note
Indenture will no longer be in effect with respect to clauses (iii) and (iv)
under "Consolidation, Merger and Sale of Assets" and all the covenants
described herein under "Covenants," clause (c) under "Events of Default" with
respect to such covenants and clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets," and clauses (d), (e) and (h) under "Events of
Default" shall be deemed not to be Events of Default, and the provisions
described herein under "Subordination" shall not apply, upon, among other
things, the deposit with the relevant 1993 Note Trustee, in trust, of money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the 9 1/4% Notes or the 10% Notes, as the case may be, on the
Stated Maturity of such payments in accordance with the terms of such 1993
Note Indenture and the 9 1/4% Notes or the 10% Notes, as the case may be, the
satisfaction of the provisions described in clause (C) (and, in the case of
the 10% Notes, clause (D)) of the preceding paragraph and the delivery by the
Company to such 1993 Note Trustee of an Opinion of Counsel to the effect that,
among other things, the Holders of the 9 1/4% Notes or the 10% Notes, as the
case may be, will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred. (Section 7.03)
Defeasance and Certain Other Events of Default. In the event the
Company exercises its option to omit compliance with certain covenants and
provisions of the 1993 Note Indenture with respect to the 9 1/4% Notes or the
10% Notes, as the case may be, as described in the immediately preceding
paragraph and the 9 1/4% Notes or the 10% Notes, as the case may be, are
declared due and payable because of the occurrence of an Event of Default that
remains applicable, the amount of money and/or U.S. Government Obligations on
deposit with the relevant 1993 Note Trustee will be sufficient to pay amounts
due on the 9 1/4% Notes or the 10% Notes, as the case may be, at the time of
their Stated Maturity but may not be sufficient to pay amounts due on the 9
1/4% Notes or the 10% Notes, as the case may be, at the time of the
acceleration resulting from such Event of Default. However, the Company shall
remain liable for such payments.
The Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior
Secured Note Agreement each contain a covenant prohibiting defeasance of the
9 1/4% Notes and the 10% Notes without the consent of a specified percentage
of lenders under the Bank Credit Agreement and the 1993 Term Loan Agreement
and the Holders of the Senior Secured Notes. The 9 1/4% Note Indenture, the
12 5/8% Debenture Indenture and the Pass Through Certificate Leases also
contain covenants limiting defeasance of the 10% Notes.
Modification And Waiver
Modifications and amendments of each 1993 Note Indenture may be made by
the Company and the relevant 1993 Note Trustee with the consent of the Holders
of not less than a majority in aggregate principal amount of the outstanding
9 1/4% Notes or 10% Notes, as the case may be; provided, however, that no such
modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any
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installment of interest on, any 9 1/4% Note or 10% Note, as the case may be,
(ii) reduce the principal amount of, or premium, if any, or interest on, any
9 1/4% Note or 10% Note, as the case may be, (iii) change the place or
currency of payment of principal of, or premium, if any, or interest on, any 9
1/4% Note or 10% Note, as the case may be, (iv) impair the right to institute
suit for the enforcement of any payment on or after the Stated Maturity (or,
in the case of a redemption, on or after the Redemption Date) of any 9 1/4%
Note or 10% Note, as the case may be, (v) in the case of the 10% Notes, modify
the subordination provisions in a manner adverse to the Holders of the 10%
Notes, (vi) reduce the above-stated percentage of outstanding 9 1/4% Notes or
10% Notes, as the case may be, the consent of whose Holders is necessary to
modify or amend such 1993 Note Indenture, (vii) waive a default in the payment
of principal of, premium, if any, or interest on the 9 1/4% Notes or 10%
Notes, as the case may be or (viii) reduce the percentage of aggregate
principal amount of outstanding 9 1/4% Notes or 10% Notes, as the case may be,
the consent of whose Holders is necessary for waiver of compliance with
certain provisions of such 1993 Note Indenture or for waiver of certain
defaults. (Article Eight)
The Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior
Secured Note Agreement each contain a covenant prohibiting the Company from
consenting to any modification of the 1993 Note Indentures or waiver of any
provision thereof without the consent of a specified percentage of the lenders
under the Bank Credit Agreement and the 1993 Term Loan Agreement and the
Holders of the Senior Secured 1993 Notes. See "Description of Certain
Indebtedness--The Bank Credit Agreement" and "--The Senior Secured Notes."
No Personal Liability Of Incorporators, Shareholders, Officers, Directors Or
Employees
Each 1993 Note Indenture provides that no recourse for the payment of
the principal of, premium, if any, or interest on any of the 9 1/4% Notes or
10% Notes, as the case may be, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in such 1993 Note Indenture, or in any of the 9 1/4%
Notes or 10% Notes, as the case may be, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
shareholder, officer, director, employee or controlling person of the Company
or of any successor Person thereof. Each Holder, by accepting such 9 1/4%
Notes or 10% Notes, as the case may be, waives and releases all such
liability. (Section 9.09)
Concerning The 1993 Note Trustees
Each of the 1993 Note Indentures provides that, except during the
continuance of an Event of Default, the respective 1993 Note Trustee
thereunder will perform only such duties as are specifically set forth in such
1993 Note Indenture. If an Event of Default has occurred and is continuing,
the respective 1993 Note Trustee will exercise such rights and powers vested
in it under such 1993 Note Indenture and use the same degree of care and skill
in its exercise as a prudent person would exercise under the circumstances in
the conduct of such person's own affairs. (Section 6.01)
Each of the 1993 Note Indentures and provisions of the Trust Indenture
Act of 1939, as amended, incorporated by reference therein contain limitations
on the rights of the respective 1993 Note Trustee thereunder, should it become
a creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise. Each of the 1993 Note Trustees is permitted to engage
in other transactions; provided, however, that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
The 10% Trustee also serves as trustee with respect to the 12 5/8%
Debenture Indenture (as defined below). The 12 5/8% Debentures rank pari passu
in right of payment with the 10% Notes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
APPLICABLE TO THE 1993 NOTES
The 1993 Notes should be treated as debt for federal income tax
purposes. However, in the unlikely event that any of the 1993 Notes
ultimately were treated as equity, the amount treated as a distribution on any
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such 1993 Note would first be taxable to the Holder as dividend income to the
extent of the Company's current and accumulated earnings and profits and would
next be treated as a return of capital to the extent of the Holder's tax basis
in the 1993 Note, with any remaining amount treated as gain from the sale of
the 1993 Notes. Further, payments on such 1993 Notes to foreign persons would
not be eligible for the portfolio interest exception from U.S. withholding tax
and dividends thereon would be subject to U.S. withholding tax at a flat rate
of 30% (or lower treaty rate). In addition, in the event of equity treatment,
the Company would not be entitled to deduct interest expense on such 1993
Notes for federal income tax purposes.
Subject to the discussion below, stated interest on both the 9 1/4%
Notes and the 10% Notes will be taxable as ordinary income to a Holder of such
notes when received or accrued in accordance with such Holder's method of tax
accounting. If, however, a Holder owns both the 9 1/4% Notes and the 10%
Notes, such Holder should be aware that, under the Final Regulations relating
to the tax treatment of original issue discount, the Holder could under
certain circumstances be required to aggregate the 9 1/4% Notes and the 10%
Notes held by such Holder and treat such aggregated Notes as a single debt
instrument, which treatment may result in such Holder having to recognize all
or a portion of stated interest on the 1993 Notes as original issue discount
under an economic accrual basis prior to the receipt of cash attributable to
stated interest. However, because a substantial portion of the 9 1/4% Notes
and 10% Notes were issued to Holders who were not related to each other or the
Company and who did not purchase both the 9 1/4% Notes and the 10% Notes, then
there is an exception in the Final Regulations which provides that the
aggregation rule would not apply to the 1993 Notes.
A Holder who purchases a 9 1/4% Note or a 10% Note at a premium
(generally, at a cost in excess of its principal amount or earlier call price
in the case of the 10% Notes) may elect to amortize such premium as an offset
to interest income on the debt with a corresponding decrease in tax basis. A
Holder who purchases a 9 1/4% Note or a 10% Note at a discount (generally, at
a cost less than its principal amount) that exceeds a statutorily defined de
minimis amount will be subject to the "market discount" rules of the Code.
These rules provide in part that gain on the sale of a debt instrument is
treated as ordinary income, generally interest, to the extent of accrued
market discount not previously included in income by the Holder. The market
discount rules also provide for a deferral of deductions for net interest
expense on indebtedness incurred or continued by a Holder to purchase or carry
a 9 1/4% Note or 10% Note acquired at a market discount until the Note is
disposed of in a taxable transaction or unless the Holder elects to include
market discount in income as it accrues.
Upon a redemption, sale or exchange of a 9 1/4% Note or a 10% Note, its
Holder will recognize gain or loss measured by the difference between the
amount received in exchange therefor and such Holder's adjusted tax basis in
the note. Any gain or loss recognized on the redemption, sale or exchange of a
note will ordinarily be capital gain or loss if such note is held as a capital
asset (except as noted above with respect to Holders who acquire a note at a
market discount) and will be long-term capital gain or loss, as the case may
be, if the Note was held for more than one year at the time of such
redemption, sale or exchange.
Under the Final Regulations, a holder of a debt instrument acquired on
or after April 4, 1994 may elect to include in gross income interest that
accrues on the debt instrument by using the constant yield method. For
purposes of this election, interest on a debt instrument includes stated
interest, original issue discount and market discount (including any
de minimis amounts), adjusted as applicable by any premium. Such election may
be revoked only with the consent of the IRS. Taxpayers should consult with
their advisors regarding the effect of such an election on any other debt
instruments held by such taxpayer and the advantages and disadvantages of
making this election.
Payments made on the 1993 Notes and proceeds from the sale of the 1993
Notes may be subject to a backup withholding tax of 31% unless the Holder of
the 1993 Note complies with certain reporting requirements or is an exempt
recipient under the Code. Any such withheld amounts will be allowed as a
credit against the Holder's federal income tax liability.
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THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY, ASSUMES THAT THE 1993 NOTES ARE HELD AS CAPITAL ASSETS, DOES
NOT DEAL WITH CERTAIN ASPECTS FOR TAXPAYERS SUBJECT TO SPECIAL RULES AND MAY
NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE 1993 NOTES, INCLUDING THE
TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
DESCRIPTION OF THE 8 1/4% NOTES AND THE 9% NOTES
The 8 1/4% Notes were issued under an Indenture, dated as of February 1,
1994 (the "8 1/4% Note Indenture"), between the Company and Norwest Bank
Wisconsin, N.A., as Trustee (the "8 1/4% Note Trustee"). The 9% Notes were
issued under an Indenture, dated as of February 1, 1994 (the "9% Note
Indenture"), between the Company and The Bank of New York, as Trustee (the "9%
Note Trustee"). The 8 1/4% Note Indenture and the 9% Note Indenture are
hereinafter referred to collectively as the "1994 Note Indentures." The
8 1/4% Note Trustee and the 9% Note Trustee are sometimes hereinafter referred
to collectively as the "1994 Note Trustees." Any reference to a "1994 Note
Trustee" means the 8 1/4% Note Trustee or the 9% Note Trustee, as the context
may require.
A copy of the form of each 1994 Note Indenture is filed as an exhibit to
the Registration Statement of which this Prospectus is a part and is available
as described under "Additional Information." The following summaries of
certain provisions of the respective 1994 Note Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the respective 1994 Note Indentures, including the
definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act of 1939, as amended. Wherever particular Sections or
defined terms of the 1994 Note Indentures not otherwise defined herein are
referred to, such Sections or defined terms shall be incorporated herein by
reference.
General
Principal of, premium, if any, and interest on the 8 1/4% Notes and the
9% Notes are payable, and the 8 1/4% Notes and the 9% Notes may be exchanged
or transferred, at the office or agency of the Company in the Borough of
Manhattan, The City of New York (which, for the 8 1/4% Notes, initially shall
be the corporate trust office of the 8 1/4% Note Trustee, at 3 New York Plaza,
15th Floor, New York, New York 10004 and, for the 9% Notes, initially shall be
the corporate trust office of the 9% Note Trustee, at 101 Barclay Street, New
York, New York 10286); provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Holders as such
address appears in the Security Register. (Sections 2.01 and 2.03)
The 8 1/4% Notes and the 9% Notes are issued only in fully registered
form, without coupons, in denominations of $1,000 and any integral multiple of
$1,000. (Section 2.02) No service charge shall be made for any registration
of transfer or exchange of 8 1/4% Notes or 9% Notes, but the Company may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith. (Section 2.05)
Terms Of The 8 1/4% Notes
The 8 1/4% Notes constitute unsecured senior obligations of the Company,
limited to $100 million aggregate principal amount, and will mature on
February 1, 2002. Each 8 1/4% Note bears interest at a rate per annum equal
to 8 1/4% from February 9, 1994 or from the most recent Interest Payment Date
to which interest has been paid or provided for, payable semiannually (to
Holders of record at the close of business on the January 15 or July 15
immediately preceding the Interest Payment Date) on February 1 and August 1 of
each year, commencing August 1, 1994. The 8 1/4% Notes will not be redeemable
prior to maturity.
Terms Of The 9% Notes
The 9% Notes constitute unsecured senior subordinated obligations of the
Company, limited to $650 million aggregate principal amount, and will mature
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on February 1, 2006. Each 9% Note bears interest at the rate per annum equal
to 9% from February 9, 1994 or from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semiannually (to the
Holders of record at the close of business on the January 15 or July 15
immediately preceding the Interest Payment Date) on February 1 and August 1 of
each year, commencing August 1, 1994.
Optional Redemption. The 9% Notes are redeemable, at the Company's
option, in whole or in part, at any time on or after February 1, 1999, and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's last address as it appears in the
Security Register, at the following Redemption Prices (expressed in
percentages of principal amount), plus accrued interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date), if redeemed during the 12-month period commencing on or
after February 1 of the years set forth below:
REDEMPTION YEAR PRICE
--------------- -----
1999......................104.50%
2000......................102.25%
and, after February 1, 2001, at 100% of principal amount. (Section 10.01)
In addition, at any time prior to February 1, 1997, the Company may
redeem up to $227.5 million aggregate principal amount of 9% Notes with the
proceeds of one or more Public Equity Offerings following which there is a
Public Market, at any time or from time to time, at a redemption price
(expressed as a percentage of principal amount) of 109%, plus accrued interest
to the Redemption Date.
Selection. In the case of any partial redemption, selection of the 9%
Notes for redemption will be made by the 9% Note Trustee in compliance with
the requirements of the principal national securities exchange, if any, on
which the 9% Notes are listed or, if the 9% Notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as
the 9% Note Trustee in its sole discretion shall deem to be fair and
appropriate; provided that no 9% Note of $1,000 in original principal amount
or less shall be redeemed in part. If any 9% Note is to be redeemed in part
only, the notice of redemption relating to such 9% Note shall state the
portion of the principal amount thereof to be redeemed. A new 9% Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original 9% Note.
The Bank Credit Agreement, the Senior Secured Note Agreement and the 1993
Term Loan Agreement each contain a covenant prohibiting the optional
redemption of the 9% Notes without the consent of a specified percentage in
interest of lenders under the Bank Credit Agreement and the 1993 Term Loan
Agreement, and of holders of Senior Secured Notes. The 8 1/4% Note Indenture,
9 1/4% Note Indenture and the Pass Through Certificate Leases also contain
covenants limiting the optional redemption of the 9% Notes.
Subordination
The Indebtedness evidenced by the 8 1/4% Notes ranks pari passu in right
of payment with all other senior indebtedness of the Company, including,
without limitation, the Company's obligations under the Bank Credit Agreement,
the 1993 Term Loan Agreement, the Pass Through Certificate Leases, certain
other leases resulting from sale and leaseback transactions, the Senior
Secured Notes (including the Senior Secured Note Agreement) and the 9 1/4%
Notes.
The Company's obligations under the Bank Credit Agreement, the 1993 Term
Loan Agreement and the Senior Secured Note Agreement are secured by a first
lien (subject to permitted liens) on the Shared Collateral. The Pass Through
Certificates are indirectly secured by a lien on the Pass Through Assets,
which consist of an owner trustee's interest in a paper manufacturing
facility, power plant and certain equipment related thereto located at the
Company's Savannah River mill, all of which are leased to the Company by such
owner trustee under the Pass Through Certificate Leases. The Pass Through
Certificate Leases are treated as capital leases pari passu with the 8 1/4%
Notes. In addition, the Company has obligations resulting from other sale and
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leaseback transactions which are treated as capital leases pari passu with the
8 1/4% Notes. The 1994 Notes are not secured. The holders of Secured
Indebtedness will be entitled to payment of their Indebtedness out of the
proceeds of their collateral prior to the holders of any unsecured obligations
of the Company, including the 1994 Notes. At March 31, 1994, the Company and
its subsidiaries had outstanding approximately $1.2 billion of Secured
Indebtedness and an additional $56 million available for borrowing under the
Revolving Credit Facility. See "Risk Factors--Subordination and Effect of
Asset Encumbrances" and "Selected Historical Consolidated Financial Data."
At March 31, 1994, the Company's subsidiaries had outstanding liabilities
of $124 million, including trade payables. The 1994 Notes will be effectively
subordinated to liabilities of the Company's subsidiaries, including trade
payables.
The payment of the Senior Subordinated Obligations, to the extent set
forth in the 9% Note Indenture, is subordinated in right of payment to the
prior payment in full, in cash or cash equivalents, of all Senior
Indebtedness, including, without limitation, the Company's obligations under
the Bank Credit Agreement, the 1993 Term Loan Agreement, the Senior Secured
Notes, the Pass Through Certificate Leases (to the extent required to pay the
Pass Through Certificate Secured Notes in full), and the 9 1/4% Notes. At
March 31, 1994, approximately $1.7 billion of Senior Indebtedness of the
Company was outstanding with respect to the 9% Notes. The 9% Notes rank
senior in right of payment to the 12 5/8% Debentures, the 14 1/8% Debentures
and the 10% Notes. See "Selected Historical Consolidated Financial Data."
To the extent any payment of Senior Indebtedness (whether by or on behalf
of the Company, as proceeds of security or enforcement of any right of setoff
or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then, if such payment is
recovered by, or paid over to, such receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person, the Senior Indebtedness or
part thereof originally intended to be satisfied shall be deemed to be
reinstated and outstanding as if such payment had not occurred. To the extent
the obligation to repay any Senior Indebtedness is declared to be fraudulent,
invalid, or otherwise set aside under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then the obligation so
declared fraudulent, invalid or otherwise set aside (and all other amounts
that would come due with respect thereto had such obligation not been so
affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes of the 9% Note Indenture as if such declaration,
invalidity or setting aside had not occurred. Upon any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, upon any dissolution or winding up or
total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all amounts due or to become due upon all Senior Indebtedness
(including any interest accruing subsequent to an event of bankruptcy, whether
or not such interest is an allowed claim enforceable against the debtor under
the United States Bankruptcy Code) shall first be paid in full, in cash or
cash equivalents, before the Holders of the 9% Notes or the 9% Note Trustee on
behalf of the Holders of the 9% Notes shall be entitled to receive any payment
by the Company on account of Senior Subordinated Obligations, or any payment
to acquire any of the 9% Notes for cash, property or securities, or any
distribution with respect to the 9% Notes of any cash, property or securities.
Before any payment may be made by, or on behalf of, the Company of any Senior
Subordinated Obligations upon any such dissolution, winding up, liquidation or
reorganization, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the 9% Notes or the 9% Note Trustee on behalf of the
Holders of the 9% Notes would be entitled, but for the subordination
provisions of the 9% Note Indenture, shall be made by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person making such payment or distribution or by the Holders of the 9% Notes
or the 9% Note Trustee if received by them or it, directly to the holders of
the Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
representatives or to the trustee or trustees under any indenture pursuant to
which Senior Indebtedness may have been issued, as their respective interests
appear, to the extent necessary to pay all such Senior Indebtedness in full,
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in cash or cash equivalents, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Senior
Indebtedness.
No direct or indirect payment by or on behalf of the Company of Senior
Subordinated Obligations, whether pursuant to the terms of the 9% Notes or
upon acceleration or otherwise shall be made if, at the time of such payment,
there exists a default in the payment of all or any portion of the obligations
on any Senior Indebtedness, and such default shall not have been cured or
waived or the benefits of this sentence waived by or on behalf of the holders
of such Senior Indebtedness. In addition, during the continuance of any other
event of default with respect to (i) the Bank Credit Agreement, the Senior
Secured Note Agreement or the 1993 Term Loan Agreement pursuant to which the
maturity thereof may be accelerated and (a) upon receipt by the 9% Note
Trustee of written notice from any Bank Agent or (b) if such event of default
under the Bank Credit Agreement, the Senior Secured Note Agreement or the 1993
Term Loan Agreement results from the acceleration of the 9% Notes, from and
after the date of such acceleration, no such payment may be made by or on
behalf of the Company upon or in respect of the 9% Notes for a period (a
"Payment Blockage Period") commencing on the earlier of the date of receipt of
such notice or the date of such acceleration and ending 159 days thereafter
(unless such Payment Blockage Period shall be terminated by written notice to
the 9% Note Trustee from any Bank Agent or such event of default has been
cured or waived) or (ii) any other Designated Senior Indebtedness pursuant to
which the maturity thereof may be accelerated, upon receipt by the 9% Note
Trustee of written notice from the trustee or other representative for the
holders of such other Designated Senior Indebtedness (or the holders of at
least a majority in principal amount of such other Designated Senior
Indebtedness then outstanding), no such payment may be made by or on behalf of
the Company upon or in respect of the 9% Notes for a Payment Blockage Period
commencing on the date of receipt of such notice and ending 119 days
thereafter (unless, in each case, such Payment Blockage Period shall be
terminated by written notice to the 9% Note Trustee from such trustee of, or
other representatives for, such holders). Not more than one Payment Blockage
Period may be commenced with respect to the 9% Notes during any period of 360
consecutive days; provided that, subject to the limitations set forth in the
next sentence, the commencement of a Payment Blockage Period by the
representatives for, or the holders of, Designated Senior Indebtedness other
than under the Bank Credit Agreement or the 1993 Term Loan Agreement or under
clause (i)(b) of this paragraph shall not bar the commencement of another
Payment Blockage Period by the Bank Agents within such period of 360
consecutive days. Notwithstanding anything in the 9% Note Indenture to the
contrary, there must be 180 consecutive days in any 360-day period in which no
Payment Blockage Period is in effect. No event of default (other than an
event of default pursuant to the financial maintenance covenants under the
Bank Credit Agreement, the Senior Secured Note Agreement or the 1993 Term Loan
Agreement) that existed or was continuing (it being acknowledged that any
subsequent action that would give rise to an event of default pursuant to any
provision under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose) on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or shall
be made, the basis for the commencement of a second Payment Blockage Period by
the representative for, or the holders of, such Designated Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such event of default shall have been cured or waived for a period of not less
than 90 consecutive days. (Article Eleven)
By reason of the subordination provisions described above, in the event
of liquidation or insolvency, creditors of the Company who are not holders of
Senior Indebtedness may recover less ratably than holders of Senior
Indebtedness and may recover more ratably than Holders of the 9% Notes.
"Senior Subordinated Obligations" is defined to mean any principal of,
premium, if any, and interest on the 9% Notes payable pursuant to the terms of
the 9% Notes or upon acceleration, including any amounts received upon the
exercise of rights of rescission or other rights of action (including claims
for damages) or otherwise, to the extent relating to the purchase price of the
9% Notes or amounts corresponding to such principal, premium, if any, or
interest on the 9% Notes.
"Senior Indebtedness" under the 9% Note Indenture is defined to mean the
following obligations of the Company, whether outstanding on the date of the
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9% Note Indenture or thereafter Incurred: (i) all Indebtedness and other
monetary obligations of the Company under the Bank Credit Agreement, the 1993
Term Loan Agreement, any Interest Rate Agreement or any Currency Agreement and
the Company's Guarantee of any Indebtedness or monetary obligation of any of
its Subsidiaries under the Bank Credit Agreement, the 1993 Term Loan
Agreement, any Interest Rate Agreement or any Currency Agreement, (ii) any
principal of, premium, if any, and interest on the Senior Secured Notes, the
9 1/4% Notes and the 8 1/4% Notes, (iii) all other Indebtedness of the Company
(other than the 9% Notes), including principal and interest on such
Indebtedness, unless such Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such Indebtedness is issued, is pari
passu with, or subordinated in right of payment to, the 9% Notes and (iv) all
fees, expenses and indemnities payable in connection with the Bank Credit
Agreement, the 1993 Term Loan Agreement and the Senior Secured Notes
(including any agreement pursuant to which the Senior Secured Notes were
issued) and, if applicable, Currency Agreements and Interest Rate Agreements;
provided that the term "Senior Indebtedness" shall not include (a) the 12 3/8%
Notes, the 12 5/8% Debentures, the 14 1/8% Debentures, the 10% Notes or any
amounts payable under the indentures relating thereto, or amounts payable
under the Pass Through Certificate Leases in excess of the amount necessary to
pay the outstanding Pass Through Certificate Secured Notes (including accrued
and unpaid interest) in full on the date of payment, (b) any Indebtedness of
the Company that, when Incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code, was without recourse to
the Company, (c) any Indebtedness of the Company to a Subsidiary of the
Company or to a joint venture in which the Company has an interest, (d) any
Indebtedness of the Company (other than such Indebtedness already described in
clause (i) above) of the type described in clause (iii) above and not
permitted by the "Limitation on Indebtedness" covenant described below, (e)
any repurchase, redemption or other obligation in respect of Redeemable Stock,
(f) any Indebtedness to any employee of the Company or any of its
Subsidiaries, (g) any liability for federal, state, local or other taxes owed
or owing by the Company and (h) any Trade Payables. Senior Indebtedness will
also include interest accruing subsequent to events of bankruptcy of the
Company and its Subsidiaries at the rate provided for in the document
governing such Senior Indebtedness, whether or not such interest is an allowed
claim enforceable against the debtor in a bankruptcy case under federal
bankruptcy law. (Section 1.01)
"Designated Senior Indebtedness" under the 9% Note Indenture is defined
to mean (i) Indebtedness under the Bank Credit Agreement, the 1993 Term Loan
Agreement or the Senior Secured Notes (including any agreement pursuant to
which the Senior Secured Notes were issued) and (ii) any other Indebtedness
constituting Senior Indebtedness that, at any date of determination, has an
aggregate principal amount of at least $100 million and is specifically
designated by the Company in the instrument creating or evidencing such Senior
Indebtedness as "Designated Senior Indebtedness"; provided that, at the time
of such designation, the aggregate outstanding amount (plus any unutilized
commitments) under the Bank Credit Agreement shall be $200 million or less.
(Section 1.01)
Except as set forth in the 9% Note Indenture, the subordination
provisions described above will cease to be applicable to the 9% Notes upon
any defeasance of the 9% Notes as described under "--Defeasance." (Article
Seven)
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the 1994 Note Indentures. Reference is made
to the appropriate 1994 Note Indenture for the full definition of all such
terms as well as any other capitalized terms used herein for which no
definition is provided. (Section 1.01)
"Acquired Indebtedness" is defined to mean Indebtedness of a Person
existing at the time such Person became a Subsidiary and not Incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary.
"Adjusted Consolidated Assets" is defined to mean the total amount of
assets of the Company and its Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), after deducting therefrom all
current liabilities of the Company and its consolidated Subsidiaries, all as
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set forth on the most recently available consolidated balance sheet of the
Company and its consolidated Subsidiaries, prepared in conformity with GAAP.
"Adjusted Consolidated Net Income" is defined to mean, for any period,
the aggregate net income (or loss) of any Person and its consolidated
Subsidiaries for such period determined in conformity with GAAP; provided that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income (or loss) of such Person
(other than a Subsidiary of such Person) in which any other Person (other than
such Person or any of its Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to such
Person or any of its Subsidiaries by such other Person during such period,
(ii) solely for the purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below (and in such
case, except to the extent includible pursuant to the foregoing clause (i)
above), the net income (or loss) of such Person accrued prior to the date it
becomes a Subsidiary of any other Person or is merged into or consolidated
with such other Person or any of its Subsidiaries or all or substantially all
of the property and assets of such Person are acquired by such other Person or
any of its Subsidiaries, (iii) the net income (or loss) of any Subsidiary of
such Person to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary of such net income is not at the time
permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
and (iv) all extraordinary gains and extraordinary losses; provided that,
solely for purposes of calculating the Interest Coverage Ratio (and in such
case, except to the extent includible pursuant to clause (i) above), Adjusted
Consolidated Net Income of the Company shall include the amount of all cash
dividends received by the Company or any Subsidiary of the Company from an
Unrestricted Subsidiary.
"Administrative Agent" is defined to mean the Bank Agent under the Bank
Credit Agreement or the 1993 Term Loan Agreement, or any successor thereto.
"Affiliate" is defined to mean, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any Person, is
defined to mean 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. For
purposes of this definition, no Bank Agent, Administrative Agent or Bank and
no affiliate of any of them shall be deemed to be an Affiliate of the Company.
"Asset Acquisition" is defined to mean (i) an investment by the Company
or any of its Subsidiaries in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any of its Subsidiaries or shall
be merged into or consolidated with the Company or any of its Subsidiaries or
(ii) an acquisition by the Company or any of its Subsidiaries of the assets of
any Person other than the Company or any of its Subsidiaries that constitute
substantially all of a division or line of business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by
the Company or any of its Subsidiaries (other than to the Company or another
Subsidiary of the Company) of (i) all or substantially all of the Capital
Stock of any Subsidiary of the Company or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Subsidiaries.
"Asset Sale" is defined to mean with respect to any Person, any sale,
transfer or other disposition (including by way of merger, consolidation or
sale-leaseback transactions) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other
than the Company or any of its Subsidiaries of (i) all or any of the Capital
Stock of any Subsidiary of such Person, (ii) all or substantially all of the
assets of a division or line of business of such Person or any of its
Subsidiaries or (iii) any other assets of such Person or any of its
Subsidiaries outside the ordinary course of business of such Person or such
Subsidiary and in each case, that is not governed by the provisions of the
Indentures (defined as the 1994 Note Indentures in this Prospectus) applicable
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to mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company; provided that, for the purposes of
determining the restrictions under the "Limitation on Asset Sales" covenant
described below, the Company may disregard sales or other dispositions of
inventory, receivables and other current assets.
"Attributable Indebtedness" is defined to mean, when used in connection
with a sale-leaseback transaction referred to in the "Limitation on Sale-
Leaseback Transactions" covenant described below, at any date of
determination, the product of (i) the net proceeds from such sale-leaseback
transaction and (ii) a fraction, the numerator of which is the number of full
years of the term of the lease relating to the property involved in such sale-
leaseback transaction (without regard to any options to renew or extend such
term) remaining at the date of the making of such computation and the
denominator of which is the number of full years of the term of such lease
(without regard to any options to renew or extend such term) measured from the
first day of such term.
"Average Life" is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the product of (A) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security
multiplied by (B) the amount of such principal payment by (ii) the sum of all
such principal payments.
"Bank Agent" is defined to mean Bankers Trust Company, as agent for the
Banks pursuant to the Bank Credit Agreement or the 1993 Term Loan Agreement,
and any successor or successors thereto.
"Bank Credit Agreement" is defined to mean the Credit Agreement, dated as
of October 24, 1988, among the Company, the Banks party thereto and the Bank
Agents party thereto, as amended to date, together with the related documents
thereto (including, without limitation, any Guarantees and security
documents), in each case, as such agreements may be amended (including any
amendment and restatement thereof), supplemented, replaced or otherwise
modified from time to time, including any agreement extending the maturity of,
refinancing or otherwise restructuring (including, but not limited to, the
inclusion of additional borrowers or Guarantors thereunder that are
Subsidiaries of the Company and whose obligations are Guaranteed by the
Company thereunder) all or any portion of the Indebtedness under such
agreements or any successor agreements; provided that, with respect to any
agreement providing for the refinancing of Indebtedness under the Bank Credit
Agreement, such agreement shall be the Bank Credit Agreement under the
Indentures (defined as the 1994 Note Indentures in this Prospectus) only if a
notice to that effect is delivered to the Trustee; and provided further that
there shall be at any one time only one instrument, together with any related
documents (including, without limitation, any Guarantees or security
documents), that is the Bank Credit Agreement under the Indentures.
"Banks" is defined to mean the lenders who are from time to time parties
to the Bank Credit Agreement or the 1993 Term Loan Agreement.
"Board of Directors" is defined to mean the Board of Directors of the
Company or any committee of such Board of Directors duly authorized to act
under the Indentures (defined as the 1994 Note Indentures in this Prospectus).
"Business Day" is defined to mean any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or in the city of
the Corporate Trust Office of the respective Trustees, are authorized by law
to close.
"Capital Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's capital stock,
whether now outstanding or issued after the date of the Indenture (defined as
the 1994 Note Indentures in this Prospectus), including, without limitation,
all Common Stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any
lease of any property (whether real, personal or mixed) of which the
discounted present value of the rental obligations of such Person as lessee,
in conformity with GAAP, is required to be capitalized on the balance sheet of
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such Person; and "Capitalized Lease Obligation" is defined to mean the rental
obligations, as aforesaid, under such lease.
"Closing Date" is defined to mean the date on which the Senior Notes or
the Senior Subordinated Notes (defined as the 8 1/4% Notes and the 9% Notes,
respectively, in this Prospectus), as the case may be, are originally issued
under their respective Indentures (defined as the 1994 Note Indentures in this
Prospectus).
"Common Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's common stock,
whether now outstanding or issued after the date of the Indentures (defined as
the 1994 Note Indentures in this Prospectus), including, without limitation,
all series and classes of such common stock.
"Consolidated Capital Expenditures" means expenditures (whether paid in
cash or accrued as liabilities and including Capitalized Lease Obligations) of
the Company and its Subsidiaries that, in conformity with GAAP, are included
in the property, plant or equipment reflected in the consolidated balance
sheet of the Company and its Subsidiaries.
"Consolidated EBITDA" is defined to mean, with respect to any Person for
any period, the sum of the amounts for such period of (i) Adjusted
Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) income
taxes (other than income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or sales of assets), (iv)
depreciation expense, (v) amortization expense and (vi) all other non-cash
items reducing Adjusted Consolidated Net Income, less all non-cash items
increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for such Person and its Subsidiaries in conformity with
GAAP; provided that, if a Person has any Subsidiary that is not a Wholly Owned
Subsidiary, Consolidated EBITDA of such Person shall be reduced by an amount
equal to (A) the Adjusted Consolidated Net Income of such Subsidiary
multiplied by (B) the quotient of (1) the number of shares of outstanding
Common Stock of such Subsidiary not owned on the last day of such period by
such Person or any Subsidiary of such Person divided by (2) the total number
of shares of outstanding Common Stock of such Subsidiary on the last day of
such period.
"Consolidated Interest Expense" is defined to mean, with respect to any
Person for any period, the aggregate amount of interest in respect of
Indebtedness (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; and the net costs associated with
Interest Rate Agreements) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by such Person and its consolidated subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Subsidiary
of such Person if the net income (or loss) of such Subsidiary is excluded in
the calculation of Adjusted Consolidated Net Income for such Person pursuant
to clause (iii) of the definition thereof (but only in the same proportion as
the net income (or loss) of such Subsidiary is excluded from the calculation
of Adjusted Consolidated Net Income for such Person pursuant to clause (iii)
of the definition thereof) and (ii) any premiums, fees and expenses (and any
amortization thereof) payable in connection with the Acquisition, the 1993
Refinancing and the Refinancing (defined as the 1994 Refinancing in this
Prospectus), all as determined in conformity with GAAP.
"Consolidated Net Worth" is defined to mean, at any date of
determination, shareholders' equity as set forth on the most recently
available consolidated balance sheet of the Company and its consolidated
Subsidiaries (which shall be as of a date not more than 60 days prior to the
date of such computation), less, to the extent required in conformity with
GAAP, any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of
Capital Stock of the Company or any Subsidiary of the Company (excluding the
effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52).
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"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Subsidiaries against fluctuations in
currency values to or under which the Company or any of its Subsidiaries is a
party or a beneficiary on the date of the Indentures or becomes a party or a
beneficiary thereafter.
"Domestic Subsidiary" is defined to mean any Subsidiary of the Company
other than a Foreign Subsidiary.
"Foreign Subsidiary" is defined to mean any Subsidiary of the Company
that is organized under the laws of a jurisdiction other than the United
States of America or any state thereof and more than 80% of the sales,
earnings or assets (determined on a consolidated basis in conformity with
GAAP) of which are located or derived from operations located in territories
outside of the United States of America and jurisdictions outside the United
States of America.
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indentures
(defined as the 1994 Note Indentures in this Prospectus), including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indentures shall be computed in
conformity with GAAP, except that calculations made for purposes of
determining compliance with the terms of the covenants described below and
with other provisions of the Indentures shall be made without giving effect to
(i) the amortization of any expenses incurred in connection with the
Acquisition, the 1993 Refinancing or the Refinancing (defined as the 1994
Refinancing in this Prospectus) and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
"Guarantee" is defined to mean any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-
pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided that
the term "Guarantee" shall not include endorsements for collection or deposit
in the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Holder" or "Securityholder" is defined to mean the registered holder of
any Senior Note or any Senior Subordinated Note (defined as the 8 1/4% Notes
and the 9% Notes, respectively, in this Prospectus), as the case may be.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with
respect to or extend the maturity of or become responsible for, the payment
of, contingently or otherwise, such Indebtedness; provided that neither the
accrual of interest (whether such interest is payable in cash or kind) nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the
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completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness of such
other Persons, (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person, (viii)
all obligations in respect of borrowed money under the Bank Credit Agreement,
the 1993 Term Loan Agreement, the Senior Secured Notes, the Notes (defined as
the 1994 Notes in this Prospectus) (including any agreements pursuant to which
the Notes were issued) and any Guarantees thereof and (ix) to the extent not
otherwise included in this definition, obligations under Currency Agreements
and Interest Rate Agreements. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence
of the contingency giving rise to the obligation, of any contingent
obligations at such date; provided that the amount outstanding at any time of
any Indebtedness issued with original issue discount is the face amount of
such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"Interest Coverage Ratio" is defined to mean, with respect to any Person
on any Transaction Date, the ratio of (i) the aggregate amount of Consolidated
EBITDA of such Person for the four fiscal quarters for which financial
information in respect thereof is available immediately prior to such
Transaction Date to (ii) the aggregate Consolidated Interest Expense of such
Person during such four fiscal quarters. In making the foregoing calculation,
(A) pro forma effect shall be given to (1) any Indebtedness Incurred
subsequent to the end of the four-fiscal-quarter period referred to in clause
(i) and prior to the Transaction Date (other than Indebtedness Incurred under
a revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement)
on the last day of such period), (2) any Indebtedness Incurred during such
period to the extent such Indebtedness is outstanding at the Transaction Date
and (3) any Indebtedness to be Incurred on the Transaction Date, in each case
as if such Indebtedness had been Incurred on the first day of such four-
fiscal-quarter period and after giving effect to the application of the
proceeds thereof; (B) Consolidated Interest Expense attributable to interest
on any Indebtedness (whether existing or being Incurred) computed on a pro
forma basis and bearing a floating interest rate shall be computed as if the
rate in effect on the date of computation (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months) had been the applicable rate for
the entire period; (C) there shall be excluded from Consolidated Interest
Expense any Consolidated Interest Expense related to any amount of
Indebtedness that was outstanding during such four-fiscal-quarter period or
thereafter but that is not outstanding or is to be repaid on the Transaction
Date, except for Consolidated Interest Expense accrued (as adjusted pursuant
to clause (B)) during such four-fiscal-quarter period under a revolving credit
or similar arrangement to the extent of the commitment thereunder (or under
any successor revolving credit or similar arrangement) on the Transaction
Date; (D) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions that occur during such four-fiscal-quarter period or thereafter
and prior to the Transaction Date (including any Asset Acquisition to be made
with the Indebtedness Incurred pursuant to clause (i) above) as if they had
occurred on the first day of such four-fiscal-quarter period; (E) with respect
to any such four-fiscal-quarter period commencing prior to the 1993
Refinancing or the Refinancing (defined as the 1994 Refinancing in this
Prospectus), the 1993 Refinancing or the Refinancing, as the case may be,
shall be deemed to have taken place on the first day of such period; and (F)
pro forma effect shall be given to asset dispositions and asset acquisitions
that have been made by any Person that has become a Subsidiary of the Company
or has been merged with or into the Company or any Subsidiary of the Company
during the four-fiscal-quarter period referred to above or subsequent to such
period and prior to the Transaction Date and that would have been Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Subsidiary of the Company as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on
the first day of such period.
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"Interest Rate Agreement" is defined to mean any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate
collar agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect the Company or any of its Subsidiaries against
fluctuations in interest rates to or under which the Company or any of its
Subsidiaries is a party or a beneficiary on the date of the Indentures
(defined as the 1994 Note Indentures in this Prospectus) or becomes a party or
a beneficiary thereafter.
"Investment" is defined to mean any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of any Person or its
Subsidiaries) or other extension of credit or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by any other Person. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, (i) "Investment" shall include the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary
of the Company is designated an Unrestricted Subsidiary and shall exclude the
fair market value of the net assets of any Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Subsidiary of the Company
and (ii) any property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer, in each case
as determined by the Board of Directors in good faith.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller).
"Net Cash Proceeds" is defined to mean, with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of
counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes (whether or not such taxes will actually be paid or are payable)
as a result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Subsidiaries, taken as a whole, (iii)
payments made to repay Indebtedness or any other obligation outstanding at the
time of such Asset Sale that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Company or any Subsidiary of the
Company as a reserve against any liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP.
"1993 Term Loan Agreement" is defined to mean the Term Loan Agreement,
dated as of March 22, 1993, among the Company, the Banks party thereto and the
Bank Agents party thereto, together with the related documents thereto
(including, without limitation, any Guarantees and security documents), in
each case, as such agreements may be amended (including any amendment and
restatement thereof), supplemented, replaced or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing or
otherwise restructuring (including, but not limited to, the inclusion of
additional borrowers or Guarantors thereunder that are Subsidiaries of the
Company and whose obligations are Guaranteed by the Company thereunder) all or
any portion of the Indebtedness under such agreements or any successor
agreements; provided that, with respect to any agreement providing for the
refinancing of Indebtedness under the 1993 Term Loan Agreement, such agreement
shall be the 1993 Term Loan Agreement under the Indentures (defined as the
1994 Note Indentures in this Prospectus) only if a notice to that effect is
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delivered to the Trustees (defined as the 1994 Note Trustees in this
Prospectus); and provided further that there shall be at any one time only one
instrument, together with any related documents (including, without
limitation, any Guarantees or security documents), that is the 1993 Term Loan
Agreement under the Indentures.
"Operating Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) that is not a Capitalized
Lease.
"Pass Through Certificates" is defined to mean the Pass Through
Certificates, Series 1991, representing fractional undivided interests in the
Fort Howard Corporation 1991 Pass Through Trust formed pursuant to a pass
through trust agreement by and between the Company and Wilmington Trust
Company, as trustee.
"Pass Through Certificate Leases" is defined to mean the leases under
which the Company leases the Phase IV paper manufacturing facility, the Phase
IV power plant and certain paper manufacturing production equipment, all
located in Effingham County, Georgia.
"Pass Through Certificate Secured Notes" is defined to mean the secured
notes issued on a nonrecourse basis by the owner trustee in connection with
its acquisition of the Company's interest in the Phase IV paper manufacturing
facility, the Phase IV power plant and certain paper manufacturing production
equipment, all located in Effingham County, Georgia.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return of money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its Subsidiaries; (vi) Liens (including extensions and
renewals thereof) upon real or tangible personal property acquired after the
Closing Date; provided that (a) such Lien is created solely for the purpose of
securing Indebtedness Incurred (1) to finance the cost (including the cost of
improvement or construction) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within 12 months after
the later of the acquisition, the completion of construction or the
commencement of full operation of such property or (2) to refinance any
Indebtedness previously so secured, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c)
any such Lien shall not extend to or cover any property or assets other than
such item of property or assets and any improvements on such item; (vii)
leases or subleases granted to others that do not materially interfere with
the ordinary course of business of the Company or any of its Subsidiaries;
(viii) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of the Company or any of its
Subsidiaries relating to such property or assets, (ix) any interest or title
of a lessor in the property subject to any Capitalized Lease or Operating
Lease; provided that, in the case of the Senior Notes (defined as the 8 1/4%
Notes in this Prospectus), any sale-leaseback transaction related thereto
complies with the "Limitation on Sale-Leaseback Transactions" covenant
described below; (x) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (xi) Liens on property of, or on shares
of stock or Indebtedness of, any corporation existing at the time such
corporation becomes, or becomes a part of, any Restricted Subsidiary; (xii)
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Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens
securing any real property or other assets of the Company or any Subsidiary of
the Company in favor of the United States of America or any State, or any
department, agency, instrumentality or political subdivision thereof, in
connection with the financing of industrial revenue bond facilities or of any
equipment or other property designed primarily for the purpose of air or water
pollution control; provided, however, that any such Lien on such facilities,
equipment or other property shall not apply to any other assets of the Company
or such Subsidiary of the Company; (xiv) Liens arising from the rendering of a
final judgment or order against the Company or any Subsidiary of the Company
that does not give rise to an Event of Default; (xv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof; (xvi) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xvii) Liens encumbering customary
initial deposits and margin deposits, and other Liens that are either within
the general parameters customary in the industry and incurred in the ordinary
course of business or otherwise permitted under the terms of the Bank Credit
Agreement or the 1993 Term Loan Agreement, in each case securing Indebtedness
under Interest Rate Agreements and Currency Agreements and forward contracts,
options, futures contracts, futures options or similar agreements or
arrangements designed to protect the Company or any of its Subsidiaries from
fluctuations in the price of commodities; (xviii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Subsidiaries in the
ordinary course of business in accordance with the past practices of the
Company and its Subsidiaries prior to the Closing Date; and (xix) Liens on or
sales of receivables.
"Person" is defined to mean an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plans" is defined to mean any employee benefit plan, pension plan, stock
option plan or similar plan or arrangement of the Company or any Subsidiary of
the Company, or any successor plan thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's preferred or
preference stock, whether now outstanding or issued after the date of the
Indentures (defined as the 1994 Note Indentures in this Prospectus),
including, without limitation, all series and classes of such preferred or
preference stock.
"Principal Property" is defined to mean any manufacturing or processing
plant, warehouse or other building used by the Company or any Restricted
Subsidiary, other than a plant, warehouse or other building that, in the good
faith opinion of the Board of Directors as reflected in a Board Resolution, is
not of material importance to the respective businesses conducted by the
Company or any Restricted Subsidiary as of the date such Board Resolution is
adopted.
"Public Equity Offering" means an underwritten primary public offering of
equity securities of the Company pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has
been consummated and (y) at least 15% of the total issued and outstanding
common stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Redeemable Stock" is defined to mean any class or series of Capital
Stock of any Person that by its terms or otherwise is (i) required to be
redeemed prior to the Stated Maturity of the Notes (defined as the 1994 Notes
in this Prospectus), (ii) redeemable at the option of the holder of such class
or series of Capital Stock at any time prior to the Stated Maturity of the
Notes or (iii) convertible into or exchangeable for Capital Stock referred to
in clause (i) or (ii) above or Indebtedness having a scheduled maturity prior
to the Stated Maturity of the Notes; provided that any Capital Stock that
would not constitute Redeemable Stock but for provisions thereof giving
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holders thereof the right to require the Company to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" occurring prior to the
Stated Maturity of the Notes shall not constitute Redeemable Stock if the
asset sale provisions applicable to such Capital Stock are no more favorable
to the holders of such Capital Stock than the provisions contained in the
"Limitation on Asset Sales" covenant described below and such Capital Stock
specifically provides that the Company will not repurchase or redeem any such
stock pursuant to such provisions prior to the Company's repurchase of the
Notes as are required to be repurchased pursuant to the provisions of the
"Limitation on Asset Sales" covenant described below.
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Senior Secured Notes" is defined to mean the Company's Senior Secured
Notes due 1997 through 2000, issued in 1991 and having an aggregate principal
amount of $300 million.
"Significant Subsidiary" is defined to mean, at any date of
determination, any Subsidiary of the Company that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Company, accounted
for more than 10% of the consolidated revenues of the Company or (ii) as of
the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company, all as set forth on the most recently
available consolidated financial statements of the Company for such fiscal
year.
"Stated Maturity" is defined to mean, with respect to any debt security
or any installment of interest thereon, the date specified in such debt
security as the fixed date on which any principal of such debt security or any
such installment of interest is due and payable.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of
the outstanding Voting Stock is owned, directly or indirectly, by the Company
or by one or more other Subsidiaries of the Company, or by such Person and one
or more other Subsidiaries of such Person; provided that, except as the term
"Subsidiary" is used in the definition of "Unrestricted Subsidiary" described
below, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary of
the Company for purposes of the Indentures (defined as the 1994 Note
Indentures in this Prospectus).
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by the Company or any of its Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if
such Subsidiary has assets greater than $1,000, that such designation would be
permitted under the "Limitation on Restricted Payments" covenant described
below; and provided further that, for purposes of valuing the amount of an
Investment in any Foreign Subsidiary being made by reason of such designation,
the amount that shall be taken into account (instead of the fair market value
of the net assets of such Subsidiary (which shall apply in the case of a
Domestic Subsidiary)) shall be the sum of (1) the amount of Investments that
have been made by the Company or any Restricted Subsidiary in such Foreign
Subsidiary during the period from the Closing Date to the date of such
designation plus (2) the amount, determined pursuant to clause (C)(1) of the
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first paragraph of such "Limitation on Restricted Payments" covenant, in
respect of the Adjusted Consolidated Net Income of the Company attributable to
such Foreign Subsidiary during the period (taken as one accounting period)
beginning on April 1, 1994 and ending on the last day of the last fiscal
quarter preceding the Transaction Date and not previously dividended or
distributed to the Company or any other Restricted Subsidiary. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Company; provided that immediately after giving effect to
such designation (x) the Company could Incur $1.00 of additional Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant
described below and (y) no Event of Default, or event that after notice or
passage of time or both would become an Event of Default, shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustees (defined as the 1994 Note Trustees in this
Prospectus) by promptly filing with each of the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" is defined to mean Capital Stock of any class or kind
ordinarily having the power to vote for the election of directors of the
Company.
"Wholly Owned Subsidiary" is defined to mean, with respect to any Person,
any Subsidiary of such Person if all of the Common Stock or other similar
equity ownership interests (but not including Preferred Stock) in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly or indirectly
by such Person.
Covenants
Limitation on Indebtedness. Under the terms of the 1994 Note Indentures,
the Company shall not, and shall not permit any Restricted Subsidiary to,
Incur any Indebtedness (other than the 1994 Notes (including any agreements
pursuant to which the 1994 Notes were issued) and Indebtedness existing on the
Closing Date); provided that the Company may Incur Indebtedness if, after
giving effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Interest Coverage Ratio of the
Company would be greater than (a) prior to or on December 31, 1996, 1.5:1 and
(b) after December 31, 1996, 1.75:1.
Notwithstanding the foregoing, under each 1994 Note Indenture (except as
expressly provided otherwise below), the Company and any Restricted Subsidiary
may Incur each and all of the following: (i) Indebtedness outstanding at any
time in an aggregate principal amount not to exceed the sum of the outstanding
Indebtedness and the unused commitment under the Bank Credit Agreement and the
1993 Term Loan Agreement as of the Closing Date; (ii) Indebtedness outstanding
at any time in an aggregate principal amount not to exceed $400 million;
provided that, solely in the case of the 8 1/4% Note Indenture, (A) the amount
of such Indebtedness outstanding at any time of Restricted Subsidiaries under
this clause (ii) shall not exceed $200 million and (B) the amount of such
Indebtedness outstanding at any time of Domestic Subsidiaries under this
clause (ii) shall not exceed $100 million; (iii) Indebtedness of the Company
to any of its Restricted Subsidiaries that is a Wholly Owned Subsidiary of the
Company, or of a Restricted Subsidiary to the Company or to any other
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company; (iv)
Indebtedness issued in exchange for, or the net proceeds of which are used to
refinance, outstanding Indebtedness of the Company or any of its Restricted
Subsidiaries, other than Indebtedness Incurred under clauses (i), (ii), (vii),
(viii) or (x) and any refinancings thereof, in an amount (or, if such new
Indebtedness provides for an amount less than the principal amount thereof to
be due and payable upon a declaration of acceleration thereof, with an
original issue price) not to exceed the amount so exchanged or refinanced
(plus premiums, accrued interest, fees and expenses); provided that
Indebtedness issued in exchange for or the net proceeds of which are used to
refinance the 8 1/4% Notes or the 9% Notes, as the case may be, or other
Indebtedness of the Company that is subordinated in right of payment to the
8 1/4% Notes or the 9% Notes, as the case may be, shall only be permitted
under this clause (iv) if (A) in case the 8 1/4% Notes or the 9% Notes, as the
case may be, are exchanged or refinanced in part, such Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, is expressly made pari passu with, or subordinate in
right of payment to, the remaining 8 1/4% Notes, or 9% Notes, as the case may
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be, (B) in case the Indebtedness to be exchanged or refinanced is subordinated
in right of payment to the 8 1/4% Notes or the 9% Notes, as the case may be,
such Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is expressly made subordinate
in right of payment to the 8 1/4% Notes or the 9% Notes, as the case may be,
at least to the extent that the Indebtedness to be exchanged or refinanced is
subordinated to the 8 1/4% Notes or the 9% Notes, as the case may be, and (C)
in case the 8 1/4% Notes or the 9% Notes, as the case may be, are exchanged or
refinanced in part or the Indebtedness to be exchanged or refinanced is
subordinated in right of payment to the 8 1/4% Notes or the 9% Notes, as the
case may be, such Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to six months after the Stated
Maturity of the 8 1/4% Notes or the 9% Notes, as the case may be, and the
Average Life of such Indebtedness is equal to or greater than the sum of the
remaining Average Life of the 8 1/4% Notes or the 9% Notes, as the case may
be, plus six months; provided further that in no event may Indebtedness of the
Company that is pari passu with, or subordinated in right of payment to, the
8 1/4% Notes or the 9% Notes, as the case may be, be exchanged or refinanced
by means of Indebtedness of any Subsidiary of the Company pursuant to this
clause (iv); and provided further that the two foregoing provisos of this
clause (iv) shall not be applicable to Indebtedness Incurred in exchange for
or to refinance the 12 5/8% Debentures, the 14 1/8% Debentures or the 10%
Notes (including in each case redemption or other premiums, consent or other
fees, and expenses incurred in connection therewith); (v) Indebtedness
Incurred by the Company in connection with (x) the repurchase of shares of, or
options to purchase shares of, the Common Stock of the Company or any of its
Subsidiaries from employees, former employees, directors or former directors
of the Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors) or (y) Guarantees
of borrowings made by such Persons exclusively for the purpose of exercising
options to purchase or sell such shares of Common Stock and paying any
associated tax liability, in each case pursuant to the terms of the form of
agreements or plans (or amendments thereto) under which such Persons purchase
or sell, or are granted the option to purchase, shares of such Common Stock;
(vi) Indebtedness (A) in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds provided in the ordinary course
of business, (B) under Currency Agreements and Interest Rate Agreements;
provided that, in the case of Currency Agreements that relate to other
Indebtedness, such Currency Agreements do not increase the Indebtedness of the
Company outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing
any obligations of the Company or any Subsidiary of the Company pursuant to
such agreements, in any case Incurred in connection with the disposition of
any business, assets or Subsidiary of the Company, other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Subsidiary of the Company for the purpose of financing
such acquisition; (vii) Indebtedness under Guarantees incurred by the Company
in respect of obligations of Unrestricted Subsidiaries outstanding at any time
in an aggregate amount not to exceed $50 million; (viii) Acquired
Indebtedness; provided that, at the time of the Incurrence thereof, the
Company could Incur at least $1.00 of Indebtedness under the first paragraph
of this "Limitation on Indebtedness" covenant and refinancings thereof;
provided that such refinancing Indebtedness may not be Incurred by any Person
other than the Company or the Restricted Subsidiary that is the obligor on
such Acquired Indebtedness; (ix) Indebtedness directly Incurred to finance
Consolidated Capital Expenditures in an aggregate amount not to exceed in any
fiscal year of the Company the amount indicated below:
FISCAL MAXIMUM
YEAR AMOUNT
---------------------------
(In Millions)
1994..................$250
1995.................. 250
1996 and thereafter... 275
; provided, however, that the amount of Indebtedness which may be Incurred in
any fiscal year pursuant to this clause (ix) shall be increased by the amount
of Indebtedness which could have been Incurred in the prior fiscal year
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pursuant to this clause (ix) but which was not so Incurred; or (x)
Indebtedness of the Company outstanding at any time in an aggregate amount not
to exceed $175 million; provided that such Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such Indebtedness
is issued, (A) is expressly made subordinate in right of payment to the 8 1/4%
Notes or the 9% Notes, as the case may be, at least to the extent the 9% Notes
are subordinated to Senior Indebtedness and (B) provides that no payments of
principal of such Indebtedness by way of sinking fund, mandatory redemption or
otherwise (including defeasance) may be made by the Company (including,
without limitation, at the option of the holder thereof, other than an option
given to such holder pursuant to an "asset sale" provision that is no more
favorable to such holders of such Indebtedness than the provisions contained
in the "Limitation on Asset Sales" covenant described below and such
Indebtedness specifically provides that the Company will not purchase or
redeem such Indebtedness pursuant to such provision prior to the Company's
repurchase of the 1994 Notes required to be repurchased by the Company under
the "Limitation on Asset Sales" covenant) at any time prior to the Stated
Maturity of the 8 1/4% Notes or the 9% Notes, as the case may be.
Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, (i) the maximum amount of Indebtedness that the Company or any
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies, (ii) for purposes of
calculating the amount of Indebtedness outstanding at any time under clause
(ii) of the second paragraph of this "Limitation on Indebtedness" covenant, no
amount of Indebtedness of the Company or any Subsidiary of the Company
outstanding on the Closing Date shall be considered to be outstanding and
(iii) in the case of the 8 1/4% Notes, the Company shall not Incur any
Indebtedness that is expressly subordinated to any other Indebtedness of the
Company unless such Indebtedness, by its terms or the terms of any agreement
or instrument pursuant to which such Indebtedness is issued, is also expressly
made subordinate to the 8 1/4% Notes at least to the extent it is subordinated
to such other Indebtedness, except that the 8 1/4% Notes shall not be required
to become Designated Senior Indebtedness or its equivalent due solely to the
Incurrence of such other Indebtedness in accordance with this clause (iii).
For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred pursuant
to the Bank Credit Agreement or the 1993 Term Loan Agreement prior to or on
the Closing Date shall be treated as Incurred pursuant to clause (i) of the
second paragraph of this "Limitation on Indebtedness" covenant, (2) Guarantees
of, or obligations with respect to letters of credit supporting, Indebtedness
otherwise included in the determination of such particular amount shall not be
included and (3) any Liens granted pursuant to the equal and ratable
provisions referred to in the first paragraph of the "Limitation on Liens"
covenant shall not be treated as Indebtedness. For purposes of determining
compliance with this "Limitation on Indebtedness" covenant, (x) in the event
that an item of Indebtedness meets the criteria of more than one of the types
of Indebtedness described in the above clauses, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses and
(y) the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in conformity with GAAP. (Section 3.03)
Limitation on Restricted Payments. Under the terms of the 1994 Note
Indentures, the Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on its Capital Stock (other than dividends or distributions
payable solely in shares of its or such Subsidiary's Capital Stock (other than
Redeemable Stock) of the same class held by such holders or in options,
warrants or other rights to acquire such shares of Capital Stock) held by
Persons other than the Company or another Restricted Subsidiary, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of the Company, any Restricted Subsidiary or any Unrestricted Subsidiary
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Company or another Restricted
Subsidiary, (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other acquisition
or retirement for value, of Indebtedness of the Company that is subordinated
in right of payment to the 8 1/4% Notes or the 9% Notes, as the case may be,
or (iv) make any Investment in any Unrestricted Subsidiary (such payments or
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any other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment: (A) an Event of Default or event that, after
notice or passage of time or both would become an Event of Default, shall have
occurred and be continuing, (B) the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant or (C) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good faith by
the Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) after the date of the 1994 Note Indentures shall exceed
the sum of (1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of
such amount) of the Company (determined by excluding income resulting from the
transfers of assets received by the Company or a Restricted Subsidiary from an
Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on April 1, 1994 and ending on the
last day of the last fiscal quarter preceding the Transaction Date plus (2)
the aggregate net proceeds (including the fair market value of non-cash
proceeds as determined in good faith by the Board of Directors whose
determination shall be conclusive and evidenced by a Board Resolution)
received by the Company from the issuance and sale permitted by the 1994 Note
Indenture of its Capital Stock (not including Redeemable Stock) to a Person
who is not a Subsidiary of the Company, including an issuance or sale
permitted by the 1994 Note Indentures for cash or other property upon the
conversion of any Indebtedness of the Company subsequent to the Closing Date,
or from the issuance of any options, warrants or other rights to acquire
Capital Stock of the Company (in each case, exclusive of any Redeemable Stock
or any options, warrants or other rights that are redeemable at the option of
the holder, or are required to be redeemed, prior to the Stated Maturity of
the 8 1/4% Notes or the 9% Notes, as the case may be), plus (3) an amount
equal to the net reduction in Investments in Unrestricted Subsidiaries
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company
or any Restricted Subsidiary from Unrestricted Subsidiaries, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed in
the case of any Unrestricted Subsidiary the amount of Investments previously
made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary plus (4) $75 million.
The foregoing provision shall not take into account, and shall not be
violated by reason of: (i) the payment of any dividend within 60 days after
the date of declaration thereof if, at such date of declaration, such payment
would comply with the foregoing provision; (ii) the redemption, repurchase,
defeasance or other acquisition or retirement for value of Indebtedness that
is subordinated in right of payment to the 8 1/4% Notes or the 9% Notes, as
the case may be, including premium, if any, with the proceeds of Indebtedness
Incurred under the first paragraph of the "Limitation on Indebtedness"
covenant or clause (iv) or (x) of the second paragraph of the "Limitation on
Indebtedness" covenant; (iii) the payment of dividends on the Capital Stock of
the Company, following any issuance of the Capital Stock of the Company, of up
to 6% per annum of the net proceeds received by the Company in such issuance
of the Capital Stock of the Company; (iv) the repurchase of shares of, or
options to purchase shares of, Common Stock of the Company or any of its
Subsidiaries from employees, former employees, directors or former directors
of the Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant to the
terms of the form of agreements or plans (or amendments thereto) under which
such Persons purchase or sell, or are granted the option to purchase or sell,
shares of such Common Stock; (v) the repurchase, redemption or other
acquisition of Capital Stock of the Company in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock of
the Company (other than Redeemable Stock); (vi) the acquisition of
Indebtedness of the Company that is subordinated in right of payment to the
8 1/4% Notes or the 9% Notes, as the case may be, in exchange for, or out of
the proceeds of a substantially concurrent offering of, shares of the Capital
Stock of the Company (other than Redeemable Stock); (vii) payments or
distributions pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the 1994 Note
Indentures applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company; (viii) the
purchase, redemption, acquisition, cancellation or other retirement for a
nominal value per right (as determined in good faith by the Board of
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Directors) of any rights granted to all the holders of Common Stock of the
Company pursuant to any shareholders' rights plan (i.e., a "poison pill")
adopted for the purpose (determined in good faith by the Board of Directors)
of protecting shareholders from unfair takeover tactics; provided that any
such purchase, redemption, acquisition, cancellation or other retirement of
such rights shall not be for the purpose of evading the limitations of this
"Limitation on Restricted Payments" covenant (all as determined in good faith
by the Board of Directors); (ix) the purchase of shares of Capital Stock of
the Company or any Restricted Subsidiary for the purpose of contributing such
shares to the Plans, or permitting the Plans to make payments to participants
therein in cash rather than shares of Capital Stock of the Company or such
Restricted Subsidiary; provided that such purchases do not in any one fiscal
year of the Company exceed an aggregate amount of $30 million; or (x) the
purchase of subordinated Indebtedness pursuant to an "excess proceeds offer"
or similar offer after the Company has complied with the "Limitation on Asset
Sales" covenant; and provided that, in the case of clauses (ii) through (iv)
and (vi), no Event of Default, or event that after notice or passage of time
or both would become an Event of Default, shall have occurred and be
continuing or shall occur as a consequence thereof. (Section 3.04)
Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries. Under the terms of the 1994 Note Indentures, the
Company will not, and will not permit any Restricted Subsidiary (other than a
Foreign Subsidiary) to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other
Restricted Subsidiary or (iv) transfer, subject to certain exceptions, any of
its property or assets to the Company or any other Restricted Subsidiary.
The foregoing provision shall not restrict or prohibit any encumbrances
or restrictions existing: (i) in the Bank Credit Agreement, the 1993 Term Loan
Agreement, the Senior Secured Notes (including any agreement pursuant to which
the Senior Secured Notes were issued) or any other agreements in effect on the
Closing Date, including extensions, refinancings, renewals or replacements
thereof; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in
any material respect to the Holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed or
replaced; (ii) under any other agreement providing for the Incurrence of
Indebtedness; provided that the encumbrances and restrictions in any such
agreement are no less favorable in any material respect to the Holders than
those encumbrances and restrictions contained in the Bank Credit Agreement,
the Senior Secured Notes (including any agreement pursuant to which the Senior
Secured Notes were issued) or the 1993 Term Loan Agreement as of the Closing
Date; (iii) under or by reason of applicable law; (iv) with respect to any
Person or the property or assets of such Person acquired by the Company or any
Restricted Subsidiary and existing at the time of such acquisition, which
encumbrances or restrictions are not applicable to any Person or the property
or assets of any Person other than such Person or the property or assets of
such Person so acquired; (v) in the case of clause (iv) of the first paragraph
of this "Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset, (B) by virtue of
any transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any Restricted Subsidiary
not otherwise prohibited by the 1994 Note Indentures or (C) arising or agreed
to in the ordinary course of business and that do not, individually or in the
aggregate, detract from the value of property or assets of the Company or any
Restricted Subsidiary in any manner material to the Company or such Restricted
Subsidiary; or (vi) with respect to a Restricted Subsidiary and imposed
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or property
and assets of, such Restricted Subsidiary. Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent the Company or any Restricted Subsidiary
from (1) entering into any agreement permitting the incurrence of Liens
otherwise permitted in the "Limitation on Liens" covenant or (2) restricting
the sale or other disposition of property or assets of the Company or any of
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its Subsidiaries that secure Indebtedness of the Company or any of its
Limitation on Additional Tiers of Senior Subordinated Indebtedness
Under the terms of the 9% Note Indenture, the Company will not Incur any
Indebtedness that is expressly made subordinate in right of payment to any
Senior Indebtedness unless such Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such Indebtedness is issued, is
expressly made pari passu with, or subordinate in right of payment to, the 9%
Notes pursuant to provisions substantially similar to those contained in
Article Eleven of the 9% Note Indenture; provided, however, that the foregoing
limitation shall not apply to distinctions between categories of
unsubordinated Indebtedness that exist by reason of any Liens or Guarantees
arising or created in respect of some but not all of such unsubordinated
Indebtedness. (Section 3.06)
Limitation on the Issuance of Capital Stock of Domestic Restricted
Subsidiaries. Under the terms of the 8 1/4% Note Indenture, the Company will
not permit any Domestic Subsidiary that is a Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock (including
options, warrants or other rights to purchase shares of such Capital Stock)
except (i) to the Company or another Restricted Subsidiary that is a Wholly
Owned Subsidiary of the Company or (ii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary for purposes of the 8 1/4% Note Indenture. (Section
3.06)
Limitation on Transactions with Shareholders and Affiliates. Under the
terms of each of the Indentures, the Company will not, and will not permit any
Subsidiary of the Company to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the purchase, sale,
lease or exchange of property or assets, or the rendering of any service) with
any holder (or any Affiliate of such holder) of 5% or more of any class of
Capital Stock of the Company or any Subsidiary of the Company or with any
Affiliate of the Company or any Subsidiary of the Company (other than the
Plans), except upon fair and reasonable terms no less favorable to the Company
or such Subsidiary of the Company than could be obtained in a comparable
arm's-length transaction with a Person that is not such a holder or an
Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Subsidiary delivers to
the 1994 Note Trustees a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Subsidiary of the Company from a financial point of view; (ii) any transaction
between the Company and any Restricted Subsidiary or between Restricted
Subsidiaries; (iii) the payment of reasonable and customary regular fees to
directors of the Company who are not employees of the Company; or (iv) any
Restricted Payments not prohibited by the "Limitation on Restricted Payments"
covenant. (Section 3.07)
Limitation on Liens. Under the terms of each of the 1994 Note
Indentures, the Company will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Lien on any
Principal Property, or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the 1994
Notes and all other amounts due under the 1994 Note Indentures to be directly
secured equally and ratably with (or prior to) the obligation or liability
secured by such Lien unless, after giving effect thereto, the aggregate amount
of any Indebtedness so secured plus, in the case of the 8 1/4% Notes, the
Attributable Indebtedness for all sale-leaseback transactions restricted as
described in the "Limitation on Sale-Leaseback Transactions" covenant, does
not exceed 15% of Adjusted Consolidated Assets.
Under the terms of the 8 1/4% Note Indenture, the foregoing limitation
does not apply to, and any computation of Indebtedness secured under such
limitation shall exclude, (i) Liens securing (A) obligations under the Bank
Credit Agreement or the 1993 Term Loan Agreement up to the amount of
Indebtedness permitted to be Incurred under clause (i) of the second paragraph
of the "Limitation on Indebtedness" covenant or (B) the Senior Secured Notes
up to the amount thereof outstanding on the Closing Date; (ii) other Liens
existing on the Closing Date; (iii) Liens securing Indebtedness of Restricted
Subsidiaries (other than Acquired Indebtedness and refinancings thereof); (iv)
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Liens securing Indebtedness (other than subordinated Indebtedness) Incurred
under clause (ii) (except that the sum of (A) the amount of Indebtedness
Incurred by the Restricted Subsidiaries plus (B) the amount of secured
Indebtedness (without duplication of any amount Incurred under subclause (A)
of this clause (iv)) shall not exceed $200 million outstanding at any time) or
(vi) of the second paragraph of the "Limitation on Indebtedness" covenant; (v)
Liens granted in connection with the extension, renewal or refinancing, in
whole or in part, of any Indebtedness described in clauses (i) through (iv)
above; provided that the amount of Indebtedness secured by such Lien is not
increased thereby (except to the extent that Indebtedness under the Bank
Credit Agreement is increased to the extent permitted by clause (i) of the
second paragraph of the "Limitation on Indebtedness" covenant); and provided
further that the extension, renewal or refinancing of Indebtedness of the
Company may not be secured by Liens on assets of any Restricted Subsidiary
other than to the extent the Indebtedness being extended, renewed or
refinanced was at any time previously secured by Liens on assets of such
Restricted Subsidiary; (vi) Liens with respect to Acquired Indebtedness and
refinancings thereof permitted under clause (viii) of the second paragraph of
the "Limitation on Indebtedness" covenant; provided that such Liens do not
extend to or cover any property or assets of the Company or any Subsidiary of
the Company other than the property or assets of the Subsidiary acquired; or
(vii) Permitted Liens. (Section 3.08)
Under the terms of the 9% Note Indenture, the limitation set forth in the
first paragraph of this "Limitation of Liens" covenant does not apply to (i)
Liens described in the preceding paragraph of this "Limitation of Liens"
covenant or (ii) Liens securing Senior Indebtedness. (Section 3.08)
Limitation on Sale-Leaseback Transactions. Under the terms of the 8 1/4%
Note Indenture, the Company will not, and will not permit any Restricted
Subsidiary to, enter into any sale-leaseback transaction involving any
Principal Property, unless the aggregate amount of all Attributable
Indebtedness with respect to such transactions, plus all Indebtedness secured
by Liens on Principal Properties (excluding secured Indebtedness that is
excluded as described in the "Limitation on Liens" covenant), does not exceed
15% of Adjusted Consolidated Assets. The foregoing restriction does not apply
to, and any computation of Attributable Indebtedness under such limitation
shall exclude, any sale-leaseback transaction if (i) the lease is for a
period, including renewal rights, of not in excess of three years; (ii) the
sale or transfer of the Principal Property is entered into prior to, at the
time of, or within 12 months after the later of the acquisition of the
Principal Property or the completion of construction thereof; (iii) the lease
secures or relates to industrial revenue or pollution control bonds; (iv) the
transaction is between the Company and any Restricted Subsidiary or between
Restricted Subsidiaries; or (v) the Company or such Restricted Subsidiary,
within 12 months after the sale of any Principal Property is completed,
applies an amount not less than the net proceeds received from such sale to
the retirement of unsubordinated Indebtedness, to Indebtedness of a Restricted
Subsidiary or to the purchase of other property that will constitute Principal
Property or improvements thereto. (Section 3.10)
Limitation on Asset Sales. Under the terms of each of the 1994 Note
Indentures, in the event and to the extent that the Net Cash Proceeds received
by the Company or any of its Restricted Subsidiaries from one or more Asset
Sales occurring on or after the Closing Date in any period of 12 consecutive
months (other than Asset Sales by the Company or any Restricted Subsidiary to
the Company or another Restricted Subsidiary) exceed 15% of Adjusted
Consolidated Assets in any one fiscal year (determined as of the date closest
to the commencement of such 12-month period for which a balance sheet of the
Company and its Subsidiaries has been prepared), then the Company shall (i)
within 12 months (or, in the case of Asset Sales of plants or facilities, 24
months) after the date Net Cash Proceeds so received exceed 15% of Adjusted
Consolidated Assets in any one fiscal year (determined as of the date closest
to the commencement of such 12-month period for which a balance sheet of the
Company and its Subsidiaries has been prepared) (A) apply an amount equal to
such excess Net Cash Proceeds to repay Senior Indebtedness or pari passu
Indebtedness (in the case of the 9% Note Indenture) or unsubordinated
Indebtedness (in the case of the 8 1/4% Note Indenture) or, in the case of
either Indenture, Indebtedness of any Restricted Subsidiary, in each case
owing to a Person other than the Company or any of its Subsidiaries or (B)
invest an equal amount, or the amount not so applied pursuant to clause (A)
(or enter into a definitive agreement committing to so invest within 12 months
after the date of such agreement), in property or assets that are of a nature
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or type or are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the
nature or type of the property and assets of, or the business of, the Company
and its Subsidiaries existing on the date thereof (as determined in good faith
by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) and (ii) apply such excess Net Cash Proceeds
(to the extent not applied pursuant to clause (i)) as provided in the
following paragraphs of this "Limitation on Asset Sales" covenant. The amount
of such excess Net Cash Proceeds required to be applied (or to be committed to
be applied) during such 12-month period or 24-month period, as the case may
be, as set forth in clause (A) or (B) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $10 million, the Company must, not later than
the fifteenth Business Day of such month, make an offer (an "Excess Proceeds
Offer") to purchase from the Holders and, in the case of the 8 1/4% Note
Indenture, the holders of other unsubordinated Indebtedness, on a pro rata
basis an aggregate principal amount of 1994 Notes equal to the Excess Proceeds
on such date, at a purchase price equal to 101% of the principal amount of
such 1994 Notes, plus, in each case, accrued interest (if any) to the date of
purchase (the "Excess Proceeds Payment"); provided, however, that no Excess
Proceeds Offer shall be required to be commenced with respect to the 9% Notes
if the purchase of at least $10 million of 9% Notes pursuant to such Excess
Proceeds Offer would not (during the time such Excess Proceeds Offer is
required to be commenced) be permitted by the terms of any Indebtedness of the
Company (or any agreement pursuant to which such Indebtedness was issued) and
in such case the amount that would otherwise constitute Excess Proceeds shall
no longer be treated as Excess Proceeds; and provided further, however that no
9% Notes may be purchased under this "Limitation on Asset Sales" covenant
unless the Company shall have purchased all Senior Indebtedness tendered
pursuant to an "excess proceeds offer" or similar offer applicable thereto.
Notwithstanding the foregoing, (i) to the extent that any or all of the
Net Cash Proceeds of any Asset Sale are prohibited or delayed by applicable
local law from being repatriated to the United States of America, the portion
of such Net Cash Proceeds so affected will not be required to be applied
pursuant to this "Limitation on Asset Sales" covenant but may be retained for
so long, but only for so long, as the applicable local law will not permit
repatriation to the United States of America (the Company hereby agrees to
promptly take all reasonable actions required by the applicable local law to
permit such repatriation) and once such repatriation of any such affected Net
Cash Proceeds is permitted under the applicable local law, such repatriation
will be immediately effected and such repatriated Net Cash Proceeds will be
applied in the manner set forth in this "Limitation on Asset Sales" covenant
as if such Asset Sale had occurred on the date of repatriation; and (ii) to
the extent that the Board of Directors has determined in good faith that
repatriation of any or all of the Net Cash Proceeds would have an adverse tax
consequence to the Company, the Net Cash Proceeds so affected may be retained
outside the United States of America for so long as such adverse tax
consequence would continue.
The Company shall commence an Excess Proceeds Offer by mailing a notice
to the 1994 Note Trustee or 1994 Note Trustees, as the case may be, and each
Holder stating: (i) that the Excess Proceeds Offer is being made pursuant to
this "Limitation on Asset Sales" covenant and that all 1994 Notes validly
tendered will be accepted for payment on a pro rata basis; (ii) the purchase
price and the date of purchase (which shall be a Business Day no earlier than
30 days nor later than 40 days from the date such notice is mailed) (the
"Excess Proceeds Payment Date"); (iii) that any 1994 Note not tendered will
continue to accrue interest; (iv) that, unless the Company defaults in the
payment of the Excess Proceeds Payment, any 1994 Note accepted for payment
pursuant to the Excess Proceeds Offer shall cease to accrue interest on and
after the Excess Proceeds Payment Date; (v) that Holders electing to have a
1994 Note purchased pursuant to the Excess Proceeds Offer will be required to
surrender the 1994 Note, together with the form entitled "Option of the Holder
to Elect Purchase" on the reverse side of the 1994 Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Excess Proceeds Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
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Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of 1994 Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such 1994 Notes
purchased; and (vii) that Holders whose 1994 Notes are being purchased only in
part will be issued new 1994 Notes equal in principal amount to the
unpurchased portion of the 1994 Notes surrendered; provided that each 1994
Note purchased and each new 1994 Note issued shall be in an original principal
amount of $1,000 or integral multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis 1994 Notes or portions thereof tendered pursuant
to the Excess Proceeds Offer; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all 1994 Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the 1994 Note
Trustee or 1994 Note Trustees, as the case may be, 1994 Notes or portions
thereof so accepted together with an Officers' Certificate specifying the 1994
Notes or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail to the Holders of 1994 Notes so accepted payment in
an amount equal to the purchase price, and the appropriate 1994 Note Trustee
shall promptly authenticate and mail to such Holders a new 1994 Note equal in
principal amount to any unpurchased portion of the 1994 Note surrendered;
provided that each 1994 Note purchased and each new 1994 Note issued shall be
in an original principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Excess Proceeds Offer as
soon as practicable after the Excess Proceeds Payment Date. For purposes of
this "Limitation on Asset Sales" covenant, the respective 1994 Note Trustee
for the 8 1/4% Notes or the 9% Notes, as the case may be, shall act as the
Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are
received by the Company under this "Limitation on Asset Sales" covenant and
the Company is required to repurchase 1994 Notes as described above. (Section
3.09)
Events Of Default
The following events will be defined as "Events of Default" in each 1994
Note Indenture: (a) the Company defaults in the payment of principal of (or
premium, if any, on) any 8 1/4% Note or 9% Note, as the case may be, when the
same becomes due and payable at maturity, upon acceleration, redemption or
otherwise, whether or not, in the case of the 9% Notes, such payment is
prohibited by Article Eleven of the 9% Note Indenture; (b) the Company
defaults in the payment of interest on any 8 1/4% Note or 9% Note, as the case
may be, when the same becomes due and payable, and such default continues for
a period of 30 consecutive days, whether or not, in the case of the 9% Notes,
such payment is prohibited by Article Eleven of the 9% Note Indenture; (c) the
Company defaults in the performance of or breaches any other covenant or
agreement of the Company in the applicable 1994 Note Indenture or under the 8
1/4% Notes or 9% Notes, as the case may be, and such default or breach
continues for a period of 30 consecutive days after written notice by the
respective 1994 Note Trustee or the Holders of 25% or more in aggregate
principal amount of the 8 1/4% Notes or 9% Notes, as the case may be; (d)
there occurs with respect to any issue or issues of Indebtedness of the
Company and/or one or more Significant Subsidiaries having an outstanding
principal amount of $50 million or more individually or $100 million or more
in the aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, an event of default
that has caused the holder or holders thereof, or representatives of such
holder or holders, to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration; (e) any final judgment or order (not covered by insurance) for
the payment of money in excess of $50 million individually or $100 million in
the aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered)
shall be rendered against the Company or any Significant Subsidiary and shall
not be discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order in excess of $50 million
individually or that causes the aggregate amount for all such final judgments
or orders outstanding against all such Persons to exceed $100 million during
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which a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; (f) a court having
jurisdiction in the premises enters a decree or order for (i) relief in
respect of the Company or any Significant Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (iii) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and,
in each case, such decree or order shall remain unstayed and in effect for a
period of 60 consecutive days; (g) the Company or any Significant Subsidiary
(i) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (ii) consents to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (iii) effects any
general assignment for the benefit of creditors; or (h) the Company and/or one
or more Significant Subsidiaries fails to make (i) at the final (but not any
interim) fixed maturity of any issue of Indebtedness a principal payment of
$50 million or more or (ii) at the final (but not any interim) fixed maturity
of more than one issue of such Indebtedness principal payments aggregating
$100 million or more and, in the case of clause (i), such defaulted payment
shall not have been made, waived or extended within 30 days of the payment
default and, in the case of clause (ii), all such defaulted payments shall not
have been made, waived or extended within 30 days of the payment default that
causes the amount described in clause (ii) to exceed $100 million. (Section
5.01)
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above that occurs with respect to the Company) occurs and is
continuing under the 1994 Note Indentures, the respective 1994 Note Trustee
thereunder or the Holders of at least 25% in aggregate principal amount of the
8 1/4% Notes or the 9% Notes, as the case may be, then outstanding, by written
notice to the Company (and to the respective 1994 Note Trustee if such notice
is given by such Holders (the "Acceleration Notice")), may, and the respective
1994 Note Trustee at the request of such Holders shall, declare the entire
unpaid principal of, premium, if any, and accrued interest on the 8 1/4% Notes
or the 9% Notes, as the case may be, to be immediately due and payable. Upon
a declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable; provided that, in the case of
the 9% Notes, for so long as the Bank Credit Agreement or the 1993 Term Loan
Agreement is in effect, such declaration shall not become effective until the
earlier of (i) five Business Days after receipt of the Acceleration Notice by
each Administrative Agent and the Company or (ii) acceleration of the
Indebtedness under the Bank Credit Agreement or the 1993 Term Loan Agreement;
and provided further that such acceleration shall automatically be rescinded
and annulled without any further action required on the part of the Holders of
the 9% Notes in the event that any and all Events of Default specified in the
Acceleration Notice under the 9% Note Indenture shall have been cured, waived
or otherwise remedied as provided in the 9% Note Indenture prior to the
expiration of the period referred to in the preceding clauses (i) and (ii).
In the event of a declaration of acceleration because an Event of Default set
forth in clause (d) or (h) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
the event of default triggering such Event of Default pursuant to clause (d)
or (h) shall be remedied, cured by the Company or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clause (f) or (g)
above occurs with respect to the Company, all unpaid principal of, premium, if
any, and accrued interest on the 8 1/4% Notes or the 9% Notes, as the case may
be, then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the respective
1994 Note Trustee or any Holder. The Holders of at least a majority in
principal amount of the outstanding 8 1/4% Notes or 9% Notes, as the case may
be, by written notice to the Company and to their respective 1994 Note
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the non-payment of the principal of, premium, if any, and interest on the
8 1/4% Notes or the 9% Notes, as the case may be, that have become due solely
by such declaration of acceleration, have been cured or waived and (ii) the
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rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. (Sections 5.02 and 5.04) For information as to the
waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding 8 1/4% Notes or 9% Notes, as the case may be, may direct the time,
method and place of conducting any proceeding for any remedy available to
their respective 1994 Note Trustee or exercising any trust or power conferred
on such 1994 Note Trustee. However, the 1994 Note Trustee under each 1994
Note Indenture may refuse to follow any direction that conflicts with law or
such 1994 Note Indenture, that may involve such 1994 Note Trustee in personal
liability, or that such 1994 Note Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of 8 1/4% Notes or 9% Notes, as
the case may be, not joining in the giving of such direction. (Section 5.05)
A Holder may not pursue any remedy with respect to its respective 1994 Note
Indenture or the 8 1/4% Notes or the 9% Notes, as the case may be, unless: (i)
the Holder gives to its respective 1994 Note Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount of outstanding 8 1/4% Notes or 9% Notes, as the case may be,
make a written request to their respective 1994 Note Trustee to pursue the
remedy; (iii) such Holder or Holders offer to their respective 1994 Note
Trustee indemnity satisfactory to such 1994 Note Trustee against any costs,
liability or expense; (iv) such 1994 Note Trustee does not comply with the
request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding 8 1/4% Notes or 9% Notes, as the
case may be, do not give the appropriate 1994 Note Trustee a direction that is
inconsistent with the request. (Section 5.06) However, such limitations do
not apply to the right of any Holder of a 8 1/4% Note or 9% Note, as the case
may be, to receive payment of the principal of, premium, if any, or interest
on, such 8 1/4% Note or 9% Note, as the case may be, or to bring suit for the
enforcement of any such payment, on or after the respective due dates
expressed in the 8 1/4% Notes or the 9% Notes, as the case may be, which right
shall not be impaired or affected without the consent of the Holder. (Section
5.07)
The 1994 Note Indentures will require certain officers of the Company to
certify, on or before a date not more than 90 days after the end of each
fiscal year, that a review has been conducted of the activities of the Company
and its Subsidiaries and the Company's and its Subsidiaries' performance under
the 1994 Note Indentures and that the Company has complied with all conditions
and covenants thereunder, or, if there has been a default thereunder,
specifying each such default and the nature and status thereof. The Company
will also be obligated to notify the 1994 Note Trustees of any default or
defaults in the performance of any covenants or agreements under the 1994 Note
Indentures. (Section 3.14 or 3.15)
Consolidation, Merger And Sale Of Assets
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of
its property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than a
Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company with a
positive net worth; provided that, in connection with any merger of the
Company with a Restricted Subsidiary that is a Wholly Owned Subsidiary of the
Company, no consideration (other than Common Stock in the surviving Person or
the Company) shall be issued or distributed to the stockholders of the
Company) or permit any Person to merge with or into the Company unless: (i)
the Company shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
that acquired or leased such property and assets of the Company shall be a
corporation organized and validly existing under the laws of the United States
of America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the 1994 Note Trustees in
form satisfactory to the 1994 Note Trustees, all of the obligations of the
Company on all of the 1994 Notes and under the 1994 Note Indentures; (ii)
immediately after giving effect to such transaction, no Event of Default and
no event that, after notice or passage of time or both will become an Event of
Default, shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Interest Coverage Ratio
of the Company (or any Person becoming the successor obligor of the 1994
Notes) is at least 1:1; provided that, if the Interest Coverage Ratio of the
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Company before giving effect to such transaction is within the range set forth
in column (A) below, then the pro forma Interest Coverage Ratio of the Company
(or any Person becoming the successor obligor of the 1994 Notes) shall be at
least equal to the lesser of (1) the ratio determined by multiplying the
percentage set forth in column (B) below by the Interest Coverage Ratio of the
Company prior to such transaction and (2) the ratio set forth in column (C)
below:
(A) (B) (C)
----------------------------------------------------------
1.11:1 to 1.99:1..........................90% 1.5:1
2.00:1 to 2.99:1..........................80% 2.1:1
3.00:1 to 3.99:1..........................70% 2.4:1
4.00:1 or more............................60% 2.5:1
; and provided further that, if the pro forma Interest Coverage Ratio of the
Company (or any Person becoming the successor obligor of the 1994 Notes) is
3:1 or more, the calculation in the preceding proviso shall be inapplicable
and such transaction shall be deemed to have complied with the requirements of
this clause (iii); (iv) immediately after giving effect to such transaction on
a pro forma basis, the Company (or any Person that becomes the successor
obligor of the 1994 Notes) shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to
such transaction; and (v) the Company delivers to the 1994 Note Trustees an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (iii) and (iv)) and Opinion of Counsel, in each case
stating that such consolidation, merger or transfer and such supplemental
indenture comply with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors, whose determination shall
be evidenced by a Board Resolution, the principal purpose of such transaction
is to change the state of incorporation of the Company; and provided further
that any such transaction shall not have as one of its purposes the evasion of
the foregoing limitations. (Section 4.01)
Defeasance
Defeasance and Discharge. Each 1994 Note Indenture provides that the
Company will be deemed to have paid and will be discharged from any and all
obligations in respect of the 8 1/4% Notes or the 9% Notes, as the case may
be, and the provisions of such 1994 Note Indenture will no longer be in effect
with respect to the 8 1/4% Notes or the 9% Notes, as the case may be, on the
123rd day after the deposit described below (except for, among other matters,
certain obligations to register the transfer or exchange of the 8 1/4% Notes
or the 9% Notes, as the case may be, to replace stolen, lost or mutilated 8
1/4% Notes or the 9% Notes, as the case may be, to maintain paying agencies
and to hold monies for payment in trust) if, among other things, (A) the
Company has deposited with the relevant 1994 Note Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the 8 1/4% Notes or the 9% Notes, as the case may be, on the
Stated Maturity of such payments in accordance with the terms of the relevant
1994 Note Indenture and the 8 1/4% Notes or the 9% Notes, as the case may be,
(B) the Company has delivered to the relevant 1994 Note Trustee either an
Opinion of Counsel to the effect that Holders of the 8 1/4% Notes or the 9%
Notes, as the case may be, will not recognize income, gain or loss for federal
income tax purposes as a result of the Company's exercise of its option under
this "Defeasance" provision and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been
the case if such deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be accompanied by a ruling of the Internal Revenue
Service to the same effect or a change in applicable federal income tax law
after the date of such 1994 Note Indenture or a ruling directed to the Company
or the relevant 1994 Note Trustee received from the Internal Revenue Service
to the same effect as the aforementioned Opinion of Counsel, (C) immediately
after giving effect to such deposit on a pro forma basis, no Event of Default,
or event that after the giving of notice or lapse of time or both would become
an Event of Default, shall have occurred and be continuing on the date of such
deposit or during the period ending on the 123rd day after the date of such
deposit, and such deposit shall not result in a breach or violation of, or
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constitute a default under, any other agreement or instrument to which the
Company is a party or by which the Company is bound, and (D) in the case of
the 9% Note Indenture, the Company is not prohibited from making payments in
respect of the 9% Notes by the provisions described under "Subordination,"
above. (Section 7.02)
Defeasance of Certain Covenants and Certain Events of Default. Each 1994
Note Indenture further provides that the provisions of such 1994 Note
Indenture will no longer be in effect with respect to clauses (iii) and (iv)
under "Consolidation, Merger and Sale of Assets" and all the covenants
described herein under "Covenants," clause (c) under "Events of Default" with
respect to such covenants and clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets," and clauses (d), (e) and (h) under "Events of
Default" shall be deemed not to be Events of Default, and the provisions
described herein under "Subordination" shall not apply, upon, among other
things, the deposit with the relevant 1994 Note Trustee, in trust, of money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the 8 1/4% Notes or the 9% Notes, as the case may be, on the
Stated Maturity of such payments in accordance with the terms of such 1994
Note Indenture and the 8 1/4% Notes or the 9% Notes, as the case may be, the
satisfaction of the provisions described in clause (C) (and, in the case of
the 9% Notes, clause (D)) of the preceding paragraph and the delivery by the
Company to such 1994 Note Trustee of an Opinion of Counsel to the effect that,
among other things, the Holders of the 8 1/4% Notes or the 9% Notes, as the
case may be, will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred. (Section 7.03)
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions
of the 1994 Note Indentures with respect to the 8 1/4% Notes or the 9% Notes,
as the case may be, as described in the immediately preceding paragraph and
the 8 1/4% Notes or the 9% Notes, as the case may be, are declared due and
payable because of the occurrence of an Event of Default that remains
applicable, the amount of money and/or U.S. Government Obligations on deposit
with the relevant 1994 Note Trustee will be sufficient to pay amounts due on
the 8 1/4% Notes or the 9% Notes, as the case may be, at the time of their
Stated Maturity but may not be sufficient to pay amounts due on the 8 1/4%
Notes or the 9% Notes, as the case may be, at the time of the acceleration
resulting from such Event of Default. However, the Company shall remain
liable for such payments.
The Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior
Secured Note Agreement each contain a covenant prohibiting defeasance of the
8 1/4% Notes and the 9% Notes without the consent of a specified percentage of
lenders under the Bank Credit Agreement and the 1993 Term Loan Agreement and
the holders of the Senior Secured Notes. The 9 1/4% Note Indenture and the
Pass Through Certificate Leases also contain, and the 8 1/4% Note Indenture
will contain, covenants limiting defeasance of the 9% Notes.
Modification And Waiver
Modifications and amendments of each 1994 Note Indenture may be made by
the Company and the relevant 1994 Note Trustee with the consent of the Holders
of not less than a majority in aggregate principal amount of the outstanding 8
1/4% Notes or 9% Notes, as the case may be; provided, however, that no such
modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any 8 1/4% Note or 9% Note, as the case may be,
(ii) reduce the principal amount of, or premium, if any, or interest on, any 8
1/4% Note or 9% Note, as the case may be, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any 8 1/4%
Note or 9% Note, as the case may be, (iv) impair the right to institute suit
for the enforcement of any payment on or after the Stated Maturity (or, in the
case of a redemption, on or after the Redemption Date) of any 8 1/4% Note or
9% Note, as the case may be, (v) in the case of the 9% Notes, modify the
subordination provisions in a manner adverse to the Holders of the 9% Notes,
(vi) reduce the above-stated percentage of outstanding 8 1/4% Notes or 9%
Notes, as the case may be, the consent of whose Holders is necessary to modify
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or amend such 1994 Note Indenture, (vii) waive a default in the payment of
principal of, premium, if any, or interest on the 8 1/4% Notes or the 9%
Notes, as the case may be, or (viii) reduce the percentage of aggregate
principal amount of outstanding 8 1/4% Notes or 9% Notes, as the case may be,
the consent of whose Holders is necessary for waiver of compliance with
certain provisions of such 1994 Note Indenture or for waiver of certain
defaults. (Article Eight)
The Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior
Secured Note Agreement each contain a covenant prohibiting the Company from
consenting to any modification of the 1994 Note Indentures or waiver of any
provision thereof without the consent of a specified percentage of the lenders
under the Bank Credit Agreement and the 1993 Term Loan Agreement and the
holders of the Senior Secured Notes. See "Description of Certain
Indebtedness--The Bank Credit Agreement" and "--The Senior Secured Notes."
No Personal Liability Of Incorporators, Shareholders, Officers, Directors Or
Employees
Each 1994 Note Indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the 8 1/4% Notes or the
9% Notes, as the case may be, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in such 1994 Note Indenture, or in the 8 1/4% Notes
or the 9% Notes, as the case may be, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
shareholder, officer, director, employee or controlling person of the Company
or of any successor Person thereof. Each Holder, by accepting such 8 1/4%
Notes or 9% Notes, as the case may be, waives and releases all such liability.
(Section 9.09)
Concerning The 1994 Note Trustees
Each 1994 Note Indenture provides that, except during the continuance of
an Event of Default, the respective 1994 Note Trustee thereunder will perform
only such duties as are specifically set forth in such 1994 Note Indenture.
If an Event of Default has occurred and is continuing, the respective 1994
Note Trustee will exercise such rights and powers vested in it under such 1994
Note Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs. (Section 6.01)
Each of the 1994 Note Indentures and provisions of the Trust Indenture
Act of 1939, as amended, incorporated by reference therein contain limitations
on the rights of the respective 1994 Note Trustee thereunder, should it become
a creditor of the Company, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise.
Each 1994 Note Trustee is permitted to engage in other transactions;
provided, however, that if it acquires any conflicting interest, it must
eliminate such conflict or resign.
The 8 1/4% Note Trustee also serves as trustee with respect to the 9 1/4%
Notes. The 9 1/4% Notes rank pari passu in right of payment with the 8 1/4%
Notes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
APPLICABLE TO THE 1994 NOTES
The Company will treat the 1994 Notes as debt for federal income tax
purposes. However, if any of the 1994 Notes ultimately were treated as
equity, the amount treated as a distribution on any such 1994 Note would first
be taxable to the Holder as dividend income to the extent of the Company's
current and accumulated earnings and profits and would next be treated as a
return of capital to the extent of the Holder's tax basis in the 1994 Note,
with any remaining amount treated as gain from the sale of the 1994 Note.
Further, payments on such 1994 Notes to foreign persons would not be eligible
for the portfolio interest exception from U.S. withholding tax and dividends
thereon would be subject to U.S. withholding tax at a flat rate of 30% (or
lower treaty rate). In addition, in the event of equity treatment, the
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Company would not be entitled to deduct interest expense or original issue
discount, if any, on such 1994 Notes for federal income tax purposes.
As debt instruments and subject to the discussion below, stated interest
on both the 8 1/4% Notes and the 9% Notes will be taxable as ordinary income
to a Holder of such note when received or accrued in accordance with such
Holder's method of tax accounting. If, however, a Holder owns both the 8 1/4%
Notes and the 9% Notes, such Holder should be aware that under the Final
Regulations relating to original issue discount, the Holder could under
certain circumstances be required to aggregate the 8 1/4% Notes and the 9%
Notes held by such Holder and treat such aggregated Notes as a single debt
instrument, which treatment may result in such Holder having to recognize all
or a portion of stated interest on the 1994 Notes as original issue discount
under an economic accrual basis prior to the receipt of cash attributable to
stated interest. However, assuming a substantial portion of the 8 1/4% Notes
and 9% Notes were purchased by Holders who were not related to each other or
to the Company and who did not purchase both 8 1/4% Notes and 9% Notes, then
there is an exception in such regulations under which the aggregation rule
would not apply to the 1994 Notes.
A Holder who purchases a 8 1/4% Note or a 9% Note at a premium
(generally, at a cost in excess of its principal amount or, in the case of the
9% Notes, earlier call price) may elect to amortize such premium as an offset
to interest income on the debt with a corresponding decrease in tax basis. A
Holder who purchases a 8 1/4% Note or a 9% Note at a discount (generally, at a
cost less than its principal amount) that exceeds a statutorily defined de
minimis amount will be subject to the "market discount" rules of the Code.
These rules provide in part that gain on the sale of a debt instrument is
treated as ordinary income, generally interest, to the extent of accrued
market discount not previously included in income by the Holder. The market
discount rules also provide for a deferral of deductions for net interest
expense on indebtedness incurred or continued by a Holder to purchase or carry
a 8 1/4% Note or 9% Note acquired at a market discount until the Note is
disposed of in a taxable transaction or unless the Holder elects to include
market discount in income as it accrues.
Under the Federal Regulations, a holder of a debt instrument acquired on
or after April 4, 1994 may elect to include in gross income interest that
accrues on the debt instrument by using the constant yield method. For
purposes of this election, interest on a debt instrument includes stated
interest, original issue discount and market discount (including any
de minimis amounts), adjusted as applicable by any premium. Such election may
be revoked only with the consent of the IRS. Taxpayers should consult with
their advisors regarding the effect of such an election on any other debt
instruments held by such taxpayer and the advantages and disadvantages of
making this election.
Upon a redemption, sale or exchange of a 8 1/4% Note or a 9% Note, its
Holder will recognize gain or loss measured by the difference between the
amount received in exchange therefor and such Holder's adjusted tax basis in
the note. Any gain or loss recognized on the redemption, sale or exchange of
a note will ordinarily be capital gain or loss if such note is held as a
capital asset (except as noted above with respect to Holders who acquire a
note at a market discount) and will be long-term capital gain or loss, as the
case may be, if the Note was held for more than one year at the time of such
redemption, sale or exchange..
Payments made on the 1994 Notes and proceeds from the sale of the 1994
Notes may be subject to a backup withholding tax of 31% unless the Holder of
the 1994 Note complies with certain reporting requirements or is an exempt
recipient under the Code. Any such withheld amounts will be allowed as a
credit against the Holder's federal income tax liability.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY, ASSUMES THAT THE 1994 NOTES ARE HELD AS CAPITAL ASSETS, DOES
NOT DEAL WITH CERTAIN ASPECTS FOR TAXPAYERS SUBJECT TO SPECIAL RULES AND MAY
NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO
THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE 1994 NOTES, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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FORMATION OF THE PASS THROUGH TRUST
The Pass Through Trust was formed pursuant to a Pass Through Trust
Agreement between the Pass Through Trustee and the Company. The Pass Through
Trustee is a party to the Participation Agreement and pursuant thereto
purchased the Secured Notes. The Pass Through Trust holds all the Secured
Notes. The Pass Through Trustee will distribute the amount of payments of
principal and interest received by it as holder of the Secured Notes to the
Certificateholders of the Pass Through Trust. See "Description of the Pass
Through Certificates" and "Description of the Secured Notes."
DIAGRAM OF PAYMENTS
The following diagram illustrates certain aspects of the payment flows
in this transaction among the Company, the Owner Trustee, the Owner
Participant, the Secured Note Indenture Trustee, the Pass Through Trustee and
the holders of the Pass Through Certificates.
The Company has leased the 1990 Equipment, the Facility, the Power Plant
and the 1991 Equipment from the Owner Trustee, each under a separate Lease.
The Secured Notes are secured by all of the Assets and by an assignment of
certain rights of the Owner Trustee under the Leases. Rent is payable under
each Lease to the Owner Trustee; however, as a result of the assignment of the
Leases, the Company will make rental payments (other than certain excepted
payments) under each Lease directly to the Secured Note Indenture Trustee.
From these rental payments, the Secured Note Indenture Trustee will on behalf
of the Owner Trustee first make payments to the Pass Through Trustee on the
Secured Notes held in the Pass Through Trust and will pay the remaining
balance to the Owner Trustee for the benefit of the Owner Participant.
- ------------------------------------------------------------------------------
| FORT HOWARD CORPORATION |
- ------------------------------------------------------------------------------
| | | |
| | | |
-------------------------------------------------------------------
Secured | 1990 Equipment | 1991 Equipment | Facility | Power Plant |
Note | Lease | Lease | Lease | Lease |
Indenture | | | | |
Trustee | Secured Notes | Secured Notes | Secured Notes |Secured Notes|
| Series A-1 & A-2| Series B | Series C | Series D |
-------------------------------------------------------------------
Excess | | | | | | |
Payments | | *-----| | *------| *------| |
--------- --------------------------------------------------
| | Secured Note
| | Payments
- -------------------- |
| | -------------------
| Owner | | Pass Through |
| Trustee | | Trustee for |
| | | Pass Through |
- -------------------- | Trust |
| Excess -------------------
| Payments | Pass Through
| | Certificate
- ---------------------- | Distributions
| | -------------------
| Owner Participant | | Holders of |
- ---------------------- | Pass Through |
| Certificates, |
| Series 1991 |
-------------------
- -----------
*Excess Payments related to the 1991 Equipment Lease, the Facility Lease and
the Power Plant Lease flow to the Owner Trustee in the same manner as is shown
for the 1990 Equipment Lease.
- 152 -
DESCRIPTION OF THE PASS THROUGH CERTIFICATES
The Pass Through Certificates were issued pursuant to a Pass Through
Trust Agreement between the Company and the Pass Through Trustee. The
statements under this caption are summaries and do not purport to be complete.
The summaries make use of terms defined in and are qualified in their entirety
by reference to the provisions of the Pass Through Trust Agreement, the form
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Except as otherwise indicated, the following
summaries relate to the Pass Through Trust Agreement, the Pass Through Trust
formed thereby and the Pass Through Certificates issued pursuant thereto.
Citations below in parentheses are references to the relevant sections of the
Pass Through Trust Agreement unless otherwise indicated.
General
The Pass Through Certificates have been issued in fully registered form
only. Each Pass Through Certificate represents a fractional undivided
interest in the Pass Through Trust. The property of the Pass Through Trust
includes the Secured Notes, all monies at any time paid thereon and all monies
due and to become due thereunder and funds from time to time deposited with
the Pass Through Trustee. Each Pass Through Certificate corresponds to a pro
rata share of the outstanding principal amount of the Secured Notes held in
the Pass Through Trust and were issued in minimum denominations of $1,000 or
any integral multiple of $1,000. (Sections 2.01 and 3.01) Except as set
forth below under "Definitive Certificates," the Pass Through Certificates
were registered in the name of Cede & Co. ("Cede") as the nominee for The
Depository Trust Company ("DTC") and no person acquiring an interest in the
Pass Through Certificates registered in the name of Cede ("Certificate Owner")
will be entitled to receive a certificate representing such person's interest
in the Pass Through Certificates. Unless and until Definitive Certificates
(as defined below) are issued under the limited circumstances described
herein, all references to actions by Certificateholders shall refer to actions
taken by DTC upon instructions from DTC Participants (as defined below), and
all references herein to distributions, notices, reports and statements to
Certificateholders shall refer, as the case may be, to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the Pass
Through Certificates, or to DTC Participants for distribution to Certificate
Owners in accordance with DTC procedures. (Section 3.09) See "Description of
the Pass Through Certificates--Book-Entry Registration.
Interest will be passed through to Certificateholders at the rate per
annum set forth on the cover page of this Prospectus, which is calculated on
the basis of a 360-day year of twelve 30-day months.
Each Pass Through Certificate represents a fractional undivided interest
in the Pass Through Trust and all distributions to Certificateholders shall be
made only from the Pass Through Trust Property. (Section 3.08) The Pass
Through Certificates do not represent an interest in or obligation of the
Company, the Pass Through Trustee, the Owner Trustee in its individual
capacity, or any affiliate thereof.
The Pass Through Trust Agreement and the Secured Note Indenture do not
include "event risk" provisions specifically designed to afford
Certificateholders protection in the event of a highly leveraged transaction
affecting the Company. However, the Company has agreed to comply with certain
financial and merger covenants contained in its 12 3/8% Note Indenture and
described more fully in Appendix II hereto. The Secured Notes held by the
Pass Through Trustee are secured by a lien on all of the Assets, as discussed
under the caption "Description of the Secured Notes--Security."
Book-Entry Registration
DTC has advised the Company that it is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to Section
17A of the Exchange Act. DTC was created to hold securities for its
participants ("DTC Participants") and to facilitate the clearance and
settlement of securities transactions between DTC Participants through
electronic book-entries, thereby eliminating the need for physical movement of
certificates. DTC Participants include securities brokers and dealers
(including MS&Co.), banks, trust companies and clearing corporations.
- 153 -
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a DTC Participant either directly or indirectly
("Indirect Participants").
Certificate Owners that are not DTC Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Pass Through Certificates may do so only through DTC
Participants and Indirect Participants. In addition, Certificate Owners will
receive all distributions of principal and interest from the Pass Through
Trustee through DTC Participants or Indirect Participants, as the case may be.
Under a book-entry format, Certificate Owners may experience some delay in
their receipt of payments, since such payments will be forwarded by the Pass
Through Trustee to Cede, as nominee for DTC. DTC will forward such payments
to DTC Participants, which thereafter will forward them to Indirect
Participants or Certificate Owners, as the case may be, in accordance with
customary industry practices. The forwarding of such distributions to the
Certificate Owners will be the responsibility of such DTC Participants. So
long as the Pass Through Certificates are registered in the name of Cede, the
only "Certificateholder" will be Cede, as nominee for DTC. Certificate Owners
will not be recognized by the Pass Through Trustee as Certificateholders, as
such term is used in the Pass Through Trust Agreement, and Certificate Owners
will be permitted to exercise the rights of Certificateholders only indirectly
through DTC and DTC Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Pass Through Certificates between DTC Participants on whose behalf it acts
with respect to the Pass Through Certificates and to receive and transmit
distributions of principal of and interest on the Pass Through Certificates.
DTC Participants and Indirect Participants with which Certificate Owners have
accounts with respect to the Pass Through Certificates similarly are required
to make book-entry transfers and receive and transmit such payments on behalf
of their respective Certificate Owners. Accordingly, although Certificate
Owners will not possess Pass Through Certificates, the DTC Participants
provide a mechanism by which Certificate Owners will receive payments and will
be able to transfer their interests.
Until such time as Definitive Certificates (as defined below) are
issued, Certificate Owners will only be permitted to exercise the rights of
Certificateholders through the facilities of DTC, DTC Participants or Indirect
Participants. Because DTC can only act on behalf of DTC Participants, who in
turn act on behalf of Indirect Participants, the ability of a Certificate
Owner to pledge Pass Through Certificates to persons or entities that do not
participate in the DTC system, or to sell, assign or otherwise transfer
ownership of, or other interests in, such Pass Through Certificates, may be
limited due to the lack of a physical certificate for such Pass Through
Certificates. Additionally, Certificate Owners may experience some delays in
the receipt of payments made with respect to the Pass Through Certificates, as
well as notices and other reports distributed by the Pass Through Trustee.
DTC has advised the Company that it will take any action permitted to be
taken by a Certificateholder under the Pass Through Trust Agreement only at
the direction of one or more DTC Participants to whose accounts with DTC the
Pass Through Certificates are credited. Additionally, DTC has advised the
Company that it will take such actions with respect to any percentage of the
beneficial interest of Certificateholders only at the direction of and on
behalf of DTC Participants whose holders include undivided interests that
satisfy any such percentage. DTC may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf
of DTC Participants whose holders include such undivided interests.
Neither the Company nor the Pass Through Trustee will have any liability
for any aspect of the records relating to or payments made on account of a
beneficial ownership interest of the Pass Through Certificates held by Cede,
as nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
Definitive Certificates
The Pass Through Certificates will be issued in fully registered,
certificated form ("Definitive Certificates") to Certificate Owners or their
nominees, rather than to DTC or its nominee, only if (i) the Company advises
- 154 -
the Pass Through Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as depository with respect to the Pass
Through Certificates and the Company or the Pass Through Trustee is unable to
locate a qualified successor, (ii) the Company, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of
an Event of Default, Certificate Owners representing an aggregate percentage
interest in the Pass Through Trust of not less than a majority advise the Pass
Through Trustee through DTC in writing that the continuation of a book-entry
system through DTC (or a successor thereto) is no longer in the Certificate
Owners' best interest. (Section 3.09)
Upon the occurrence of any event described in clause (i), (ii) or (iii)
of the immediately preceding paragraph, the Pass Through Trustee will be
required to notify all Certificate Owners through DTC Participants of the
availability of Definitive Certificates. Upon surrender by DTC of the
certificates representing the Pass Through Certificates and receipt of
instructions for re-registration, the Pass Through Trustee will reissue the
Pass Through Certificates as Definitive Certificates to Certificate Owners.
(Section 3.09)
Distributions of principal of and interest on the Pass Through
Certificates will thereafter be made, in accordance with the procedures set
forth in the Pass Through Trust Agreement, directly to holders in whose names
the Definitive Certificates were registered at the close of business on the
Record Date. Such distributions will be made by check mailed to the address
of such holder as it appears on the register maintained by the Pass Through
Trustee. The final payment on any Pass Through Certificate, however, will be
made only upon presentation and surrender of such Pass Through Certificate at
the office or agency specified in the notice of final distribution to
Certificateholders. (Section 4.02)
Definitive Certificates will be freely transferable and exchangeable at
the office of the Pass Through Trustee upon compliance with the requirements
set forth in the Pass Through Trust Agreement. No service charge will be
imposed for any registration of transfer or exchange, but payment of a sum
sufficient to cover any tax or other governmental charge shall be required.
(Section 3.04)
Same-Day Settlement and Payment
All payments made by the Company under the Leases to the Secured Note
Indenture Trustee (as assignee of the Owner Trustee) will be in immediately
available funds and will be passed through to DTC in immediately available
funds. Secondary trading in long-term notes and debentures of corporate
issuers is generally settled in clearing house or next-day funds. In
contrast, secondary trading in pass through certificates is generally settled
in immediately available funds. The Pass Through Certificates will trade in
DTC's Same-Day Funds Settlement System until maturity, and secondary market
trading activity in such Pass Through Certificates will therefore be required
by DTC to settle in immediately available funds.
Payments and Distributions
Payments of principal of and interest on the Secured Notes received by
the Pass Through Trustee will be distributed by the Pass Through Trustee to
Certificateholders on the date such receipt is confirmed, except in certain
cases when some or all of such Secured Notes are in default. See "Description
of the Pass Through Certificates--Events of Default and Certain Rights Upon an
Event of Default." Payments of interest on the unpaid principal amount of the
Secured Notes are scheduled to be received by the Pass Through Trustee on
January 2 and July 2 of each year, commencing January 2, 1992, until the final
distribution date, and payments of principal on the Secured Notes are
scheduled to be received by the Pass Through Trustee on January 2 or July 2,
or both, depending upon the terms of the Secured Notes (such scheduled
payments of interest and principal on the Secured Notes are herein referred to
as "Scheduled Payments," and January 2 and July 2 of each year are herein
referred to as "Regular Distribution Dates"). The Pass Through Trustee will
distribute on each Regular Distribution Date to the Certificateholders all
Scheduled Payments the receipt of which is confirmed by the Pass Through
Trustee on such Regular Distribution Date. Each such distribution of
Scheduled Payments, other than the final distribution, will be made by the
Pass Through Trustee to the holders of record of the Pass Through Certificates
on the fifteenth day next preceding such Regular Distribution Date, subject to
- 155 -
certain exceptions. (Sections 4.01 and 4.02) If a Scheduled Payment is not
received by the Pass Through Trustee on a Regular Distribution Date but is
received within five days thereafter, it will be distributed on the date
received to such holders of record. If it is received after such five-day
period, it will be treated as a Special Payment and distributed as described
below. (Section 1.01)
The Pass Through Trust will hold Secured Notes which have scheduled
repayments of principal on January 2 or July 2, or both, of each year,
depending upon the terms of the Secured Notes. Interest payments on the
Secured Notes commenced on January 2, 1992. Each Certificateholder will be
entitled to receive a pro rata share of any distribution in respect of
Scheduled Payments of principal and interest made on the Secured Notes held in
the Pass Through Trust. Scheduled Payments of principal on the Secured Notes
are set forth below under "Description of the Secured Notes--Principal and
Interest Payments." After an early redemption or default in respect of some
or all of the Secured Notes, a Certificateholder should refer to the
information with respect to the Pool Balance and the Pool Factor reported
periodically by the Pass Through Trustee. See "Description of the Pass
Through Certificates--Pool Factors" and "Description of the Pass Through
Certificates--Reports to Certificateholders."
Payments of principal and interest received by the Pass Through Trustee
on account of the early redemption, if any, of the Secured Notes, payments
received by the Pass Through Trustee following a default in respect of the
Secured Notes (including payments received by the Pass Through Trustee on
account of the purchase by the Owner Trustee or the Collateral Trustee of the
Secured Notes) and Special Payments will be distributed on the second day of a
month (a "Special Distribution Date"). The Pass Through Trustee will mail
notice to the Certificateholders of record not less than 20 days prior to the
Special Distribution Date on which any Special Payment is scheduled to be
distributed by the Pass Through Trustee stating such anticipated Special
Distribution Date. (Section 4.02) The Certificateholders will then give
notice to the Certificate Owners in accordance with DTC procedures. See
"Description of the Pass Through Certificates--General" and "Description of
the Pass Through Certificates--Book-Entry Registration." (Section 3.09) Each
distribution of a Special Payment, other than a final distribution, on a
Special Distribution Date will be made by the Pass Through Trustee to the
holders of record of the Pass Through Certificates on the fifteenth day next
preceding such Special Distribution Date. See "Description of the Secured
Notes--Redemptions" and "Description of the Pass Through Certificates--Events
of Default and Certain Rights Upon an Event of Default."
The Pass Through Trust Agreement requires that the Pass Through Trustee
establish and maintain, for the Pass Through Trust and for the benefit of the
Certificateholders of the Pass Through Trust, one or more non-interest bearing
accounts (the "Certificate Account") for the deposit of payments representing
Scheduled Payments on the Secured Notes and certain other amounts. (Section
4.01) The Pass Through Trust Agreement also requires that the Pass Through
Trustee establish and maintain, for the Pass Through Trust and for the benefit
of the Certificateholders of the Pass Through Trust, one or more non-interest
bearing accounts (the "Special Payments Account") for the deposit of payments
representing Special Payments and certain other amounts. Pursuant to the
terms of the Pass Through Trust Agreement, the Pass Through Trustee is
required to deposit any Scheduled Payments received by it in the Certificate
Account and to deposit any Special Payments so received by it in the Special
Payments Account. (Section 4.01) In the event that moneys are to be held in
the Special Payment Account prior to the distribution thereof, such amount
will be invested by the Pass Through Trustee, at the direction and risk of the
Company, in certain obligations of the United States. On the Special
Distribution Date on which such amounts are to be distributed to
Certificateholders, the Company will pay on the related Special Distribution
Date an amount equal to the excess of the interest that would have accrued on
the Secured Notes over the earnings from the investment and reinvestment of
Permitted Investments. (Section 4.05) All amounts so deposited will be
distributed by the Pass Through Trustee on a Regular Distribution Date or a
Special Distribution Date as appropriate. (Section 4.02)
At such time, if any, as the Pass Through Certificates are issued in the
form of Definitive Certificates and not to Cede, as nominee for DTC,
distributions by the Pass Through Trustee from the Certificate Account or the
Special Payments Account on a Regular Distribution Date or a Special
Distribution Date will be made by check mailed to each holder of a Definitive
- 156 -
Certificate of record on the applicable record date at its address appearing
on the register maintained with respect to the Pass Through Trust. (Section
4.02) The final distribution, however, will be made only upon presentation
and surrender of the Pass Through Certificates at the office or agency of the
Pass Through Trustee specified in the notice given by the Pass Through Trustee
of such final distribution which notice will be given in accordance with DTC
procedures. The Pass Through Trustee will mail such notice of the final
distribution to the Certificateholders, specifying the date set for such final
distribution and the amount of such distribution. (Section 11.01) See
"Description of the Pass Through Certificates--Termination of the Pass Through
Trust."
If any Regular Distribution Date or Special Distribution Date is not a
Business Day, distributions scheduled to be made on such Regular Distribution
Date or Special Distribution Date may be made on the next succeeding Business
Day and no interest shall accrue upon such distribution during the intervening
period. (Section 12.10)
Pool Factors
Unless there has been an early redemption, purchase or a default, in
respect of one or more of the Secured Notes, as described below in
"Description of the Secured Notes--Redemptions" and "Description of the Pass
Through Certificates--Events of Default and Certain Rights Upon an Event of
Default," the Pool Factor will decline in proportion to the scheduled
repayments of principal on the Secured Notes as described under "Description
of the Secured Notes--Principal and Interest Payments." In the event of such
redemption, purchase or default, the Pool Factor and the Pool Balance will be
recomputed after giving effect thereto and notice thereof will be mailed to
Certificateholders.
The "Pool Balance" indicates, as of any date, the aggregate unpaid
principal amount of the Secured Notes on such date plus any amounts in respect
of principal paid on such Secured Notes held by the Pass Through Trustee and
not yet distributed. The Pool Balance as of any Regular Distribution Date or
Special Distribution Date shall be computed after giving effect to the payment
of principal, if any, on the Secured Notes and distribution thereof to be made
on that date. (Section 1.01)
The "Pool Factor" as of any Regular Distribution Date or Special
Distribution Date is the quotient (rounded to the seventh decimal place)
computed by dividing (i) the Pool Balance by (ii) the aggregate original
principal amount of the Secured Notes. The Pool Factor as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Secured Notes and
distribution thereof to be made on that date. (Section 1.01) The Pool Factor
will initially be 1.0000000; thereafter, the Pool Factor will decline as
described above to reflect reductions in the Pool Balance. The amount of a
Certificateholder's pro rata share of the Pool Balance can be determined by
multiplying the original denomination of the holder's Pass Through Certificate
by the Pool Factor as of the applicable Regular Distribution Date or Special
Distribution Date. A statement showing the Pool Factor and the Pool Balance
will be mailed to Certificateholders of record on each Regular Distribution
Date and Special Distribution Date. (Section 4.03) See "Description of the
Pass Through Certificates--Reports to Certificateholders."
As of the date of sale by the Pass Through Trustee of the Pass Through
Certificates and assuming that no early redemption, purchase or default in
respect of any Secured Notes shall occur, the scheduled principal
distributions on the Pass Through Certificates, and the resulting Pool Factors
after taking into account each such repayment are set forth below:
- 157 -
Regular Scheduled
Distribution Principal Pool
Date Distribution Factor
------------ ------------ ------
July 2, 1994 360,838 0.9489695
January 2, 1995 1,032,807 0.9366183
July 2, 1995 0 0.9366183
January 2, 1996 2,330,546 0.9087473
July 2, 1996 188,120 0.9064976
January 2, 1997 2,587,562 0.8755531
July 2, 1997 232,539 0.8727721
January 2, 1998 2,521,528 0.8426173
July 2, 1998 258,118 0.8395305
January 2, 1999 2,579,612 0.8086810
July 2, 1999 286,511 0.8052546
January 2, 2000 2,427,224 0.7762275
July 2, 2000 318,027 0.7724243
January 2, 2001 2,194,949 0.7461750
July 2, 2001 353,010 0.7419533
January 2, 2002 62,041,625 0.0000000
Reports to Certificateholders
On each Regular Distribution Date and Special Distribution Date, the
Pass Through Trustee will include with each distribution of a Scheduled
Payment or Special Payment to Certificateholders a statement giving effect to
such distribution to be made on such Regular Distribution Date or Special
Distribution Date, as the case may be, setting forth the following information
(per a $1,000 in aggregate principal amount Pass Through Certificate, as to
(i) and (ii) below):
(i) the amount of such distribution allocable to principal;
(ii) the amount of such distribution allocable to interest; and
(iii) the Pool Balance and the Pool Factor. (Section 4.03)
So long as the Pass Through Certificates are registered in the name of
Cede, as nominee for DTC, on the Record Date prior to each Regular
Distribution Date and Special Distribution Date, the Pass Through Trustee will
request from DTC a Securities Position Listing setting forth the names of all
DTC Participants reflected on DTC's books as holding an interest in the Pass
Through Certificates on such Record Date. On each Regular Distribution Date
and Special Distribution Date, the Pass Through Trustee will mail to each such
DTC Participant the statement described above, and will make available
additional copies as requested by such DTC Participant, to be available for
forwarding to Certificate Owners. (Section 3.09)
In addition, after the end of each calendar year, the Pass Through
Trustee will furnish to each Person who at any time during such calendar year
was a Certificateholder a statement containing the sum of the amounts
determined pursuant to clauses (i) and (ii) above for such calendar year or,
in the event such person was a Certificateholder of record during a portion of
such calendar year, for the applicable portion of such calendar year, and such
other items as are readily available to the Pass Through Trustee and which a
Certificateholder shall reasonably request as necessary for the purpose of
such Certificateholder's preparation of its federal income tax returns.
(Section 4.03) So long as the Pass Through Certificates are registered in the
name of Cede, as nominee for DTC, such report and such other items shall be
prepared on the basis of information supplied to the Pass Through Trustee by
the DTC Participants, and shall be delivered by the Pass Through Trustee to
such DTC Participants to Certificate Owners in the manner described above.
At such time, if any, as the Pass Through Certificates are issued in the
form of Definitive Certificates, the Pass Through Trustee will prepare and
deliver the information described above to each holder of record of a
Definitive Certificate as the name and period of beneficial ownership of such
holder of record of a Definitive Certificate appears on the records of the
Registrar of the Pass Through Certificates.
Pursuant to Section 313 of the Trust Indenture Act, the Pass Through
Trustee is required to transmit to Certificateholders, at stated intervals of
not more than twelve months, a brief report with respect to certain material
- 158 -
events including changes as to the eligibility of the Pass Through Trustee to
serve as such, and certain matters relating to potential conflicts of
interest.
Voting of Secured Notes, Modification of, and Consents and Waivers under, the
Secured Note Indenture and Related Agreements
The Pass Through Trustee, as holder of the Secured Notes, has the right
to vote and give consents and waivers in respect of the Secured Notes under
the Secured Note Indenture. The Pass Through Trust Agreement provides that in
the event that the Pass Through Trustee, as the holder of Secured Notes,
receives a request for its consent to any amendment, modification, waiver,
supplement or action under the Secured Note Indenture, any Secured Note
Indenture Document or the Participation Agreement, the Pass Through Trustee
shall mail a notice of such proposed amendment, modification, waiver,
supplement or action to each Certificateholder as of the date of such notice.
The Pass Through Trustee shall request from the Certificateholders direction
as to (i) whether or not the Secured Note Indenture Trustee should take or
refrain from taking any action which a holder of the Secured Notes has the
option to direct, (ii) whether or not to give or execute any waivers,
consents, amendments, modifications, or supplements as a holder of the Secured
Notes, and (iii) how to vote any Secured Notes if a vote has been called.
Prior to an Event of Default (as defined below), the principal amount of the
Secured Notes directing any action or being voted for or against any proposal
shall be in proportion to the principal amount of Pass Through Certificates
held by the Certificateholders taking the corresponding position.
Notwithstanding the foregoing, if an Event of Default under the Pass Through
Trust Agreement shall have occurred and be continuing, the Pass Through
Trustee may in its own discretion consent to such amendment, modification or
waiver, and may so notify the Secured Note Indenture Trustee. (Sections 6.01
and 10.01)
In the event that the Secured Note Indenture Trustee shall be requested
to consent to any assignee of an interest under any Lease or Support Agreement
pursuant to the Recognition Instrument, the Certificateholders shall have 45
days to reject the assignee after which time such assignee shall be deemed
approved by the Certificateholders. See "Description of the Recognition
Instrument." (Section 10.01(b))
Events of Default and Certain Rights Upon an Event of Default
An event of default under the Pass Through Trust Agreement (an "Event of
Default") is defined as the occurrence and continuance of an event of default
under the Secured Note Indenture (a "Secured Note Indenture Event of
Default"). (Section 6.01) For a description of the Secured Note Indenture
Event of Defaults under the Secured Note Indenture, see "Description of the
Secured Notes--Secured Note Indenture Events of Default, Notice and Waiver."
Each of the Owner Trustee under the Secured Note Indenture and the
Collateral Trustee under the Recognition Instrument has the right under
certain circumstances to cure a Secured Note Indenture Event of Default that
results from the occurrence of a Lease Event of Default under any Lease.
(Secured Note Indenture, Section 5.03) The Collateral Trustee, as holder of a
lien on the Company's interests in the Leases, has the right to cure a Secured
Note Indenture Events of Default as described in "Description of the
Recognition Instrument." The circumstances in which the Owner Trustee may
cure Secured Note Indenture Events of Default are described in "Description of
Secured Notes--Secured Note Indenture Events of Default, Notice and Waiver."
In general both the Collateral Trustee and the Owner Trustee have the right to
cure all defaults by the Company subject to a limit on the number of defaults
in the payment of Basic Rent which can be cured. For a description of these
limitations on cure rights of the Owner Trustee, see "Description of the
Secured Notes--Secured Note Indenture Events of Default, Notice and Waiver."
If the Owner Trustee or the Collateral Trustee cures such default, the Secured
Note Indenture Event of Default and consequently the Event of Default under
the Pass Through Trust Agreement will be deemed to be cured. In addition,
each of the Owner Trustee and the Collateral Trustee has the right under
certain circumstances to purchase or redeem the Secured Notes at a price equal
to the unpaid principal amount thereof, together with any accrued and unpaid
interest thereon. The proceeds received by the Pass Through Trustee with
respect to any such purchase or redemption shall be deposited in the Special
Payments Account and shall be distributed to the Certificateholders on a
Special Distribution Date. See "Description of the Pass Through Certificates-
- 159 -
- -Payments and Distributions" and "Description of the Secured Notes--
Redemptions" and "--Secured Note Indenture Events of Default, Notice and
Waiver."
The Pass Through Trust Agreement provides that, as long as a Secured
Note Indenture Event of Default shall have occurred and be continuing, the
Pass Through Trustee may vote all of the Secured Notes, and upon the direction
of the holders of Pass Through Certificates evidencing fractional undivided
interests aggregating not less than a majority in interest of the Pass Through
Trust shall, vote a corresponding majority of the Secured Notes in favor of
directing the Secured Note Indenture Trustee to declare the unpaid principal
amount of the outstanding Secured Notes and accrued interest thereon to be due
and payable. In addition, the Pass Through Trust Agreement provides that, if
a Secured Note Indenture Event of Default shall have occurred and be
continuing, the Pass Through Trustee may, and upon the direction of the
holders of Pass Through Certificates evidencing fractional undivided interests
aggregating not less than a majority in interest shall, vote a corresponding
majority of the Secured Notes in favor of directing the Secured Note Indenture
Trustee as to the time, method and place of conducting any proceeding for any
remedy available to the Secured Note Indenture Trustee or of exercising any
trust or power conferred on the Secured Note Indenture Trustee. (Sections
6.01 and 6.04)
The Secured Note Indenture provides that, if a Secured Note Indenture
Event of Default (other than a default caused by the commencement of
bankruptcy, liquidation or similar proceedings with respect to the Owner
Participant or the Owner Trustee (Secured Note Indenture, Section 5.02(f)) or
the Company (Leases, Section 15(f))) shall occur and be continuing hereunder,
the Secured Note Indenture Trustee may declare all, but not less than all, of
the Secured Notes to be immediately due and payable. Upon such declaration,
the unpaid principal of all Secured Notes then outstanding together with
accrued but unpaid interest thereon and any other amounts due thereunder shall
immediately become due and payable. (Secured Note Indenture, Section 5.04(b))
The Secured Note Indenture further provides that, if a Secured Note Indenture
Event of Default caused by the commencement of bankruptcy, liquidation or
similar proceedings with respect to the Company, the Owner Participant or the
Owner Trustee shall occur and be continuing thereunder, the unpaid principal
of all Secured Notes then outstanding, together with accrued interest thereon
and any other amounts due thereunder, automatically becomes due and payable
without any action on the part of the Secured Note Indenture Trustee.
(Secured Note Indenture, Section 5.04(c)) See "Description of the Secured
Notes--Remedies."
As an additional remedy, if a Secured Note Indenture Event of Default
shall have occurred and be continuing, the Pass Through Trustee may, and upon
the direction of the holders of Pass Through Certificates evidencing
fractional undivided interests aggregating a majority in interest of the Pass
Through Trust shall, sell all or part of the Secured Notes. (Sections 6.01
and 6.02) Any proceeds received by the Pass Through Trustee upon any such sale
shall be deposited in the Special Payments Account and shall be distributed to
the Certificateholders in accordance with the terms of the Pass Through Trust
Agreement on a Special Distribution Date. (Sections 4.01 and 4.02) The market
for Secured Notes in default may be very limited and there can be no assurance
that they could be sold for a reasonable price. If the Pass Through Trustee
sells any such Secured Notes for less than their outstanding principal amount,
the Certificateholders will receive a smaller amount of principal
distributions than anticipated and will not have any claim for the shortfall
against the Company, the Owner Trustee, the Owner Participant or the Pass
Through Trustee.
Any amount distributed to the Pass Through Trustee by the Secured Note
Indenture Trustee following a Secured Note Indenture Event of Default shall be
deposited in the Special Payments Account and shall be distributed to the
Certificateholders on a Special Distribution Date. In addition, if, following
a Secured Note Indenture Event of Default, the Owner Trustee or the Collateral
Trustee exercise their respective options to redeem or purchase the
outstanding Secured Notes as described below under "Description of the Secured
Notes--Redemptions," the price paid by the Owner Trustee or the Collateral
Trustee, as the case may be, to the Pass Through Trustee for the Secured Notes
shall be deposited in the Special Payments Account and shall be distributed to
the Certificateholders on a Special Distribution Date. (Sections 4.01 and
4.02)
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Any funds representing payments received with respect to any Secured
Notes in default, or the proceeds from the sale by the Pass Through Trustee of
any such Secured Notes, held by the Pass Through Trustee in the Special
Payments Account shall, to the extent practicable, be invested and reinvested
by the Pass Through Trustee, at the direction (unless an Event of Default is
continuing) and risk of the Company, in Permitted Investments pending the
distribution of such funds on a Special Distribution Date. For this purpose,
Permitted Investments are limited to obligations of the United States maturing
in not more than 60 days or such lesser time as is required for the
distribution of any such funds on a Special Distribution Date. (Sections 1.01
and 4.04)
The Pass Through Trust Agreement provides that the Pass Through Trustee
shall, within 90 days after the occurrence of a default (as defined below),
give to the Certificateholders notice, transmitted by mail, of all uncured or
unwaived defaults under the Pass Through Trust Agreement known to it; provided
that, except in the case of default in the payment of principal of or interest
on any of the Secured Notes, the Pass Through Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of the Certificateholders. For the purpose of
the provision described in this paragraph only, the term "default" means any
event that is, or after notice or lapse of time, or both, would become an
Event of Default. (Section 7.01)
The Pass Through Trust Agreement contains a provision entitling the Pass
Through Trustee, subject to the duty of the Pass Through Trustee during a
default to act with the required standard of care, to be indemnified by the
holders of the Pass Through Certificates before proceeding to exercise any
right or power under the Pass Through Trust Agreement at the request or
direction of such Certificateholders. (Section 7.02)
In certain cases, the holders of Pass Through Certificates evidencing
fractional undivided interests aggregating not less than a majority in
interest of the Pass Through Trust may on behalf of the holders of all Pass
Through Certificates of the Pass Through Trust waive any past default or Event
of Default under the Pass Through Trust Agreement and thereby annul any
direction given by such holders to the Pass Through Trustee or by the Pass
Through Trustee to the Secured Note Indenture Trustee with respect thereto,
except (i) a default in the making of any payment required to be made by the
Company to the Pass Through Trustee pursuant to the Pass Through Trust
Agreement, (ii) a default in the payment of principal of or interest on any of
the Secured Notes and (iii) a default in respect of any covenant or provision
of the Pass Through Trust Agreement that cannot be modified or amended without
the consent of each Certificateholder. (Section 6.05) In the event of a waiver
under the Pass Through Trust Agreement as described above, the principal
amount of the Secured Notes held in the Pass Through Trust shall be counted as
waived in the determination of the majority in aggregate unpaid principal
amount of Secured Notes required to waive a default or a Secured Note
Indenture Event of Default. Therefore, if the Certificateholders of the Pass
Through Trust waive a past default or Secured Note Indenture Event of Default
under the Pass Through Agreement such that the principal amount of the Secured
Notes held in the Pass Through Trust constitutes the required majority in
aggregate unpaid principal amount under the Secured Note Indenture, such past
default or Secured Note Indenture Event of Default shall be waived. For a
discussion of waivers of Secured Note Indenture Events of Default, see
"Description of the Secured Notes--Secured Note Indenture Defaults, Notice
and Waiver."
Modifications of the Pass Through Trust Agreement
The Pass Through Trust Agreement contains provisions permitting the
Company and the Pass Through Trustee to enter into a supplemental pass through
trust agreement, without the consent of the Certificateholders, (i) to
evidence the succession of another corporation to the Company and the
assumption by such corporation of the Company's obligations under the Pass
Through Trust Agreement, (ii) to add to the covenants of the Company for the
benefit of the Certificateholders, or to surrender any right or power of the
Company under the Pass Through Trust Agreement, (iii) to correct or supplement
any defective or inconsistent provision of the Pass Through Trust Agreement or
any supplemental pass through trust agreement, or to make any other provisions
with respect to matters or questions arising under the Pass Through Trust
Agreement, provided such action shall not adversely affect the interests of
Certificateholders, (iv) to cure any ambiguity or correct any mistake, (v) to
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make any modifications necessary to continue the qualification of the Pass
Through Trust Agreement under the Trust Indenture Act, (vi) to provide for the
assumption by the Company of the obligations of the Owner Trustee under the
Secured Note Indenture, (vii) to evidence the succession of a new Owner
Trustee or new Secured Note Indenture Trustee or new Pass Through Trustee or
the appointment or removal of any co-trustee or separate trustee, (viii) to
include on the Certificates any legend as may be required by law, or (ix) in
connection with (A) Additional Notes or (B) the refinancing or refunding of
the Secured Notes or (C) the sale of the Secured Notes to a third party or (D)
the participation of the Certificateholders with respect to the sale of the
Secured Notes described in "Description of the Secured Notes--Certain Sales of
Secured Notes." (Section 9.01) The Pass Through Trust Agreement also contains
provisions permitting the Company and the Pass Through Trustee, without the
consent of the Certificateholders, to enter into similar supplements with
respect to the Participation Agreement and the Recognition Instrument.
(Section 10.01)
The Pass Through Trust Agreement also contains provisions permitting the
Company and the Pass Through Trustee, with the consent of the
Certificateholders evidencing fractional undivided interests aggregating not
less than a majority in interest of the Pass Through Trust, and with the
consent of the Owner Trustee (such consent not to be unreasonably withheld),
to enter into supplemental pass through trust agreements for the purpose of
adding any provisions to or changing or eliminating any of the provisions of
the Pass Through Trust Agreement or modifying the rights of the
Certificateholders, except that no such supplemental pass through trust
agreement may, without the consent of the holder of each such Pass Through
Certificate so affected, (i) reduce in any manner the amount of, or delay the
timing of, any receipt by the Pass Through Trustee of payments on the Secured
Notes, or distributions in respect of any Pass Through Certificate, or make
distributions payable in coin or currency other than that provided for in the
Pass Through Certificates, or impair the right of any Certificateholder to
institute suit for the enforcement of any payment when due, (ii) permit the
disposition of any Secured Note, except as provided in the Pass Through Trust
Agreement, or (iii) reduce the percentage of the aggregate fractional
undivided interests of the Pass Through Trust provided for in the Pass Through
Trust Agreement, the consent of the holders of which is required for any such
supplemental pass through trust agreement or for any waiver provided for in
the Pass Through Trust Agreement. (Section 9.02)
Termination of the Pass Through Trust
The respective obligations of the Company and the Pass Through Trustee
created by the Pass Through Trust Agreement and the Pass Through Trust will
terminate upon the distribution to all Certificateholders and the Pass Through
Trustee of all amounts required to be distributed to them pursuant to the Pass
Through Trust Agreement and the disposition of all property held in the Pass
Through Trust. The Pass Through Trustee will mail to each Certificateholder
of record notice of the termination of the Pass Through Trust, the amount of
the proposed final payment and the proposed date for the distribution of such
final payment at least 20 days prior to the date of such final payment. The
final distribution to any Certificateholder will be made only upon surrender
of such Certificateholder's Pass Through Certificates at the office or agency
of the Pass Through Trustee specified in such notice of termination. (Section
11.01)
The Pass Through Trustee
Wilmington Trust Company is the Pass Through Trustee. The Pass Through
Trustee and any of its affiliates may hold Pass Through Certificates in their
own names. (Section 7.04) With certain exceptions, the Pass Through Trustee
makes no representations as to the validity or sufficiency of the Pass Through
Trust Agreement, the Pass Through Certificates, the Secured Notes, the Secured
Note Indenture, the Participation Agreement or other related documents.
(Section 7.03) Wilmington Trust Company is also the Secured Note Indenture
Trustee under the Secured Note Indenture.
The Pass Through Trustee may resign as Pass Through Trustee at any time,
in which event the Company will be obligated to appoint a successor trustee.
If the Pass Through Trustee ceases to be eligible to continue as Pass Through
Trustee under the Pass Through Trust Agreement or becomes incapable of acting
as Pass Through Trustee or becomes insolvent, the Company may remove such Pass
Through Trustee, or any Certificateholder for at least six months may, on
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behalf of itself and all others similarly situated, petition any court of
competent jurisdiction for the removal of such Pass Through Trustee and the
appointment of a successor trustee. Any resignation or removal of the Pass
Through Trustee and appointment of a successor trustee does not become
effective until acceptance of the appointment by the successor trustee.
(Section 7.08)
The Pass Through Trust Agreement provides that the Company will pay the
Pass Through Trustee's fees and expenses. The Pass Through Trust Agreement
further provides that the Pass Through Trustee will be entitled to
indemnification by the Company for, and will be held harmless against, any
loss, liability or expenses incurred by the Pass Through Trustee (other than
through its own willful misconduct, bad faith or negligence or by reason of a
breach of any of its representations or warranties set forth in the Pass
Through Trust Agreement), except to the extent that such loss, liability or
expense is for or with respect to taxes, in which case the Pass Through
Trustee may be entitled to be reimbursed by the Pass Through Trust. (Section
7.06)
DESCRIPTION OF THE SECURED NOTES
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in
their entirety by reference to all of the provisions of, the Secured Notes,
the Secured Note Indenture, the Leases, the Support Agreements, the Site
Leases and the Participation Agreement, the forms of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
Except as otherwise indicated, the following summaries relate to the Secured
Notes, the Secured Note Indenture, the Leases, the Support Agreements, the
Site Leases and the Participation Agreement. Citations below in parentheses
are references to the relevant sections of the documents referenced.
General
Each series of Secured Notes was issued under a single Trust Indenture,
Assignment of Leases, Security Agreement and Deed to Secure Debt (the "Secured
Note Indenture") between Shawmut Bank Connecticut, National Association
(formerly The Connecticut National Bank), as Owner Trustee of an owner trust
for the benefit of the Owner Participant, and Wilmington Trust Company, as
Secured Note Indenture Trustee.
The Owner Trustee has leased the Facility, the Power Plant, the 1990
Equipment and the 1991 Equipment to the Company, each pursuant to a separate
Lease between the Owner Trustee and the Company. The 1990 Equipment was
leased to the Company pursuant to the 1990 Equipment Lease commencing on
December 23, 1990. The Company is obligated to pay Rent to the Owner Trustee
under each Lease in respect of each Asset subject to such Lease. The amounts
payable under the Leases will be at least sufficient to pay when due all
payments of principal of and interest on the Secured Notes. The Secured Notes
are not, however, obligations of, or guaranteed by, the Company. The
Company's rental obligations under each Lease are general obligations of the
Company.
Principal and Interest Payments
Interest is payable on each Secured Note through the final distribution
date at a rate per annum corresponding to the rate to be passed through on the
Pass Through Certificates set forth on the cover page of this Prospectus on
the unpaid principal amount thereof on January 2 and July 2 of each year.
Such interest will be computed on the basis of a 360-day year of twelve 30-day
months. The principal of each Secured Note will be payable as set forth below
until the final distribution date (unless earlier redeemed):
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<TABLE><CAPTION>
Payment Date Series A-1 Series A-2 Series B Series C Series D Total
------------ ---------- ---------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
July 2, 1994 $ 0 $ 0 $ 360,838 $ 0 $ 0 $ 360,838
January 2, 1995 449,116 50,646 423,842 109,203 0 1,032,807
January 2, 1996 307,148 56,541 865,037 1,101,820 0 2,330,546
July 2, 1996 0 0 0 0 188,120 188,120
January 2, 1997 328,635 63,123 965,729 1,230,075 0 2,587,562
July 2, 1997 0 0 0 0 232,539 232,539
January 2, 1998 254,737 74,712 818,821 1,373,258 0 2,521,528
July 2, 1998 0 0 0 0 258,118 258,118
January 2, 1999 419,280 76,259 1,040,917 1,043,156 0 2,579,612
July 2, 1999 0 0 0 0 286,511 286,511
January 2, 2000 532,099 101,667 1,118,830 674,628 0 2,427,224
July 2, 2000 0 0 0 0 318,027 318,027
January 2, 2001 524,609 89,839 827,344 753,157 0 2,194,949
July 2, 2001 0 0 0 0 353,010 353,010
January 2, 2002* 2,504,184 483,237 5,447,214 30,658,778 22,948,212 62,041,625
---------- -------- ----------- ----------- ----------- -----------
TOTAL $5,319,808 $996,024 $11,868,572 $36,944,075 $24,584,537 $79,713,016
</TABLE>
*Includes amounts which will be paid from either the proceeds of a sale of the
Secured Notes or a refinancing or refunding with respect to the Secured Notes
or Supplemental Rent payments.
If any date scheduled for any payment of principal of or interest on the
Secured Notes is not a Business Day, such payment may be made on the next
succeeding Business Day without any additional interest.
Redemptions
The Secured Notes may not be optionally redeemed on or prior to the
seventh anniversary of the date of the original issuance of the Pass Through
Certificates, except during the continuance of a Lease Event of Default.
After such seventh anniversary, each of the Leases provides the Company with
the option (the "Early Fixed Price Purchase Option") to purchase the Assets
subject to such Lease on a predetermined Basic Rent Payment Date (as defined
below). For a more complete description of the above-described purchase
option, see "Description of the Secured Notes--The Leases--Purchase Options."
If an Asset is purchased pursuant to such purchase option and the Company
shall not have elected to assume the outstanding Secured Notes relating to
such Asset, the Owner Trustee shall redeem on the applicable Purchase
Redemption Date (i) if such Asset shall be the Facility or the Power Plant,
the entire unpaid principal amount of the outstanding Secured Notes relating
to such Asset and (ii) if such Asset shall be an item of Equipment, such of
the unpaid principal amount of the outstanding Secured Notes relating to the
applicable Equipment Group as shall be equal to the Proportional Amount, in
all cases at a redemption price equal to 100% of the unpaid principal amount
of the Secured Notes to be redeemed on such Purchase Redemption Date as a
result of such purchase, together with any accrued and unpaid interest thereon
to the date of such redemption. (Secured Note Indenture, Section 3.02(c);
Leases, Section 6; Participation Agreement, Section 11.06)
For purposes hereof, "Proportional Amount" with respect to the Secured
Notes relating to an Equipment Group shall mean the product of (x) the entire
unpaid principal amount of the outstanding Secured Notes of the same series as
such Secured Notes and (y) a fraction, the numerator of which shall be
Lessor's Cost of the applicable item of Equipment and the denominator of which
shall be the aggregate Lessor's Cost of all items of Equipment in such
Equipment Group.
Following the seventh anniversary of the date of the original issuance
of the Pass Through Certificates, the Owner Trustee may at its option redeem
the Secured Notes at any time, in whole, at a redemption price equal to 100%
of the unpaid principal amount of the Secured Notes, together with any accrued
and unpaid interest thereon to the date of such redemption. (Secured Note
Indenture, Section 3.03)
Commencing on the seventh anniversary of the date of the original
issuance of the Pass Through Certificates and continuing until the final
distribution date with respect to the Pass Through Certificates, the Company
is required to or the Owner Participant may take certain actions, including
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engaging an investment banking firm, with a view to refunding or refinancing
the Secured Notes prior to the final distribution date on commercially
reasonable terms and conditions. In certain cases the Company is required to
use its best efforts to cooperate with the efforts of the investment banking
firm. The proceeds from any such refunding or refinancing will constitute a
Special Payment and be distributed on a Special Distribution Date. The Owner
Participant will under no circumstances be obligated to utilize its own funds
in connection with such transaction, or to provide any credit support or
credit enhancement or otherwise put itself at any additional economic risk in
facilitating the final distribution and, although as beneficial owner of the
Assets the Owner Participant may have an economic incentive to facilitate such
refinancing, refunding or sale and the final distribution, so as to ensure to
the greatest extent possible that the indebtedness represented by the Secured
Notes remains outstanding to its stated maturity and that the holder or
holders of the Secured Notes do not foreclose upon their security interest in
the Assets, and thereby jeopardize the Owner Participant's investment therein,
Certificateholders should not assume that the Owner Participant will in fact
so facilitate such transactions or the final distribution. See "Description
of the Pass Through Certificates--Payments and Distributions." (Participation
Agreement, Sections 15.01(b), (c) and (d))
If, on or prior to the final distribution date, the Secured Notes are
not refunded, refinanced or sold to a third-party, the Company is required to
make a rent payment to the Secured Note Indenture Trustee (as assignee of the
Owner Trustee) at least equal to the aggregate unpaid principal amount of the
Secured Notes on such date and accrued and unpaid interest thereon. The Owner
Trustee is required to use such funds to redeem all the Secured Notes then
outstanding. (Secured Note Indenture, Section 3.02(d); Leases, Section 3.2(b))
The Secured Notes may be redeemed prior to the seventh anniversary of
the date of the original issuance of the Pass Through Certificate only under
the following circumstances:
The Company may terminate the Lease with respect to an Asset at its
option on or after the fifth anniversary of the Basic Lease Term Commencement
Date for such Asset if the Company determines that such Asset is obsolete,
uneconomic or surplus to the needs of the Company for any reason (or, in the
case of the Power Plant, if the Lessee has elected to terminate the Facility
Lease on a Termination Redemption Date) and the related Assets are sold, or
retained by the Owner Trustee. In the event of any such termination, the
Owner Trustee shall redeem on the applicable Termination Redemption Date (i)
if such Asset shall be the Facility, the entire unpaid principal amount of (x)
the outstanding Secured Notes relating to the Facility and (y) the
outstanding Secured Notes relating to the Power Plant, (ii) if such Asset
shall be the Power Plant, the entire unpaid principal amount of the
outstanding Secured Notes relating to such Asset and (iii) if such Asset shall
be an item of Equipment, such of the unpaid principal amount of the
outstanding Secured Notes relating to the applicable Equipment Group as shall
be equal to the Proportional Amount, in all cases at a redemption price equal
to 100% of the unpaid principal amount of the Secured Notes to be redeemed on
such Termination Redemption Date as a result of such termination, together
with any accrued and unpaid interest thereon to the date of such redemption.
See "Description of the Secured Notes--The Leases--Termination." (Leases,
Section 7; Secured Note Indenture, Section 3.02(b))
If an Event of Loss to an Asset shall occur, unless, if such Asset is an
item of Equipment, a functionally comparable item of equipment of equal or
greater value, estimated residual value, utility and remaining useful life is
substituted for such item of Equipment in accordance with the terms of the
applicable Lease, then the Owner Trustee shall redeem on a Casualty Redemption
Date (i) if such Asset shall be the Facility or the Power Plant, the entire
unpaid principal amount of the outstanding Secured Notes relating to such
Asset and (ii) if such Asset shall be an item of Equipment, such of the unpaid
principal amount of the outstanding Secured Notes relating to the applicable
Equipment Group as shall be equal to the Proportional Amount, in all cases at
a redemption price equal to 100% of the unpaid principal amount of the Secured
Notes to be redeemed on such Casualty Redemption Date as a result of such
Event of Loss, together with any accrued and unpaid interest thereon to the
date of such redemption. Prior to or at the time of the substitution for any
item of Equipment that has suffered an Event of Loss, the Company is required
to provide the Owner Trustee and the Secured Note Indenture Trustee with a
certificate of an officer of the Company certifying that the item of equipment
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replacing such item of Equipment meets the requirements set forth above. A
certificate or opinion of an engineer, appraiser or other expert as to the
fair market value of such replacement item of equipment, however, will not be
obtained. See "Description of the Secured Notes--The Leases--Event of Loss."
(Leases, Section 12; Secured Note Indenture, Section 3.02(a))
So long as a Secured Note Indenture Event of Default resulting from a
Lease Event of Default shall have occurred and be continuing, the Owner
Trustee may, at any time, give the Secured Note Indenture Trustee and the
holders of the outstanding Secured Notes notice of its intention to purchase
or redeem the outstanding Secured Notes on the date specified in such notice,
which date shall be the first Special Distribution Date occurring more than 25
days from the date on which such notice is given. The purchase or redemption
price shall be equal to 100% of the unpaid principal amount of the Secured
Notes, together with any accrued and unpaid interest thereon, to the date of
such redemption or purchase. (Secured Note Indenture, Section 3.06)
The Secured Notes are also subject to purchase in whole by the
Collateral Trustee, on the first Special Distribution Date occurring more than
25 days after written notice by the Collateral Trustee to the Secured Note
Indenture Trustee if a Lease Event of Default and an "Event of Default" under
certain of the Company's senior indebtedness shall have occurred and be
continuing. The purchase price shall be equal to 100% of the unpaid principal
amount of the Secured Notes, together with any accrued and unpaid interest
thereon to the date of such purchase. (Secured Note Indenture, Section 3.07)
The Company may terminate the Leases with respect to all of the Assets
at its option at any time (the "Special Termination Option") in the event the
Company is required to pay, or is likely to be required to pay, certain tax
indemnities to the Owner Participant whereupon title to the Assets shall be
transferred to the Company. See "Description of the Secured Notes--The
Leases--Termination." In the event of such termination prior to the seventh
anniversary of the date of the original issuance of the Pass Through
Certificates, the Company shall assume all of the Secured Notes. In the event
of such termination on or after such seventh anniversary and the Company shall
not have elected to assume all of the outstanding Secured Notes, the Owner
Trustee shall redeem on the applicable Redemption Date the entire unpaid
principal amount of the outstanding Secured Notes at a redemption price equal
to 100% of the unpaid principal amount of the Secured Notes to be redeemed on
such Redemption Date as a result of such termination, together with any
accrued and unpaid interest thereon to the date of such redemption. (Secured
Note Indenture, Section 3.02(b); Participation Agreement, Sections 11.06 and
16.03)
Each of the Leases provides the Company with the option (the "Competitor
Purchase Option") to purchase the Assets subject to such Lease in the event
the Owner Participant becomes a competitor of the Company's tissue paper
making business. Also, the Facility Lease and the Power Plant Lease each
provide the Company with the option (the "Substantial Modifications Purchase
Option") to purchase the Facility and the Power Plant, respectively, in the
event the Company desires or is required to make to either of such Assets
certain substantial Modifications. For a more complete description of the
above-described purchase options, see "Description of the Secured Notes--The
Leases--Purchase Options." If any such purchase of an Asset is made prior to
the seventh anniversary of the date of the original issuance of the Pass
Through Certificates, the Company shall, in the case of the Competitor
Purchase Option, assume all of the Secured Notes and, in the case of the
Substantial Modifications Purchase Option, purchase the beneficial interest of
the Owner Participant in all of the Assets and, under certain circumstances,
assume all of the Secured Notes. If an Asset is purchased on or after such
seventh anniversary and the Company shall not have elected to assume the
outstanding Secured Notes relating to such Asset (in the case of its election
to exercise the Competitor Purchase Option or, under certain circumstances,
the Substantial Modifications Purchase Option) or, pursuant to the terms of
the Participation Agreement, purchase the Owner Participant's beneficial
interest in the Assets (in the case of its election to exercise the
Substantial Modifications Purchase Option), the Owner Trustee shall redeem on
the applicable Purchase Redemption Date (i) if such Asset shall be the
Facility or the Power Plant, the entire unpaid principal amount of the
outstanding Secured Notes relating to such Asset and (ii) if such Asset shall
be an item of Equipment, such of the unpaid principal amount of the
outstanding Secured Notes relating to the applicable Equipment Group as shall
be equal to the Proportional Amount, in all cases at a redemption price equal
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to 100% of the unpaid principal amount of the Secured Notes to be redeemed on
such Purchase Redemption Date as a result of such purchase, together with any
accrued and unpaid interest thereon to the date of such redemption. (Secured
Note Indenture, Section 3.02(c); Leases, Section 6; Participation Agreement,
Sections 11.06 and 16)
In the event of any partial or complete redemption of the Secured Notes
as described above, the proceeds received by the Pass Through Trustee with
respect to such redemption shall be deposited in the Special Payments
Account, may be invested in certain obligations of the United States of
America at the direction and risk of the Company and shall be distributed to
the Certificateholders on a Special Distribution Date. See "Description of
the Pass Through Certificates--Payments and Distributions."
Certain Sales of Secured Notes
Upon a sale of the Secured Notes on the final distribution date arranged
by the Company or the Owner Participant pursuant to the Participation
Agreement, Certificateholders will be offered the option, exercisable at the
sole discretion of each Certificateholder, to participate in such sale on
terms and conditions reasonably satisfactory to the Owner Trustee (after
consultation with the Company). The Owner Participant will under no
circumstances be obligated to utilize its own funds in connection with such
transaction or to provide any credit support or credit enhancement or
otherwise put itself at any additional economic risk in facilitating the final
distribution and, although as beneficial owner of the Assets the Owner
Participant may have an economic incentive to facilitate such refinancing,
refunding or sale and the final distribution, so as to ensure to the greatest
extent possible that the indebtedness represented by the Secured Notes remains
outstanding to its stated maturity and that the holder or holders of the
Secured Notes do not foreclose upon their security interest in the Assets, and
thereby jeopardize the Owner Participant's investment therein,
Certificateholders should not assume that the Owner Participant will in fact
so facilitate such transactions or the final distribution. Such option,
however, will not be available to the Certificateholders with respect to any
sale (i) involving in whole or in part (A) a non-registered offering of
securities of any type to "accredited investors" (as such term is defined in
Regulation D promulgated pursuant to the Securities Act) or (B) a loan or
loans made by one or more banking or other institutional investors or
lenders, (ii) involving any transaction of a type substantially similar to
those described in subclauses (A) and (B) of clause (i) above and (iii) if
such participation with respect to all Certificateholders would be contrary to
then applicable law, including without limitation federal securities laws and
state securities or "blue sky" laws. (Participation Agreement, Section
15.01(g))
Assumption of Secured Notes by the Company
Upon the exercise by the Company of (i) its Early Fixed Price Purchase
Option under the Facility Lease and the Power Plant Lease at a time when no
other Secured Notes are outstanding other than the Secured Notes relating to
the Facility and the Power Plant and any Additional Notes (as defined below)
issued in connection with the financing of a Modification to the Facility or
the Power Plant, (ii) its Competitor Purchase Option under each of the Leases
still in effect, (iii) its Special Termination Option or (iv) under certain
circumstances, its Substantial Modifications Purchase Option, the Company may
(and prior to the seventh anniversary of the date of original issuance of the
Pass Through Certificates shall) assume on a full recourse basis all of the
obligations of the Owner Trustee (other than its obligations in its individual
capacity) under the Secured Notes. In such event, certain relevant provisions
of the Leases, including (among others) provisions relating to maintenance,
possession and use of the Assets, Liens, insurance and events of default will
be incorporated into the Secured Note Indenture, and the outstanding Secured
Notes issued under the Secured Note Indenture will not be redeemed and will
continue to be secured by the Assets. (Secured Note Indenture, Section 3.04)
Defeasance of the Secured Note Indenture and the Secured Notes in Certain
Circumstances
After an assumption by the Company of the Secured Notes the Secured Note
Indenture will provide that it and the obligations of the Secured Note
Indenture Trustee and the Company thereunder will be deemed to be discharged
in full (except for certain obligations, including the obligation to hold
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money for payment in trust) on the 91st day after the date of irrevocable
deposit with the Secured Note Indenture Trustee of money or certain
obligations of the United States which will provide money in an aggregate
amount sufficient to pay when due all Secured Notes in accordance with the
terms of the Secured Note Indenture. Such discharge may occur only if, among
other things, there has been published by the Internal Revenue Service a
ruling to the effect that holders of the Secured Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount and in the same manner and at the same time as would have been
the case if such deposit, defeasance and discharge had not occurred. (Secured
Note Indenture, Sections 10.01 and 10.03)
After an assumption by the Company of the Secured Notes the Secured Note
Indenture will provide that upon such defeasance, or upon deposit with the
Secured Note Indenture Trustee of money sufficient to pay in full all Secured
Notes issued under the Secured Note Indenture no earlier than one year prior
to the maturity or redemption thereof, the holders of the Secured Notes will
have no beneficial interest in or other rights with respect to the Assets or
other property subject to the lien of the Secured Note Indenture and such lien
shall terminate. (Secured Note Indenture, Section 10.01)
Security
The Secured Notes are secured by, among other things, (i) an assignment
by the Owner Trustee to the Secured Note Indenture Trustee of the Owner
Trustee's rights (other than certain excepted rights described below) under
each Lease, including the right to receive payments of Rent thereunder, (ii) a
security interest held by the Secured Note Indenture Trustee in each Asset (or
leasehold or other interest in each Asset), subject to the rights of the
Company under the Lease with respect to such Asset, (iii) an assignment by the
Owner Trustee to the Secured Note Indenture Trustee of the Owner Trustee's
rights under each Assignment (including all of the interest of the Owner
Trustee in and to the IDA Lease and the IDA Project Agreement) and each
related document and (iv) an assignment by the Owner Trustee to the Secured
Note Indenture Trustee of the Owner Trustee's rights under each Site Lease and
each Support Agreement described below, including all estate, right, title and
interest of the Owner Trustee in and to the land demised under each Site
Lease. (Secured Note Indenture, Granting Clause)
Pursuant to the Facility Site Lease and the Power Plant Site Lease, the
Company (i) subleased to the Owner Trustee the real property subject to the
IDA Lease and necessary for the operation of the Facility (the "Facility
Land") and the Power Plant (the "Power Plant Land") for a term equal to the
economic useful life of the Facility and the Power Plant, respectively, and
(ii) granted easements of ingress and egress and other necessary rights of
access (the "Facility Easements" and "Power Plant Easements", respectively).
(Facility Site Lease, Sections 2 and 3; Power Plant Site Lease, Sections 2 and
3) In addition, the Facilities Agreement and the Power Plant Facilities
Agreement require that the Company provide (or make suitable alternative
arrangements by which third parties will directly provide) such additional
materials and services as may be necessary for the Owner Trustee to operate
the Facility or the Power Plant, as the case may be, on a commercially
reasonable basis for the period from the expiration or earlier termination of
the applicable Lease to the end of the economic useful life of such Asset,
including, under the Facilities Agreement, arranging for sales of Facility
output for the Owner Trustee. The Facilities Agreement provides that (except
in certain limited circumstances) the Company will operate the Facility during
such period. The Power Plant Facilities Agreement provides that if requested
by the Owner Trustee, the Company will continue to operate, or arrange to have
another person operate the Power Plant during such period. The Power Plant
Facilities Agreement provides that during such period the Company will be
obligated to purchase at fair market value all steam produced by the Power
Plant not otherwise sold to third parties or utilized by the Owner Trustee.
In addition, the Facilities Agreement and the Power Plant Facilities Agreement
will provide the Company with the right during such period to use certain
equipment in the Facility and the Power Plant, respectively, which have
previously been utilized in the integrated operation of the entire Savannah
River mill and that are necessary for and incidental to the commercially
reasonable operations of those portions of the Savannah River mill not
constituting the Facility or Power Plant. (Facilities Agreement, Section 2;
Power Plant Facilities Agreement, Section 2)
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In order to induce the Company to locate its Savannah River mill in
Effingham County, Georgia, the Effingham County Industrial Development
Authority (the "IDA") has entered into an arrangement with the Company whereby
the Company makes certain payments in lieu of ad valorem taxes otherwise due.
In order to effect such arrangements, the IDA holds legal title to all of the
Company's land and equipment at the mill (the "Project"), including the
Facility, the Power Plant and the Equipment, and leases the Project (including
such Assets) to the Company or its assignee under a lease (the "IDA Lease")
expiring on January 2, 2027. The IDA Lease stipulates that no annual rent
shall be payable thereunder and provides that (i) the Company or its assignee
may remove at any time any property subject thereto, including the Facility,
the Power Plant and the Equipment and (ii) the Company may acquire title to
all of the property leased under the IDA Lease upon payment of one dollar. In
connection with the closing of the 1990 Transaction, the sale of the Company's
interest in the 1990 Equipment was effected, and in connection with the
closing of the 1991 Transaction, the sale of the Company's interest in the
Facility, the Power Plant and the 1991 Equipment was effected, through the
assignment of all of the Company's right, title and interest in and to such
Assets, including all of the Company's right, title and interest under the IDA
Lease with respect to such Assets (including the right to remove such Assets
from the IDA Lease and acquire title thereto) to the Owner Trustee. The
Leases provide that the Owner Trustee will not remove any Asset from the IDA
Lease except under certain circumstances. (Leases, Section 19.7).
Notwithstanding that the Company has assigned all of its right, title and
interest in and to each Asset to the Owner Trustee, if upon termination of the
IDA Lease the IDA shall purport to convey legal title to any Asset to the
Company, the Company will cause legal title to such Asset to be conveyed to
the Owner Trustee. In addition, in connection with the closing of the 1990
and 1991 Transactions with respect to any Asset, the Company delivered to the
Owner Trustee (who in turn delivered to the Secured Note Indenture Trustee as
security), an executed deed and bill of sale to such Asset which the Owner
Trustee will be authorized to record in event the IDA purports to convey legal
title to such Asset to the Company.
The assignment by the Owner Trustee to the Secured Note Indenture
Trustee of its rights under each Lease excludes certain rights of the Owner
Trustee and the Owner Participant (collectively, the "Excepted Payments") such
as rights relating to (including payments of) indemnification by the Company
for certain matters, any letter of credit in favor of the Owner Participant
provided by the Company pursuant to the Participation Agreement and amounts
drawn thereunder, insurance proceeds payable to the Owner Trustee or the Owner
Participant under certain casualty insurance maintained separately by the
Owner Trustee or the Owner Participant with respect to any Asset and insurance
proceeds payable to the Owner Trustee or to the Owner Participant under
liability insurance maintained by the Company under such Lease or by the Owner
Trustee or the Owner Participant. (Secured Note Indenture, Granting Clause and
Section 1.01)
Funds, if any, held from time to time by the Secured Note Indenture
Trustee with respect to any Asset, including funds held as the result of an
Event of Loss to such Asset or termination of the Lease with respect thereto,
will be invested and reinvested by the Secured Note Indenture Trustee, at the
direction of the Company (except in the case of a Lease Event of Default), if
such funds would be payable to the Company, and at the discretion of the Owner
Participant (except in the case of a Secured Note Indenture Event of Default)
in the case of all other funds, in certain investments described in the
Secured Note Indenture and the Leases. The Company will be responsible for
any loss resulting from any such investment. (Secured Note Indenture, Section
7.04; Leases, Section 19.7)
Additional Notes
Additional notes of one or more series ("Additional Notes") may be
issued under the Secured Note Indenture at any time for the purpose of
financing the cost of any Modification to any Asset. The Owner Participant
will have the right to participate in the financing of any such Modification
on terms and conditions mutually acceptable to the Owner Participant and the
Company. If mutually acceptable terms and conditions are not agreed to by the
Owner Participant and the Company, the Owner Participant will consider in good
faith the request of the Company to effect the financing of such cost through
the issuance and sale by the Owner Trustee of Additional Notes in accordance
with the terms of the Secured Note Indenture and subject to certain
conditions, including (i) if such Modification is not required by any
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Governmental Rule or Governmental Action, the principal amount of the
Additional Notes may not exceed the increase in the fair market sales value of
such Asset resulting from such Modification, (ii) no Lease Event of Default or
Secured Note Indenture Event of Default shall have occurred and be continuing
as of the date of such issuance and (iii) the Additional Notes shall not rank
senior in any respect to the Secured Notes. In connection with any such
issuance of Additional Notes, Basic Rent and the other amounts payable by the
Company under the applicable Lease will be adjusted to the extent necessary to
provide sufficient funds to pay when due the scheduled payments of principal
of and interest on the Secured Notes corresponding to such Lease. (Secured
Note Indenture, Section 2.09; Participation Agreement, Section 14.01)
Limitation of Liability
The Secured Notes are nonrecourse notes. None of The Connecticut
National Bank, the Owner Trustee or the Secured Note Indenture Trustee
(whether in its individual or trust capacity) shall be personally liable to
any holder of a Secured Note for any amounts payable under the Secured Notes
or, except as provided in the Secured Note Indenture or any related document,
for any amounts payable or any liability under the Secured Note Indenture.
All payments of principal of and interest on the Secured Notes (other than
payments made in connection with an optional purchase or redemption by the
Owner Trustee or the Collateral Trustee) will be made only from the property
subject to the Lien of the Secured Note Indenture or the income and proceeds
received by the Secured Note Indenture Trustee therefrom (including Rent
payable by the Company under the Leases) and only to the extent that the
Secured Note Indenture Trustee shall have received sufficient income and
proceeds therefrom to make such payments in accordance with the terms thereof.
(Secured Note Indenture, Section 2.03)
Except as otherwise provided in the Secured Note Indenture, the
Participation Agreement and any related document, the Owner Trustee in its
individual capacity shall not be answerable or accountable under the Secured
Note Indenture or under the Secured Notes under any circumstances except for
its own willful misconduct or gross negligence. The Owner Participant will
not be liable to the Secured Note Indenture Trustee or to any holder of any
Secured Note under any circumstances for any reason whatsoever except to the
extent expressly provided in any Operative Document. (Participation Agreement,
Sections 17.11 and 17.15)
Secured Note Indenture Events of Default, Notice and Waiver
Secured Note Indenture Events of Default include: (a) the failure to
pay principal of or interest on any Secured Note within 10 days after the same
shall have become due and payable; (b) the failure of the Owner Participant to
perform or observe certain of its covenants or agreements contained in the
Participation Agreement, including covenants requiring the discharge of Owner
Participant's Liens, and restricting the appointment of successor Owner
Trustees, and the termination of the Trust Agreement; (c) the failure of the
Owner Trustee to perform certain of its covenants or agreements contained in
the Participation Agreement or the Secured Note Indenture, including covenants
requiring the discharge of Lessor's Liens, and restricting the transfer of
Assets, the termination of the Trust Agreement, its permitted activities, the
release of it or the Company from any obligations under the Operative
Documents (except as permitted thereby) and so long as the Secured Note
Indenture is in effect, (i) its right to assign any of its right, title or
interest to anyone other than the Secured Note Indenture Trustee, and (ii)
except as provided in the Operative Documents, its right to (A) accept any
payment from the Company, (B) terminate or consent to the cancellation of any
Lease, Site Lease or Support Agreement, (C) enter into any agreement amending
any Operative Document, (D) execute any waiver or modification of the terms of
any Operative Document, (E) settle any claim arising under any Operative
Document, or (F) submit any dispute arising under any Operative Document to
arbitration thereunder; (d) the failure by either the Owner Participant or the
Owner Trustee, as the case may be, to perform or observe in any material
respect any other covenant or agreement to be performed or observed by it
under the Secured Note Indenture or any other Operative Document (other than
the Tax Indemnity Agreement), which failure shall continue for 30 days after
receipt by the Owner Participant or the Owner Trustee of written notice from
the Secured Note Indenture Trustee specifying such failure and requiring it to
be remedied; provided, however, that the continuation of any such failure for
such 30-day period or such longer period which shall not exceed 180 days shall
not constitute a Secured Note Indenture Event of Default so long as such
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failure is curable or correctable and the Owner Participant or the Owner
Trustee is diligently pursuing the cure or correction thereof; (e)
representations or warranties of the Owner Trustee (in respect of (i)
organizational matters, (ii) the enforceability of the Operative Documents to
which it is a party, (iii) compliance with certain laws and (iv) title to the
Assets) which prove to be inaccurate in any material respect when made, unless
such inaccuracy is no longer material or any material adverse impact thereof
is cured within 30 days after receipt by the Owner Trustee of written notice
thereof from the Secured Note Indenture Trustee; (f) representations and
warranties of the Owner Participant (in respect of (i) organizational matters,
(ii) the enforceability of the Operative Documents to which it is a party and
(iii) compliance with certain laws) which prove to be inaccurate in any
material respect when made, unless such inaccuracy is no longer material or
any material adverse impact thereof is cured within 30 days after receipt by
the Owner Participant of written notice thereof from the Secured Note
Indenture Trustee; (g)(i) either of the Owner Participant or the Owner
Trustee commences a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of its or any substantial part of its property, or
consenting to any such relief or to the appointment or taking possession by
any such official or agency in an involuntary case or other proceeding
commenced against it, or making a general assignment for the benefit of
creditors, or taking any corporate action to authorize any of the foregoing,
or (ii) an involuntary case or other proceeding commenced against either of
the Owner Participant or the Owner Trustee seeking liquidation, reorganization
or other relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official or agency of its or any substantial part of its property, and such
involuntary case or other proceeding remains undismissed and unstayed for a
period of ninety (90) days; and (h) any Lease Event of Default (other than any
Lease Event of Default arising from the failure of the Company to make any
Excepted Payment) which shall have occurred and be continuing. (Secured Note
Indenture, Section 5.02) For a more complete description of the Lease Events
of Default, see "Description of the Secured Notes--The Leases--Lease Events of
Default."
If there shall occur a Secured Note Indenture Event of Default arising
from the failure of the Company to make any payment of Rent when due under any
Lease, and if, within 30 days after notice of such Secured Note Indenture
Event of Default, the Owner Trustee shall pay or cause to be paid all
principal and interest then due on the outstanding Secured Notes and/or such
other amount of Rent as was not paid by the Company, then such failure by the
Company shall not constitute a Secured Note Indenture Event of Default, in
which case the Secured Note Indenture Trustee and the holders of the
outstanding Secured Notes shall not be entitled to exercise any remedies
otherwise available under the Secured Note Indenture or such Lease as the
result of the failure of the Company to make such payment of Rent.
Notwithstanding the foregoing, the Owner Trustee's right to cure a Secured
Note Indenture Event of Default resulting from the failure by the Company to
pay Basic Rent will be limited to the right to cure two Secured Note Indenture
Events of Default occasioned by successive defaults in the payment of Basic
Rent or an aggregate of four Secured Note Indenture Events of Default
occasioned by such defaults in the payment of Basic Rent. The exercise by the
Collateral Trustee of its right to cure any default in the payment of Basic
Rent will count against the number of such cure rights available to the Owner
Trustee. See "Description of the Recognition Instrument." The Owner Trustee
may also cure any other default by the Company in the performance of its
obligations under any Lease in which case such default shall not constitute a
Secured Note Indenture Event of Default so long as (i) such default is curable
and correctable and the Owner Trustee is diligently pursuing the cure or
correction of such default and (ii) the Owner Trustee takes or causes to be
taken, within 20 days (or such longer specified period not to exceed 270 days)
after the date the Owner Trustee receives actual knowledge of such default,
such action as is necessary to cure such default. (Secured Note Indenture,
Section 5.03)
During the occurrence and continuance of a Secured Note Indenture Event
of Default, the Secured Note Indenture Trustee may withhold any portion of the
Rent otherwise payable to the Owner Trustee under the Secured Note Indenture
until the earlier to occur of (i) the curing, waiving or discontinuance of
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such Secured Note Indenture Event of Default and (ii) 180 days after the
occurrence of such Secured Note Indenture Event of Default, after which time,
unless the Secured Note Indenture Trustee shall have given notice to declare
any of the Leases to be in default or any of the Secured Notes shall have been
declared or otherwise shall have become immediately due and payable, such Rent
shall be distributed to the Owner Trustee and no further withholding of Rent
on account of such Secured Note Indenture Event of Default shall be effected.
(Secured Note Indenture, Section 4.01)
The holders of a majority in aggregate principal amount of the
outstanding Secured Notes, by written instruction to the Secured Note
Indenture Trustee, may on behalf of all holders waive any past default under
the Secured Note Indenture except a default in the payment of principal or
interest on any Secured Note or a default in respect of any covenant or
provision of the Secured Note Indenture that cannot be modified or amended
without the consent of each holder of a Secured Note then outstanding.
(Secured Note Indenture, Section 5.08)
Remedies
If a Secured Note Indenture Event of Default (other than a default
caused by the commencement of bankruptcy, liquidation or similar proceedings
with respect to the Owner Participant or the Owner Trustee (Secured Note
Indenture, Section 5.02(f)) or the Company (Leases, Section 15(f)) (other than
certain Lease Events of Default) shall occur and be continuing under the
Secured Note Indenture, the Secured Note Indenture Trustee may declare the
unpaid principal of all (but not less than all) of the Secured Notes
outstanding to be immediately due and payable, together with all accrued and
unpaid interest thereon. If a Secured Note Indenture Event of Default caused
by the commencement of bankruptcy, liquidation or similar proceedings with
respect to the Company, the Owner Participant or the Owner Trustee shall occur
and be continuing thereunder, the unpaid principal of all Secured Notes then
outstanding, together with accrued interest thereon and any other amounts due
thereunder, automatically becomes due and payable without any action on the
part of the Secured Note Indenture Trustee. (Secured Note Indenture, Section
5.04)
The Secured Note Indenture also provides that if a Secured Note
Indenture Event of Default thereunder shall occur and be continuing, the
Secured Note Indenture Trustee may exercise certain rights or remedies
available to it under applicable law, including (if a Lease has been declared
in default) one or more of the remedies under such Lease, subject to the Owner
Trustee's or the Collateral Trustee's rights to cure such default or redeem or
purchase the Secured Notes under the Secured Note Indenture and subject to the
rights of the Collateral Trustee under the Recognition Instrument. See
"Description of the Secured Notes--The Leases--Lease Events of Default" and
"Description of the Recognition Instrument." Such remedies may be exercised
by the Secured Note Indenture Trustee to the exclusion of the Owner Trustee
and, subject to the terms of each Lease, the Company. Any Asset sold in the
exercise of such remedies will be free and clear of any rights of those
parties, including the rights of the Company under the Lease with respect to
such Asset; provided that no exercise of any remedies by the Secured Note
Indenture Trustee may affect the rights of the Company under any Lease unless
a Lease Event of Default under any Lease has occurred and is continuing and
each Lease shall have been declared to be in default. (Secured Note Indenture,
Sections 5.04, 5.05 and 5.09; Leases, Section 9.1)
The Secured Note Indenture provides that the Secured Note Indenture
Trustee will not exercise foreclosure remedies under the Secured Note
Indenture for a Secured Note Indenture Event of Default which results from a
Lease Event of Default unless it has exercised or is exercising material
remedies seeking to dispossess the Company under each Lease, unless exercising
such remedies under such Lease shall be prohibited by law, governmental
authority or court order. However, the Secured Note Indenture Trustee shall
not exercise such remedies if the Collateral Trustee shall assert its rights
under the Recognition Instrument to prohibit the Secured Note Indenture
Trustee from exercising remedies under the Secured Note Indenture. (Secured
Note Indenture, Section 5.04(a)) See "Description of the Recognition
Instrument."
In addition, if a Secured Note Indenture Event of Default results from a
Lease Event of Default, the Secured Note Indenture Trustee shall not exercise
remedies under the Secured Note Indenture with respect to such Secured Note
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Indenture Event of Default for a period of 20 days after notice of such
Secured Note Indenture Event of Default by the Secured Note Indenture Trustee
to the Owner Trustee and each Loan Participant or, if the Collateral Trustee
shall, prior to the expiration of such 20 day period, assert its rights under
the Recognition Instrument to prohibit the Secured Note Indenture Trustee from
exercising remedies under the Secured Note Indenture, then the Secured Note
Indenture Trustee shall not exercise such remedies until the date that is 20
days after the date the Secured Note Indenture Trustee notifies the Owner
Trustee that such prohibition is no longer in effect. (Secured Note Indenture,
Section 5.04(d)) See "Description of the Recognition Instrument."
The holders of a majority in aggregate unpaid principal amount of the
Secured Notes outstanding under the Secured Note Indenture may cause the
Secured Note Indenture Trustee to give such notice, consent or direction or
exercise such right, remedy or power under the Secured Note Indenture or under
any Lease or any other related agreement, but in such event the Secured Note
Indenture Trustee shall not be required to take any action under the Secured
Note Indenture or expend or risk its own funds or otherwise incur any
financial liability in the performance of its duties thereunder or in the
exercise of any of its rights and powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk is not reasonably assured to it. (Secured Note Indenture, Sections 6.02
and 6.04)
If a Secured Note Indenture Event of Default under the Secured Note
Indenture occurs and is continuing and either the Secured Note Indenture
Trustee (as assignee of the Owner Trustee) shall have declared any of the
Leases to be in default or any of the Secured Notes shall have been declared
or otherwise shall have become immediately due and payable, any sums held or
received by the Secured Note Indenture Trustee may be applied to reimburse the
Secured Note Indenture Trustee for any unpaid fees for its services under the
Secured Note Indenture and any unreimbursed tax, expense or other loss
incurred by it prior to any payments to holders of the Secured Notes. (Secured
Note Indenture, Section 4.03)
An important purpose of the owner trust structure is to ensure that the
right of Certificateholders to receive payments on the Pass Through
Certificates would not be impaired in the event of the bankruptcy of the Owner
Participant. The terms of the Owner Trust Agreement and provisions of the
Bankruptcy Code should cause the Owner Trust to be ineligible to be a debtor
under the Bankruptcy Code and should prevent the Assets and the rights of the
Owner Trustee in the related Operative Documents from being treated as part of
the Owner Participant's bankruptcy estate. In the event of the bankruptcy of
the Owner Participant, it is possible, however, that the structure might be
disregarded and the Assets, Leases and Secured Notes and certain other related
documents might become part of the bankruptcy proceeding. In such event,
payments under the Leases or on the Secured Notes might be interrupted and the
ability of the Secured Note Indenture Trustee to exercise its remedies under
the Secured Note Indenture might be restricted, although the Secured Note
Indenture Trustee would retain its status as a secured creditor in respect of
the Leases and the Assets. The Company is of the opinion that the risk
associated with the bankruptcy of the Owner Participant is remote.
Possible Rejection of Certain Operative Documents in Bankruptcy
If the Company were to become a debtor in a bankruptcy or reorganization
case under the United States Bankruptcy Code, the Company or its bankruptcy
trustee could reject any Lease. Similarly, in such event, the Company or its
bankruptcy trustee could reject other of the Operative Documents, such as the
Site Leases (pursuant to which the Company subleases and grants easements with
respect to the Sites to the Owner Trustee) and the Support Agreements
(pursuant to which the Company agrees to provide certain services to the Owner
Trustee in the event of the termination of the Facility Lease or the Power
Plant Lease). In such event, there could be no assurance that the amount of
any claim for damages that would be allowed in such bankruptcy case would be
in an amount sufficient to provide for the repayment of the Secured Notes, or
if allowed, that the Company would have sufficient assets to pay such claim.
Under Section 502(b)(6) of the United States Bankruptcy Code, as
amended, a claim by a lessor for damages resulting from the rejection of a
lease of real property in connection with bankruptcy proceedings affecting the
lessee may be limited to an amount equal to the rent reserved under the lease,
without acceleration, for the greater of 1 year or 15 percent (but not more
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than 3 years) of the remaining term of the lease, plus rent already due but
unpaid. Although each of the Leases purports not to be a lease of real
property, there can be no assurance that a bankruptcy court could not find it
subject to these limitations. The characterization of the property comprising
the Assets as personal or real property involves the interpretation of Georgia
law. Because there is a lack of clear precedent, the Company is unable to
predict how a bankruptcy court would rule on this question.
In any case, rejection of a Lease by the Company or its bankruptcy
trustee would not deprive the Secured Note Indenture Trustee of its security
interest in the applicable Assets. However, rejection of a Site Lease or
Support Agreement by the Company or its bankruptcy trustee could make it
impossible to operate the Assets or certain of the Assets at the Sites and, in
addition, could require the removal of some or all of the Assets to another
location. There can be no assurance that it would be economical to remove
certain of the Assets to another location.
Modification of Secured Note Indenture and Other Operative Documents
The Secured Note Indenture contains provisions permitting the Owner
Trustee and the Secured Note Indenture Trustee to enter into supplements and
amendments to the Secured Note Indenture, without the consent of the holders
of the Secured Notes, (i) to subject additional property to the Lien of the
Secured Note Indenture or to correct or amplify the description of property
subject to the Lien of the Secured Note Indenture, (ii) to add to the
covenants of the Owner Trustee for the benefit of the holders, or to surrender
any right or power of the Owner Trustee, the Owner Participant or the Company
under the Secured Note Indenture, (iii) to cure or correct any ambiguity or
defective or inconsistent provision of the Secured Note Indenture, provided
that such action shall not adversely affect the interests of any holder of the
Secured Notes, (iv) to provide for the assumption by the Company of the
obligations of the Owner Trustee under the Secured Note Indenture, (v) to
evidence the succession of a new Owner Trustee or new Secured Note Indenture
Trustee or the appointment or removal of any co-trustee or separate trustee,
(vi) to make any other provisions with respect to matters or questions arising
under the Secured Note Indenture so long as such action shall not adversely
affect the interests of the holders of the Secured Notes, (vii) to add to the
rights of the holders of the Secured Notes, (viii) to include on the Secured
Notes any legend as may be required by law, or (ix) in connection with (A)
Additional Notes or (B) the refinancing or refunding of the Secured Notes or
(C) the sale of the Secured Notes to a third party or (D) the participation of
the Certificateholders with respect to the sale of the Secured Notes described
in "Description of the Secured Notes--Certain Sales of Secured Notes."
(Secured Note Indenture, Section 9.01)
The Secured Note Indenture also contains provisions permitting the Owner
Trustee and the Secured Note Indenture Trustee, with the consent of a majority
in unpaid principal amount of the Secured Notes outstanding under the Secured
Note Indenture, to amend or supplement the Secured Note Indenture for the
purpose of adding provisions to, or changing or eliminating provisions of, the
Secured Note Indenture, except that without the consent of the holder of each
Secured Note outstanding under the Secured Note Indenture, no amendment or
modification of the Secured Note Indenture may (a) change the stated maturity
of the principal of, or any installment of interest on, or any mandatory or
optional repayment or redemption provision with respect to, any Secured Note,
or change the principal amount thereof or any other amount payable in respect
thereof or reduce the interest thereon, or change the place of payment where,
or the coin or currency in which, any Secured Note or the interest thereon is
payable, (b) permit the creation of any Lien on the assets subject to the
Secured Note Indenture not otherwise permitted thereunder or deprive any
holder of the benefit of the Lien of the Secured Note Indenture upon such
assets, or any portion thereof, for the security of its Secured Notes, (c)
change the percentage of the aggregate principal amount of the Secured Notes
required to take or approve any action under the Secured Note Indenture or any
other Operative Document, (d) adversely affect any indemnities in favor of any
holder of the Secured Notes under the Operative Documents (except as may be
consented to by such holder) or (e) modify the order of priorities in which
distributions of the income and proceeds of the Indenture Estate are to be
made or certain other specified provisions. (Secured Note Indenture, Section
9.02(a))
The Secured Note Indenture also provides that certain provisions of the
other Operative Documents may be amended or modified by the parties thereto
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without the consent of any holder of the Secured Notes outstanding under the
Secured Note Indenture. However, no such amendment or modification shall,
without the consent of the holder of each outstanding Secured Note, amend or
modify any Lease in such manner (i) as to reduce the amounts payable by the
Company under such Lease or change the time for the payment thereof, including
the payment of Supplemental Rent due on the final distribution date, so that
such payments are less than the amounts necessary to pay the principal of and
interest on the outstanding Secured Notes as they become due under the Secured
Note Indenture, or change any of the circumstances under which Stipulated Loss
Value or Termination Value is payable or (ii) as would release the Company
from its obligation in respect of payment of Basic Rent, Stipulated Loss Value
or Termination Value or change the absolute and unconditional character of
such obligations as set forth in such Lease. (Secured Note Indenture,
Section 9.02(a))
The Leases
Term and Rentals. Each of the Facility, the Power Plant, the 1990
Equipment and the 1991 Equipment has been leased separately by the Owner
Trustee to the Company for an interim lease term (the "Interim Lease Term"), a
basic lease term (the "Basic Lease Term") and, at the option of the Company,
certain renewal terms. The Interim Lease Term for each Asset commenced on the
Closing Date for such Asset and ended on the day immediately preceding the
date of commencement of the Basic Lease Term for such Asset (the "Basic Lease
Term Commencement Date"). The Basic Lease Term commenced on January 2, 1991
for the 1990 Equipment and commenced on January 2, 1992 for the Facility, the
Power Plant and the 1991 Equipment and will expire for each Asset on the dates
specified below with respect to such Asset or Assets unless previously
terminated in accordance with the terms of the applicable Lease.
Basic Lease Term
Asset or Assets Expiration Date
--------------- ----------------
Facility July 1, 2016
Power Plant January 1, 2017
1990 Equipment January 1, 2006
1991 Equipment July 1, 2006
Interest expense on the Secured Notes accrued during the Interim Lease
Term for the Leases of the Facility, the Power Plant and the 1991 Equipment
will be paid by the Owner Trustee from amounts contributed by the Owner
Participant and not derived from Rent under such Lease. If the Owner Trustee
shall fail to pay the Secured Note Indenture Trustee its part of such interest
expense on the date such payment is due, then the Company will, in addition to
paying the amount of any Basic Rent due on such date, pay to the Secured Note
Indenture Trustee as Supplemental Rent an amount equal to the unpaid portion
of such interest expense. (Leases, Section 3.2) The Basic Rent payments by
the Company under each Lease are payable on each January 2 and July 2 (or if
such a day is not a Business Day, on the next succeeding Business Day) (each,
a "Basic Rent Payment Date"), commencing on January 2, 1992 (or January 2,
1991 under the 1990 Equipment Lease), and are to be paid to the Secured Note
Indenture Trustee as assignee of the Owner Trustee so long as any Secured
Notes relating to such Lease are outstanding. Such payments will be used to
make payments of principal and interest due on the Secured Notes relating to
such Lease, which will in turn furnish the funds to be distributed by the Pass
Through Trustee to the Certificateholders on January 2 and July 2 of each
year. (Secured Note Indenture, Section 4.01) Rental payments that the Company
is obligated to make under each Lease will not be less than the scheduled
payments of principal of and interest on the Secured Notes related to such
Lease. Although in certain cases, the semiannual Basic Rent payments under a
Lease may be adjusted, under no circumstances will rent payments that the
Company is obligated to make under such Leases be less than the scheduled
payments of principal of and interest on the Secured Notes corresponding to
such Lease. (Leases, Section 3.5) The balance of the Basic Rent payments under
all of the Leases, after payment of the scheduled principal of and interest on
the Secured Notes, will be paid over to the Owner Trustee for the account of
the Owner Participant. The Company's obligation to pay Rent and to make other
payments under each Lease is a general obligation of the Company.
Net Lease, Maintenance and Use. The Company's obligations under each
Lease are those of a lessee under a "net lease." Accordingly, the Company is
obligated, at its own expense, to pay all costs and expenses of operating the
Assets and to operate and maintain each Asset (a) in accordance with good
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industry and sound engineering practice and the Company's established
maintenance and repair programs so as to keep such Asset in good working order
and condition, ordinary wear and tear excepted, (b) in compliance with
contractors' and manufacturers' warranty requirements and (c) subject to
certain exceptions, in compliance with all applicable Governmental Rules and
Governmental Actions as such terms are defined in the applicable Lease.
(Leases, Section 11.1) The Company is obligated to promptly repair or replace
any Component or Replacement Component of each Asset (other than obsolete,
redundant or unnecessary Components or Replacement Components that the Company
is permitted to remove to the extent described below) which from time to time
fails to function in accordance with its intended use, or becomes worn out,
destroyed, damaged beyond repair, lost, condemned, confiscated, stolen or
seized for any reason whatsoever. The Company shall maintain all Replacement
Components of such Asset in as good operating condition as, and with a value,
utility and remaining useful life at least equal to, the Components or
Replacement Components of such Asset replaced, assuming such replaced
Components or Replacement Components were in at least the condition, utility
and repair required to be maintained under the Lease corresponding to such
Asset and shall not discriminate against such Asset or any Component or
Replacement Component of such Asset (as compared to other property of the same
or similar type owned or leased by the Company) with respect to maintenance.
Title to all Components and Replacement Components of each Asset shall vest in
the Owner Trustee. Notwithstanding the foregoing, if at any time during the
lease term for any Asset the Company shall conclude that any property included
in such Asset is obsolete, redundant or unnecessary and can be removed without
diminishment of the value, estimated residual value or utility of such Asset
or reduction of the remaining useful life of such Asset, the Company may
remove such property. (Leases, Section 11.8)
Modifications and Additional Notes. The Company is obligated, at its
expense, to make all Modifications to each Asset as may be required from time
to time to meet the requirements of all applicable Governmental Rules and
Governmental Actions unless the Company elects to terminate the Lease with
respect to such Asset pursuant to the terms thereof. See "Description of the
Secured Notes--The Leases--Termination". The Company also has the right to
make other Modifications to any Asset not required by any Governmental Rule or
Governmental Action. All Modifications to an Asset shall be completed in a
manner (but only to the extent practicable in the case of Modifications to
such Asset required by any Governmental Rule or Governmental Action) which
does not decrease the fair market sales value of such Asset or decrease the
remaining useful life, utility or estimated residual value of such Asset.
Severable Modifications to any Asset not required by any Governmental Rule or
Governmental Action will remain the property of the Company but may be
purchased by the Owner Trustee at fair market value upon termination of the
Lease corresponding to such Asset if not theretofore removed (or, under
certain circumstances, if removed within 18 months prior to the end of the
lease term for such Asset) and if such Asset shall not have been transferred
to the Company pursuant to the applicable Lease or the Participation
Agreement. Title to all severable Modifications to any Asset required by any
Governmental Rule or Governmental Action and to all nonseverable Modifications
to any Asset shall vest in the Owner Trustee and will be subject equally and
ratably to the Lien of the Secured Note Indenture. In addition, the Company
will have the right to request the Owner Participant to consider in good faith
effecting the financing of the cost of any Modification through the issuance
and sale by the Owner Trustee of Additional Notes under the Secured Note
Indenture. (Leases, Section 11; Participation Agreement, Section 14; Secured
Note Indenture, Section 2.09). See "Description of the Secured Notes--
Additional Notes."
Sublease. The Company may sublease any Asset to another Person
(including in any such sublease of the Facility or the Power Plant, a sub-
sublease of the applicable land and commensurate grant of the applicable
Easements) so long as such sublease shall be subject and subordinate to the
Lease corresponding to such Asset. Each such sublease shall (i) prohibit a
further assignment, sublease or disposition of the interests covered thereby,
(ii) be deemed assigned to the Owner Trustee during the continuation of a
Lease Event of Default and (iii) in no event continue beyond the lease term
for such Asset. The Company shall remain primarily liable under the
applicable Lease with respect to such Asset, and all terms and conditions
thereof and of the other Operative Documents shall be complied with as though
no such sublease was in existence. (Leases, Section 14.2)
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Liens. The Assets will be maintained free of any Liens other than (i)
the respective rights of the Company, the Owner Participant, the Owner
Trustee, the Secured Note Indenture Trustee and the holders of the Secured
Notes, as provided in the Operative Documents, (ii) Lessor's Liens, Owner
Participant's Liens and Secured Note Indenture Trustee's Liens, (iii) Liens
for Taxes (as defined in the applicable Lease) either not delinquent or being
contested in good faith and by appropriate proceedings, (iv) materialmen's,
mechanics' and other like Liens arising in the ordinary course of business or
in the course of constructing, repairing, equipping or installing, modifying
or expanding the Assets or any part thereof, for amounts either not more than
60 days past due or being contested in good faith and by appropriate
proceedings, (v) Liens arising out of judgments or awards against the Company
with respect to which at the time an appeal or proceeding for review is being
prosecuted in good faith, (vi) the rights and interests of the IDA in the
Assets and the Sites as provided in the IDA Lease, (vii) Site Liens (as
defined in the applicable Lease), (viii) assignments and subleases permitted
by each Lease and (ix) the rights and interests of the Collateral Trustee
under the Georgia Mill Mortgage and the Recognition Instrument. The Company
may not, however, contest any lien described in clauses (iii), (iv) and (v)
above, if such contest involves any material danger of, the sale, forfeiture
or loss of the applicable Asset or materially interferes with the use thereof,
or disposition of title thereto, in which case the Company is required to
discharge such lien. (Leases, Section 10)
Insurance. The Company, at its own cost and expense, will be obligated
to carry and maintain or cause to be carried and maintained at all times
during the lease term for each Asset (i) insurance with respect to such Asset
against loss or damage by fire, lightning and other risks from time to time
included under "all-risk" policies and against loss or damage by sprinkler
leakage, water damage, collapse, vandalism and malicious mischief, in amounts
sufficient to prevent the Owner Trustee, the Owner Participant, the Pass
Through Trustee, the Company or the Secured Note Indenture Trustee from
becoming co-insurers of any partial loss under the applicable policies, and in
amounts equal to the sum of Stipulated Loss Value for the Facility, the Power
Plant or any item of Equipment, as the case may be, on a "stated value" basis,
to the extent such insurance coverage is available on commercially reasonable
terms and conditions, (ii) public liability, including personal injury and
property damage and comprehensive general liability, insurance against claims
arising out of or connected with the possession, use, leasing, operation or
condition of any Asset then subject to a Lease in such amounts as are usually
carried by persons operating similar properties in the same general locality
but in any event with a combined single limit of not less than $10,000,000 for
personal injury and property damage with respect to any one occurrence, (iii)
explosion insurance in respect of any steam and pressure boilers and similar
apparatus located on the real property subject to the IDA Lease in amounts not
less than those required by clause (ii) above, (iv) appropriate workers'
compensation insurance with respect to any work on or about the real property
subject to the IDA Lease, and (v) such other insurance with respect to such
Asset against loss or damage of the kinds from time to time customarily
insured against by persons owning or using similar property in such amounts as
shall be deemed adequate by an expert selected by the Company and approved by
the Owner Trustee. The insurance required under clause (i), (ii) or (iii)
above may be subject to deductible amounts and self-insured retentions not
exceeding $5,000,000 in the aggregate over all of the Leases. The insurance
required under clause (iv) above may be subject to deductible amounts and
self-insured retentions not exceeding $300,000 per occurrence and $5,000,000
in the aggregate over all of the Leases. All proceeds of such insurance on
account of any damage to or destruction of any Asset shall be payable to the
Secured Note Indenture Trustee for any loss in excess of a specified amount
(the greatest such amount being $10,000,000) and applied to the repair or
restoration of such Asset. Such insurers shall be of recognized
responsibility authorized to insure risks in the State of Georgia having an
A.M. Best rating of at least "A" and an A.M. Best capital and surplus
designation of at least "X" or shall be reasonably satisfactory to the Owner
Trustee. Such insurance may be carried under blanket policies maintained by
the Company so long as such policies otherwise comply with the provisions of
the Leases. The Owner Trustee, the Owner Participant, the Secured Note
Indenture Trustee, the Pass Through Trustee, the Collateral Trustee and the
IDA are included as additional insureds under all third-party liability
policies which the Company maintains pursuant to the Leases and, with respect
to each Asset, the Owner Trustee and the Secured Note Indenture Trustee (for
so long as such Asset is subject to the Lien of the Secured Note Indenture)
will be included as insureds and, to the extent proceeds are payable to it as
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provided in the Lease corresponding to such Asset, loss payees under the "all-
risk" insurance maintained by the Company pursuant thereto. In addition, the
insurance policies maintained under the Leases will provide that, in respect
of the respective interests of the Owner Trustee, the Secured Note Indenture
Trustee, the Pass Through Trustee and the Owner Participant, the insurance
will not be invalidated by any action or inaction of the Company or any other
Person and such insurance shall insure the Owner Trustee, the Secured Note
Indenture Trustee, the Pass Through Trustee and the Owner Participant as their
interests may appear, regardless of any breach or violation of any warranty,
declaration or condition contained in such policies by the Company and that if
the insurers cancel such insurance for any reason whatsoever or any materially
adverse change is made in policy terms or conditions, or if such insurance is
allowed to lapse for nonpayment of premium, such cancellation, change or lapse
shall not be effective as to the Owner Trustee, the Owner Participant, the
Pass Through Trustee or the Secured Note Indenture Trustee for 30 days after
receipt by the Owner Trustee, the Owner Participant, the Pass Through Trustee
or the Secured Note Indenture Trustee, respectively, of written notice from
such insurers of such cancellation, change or lapse. (Leases, Section 13)
Purchase Options. Each Lease provides for various purchase options that
may be exercised by the Company prior to the end of the Basic Lease Term for
the Assets subject to such Lease. So long as no Lease Event of Default or
payment default or bankruptcy default shall have occurred and be continuing
under any Lease on the date the Company gives notice of its irrevocable
election to exercise the purchase option described in this sentence, the
Company shall have the right under each Lease (the "Early Fixed Price Purchase
Option") to purchase all of the Assets subject to such Lease on the Basic Rent
Payment Date specified below with respect to such Asset or Assets at a
purchase price to be calculated in accordance with the terms of the applicable
Lease:
Basic Rent
Asset Payment Date
----- ------------
Facility January 2, 2009
Power Plant January 2, 2009
1990 Equipment July 2, 2000
1991 Equipment July 2, 2000
Each Lease also provides the Company with the right (the "Competitor
Purchase Option") to purchase all the Assets subject to such Lease under
certain circumstances if the Owner Participant becomes a competitor of the
Company's tissue paper making business at a purchase price to be calculated in
accordance with the terms of the applicable Lease. In addition, under the
Facility Lease and the Power Plant Lease, the Company has the right (the
"Substantial Modifications Purchase Op0tion"), so long as no Lease Event of
Default or payment default or bankruptcy default (with or without the giving
of notice or lapse of time, or both) shall have occurred and be continuing
thereunder at the time the Company gives notice of its irrevocable election to
exercise such purchase option, to purchase the Facility and the Power Plant,
respectively, in the event the Company desires or is required to make to
either of such Assets (i) a nonseverable Modification or series of related
nonseverable Modifications or (ii) a severable Modification or series of
severable Modifications required by law, in either case with an estimated cost
in excess of 20% of Lessor's Cost thereof that are not financed by the Owner
Trustee. However, in the event the Company exercises the Competitor Purchase
Option or the Substantial Modifications Purchase Option prior to the seventh
anniversary of the original issuance of the Pass Through Certificates, it
shall assume the Secured Notes (in the case of the Competitor Purchase Option)
or purchase the Owner Participant's beneficial interests in the Assets or,
under certain circumstances, assume the Secured Notes (in the case of the
Substantial Modifications Purchase Option). (Leases, Section 6.1)
In order to exercise either the Early Fixed Price Purchase Option or the
Substantial Modifications Purchase Option under the Facility Lease or the
Power Plant Lease, the Company must also purchase the Power Plant or the
Facility, respectively, pursuant to the Lease corresponding to such Asset. In
addition, in order to exercise the Competitor Purchase Option with respect to
any Asset under the applicable Lease, the Company must at the same time
purchase all of the other Assets then subject to any Lease. (Leases,
Section 6.1)
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In the event the Company has the right to exercise its Substantial
Modifications Purchase Option with respect to the Facility or the Power Plant,
it shall also have the option, instead of purchasing such Assets, to purchase
the Owner Participant's beneficial interest in all of the Assets or, under
certain circumstances, assume the Secured Notes. In such event, the Secured
Notes applicable to such Asset will not be redeemed and will continue to be
secured by such Asset and the related Lease. (Participation Agreement,
Section 16)
In the event the Secured Notes relating to any Asset are outstanding at
the time the Company purchases such Asset pursuant to one of the purchase
options described above and the Company does not assume the Secured Notes or
purchase the Owner Participant's beneficial interest in the Assets, as
applicable, the purchase price for such Asset will be an amount at least
sufficient to pay the principal of and interest on such Secured Notes.
(Secured Note Indenture, Section 3.02(c); Leases, Section 6.1)
Termination. Subject to certain conditions, if the Company determines
that any Asset is obsolete, uneconomic or surplus to the needs of the Company
for any reason (including, without limitation, by reason of burdensome
Governmental Rules), the Company will be permitted to terminate the Lease with
respect to such Asset commencing on January 2, 1997 (or January 2, 1996 with
respect to any item of 1990 Equipment) during the Basic Lease Term for such
Asset. To exercise its right to terminate the Lease with respect to any
Asset, the Company shall be obligated to provide the Owner Trustee and the
Secured Note Indenture Trustee with notice prior to the Basic Rent Payment
Date as of which the Company elects to terminate the Lease with respect to
such Asset (a "Termination Date"). The Company shall be permitted under
certain circumstances at its option by written notice to the Owner Trustee and
the Secured Note Indenture Trustee to revoke any such notice of termination,
in which event the Lease will not terminate with respect to such Asset.
Following such notice of termination, the Company will, as agent for the Owner
Trustee, solicit bids for the cash purchase of such Asset on such Termination
Date. The Owner Trustee may also solicit bids for the cash purchase of such
Asset on such Termination Date independent of the Company. The Owner Trustee
shall sell such Asset on such Termination Date to such Person which shall have
submitted the highest such bid and the proceeds of such sale shall be paid to
the Owner Trustee. If the net proceeds from such sale are less than the
Termination Value for the Asset, the Company shall pay the Owner Trustee an
amount equal to the difference between such proceeds and such Termination
Value, together with certain other amounts. Except as contemplated by the
final sentence of this paragraph, in the event that such Asset is not so sold
(including, without limitation, under circumstances where no bids are
received) on such Termination Date, the Company shall pay to the Owner Trustee
the Termination Value for such Asset, together with certain other amounts.
All funds to be paid to or deposited with the Owner Trustee as described in
this paragraph shall, so long as such Asset is subject to the Lien of the
Secured Note Indenture, be deposited directly with the Secured Note Indenture
Trustee. Amounts in excess of the outstanding principal amount of the Secured
Notes related to such Asset, and the then accrued and unpaid interest thereon
will be distributed by the Secured Note Indenture Trustee to the Owner Trustee
for the benefit of the Owner Participant. The Lien of the Secured Note
Indenture with respect to such Asset shall terminate after the full
Termination Value for such Asset has been received by the Secured Note
Indenture Trustee and, if all amounts due the Owner Participant have also been
paid, the Lease with respect to such Asset shall terminate and the obligation
of the Company to make rental payments with respect thereto shall cease. The
Company shall not be permitted to terminate the Facility Lease in this manner
unless, on or prior to the Termination Date, the Power Plant Lease is
similarly terminated. In the event that the Company shall have exercised its
right to revoke its notice of termination with respect to any Asset or in the
event that the high bidder therefor shall have failed to purchase such Asset
(such failure not being attributable to the fault of the Company), the Lease
shall continue in full force and effect with respect to such Asset. (Leases,
Sections 7.2 and 7.3)
The Owner Trustee shall have the option to retain an Asset with respect
to which the Company has given a notice of termination. In such event, the
Owner Trustee shall pay to the Secured Note Indenture Trustee an amount equal
to the unpaid principal amount of and accrued interest on the Secured Notes
then outstanding relating to such Asset or the applicable Equipment Group to
be redeemed on such Termination Date and shall pay (or the Company shall pay)
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all other sums due and payable to the holders thereof on the Termination Date.
(Leases, Section 7.4)
In the event the Company is required to pay, or is likely to be required
to pay, certain tax indemnities to the Owner Participant, the Company has the
option (the "Special Termination Option") to terminate the Leases with respect
to all of the Assets upon payment of the greater of Special Termination Value
for such Assets and fair market value and certain other amounts at which time
title to the Assets will be transferred to the Company. However, in the event
the Company exercises the Special Termination Option prior to the seventh
anniversary of the date of the original issuance of the Pass Through
Certificates, it shall assume the Secured Notes. (Participation Agreement,
Section 16.03)
Event of Loss. If an Event of Loss occurs with respect to an Asset, the
Company shall pay to the Owner Trustee the Stipulated Loss Value for such
Asset, together with certain additional amounts, or, if such Asset is an item
of Equipment, the Company may elect to replace such item of Equipment. In the
event the Company elects to replace an item of Equipment subject to an Event
of Loss, it must do so within 180 days with a functionally comparable item of
equipment having a value, estimated residual value, utility and remaining
useful life at least equal to, and in as good operating condition as, the item
of Equipment suffering such Event of Loss, assuming such item of Equipment was
in the condition and repair required to be maintained under the applicable
Lease. Prior to or at the time of the substitution for any item of Equipment
that has suffered an Event of Loss, the Company is required to provide the
Owner Trustee and the Secured Note Indenture Trustee with a certificate of an
officer of the Company certifying that the item of equipment replacing such
item of Equipment meets the requirements set forth above. A certificate or
opinion of an engineer, appraiser or other expert as to the fair market value
of such replacement item of equipment, however, will not be obtained. If the
Company pays the Stipulated Loss Value for an Asset subject to an Event of
Loss, together with certain additional amounts, which in all circumstances
will be at least sufficient to pay in full as of the date of payment thereof
the aggregate unpaid principal amount of the outstanding Secured Notes related
to such Asset, together with all unpaid interest thereon accrued to the date
on which such payment is made, the Lien of the Secured Note Indenture and the
Lease shall terminate with respect to such Asset, title thereto shall be
transferred to the Company and the obligation of the Company to make rental
payments with respect thereto shall cease. The Stipulated Loss Value and
other payments made by the Company shall be deposited with the Secured Note
Indenture Trustee so long as such Asset is subject to the Lien of the Secured
Note Indenture. Amounts in excess of the outstanding principal amount of the
Secured Notes related to such Asset and the then accrued and unpaid interest
thereon shall be distributed by the Secured Note Indenture Trustee to the
Owner Trustee for the benefit of the Owner Participant. The Stipulated Loss
Value for an Asset that is not replaced must be paid on the second day of a
month occurring not later than 180 days after the Event of Loss of such Asset.
(Leases, Section 12; Secured Note Indenture, Section 3.02(a))
An Event of Loss with respect to any Asset means any of the following
events as a consequence of any event whatsoever, including but not limited to
anything affecting the applicable Site: (a) the (i) loss, theft, destruction
or disappearance of, or (ii) occurrence of damage (which, in the Company's
reasonable, good faith opinion renders repair or replacement uneconomic) to,
such Asset (or substantially the entirety of such Asset); (b) the permanent
condemnation, confiscation or seizure of, or requisition of title to, such
Asset by any Governmental Authority (as defined in the applicable Lease) (or
any other condemnation, confiscation or seizure by a Governmental Authority
that continues for a period of more than two years without a fixed date for
termination of such action and provided that the deferral of an Event of Loss
pursuant hereto shall not diminish the Company's obligations with respect to
maintenance of the affected Asset to the extent practicable in light of such
action); (c) the requisition of use of such Asset by any Governmental
Authority for a period which shall exceed the lesser of (i) two years and (ii)
the remaining portion of the lease term for such Asset; or (d) the receipt of
insurance proceeds based upon an actual or constructive total loss with
respect to such Asset. (Leases, Definitions)
Lease Events of Default. Events of default (each, a "Lease Event of
Default") under each Lease include, among other things: (a) the Company's
failure to pay Basic Rent, Stipulated Loss Value or Termination Value for any
Asset with respect to such Lease or the Company's failure to pay rent in an
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amount sufficient to redeem all of the Secured Notes then outstanding in the
event that, on or prior to January 2, 2002, the Secured Notes are not
refunded, refinanced or sold to a third party, in each case within 10 days
after the date the same becomes due; (b) the Company's failure to pay
Supplemental Rent or make any other payment (other than Basic Rent, Stipulated
Loss Value, Termination Value or Special Termination Value for any Asset or
the rent payment referred to in clause (a) above) required to be made by the
Company under such Lease or any other Operative Document (with certain
exceptions including Excepted Payments and payments to be made by the Company
to the Pass Through Trustee under the Pass Through Trust Agreement) for more
than 15 Business Days after the Company has received written notice from the
Owner Trustee or the Secured Note Indenture Trustee stating that such payment
is due; (c) the Company's failure to maintain the insurance required to be
maintained under such Lease or, at the option of the Owner Participant, the
Company's failure to maintain certain letters of credit for the benefit of the
Owner Participant; (d) the Company's failure in any material respect to
perform or observe any other covenant or agreement to be performed or observed
by it under such Lease or any other Operative Document (with certain
exceptions including covenants or agreements with respect to Excepted Payments
and payments to be made by the Company to the Pass Through Trustee under the
Pass Through Trust Agreement) and such failure shall continue unremedied for
thirty days after receipt by the Company of written notice from the Owner
Trustee or the Secured Note Indenture Trustee specifying such failure and
requiring it to be remedied, provided that the continuation of any such
failure for such thirty day period or such longer period which shall not
exceed 180 days shall not constitute a Lease Event of Default so long as such
failure is curable or correctable and the Company is diligently pursuing the
cure or correction thereof; (e) any representation or warranty made by the
Company in the Participation Agreement or certain related documents proving to
have been inaccurate in any material respect when made, unless such inaccuracy
shall not be material to the recipient at the time when the notice referred to
below shall have been received by the Company or any adverse impact thereof
shall have been cured within thirty days after receipt by the Company of
written notice thereof from the Owner Trustee or the Secured Note Indenture
Trustee; (f) (i) the performance by the Company of any of the following
actions: commencing by the Company of a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part
of its property, or consenting to any such relief or to the appointment or
taking possession by any such official or agency in an involuntary case or
other proceeding commenced against it, or making a general assignment for the
benefit of creditors, or taking any corporate action to authorize any of the
foregoing, or (ii) an involuntary case or other proceeding is commenced
against the Company seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official or agency of it or
any substantial part of its property, and such involuntary case or other
proceeding remains undismissed and unstayed for a period of ninety (90) days;
(g) the Company's default with respect to any term of any loan agreement,
mortgage, indenture or other agreement relating to any indebtedness of the
Company in an individual principal amount of $15,000,000 or more or items of
indebtedness with an aggregate principal amount of $30,000,000 or more, if the
effect of such default is to cause such indebtedness to become due or be
declared due prior to its stated maturity; or (h) a Lease Event of Default
under any other Lease. (Leases, Section 15)
If a Lease Event of Default under a Lease has occurred and is
continuing, and such Lease has been declared in default, the Secured Note
Indenture Trustee, as assignee of the Owner Trustee's rights under the Lease,
may exercise one or more of the remedies provided in the Lease with respect to
the Assets subject thereto. These remedies include the right to repossess and
use or operate the Assets, to sell or release the Assets free and clear of the
Company's rights and retain the proceeds and to require the Company to pay as
liquidated damages any unpaid rent plus, at the Secured Note Indenture
Trustee's option (as assignee of the Owner Trustee), any of the following:
(a) an amount equal to the excess of the Stipulated Loss Value of the Asset
over, at the Secured Note Indenture Trustee's option (i) the discounted fair
market rental value thereof for the remainder of the term of such Asset, (ii)
the fair market sales value thereof, or (iii) if the Asset has been sold, the
net sales proceeds thereof; (b) an amount equal to the excess of the
- 181 -
discounted present value of all installments of Basic Rent for the Asset over
the discounted fair market rental value thereof for the remainder of the term
of such Asset; or (c) an amount equal to the greatest of (i) Stipulated Loss
Value of the Asset, (ii) the discounted fair market rental value for the
remaining useful life thereof and (iii) the fair market sales value thereof,
in which case the Owner Trustee shall transfer such Asset to the Company,
whereupon the Lease and the Company's obligations thereunder with respect to
such Asset shall cease. (Leases, Section 16) For a possible limitation on
damages, see "Description of the Secured Notes--Possible Rejection of Certain
Operative Documents in Bankruptcy."
The Participation Agreement
The Company is required to indemnify the Owner Participant, the Owner
Trustee, the Secured Note Indenture Trustee and the Pass Through Trustee for
certain losses, fees and expenses and for certain other matters.
(Participation Agreement, Section 12) For a more detailed description of the
merger and financial covenants of the Participation Agreement, see Appendix II
attached hereto.
DESCRIPTION OF THE RECOGNITION INSTRUMENT
The statements under this caption are summaries and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in
their entirety by reference to all the provisions of, the Recognition
Instrument, the form of which has been filed as an Exhibit to the Registration
Statement of which the Prospectus is a part.
A significant portion of the Company's land and equipment at the
Savannah River mill (including the Company's interest under the IDA Lease),
other than Assets subject to the 1990 and 1991 Transactions described in this
Prospectus, is subject to a mortgage and security interest (the "Georgia Mill
Mortgage"). The Georgia Mill Mortgage is administered by the Collateral
Trustee for the benefit of certain of the Banks under the Bank Credit
Agreement and the Purchasers under the Senior Secured Note Agreement.
Although the Collateral Trustee does not have a lien on the Owner
Trustee's title to or interest in the Assets or a lien on any of the Owner
Trustee's rights under the Operative Documents, including the Owner Trustee's
rights as lessor under the Leases, pursuant to the terms of such senior
indebtedness, the Collateral Trustee is entitled to among other things receive
a lien on the Company's interest as lessee under the Leases, as ground lessor
and easement grantor under the Site Leases, and as obligor and beneficiary of
certain rights under the Support Agreements and certain other Operative
Documents. In addition, the acceleration of the indebtedness under the Bank
Credit Agreement or the Senior Secured Note Agreement constitutes a default
under the Leases.
Accordingly, the Collateral Trustee, the Company, the Secured Note
Indenture Trustee, the Pass Through Trustee and the Owner Trustee have entered
into an intercreditor agreement (the "Recognition Instrument") to address
their respective rights and obligations in certain circumstances. In general,
the Recognition Instrument affords the Collateral Trustee (i) the right to
cure defaults by the Company under the Leases, the Site Leases and the Support
Agreements, (ii) the right to postpone termination of the Leases, the Site
Leases and the Support Agreements, (iii) the right to defer the Owner
Trustee's and the Secured Note Indenture Trustee's exercise of remedies
following a default by the Company under the Leases, the Site Leases and the
Support Agreements (provided that within specified time periods during such
deferral all payment defaults are cured and certain nonpayment defaults are in
the process of being cured) and (iv) the right to purchase the Owner Trustee's
interest and the Secured Notes (at 100% of unpaid principal and accrued and
unpaid interest) in certain circumstances.
The foregoing provisions relating to rights to cure and limitations on
the exercise of remedies by the Owner Trustee and the Secured Note Indenture
Trustee may delay the Owner Trustee and the Secured Note Indenture Trustee
from exercising the full range of remedies otherwise available to it. Any
such delay in the exercise of remedies with respect to the Assets or the
Company may impair the ability of the Owner Trustee and the Secured Note
Indenture Trustee, at such time as they may be permitted to exercise remedies,
- 182 -
to realize sufficient funds to satisfy the then unpaid obligations with
respect to the Secured Notes (and thus on the Pass Through Certificates).
In addition, the Recognition Instrument provides that, following a
default by the Company, the Collateral Trustee has the right, in connection
with the exercise of remedies by the Collateral Trustee in respect of its lien
on the Company's interest under certain of the Operative Documents, to have
the Company's rights under such Operative Documents assigned to a new entity.
The Recognition Instrument also provides that if the Company shall be the
subject of any insolvency, bankruptcy or other similar proceeding and in
connection therewith shall elect to reject any Operative Document, the
Collateral Trustee shall have the right to require the parties to the 1990 and
1991 Transactions to enter into similar agreements with a new entity. The
Recognition Instrument provides that any such new entity must meet certain
minimum standards or be approved by the Owner Trustee and the Secured Note
Indenture Trustee. The Certificateholders shall have forty-five days to
reject any assignee required to be approved by them, after which time such
assignee shall be deemed approved by the Certificateholders. In the event any
entity receives such an assignment, the ultimate source of payments under the
Leases and the other Operative Documents (and thus on the Pass Through
Certificates) would be an entity other than the Company. There can be no
assurances that any such entity could satisfy the Company's obligations under
the Operative Documents. The Secured Note Indenture Trustee, however, would
retain its security interest in the Assets.
The rights and benefits of the Collateral Trustee in the Recognition
Instrument will be available to any successor or assign of the Collateral
Trustee and to each additional mortgagee of the Company's interest under any
of the Operative Documents.
In return, the Collateral Trustee will agree that so long as the Owner
Trustee or the Secured Note Indenture Trustee acting on behalf of the Owner
Trustee fulfills its obligations under the Recognition Instrument, the Site
Leases and the Support Agreements it will not interfere with the Owner
Trustee's use, possession and enjoyment of the land upon which the Assets are
situated (the Company's interest in such land, as stated above, being subject
to the Georgia Mill Mortgage). Also, pursuant to the Recognition Instrument,
the Collateral Trustee will confirm that the Assets are not subject to the
lien of the Georgia Mill Mortgage and the Recognition Instrument provides a
procedure for ensuring that the lien of the Georgia Mill Mortgage does not
attach to certain modifications to and subsequently acquired components of the
Assets.
See "Risk Factors--Risk Factors Relating to the Pass Through
Certificates--Potential Inability to Fully Exercise Remedies."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
APPLICABLE TO THE PASS THROUGH CERTIFICATES
The following discussion is a summary of certain federal income tax
consequences of the purchase, ownership and disposition of Pass Through
Certificates. This summary is based on laws, regulations, rulings and
decisions now in effect, all of which are subject to change by legislative,
administrative or judicial action, which change may be retroactive and applied
in a manner that could adversely affect Certificate Owners. The discussion
below does not purport to address federal income tax consequences applicable
to particular categories of investors, some of which (for example, banks, tax
exempt organizations, dealers in securities, insurance companies or foreign
investors) may be subject to special rules, and no information is provided in
this discussion with respect to foreign, state or local tax laws or estate and
gift considerations. Investors should consult their own tax advisors in
determining the federal, state, local and foreign tax consequences to them of
the purchase, ownership and disposition of Pass Through Certificates. The
Pass Through Trust is not indemnified for any federal income taxes that may be
imposed upon it, the imposition of which could reduce the amounts available
for distribution to the Certificate Owners.
General
In connection with the initial offering of the Pass Through
Certificates, the Company received an opinion of counsel to the effect that,
- 183 -
based upon the law at the time of such offering, the Pass Through Trust should
be classified as a "grantor trust." Consequently, each Certificate Owner, as
the beneficial owner of an interest in the Pass Through Certificates, should
be treated as owning a pro rata undivided interest in each Secured Note and
any other property held in the Pass Through Trust.
The Company believes that each Certificate Owner should be required to
report on its federal income tax return its pro rata share of the entire
income from the Secured Notes and any other property in the Pass Through
Trust, in accordance with such Certificate Owner's method of accounting.
Thus, a Certificate Owner using the cash method of accounting should account
for its pro rata share of income as and when received by the Pass Through
Trustee, while a Certificate Owner using the accrual method of accounting
should account for its pro rata share of income as it accrues or is received
by the Pass Through Trustee, whichever is earlier.
Market Discount and Premium
A purchaser of an interest in a Pass Through Certificate should be
treated as purchasing an interest in each Secured Note and any other property
in the Pass Through Trust at a price determined by allocating the purchase
price paid for the Pass Through Certificate among the Secured Notes and other
property in proportion to their respective fair market values at the time of
purchase of the interest in the Pass Through Certificate. To the extent that
the portion of the purchase price of an interest in a Pass Through Certificate
allocated to a Secured Note (exclusive of any purchase price allocable to
accrued but unpaid interest at the time of purchase) is less than or greater
than the portion of the principal balance of the Secured Note which is
allocable to the interest in the Pass Through Certificate, the interest in the
Secured Note will have been acquired at a market discount or premium, as the
case may be.
If an interest in a Secured Note is purchased at a market discount, such
interest will be subject to the market discount provisions of the Code, unless
the amount of market discount does not exceed a statutorily defined de minimis
amount. In general, under the market discount provisions of the Code,
installment payments of principal on the Secured Notes, and all or a portion
of the gain recognized upon a sale or other disposition of a Pass Through
Certificate by a Certificate Owner, will be taxable as ordinary interest
income to the extent of accrued market discount, and a portion of the interest
deductions attributable to indebtedness treated as incurred or continued to
purchase or carry the Secured Notes must be deferred.
The ordinary income treatment on dispositions and deferral of interest
deductions described in the preceding paragraph will not apply if a
Certificate Owner elects to include market discount in income currently as it
accrues for each taxable year during which it holds the Pass Through
Certificate. For debt instruments the principal of which is paid in more than
one installment, such as a Secured Note, market discount will accrue in the
manner to be provided in future Treasury regulations, but the Conference
Report accompanying the Tax Reform Act of 1986 states that, until such
regulations are issued, taxpayers may elect to accrue market discount either
(i) under a constant yield method or (ii) for debt instruments without
original issue discount, in the proportion that the stated interest paid on
the obligation for the current period bears to total remaining interest on the
obligation at the beginning of such period.
Treasury regulations implementing the market discount rules of the Code
have not been promulgated and the treatment of Secured Notes under those
market discount rules is not entirely clear. Accordingly, holders are urged
to consult their own tax advisors with respect to such treatment, including
the application of the de minimis rule and the treatment of partial principal
payments.
If an interest in a Secured Note is purchased at a premium, such premium
generally may be amortized by a Certificate Owner (if an election under
Section 171 of the Code is made) as an offset to interest income (with a
corresponding reduction in the Certificate Owner's basis) under a constant
yield method over the term of the Secured Note. An election to amortize bond
premium applies to all taxable debt obligations then owned and thereafter
acquired by the holder and may only be revoked with IRS permission.
- 184 -
Under the Final Regulations, a holder of a debt instrument acquired on
or after April 4, 1994 may elect to include in gross income interest that
accrues on the debt instrument by using the constant yield method. For
purposes of this election, interest on a debt instrument includes stated
interest, original issue discount and market discount (including any de
minimis amounts), adjusted as applicable by any premium. Such election may be
revoked only with the consent of the IRS. Taxpayers should consult with their
advisors regarding the effect of such an election on any other debt
instruments held by such taxpayer and the advantages and disadvantages of
making this election.
Sales of Pass Through Certificates
A Certificate Owner that sells or exchanges its interest in a Pass
Through Certificate should recognize gain or loss (in the aggregate) equal to
the difference between the amount realized (reduced by any consideration
allocable to accrued interest, which consideration is treated as if the
interest income had been received) and its adjusted tax basis in the Pass
Through Certificate. In general, a Certificate Owner's adjusted tax basis
will equal the holder's cost for the interest in a Pass Through Certificate,
increased by any discount previously included in income and decreased by any
deduction previously allowed for amortized premium and by the amount of the
holder's interest in principal payments previously received. If such
Certificate Owner held its interest in such Pass Through Certificate as a
capital asset for more than one year (and provided the Pass Through Trust also
held the underlying Secured Notes for more than one year), any such gain or
loss will be a long-term capital gain or loss, except that gain will be
treated as ordinary interest income to the extent such gain represents accrued
market discount not previously included in income on Secured Notes.
Backup Withholding
Payments made on the Pass Through Certificates and proceeds from the
sale of the Pass Through Certificates to or through certain brokers may be
subject to a "backup" withholding tax of 31% unless the Certificate Owner
complies with certain reporting procedures or is an exempt recipient under
Section 3406(g) of the Code. Any such withheld amounts will be allowed as a
credit against the Certificate Owner's federal income tax.
CERTAIN DELAWARE TAXES RELATING TO THE PASS THROUGH CERTIFICATES
The Pass Through Trustee is a Delaware banking corporation with its
principal corporate trust office in Delaware. In connection with the initial
offering of the Pass Through Certificates, Richards, Layton & Finger, counsel
to the Pass Through Trustee, advised the Company that, in its opinion,
assuming that the Pass Through Trust will be classified as a grantor trust,
(i) the Pass Through Trust should not be subject to any tax (including,
without limitation, net or gross income, tangible or intangible property, net
worth, capital, franchise or doing business tax), fee or other governmental
charge under the laws of the State of Delaware or any political subdivision
thereof and (ii) Certificateholders and Certificate Owners that are not
residents of or otherwise subject to tax in Delaware will not be subject to
any tax (including, without limitation, net or gross income, tangible or
intangible property, net worth, capital, franchise or doing business tax), fee
or other governmental charge under the laws of the State of Delaware or any
political subdivision thereof as a result of purchasing, holding (including
receiving payments with respect to) or selling a Pass Through Certificate or
an interest therein. Neither the Pass Through Trust, the Certificateholders
nor the Certificate Owners will be indemnified for any state or local taxes
imposed on them, and the imposition of any such taxes on the Pass Through
Trust could result in a reduction in the amounts available for distribution to
the Certificate Owners of the Pass Through Trust. In general, should a
Certificateholder or Certificate Owner or the Pass Through Trust be subject to
any state or local tax which would not be imposed if the Pass Through Trustee
were located in a different jurisdiction in the United States, the Pass
Through Trustee will resign and a new Pass Through Trustee in such other
jurisdiction will be appointed.
- 185 -
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE PASS THROUGH CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS APPLICABLE TO PASS THROUGH CERTIFICATES
No employee benefit plan subject to Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or individual retirement
account or employee benefit plan subject to Section 4975 of the Code, or any
trust established under any such plan or account (hereinafter collectively
referred to as an "ERISA Plan"), may acquire or hold any of the Pass Through
Certificates. Certain governmental and non-electing church plans, however,
are not subject to Title I of ERISA or Section 4975 of the Code and, therefore
are not ERISA Plans and may acquire and hold Pass Through Certificates. Any
fiduciary of such a governmental or church plan should consult with legal
counsel as to the propriety of acquiring or holding Pass Through Certificates.
The purchase by any person of any Pass Through Certificate constitutes a
representation by such person to the Company, the Owner Participant, the Pass
Through Trustee, the Owner Trustee and the Secured Note Indenture Trustee, or
their respective successors, that such person is not an ERISA Plan, and that
such person is not acquiring, and has not acquired, such Pass Through
Certificate with assets of an ERISA Plan.
MARKET-MAKING ACTIVITIES OF MS&CO.
This Prospectus is to be used by MS&Co. in connection with offers and
sales of the 1988 Securities, the 1993 Notes, the 1994 Notes and the Pass
Through Certificates in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale. MS&Co. may act as
principal or agent in such transactions. MS&Co. has no obligation to make a
market in the 1988 Securities, the 1993 Notes, the 1994 Notes or the Pass
Through Certificates, and may discontinue its market-making activities at any
time without notice, in its sole discretion.
MS&Co. is affiliated with entities that beneficially own Common Stock of
the Company representing approximately 57% on a fully diluted basis of the
outstanding shares of Common Stock of the Company and have the ability to
elect a majority of the members of the Company's Board of Directors. See
"Ownership of Common Stock."
MS&Co. acted as underwriter in connection with the original offering of
the 1988 Securities, the 12 3/8% Notes and the Junior Debentures and received
aggregate underwriting discounts and commissions of $52.8 million in
connection therewith. MS&Co. also acted as underwriter in connection with the
original offering of the 1993 Notes, the 1994 Notes and the Pass Through
Certificates and received underwriting commissions of $19.5 million, $20.4
million and $2.1 million, respectively, in connection therewith.
For a description of certain transactions between the Company and MS&Co.
and affiliates of MS&Co., see "Risk Factors--Risk Factors Relating to the
Company--Control of the Company by Morgan Stanley Group and Affiliates;
Potential Conflicts of Interest."
MS&Co. has provided, and continues to provide, investment banking
services to the Company.
LEGAL MATTERS
The legality of the 1988 Securities was passed upon for the Company by
Davis Polk & Wardwell, New York, New York, and for MS&Co. by Shearman &
Sterling, New York, New York. Certain legal matters with respect to the 1993
Notes and the 1994 Notes were passed upon for the Company by Shearman &
Sterling, New York, New York, and for MS&Co. by Davis Polk & Wardwell, New
York, New York. Shortly after the Acquisition, certain partners of Davis Polk
- 186 -
& Wardwell, acting through a general partnership, acquired shares of Common
Stock of the Company from Morgan Stanley Group which, in the aggregate, amount
to less than 1% of the outstanding shares.
The validity of the Pass Through Certificates was passed upon for the
Company by Dewey Ballantine, New York, New York, and for MS&Co. by Shearman &
Sterling, New York, New York. Both Dewey Ballantine and Shearman & Sterling
relied on (i) the opinion of Richards, Layton & Finger, counsel for Wilmington
Trust Company, as Pass Through Trustee, and (ii) the opinion of James W.
Nellen II, Esq., Vice President and General Counsel of the Company, as to
matters relating to the authorization, execution and delivery of the Pass
Through Certificates under the Pass Through Trust Agreement. Mr. Nellen owns
5,300 shares of Common Stock of the Company, and has options to purchase
18,306 additional shares of Common Stock of the Company.
Shearman & Sterling regularly acts as counsel to the Company on a
variety of matters.
EXPERTS
The consolidated balance sheets of Fort Howard Corporation and
subsidiaries as of December 31, 1993 and 1992, the related consolidated
statements of income and cash flows for the years ending December 31, 1993,
1992 and 1991, the related financial statement schedules of Fort Howard
Corporation and the audited financial statements from which (i) the financial
information set forth in the table under the caption "Selected Historical
Consolidated Financial Data" in this Prospectus and (ii) the financial
information set forth in the table under the caption "Selected Historical
Consolidated Financial Data" included in the Registration Statement have been
derived, have been audited by Arthur Andersen & Co., independent public
accountants, as indicated in their reports with respect thereto. Such
consolidated financial statements, schedules and selected financial data are
included herein and in the Registration Statement in reliance upon the
authority of said firm as experts in giving said reports.
- 187 -
FORT HOWARD CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page
----
Consolidated Financial Statements of Fort Howard Corporation
Report of Independent Public Accountants F-2
Consolidated Statements of Income
for the years ended December 31, 1993, 1992 and 1991 F-3
Consolidated Balance Sheets at December 31, 1993 and 1992 F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992 and 1991 F-5
Notes to Consolidated Financial Statements F-6
Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the
three months ended March 31, 1994 and 1993 F-23
Condensed Consolidated Balance Sheets at March 31, 1994
and December 31, 1993 F-24
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1994 and 1993 F-25
Notes to Condensed Consolidated Financial Statements F-26
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of FORT HOWARD CORPORATION:
We have audited the accompanying consolidated balance sheets of Fort
Howard Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of income
and cash flows for the years ended December 31, 1993, 1992 and 1991. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Fort Howard Corporation and subsidiaries as of December 31, 1993 and 1992,
and the consolidated results of their operations and their cash flows for the
years ended December 31, 1993, 1992 and 1991, in conformity with generally
accepted accounting principles.
As discussed in Notes 1, 7 and 10 to the consolidated financial
statements, effective January 1, 1992, the Company changed its methods of
accounting for postretirement benefits other than pensions and income taxes.
s/s Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Milwaukee, Wisconsin,
February 1, 1994
F-2 <PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended December 31,
------------------------------
1993 1992 1991
---- ---- ----
Net sales............................... $ 1,187,387 $1,151,351 $1,138,210
Cost of sales........................... 784,054 726,356 713,135
----------- ---------- ----------
Gross income............................ 403,333 424,995 425,075
Selling, general and administrative..... 96,966 97,620 97,885
Amortization of goodwill................ 42,576 56,700 56,658
Goodwill write-off...................... 1,980,427 -- --
----------- ---------- ----------
Operating income (loss)................. (1,716,636) 270,675 270,532
Interest expense........................ 342,792 338,374 371,186
Other (income) expense, net............. (2,996) 2,101 (2,655)
----------- ---------- ----------
Loss before taxes....................... (2,056,432) (69,800) (97,999)
Income taxes (credit)................... (16,314) (398) (23,963)
----------- ---------- ----------
Loss before equity earnings,
extraordinary items and adjustment
for accounting change................. (2,040,118) (69,402) (74,036)
Equity in net loss of unconsolidated
subsidiaries.......................... -- -- (31,504)
----------- ---------- ----------
Net loss before extraordinary
items and adjustment for
accounting change..................... (2,040,118) (69,402) (105,540)
Extraordinary items - losses on debt
repurchases (net of income
taxes of $7,333 in 1993 and
$3,090 in 1991)....................... (11,964) -- (5,044)
Adjustment for adoption of
SFAS No. 106 (net of income taxes
of $6,489)............................ -- (10,587) --
----------- ---------- ----------
Net loss................................ $(2,052,082) $ (79,989) $ (110,584)
=========== ========== ==========
Loss per share:
Net loss before extraordinary
items and adjustment for
accounting change .................. $ (347.99) $ (11.83) $ (19.67)
Extraordinary items................... (2.04) -- (0.94)
Adjustment for adoption of
SFAS No. 106 ....................... -- (1.81) --
----------- ---------- ----------
Net loss ............................... $ (350.03) $ (13.64) $ (20.61)
=========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3 <PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
------------------
1993 1992
---- ----
Assets
Current assets:
Cash and cash equivalents................... $ 227 $ 188
Receivables, less allowances of
$2,366 and $1,376......................... 105,834 103,491
Inventories................................. 118,269 100,975
Deferred income taxes....................... 14,000 10,000
Income taxes receivable..................... 9,500 2,500
----------- ----------
Total current assets...................... 247,830 217,154
Property, plant and equipment................. 1,845,052 1,694,946
Less: Accumulated depreciation............. 516,938 437,518
----------- ----------
Net property, plant and equipment......... 1,328,114 1,257,428
Goodwill, net of accumulated amortization
of $247,495 in 1992......................... -- 2,023,416
Other assets.................................. 73,843 76,569
----------- ----------
Total assets............................ $1,649,787 $3,574,567
========== ==========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable............................ $ 101,665 $ 104,405
Interest payable............................ 54,854 33,057
Income taxes payable........................ 122 1,792
Other current liabilities................... 70,138 64,282
Current portion of long-term debt........... 112,750 137,747
----------- ----------
Total current liabilities................. 339,529 341,283
Long-term debt................................ 3,109,838 2,953,027
Deferred and other long-term income taxes. ... 243,437 259,625
Other liabilities............................. 26,088 36,473
Voting Common Stock with put right............ 11,820 13,219
Shareholders' equity (deficit):
Voting Common Stock......................... 600,459 600,465
Cumulative translation adjustment........... (5,091) (3,915)
Retained earnings (deficit)................. (2,676,293) (625,610)
----------- ----------
Total shareholders' equity (deficit)...... (2,080,925) (29,060)
----------- ----------
Total liabilities and shareholders'
equity (deficit)...................... $1,649,787 $3,574,567
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4 <PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
----------------------------
1993 1992 1991
---- ---- ----
Cash provided from (used for) operations:
Net loss................................ $(2,052,082) $(79,989) $(110,584)
Depreciation and amortization........... 130,671 137,977 172,671
Goodwill write-off...................... 1,980,427 -- --
Non-cash interest expense............... 100,844 139,700 141,362
Deferred income tax (credit)............ (17,874) (17,799) (34,881)
Employee stock compensation............. (7,832) 1,120 1,256
Equity in net loss of
unconsolidated subsidiaries........... -- -- 31,504
Pre-tax loss on debt repurchases........ 19,297 -- 8,134
Pre-tax adjustment for adoption
of SFAS No. 106....................... -- 17,076 --
(Increase) decrease in receivables .... (2,343) (5,284) 4,087
Increase in inventories................. (17,294) (1,215) (6,001)
(Increase) decrease in income taxes
receivable............................ (7,000) (2,500) 26,300
Increase (decrease) in accounts
payable .............................. (2,740) 13,572 3,429
Increase (decrease) in interest payable. 21,797 (298) (1,468)
Decrease in income taxes payable........ (1,670) (5,094) (394)
All other, net.......................... 6,854 12,684 5,466
----------- -------- ---------
Net cash provided from operations..... 151,055 209,950 240,881
Cash provided from (used for)
investment activities:
Additions to property, plant and
equipment............................. (165,539) (232,844) (144,055)
Acquisition of Stuart Edgar Limited,
net of acquired cash of $749.......... -- (8,302) --
Net proceeds from dispositions of
investments in and advances to
unconsolidated subsidiaries........... -- -- 38,568
----------- -------- ---------
Net cash used for investment
activities.......................... (165,539) (241,146) (105,487)
Cash provided from (used for)
financing activities:
Proceeds from long-term borrowings...... 887,088 189,518 462,995
Repayment of long-term borrowings....... (841,399) (167,731) (759,487)
Debt issuance costs..................... (31,160) -- (11,058)
Issuance (purchase) of Common Stock..... (6) -- 163,357
----------- -------- ---------
Net cash provided from (used for)
financing activities................ 14,523 21,787 (144,193)
----------- -------- ---------
Increase (decrease) in cash................ 39 (9,409) (8,799)
Cash, beginning of year.................... 188 9,597 18,396
----------- -------- ---------
Cash, end of year....................... $ 227 $ 188 $ 9,597
=========== ======== =========
Supplemental Cash Flow Disclosures:
Interest paid........................... $ 228,360 $208,051 $ 236,140
Income taxes paid (refunded), net....... 4,432 9,997 (11,090)
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
1. SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION -- The consolidated financial
statements include the accounts of Fort Howard Corporation and all domestic
and foreign subsidiaries other than the Company's former cup subsidiaries.
Assets and liabilities of foreign subsidiaries are translated at the rates of
exchange in effect at the balance sheet date. Income amounts are translated
at the average of the monthly exchange rates. The cumulative effect of
translation adjustments is deferred and classified as a cumulative translation
adjustment in the consolidated balance sheet. All significant intercompany
accounts and transactions have been eliminated. Certain reclassifications
have been made to conform prior years' data to the current format.
On September 4, 1992, Fort Sterling Limited ("Fort Sterling"), the
Company's United Kingdom tissue operations, acquired for $25 million,
including debt assumed of $17 million, Stuart Edgar Limited ("Stuart Edgar"),
a converter of consumer tissue products with annual net sales approximating
$43 million. The operating results of Stuart Edgar are included in the
consolidated financial statements since September 4, 1992.
The Company's investments in unconsolidated subsidiaries were reduced to
zero at December 31, 1991 as a result of sales of all foreign cup subsidiaries
and recognition of equity in the net losses of its remaining cup subsidiary,
Sweetheart Holdings Inc. ("Sweetheart"). During 1993, the Company sold its
remaining equity interest in Sweetheart for $5.1 million recognizing a gain of
the same amount.
(B) CASH AND CASH EQUIVALENTS -- The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. The carrying amount of cash equivalents approximates fair value
due to the short maturity of the investments.
(C) INVENTORIES -- Inventories are carried at the lower of cost or
market, with cost principally determined on a first-in, first-out basis (see
Note 2).
(D) PROPERTY, PLANT AND EQUIPMENT -- Prior to August 9, 1988, property,
plant and equipment were stated at original cost and depreciated using the
straight-line method. Effective with the Acquisition (as defined below),
properties were adjusted to their estimated fair values and are being
depreciated on a straight-line basis.
Effective January 1, 1992, the Company prospectively changed its
estimates of the depreciable lives of certain machinery and equipment. These
changes were made to better reflect the estimated periods during which such
assets will remain in service. For the year ended December 31, 1992, the
change had the effect of reducing depreciation expense by $38 million and net
loss by $24 million. Subsequent to the change, depreciation is provided over
useful lives of 30 to 50 years for buildings and 2 to 25 years for equipment.
Assets under capital leases principally arose in connection with sale and
leaseback transactions as described in Note 9 and are stated at the present
value of future minimum lease payments. These assets are amortized over the
respective periods of the leases which range from 15 to 25 years.
Amortization of assets under capital leases is included in depreciation
expense.
The Company follows the policy of capitalizing interest incurred in
conjunction with major capital expenditure projects. The amounts capitalized
in 1993, 1992 and 1991 were $8,369,000, $11,047,000 and $5,331,000,
respectively.
(E) REVENUE RECOGNITION -- Sales of the Company's paper products are
recorded upon shipment of products.
F-6
(F) ENVIRONMENTAL EXPENDITURES -- Environmental expenditures that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations,
and which do not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when material environmental assessments
and/or remedial efforts are probable, and the cost can be reasonably
estimated.
(G) GOODWILL -- In 1988, FH Acquisition Corp., a company organized on
behalf of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"),
acquired the Company in a leveraged buyout and was subsequently merged with
and into the Company (the "Acquisition"). Goodwill (the acquisition costs in
excess of the fair value of net assets of acquired businesses) acquired in
connection with the Acquisition and the purchases of other businesses was
amortized on a straight-line basis over 40 years through the third quarter of
1993 when the Company wrote off its remaining goodwill balance (see Note 4).
The Company evaluates the carrying value of goodwill for possible impairment
using a methodology which assesses whether forecasted cumulative net income
before goodwill amortization is adequate to recover the future amortization of
the Company's goodwill balance over the remaining amortization period of the
goodwill.
(H) EMPLOYEE BENEFIT PLANS -- A substantial majority of the Company's
employees are covered under defined contribution plans. The Company's annual
contributions to defined contribution plans are based on pre-tax income,
subject to percentage limitations on participants' earnings and a minimum
return on shareholders' equity. In recent years, the Company made
discretionary contributions as permitted under the plans. Participants may
also contribute a certain percent of their wages to the plans. Costs charged
to operations for defined contribution plans were approximately $12,725,000,
$11,716,000 and $12,231,000 for the years ended December 31, 1993, 1992 and
1991, respectively.
Employees retiring prior to February 1, 1990 from the Company's U.S.
tissue operations who have met certain eligibility requirements are entitled
to postretirement health care benefit coverage. These benefits are subject to
deductibles, copayment provisions, a lifetime maximum benefit and other
limitations. In addition, employees who retire after January 31, 1990 at age
55 or older with ten years of service may purchase health care benefit
coverage from the Company up to age 65. The Company has reserved the right to
change or terminate this benefit at any time. As of January 1, 1992, the
Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions." The
standard requires that the expected cost of postretirement health care
benefits be charged to expense during the years that employees render service
(see Note 10). Prior to 1992, the annual cost of these benefits had been
expensed as claims and premiums were paid. Employees of the Company's U.K.
tissue operations are not entitled to Company-provided postretirement benefit
coverage.
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112, "Employers' Accounting for Postemployment Benefits." This new
standard requires that the expected cost of benefits to be provided to former
or inactive employees after employment but before retirement be charged to
expense during the years that the employees render service. In the fourth
quarter of 1992, the Company retroactively adopted the new standard effective
January 1, 1992. Adoption of the new accounting standard had no effect on the
Company's 1992 consolidated statement of income.
(I) INTEREST RATE CAP AND SWAP AGREEMENTS -- The cost of interest rate
cap agreements is amortized over the respective lives of the agreements. The
differential to be paid or received in connection with interest rate swap
agreements is accrued as interest rates change and is recognized over the
lives of the agreements.
F-7
(J) INCOME TAXES -- Effective January 1, 1992, the Company has adopted
SFAS No. 109, "Accounting for Income Taxes." The Company had previously
adopted SFAS No. 96, "Accounting for Income Taxes" in 1988. As a result of
the accounting change, the Company reclassified certain deferred tax benefits
from long-term deferred income taxes payable to current assets in the
accompanying 1992 consolidated balance sheet. The adoption of SFAS No. 109
had no effect on the Company's provision for income taxes for the year ended
December 31, 1992.
Deferred income taxes are provided to recognize temporary differences
between the financial reporting basis and the tax basis of the Company's
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. The principal difference relates to
depreciation expense. Deferred income tax expense represents the change in
the deferred income tax asset and liability balances, excluding the deferred
tax benefit related to extraordinary losses.
(K) EARNINGS (LOSS) PER SHARE -- Earnings (loss) per share has been
computed on the basis of the average number of common shares outstanding
during the years. The average number of shares used in the computation was
5,862,639, 5,862,685 and 5,364,357 for the years ended December 31, 1993, 1992
and 1991, respectively. The assumed exercise of all outstanding stock options
has been excluded from the computation of earnings (loss) per share in 1993,
1992 and 1991 because the result was antidilutive.
(L) SEGMENT INFORMATION -- The Company operates in one industry segment
as a manufacturer, converter and marketer of a diversified line of single-use
paper products for the home and away-from-home markets.
2. INVENTORIES
Inventories are summarized as follows:
December 31,
--------------------
1993 1992
---- ----
(In thousands)
Components
Raw materials and supplies.................. $ 61,285 $ 53,872
Finished and partly-finished
products.................................. 56,984 47,103
-------- --------
$118,269 $100,975
======== ========
Valued at lower of cost or market:
First-in, first-out (FIFO).................. $ 94,436 $ 82,805
Average cost by specific lot................ 23,833 18,170
-------- --------
$118,269 $100,975
======== ========
F-8
3. PROPERTY, PLANT AND EQUIPMENT
The Company's major classes of property, plant and equipment are:
December 31,
--------------------
1993 1992
---- ----
(In thousands)
Land.......................................... $ 44,429 $ 44,631
Buildings..................................... 318,955 294,768
Machinery and equipment....................... 1,367,839 1,212,136
Construction in progress...................... 113,829 143,411
---------- ----------
$1,845,052 $1,694,946
========== ==========
Included in the property, plant and equipment totals above are assets
under capital leases, as follows:
December 31,
--------------------
1993 1992
---- ----
(In thousands)
Buildings..................................... $ 3,989 $ 3,998
Machinery and equipment....................... 185,624 179,487
---------- ----------
Total assets under capital leases........... $ 189,613 $ 183,485
========== ==========
4. GOODWILL
Changes in the Company's goodwill are summarized as follows:
Year Ended December 31,
------------------------------
1993 1992 1991
---- ---- ----
Balance, beginning of year......... $2,023,416 $2,075,525 $2,132,183
Acquisition of Stuart Edgar........ -- 6,043 --
Amortization of goodwill........... (42,576) (56,700) (56,658)
Effects of foreign
currency translation............. (413) (1,452) --
Goodwill write-off................. (1,980,427) -- --
---------- ---------- ----------
Balance, end of year............... $ -- $2,023,416 $2,075,525
========== ========== ==========
Low industry operating rates and aggressive competitive activity among
tissue producers resulting from the recession, additions to capacity and other
factors have been adversely affecting tissue industry operating conditions and
the Company's operating results since 1991. Accordingly, the Company revised
its projections and determined that its projected results would not support
the future amortization of the Company's remaining goodwill balance of
approximately $1.98 billion at September 30, 1993.
The methodology employed to assess the recoverability of the Company's
goodwill first involved the projection of operating results forward 35 years,
which approximated the remaining amortization period of the goodwill as of
October 1, 1993. The Company then evaluated the recoverability of goodwill on
the basis of this forecast of future operations. Based on such forecast, the
cumulative net income before goodwill amortization of approximately $100
million over the remaining 35-year amortization period was insufficient to
recover the goodwill balance. Accordingly, the Company wrote off its
remaining goodwill balance of $1.98 billion in the third quarter of 1993.
F-9
The Company's forecast assumed that sales volume increases would be
limited to production from a new paper machine under construction at the
Company's Muskogee mill which is scheduled to start-up in 1994 and that
further capacity expansion was not justifiable given the Company's high
leverage and adverse tissue industry operating conditions. Net selling price
and cost increases were assumed to approximate 1% per year, based on the
Company's annual historical price increase trend for the years 1984 through
1993 and management's estimates of future performance. Through the year 2001,
the Company's projections indicated that interest expense would exceed
operating income, which is determined after deducting annual depreciation
expense. However, projected operating income before depreciation was adequate
to cover projected interest expense. Inflation and interest rates were
assumed to remain low at 1993 levels during the projected period. Each of the
Company's highest yielding debt securities, the 12 3/8% Senior Subordinated
Notes due 1997 (the "12 3/8% Notes"), the 12 5/8% Subordinated Debentures due
2000 (the "12 5/8% Debentures") and the 14 1/8% Junior Subordinated Discount
Debentures due 2004 (the "14 1/8% Debentures"), were further assumed to be
refinanced at lower interest rates. Total capital expenditures were projected
to approximate $55-$80 million annually over the next ten years, plus $32
million in 1994 to complete the Muskogee mill expansion and another $32
million over 1994 and 1995 for a new coal-fired boiler under construction at
the Company's Savannah River mill. Management believed that the projected
future results based on these assumptions were the most likely scenario given
the Company's high leverage and adverse tissue industry operating conditions.
5. OTHER ASSETS
The components of other assets are as follows:
December 31,
--------------
1993 1992
---- ----
(In thousands)
Deferred loan costs, net of
accumulated amortization................... $71,459 $70,983
Prepayments and other........................ 2,384 5,586
------- -------
$73,843 $76,569
======= =======
Amortization of deferred loan costs for the years ended December 31,
1993, 1992 and 1991, totaled $ 13,488,000, $14,910,000 and $14,883,000,
respectively. During 1993, $19,297,000 of deferred loan costs were written
off in conjunction with the retirement of long-term debt and $31,160,000 of
deferred loan costs were incurred for the issuance of a new bank term loan
(the "1993 Term Loan), the 9 1/4% Senior Unsecured Notes due 2001 (the "9 1/4%
Notes") and the 10% Subordinated Notes due 2003 (the "10% Notes") and for the
purchase of interest rate caps. During 1991, $11,250,000 of deferred loan
costs were written off in conjunction with the retirement of long-term debt
and $11,058,000 of deferred loan costs were incurred for the issuance of
Senior Secured Notes (see Note 8).
6. OTHER CURRENT LIABILITIES
The components of other current liabilities are as follows:
December 31,
--------------
1993 1992
---- ----
(In thousands)
Salaries and wages ........................... $38,152 $35,939
Contributions to employee benefit plans ...... 12,805 11,858
Taxes other than income taxes ................ 5,492 2,536
Other accrued expenses ....................... 13,689 13,949
------- -------
$70,138 $64,282
======= =======
F-10
7. INCOME TAXES
The income tax provision (credit) includes the following components:
Year Ending December 31,
----------------------------------
1993 1992 1991
---- ---- ----
(In thousands)
Current
Federal.......................... $ (6,012) $ 10,501 $ 2,040
State............................ 465 411 551
Foreign.......................... (225) -- 5,237
-------- -------- --------
Total current.................. (5,772) 10,912 7,828
Deferred
Federal.......................... (7,731) (13,678) (27,120)
State............................ (2,956) (2,380) (4,231)
Foreign.......................... 145 4,748 (440)
-------- -------- --------
Total deferred................. (10,542) (11,310) (31,791)
-------- -------- --------
$(16,314) $ (398) $(23,963)
======== ======== ========
The effective tax rate varied from the U.S. federal tax rate as a result
of the following:
Year Ended December 31,
---------------------------------
1993 1992 1991
---- ---- ----
U.S. federal tax rate.............. (34.0)% (34.0)% (34.0)%
Amortization of intangibles........ 33.4 27.6 19.6
Interest on long-term
income taxes..................... -- 5.7 4.1
State income taxes net
of U.S. tax benefit.............. (0.1) (3.0) (3.9)
Equity in net loss
of Sweetheart.................... -- -- (10.9)
Other, net......................... (0.1) 3.1 0.6
----- ----- -----
Effective tax rate................. (0.8)% (0.6)% (24.5)%
===== ===== =====
The domestic and foreign components of loss before income taxes are as
follows:
Year Ending December 31,
---------------------------------
1993 1992 1991
---- ---- ----
(In thousands)
Domestic....................... $(2,048,746) $(85,597) $(112,438)
Foreign........................ (7,686) 15,797 14,439
----------- -------- ---------
$(2,056,432) $(69,800) $ (97,999)
=========== ======== =========
The net deferred income tax liability at December 31, 1993, includes
$229 million related to property, plant and equipment. All other components
of the gross deferred income tax assets and gross deferred income tax
liabilities are individually not significant. The Company has not recorded a
valuation allowance with respect to any deferred income tax asset.
F-11
The Internal Revenue Service ("IRS") issued a statutory notice of
deficiency ("Notice") to the Company in March 1992 for additional income tax
for the 1988 tax year. The Notice resulted from an audit of the Company's
1988 tax year wherein the IRS adjusted income and disallowed deductions,
including deductions for fees and expenses related to the Acquisition. The
IRS also disallowed deductions for fees and expenses related to 1988 debt
financing and refinancing transactions. In March 1992, the Company filed a
petition in the U.S. Tax Court opposing substantially all of the claimed
deficiency and the case was tried in September 1993. After the trial, the
Company and the IRS executed an agreed Supplemental Stipulation of Facts by
which the IRS and the Company partially settled the case by agreeing that
certain fees and expenses (previously disallowed by the IRS and potentially
representing approximately $26 million of tax liability) were properly
deductible by the Company over the term of the 1988 debt financing and
refinancing. In addition, the Company agreed to capitalize certain amounts
identified by the IRS and paid additional federal income tax of approximately
$5 million representing its liability with respect to the agreed adjustments.
The U.S. Tax Court has not yet decided the points that remain in dispute in
the case following the partial settlement. The Company estimates that if the
IRS were to prevail in disallowing deductions for the fees and expenses
remaining in dispute before the trial judge, the potential amount of
additional taxes due the IRS on account of such disallowance for the period
1988 through 1993 would be approximately $31 million and for the periods after
1993 (assuming current statutory tax rates) would be approximately $11
million, in each case exclusive of IRS interest charges. Since the Company's
1988 tax case involves disputed issues of law and fact, the Company is unable
to predict its final result with certainty. The Company believes, however,
that its ultimate resolution will not have a material adverse effect on the
Company's financial condition.
Subject to a favorable resolution of the dispute with the IRS with
respect to the 1988 tax year, the Company has $65 million of net operating
loss carryforwards for federal income tax purposes which expire as follows:
$12 million in 2007 and $53 million in 2008.
F-12
8. LONG-TERM DEBT
Long-term debt and capital lease obligations, including amounts payable
within one year, are summarized as follows (in thousands):
<TABLE><CAPTION>
December 31,
------------------
1993 1992
---- ----
<S> <C> <C>
Term Loan, at prime plus 1.50% or, subject to
certain limitations, at a reserve adjusted
Eurodollar rate plus 2.25% subject to downward
adjustment if certain financial criteria are
met (at a weighted average rate of 5.72% at
December 31, 1993), due in varying annual
repayments with a final maturity of
December 31, 1996.................................... $ 331,753 $ 581,753
Revolving Credit Facility, at prime plus
1.50% or, subject to certain limitations,
at a reserve adjusted Eurodollar rate plus
2.25% subject to downward adjustment if
certain financial criteria are met (at a weighted
average rate of 6.13% at December 31, 1993), due
December 31, 1996.................................... 243,700 216,000
1993 Term Loan, at prime plus 1.75% or, subject
to certain limitations, at a reserve adjusted
Eurodollar rate plus 3.0% (6.53% at
December 31, 1993) due May 1, 1997................... 100,000 --
Senior Secured Notes, at three month LIBOR
plus 2.75% to 3.50% (6.13% to 6.88% at
December 31, 1993), due in varying amounts
between 1996 and 2000................................ 300,000 300,000
Senior Unsecured Notes, 9 1/4%, due
March 15, 2001....................................... 450,000 --
Senior Subordinated Notes,
12 3/8%, due November 1, 1997........................ 333,910 383,910
Subordinated Debentures,
12 5/8%, due November 1, 2000........................ 383,910 383,910
Subordinated Notes, 10%, due
March 15, 2003....................................... 300,000 --
Junior Subordinated Discount Debentures,
14 1/8%, due November 1, 2004,
$567 million face value.............................. 506,186 441,606
Junior Subordinated Debentures,
14 5/8%, repurchased in 1993......................... -- 517,846
Capital lease obligations, at
interest rates approximating 10.9%................... 184,023 186,082
Pollution Control Revenue Refunding
Bonds, 7.90%, due October 1, 2005.................... 42,000 42,000
Debt of foreign subsidiaries, at rates
ranging from 6.38% to 7.42%, due in varying
annual installments through March 2001............... 47,106 37,667
---------- ----------
3,222,588 3,090,774
Less: Current portion of long-term debt............... 112,750 137,747
---------- ----------
$3,109,838 $2,953,027
========== ==========
</TABLE>
F-13 <PAGE>
The aggregate fair values of the Company's long-term debt and capital
lease obligations approximated $3,276 million and $3,116 million compared to
aggregate carrying values of $3,223 million and $3,091 million at December 31,
1993 and 1992, respectively. The fair values of the Term Loan, Revolving
Credit Facility and 1993 Term Loan are estimated based on secondary market
transactions in such securities. Fair values for the Senior Secured Notes,
the 9 1/4% Notes, the 12 3/8% Notes, the 12 5/8% Debentures, the 10% Notes,
the 14 1/8% Debentures and the Pollution Control Revenue Refunding Bonds were
estimated based on trading activity in such securities. Of the capital lease
obligations, the fair values of the 1991 Series Pass Through Certificates were
estimated based on trading activity in such securities. The fair values of
other capital lease obligations were estimated based on interest rates
implicit in the valuation of the 1991 Series Pass Through Certificates. The
fair value of debt of foreign subsidiaries is deemed to approximate its
carrying amount.
The 14 1/8% Debentures do not accrue interest in cash until November 1,
1994, and were issued at a discount to yield a 14 1/8% effective annual rate.
The 14 1/8% Debentures will require payments of interest in cash commencing on
May 1, 1995. For the years ended December 31, 1993, 1992, and 1991, interest
related to these debentures was added to the balance due.
On March 22, 1993, the Company sold $450 million principal amount of
9 1/4% Notes and $300 million principal amount of 10% Notes in a registered
public offering. On April 21, 1993, the Company borrowed $100 million
pursuant to the 1993 Term Loan. Proceeds from the sale of the 9 1/4% Notes
and the 10% Notes and from the 1993 Term Loan were applied to the prepayment
of $250 million of the Term Loan, to the repayment of a portion of the
Company's indebtedness under the Revolving Credit Facility, to the repurchase
of all the Company's outstanding Junior Subordinated Debentures due 2004 (the
"14 5/8% Debentures") and to the payment of fees and expenses. As a result of
the repayment of $250 million of the Term Loan and the repurchases of the
14 5/8% Debentures, the Company incurred an extraordinary loss of $10 million
(net of income taxes of $6 million) representing the write-off of unamortized
deferred loan costs.
The 9 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. The 10% Notes are subordinated in right of payment to all existing
and future senior indebtedness of the Company, including the 12 3/8% Notes,
rank equally with the 12 5/8% Debentures and constitute senior indebtedness
with respect to the 14 1/8% Debentures. The 1993 Term Loan bears interest, at
the Company's option, at Bankers Trust's prime rate, plus 1.75% or, subject to
certain limitations, at a reserve adjusted Eurodollar rate, plus 3.00%, and
matures May 1, 1997. The 1993 Term Loan constitutes senior secured
indebtedness of the Company.
In connection with the sale of the 9 1/4% Notes and the 10% Notes and the
borrowing under the 1993 Term Loan, the Company amended its Bank Credit
Agreement and the Senior Secured Note Agreement. Among other changes, the
amendments reduced domestic capital spending limits. In addition, the
Company's required ratios of earnings before non-cash charges, interest and
taxes to cash interest were lowered to give effect to the greater amount of
the Company's cash interest payments as a result of the issuance of the 9 1/4%
Notes and 10% Notes and subsequent repurchases of 14 5/8% Debentures.
The Company redeemed $50 million of its 12 3/8% Notes at the redemption
price of 105% of the principal amount thereof on November 1, 1993, the first
date that such notes were redeemable. The redemption was funded principally
from excess funds from the sale of the 9 1/4% Notes and the 10% Notes. In
connection with the redemption, the Company incurred an extraordinary loss of
$2 million (net of income taxes of $1 million), representing the redemption
premium and unamortized deferred loan costs.
In 1991, Fort Sterling entered into a credit agreement to provide
financing for the addition of a third paper machine and related equipment at
its tissue mill. The facility consists of a 20 million pound sterling
(approximately $30 million) term loan due March 2001 and a 5 million pound
sterling (approximately $7 million) revolving credit facility due March 1996.
In 1992, Fort Sterling entered into a second credit agreement to finance the
acquisition of Stuart Edgar. This facility consists of a term loan due
December 1997 with 3.4 million pounds sterling (approximately $5 million)
F-14
outstanding at December 31, 1993, and a second term loan due December 1997
with 6.8 million pounds sterling (approximately $10 million) outstanding at
December 31, 1993. These credit agreements bear interest at floating rates
and are secured by certain assets of Fort Sterling and Stuart Edgar but are
nonrecourse to the Company.
Obligations under the Bank Credit Agreement, the 1993 Term Loan Agreement
and the Senior Secured Notes bear interest at floating rates. The Company's
policy is to enter into interest rate cap and swap agreements as a hedge to
effectively fix or limit its exposure to floating interest rates to, at a
minimum, comply with the terms of these senior secured debt agreements. The
Company is a party to interest rate cap agreements which limit the interest
cost to the Company to 8.25% (including the Company's borrowing margin on
Eurodollar rate loans) until June 1, 1996 with respect to $500 million of
obligations under the Bank Credit Agreement. The Company is party to an
interest rate swap agreement which effectively fixes the interest cost to the
Company at 6.53% (including the Company's borrowing margin on Eurodollar rate
loans) until April 21, 1994 with respect to the $100 million outstanding under
the 1993 Term Loan Agreement. The Company is also a party to an interest rate
cap agreement which limits the interest cost to the Company to rates between
11.25% and 12.00% until September 11, 1994 with respect to the $300 million
received through the issuance of the Senior Secured Notes. At current market
rates at December 31, 1993, the fair value of the Company's interest rate cap
agreements is $1.6 million. The fair value of the interest rate swap
agreement at December 31, 1993 is zero. The Company monitors the risk of
default by the counterparties to the interest rate cap and swap agreements and
does not anticipate nonperformance. Because current market interest rates are
substantially lower than the rates in the Company's interest rate cap and swap
agreements, nonperformance by the other parties to the interest rate cap and
swap agreements would not result in a material loss to the Company.
In addition to the scheduled mandatory annual repayments, the Bank Credit
Agreement provides for mandatory repayments from proceeds of any significant
asset sales (except for proceeds from certain foreign asset sales which are
redeployed outside the U.S.), from proceeds of sale and leaseback
transactions, and annually an amount equal to 50% of excess cash flow for the
prior calendar year, as defined.
Among other restrictions, the Bank Credit Agreement, the 1993 Term Loan
Agreement, the Senior Secured Note Agreement, the foreign credit agreements
and the Company's indentures: (1) restrict payments of dividends, repayments
of subordinated debt, purchases of the Company's stock, additional borrowings
and acquisition of property, plant and equipment; (2) require that the ratios
of current assets to current liabilities, senior debt to adjusted net worth
plus subordinated debt and earnings before non-cash charges, interest and
taxes to cash interest be maintained at prescribed levels; (3) restrict the
ability of the Company to make fundamental changes and to enter into new lines
of business, the pledging of the Company's assets and guarantees of
indebtedness of others; and (4) limit dispositions of assets, the ability of
the Company to enter lease and sale and leaseback transactions, and
investments which might be made by the Company. The Company believes that
such limitations should not impair its plans for continued maintenance and
modernization of facilities or other operating activities.
Pursuant to amendments to the Bank Credit Agreement and the Senior
Secured Note Agreement and the completion of various transactions, at
December 31, 1993, the Company may borrow up to $39 million to repurchase
14 1/8% Debentures.
The Company believes that, notwithstanding the adverse tissue industry
operating conditions and the non-cash charge to write-off the remaining
balance of the Company's goodwill (see Note 4), cash provided by operations
and access to debt financing in the public and private markets will be
sufficient to enable it to fund maintenance and modernization capital
expenditures and meet its debt service requirements for the foreseeable
future. However, in the absence of improved financial results, it is likely
that in 1995 the Company would be required to seek a waiver of the cash
interest coverage covenant under the Bank Credit Agreement, the 1993 Term Loan
Agreement and the Senior Secured Note Agreement because the Company's 14 1/8%
Debentures will accrue interest in cash commencing on November 1, 1994 and
will require payments of interest in cash on May 1, 1995. Although the
F-15
Company believes that it will be able to obtain appropriate waivers from its
lenders, there can be no assurance that this will be the case.
Pursuant to 1993 amendments to the Bank Credit Agreement, the 1993 Term
Loan Agreement and the Senior Secured Note Agreement, the required ratio of
earnings before non-cash charges, interest and taxes to cash interest for the
four fiscal quarters ending March 31, 1994 was reduced from 1.50 to 1.00 to
1.40 to 1.00.
At December 31, 1993, receivables totaling $100 million, inventories
totaling $118 million and property, plant and equipment with a net book value
of $1,177 million were pledged as collateral under the terms of the Bank
Credit Agreement, the 1993 Term Loan Agreement, the Senior Secured Note
Agreement, the foreign credit agreements and under the indentures for sale and
leaseback transactions.
The Company is charged a 0.5% fee with respect to any unused balance
available under its $350 million Revolving Credit Facility, and a 2% fee with
respect to any letters of credit issued under the Revolving Credit Facility.
At December 31, 1993, $244 million of borrowings reduced available capacity
under the Revolving Credit Facility to $106 million.
The aggregate annual maturities of long-term debt and capital lease
obligations at December 31, 1993, are as follows (in thousands):
1994........................... $ 112,750
1995........................... 115,906
1996........................... 376,192
1997........................... 541,214
1998........................... 87,498
1999 and thereafter............ 1,989,028
----------
$3,222,588
==========
9. SALE AND LEASEBACK TRANSACTIONS
Buildings and machinery and equipment related to various capital
additions at the Company's tissue mills were sold and leased back from various
financial institutions (the "sale and leaseback transactions") for periods
from 15 to 25 years. The terms of the sale and leaseback transactions contain
restrictions which are less restrictive than the covenants of the Bank Credit
Agreement described in Note 8.
These leases are treated as capital leases in the accompanying
consolidated financial statements. Future minimum lease payments at
December 31, 1993, are as follows (in thousands):
Year Ending December 31, Amount
------
1994........................... $ 21,205
1995........................... 23,397
1996........................... 24,492
1997........................... 24,492
1998........................... 24,280
1999 and thereafter............ 386,412
--------
Total payments................. 504,278
Less imputed interest at
rates approximating 10.9%.... 320,255
--------
Present value of capital
lease obligations............ $184,023
========
Capital lease obligations incurred in 1991 totaling $82 million are
considered noncash items and, accordingly, are not reflected in the
consolidated statement of cash flows for 1991.
10. EMPLOYEE POSTRETIREMENT BENEFIT PLANS
As of January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The cumulative
F-16
effect on years prior to 1992 of adopting SFAS No. 106 is stated separately in
the Company's consolidated statement of income for 1992 as a one-time after-
tax charge of $10.6 million. This change in accounting principle, excluding
the cumulative effect, decreased operating income by $2.1 million and
$1.2 million in 1993 and 1992, respectively.
Net periodic postretirement benefit cost included the following
components (in thousands):
Year Ended
December 31,
-------------------
1993 1992
---- ----
Service cost........................ $1,140 $ 902
Interest cost....................... 1,800 1,366
Other............................... 99 --
------ ------
Net periodic postretirement
benefit cost.................... $3,039 $2,268
====== ======
The following table sets forth the components of the plan's unfunded
accumulated postretirement benefit obligation (in thousands):
December 31,
-------------------
1993 1992
---- ----
Accumulated postretirement
benefit obligation:
Retirees.................................. $ 7,504 $ 6,632
Fully eligible active
plan participants....................... 4,401 2,890
Other active plan participants............ 12,037 13,558
------- -------
23,942 23,080
Unrecognized actuarial losses................. (3,517) (4,800)
------- -------
Accrued postretirement
benefit cost................................ $20,425 $18,280
======= =======
The medical trend rate assumed in the determination of the accumulated
postretirement benefit obligation at December 31, 1993 begins at 12% in 1994,
decreases 1% per year to 6% for 2000 and remains at that level thereafter.
Increasing the assumed medical trend rates by one percentage point in each
year would increase the accumulated postretirement benefit obligation as of
December 31, 1993 by $2.9 million and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost by
$0.5 million. The medical trend rate assumed in the determination of the
accumulated postretirement benefit obligation at December 31, 1992 began at
14% in 1993, decreasing 1% per year to 7% for 2000 and remained at that level
thereafter.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7% and 8% compounded annually with respect to the 1993
and 1992 valuations, respectively.
11. SHAREHOLDERS' EQUITY (DEFICIT)
The Company is authorized to issue up to 8,400,000 shares of $.01 par
value Voting Common Stock. At December 31, 1993, 5,862,735 shares were issued
and 5,862,635 shares were outstanding. At December 31, 1992, 5,862,735 shares
were issued and 5,862,685 shares were outstanding. In addition, 600,000
shares of $.01 par value Non-Voting Common Stock have been authorized, of
which none were issued and outstanding at both December 31, 1993 and 1992.
During 1991, the Company sold 1,361,469 shares of Voting Common Stock and
6,200 shares of Voting Common Stock with put right pursuant to a private
placement of Common Stock. The net proceeds of the sales totaled $163.4
million. Also during 1991, 26,918 shares of Non-Voting Common Stock were
exchanged on a one-for-one basis for Voting Common Stock.
F-17
Changes in the Company's shareholders' equity (deficit) accounts for the
years ended December 31, 1993, 1992 and 1991, are as follows:
<TABLE><CAPTION>
Voting Non-Voting Cumulative Retained
Common Common Translation Earnings
Stock Stock Adjustment (Deficit)
----- ----- ----------- ---------
(In millions)
<S> <C> <C> <C> <C>
Balance, December 31, 1990................ $ 435 $ 3 $ 8 $ (432)
Net loss.................................. -- -- -- (111)
Issuance of Voting Common
Stock................................... 163 -- -- --
Exchange of Non-Voting
Common Stock for
Voting Common Stock..................... 3 (3) -- --
Amortization of the
increase in fair market
value of Voting Common
Stock with put right.................... -- -- -- (2)
Foreign currency
translation adjustment.................. -- -- (1) --
----- ----- ----- -------
Balance, December 31, 1991................ 601 -- 7 (545)
Net loss.................................. -- -- -- (80)
Amortization of the
increase in fair market
value of Voting Common
Stock with put right.................... -- -- -- (1)
Foreign currency
translation adjustment.................. -- -- (11) --
----- ----- ----- -------
Balance, December 31, 1992................ 601 -- (4) (626)
Net loss.................................. -- -- -- (2,052)
Decrease in fair market value of
Voting Common stock with put right...... -- -- -- 2
Foreign currency translation adjustment... -- -- (1) --
----- ----- ----- -------
Balance, December 31, 1993................ $ 601 $ -- $ (5) $(2,676)
===== ===== ===== =======
</TABLE>
The aggregate par value of the Voting Common Stock reported in the
amounts above at December 31, 1993 was $58,626.
12. VOTING COMMON STOCK WITH PUT RIGHT
Pursuant to an Amended and Restated Management Equity Participation
Agreement, as amended (the "Management Equity Participation Agreement"),
members of the Company's senior management have acquired shares of the
Company's $.01 par value Voting Common Stock. In addition, the Fort Howard
Corporation Management Equity Plan (the "Management Equity Plan") provides for
the offer of Voting Common Stock and the grant of options to purchase Voting
Common Stock to officers and certain other key employees of the Company.
Officers or other key employees of the Company who purchase shares of Voting
Common Stock or are granted options pursuant to the Management Equity Plan are
required to enter into a Management Equity Plan Agreement with the Company and
F-18
to become bound by the terms of the Company's stockholders agreement. All
Voting Common Stock acquired by management investors, including shares
acquired by the Company's former chairman and chief executive officer, are
collectively referred to as the "Putable Shares."
Beginning with the fifth anniversary of the respective dates of purchase
of certain of the Putable Shares to the date on which 15% or more of the
Company's Voting Common Stock has been sold in one or more public offerings,
specified percentages of the shares may be put to the Company at the option of
the holders thereof, with certain limitations, at their fair market value.
Subject to certain exceptions, the Management Equity Participation Agreement
and Management Equity Plan also provide that management investors who
terminate their employment with the Company shall sell their shares of Voting
Common Stock and vested options to the Company or its designee. Subject to
certain exceptions, options which have not vested at the time a management
investor's employment is terminated are forfeited to the Company. At the time
of his resignation, all the Putable Shares then owned by the Company's former
chairman and chief executive officer became putable to the Company.
During 1993, the Company decreased the estimated fair market valuation of
its Common Stock as a result of the effects of adverse tissue industry
operating conditions on its long-term earnings forecast and, as a result,
reduced the carrying amount of its Voting Common Stock with put right to its
original cost. The effect of the adjustment was to reduce both the Voting
Common Stock with put right and the deficit in retained earnings by
approximately $1.4 million.
Changes in the Company's Voting Common Stock with put right, are as follows
(in thousands, except number of shares):
Year Ended December 31,
----------------------------
1993 1992 1991
---- ---- ----
Balance, beginning of year.......... $13,219 $12,963 $ 9,574
Issuance of 6,200 shares including
4,934 shares from treasury........ -- -- 744
Amortization of the increase
(decrease) in fair market
value and increased vested
portion of Putable Shares......... (1,399) 256 2,645
------- ------- -------
Balance, end of year................. $11,820 $13,219 $12,963
======= ======= =======
13. STOCK OPTIONS
Pursuant to the Management Equity Participation Agreement and the
Management Equity Plan, 808,225 shares of Voting Common Stock are reserved for
sale to officers and key employees as stock options. The exercisability of
such options is subject to certain conditions. Options must be exercised
within ten years of the date of grant. All options and shares to be issued
under the terms of these plans are restricted as to transferability. Under
certain conditions, the Company has the right or obligation to redeem shares
issued under terms of the options at a price equal to their fair market value.
All options outstanding at December 31, 1993, except for fully vested
options held by the Company's former chairman and chief executive officer,
have a vesting schedule of twenty percent per year, measured from the date of
initial grant. Any such options will be subject to partial acceleration of
vesting in the event of death or disability and must be exercised within 10
years of the date of grant.
F-19
Changes in stock options outstanding are summarized as follows:
Number of Exercise Price
Options Per Option
--------- --------------
Balance, December 31, 1990............... 482,662 $100 to 135
Options Granted........................ 136,960 120
Options Cancelled...................... (55,960) 100 to 135
------- -----------
Balance, December 31, 1991............... 563,662 100 to 120
Options Granted........................ 12,400 120
Options Cancelled...................... (1,060) 100 to 120
------- -----------
Balance, December 31, 1992............... 575,002 $100 to 120
Options Granted........................ 15,200 120
Options Cancelled...................... (1,640) 100 to 120
------- -----------
Balance 31, 1993......................... 588,562 $100 to 120
======= ===========
Exercisable at December 31, 1993......... 497,498 $100 to 120
======= ===========
Shares available for future grant
at December 31, 1993................... 219,663
=======
The Company amortizes the excess of the fair market value of its Common
Stock over the strike price of options granted to employees over the periods
the options vest. Due to the effects of adverse tissue industry operating
conditions on its long-term earnings forecast, the Company decreased the
estimated fair market valuation of its Common Stock and, as a result, reversed
all previously accrued employee stock compensation expense in 1993. The
reversal of the accrued employee stock compensation resulted in a credit to
operations of $7,832,000 for 1993. Employee stock compensation expense was
$1,120,000 and $1,256,000 for 1992 and 1991, respectively.
14. RELATED PARTY TRANSACTIONS
Morgan Stanley Group Inc. ("Morgan Stanley Group") and an affiliate
acquired a substantial majority equity interest in the Company to effect the
Acquisition. At December 31, 1993, Morgan Stanley Group and its affiliates
controlled 57% (on a fully diluted basis) of the Company's Voting Common
Stock.
The Company has entered into an agreement with Morgan Stanley & Co.
Incorporated ("MS&Co.") for financial advisory services in consideration for
which the Company will pay MS&Co. an annual fee of $1 million. MS&Co. will
also be entitled to reimbursement for all reasonable expenses incurred in the
performance of the foregoing services. The Company paid MS&Co. $1,046,000,
$1,096,000 and $1,064,000 for these and other miscellaneous services in 1993,
1992 and 1991, respectively. In 1993, MS&Co. received approximately $19.5
million related to the underwriting of the issuance of the 1993 Notes. In
1992, MS&Co. received approximately $0.7 million related to the underwriting
of the reissuance of the Company's Development Authority of Effingham County
Pollution Control Revenue Refunding Bonds, Series 1988. In connection with a
1991 sale and leaseback transaction, MS&Co. received approximately $2.9
million of advisory and underwriting fees. Also in 1991, in connection with
the offering of Senior Secured Notes, MS&Co. received approximately $6.8
million of advisory fees.
MS&Co. served as lead underwriter for the initial offering of the
Company's subordinated debt securities and since the Acquisition has been a
market maker with respect to those securities. In connection with the 1991
repurchases of the Company's subordinated debt securities, $52.8 million
aggregate principal amount at maturity of the 14 5/8% Debentures and $132.7
million aggregate principal amount at maturity of the 14 1/8% Debentures were
purchased through MS&Co. In addition, $46.5 million and $77.5 million
aggregate principal amount at maturity of the 14 1/8% Debentures were
purchased from Leeway & Co. and First Plaza Group Trust, respectively,
shareholders of the Company. The purchases were made in negotiated
transactions at market prices.
F-20
15. COMMITMENTS AND CONTINGENCIES
In 1992, the Company commenced the installation of a fifth paper machine,
environmental protection equipment and associated facilities at its Muskogee,
Oklahoma tissue mill. The expansion is planned for completion in 1994 at an
estimated cost of $140 million. Total expenditures for the expansion through
December 31, 1993 were $109 million.
The Company's domestic manufacturing operations are subject to regulation
by various federal, state and local authorities concerned with the limitation
and control of emissions and discharges to the air and waters and the
handling, use and disposal of specified chemicals and solid waste. The
Company's United Kingdom operations are subject to similar regulation.
The Company has made significant capital expenditures in the past to
comply with environmental regulations. Future environmental legislation and
developing regulations are expected to further limit emission and discharge
levels and to expand the scope of regulation, all of which will require
continuing capital expenditures. There can be no assurance that such costs
would not be material to the Company.
The Company operates a licensed solid waste landfill at each of its
tissue mills in the United States to dispose residue from recycling wastepaper
and ash from coal-fired boilers. In March 1990, the Company began a remedial
investigation of its Green Bay, Wisconsin landfill. The investigation is
being overseen by the United States Environmental Protection Agency under
authority granted to the agency by the Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as the "Superfund Act." A
Preliminary Health Assessment released by the United States Department of
Health and Human Services in January 1992 reported that the Company's
Green Bay landfill does not pose any apparent public health hazard. Based
upon the results of the remedial investigation through December 31, 1993, the
Company believes that costs or expenditures associated with any future
remedial action, were it to be required, would not have a material adverse
effect on the Company's financial condition.
Except for the Green Bay landfill site, the Company is not presently
named as a potentially responsible party at any other Superfund related sites;
however, there can be no certainty that the Company will not be named as a
potentially responsible party at any other sites in the future or that the
costs associated with those sites would not be material.
The Company and its subsidiaries are parties to lawsuits and state and
federal administrative proceedings in connection with their businesses.
Although the final results in such suits and proceedings cannot be predicted
with certainty, the Company believes that they will not have a material
adverse effect on the Company's financial condition.
16. GEOGRAPHIC INFORMATION
A summary of the Company's operations by geographic area as of
December 31, 1993, 1992 and 1991, and for the years then ended is presented
below (in thousands):
United United
States Kingdom Consolidated
------ ------- ------------
1993
Net sales.......................... $1,044,174 $143,213 $1,187,387
Operating income (loss)............ (1,715,777) (859) (1,716,636)
Identifiable operating assets...... 1,486,166 163,621 1,649,787
1992
Net sales.......................... $1,008,129 $143,222 $1,151,351
Operating income................... 253,437 17,238 270,675
Identifiable operating assets...... 3,411,833 162,734 3,574,567
1991
Net sales.......................... $1,027,969 $110,241 $1,138,210
Operating income................... 254,603 15,929 270,532
Identifiable operating assets...... 3,373,199 96,603 3,469,802
F-21
Intercompany sales and charges between geographic areas and export sales
are not material.
In 1993, the Company determined that its projected results would not
support the future amortization of the Company's remaining goodwill balance.
Accordingly, the Company wrote off its remaining goodwill balance of
$1,980 million in the third quarter of 1993, resulting in charges of $1,968
million and $12 million to the operating income of the United States and
United Kingdom operations, respectively.
In 1992, the Company changed its estimates of the depreciable lives of
certain machinery and equipment resulting in a reduction of depreciation
expense and an increase in operating income of $38 million in the
United States.
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of the quarterly results of operations for 1993 and 1992
follows (in millions, except per share data):
<TABLE><CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
1993
Net sales...................... $ 285 $ 302 $ 309 $ 291 $ 1,187
Gross Income................... 96 101 109 97 403
Operating income (loss)........ 56 61 (1,905) 71 (1,717)
Net loss before extraordinary
items........................ (26) (24) (1,986) (4) (2,040)
Extraordinary items -
losses on debt
repurchases.................. (10) -- -- (2) (12)
Net loss....................... (36) (24) (1,986) (6) (2,052)
Loss per share:
Net loss before
extraordinary items........ (4.47) (4.06) (338.80) (0.66) (347.99)
Extraordinary items-
losses on debt repurchases. (1.66) -- -- (0.38) (2.04)
Loss per share............... (6.13) (4.06) (338.80) (1.04) (350.03)
Dividends per share............ -- -- -- -- --
1992
Net sales...................... $ 276 $ 282 $ 308 $ 285 $ 1,151
Gross income................... 106 110 114 95 425
Operating income............... 66 72 75 58 271
Net loss before adjustment
for accounting change........ (17) (13) (11) (28) (69)
Adjustment for adoption
of SFAS No. 106.............. (11) -- -- -- (11)
Net loss....................... (28) (13) (11) (28) (80)
Loss per share:
Net loss before
adjustment for
accounting change.......... (2.96) (2.14) (1.96) (4.77) (11.83)
Adjustment for
adoption of
SFAS No. 106............... (1.81) -- -- -- (1.81)
Loss per share............... (4.77) (2.14) (1.96) (4.77) (13.64)
Dividends per share............ -- -- -- -- --
</TABLE>
F-22 <PAGE>
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
--------------------
1994 1993
---- ----
Net sales................................. $275,330 $284,814
Cost of sales............................. 188,495 189,300
-------- --------
Gross income.............................. 86,835 95,514
Selling, general and administrative....... 26,702 25,363
Amortization of goodwill.................. -- 14,192
-------- --------
Operating income.......................... 60,133 55,959
Interest expense.......................... 84,318 86,610
Other (income) expense, net............... 588 (253)
-------- --------
Loss before taxes......................... (24,773) (30,398)
Income tax credit......................... (9,601) (4,183)
-------- --------
Loss before extraordinary item............ (15,172) (26,215)
Extraordinary item -- loss on debt
repurchases (net of income taxes of
$14,731 in 1994 and $5,982 in 1993)..... (28,170) (9,760)
-------- --------
Net loss.................................. $(43,342) $(35,975)
======== ========
Loss per share:
Net loss before extraordinary item...... $ (2.59) $ (4.48)
Extraordinary item...................... (4.80) (1.66)
-------- --------
Net loss................................ $ (7.39) $ (6.14)
======== ========
Average shares outstanding................ 5,863 5,863
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-23
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31, December 31,
1994 1993
---------- ------------
Assets
Current assets:
Cash and cash equivalents................. $ 783 $ 227
Receivables, less allowances.............. 112,788 105,834
Inventories............................... 121,589 118,269
Deferred income taxes..................... 14,000 14,000
Income taxes receivable................... 11,600 9,500
---------- ----------
Total current assets.................... 260,760 247,830
Property, plant and equipment............... 1,875,241 1,845,052
Less: Accumulated depreciation........... 538,924 516,938
---------- ----------
Net property, plant and equipment....... 1,336,317 1,328,114
Other assets................................ 79,256 73,843
---------- ----------
Total assets............................ $1,676,333 $1,649,787
========== ==========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable.......................... $ 99,263 $ 101,665
Interest payable.......................... 32,731 54,854
Income taxes payable...................... 255 122
Other current liabilities................. 45,603 70,138
Current portion of long-term debt......... 14,234 112,750
---------- ----------
Total current liabilities............... 192,086 339,529
Long-term debt.............................. 3,351,550 3,109,838
Deferred and other long-term income taxes... 220,430 243,437
Other liabilities........................... 24,533 26,088
Voting Common Stock with put right.......... 11,820 11,820
Shareholders' equity (deficit):
Voting Common Stock....................... 600,459 600,459
Cumulative translation adjustment......... (4,910) (5,091)
Retained earnings (deficit)............... (2,719,635) (2,676,293)
---------- ----------
Total shareholders' equity (deficit).... (2,124,086) (2,080,925)
---------- ----------
Total liabilities and shareholders'
equity (deficit)...................... $1,676,333 $1,649,787
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-24
FORT HOWARD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
------------------
1994 1993
---- ----
Cash provided from (used for) operations:
Net loss........................................ $(43,342) $(35,975)
Depreciation and amortization................... 22,098 34,290
Non-cash interest expense....................... 21,287 36,650
Deferred income tax credit...................... (21,760) (7,097)
Pre-tax loss on debt repurchases................ 42,901 15,742
Increase in receivables......................... (6,954) (15,516)
(Increase) decrease in inventories.............. (3,320) 732
Increase in income taxes receivable............. (2,100) (5,500)
Decrease in accounts payable.................... (2,402) (13,828)
Increase (decrease) in interest payable......... (22,123) 23,732
Increase in income taxes payable................ 133 248
All other, net.................................. (28,646) (11,706)
-------- --------
Net cash provided from (used for) operations.. (44,228) 21,772
Cash used for investment activity --
Additions to property, plant and equipment...... (30,411) (34,259)
Cash provided from (used for) financing
activities:
Proceeds from long-term borrowings.............. 800,600 760,550
Repayment of long-term borrowings............... (703,770) (291,001)
Funds escrowed for debt repayment............... -- (435,500)
Debt issuance costs............................. (21,635) (21,335)
-------- --------
Net cash provided from financing activities... 75,195 12,714
-------- --------
Increase in cash.................................. 556 227
Cash at beginning of period....................... 227 188
-------- --------
Cash at end of period........................... $ 783 $ 415
======== ========
Supplemental Cash Flow Disclosures:
Interest paid................................... $ 88,014 $ 28,392
Income taxes paid - net......................... 691 168
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-25
FORT HOWARD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements reflect all adjustments
(consisting only of normally recurring accruals, except for extraordinary
items related to debt repurchases), which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
presented. Certain reclassifications have been made to conform prior years'
data to the current format. These financial statements should be read in
conjunction with the Company's annual report on Form 10-K for 1993.
2. LOSS PER SHARE
Loss per share is computed on the basis of the average number of common
shares outstanding during the periods. The average number of shares
outstanding for the three-month periods ended March 31, 1994 and 1993 were
5,862,635 and 5,862,652, respectively. The assumed exercise of all
outstanding stock options has been excluded from the computation of earnings
(loss) per share for the three-month periods ended March 31, 1994 and 1993
because the result was antidilutive.
3. INVENTORIES
Inventories consist of:
March 31, December 31,
1994 1993
--------- ------------
(In thousands)
Raw materials and supplies.............. $ 56,328 $ 61,285
Finished and partly-finished products... 65,261 56,984
-------- --------
$121,589 $118,269
======== ========
4. GOODWILL WRITE-OFF
Low industry operating rates and aggressive competitive pricing among
tissue producers resulting from the 1991-1992 recession, additions to industry
capacity and other factors adversely affected tissue industry operating
conditions and the Company's operating results beginning in 1991 and through
the third quarter of 1993.
As a result of these conditions, during the second quarter of 1993 the
Company commenced an evaluation of the carrying value of its goodwill for
possible impairment. The Company revised its projections and concluded its
evaluation in the third quarter of 1993 determining that its forecasted
cumulative net income before goodwill amortization was inadequate to recover
the future amortization of the Company's goodwill balance over the remaining
amortization period of the goodwill. Accordingly, the Company wrote off its
remaining goodwill balance of $1.98 billion in the third quarter of 1993.
5. LONG-TERM DEBT
On February 9, 1994, the Company sold $100 million principal amount of
8 1/4% Senior Unsecured Notes due 2002 (the "8 1/4% Notes") and $650 million
principal amount of 9% Senior Subordinated Notes due 2006 (the "9% Notes") in
a registered public offering (collectively, the "1994 Notes"). Proceeds from
the sale of the 1994 Notes have been applied to the repurchase of all the
remaining 12 3/8% Notes at the redemption price of 105% of the principal
amount thereof, to the repurchase of $238 million of 12 5/8% Debentures at the
redemption price of 105% of the principal amount thereof, to the prepayment of
$100 million of the Term Loan, to the repayment of a portion of the Company's
indebtedness under the Revolving Credit Facility and to the payment of fees
and expenses.
The 8 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
F-26
Company. The 9% Notes are subordinated in right of payment to all existing
and future senior indebtedness of the Company, and constitute senior
indebtedness with respect to the 10% Notes, the 12 5/8% Debentures and the
14 1/8% Debentures.
In connection with the sale of the 1994 Notes, the Company amended the
Bank Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured
Note Agreement. Among other changes, the amendments reduced the required
ratio of earnings before non-cash charges, interest and taxes to cash interest
for the four fiscal quarters ending March 31, 1994, from 1.50 to 1.00 to 1.40
to 1.00.
The Company incurred an extraordinary loss of $28 million (net of income
taxes of $15 million) in the first quarter of 1994 representing the redemption
premiums on the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures,
and the write-off of deferred loan costs associated with the repayment of the
$100 million of the Term Loan and the repurchases of the 12 3/8% Notes and the
12 5/8% Debentures.
At March 31, 1994, the available capacity under the Company's Revolving
Credit Facility was $56 million.
6. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to lawsuits and state and
federal administrative proceedings incidental to their businesses. Although
the final results in such suits and proceedings cannot be predicted with
certainty, it is the present opinion of management that they will not have a
material adverse effect on the Company's financial condition.
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APPENDIX I
GLOSSARY OF CERTAIN TERMS
The following is a glossary of certain terms used in this Prospectus to
describe the Pass Through Certificates. The definitions of terms used in this
glossary that are also used in the Pass Through Trust Agreement, Secured Note
Indenture, Leases, Site Leases, Support Agreements or Participation Agreement
are qualified in their entirety by reference to the definitions of such terms
contained therein.
"Additional Notes" means non-recourse notes issued by the Owner Trustee
under the Secured Note Indenture in connection with the financing of a
Modification to any Asset.
"Asset" means each of the Facility, the Power Plant and each item of
Equipment and "Assets" means all of them.
"Assignment" with respect to any Asset, means the assignment agreement
pursuant to which the Company has assigned its interest in such Asset to the
Owner Trustee and "Assignments" means all of them.
"Basic Rent" for any Asset means the semiannual installment of rent
payable for such Asset pursuant to the applicable Lease.
"Business Day" means any day other than a Saturday or Sunday or any
other day on which banks located in New York, New York, Green Bay, Wisconsin,
the city in which the Secured Note Indenture Trustee Office is located, the
city in which the corporate trust department of the Owner Trustee is located
or, so long as any Pass Through Certificate is outstanding, the city in which
the corporate trust department of the Pass Through Trustee is located, are
required or authorized to remain closed.
"Certificate Account" means the one or more non-interest-bearing
accounts established and maintained by the Pass Through Trustee pursuant to
the Pass Through Trust Agreement on behalf of the Certificateholders for the
deposit of payments representing Scheduled Payments on the Secured Notes held
in the Pass Through Trust.
"Certificateholder" means the Person in whose name a Pass Through
Certificate is registered.
"Code" means the Internal Revenue Code of 1986, as amended or any
successor law.
"Collateral Trust Agreement" means the Amended and Restated Collateral
Trust Agreement, dated as of September 11, 1991, by and between the Company
and the Collateral Trustee.
"Collateral Trustee" means Bankers Trust Company, as collateral trustee
pursuant to the terms of the Collateral Trust Agreement, and its successors
and assigns.
"Commission" means the Securities and Exchange Commission.
"Components", when used with respect to any Asset, means appliances,
parts, instruments, appurtenances, accessories, equipment and other property
of whatever nature originally included in such Asset on the closing date for
such Asset.
"Easements" means the Facility Easements and the Power Plant Easements
and such additional easements and other rights as may be granted pursuant to
each of the Support Agreements from time to time.
"Eligible Bank" means any bank or trust company which shall be a member
of the Federal Reserve System and shall have a combined capital, surplus and
undivided profits of not less than $100,000,000.
"Equipment" means the 1990 Equipment and the 1991 Equipment,
collectively.
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"Equipment Group" means each of the three groups of certain paper
manufacturing and production equipment subject to the sale and leaseback
transactions.
"Equipment Lease" means each of the 1990 Equipment Lease and the 1991
Equipment Lease and "Equipment Leases" means both of them.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means, with respect to the Pass Through Agreement,
the occurrence and continuance of a Secured Note Indenture Event of Default
under the Secured Note Indenture.
"Event of Loss" means each of the events designated as such in a Lease.
For a description of certain events constituting an Event of Loss, see
"Description of the Secured Notes--The Leases--Event of Loss."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Facilities Agreement" means the Facilities Agreement between the Owner
Trustee and the Company pursuant to which the Company will provide certain
materials and services to the Owner Trustee in connection with the operation
of the Facility, as the same may be amended or supplemented from time to time.
"Facility" means the Company's Phase IV paper machine and related
structures and equipment.
"Facility Easements" means the rights of ingress and egress and other
necessary rights of access granted by the Company to the Owner Trustee
pursuant to the Facility Site Lease.
"Facility Land" means the real property subject to the IDA Lease and
necessary for the operation of the Facility.
"Facility Lease" means the Facility Lease Agreement between the Owner
Trustee and the Company pursuant to which the Owner Trustee leased the
Facility to the Company, as the same may be amended or supplemented from time
to time.
"Facility Site" means the Facility Land and the Facility Easements,
collectively.
"Facility Site Lease" means the Facility Site Lease and Easement
Agreement between the Company and the Owner Trustee, pursuant to which the
Company subleases the Facility Land and grants the Facility Easements to the
Owner Trustee, as the same may be amended or supplemented from time to time.
"Georgia Mill Mortgage" means that certain Term Loan and Revolving
Credit Fee and Leasehold Deed to Secure Debt, Assignment of Rents, Security
Agreement, Assignment Agreement and Fixture Filing, made by the Company in
favor of the Leasehold Mortgagee as the same may be amended from time to time.
"IDA" means the Effingham County Industrial Development Authority, a
body corporate and politic organized and existing under the constitution and
laws of the State of Georgia.
"IDA Lease" means the Corrected Lease Agreement, dated as of January 1,
1986, between the IDA and the Company.
"IDA Project Agreement" means the Agreement, dated June 20, 1985, among
the Company, the IDA and Effingham County, Georgia.
"Initial Loan Participant" means Bankers Trust Company, a New York
banking corporation.
"Lease" means each of the Facility Lease, the Power Plant Lease, the
1990 Equipment Lease and the 1991 Equipment Lease and "Leases" means all of
them.
"Leasehold Mortgagee" means the Collateral Trustee in its capacity as
the grantee of the Georgia Mill Deed.
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"Lease Event of Default" means each of the events designated as an event
of default in a Lease. For a description of certain events constituting Lease
Events of Default, see "Description of the Secured Notes--The Leases--Lease
Events of Default."
"Lessor" means the Owner Trustee and its successors and assigns.
"Lessor's Cost" of any Asset means the price paid by the Owner Trustee
to the Company for such Asset.
"Lessor's Liens" means Liens (a) which result from any act of, or any
failure to act by, or any claim against, the Owner Trustee (in its individual
or trust capacities) unrelated to the transactions contemplated by the
Participation Agreement or any other Operative Document, or which result from
any violation by the Owner Trustee (in its individual or trust capacities) of
any of the terms of the Operative Documents, or (b) which result from Liens in
favor of any taxing authority by reason of any tax owed by the Owner Trustee
(in its individual or trust capacities), except that Lessor's Liens shall not
include any Lien directly resulting from any tax for which the Company is
specifically obligated to indemnify the Owner Trustee (in its individual or
trust capacities), until such time as the Company shall have already paid to,
or on behalf of, the Owner Trustee (in its individual or trust capacities), as
the case may be, the tax or an indemnity with respect to the same.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien,
right of others or charge of any kind, including, without limitation, any
conditional sale or other title retention agreement or any lease in the nature
thereof.
"Loan Participant" means the Initial Loan Participant and each purchaser
of a Secured Note pursuant to the Participation Agreement including the Pass
Through Trustee.
"Modifications," when used with respect to any Asset, means alterations,
modifications, additions and improvements of or to such Asset, but shall not
include any Component or Replacement Component of such Asset.
"1990 Equipment" means certain pulp processing, converting, shipping and
machine shop equipment and a package boiler purchased by the Owner Trustee and
leased to the Company on December 23, 1990.
"1990 Equipment Lease" means the Amended and Restated Equipment Lease
Agreement between the Owner Trustee and the Company pursuant to which the
Owner Trustee is leasing the 1990 Equipment to the Company, as the same may be
amended or supplemented from time to time.
"1991 Equipment" means certain of the Company's pulp processing,
converting, shipping and other manufacturing equipment purchased by the Owner
Trustee and leased to the Company in 1991.
"1991 Equipment Lease" means the Equipment Lease Agreement between the
Owner Trustee and the Company, pursuant to which the Owner Trustee is leasing
the 1991 Equipment to the Company, as the same may be amended or supplemented
from time to time.
"Operative Documents" means the Participation Agreement, the Owner Trust
Agreement, each Lease, each Assignment, the Secured Note Indenture, the
Secured Notes, each Site Lease, each Support Agreement, the Recognition
Instrument and the Tax Indemnity Agreement.
"Owner Participant" means the owner participant for whose benefit the
Owner Trustee owns the Assets leased to the Company, pursuant to the Leases
and its permitted successors and assigns.
AI-3
"Owner Participant's Liens" means Liens (a) which result from any act
of, or any failure to act by, or any claim against, the Owner Participant
unrelated to the transactions contemplated by the Operative Documents, or
which result from any violation by the Owner Participant of any of the terms
of the Operative Documents, or (b) which result from Liens in favor of any
taxing authority by reason of any tax owed by the Owner Participant, except
that Owner Participant's Liens shall not include any Lien directly resulting
from any tax for which the Company is specifically obligated to indemnify the
Owner Participant until such time as the Company shall have already paid to,
or on behalf of, the Owner Participant, the tax or an indemnity with respect
to the same unless the Owner Participant is contesting in good faith by
appropriate proceedings the failure of the applicable government authority to
release such Lien.
"Owner Trust Agreement" means the Trust Agreement between the Owner
Participant and The Connecticut National Bank, as the same may be amended or
supplemented from time to time.
"Owner Trustee" means The Connecticut National Bank, a national banking
association, not in its individual capacity but solely as trustee of the owner
trust for the benefit of the Owner Participant, and its successors and
assigns.
"Participation Agreement" means the Amended and Restated Participation
Agreement among the Company, the Owner Trustee, the Secured Note Indenture
Trustee, the Initial Loan Participant, the Pass Through Trustee and the Owner
Participant, as the same may be amended or supplemented from time to time.
"Pass Through Certificate" means each of the Pass Through Certificates,
Series 1991, to be issued by the Pass Through Trustee, pursuant to the Pass
Through Trust Agreement.
"Pass Through Trust" means the Fort Howard Corporation 1991 Pass Through
Trust was formed pursuant to the Pass Through Trust Agreement.
"Pass Through Trust Agreement" means the Amended and Restated Pass
Through Trust Agreement between Wilmington Trust Company, as Pass Through
Trustee, and the Company, pursuant to which the Fort Howard Corporation 1991
Pass Through Trust was formed.
"Permitted Investments" shall mean (i) obligations of the United States
of America, or fully guaranteed as to interest and principal by the United
States of America; (ii) certificates of deposit issued by an Eligible Bank on
interest-bearing insured accounts in an Eligible Bank; or (iii) commercial
paper, rated at least P-1 (or comparable rating) by Moody's Investors Service,
Inc. (or any successor thereto) or at least A-1 (or comparable rating) by
Standard and Poor's Corporation (or any successor thereto).
"Person" shall mean any individual, partnership, corporation, trust,
unincorporated association, joint venture, government or any department or
agency thereof, or any other entity.
"Pool Balance" means, as of any date, the aggregate unpaid principal
amount of the Secured Notes held in the Pass Through Trust on such date plus
any amounts in respect of principal on such Secured Notes held by the Pass
Through Trustee and not yet distributed. The Pool Balance as of any Regular
Distribution Date or Special Distribution Date shall be computed after giving
effect to the payment of principal, if any, on the Secured Notes held in the
Pass Through Trust and distribution thereof to be made on that date.
"Pool Factor" means, as of any date, the quotient (rounded to the
seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the
aggregate original principal amount of the Secured Notes held in the Pass
Through Trust. The Pool Factor as of any Regular Distribution Date or Special
Distribution Date shall be computed after giving effect to the payment of
principal, if any, on the Secured Notes held in the Pass Through Trust and
distribution thereof to be made on that date.
"Power Plant" means the Company's Phase IV coal fired fluidized bed
boiler and related structures and equipment.
AI-4
"Power Plant Easements" means the rights of ingress and egress and other
necessary rights of access granted by the Company to the Owner Trustee,
pursuant to the Power Plant Site Lease.
"Power Plant Facilities Agreement" means the Power Plant Facilities
Agreement between the Company and the Owner Trustee, pursuant to which the
Company will provide certain materials and services to the Owner Trustee in
connection with the operation of the Power Plant as the same may be amended or
supplemented from time to time.
"Power Plant Land" means the real property subject to the IDA Lease and
necessary for the operation of the Power Plant.
"Power Plant Lease" means the Power Plant Lease Agreement between the
Owner Trustee and the Company pursuant to which the Owner Trustee leased the
Power Plant to the Company, as the same may be amended or supplemented from
time to time.
"Power Plant Site" means the Power Plant Easements and the Power Plant
Land, collectively.
"Power Plant Site Lease" means the Power Plant Site Lease and Easement
Agreement between the Company and the Owner Trustee, pursuant to which the
Company subleases the Power Plant Land and grants the Power Plant Easements to
the Owner Trustee, as the same may be amended or supplemented from time to
time.
"Recognition Instrument" means the Amended and Restated Non-Disturbance,
Cure Rights and Purchase Option Agreement among the Collateral Trustee, the
Company, the Secured Note Indenture Trustee, the Owner Trustee, the Owner
Participant and the Pass Through Trustee, as the same may be amended from time
to time.
"Regular Distribution Date" means January 2 and July 2 of each year,
commencing January 2, 1992 until payment of all the Scheduled Payments to be
made under the Secured Notes has been made.
"Rent" for any Asset means, collectively, Basic Rent and Supplemental
Rent for such Asset.
"Replacement Component", when used with respect to any Asset, means a
replacement to any Component or Replacement Component of such Asset.
"Scheduled Payment" means each payment of interest or principal on a
Secured Note scheduled to be received by the Pass Through Trustee on January 2
or July 2 of each year commencing January 2, 1992 until the final distribution
date for the Pass Through Trust, which payment represents the payment of
principal of such Secured Note, or the payment of regularly scheduled interest
accrued on such Secured Note.
"Secured Note Indenture" means the Trust Indenture, Assignment of
Leases, Security Agreement and Deed to Secure Debt between the Owner Trustee
and the Secured Note Indenture Trustee, as the same may be amended from time
to time.
"Secured Note Indenture Documents" means, collectively, the Assignments
and related documents, the Leases, the Site Leases, the Support Agreements and
the Recognition Instrument.
"Secured Note Indenture Event of Default" means each of the events
designated as an event of default in the Secured Note Indenture. For a
description of certain events constituting Secured Note Indenture Events of
Default, see "Description of the Secured Notes--Secured Note Indenture Events
of Default, Notice and Waiver."
"Secured Note Indenture Trustee" means Wilmington Trust Company, a
Delaware banking corporation, not in its individual capacity but solely as
trustee under the Secured Note Indenture, and any successor thereunder.
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"Secured Note Indenture Trustee's Liens" means Liens (a) which result
from any act of, or failure to act by, or any claim against, the Secured Note
Indenture Trustee (in its individual capacity or as trustee) unrelated to the
transactions contemplated by the Participation Agreement or any other
Operative Document, or which result from any violation by the Secured Note
Indenture Trustee (in its individual capacity or as trustee) of any of the
terms of the Operative Documents, or (b) which result from Liens in favor of
any taxing authority by reason of any tax owed by the Secured Note Indenture
Trustee (in its individual capacity or as trustee), except that Secured Note
Indenture Trustee's Liens shall not include any Lien directly resulting from
any tax for which the Company is specifically obligated to indemnify the
Secured Note Indenture Trustee until such time as the Company shall have
already paid to, or on behalf of, the Secured Note Indenture Trustee, the tax
or an indemnity with respect to the same.
"Secured Notes" means all of the non-recourse secured notes from time to
time issued and outstanding under and pursuant to the Secured Note Indenture
other than Additional Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Subordinated Note Indenture" means the Senior Subordinated Note
Indenture dated as of November 1, 1988 between the Company and State Street
Bank and Trust Company, as trustee, relating to the Senior Subordinated Notes.
"Sites" means the Facility Site and the Power Plant Site.
"Site Lease" means each of the Facility Site Lease and the Power Plant
Site Lease and "Site Leases" means both of them.
"Special Distribution Date" means the date on which a Special Payment
will be distributed, which date will be the second day of a month.
"Special Payments Account" means the one or more non-interest-bearing
accounts established and maintained by the Pass Through Trustee pursuant to
the Pass Through Trust Agreement on behalf of the Certificateholders, for the
deposit of payments representing Special Payments.
"Stipulated Loss Value" means the amount payable under a Lease upon the
occurrence of an Event of Loss with respect to any Asset subject to such
Lease, which amount shall in all circumstances be at least sufficient to pay
in full as of the date of payment thereof the aggregate unpaid principal of
the outstanding Secured Notes issued with respect to such Asset, together with
all unpaid interest thereon accrued and to accrue to such date of payment.
"Supplemental Rent" for any Asset means any and all amounts, liabilities
and obligations (other than Basic Rent) which the Company assumes or agrees to
pay to or on behalf of the Owner Trustee, the Owner Participant, the Loan
Participants, any holder of a Secured Note or the Secured Note Indenture
Trustee relating to such Asset under any Operative Document, including,
without limitation, any payments of indemnification or Stipulated Loss Value
or Termination Value for such Asset.
"Support Agreement" means each of the Facilities Agreement and the Power
Plant Facilities Agreement and "Support Agreements" means both of them.
"Tax Indemnity Agreement" means the Amended and Restated Tax
Indemnification Agreement entered into by the Owner Participant and the Lessee
in connection with the 1990 Transaction and 1991 Transaction, as the same may
be amended or supplemented from time to time.
"Termination Value" means the amount required to be received by the
Owner Trustee under a Lease following certain early terminations of such
Lease, with respect to any Asset leased thereunder which amount shall in all
circumstances be at least sufficient to pay in full as of the date of payment
thereof the aggregate unpaid principal of the outstanding Secured Notes
relating to such Asset, together with all unpaid interest thereon accrued and
to accrue to such date of payment. The Owner Trustee may receive Termination
Value either from the proceeds of the sale of such upon termination of such
Lease with respect thereto, or, if such proceeds are insufficient, from
payments by the Company.
AI-6 <PAGE>
APPENDIX II
DESCRIPTION OF CERTAIN COVENANTS
Pursuant to Section 10.04 of the Participation Agreement, the Company
has agreed to comply with certain financial covenants contained in the
Company's 12 3/8% Note Indenture. Set forth below is a summary of certain of
the defined terms used in the covenants contained in the 12 3/8% Note
Indenture, as well as certain defined terms used in the merger covenants
contained in the Participation Agreement. Reference is made to the 12 3/8%
Note Indenture and the Participation Agreement, as applicable, for the full
definition of all terms as well as any other capitalized terms used herein for
which no definition is provided.
Certain Definitions
"Accreted Value" as of any date with respect to any Junior Discount
Debenture (defined as the 14-1/8% Debentures in this Prospectus) means an
amount equal to the sum of (i) the issue price of such Junior Discount
Debenture as determined in accordance with Section 1273 of the Code plus (ii)
the aggregate of the portions of the original issue discount (the excess of
the amounts considered as part of the "stated redemption price at maturity" of
each Junior Discount Debenture within the meaning of Section 1273(a)(2) of the
Code, whether denominated as principal or interest, over the issue price of
such Junior Discount Debenture) which shall theretofore have accrued pursuant
to Section 1272 of the Code (without regard to Section 1272(a)(7) of the Code)
from the date of issue of such Junior Discount Debenture to the date of
determination, minus (iii) any amount considered as part of the "stated
redemption at maturity price" of such Junior Discount Debenture which has been
paid on such Junior Discount Debenture from the date of issue to the date of
determination.
"Acquired Debt" means Debt of a Person existing at the time such Person
became a Subsidiary.
"Additional Bank Credit Amount" has the meaning specified in clause (i)
of the second paragraph of the "Limitation on Company and Subsidiary Debt"
covenant described below.
"Adjusted Consolidated Net Worth" of any Person means, as of any date,
the Consolidated Net Worth of such Person less any amount attributable to
Preferred Stock or any other Capital Stock of such Person (other than
Redeemable Stock, which is not included in Consolidated Net Worth) which is
exchangeable or convertible into a debt security of such Person or any of its
Subsidiaries at the option of such Person or any of its Subsidiaries.
"Affiliate" as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under
common control with"), as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of
voting securities, by contract or otherwise. For purposes of this definition,
neither Bankers Trust New York Corporation, nor any Bank nor any Affiliate of
any of them shall be deemed to be an Affiliate of the Company.
"Agent" means the agent under the Bank Credit Agreement or any successor
agent appointed pursuant to the terms of such agreement.
"Asset Sale" means the sale or other disposition by the Company or any
of its Subsidiaries to any Person other than the Company or one of its
Subsidiaries of (i) any of the Capital Stock of any of the Company's
Subsidiaries or (ii) substantially all of the assets of any division or line
of business of the Company or any of its Subsidiaries.
"Average Life" means, as of the date of determination, with respect to
any debt security, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such debt security
multiplied by the amount of such principal payment by (ii) the sum of all such
principal payments.
AII-1
"Bank Credit Agreement" means the Amended and Restated Credit Agreement
dated as of October 24, 1988 among FH Acquisition Corp., the Lenders listed
therein, and Bankers Trust Company, as Agent, as such Agreement may be
amended, restated, supplemented or otherwise modified from time to time, and
includes any agreement extending the maturity of, or restructuring (including,
but not limited to, the inclusion of additional borrowers thereunder that are
Subsidiaries of the Company and whose obligations are guaranteed by the
Company thereunder) all or any portion of, the Debt under such Agreement or
any successor agreements and includes any agreement with one or more banks
refinancing all or any portion of the Debt under such Agreement or any
successor agreements.
"Banks" means the lenders who are parties to the Bank Credit Agreement.
"Board of Directors" means the Board of Directors for the Company or any
committee of such Board duly authorized to act under the Senior Subordinated
Note Indenture (defined as the 12 3/8% Note Indenture in this Prospectus).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"Capital Funds Ratio" means, as of the date of determination, the ratio
of (i) the sum of the Consolidated Net Worth of the Company on such date plus
the outstanding aggregate amount of Debt (which, in the case of the Junior
Discount Debentures (defined as the 14 1/8% Debentures in this Prospectus),
shall be their Accreted Value) of the Company which is subordinated in right
of payment to the Senior Subordinated Notes (defined as the 12 3/8% Notes in
this Prospectus) and which has a remaining Average Life equal to or greater
than the remaining Average Life of the Senior Subordinated Notes, to (ii) the
then outstanding principal amount of the Senior Subordinated Notes.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock including, without limitation, all Common Stock and all
Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such Person as lessee under which, in conformity with
GAAP, is required to be capitalized on the balance sheet of that Person and
"Capitalized Lease Obligation" means the rental obligations, as aforesaid,
under such lease.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock and includes, without
limitation, all series and classes of such common stock.
"Consolidated Capital Expenditures" means expenditures (whether paid in
cash or accrued as liabilities and including Capitalized Lease Obligations) of
the Company and its Subsidiaries that, in conformity with GAAP, are included
in the property, plant or equipment reflected in the consolidated balance
sheet of the Company and its Subsidiaries.
"Consolidated Cash Flow Available for Fixed Charges" means, for any
period, the sum of the amounts for such period of (i) Consolidated Net
Operating Income, (ii) Consolidated Interest Expense, (iii) provisions for
taxes based on income, (iv) depreciation expense, (v) amortization expense,
and (vi) all other non-cash items reducing Consolidated Net Operating Income,
minus all non-cash items increasing Consolidated Net Operating Income, all as
determined on a consolidated basis for any Person and its Subsidiaries
inconformity with GAAP; provided that if, during such period, such Person or
any of its Subsidiaries shall have made any Asset Sales, Consolidated Cash
Flow Available for Fixed Charges of such Person and its Subsidiaries for such
period shall be reduced by an amount equal to the Consolidated Cash Flow
Available for Fixed Charges (if positive) directly attributable to the assets
which are the subject of such Asset Sales for such period or increased by an
amount equal to the Consolidated Cash Flow Available for Fixed Charges (if
negative) directly attributable thereto for such period.
AII-2
"Consolidated Fixed Charge Ratio" means the ratio, on a pro forma basis,
giving effect to any Debt to be incurred as if it had been incurred on the
first day of the four-fiscal-quarter period referred to in clause (i), of (i)
the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of
any Person for the four fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Ratio (the
"Transaction Date") to (ii) the aggregate Consolidated Fixed Charges of such
Person during such four fiscal quarters; provided that (A) in making such
computation, (x) Consolidated Interest Expense attributable to interest on any
Debt (whether existing or being incurred) computed on a pro forma basis and
bearing a floating interest rate shall be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period,
(y) there shall be excluded from Consolidated Interest Expense any Interest
Expense related to Debt which was outstanding during such four fiscal quarters
but is not outstanding on the Transaction Date ("Repaid Debt"), unless the
Company may again incur, create or assume such Repaid Debt in an amount equal
to the weighted average amount of Repaid Debt outstanding during such four
fiscal quarters (the "Weighted Average Amount"), pursuant to clause (i), (v),
(vi), (x), (xi), (xii), (xiii) or (xv) of the second paragraph of the
"Limitation on Company and Subsidiary Debt" covenant described below, in which
case such Interest Expense shall not be excluded (it being understood that if
the Company can again so incur, create or assume an amount of Repaid Debt
which is less than the Weighted Average Amount, then a portion of such
Interest Expense shall be excluded equivalent to a fraction of which the
numerator shall be the difference between the Weighted Average Amount and the
amount of such Repaid Debt which the Company can again so incur, create or
assume, and of which the denominator shall be the Weighted Average Amount) and
(z) if such Person or any of its Subsidiaries shall have made any Asset Sales
subsequent to such four fiscal quarters and prior to the Transaction Date,
such Asset Sales will be deemed to have been made during such four fiscal
quarters, and (B) in making any calculation of the Consolidated Fixed Charge
Ratio for any period commencing prior to the Merger, the Merger and the
financing thereof (including the refinancing of bridge financing from the
proceeds of the Senior Subordinated Notes, the Subordinated Debentures, the
Junior Discount Debentures (defined as the 12 3/8% Notes, the 12 5/8%
Debentures and the 14 1/8% Debentures, respectively, in this Prospectus) and
the Junior Debentures) shall be deemed to have taken place on the first day of
such period.
"Consolidated Fixed Charges" of any Person means, for any period,
Consolidated Interest Expense; provided that if, during such period, such
Person or any of its Subsidiaries shall have made any Asset Sales,
Consolidated Fixed Charges of such Person and its Subsidiaries for such period
shall be reduced by an amount equal to the Consolidated Fixed Charges directly
attributable to the assets which are the subject of such Asset Sales for such
period.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate Interest Expense of such Person and its Subsidiaries, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period taken as one accounting
period, the net income (or loss) of any Person and its Subsidiaries on a
consolidated basis for such period determined in conformity with GAAP;
provided that there shall be excluded (i) the income (or loss) of any Person
(other than a Subsidiary of such Person) in which any other Person (other than
such Person or any of its Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to such
Person or any of its Subsidiaries by such other Person during such period,
(ii) except to the extent includible pursuant to the foregoing clause (i), the
income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary of such Person or is merged into or consolidated with such Person
or any of its Subsidiaries or that Person's assets are acquired by such Person
or any of its Subsidiaries, (iii) the income of any Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary, and
(iv) any gains or losses attributable to Asset Sales.
AII-3
"Consolidated Net Operating Income" of any Person means, for any period
taken as one accounting period, the aggregate Consolidated Net Income of such
Person and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP, adjusted by excluding (to the extent not otherwise excluded in
calculating Consolidated Net Income) any net extraordinary gain or net
extraordinary loss, as the case may be, during such period except that no
adjustment shall be made for extraordinary items consisting of income tax
effects associated with net operating loss carryforwards incurred by such
Person after the Effective Time and prior to any reporting of positive
Consolidated Net Income.
"Consolidated Net Worth" of any Person means, as at any date of
determination, the sum of the Capital Stock and additional paid-in capital
plus retained earnings (or minus accumulated deficit) of such Person and its
Subsidiaries on a consolidated basis, less amounts attributable to Redeemable
Stock, each item to be determined in conformity with GAAP (excluding the
effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to
or under which the Company or any of its Subsidiaries is a party or a
beneficiary.
"Debt" of any Person means at any date, without duplication, (i) all
obligations, contingent or otherwise, of such Person in respect of borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such Person or only to a portion thereof), (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person in respect of letters of credit or other
similar instruments (or reimbursement obligations with respect thereto), (iv)
all obligations of such Person to pay the deferred and unpaid purchase price
of property or services which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such services, except Trade Payables, (v) all
obligations of such Person as lessee under Capitalized Leases, (vi) all Debt
of others secured by a Lien on any asset of such Person, whether or not such
Debt is assumed by such Person, (vii) all Debt of others Guaranteed by such
Person and (viii) to the extent not otherwise included, obligations under
Currency Agreements and Interest Rate Agreements. The amount of Debt of any
Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such contingent obligations at such date.
"Debt Securities" means the Senior Subordinated Notes (defined as the
12 3/8% Notes in this Prospectus) and the Subordinated Debentures (defined as
the 12 5/8% Debentures in this Prospectus), collectively.
"Debt to Net Worth Ratio" means, as at any date of determination, the
ratio of (i) the outstanding aggregate amount of Debt of the Company and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP, to
(ii) the Consolidated Net Worth of the Company.
"Domestic Subsidiary" means a Subsidiary of the Company which is not a
Foreign Subsidiary.
"Effective Time" means the date and time the Merger became effective as
set forth in the Merger Agreement.
"Event of Default" means any event or condition specified as such in
Section 5.1 of the Senior Subordinated Note Indenture (defined as the 12 3/8%
Note Indenture in this Prospectus).
"Financing" means the financing of the Tender Offer and the Merger.
"Foreign Subsidiary" means any subsidiary of the Company which is
organized under the laws of a jurisdiction other than the United States of
America or any State thereof and more than 80% of the sales, earnings or
assets (determined on a consolidated basis in accordance with GAAP) of which
are located or derived from operations located in territories of the United
States of America and jurisdictions outside the United States of America.
AII-4
"GAAP" means generally accepted accounting principles in the United
States as in effect as of the date of the Senior Subordinated Note Indenture
(defined as the 12 3/8% Note Indenture in this Prospectus), including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession; provided that all
ratios and computations based on GAAP contained in the Senior Subordinated
Note Indenture shall be computed in accordance with GAAP except that
calculations made for the purpose of determining compliance with the terms of
the covenants set forth below and other provisions of the Senior Subordinated
Note Indenture shall be made, except as otherwise provided in the Senior
Subordinated Note Indenture, without giving effect to adjustments in component
amounts required or permitted by Accounting Principles Board Opinion Nos. 16
and 17 as a result of the Tender Offer and the Merger and for the amortization
of any expenses incurred in connection with the Tender Offer, the Merger or
the Financing.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Debt or other obligation of such other Person
(whether arising by virtue of partnership arrangements, by agreement to keep-
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a corresponding
meaning.
"Initial Secured Notes" shall mean the Secured Notes issued on the
Closing Dates (including the original Series A Secured Notes so long as the
same are outstanding and thereafter the new Series A Secured Notes) and any
Secured Notes issued in exchange therefor or replacement thereof pursuant to
Section 2.07 of the Secured Note Indenture.
"Interest Expense" of any Person means, for any period taken as one
accounting period, the aggregate amount of interest in respect of Debt
(including all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and the net
costs associated with Interest Rate Agreements) and all but the principal
component of rentals in respect of Capitalized Lease Obligations, paid or
accrued by such Person during such period, excluding, however, interest
expense not required to be paid in cash (including amortization of discount)
and which such Person did not in fact pay in cash (or, in the case of interest
accrued for which payment has not become due at the time of determination,
which such Person does not intend to pay in cash), all as determined in
accordance with GAAP.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement
designed to protect the Company or any of its Subsidiaries against
fluctuations in interest rates, to or under which the Company or any of its
Subsidiaries is a party or a beneficiary.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that, as to any such arrangement in corporate form, such corporation shall
not, as to any Person of which such corporation is a Subsidiary, be considered
to be a Joint Venture to which such Person is a party.
"Junior Debenture Indenture" means the indenture dated as of November 1,
1988 between the Company and Ameritrust Company National Association, as
trustee, pursuant to which the Junior Debentures were issued.
AII-5
"Junior Debentures" means the Company's 14 5/8% Junior Subordinated
Debentures due November 1, 2004 issued pursuant to an indenture dated as of
November 1, 1988 between the Company and Ameritrust Company National
Association, as trustee.
"Junior Discount Debentures" (defined as the 14 1/8% Debentures in this
Prospectus) means the Company's 14 1/8% Junior Discount Subordinated
Debentures due November 1, 2004 issued pursuant to an indenture dated as of
November 1, 1988 between the Company and Ameritrust Company National
Association, as trustee.
"Junior Discount Debenture Indenture" (defined as the 14 1/8% Debenture
Indenture in this Prospectus) means the indenture dated as of November 1, 1988
between the Company and Ameritrust Company National Association, as trustee,
pursuant to which the Junior Discount Debentures (defined as the 14 1/8%
Debentures in this Prospectus) were issued.
"Lease Event of Default", when used in or with respect to any Lease,
shall have the meaning specified in Section 15 of such Lease, and "Lease Event
of Default", when used in any other Operative Document without reference to
any Lease, shall mean a Lease Event of Default under any Lease.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including any conditional sale agreement, capital lease or other title
retention agreement relating to such asset).
"Loan Participant" means and includes each registered holder of a
Secured Note.
"Material Subsidiary" means each and any Subsidiary which (i) for the
most recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company, or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Company, all as shown on the consolidated financial statements of the Company
for such fiscal year.
"Merger" means the merger of FH Acquisition Corp. into the Company
pursuant to the Merger Agreement.
"Officer's Certificate" of any Person shall mean a certificate signed on
behalf of such Person by the Chairman, the President, any Vice President, any
Assistant Vice President, Financial Services Officer, the Controller or the
Treasurer of such Person or any other individual duly authorized and acting in
such capacity.
"Operative Documents" shall mean the Participation Agreement, the Owner
Trust Agreement, each Lease, each Assignment, the Secured Note Indenture, the
Secured Notes, each Site Lease, each Support Agreement, the Recognition
Instrument and the Tax Indemnity Agreement.
"Outstanding", when used with respect to the Secured Notes, shall mean,
as of the date of determination, all Secured Notes theretofore authenticated
and delivered under the Secured Note Indenture, except:
(i) Secured Notes theretofore canceled by the Secured Note Indenture
Trustee or delivered to the Secured Note Indenture Trustee for cancellation;
(ii) Secured Notes or portions thereof for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Secured
Note Indenture Trustee, provided that such Secured Notes are to be redeemed
and notice of such redemption has been duly given pursuant to the Secured Note
Indenture; and
(iii) Secured Notes paid or in exchange for or in lieu of which other
Secured Notes have been authenticated and delivered pursuant to the Secured
Note Indenture.
"Owner Participant" shall mean the Owner Participant for whose benefit
the Owner Trustee owns the Assets leased to the Company, pursuant to the
Leases, and its successors and assigns, and each Person to whom a transfer is
effected in accordance with Section 13 of the Participation Agreement.
AII-6
"Owner Trustee" shall mean The Connecticut National Bank, a national
banking association, and each successor as the Owner Trustee, not in its
individual capacity but solely as trustee under the Trust Agreement, and its
successors and assigns.
"Participant" shall mean any Loan Participant or the Owner Participant
and "Participants" shall mean all of them.
"Participation Agreement" shall mean the Amended and Restated
Participation Agreement, dated as of October 21, 1991, among the Company, the
Owner Participant, the Initial Loan Participant, the Pass Through Trustee, the
Secured Note Indenture Trustee and the Owner Trustee as the same may be
amended from time to time.
"Pass Through Trustee" shall mean the Wilmington Trust Company, not in
its individual capacity except as expressly provided in the Pass Through Trust
Agreement and the Operative Documents, but solely as Pass Through Trustee, or
its successor in interest, and any successor trustee appointed as provided
therein.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor; (ii) statutory Liens of landlords and
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's,
or other like Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security; (iv) Liens created or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance and return-of-money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, restrictions and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any of
its Subsidiaries incurred in the ordinary course of business; (vi) Liens
(including extensions and renewals thereof) upon real or tangible personal
property acquired after the Effective Time, provided that (a) any such Lien is
created solely for the purpose of securing Debt representing, or incurred to
finance, refinance or refund, the cost (including the cost of improvement or
construction) of the item of property subject thereto, (b) the principal
amount of the Debt secured by such Lien does not exceed 100% of such cost,
(c) such Lien does not extend to or cover any other property other than such
item of property and any improvements on such item and (d) the incurrence of
such Debt is permitted by the "Limitation on Company and Subsidiary Debt"
covenant; (vii) Liens upon specific items of inventory or other goods and
proceeds of the Company or its Subsidiaries securing the Company's or any
Subsidiary's obligations in respect of bankers' acceptances issued or created
or the account of any such Person to facilitate the purchase, shipment or
storage of such inventory or other goods; (viii) Liens securing reimbursement
obligations with respect to letters of credit which encumber documents and
other property relating to such letters of credit and the products and
proceeds thereof; (ix) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (x) judgment and attachment Liens not giving
rise to an Event of Default; (xi) leases or subleases granted to others not
interfering in any material respect with the business of the Company or any of
its Subsidiaries; (xii) Liens encumbering property or assets under
construction arising from progress or partial payments by a customer of the
Company or one of its Subsidiaries relating to such property or assets; (xiii)
Liens encumbering customary initial deposits and margin deposits, and other
Liens incurred in the ordinary course of business and which are either within
the general parameters customary in the industry or otherwise approved by
requisite Banks, in each case securing Debt under Interest Rate Agreements and
Currency Agreements and forward contracts, options, futures contracts, futures
options or similar agreements or arrangements designed to protect the Company
or any of its Subsidiaries from fluctuations in the price of commodities;
(xiv) Liens encumbering deposits made to secure obligations arising from
statutory or regulatory requirements of the Company or its Subsidiaries;
AII-7
(xv) Liens arising out of consignment or similar arrangements for the sale of
goods entered into by the Company or any of its Subsidiaries in the ordinary
course of business in accordance with the past practices of the Company and
its Subsidiaries prior to the Effective Time; (xvi) any interest or title of a
lessor in the property subject to any Capitalized Lease Obligation or
operating lease; (xvii) Liens on the assets of any entity existing at the time
such assets are acquired, whether by merger, consolidation, purchase of assets
or otherwise, provided that such Liens do not extend to any other assets of
the Company or any of its Subsidiaries; and (xviii) Liens arising from filing
UCC financing statements regarding leases.
"Person" shall mean any individual, partnership, corporation, trust,
unincorporated association, joint venture, government or any department or
agency thereof, or any other entity.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, and includes, without limitation, all
classes and series of preferred or preference stock.
"Redeemable Stock" means any class or series of Capital Stock that by
its terms or otherwise is required to be redeemed prior to the stated maturity
of the Senior Subordinated Notes (defined as the 12 3/8% Notes in this
Prospectus), or is redeemable at the option of the holder thereof at any time
prior to stated maturity of any of the Senior Subordinated Notes.
"Secured Note Indenture" shall mean the Trust Indenture, Assignment of
Leases, Security Agreement and Deed to Secure Debt, between the Owner Trustee
and the Secured Note Indenture Trustee as the same may be amended from time to
time. The term "Secured Note Indenture" shall also include each Secured Note
Indenture Supplement entered into pursuant to the terms of the Secured Note
Indenture.
"Secured Note Indenture Trustee" shall mean Wilmington Trust Company, a
Delaware banking corporation, not in its individual capacity, except as
expressly provided in the Operative Documents, but solely as trustee under the
Secured Note Indenture, and each successor as Secured Note Indenture Trustee
of the trusts created by the Secured Note Indenture.
"Secured Notes" means all notes from time to time issued and outstanding
under and pursuant to the Secured Note Indenture.
"Senior Debt" means (i) all Debt and other monetary obligations of the
Company under the Bank Credit Agreement (including the Additional Bank Credit
Amount) and the Company's Guarantee of any Debt or monetary obligation of any
of its Subsidiaries under the Bank Credit Agreement, (ii) all Debt of the
Company (other than the Senior Subordinated Notes, defined as the 12 3/8%
Notes in this Prospectus), unless such Debt, by its terms or the terms of the
instrument creating or evidencing it, is subordinate in right of payment to,
or pari passu with, the Senior Subordinated Notes and (iii) all fees, expenses
and indemnities payable in connection with the Bank Credit Agreement and, if
applicable, Currency Agreements and Interest Rate Agreements; provided that
the term Senior Debt shall not include (a) any Debt of the Company which, when
incurred and without respect to any election under Section 1111(b) of
Title 11, United States Code, was without recourse to the Company, (b) any
Debt of the Company to a Subsidiary, (c) any Debt of the Company not otherwise
permitted by Section 3.5 of the Senior Subordinated Note Indenture (defined as
the 12 3/8% Note Indenture in this Prospectus), (d) Debt to any employee of
the Company, (e) any liability for federal, state, local or other taxes owed
or owing by the Company and (f) Trade Payables.
"Senior Subordinated Note Indenture" (defined as the 12 3/8% Note
Indenture in this Prospectus) means the indenture dated as of November 1, 1988
between the Company and State Street Bank and Trust Company, as trustee,
relating to the Senior Subordinated Notes (defined as the 12 3/8% Notes in
this Prospectus).
"Senior Subordinated Notes" (defined as the 12 3/8% Notes in this
Prospectus) means the 12 3/8% Senior Subordinated Notes Due 1997 issued
pursuant to the indenture dated as of November 1, 1988 between the Company and
State Street Bank and Trust Company, as trustee.
AII-8
"Stockholders Agreement" means the Stockholders and Registration Rights
Agreement dated as of August 1, 1988 among FH Holdings Corp. (a predecessor of
the Company) and the other parties thereto.
"Subordinated Debenture Indenture" (defined as the 12 5/8% Debenture
Indenture in this Prospectus) means the indenture dated as of November 1, 1988
between the Company and United States Trust Company of New York, as trustee,
pursuant to which the Subordinated Debentures were issued.
"Subordinated Debentures" (defined as the 12 5/8% Debentures in this
Prospectus) means the 12 5/8% Subordinated Debentures, Due 2000, issued
pursuant to an indenture dated as of November 1, 1988 between the Company and
United States Trust Company of New York, as trustee.
"Subsidiary" means any corporation, association or other business entity
of which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more of the other
subsidiaries of that Person or a combination thereof.
"Trade Payables" means accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by the Company in
the ordinary course of business in connection with the obtaining of materials
or services or any Trade Payables of any Subsidiary or Joint Venture of the
Company Guaranteed by the Company.
Covenants
The Participation Agreement incorporates the following financial
covenants contained in the 12 3/8% Note Indenture provided, however, that if
such financial covenants of the 12 3/8% Note Indenture shall be amended,
modified or waived from time to time, the Participation Agreement may be
similarly amended, modified or waived with the consent of the Owner Trustee
and the Secured Note Indenture Trustee, which consents should not be
unreasonably withheld. Citations below in parentheses are references to the
relevant sections of the 12 3/8% Note Indenture unless otherwise indicated.
Limitation on Company and Subsidiary Debt. The Company shall not, and
shall not permit any of its Subsidiaries to, incur, create, assume, guarantee
or in any other manner become liable with respect to, or extend the maturity
of or become responsible for the payment of, any Debt unless, after giving
effect to the incurrence of such Debt and the receipt and application of the
proceeds thereof, the Consolidated Fixed Charge Ratio of the Company would be
(1) greater than 1.8 to 1 if such determination is made after December 31,
1991 and on or prior to December 31, 1992; (2) greater than 1.9 to 1 if such
determination is made after December 31, 1992 and on or prior to December 31,
1993; and (3) greater than 1.5 to 1 if such determination is made after
December 31, 1993; provided that if the Debt which is the subject of a
determination is Acquired Debt, then the Consolidated Cash Flow Available for
Fixed Charges of the Company shall be determined giving pro forma effect to
both the incurrence or assumption of such Acquired Debt by the Company or such
Subsidiary and the inclusion in the Consolidated Cash Flow Available for Fixed
Charges of the Company of the Consolidated Cash Flow Available for Fixed
Charges of the Person whose Debt would constitute such Acquired Debt.
Notwithstanding the foregoing, the Company and its Subsidiaries may
incur, create, assume or Guarantee each and all of the following: (i) Debt
under the Bank Credit Agreement in an aggregate principal amount not to exceed
the sum of (A) $2.2 billion at any one time outstanding, less (x) any
mandatory principal payments made by the Company pursuant to the Bank Credit
Agreement other than mandatory principal payments expressly required to be
made from excess cash flow; provided that to the extent any mandatory
principal payments expressly required to be made from excess cash flow reduce
any other mandatory principal payment obligation of the Company, then
at the time such other mandatory principal payment is made (or would have been
made but for the earlier payment in full), less the full amount of such
mandatory principal payment obligation as if such amount had not been
reduced by such mandatory principal payment from excess cash flow and (y) any
amounts by which the revolving credit facility commitments are permanently
educed, (B) an amount (the "Additional Bank Credit Amount") equal to $500
million, and (C) an amount equal to Debt, arising by virtue of letters of
AII-9
credit or other facilities, permitted by clause (ix) of this "Limitation on
Company and Subsidiary Debt" covenant; (ii) Debt evidenced by the 12 3/8%
Notes, the 12 5/8% Debentures, the 14 1/8% Debentures, the Junior Debentures
and the obligations under the 12 3/8% Note Indenture, the 12 5/8% Debenture
Indenture, the Junior Debenture Indenture and the 14 1/8% Debenture Indenture;
(iii) Debt of the Company to any of its Subsidiaries or of a Subsidiary to the
Company or to a Subsidiary; (iv) Debt the proceeds of which are used to
refinance outstanding Debt of the Company or any of its Subsidiaries in an
amount (or, if such new Debt provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration
thereof, with an original issue price) not to exceed the amount so refinanced
(plus, accrued interest and fees and expenses and, with respect to
refinancings of the Bank Credit Agreement or any successor or replacement
facility, any Additional Bank Credit Amount not previously borrowed pursuant
to clause (i) above or this clause (iv)), provided that Debt the proceeds of
which are used to refinance the 12 3/8% Notes, the 12 5/8% Debentures, the
14 1/8% Debentures, the Junior Debentures or other Debt of the Company which
is subordinated in right of payment to the 12 3/8% Notes, shall only be
permitted (1) if, in case the 12 3/8% Notes are refinanced in part, such Debt
is expressly made pari passu or subordinate in right of payment to the
remaining 12 3/8% Notes, (2) if, in case the Debt to be refinanced is
subordinated in right of payment to the 12 3/8% Notes, such Debt is
subordinated in right of payment to the 12 3/8% Notes, at least to the extent
that the Debt to be refinanced is subordinated to the 12 3/8% Notes, and (3)
if, in case the 12 3/8% Notes are refinanced in part or the Debt to be
refinanced is subordinated in right of payment to the 12 3/8% Notes, such Debt
determined as of the date of incurrence of such new Debt does not mature prior
to the final scheduled maturity date of the 12 3/8% Notes, and the Average
Life of such Debt is equal to or greater than the remaining Average Life of
the 12 3/8% Notes; and provided, further, that in no event may Debt of the
Company (other than Senior Debt) be refinanced by means of Debt of any
Subsidiary of the Company pursuant to this clause (iv) and provided, further,
that the two foregoing provisos of this clause (iv) shall not be applicable to
Debt incurred to refinance (A) up to $352,709,000 aggregate principal amount
of Junior Debentures plus any additional Junior Debentures issued in lieu of
cash interest on such amount of Junior Debentures (less any amount incurred
pursuant to (B) of this clause (iv)) and (B) up to $827 million in aggregate
principal amount of 14 1/8% Debentures in an amount not to exceed the Accreted
Value of the 14 1/8% Debentures so refinanced at the time of such refinancing
(less any amount incurred pursuant to (A) of this clause (iv)) (provided that
no refinancings may be effected pursuant to this third proviso if, after
giving effect to such refinancing, the Consolidated Net Worth of the Company
plus the aggregate amount of Debt of the Company which is subordinated to the
12 3/8% Notes and the 12 5/8% Debentures and which has an Average Life equal
to or greater than the remaining Average Life of the 12 3/8% Notes and the 12
5/8% Debentures is less than $430 million); (v) Debt up to an aggregate
principal amount (or, if such Debt provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the entirety thereof, with an original issue price) of $500
million at any one time outstanding less the outstanding Additional Bank
Credit Amount; (vi) Debt under Currency Agreements and Interest Rate
Agreements, provided that in the case of Currency Agreements which relate to
other Debt, such Currency Agreements do not increase the Debt of the Company
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder; (vii) Debt to repurchase shares of, or options to purchase shares
of, the Company's Common Stock from employees of the Company or any of its
Subsidiaries or Debt incurred in connection with borrowings by such employees
exclusively for the purpose of exercising options to purchase the Company's
Common Stock and paying any associated tax liability, in each case pursuant to
the terms of the form of agreements under which such employees purchase, or
are granted the option to purchase, shares of the Company's Common Stock;
(viii) Debt which by its terms, or by the terms of any agreement or instrument
pursuant to which such Debt is issued, (1) is subordinate in right of payment
to the 12 3/8% Notes, at least to the extent the 12 3/8% Notes are subordinate
to Senior Debt, and (2) provides that no payments of principal of such Debt by
way of sinking fund, mandatory redemption or otherwise (including defeasance)
may be made by the Company (including, without limitation, at the option of
the holder thereof) at any time prior to the maturity of the 12 3/8% Notes,
provided, however, that after giving effect to the incurrence of such Debt,
the Consolidated Fixed Charge Ratio of the Company would be at least 1.5 to 1;
(ix) Debt arising from agreements providing for indemnification, adjustment of
AII-10
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of the
Company or any Subsidiary pursuant to such agreements, in any case incurred or
assumed in connection with the disposition of any business, assets or
Subsidiary of the Company, other than Guarantees of Debt incurred by any
Person acquiring all or any portion of such business, assets or Subsidiary for
the purpose of financing such acquisition; (x) Debt in an aggregate amount not
to exceed $75 million at any one time outstanding under Guarantees of Debt
incurred in the ordinary course of business to suppliers, licensees,
franchisees, or customers; (xi) Debt in an aggregate amount not to exceed $100
million at any one time outstanding in respect of performance bonds and surety
bonds provided in the ordinary course of business, and refinancings thereof;
(xii) Debt under Guarantees in respect of obligations of Foreign Subsidiaries
and Joint Ventures in an aggregate principal amount not to exceed $200 million
at any one time outstanding; (xiii) Debt of the Company in respect of letters
of credit not to exceed an aggregate amount of $200 million at any time
outstanding plus any letters of credit from time to time outstanding with
respect to pollution control revenue bonds issued by the Development Authority
of Effingham County for the benefit of the Company; (xiv) Debt directly
incurred to finance Consolidated Capital Expenditures in an aggregate amount
not to exceed in any fiscal year of the Company the amount indicated below:
Fiscal Year Maximum
----------- Amount
-------
(In millions)
1994 $250
1995 250
1996 and thereafter 275
provided, however, that the amount of Debt which may be incurred in any fiscal
year pursuant to this clause (xiv) shall be increased by the amount of Debt
which could have been incurred in the prior fiscal year pursuant to this
clause (xiv) but which was not so incurred; and (xv) Debt of Foreign
Subsidiaries in an aggregate principal amount not to exceed $200 million at
any one time outstanding.
For purposes of determining any particular amount of Debt under this
"Limitation on Company and Subsidiary Debt" covenant, Guarantees of (or
obligations with respect to letters of credit supporting) Debt otherwise
included in the determination of such amount shall not also be included. For
the purpose of determining compliance with this "Limitation on Company and
Subsidiary Debt" covenant, (A) in the event that an item of Debt meets the
criteria of more than one of the types of Debt described in the above clauses,
the Company, in its sole discretion, shall classify such item of Debt and only
be required to include the amount and type of such Debt in one of such clauses
and (B) the amount of Debt issued at a price which is less than the principal
amount thereof will be equal to the amount of the liability in respect thereof
determined in accordance with GAAP. (Section 3.5)
Limitation on Preferred Stock of Domestic Subsidiaries and Domestic
Subsidiary Distributions. The Company will not permit any Domestic Subsidiary
of the Company to, directly or indirectly, issue or sell any Preferred Stock
(except to the Company or a Domestic Subsidiary). The Company will not permit
any Domestic Subsidiary of the Company to, directly or indirectly, (i) declare
or pay any dividend or make any distribution on the Capital Stock of such
Domestic Subsidiary or to the holders of such Domestic Subsidiary's Capital
Stock (other than dividends or distributions payable in Common Stock of such
Domestic Subsidiary) or (ii) purchase, redeem or otherwise acquire or retire
for value, any such Capital Stock; provided, that this covenant shall not
prevent (A) the payment by any Domestic Subsidiary of dividends or other
distributions to the Company or a wholly owned Domestic Subsidiary of the
Company or the redemption or repurchase by any Domestic Subsidiary of any of
its Capital Stock owned by the Company or a wholly owned Domestic Subsidiary
of the Company, (B) the payment of dividends to holders of the Common Stock of
a Domestic Subsidiary, following an initial public offering of such Domestic
Subsidiary's Common Stock, of up to 6% per annum of the net proceeds received
by such Domestic Subsidiary in such public offering or (C) the payment of pro
rata dividends to holders of minority interests in the Capital Stock of a
Domestic Subsidiary of the Company up to an aggregate of $50 million
(excluding amounts paid pursuant to clause (B) above), provided that, in the
AII-11
case of clauses (B) and (C), no Event of Default or event or condition which
through the giving of notice of lapse or time or both would become an Event of
Default shall have occurred and be continuing or occur as a consequence
thereof and provided, further, that nothing contained in this paragraph shall
prevent any Domestic Subsidiary from making any payment at any time up to the
amount of Restricted Payments that the Company could make at that time
pursuant to the first paragraph of the "Limitation on Restricted Payments"
covenant described below. (Section 3.6)
Limitation on Restricted Payments. The Company will not directly or
indirectly (i) declare or pay any dividend or make any distribution on its
Capital Stock or to the holders of its Capital Stock (other than dividends or
distributions payable in its Common Stock, in shares of Capital Stock, other
than Redeemable Stock, of the same class held by such holders or in options,
warrants or other rights to purchase Common Stock or such Capital Stock), (ii)
purchase, redeem or otherwise acquire or retire for value, or permit any
Subsidiary of the Company to, directly or indirectly, purchase, redeem or
otherwise acquire or retire for value, any such Capital Stock (including
options, warrants or other rights to acquire such Capital Stock), or (iii)
redeem, repurchase, defease (including, but not limited to, in-substance or
legal defeasance) or otherwise acquire or retire for value, or permit any
Subsidiary of the Company to, directly or indirectly, redeem, repurchase,
defease (including, but not limited to, in-substance or legal defeasance) or
otherwise acquire or retire for value, prior to any scheduled maturity,
scheduled repayment or scheduled sinking fund payment, Debt of the Company
which is pari passu or subordinate (whether pursuant to its terms or by
operation of law) in right of payment to the 12 3/8% Notes, and which was
scheduled to mature on or after the maturity date of the 12 3/8% Notes (the
foregoing actions, set forth in clauses (i) through (iii), being referred to
as "Restricted Payments"), if: (a) at the time of or after giving effect to
such Restricted Payments, an Event of Default or an event or condition which
through the giving of notice or lapse of time or both would become an Event of
Default shall have occurred and be continuing; or (b) after giving effect to
such Restricted Payment, the aggregate amount expended for all Restricted
Payments (the amount so expended, if other than in cash, to be determined by
the Board of Directors, whose reasonable determination shall be conclusive and
evidenced by a resolution of the Board of Directors certified by delivery of
an Officers' Certificate to the Trustee) shall exceed the sum (without
duplication) of (1) 50% of the aggregate Consolidated Net Operating Income of
the Company accrued on a cumulative basis for the period (taken as one
accounting period) beginning with the first full fiscal quarter following the
date of the 12 3/8% Note Indenture to the last day of the quarter immediately
preceding the quarter in which the Restricted Payment is proposed to be made;
provided that if Consolidated Net Operating Income for such period is a loss,
then 100% of such loss plus (2) the aggregate net proceeds, including the fair
market value of property other than cash, as determined by the Board of
Directors whose reasonable determination shall be conclusive and evidenced by
a resolution of the Board of Directors certified by delivery of an Officer's
Certificate to the Trustee under the 12 3/8% Note Indenture received by the
Company from the issuance and sale (other than to a Subsidiary) after the date
of the 12 3/8% Note Indenture of the Company's Capital Stock (other than
Redeemable Stock), including the issuance or sale for cash after the date of
the 12 3/8% Note Indenture or upon the conversion or exchange after the date
of the 12 3/8% Note Indenture of any Debt or other securities of the Company
(which Debt or other securities are, by their terms, convertible into Capital
Stock of the Company) or from the exercise after the date of the 12 3/8% Note
Indenture of any options, warrants or other rights to acquire Capital Stock of
the Company, minus (3) the aggregate amount of payments previously made by all
Domestic Subsidiaries pursuant to the third proviso of the "Limitation on
Preferred Stock of Domestic Subsidiaries and Domestic Subsidiary
Distributions" covenant. For the purposes of any calculation pursuant to the
preceding sentence which is required to be made in respect of a dividend
payment to be made within 60 days after the declaration of such dividend by
the Company, such dividend shall be deemed to be paid at the date of
declaration. Domestic Subsidiary of the Company or the redemption or
repurchase by any Domestic Subsidiary of any of its Capital Stock owned by the
Company or a wholly owned Domestic Subsidiary of the Company, (B) the payment
of dividends to holders of the Common Stock of a Domestic Subsidiary,
following an initial public offering of such Domestic Subsidiary's Common
Stock, of up to 6% per annum of the net proceeds received by such Domestic
Subsidiary in such public offering or (C) the payment of pro rata dividends to
holders of minority interests in the Capital Stock of a Domestic Subsidiary of
AII-12
the Company up to an aggregate of $50 million (excluding amounts paid pursuant
to clause (B) above), provided that, in the case of clauses (B) and (C), no
Event of Default or event or
The foregoing provision shall not be violated by reason of (1) the
payment of any dividend within 60 days after the date of declaration thereof,
if at said date of declaration such payment would comply with the foregoing
provision, (2) redemptions or repurchases of Preferred Stock of the Company,
or of the 12 5/8% Debentures, the 14 1/8% Debentures, the Junior Debentures or
other Debt of the Company which is pari passu or subordinated in right of
payment to the 12 3/8% Notes, and which was scheduled to mature on or after
the maturity date of the 12 3/8% Notes, provided that this clause (2) shall
only be applicable (x) to the redemption or repurchase of(A) up to
$352,709,000 in aggregate principal amount of Junior Debentures plus any
additional Junior Debentures issued in lieu of cash interest on such amount of
Junior Debentures (less the amount redeemed or repurchased pursuant to (B) of
this clause (x)) and (B) up to $827,000,000 in aggregate principal amount of
14 1/8% Debentures in an amount not to exceed the Accreted Value of the 14
1/8% Debentures redeemed or repurchased at the time of such redemption or
repurchase (less the amount redeemed or repurchased pursuant to (A) of this
clause (x)) and (y) with respect to each additional redemption or repurchase
pursuant to this clause (2) beyond those that could be made pursuant to clause
(x) above, if after giving effect to such redemption or repurchase, the
Company could incur at least $1.00 of Debt pursuant to the first paragraph of
the "Limitation on Company and Subsidiary Debt" covenant and the Company would
have a Capital Funds Ratio equal to or greater than 1.5 to 1 (provided, that
no redemptions or repurchases may be effected pursuant to this clause (2) if,
after giving effect to such redemption or repurchase, the Consolidated Net
Worth of the Company plus the aggregate amount of Debt of the Company which is
subordinate to the 12 3/8% Notes and the 12 5/8% Debentures and which has an
Average Life equal to or greater than the remaining Average Life of the 12
3/8% Notes and the 12 5/8% Debentures is less than or equal to $430 million),
(3) the payment of accrued and unpaid dividends on Preferred Stock of the
Company, (4) the payment of dividends on the Company's Common Stock, following
an initial public offering of the Company's Common Stock, of up to 6% per
annum of the net proceeds received by the Company in such public offering, (5)
the acquisition, redemption or retirement of Preferred Stock of the Company in
exchange for Debt then permitted to be incurred under the first paragraph or
under clause (viii) of the "Limitation on Company and Subsidiary Debt"
covenant, (6) the repurchase of shares of, or options to purchase shares of,
the Company's Common Stock pursuant to the Stockholder's Agreement from
employees of the Company or any of its Subsidiaries pursuant to the terms of
the form of agreements under which employees purchase, or are granted the
option to purchase, shares of the Company's Common Stock, (7) the acquisition
of 12 5/8% Debentures, 14 1/8% Debentures, Junior Debentures or other Debt of
the Company which is pari passu or subordinated in right of payment to the 12
3/8% Notes, in exchange for shares of the Common Stock, (8) the redemption or
repurchase of the 12 5/8% Debentures, 14 1/8% Debentures or Junior Debentures
with the proceeds of Debt incurred pursuant to the first paragraph or under
clause (viii) of the second paragraph of the "Limitation on Company or
Subsidiary Debt" covenant or (9) the repurchase of the Company's Common Stock
owned by Morgan Stanley Group Inc. for immediate resale, provided that in each
case no Event of Default or event or condition which through the giving of
notice or lapse of time or both would become an Event of Default shall have
occurred and be continuing or occur as a consequence thereof. (Section 3.7)
Limitation on Payment Restrictions Affecting Subsidiaries. The Company
will not, and will not permit any Subsidiary of the Company to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the right of any such Subsidiary to (i) pay
dividends or make any other distributions on such Subsidiary's Capital Stock
or pay any Debt owed to the Company or any Subsidiary of the Company,
(ii) make any loans or advances to the Company or any Subsidiary of the
Company or (iii) transfer any of its property or assets to the Company or any
Subsidiary of the Company, except (a) any restrictions existing under
agreements in effect, or entered into, on the Closing Date, or any renewals or
extensions thereof, provided that the terms and conditions of any such
renewals or extensions are no less favorable to holders of the 12 3/8% Notes
than the agreements being renewed or extended, (b) any restrictions existing
under any agreement which refinances the Bank Credit Agreement, provided that
the terms and conditions of any such agreement are no less favorable to the
holders of the 12 3/8% Notes than those under or pursuant to the Bank Credit
Agreement as in effect on the date of issuance of the 12 3/8% Notes, (c) any
AII-13
restrictions existing under any agreement which refinances any Debt Security,
provided that the terms and conditions of any such agreement are no less
favorable to holders of the 12 3/8% Notes than those under or pursuant to the
applicable Debt Security, (d) any restrictions existing with respect to Debt
of a Person at the time it becomes a Subsidiary, and (e) any restrictions set
forth in the Bank Credit Agreement; provided such restrictions are no more
restrictive on the Company and its Subsidiaries than the provisions described
in this covenant. Nothing contained in this covenant shall prevent the
Company from entering into any agreement providing for the incurrence of Liens
permitted by the "Limitations on Liens" covenant described below. (Section
3.8)
Limitations on Liens. The Company will not, and will not permit any
Subsidiary of the Company to, create, incur, assume or suffer to exist any
Liens upon any of their respective assets unless the 12 3/8% Notes are equally
and ratably secured, except for (i) Liens existing as of or immediately after
the date of issuance of the 12 3/8% Notes, including Liens with respect to the
Financing and Liens otherwise required under the Collateral Documents (as
defined in the Bank Credit Agreement) as in effect as of, or immediately
after, the date of issuance of the 12 3/8% Notes or under substantially
similar agreements securing the Bank Credit Agreement; (ii) Liens created
after the date of issuance of the 12 3/8% Notes, on any assets or Capital
Stock of the Company or its Subsidiaries created in favor of the holders of
the 12 3/8% Notes, and successor or replacement facilities thereof;
(iii) Liens granted after the date of issuance of the 12 3/8% Notes on any
assets or Capital Stock of the Company or its Subsidiaries created in favor of
any of the Banks under the Bank Credit Agreement or any successor or
replacement facilities thereof provided that the 12 3/8% Notes are secured by
Liens on such assets or Capital Stock, which are subordinated to the Liens
securing the Debt under the Bank Credit Agreement or any successor or
replacement facilities thereof; provided, further, that the foregoing proviso
will not apply to (A) Liens granted or arising in connection with the Merger
or the Financing, (B) Liens securing Debt permitted under clause (ix) of the
second paragraph of the "Limitation on Company or Subsidiary Debt" covenant
(or the obligations arising under the agreements referred to in clause (ix) of
the second paragraph of the "Limitation on Company or Subsidiary Debt"
covenant), or (C) Liens granted pursuant to, or to carry out the provisions
of, Section 5.14 of the Bank Credit Agreement as in effect on the date of the
12 3/8% Note Indenture, or any provision in a successor or replacement
facility that is substantially identical to such Section 5.14; (iv) Liens
securing the payment of Debt permitted to be incurred under the first
paragraph or by clauses (iii), (v), (vi) or (xiv) of the second paragraph of
the "Limitation on Company or Subsidiary Debt" covenant and Liens securing
Senior Debt incurred under clause (iv) of the second paragraph of the
"Limitation on Company and Subsidiary Debt" covenant; (v) Liens with respect
to Acquired Debt, provided that such Liens do not extend to or cover any
property or assets of the Company or any Subsidiary of the Company, other than
the property or assets acquired; (vi) Liens with respect to the assets of a
Subsidiary of the Company granted by such Subsidiary to the Company to secure
Debt owing to the Company by such Subsidiary; (vii) Liens securing the
Additional Bank Credit Amount and Liens securing any obligation in respect of
Senior Debt issued to any Bank (including, without limitation, any Lien
granted under the Bank Credit Agreement); (viii) Liens securing all or any
portion of Debt which is incurred to refinance secured Debt and is permitted
to be incurred under clause (iv) of the second paragraph of the "Limitation on
Company or Subsidiary Debt" covenant, provided that such Liens do not extend
to or cover any property or assets of the Company or any Subsidiary of the
Company other than the property or assets securing the Debt being refinanced;
(ix) Liens securing Debt existing as of the date of issuance of the 12 3/8%
Notes or any refinancing thereof, which is unsecured as of the date of
issuance of the 12 3/8% Notes, provided that the aggregate amount of such
secured Debt does not exceed $100 million, (x) Liens securing Debt with
respect to property or assets with an aggregate fair market value of not more
than $50 million; (xi) Permitted Liens; and (xii) Liens securing any Debt
required to be secured equally and ratably with any Debt secured by Liens
permitted by clauses (i) through (xi) of this covenant. (Section 3.9)
Transactions with Stockholders and Affiliates. Following the Merger,
the Company will not, and will not permit any Subsidiary of the Company to,
directly or indirectly, enter into any transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with any holder of 5% or more of any class of
Capital Stock of the Company (excluding the Bankers Trust New York Corporation
AII-14
and any of its Subsidiaries or Affiliates) or with any Affiliate of the
Company or of any such holder, on terms that are less favorable to the Company
or such Subsidiary, as the case may be, than those which might be obtained at
the time of such transaction from a Person who is not such a holder or
Affiliate; provided, however, that the purchase, sale or lease of any property
to, or exchange of any property with, or other disposition of any property to
any such holder of 5% or more of Capital Stock of the Company or any Affiliate
of the Company or of any such holder shall be deemed to be on terms that are
no less favorable to the Company or such Subsidiary, as the case may be, than
those obtainable at the time of the transaction from a Person who is not such
holder or Affiliate if the Board of Directors shall have received a written
opinion of a nationally recognized investment banking firm stating that the
transaction is fair to the Company from a financial point of view, and
provided, further, however, that this covenant shall not limit, or be
applicable to, (i) the payment of fees to MS&Co. and its Affiliates for
financial and consulting services (including underwriting discount and
commissions), (ii) transactions between the Company or any of its Subsidiaries
and any employee of the Company or any of its Subsidiaries that are approved
by the Board of Directors, (iii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company
or (iv) any transaction between the Company and any of its wholly owned
Subsidiaries or between any of its wholly owned Subsidiaries. (Section 3.10)
Mergers and Consolidations
So long as any of the Initial Secured Notes remain Outstanding or any
amounts due and owing by the Company with respect thereto, the Holders thereof
under the Pass Through Trust Agreement or any other Operative Document remain
unpaid, the Company may not consolidate with, merge with or into or transfer
or lease all or substantially all of its assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions), to any Person (except a wholly owned Subsidiary of the Company
with a positive Consolidated Net Worth) unless:
(i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which properties and assets of the Company are transferred
shall be a solvent corporation organized and existing under the laws of the
United States of America or any State thereof or the District of Columbia and
shall expressly assume, by an agreement executed and delivered to the Owner
Trustee, the Secured Note Indenture Trustee and the Pass Through Trustee in
form and substance reasonably satisfactory to the Owner Trustee and the
Secured Note Indenture Trustee, all of the obligations of the Company under
the Pass Through Trust Agreement and the Operative Documents;
(ii) immediately before and immediately after giving effect to
such transaction, (A) no Lease Event of Default shall have occurred and be
continuing and (B) no default shall have occurred and be continuing under the
12 3/8% Note Indenture;
(iii) immediately after giving effect to such transaction on a
pro forma basis, the Adjusted Consolidated Net Worth of the surviving entity
would be at least equal to the Adjusted Consolidated Net Worth of the Company
immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro
forma basis, the Consolidated Fixed Charge Ratio of the surviving entity would
be at least 1 to 1; provided that if the Consolidated Fixed Charge Ratio of
the Company is within the range set forth in column (A) below, then the pro
forma Consolidated Fixed Charge Ratio of the surviving entity shall be at
least equal to the percentage of the Consolidated Fixed Charge Ratio of the
Company at the corresponding point set forth in column (B) below:
(A) (B)
--- ---
1.11:1 to 1.99:1 90%
2.00:1 to 2.99:1 80%
3.00:1 to 3.99:1 70%
4.00:1 to 4.99:1 60%
5.00:1 or more 50%;
AII-15
and provided, further, that if the pro forma Consolidated Fixed Charge Ratio
of the surviving entity would be 3:1 or more, the calculation in the preceding
proviso shall be inapplicable and such transaction shall be deemed to have
complied with the requirements of this clause (iv); and provided, further,
that if clause (4) of Section 9.1 of the 12 3/8% Note Indenture shall be
amended, modified or waived from time to time, this clause (iv) may be
similarly amended, modified or waived with the consent of the Owner Trustee
and the Secured Note Indenture Trustee, which consents shall not be
unreasonably withheld; and
(v) the Company has delivered to the Owner Trustee (A) an
Officer's Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (iv) above) stating that such consolidation, merger or
transfer and such agreement comply with this Section and that all conditions
precedent herein provided for relating to such transaction have been complied
with and (B) an opinion of counsel stating that in the opinion of such counsel
such agreement has been duly authorized, executed and delivered by the
surviving entity, and is enforceable against the surviving entity in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, liquidation, moratorium or similar laws affecting the rights
of creditors generally and by general principles of equity.
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets, of the Company, the successor corporation
formed by such consolidation or into which the Company is merged or to which
such transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Participation
Agreement and under the Pass Through Trust Agreement and the other Operative
Documents with the same effect as if such successor corporation has been named
as the Company under the Participation Agreement and therein; provided,
however, that notwithstanding such consolidation, merger or transfer, the
Company shall not be released from its obligations under the Participation
Agreement or under the Pass Through Trust Agreement or any other Operative
Document without the consent of the Owner Participant. (Section 10.03 of the
Participation Agreement).
AII-16
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
Exhibit
No. Description
- ------- -----------
*1.1 -Form of Underwriting Agreement for the 1988 Securities.
*1.2 -Independent Price Agreement dated August 16, 1988 between the
Registrant and Dillon, Read & Co. Inc.
**1.3 -Form of Underwriting Agreement for the Pass Through Certificates.
***1.4 -Form of Underwriting Agreement for the 1993 Notes.
***1.5 -Form of Qualified Independent Underwriter Agreement for the 1993
Notes.
****1.6 -Form of Underwriting Agreement for the 1994 Notes.
*2 -Agreement and Plan of Merger dated June 25, 1988 between Fort
Howard Corporation and FH Acquisition
3.1 -Restated Certificate of Incorporation of the Registrant (filed as
Exhibit 3.A to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
++3.2 -Amended and Restated By-Laws of the Registrant.
4.1 -[Intentionally omitted]
*4.2 -Form of 12 5/8 % Debenture Indenture dated as of
November 1, 1988 between the Registrant and United States Trust
Company of New York, as Trustee.
*4.3 -Form of 14 1/8 % Debenture Indenture dated as of
November 1, 1988 between the Registrant and Ameritrust Company
National Association, as Trustee.
4.4 -[Intentionally Omitted]
*4.5 -Amended and Restated Credit Agreement dated as of October 24,
1988, among the Registrant, FH Acquisition and Bankers Trust, as
agent for the bank parties thereto, with respect to the Bank
Bridge Loan, the Term Loan and the Revolving Credit Facility.
*4.5(A) -Amendment No. 1 dated February 21, 1989 to the Amended and
Restated Credit Agreement dated as of October 24, 1988.
4.5(B) -Amendment No. 2 dated October 20, 1989 to Amended and Restated
Credit Agreement dated as of October 24, 1988 (filed with the
Registrant's September 30, 1989 Quarterly Report on Form 10-Q,
File No. 1-6901, and incorporated herein by reference).
4.5(C) -Amendment No. 3 dated as of November 14, 1989 to Amended and
Restated Credit Agreement dated as of October 24, 1988 (filed
10-Q, with the Registrant's September 30, 1989 Quarterly Report
on Form File No. 1-6901, and incorporated herein by reference).
4.5(D) -Amendment No. 4 dated as of November 9, 1990 to Amended and
Restated Credit Agreement dated as of October 24, 1988 (filed as
Exhibit 4.J to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1990, File No. 1-6901, and
incorporated herein by reference).
4.5(E) -Amendment No. 5 dated as of December 19, 1990 to Amended and
Restated Credit Agreement dated as of October 24, 1988 (filed as
Exhibit 4.K to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
4.5(F) -Amendment No. 6 dated as of September 11, 1991 to Amended and
Restated Credit Agreement dated as of October 24, 1988 (filed as
Exhibit 4.A to the Registrant's Current Report on Form 8-K on
September 13, 1991, File No. 1-6901, and incorporated herein by
reference).
4.5(G) -Amendment No. 7 dated as of December 2, 1991 to Amended and
Restated Credit Agreement dated as of October 24, 1988 and
Amendment No. 1 dated as of December 2, 1991 to the Note Purchase
Agreement dated as of September 11, 1991 (filed as
Exhibit No. 4.N to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991, File No. 1-6901, and
incorporated herein by reference).
II-1
4.5(H) -Amendment No. 8 dated as of October 7, 1992 to Amended and
Restated Credit Agreement dated as of October 24, 1988 and
Amendment No. 2 dated as of October 7, 1992 to the Note
Purchase Agreement dated as of September 11, 1991 (filed as
Exhibit 4.0 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992, File No. 1-6901, and
incorporated herein by reference).
4.5(I) -Amended and Restated Amendment No. 8 dated as of November 12,
1992, to Amended and Restated Credit Agreement dated as of
October 24, 1988, and Amended and Restated Amendment No. 2
dated as of November 12, 1992 to the Note Purchase Agreement
dated as of September 11, 1991 (filed as Exhibit 4.P to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992, File No. 1-6901, and incorporated herein by
reference).
***4.5(J) -Form of Second Amended and Restated Amendment No. 8 dated as of
March 4, 1993, to Amended and Restated Credit Agreement dated as
of October 24, 1988, and Second Amended and Restated Amendment
No. 2 dated as of March 4, 1993 to Note Purchase Agreement dated
as of September 11, 1991.
4.5(K) Amendment No. 9 dated as of December 31, 1993 to Amended and
Restated Credit Agreement dated as of October 24, 1988, and
Amendment No. 3 dated as of December 31, 1993 to Note Purchase
Agreement dated as of September 11, 1991 (filed as Exhibit 4.4(L)
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-6901, and incorporated herein by
reference).
4.6 -[Intentionally omitted]
*4.7 -Instrument of Designation, Appointment and Acceptance dated as of
June 22, 1988 among the Registrant, Bankers Trust Company and
Security Pacific National Bank.
**4.8 -Form of Amended and Restated Pass Through Trust Agreement between
the Pass Through Trustee and the Company relating to the Pass
Through Certificates.
**4.9 -Form of Pass Through Certificates (included in Exhibit 4.8).
4.10 -Amended and Restated Participation Agreement dated as of
October 21, 1991 among the Company, the Owner Participant, the
Initial Loan Participant, the Secured Note Indenture Trustee, the
Owner Trustee and the Pass Through Trustee, and the Form of First
Amendment thereto (filed as Exhibit 10.DD to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991,
File No. 1-6901, and incorporated herein by reference).
**4.11 -Form of Amended and Restated Non-Disturbance, Cure Rights and
Purchase Option Agreement Among the Company, the Secured Note
Indenture Trustee, the Owner Trustee, the Owner Participant, the
Pass Through Trustee and the Collateral Trustee.
4.12 -Facility Lease Agreement dated as of December 19, 1991, between
the Owner Trustee and the Company (filed as Exhibit 10.EE to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 1-6901, and incorporated herein by
reference).
4.13 -Amended and Restated Equipment Lease Agreement [1990] dated as of
December 19, 1991, between the Owner Trustee and the Company
(filed as Exhibit 10.W to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991, File No. 1-6901, and
incorporated herein by reference).
4.14 -Equipment Lease Agreement [1991] dated as of December 19, 1991,
between the Owner Trustee and the Company (filed as Exhibit 10.FF
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 1-6901, and incorporated herein by
reference).
4.15 -Power Plant Lease Agreement dated as of December 19, 1991,
between the Owner Trustee and the Company (filed as Exhibit 10.GG
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 1-6901, and incorporated herein by
reference).
**4.16 -Form of Trust Indenture, Assignment of Leases, Security Agreement
and Deed to Secure Debt between the Owner Trustee and the Secured
Note Indenture Trustee.
**4.17 -Form of Secured Note (included in Exhibit 4.16).
**4.18 -Form of Trust Agreement between the Owner Participant and the
Connecticut National Bank, and the Form of First Amendment
thereto.
II-2
**4.19 -Form of Facility Site Lease and Easement Agreement between the
Company and the Owner Trustee.
**4.20 -Form of Power Plant Site Lease and Easement Agreement between the
Company and the Owner Trustee.
**4.21 -Form of Facilities Agreement between the Company and the Owner
Trustee.
**4.22 -Form of Power Plant Facilities Agreement between the Company and
the Owner Trustee.
**4.23 -Agreement dated June 20, 1985 by and among the Company, Effingham
County Industrial Development Authority (the "IDA") and Effingham
County, Georgia (the "County").
**4.24 -Ratification of Agreement dated January 1, 1986 by and among the
Company, the IDA and the County.
**4.25 -Escrow Agreement dated January 1, 1986 by and among the Company,
the IDA and the Marine Trust Company, J.A.
**4.26 -Corrected Lease Agreement dated January 1, 1986 by and between
the IDA and the Company.
**4.27 -Form of Amendment No. 3 to Term Loan and Revolving Credit Fee and
Leasehold Deed to Secure Debt, Assignment of Rents, Security
Agreement, Assignment Agreement and Fixture Filing.
4.28 -Form of Senior Secured Note Agreement dated as of
September 11, 1991 (filed as Exhibit 4.B to the Registrant's
Current Report on Form 8-K on September 13, 1991, File No.
1-6901, and incorporated herein by reference).
***4.29 -Form of 9-1/4% Note Indenture dated as of March 22, 1993,
between the Registrant and Norwest Bank Wisconsin, N.A., as
Trustee.
***4.30 -Form of 10% Note Indenture dated as of March 22, 1993, between
the Registrant and United States Trust Company of New York,
as Trustee.
****4.31 Form of 8 1/4% Note Indenture dated as of February 1, 1994
between the Registrant and Norwest Bank Wisconsin, N.A., as
Trustee.
****4.32 Form of 9% Note Indenture dated as of February 1, 1994 between
the Registrant and The Bank of New York, as Trustee.
NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of Item 601 of
Regulation S-K, the Registrant hereby undertakes to furnish to the Commission
upon request copies of the instruments pursuant to which various entities hold
long-term debt of the Registrant or its consolidated or unconsolidated
subsidiaries, none of which instruments govern indebtedness exceeding 10% of
the total assets of the Registrant and its subsidiaries on a consolidated
basis.
*5.1 -Opinion of Davis Polk & Wardwell for the 1988 Securities
(legality opinion).
***5.2 -Opinion of Shearman & Sterling for the 1993 Notes.
**5.3 -Opinion of Dewey Ballantine, counsel for the Company, for the
Pass Through Certificates.
**5.4 -Opinion of James W. Nellen II, Esq., Vice President and General
Counsel of the Company, for the Pass Through Certificates.
**5.5 -Opinion (including tax opinion) of Richards, Layton & Finger,
counsel for the Pass Through Trustee.
****5.6 -Opinion of Shearman & Sterling for the 1994 Notes.
*8.1 -Tax Opinion of Davis Polk & Wardwell, counsel for the Company,
for the 1988 Securities.
**8.2 -Tax Opinion of Dewey Ballantine, counsel for the Company for the
Pass Through Certificates.
**8.3 -Tax Opinion of Richards, Layton & Finger, counsel for the Pass
Through Trustee (included in Exhibit 5.5).
10.1 -[Intentionally omitted]
10.2 -[Intentionally omitted]
10.3 -Stockholders Agreement dated as of December 7, 1990, among the
Registrant, Morgan Stanley, MSLEF II, certain institutional
investors and the Management Investors which amends and restates
the Stockholders and Registration Rights Agreement dated as of
August 1, 1988, as amended (filed as Exhibit 10.C to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by
reference).
10.4 -[Intentionally omitted]
10.5 -[Intentionally omitted]
II-3
10.6 -Management Incentive Plan as amended and restated December 10,
1992 (filed as Exhibit 10.C to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992, File No. 1-6901,
and incorporated herein by reference).
*10.7 -Supplemental Retirement Plan.
10.7(A) -Amendment No. 1 to the Supplemental Retirement Plan dated
December 21, 1988 (filed as Exhibit 10.P to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988,
File No. 1-6901, and incorporated herein by reference).
10.8 -Employment Agreements dated October 15, 1993, with the Company's
Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer (filed as Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1993, File No. 1-6901, and incorporated herein by reference).
*10.9 -Amended and Restated Management Equity Participation Agreement
dated as of August 1, 1988, among Holdings, Morgan Stanley, MSLEF
II and the Management Investors.
10.9(A) -Letter Agreement dated June 27, 1990, which modifies Amended and
Restated Management Equity Participation Agreement (filed as
Exhibit 10.V to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
10.9(B) -Letter Agreement dated July 31, 1990, among the Company and the
Principal Management Investors which amends Amended and Restated
Management Equity Participation Agreement (filed as Exhibit 10.W
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by
reference).
10.9(C) -Letter Agreement dated July 31, 1990, between the Company and the
Management Investor Committee which amends Amended and Restated
Management Equity Participation Agreement (filed as Exhibit 10.X
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by
reference).
10.9(D) -Letter Agreement dated February 7, 1991, between the Company and
the Management Investors Committee which amends the Amended and
Restated Management Equity Participation Agreement (filed as
Exhibit 10.GG to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, File No., 1-6901, and
incorporated herein by reference).
10.9(E) -Form of Letter Agreement dated February 7, 1991, among the
Company, the Management Investors Committee and Management
Investors which cancels certain stock options, grants new stock
options and amends the Amended and Restated Management Equity
Participation Agreement (filed as Exhibit 10.HH to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No., 1-6901, and incorporated herein by
reference).
10.10 -[Intentionally omitted]
10.11 -[Intentionally omitted]
10.12 -[Intentionally omitted]
*10.13 -Financial Advisory Agreement dated as of October 25, 1988.
10.14 -Form of Supplemental Retirement Agreement of the
Company's Chief Executive Officer, as amended (filed as
Exhibit 10.M to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988, File No. 1-6901,
and incorporated herein by reference).
*10.15 -Participation Agreement dated as of October 20, 1989 among the
Registrant, Philip Morris Credit Corporation, the Loan
Participants listed therein, The Connecticut National Bank, Owner
Trustee and Wilmington Trust Company, Secured Note Indenture
Trustee.
*10.16 -Facility Lease Agreement dated as of October 20, 1989 between The
Connecticut National Bank in its capacity as Owner Trustee,
Lessor, and the Registrant, Lessee.
10.17 -Supplemental Retirement Agreements for certain directors and
officers (filed as Exhibit 10.T to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1989, File No.
1-6901, and incorporated herein by reference).
10.17(A)-Form of Amendment No. 1 to Supplemental Retirement Agreements for
certain directors and officers (filed as Exhibit 10.U to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by
reference).
II-4
10.18 -Agreement dated as of July 31, 1990, among the Company and its
former Chief Executive Officer (filed as Exhibit 10.Y to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by
reference).
10.18(A)-Modification to Agreement dated as of July 31, 1990, among the
Company and its former Chief Executive Officer (filed as Exhibit
10.Z to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990, File No. 1-6901, and incorporated herein
by reference).
10.18(B)-Letter Agreement dated February 7, 1991, among the Company,
its former Chief Executive Officer and his spouse which cancels
stock options, grants new stock options and amends the Agreement
dated as of July 31, 1990, among the Company, its former Chief
Executive Officer and his spouse (filed as Exhibit 10.II to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by
reference).
10.19 -Participation Agreement dated as of December 23, 1990, among the
Company, Bell Atlantic Tricon Leasing Corporation, Bankers Trust
Company, The Connecticut National Bank, Owner Trustee, and
Wilmington Trust Company, Secured Note Indenture Trustee (filed
as Exhibit 10.AA to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
10.20 -Equipment Lease Agreement [1990] dated as of December 23, 1990,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement,
as Lessor, and the Company, as Lessee (filed as Exhibit 10.BB to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by
reference).
10.20(A) Amended and Restated Equipment Lease Agreement [1990] dated as
of December 19, 1991, between The Connecticut National Bank,
not in its individual capacity but solely as Owner Trustee under
the Trust Agreement, as Lessor, and the Company, as Lessee
(filed as Exhibit 10.W to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991, File No. 1-6901,
and incorporated herein by reference.
10.21 -Subscription Agreement dated as of December 7, 1990, among the
Company, Mellon Bank, N.A., Trustee for First Plaza Group Trust
and Leeway & Co. (filed as Exhibit 10.DD to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990,
File No. 1-6901, and incorporated herein by reference).
10.22 -Subscription Agreement dated as of March 12, 1991, between the
Company and Fort Howard Equity Investors II, L.P. (filed as
Exhibit 10.EE to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
*10.23 -Management Equity Plan.
10.23(A) Amendment dated December 28, 1993 to Management Equity Plan
(filed as Exhibit 10.9(A) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993, File No.
1-6901, and incorporated herein by reference).
*10.24 -Form of Management Equity Agreement between the Registrant and
Management Investors.
****10.25 Employment Agreements dated December 10, 1993 with certain
executive officers of the Company.
+12 -Computation of deficiency of earnings available to cover fixed
charges (included in Part II of the Registration Statement).
21 -Subsidiaries of Fort Howard Corporation (filed as Exhibit 21 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-6901, and incorporated herein by
reference).
+23.1 -Consent of Arthur Andersen & Co. (included in Part II of the
Registration Statement).
++23.2 -Consent of Davis Polk & Wardwell for the 1988 Securities.
*23.3 -Consent of Shearman & Sterling for the 1988 Securities (included
in its opinion delivered under Exhibit No. 5.2).
++23.4 -Consent of Dewey Ballantine for the Pass Through Certificates.
++23.5 -Consent of Richards, Layton & Finger for the Pass Through
Certificates.
***23.6 -Consent of Shearman & Sterling for the 1993 Notes (included in
its opinion delivered under Exhibit No. 5.2.
II-5
+++24 -Powers of Attorney
*25.1 [Intentionally omitted].
*25.2 -T-1 with respect to the eligibility of United States Trust
Company of New York under the 12 5/8% Debenture Indenture.
*25.3 -T-1 with respect to the eligibility of Ameritrust Company
National Association under the 14 1/8% Debenture Indenture.
25.4 -[Intentionally omitted]
**25.5 -Statement of Eligibility of Trustee on Form T-1.
**25.6 -Report of Condition of Wilmington Trust Company.
***25.7 -T-1 with respect to eligibility of Norwest Bank Wisconsin, N.A.
under the 9 1/4% Note Indenture.
***25.8 -T-1 with respect to the eligibility of United States Trust
Company of New York under the 10% Note Indenture.
****25.9 -T-1 with respect to the eligibility of Norwest Bank, N.A. under
the 8 1/4% Note Indenture.
****25.10 -T-1 with respect to the eligibility of The Bank of New York under
the 9% Note Indenture.
(b) Financial Statement Schedules.
V. - Property, plant and equipment.
VI. - Accumulated depreciation and amortization of fixed assets.
VIII. - Valuation and qualifying accounts.
IX. - Short-term borrowings.
X. - Supplementary income statement information.
All other schedules have been omitted because they are not
applicable or not required or because the required information is included in
the consolidated financial statements or notes thereto. Filed herewith.
- --------------------------
+Filed herewith.
++Previously filed with Post-Effective Amendment No. 6 and Post-Effective
Amendment No. 2.
+++Previously filed with Post-Effective Amendment No. 9, Post-Effective
Amendment No. 5, Post-Effective Amendment No. 2 and Post-Effective
Amendment No. 1.
*Previously filed with Registration Statement No. 33-23826.
**Previously filed with Registration Statement No. 33-43448.
***Previously filed with Registration Statement No. 33-51876.
****Previously filed with Registration Statement No. 33-51557.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Post-Effective Amendment No. 10 to
Registration Statement No. 33-23826, Post-Effective Amendment No. 6 to
Registration Statement No. 33-43448, Post-Effective Amendment No. 3 to
Registration Statement No. 33-51876 and Post-Effective Amendment No. 2 to
Registration Statement No. 33-51557 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Green Bay, State of
Wisconsin on the 22nd day of June, 1994.
FORT HOWARD CORPORATION
By /s/ James W. Nellen II
James W. Nellen II
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 10 to Registration Statement 33-23826,
Post-Effective Amendment No. 6 to Registration Statement No. 33-43448,
Post-Effective Amendment No. 3 to Registration Statement No. 33-51876 and
Post-Effective Amendment No. 2 to Registration Statement No. 33-51557 has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board of June 22, 1994
- ---------------------- Directors and Chief Executive
Donald H. DeMeuse Officer (principal executive officer)
* Director, Vice Chairman June 22, 1994
- ---------------------- and Chief Financial Officer
Kathleen J. Hempel (principal financial officer)
* Director, President and Chief June 22, 1994
- ---------------------- Operating Officer
Michael T. Riordan
* Director June 22, 1994
- ----------------------
Donald P. Brennan
* Director June 22, 1994
- ----------------------
Frank V. Sica
* Director June 22, 1994
- ----------------------
Robert H. Niehaus
* Director June 22, 1994
- ----------------------
James S. Hoch
/s/ Charles L. Szews Controller (principal accounting June 22, 1994
- ---------------------- officer)
Charles L. Szews
By: /s/ James W. Nellen II June 22, 1994
- ----------------------
James W. Nellen II
Attorney-In-Fact
II-7 <PAGE>
EXHIBIT 12
FORT HOWARD CORPORATION
DEFICIENCY OF EARNINGS AVAILABLE TO COVER FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
For the Three Months For the Years Ended
Ended March 31, December 31,
-------------------- ------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Loss before taxes........$(24,773) $(30,398) $(2,056,432) $ (69,800) $ (97,999) $(119,659) $(158,008)
Equity in loss
before taxes of
unconsolidated
subsidiaries........... -- -- -- -- -- -- (98,255)
Interest expense......... 84,318 86,610 342,792 338,374 371,186 422,663 473,278
One-fourth of operating
lease rental expense... 492 404 1,731 1,632 1,356 1,435 3,165
-------- -------- ----------- --------- --------- --------- ---------
$ 60,037 $ 56,616 $(1,711,909) $ 270,206 $ 274,543 $ 304,439 $ 220,180
======== ======== =========== ========= ========= ========= =========
Fixed Charges:
Interest expense.........$ 84,318 $ 86,610 $ 342,792 $ 338,374 $ 371,186 $ 422,663 $ 473,278
Capitalized interest..... 2,527 2,445 8,369 11,047 5,331 3,503 7,025
One-fourth of operating
lease rental expense... 492 404 1,731 1,632 1,356 1,435 3,165
-------- -------- ----------- --------- --------- --------- ---------
$ 87,337 $ 89,459 $ 352,892 $ 351,053 $ 377,873 $ 427,601 $ 483,468
======== ======== =========== ========= ========= ========= =========
Deficiency of Earnings
Available to Cover
Fixed Charges (1)........$(27,300) $(32,843) $(2,064,801) $ (80,847) $(103,330) $(123,162) $(263,288)
======== ======== =========== ========= ========= ========= =========
</TABLE>
(1) For purposes of these computations, earnings consist of consolidated
loss before taxes plus fixed charges (excluding capitalized interest) of both
consolidated and unconsolidated subsidiaries. Amounts applicable to
unconsolidated subsidiaries are excluded from such computations commencing on
November 14, 1989. Fixed charges consist of interest on indebtedness
(including capitalized interest and amortization of deferred loan costs) plus
that portion (deemed to be one-fourth) of operating lease rental expense
representative of the interest factor.
II-8 <PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use
of our reports and to all references to our Firm included in or made a part of
this Post-Effective Amendment No. 10 to Form S-1 Registration Statement No.
33-23826, Post-Effective Amendment No. 6 to Form S-1 Registration Statement
No. 33-43448, Post-Effective Amendment No. 3 to Form S-1 Registration
Statement No. 33-51876 and Post-Effective Amendment No. 2 to Form S-1
Registration Statement No. 33-51557.
s/s Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Milwaukee, Wisconsin,
June 24, 1994
II-9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Fort Howard Corporation
included in this Post-Effective Amendment No. 10 to Form S-1 Registration
Statement No. 33-23826, Post-Effective Amendment No. 6 to Form S-1
Registration Statement No. 33-43448, Post-Effective Amendment No. 3 to Form
S-1 Registration Statement No. 33-51876 and Post-Effective Amendment No. 2 to
Form S-1 Registration Statement No. 33-51557 and have issued our report
thereon dated February 1, 1994. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. The schedules are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
s/s Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Milwaukee, Wisconsin,
February 1, 1994
S-1 <PAGE>
Schedule V
FORT HOWARD CORPORATION
PROPERTY, PLANT AND EQUIPMENT
(In thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning of Additions End of
Year at Cost Retirements Other* Year
------------ --------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1991
Land.......................... $ 42,708 $ 300 $ (276) $ 42,732
Buildings..................... 255,193 4,162 4,126 263,481
Machinery and Equipment....... 980,056 118,893 $ (2,269) (5,367) 1,091,313
Construction in Progress...... 75,624 20,700 -- (5,957) 90,367
---------- ---------- ---------- ---------- ----------
$1,353,581 $ 144,055 $ (2,269) $ (7,474) $1,487,893
========== ========== ========== ========== ==========
Year Ended December 31, 1992
Land.......................... $ 42,732 $ 274 $ (366) $ 1,991 $ 44,631
Buildings..................... 263,481 20,206 (416) 11,497 294,768
Machinery and Equipment....... 1,091,313 147,502 (16,228) (10,451) 1,212,136
Construction in Progress...... 90,367 64,862 (1,107) (10,711) 143,411
---------- ---------- ---------- ---------- ----------
$1,487,893 $ 232,844 $ (18,117) $ (7,674) $1,694,946
========== ========== ========== ========== ==========
Year Ended December 31, 1993
Land.......................... $ 44,631 $ (122) $ (80) $ 44,429
Buildings..................... 294,768 $ 27,057 (1,977) (893) 318,955
Machinery and Equipment....... 1,212,136 168,709 (11,811) (1,195) 1,367,839
Construction in Progress...... 143,411 (30,228) -- 646 113,829
---------- --------- ---------- ---------- ----------
$1,694,946 $ 165,538 $ (13,910) $ (1,522) $1,845,052
========== ========= ========== ========== ==========
</TABLE>
NOTE: *Other includes the effects of foreign currency translation,
transfers from construction in progress, the effects of the
acquisition of Stuart Edgar in 1992, and the effects of the sale
and leaseback transactions in 1991.
S-2 <PAGE>
Schedule VI
FORT HOWARD CORPORATION
ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(In thousands)
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning of Charged To End of
Year Earnings* Retirements Other** Year
------------ ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1991
Buildings.................. $ 28,976 $ 16,437 $ 12,581 $ 57,994
Machinery and Equipment.... 236,464 99,576 $ (733) (14,495) 320,812
-------- -------- -------- -------- --------
$265,440 $116,013 $ (733) $ (1,914) $378,806
======== ======== ======== ======== ========
Year Ended December 31, 1992
Buildings.................. $ 57,994 $ 8,723 $ (148) $ 279 $ 66,848
Machinery and Equipment.... 320,812 72,554 (14,278) (8,418) 370,670
-------- -------- -------- -------- --------
$378,806 $ 81,277 $(14,426) $ (8,139) $437,518
======== ======== ======== ======== ========
Year Ended December 31, 1993
Buildings.................. $ 66,848 $ 9,784 $ (799) $ (55) $ 75,778
Machinery and Equipment.... 370,670 78,311 (7,776) (45) 441,160
-------- -------- -------- -------- --------
$437,518 $ 88,095 $ (8,575) $ (100) $516,938
======== ======== ======== ======== ========
</TABLE>
NOTES: *The provision is based on the straight-line depreciation method with
rates varying from 2% to 50% per year.
**Other includes the effects of foreign currency translation and
reclassifications.
S-3 <PAGE>
Schedule VIII
FORT HOWARD CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
For the Years Ended
December 31,
---------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS: 1993 1992 1991
---- ---- ----
Balance at beginning of year.......... $1,376 $1,379 $1,502
Additions charged to earnings......... 1,633 792 698
Charges for purpose for which
reserve was created............... (643) (795) (821)
------ ------ ------
Balance at end of year................ $2,366 $1,376 $1,379
====== ====== ======
S-4 <PAGE>
Schedule X
FORT HOWARD CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
Charged to Costs and Expenses
-----------------------------
For the Years Ended
December 31,
-----------------------------
1993 1992 1991
---- ---- ----
Maintenance and repairs.............. $49,626 $46,671 $45,324
======= ======= =======
S-5
