Registration Nos. 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. 7
POST-EFFECTIVE AMENDMENT NO. 4
AND POST-EFFECTIVE AMENDMENT NO. 3
TO FORM S-1
REGISTRATION STATEMENTS
ON FORM S-3 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:
From time to time after the Registration Statement becomes effective.
Pursuant to Rule 429 under the Securities Act of 1933, as amended
(the "Securities Act"), the Prospectus included in this Registration Statement
is a combined Prospectus and relates to Registration Statement No. 33-43448
filed by the Registrant and declared effective by the Securities and Exchange
Commission (the "Commission") on February 13, 1992, to Registration Statement
No. 33-51876 filed by the Registrant and declared effective by the Commission
on March 12, 1993 and to Registration Statement No. 33-51557 filed by the
Registrant and declared effective by the Commission on February 2, 1994. This
Registration Statement constitutes Post-Effective Amendment No. 7 to
Registration Statement No. 33-43448, Post-Effective Amendment No. 4 to
Registration Statement No. 33-51876 and Post-Effective Amendment No. 3 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. The Prospectus included
in this Registration Statement has been prepared in accordance with the
requirements of Form S-3 pursuant to Rule 401 under the Securities Act. 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 check the following box. [ x ]
PROSPECTUS
FORT HOWARD CORPORATION
9 1/4% Senior Notes Due 2001
10% Subordinated Notes Due 2003
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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Interest on the 9 1/4% Senior Notes due 2001 (the "9 1/4% Notes") is
payable semiannually on March 15 and September 15 of each year. The 9 1/4%
Notes are not redeemable prior to maturity.
Interest on the 10% Subordinated Notes due 2003 (the "10% Notes") is
payable semiannually on March 15 and September 15 of each year. The 10% Notes
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.
Interest on the 8 1/4% Senior Notes due 2002 (the "8 1/4% Notes") is
payable semiannually on February 1 and August 1 of each year. The 8 1/4%
Notes are not redeemable prior to maturity.
Interest on the 9% Senior Subordinated Notes due 2006 (the "9% Notes") is
payable semiannually on February 1 and August 1 of each year. The 9% Notes
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."
(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 9 1/4% NOTES, THE 10%
NOTES, THE 8 1/4% NOTES, THE 9% NOTES OR THE PASS THROUGH CERTIFICATES.
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THESE SECURITIES HAVE NOT 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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___________, 1995 <PAGE>
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 and the 10% Notes
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, Senior Debt includes the 8 1/4% Notes, the 9 1/4% Notes, the 9%
Notes, and the Pass Through Certificates. As of April 15, 1995, Senior Debt
was approximately $2.2 billion with respect to the 9% Notes and $2.9 billion
with respect to the 10% Notes. See "Risk Factors - Risk Factors Relating to
the Company--Subordination and Effect of Asset Encumbrances," "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
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
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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 (as defined below)(pursuant to
which $1,349 million principal amount is outstanding or committed as of
April 15, 1995 and pursuant to which $1,440 million principal amount may be
outstanding at any one time), and indebtedness under the Receivables Facility
Agreement (as defined below) pursuant to which $60 million was outstanding on
April 15, 1995 and pursuant to which $60 million may be outstanding at any one
time) 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 hereto, 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
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
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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 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. Fort Howard will receive no portion of the
proceeds of the sales of the 1993 Notes, the 1994 Notes and the Pass Through
Certificates and will bear the expenses incident to the registration thereof.
If MS&Co. conducts any market-making activities, it may be required to deliver
a "market-making prospectus" when effecting offers and sales in such
securities because of the beneficial ownership of Fort Howard by The Morgan
Stanley Leveraged Equity Fund, L.P. II ("MSLEF II") and Morgan Stanley Group
Inc. ("Morgan Stanley Group"), each of which are affiliates of MS&Co. Morgan
Stanley Group, directly and through certain affiliated entities which it
controls, including MSLEF II, beneficially own, in the aggregate, 37.8% of the
outstanding Common Stock of Fort Howard. For so long as a market-making
prospectus is required to be delivered, the ability of MS&Co. to make a market
in the securities may, in part, be dependent on the ability of Fort Howard to
maintain a current market-making prospectus. 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 the information herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of the Company since
such date or in the case of information incorporated herein by reference, the
date of filing with the Securities and Exchange Commission (the "Commission").
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TABLE OF CONTENTS
Page
Available Information ................................................... 5
Reports to Certificateholders by the Pass Through Trustee ............... 6
Incorporation of Certain Information by Reference........................ 6
Prospectus Summary ...................................................... 7
Risk Factors ............................................................ 19
Deficiency of Earnings to Fixed Charges.................................. 29
Description of the 9 1/4% Notes and the 10% Notes ....................... 30
Certain Federal Income Tax Considerations Applicable to the 1993 Notes... 64
Description of the 8 1/4% Notes and the 9% Notes ........................ 66
Certain Federal Income Tax Considerations Applicable to the 1994 Notes... 101
Formation of the Pass Through Trust ..................................... 103
Diagram of Payments ..................................................... 103
Description of the Pass Through Certificates ............................ 104
Description of the Secured Notes ........................................ 117
Description of the Recognition Instrument ............................... 142
Certain Federal Income Tax Considerations Applicable
to the Pass Through Certificates ...................................... 143
Certain Delaware Taxes Relating to the Pass Through Certificates ........ 146
ERISA Considerations Applicable to Pass Through Certificates ............ 146
Marketing-Making Activities of MS&Co..................................... 147
Legal Matters............................................................ 147
Experts.................................................................. 148
Glossary of Certain Terms .........................................Appendix I
Description of Certain Covenants .................................Appendix II
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
accordance therewith, the Company files reports and other information with the
Commission. Such reports and other information can be inspected and copied at
the public reference facilities of 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.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 filed by the Company with the Commission under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus omits certain of the
information contained in the Registration Statement in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company, the 1993 Notes, the 1994 Notes and the Pass Through
Certificates reference is hereby made to the Registration Statement and the
Exhibits thereto, which may be obtained from the Commission in the manner set
forth above. Statements made herein concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an Exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
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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."
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Incorporated herein by reference is the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 and the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the 1993 Notes, the
1994 Notes and the Pass Through Certificates shall be deemed to be
incorporated by reference in this Prospectus and be a part hereof from the
date of filing such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will furnish, without charge, to each person to whom a
Prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated herein by reference other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference herein). Requests for such documents should be submitted in writing
to Fort Howard Corporation, 1919 South Broadway Street, Green Bay, Wisconsin
54304, Attention: Investor Relations Department, or by telephone at
(414) 435-8821.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more
detailed information and consolidated financial statements appearing elsewhere
in this Prospectus or incorporated by reference in this Prospectus.
The Company
Fort Howard Corporation (the "Company"), founded in 1919, is a leading
manufacturer, converter and marketer of sanitary tissue products, including
specialty dry form products, in the United States and the United Kingdom. Its
principal products, which are sold in the commercial (away-from-home) and
consumer (at-home) markets, include paper towels, bath tissue, table napkins,
wipers and boxed facial tissue manufactured from virtually 100% recycled
fibers. 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 leading producer of tissue products
in the domestic commercial market with a 26% market share and has focused
two-thirds of its capacity on this faster growing segment of the tissue
market. In the domestic consumer market, where the Company has a 9% market
share, its principal brands include Mardi Gras printed napkins (which hold the
leading domestic market position) and paper towels, Soft 'N Gentle bath and
facial tissue, So-Dri paper towels, Page paper towels, bath tissue and table
napkins, and Green Forest, the leading domestic line of environmentally
positioned, recycled tissue paper products. Fort Howard also manufactures and
distributes its products in the United Kingdom where it currently has the
fourth largest market share primarily in the consumer segment of the market.
From 1984 to 1994, the Company has doubled its production capacity by
constructing world-class, integrated, regional tissue mills which utilize the
Company's proprietary de-inking technology to produce quality tissue from a
broad range of wastepaper grades. These mills enable the Company to produce
low cost, quality tissue products because they: (i) include state-of-the-art
wastepaper de-inking and processing systems that process relatively low grades
of wastepaper to produce low cost fiber for making tissue paper; (ii) contain
eight of the eleven largest (270-inch) tissue paper machines in the world,
which significantly increase labor productivity; (iii) are geographically
located to minimize distribution costs; (iv) generate their own steam and
electrical power and (v) manufacture certain of their own process chemicals
and converting materials.
MARDI GRAS, SOFT 'N GENTLE, SO-DRI, PAGE, GREEN FOREST, ENVISION,
GENERATION II and NOUVELLE are trademarks of the Company that are registered
or otherwise protected under laws of various jurisdictions.
The Recapitalization
During March and April of 1995, the Company completed a significant
recapitalization plan (the "Recapitalization") to prepay or redeem a
substantial portion of its indebtedness in order to reduce the level and
overall cost of its debt, extend certain debt maturities, increase
shareholders' equity and enhance its access to capital markets.
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The Recapitalization included the following components:
(1) The offer and sale by the Company on March 16, 1995, of 25,000,000
shares of Common Stock at $12 per share in the United States and
internationally and together with the offer and sale by the Company on
April 12, 1995 of an additional 269,555 of Common Stock at $12 per share in
the United States (the "Offering");
(2) Entering into a bank credit agreement (the "Bank Credit Agreement")
among the Company and a syndicate of banks (the "Banks") and Bankers Trust
Company ("Bankers Trust") as administrative agent (the "Agent") consisting of
a $300 million revolving credit facility (the "Revolving Credit Facility"), an
$810 million term loan (the "Term Loan A") and a $330 million term loan (the
"Term Loan B" and, together with the Term Loan A, the "Term Loans"); and
entering into a receivables credit agreement consisting of a $60 million term
loan (the "Receivables Facility");
(3) The application on March 16, 1995, of the net proceeds of the
Offering, together with borrowings under the Term Loans to prepay or redeem
all of the Company's indebtedness outstanding under (a) the Company's Amended
and Restated Credit Agreement, dated as of October 24, 1988, as amended (the
"1988 Bank Credit Agreement"), (b) the Company's term loan agreement dated as
of March 22, 1993 (the "1993 Term Loan Agreement") the borrowings under the
Term Loans and the Receivables Facility and the prepayment of the 1988 Bank
Credit Agreement and the 1993 Term Loan Agreement with such borrowings are
collectively referred to as the "Bank Refinancing") and (c) all of the then
outstanding Senior Secured Floating Rate Notes (the "Senior Secured Notes")
due 1997 through 2000 (the "Senior Secured Note Redemption"); and
(4) The application on April 15, 1995, of borrowings under the Term
Loans, the Receivables Facility and the Revolving Credit Facility to redeem
(a) all outstanding 14 1/8% Junior Subordinated Discount Debentures (the
"14 1/8% Debentures") due 2004 (the "14 1/8% Debenture Redemption") and (b)
all outstanding 12 5/8% Subordinated Debentures (the "12 5/8% Debentures") due
2000 (the "12 5/8% Debenture Redemption"), at 102.5% of the principal amount
thereof. The Senior Secured Note Redemption, 12 5/8% Debenture Redemption and
14 1/8% Debenture Redemption are collectively referred to herein as the "1995
Debt Redemptions."
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The sources and uses of funds required to complete the Recapitalization,
assuming that the 1995 Debt Redemptions also occurred on March 15, 1995, are
as follows (in millions):
AMOUNT
Sources of Funds: ------
Proceeds of the Offering.......................................... $ 303.0
Term Loan A....................................................... 810.0
Term Loan B....................................................... 330.0
Revolving Credit Facility......................................... 209.3
Receivables Facility.............................................. 60.0
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Total Sources of Funds............................................ $1,712.3
========
Uses of Funds:
14 1/8% Debenture Redemption...................................... $ 566.9
Senior Secured Note Redemption.................................... 300.0
1988 Revolving Credit Facility Prepayment......................... 303.0
1988 Term Loan Prepayment......................................... 224.5
12 5/8% Debenture Redemption (including 2.5% redemption premium).. 149.5
1993 Term Loan Prepayment......................................... 100.0
Company Transaction Fees and Expenses(a).......................... 68.4
--------
Total Uses of Funds............................................... $1,712.3
========
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(a) Includes underwriters' commissions and other transaction fees and
expenses of the Recapitalization payable or reimbursable by the Company.
The 1993 Notes
The 9 1/4% Notes and 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 Receivables
Facility 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 Receivables Facility Agreement 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 and the 10% Notes. The indenture
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under which the 9 1/4% Notes were issued (the "9 1/4% Note Indenture") does
not limit the Company's ability to incur future indebtedness that is pari
passu with the 9 1/4% Notes. At April 15, 1995, the Company and its
subsidiaries had outstanding approximately $1.6 billion of Secured
Indebtedness. The Secured Indebtedness under the Bank Credit Agreement 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. The Secured
Indebtedness under the Receivables Facility Agreement is also secured by a
lien on the Company's accounts receivable 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 tissue mill in Georgia (the "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, 1995, the Company's subsidiaries had outstanding
liabilities of $134 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. 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 Receivables Facility
Agreement, capital lease obligations, including the Pass Through Certificate
Leases, the 8 1/4% Notes, the 9 1/4% Notes and the 9% Notes. The 10% Note
Indenture does not limit the Company's ability to incur future 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 April 15, 1995, approximately
$2.9 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
- 10 -
payables. At March 31, 1995, the Company's subsidiaries had outstanding
liabilities of $134 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 1988
Bank Credit Agreement, were used to redeem all of the Company's then
outstanding 14 5/8 Junior Subordinated Debentures due 2004 (the "Junior
Debentures" and the "Junior Debenture Redemption"), to prepay a portion of the
term indebtedness under the 1988 Bank Credit Agreement, to repay a portion of
the Company's indebtedness under the Company's then effective revolving credit
facility and to pay certain fees and expenses. The 1993 Note Offerings, the
borrowing under the 1993 Term Loan Agreement, the Junior Debenture Redemption,
the prepayment of indebtedness under the 1988 Bank Credit Agreement and the
repayment of a portion of the indebtedness under the then effective revolving
credit facility are referred to herein collectively as the "1993 Refinancing."
The 1994 Notes
The 8 1/4% Notes and 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.
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 Receivables
Facility Agreement, 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 10% Notes. The indenture under which the 8 1/4% Notes were issued
(the "8 1/4% Note Indenture") does not limit the Company's ability to
refinance the 10% Notes with indebtedness that is pari passu with the 8 1/4%
Notes. At April 15, 1995, the Company and its subsidiaries had outstanding
approximately $1.6 billion of Secured Indebtedness. The Secured Indebtedness
under the Bank Credit Agreement is secured by liens on inventory, accounts
receivable, certain patents and trademarks, and certain stock of subsidiaries
- 11 -
of the Company, as well as mortgages on the Company's three domestic tissue
mills. The Secured Indebtedness under the Receivables Facility Agreement is
also secured by a lien on the Company's accounts receivable (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, 1995, the
Company's subsidiaries had outstanding liabilities of $134 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.
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 Receivables Facility Agreement, 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 9% Note Indenture does not limit the Company's ability to refinance the
10% Notes with indebtedness that is senior to or pari passu with the 9% Notes.
At April 15, 1995, approximately $2.2 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, 1995, the Company's
subsidiaries had outstanding liabilities of approximately $134 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."
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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."
Use of Proceeds....................The net proceeds from the offerings of the
1994 Notes (the "1994 Note Offerings") were used to redeem all of the
Company's then outstanding 12 3/8% Senior Subordinated Notes due 1997 (the "12
3/8 Notes" and the "12 3/8% Note Redemption"), to redeem $238 million
aggregate principal amount of the 12 5/8% Debentures (the "12 5/8% Partial
Debenture Redemption"), to prepay a portion of the term loan indebtedness
under the 1988 Bank Credit Agreement and to repay a portion of the Company's
indebtedness under the Company's then effective revolving credit facility and
to pay certain fees and expenses. The 1994 Note Offerings, the 12 3/8% Note
Redemption, the 12 5/8% Partial Debenture Redemption, the prepayment of
indebtedness under the 1988 Bank Credit Agreement and the repayment of a
portion of the indebtedness under the Company's then effective revolving
credit facility are referred to herein collectively as the "1994 Refinancing."
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.
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
- 13 -
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.
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")
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
- 14 -
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
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
- 15 -
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."
- 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 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"
- 17 -
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.
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 Considerations ...The Pass Through Trust should be
classified as a grantor trust for federal income tax purposes. Thus, each
Certificate 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 Considerations
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."
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RISK FACTORS
Risk Factors Relating to the Company
Purchasers of 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 and Ability to Service Debt. The Company has
substantial consolidated indebtedness. At December 31, 1994, the Company's
consolidated debt was approximately $3,318 million. On a pro forma basis
after giving effect to the Recapitalization, the Company's consolidated debt
would have been approximately $3,078 million at December 31, 1994.
For the year ended December 31, 1994, the Company's earnings before fixed
charges were inadequate to cover its fixed charges by $65 million. On a pro
forma basis after giving effect to the Recapitalization and the 1994
Refinancing, the deficiency of earnings to fixed charges would have been
$17 million for the year ended December 31, 1994. For purposes of the
computation of the deficiency of earnings to fixed charges, earnings consist
of consolidated income (loss) before taxes plus fixed charges (excluding
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. Although the Recapitalization will
reduce the Company's consolidated interest expense over the next several
years, the Company will remain obligated to make substantial interest and
principal payments on its indebtedness. If the Company were to continue to
experience losses, and to continue to have inadaquate earnings before fixed
charges to cover fixed charges, the Company would be less able to meet its
obligations, including its obligations pursuant to 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. See "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations--Financial Condition" included in the
Company's Annual Report on Form 10-K and incorporated herein by reference.
The ability of the Company to meet its obligations and to comply with the
financial covenants contained in the agreements relating to the Company's
indebtedness is largely dependent upon the future performance of the Company,
which is subject to financial, business and other factors affecting it. Many
of these factors, such as economic conditions, interest rate levels, job
formation, demand for and selling prices of its products, costs of its raw
materials, environmental regulation and other factors relating to its industry
generally or to specific competitors are beyond the Company's control. There
can be no assurance that the Company will generate sufficient cash flow to
meet its obligations under its indebtedness, which include estimated repayment
obligations, of approximately $9 million in 1995, $60 million in 1996,
$115 million in 1997, $138 million in 1998 and $153 million in 1999 (and
increasing thereafter). If the Company is unable to generate sufficient cash
flow or otherwise obtain funds necessary to make required payments on its
indebtedness, or if the Company fails to comply with the various covenants in
such indebtedness, it would be in default under the terms thereof, which would
permit the lenders thereunder to accelerate the maturity of such indebtedness
and could cause defaults under other indebtedness of the Company including the
1993 Notes, the 1994 Notes and the Leases or result in a bankruptcy of the
Company. In such event, payments with respect to the Pass Through
- 19 -
Certificates would be less likely than would otherwise be the case. See
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations--Financial Condition" included in the Company's Annual
Report on Form 10-K and incorporated herein by reference.
Sensitivity to Interest Rates. At December 31, 1994, the Company's
indebtedness had a weighted average interest rate of 10.16% and approximately
$868 million of the Company's indebtedness bore interest at a floating rate.
As a result of the Recapitalization, the Company has become more sensitive to
prevailing interest rates, as $1.5 billion (or 46%) of its outstanding
indebtedness will bear interest at a floating rate. Of this amount,
$500 million will be subject to LIBOR-based interest rate cap agreements which
effectively limit the interest cost to the Company to 6% plus the Company's
borrowing margin until June 1, 1996 and to 8% plus the Company's borrowing
margin from June 1, 1996 until June 1, 1999. Interest rates were at
comparatively low levels in 1993 and began to increase in 1994. If interest
rates continue to increase in 1995, the Company may be less able to meet its
debt service obligations, including its obligations pursuant to 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. See "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations--Financial Condition" included in the
Company's Annual Report on Form 10-K and incorporated herein by reference.
Recent Net Losses and Deficit in Shareholders' Equity. The Company has
experienced net losses for the fiscal years ended December 31, 1994, 1993 and
1992 of $70 million, $2,052 million (including the write-off in 1993 of the
Company's then remaining goodwill) and $80 million, respectively. If the
current trend in the Company's wastepaper costs continues as discussed below,
there can be no assurance that the Company will be able to recover increases
in the cost of wastepaper through price increases for its products;
accordingly, there can be no assurance as to the Company's ability to generate
net income in future periods. See "--Pricing," "--Increasing Wastepaper
Prices." Also see "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations" included in the Company's
Annual Report on Form 10-K and incorporated herein by reference. The Company
has a substantial common shareholders' deficit. At December 31, 1994, the
Company's common shareholders' deficit was approximately $2,148 million. On a
pro forma basis after giving effect to the Recapitalization, the Company's
common shareholders' deficit would have been approximately $1,872 million at
December 31, 1994.
Covenant Restrictions May Limit Company's Operating Flexibility. The
limitations contained in the agreements relating to the Company's
indebtedness, together with the highly leveraged position of the Company could
limit the ability of the Company to effect future debt or equity financings
and may otherwise restrict corporate activities, including its ability to
avoid defaults and to respond to competitive market conditions, to provide for
capital expenditures beyond those permitted or to take advantage of business
opportunities. If the Company cannot generate sufficient cash flow from
operations to meet its obligations, then its indebtedness might have to be
refinanced. There can be no assurance that any such refinancing could be
effected successfully or on terms that are acceptable to the Company. In the
absence of such refinancing, the Company could be forced to dispose of assets
in order to make up for any shortfall in the payments due on its indebtedness
under circumstances that might not be favorable to realizing the best price
for such assets. Further, there can be no assurance that any assets could be
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sold quickly enough, or for amounts sufficient, to enable the Company to make
any such payments.
Subordination and Effect of Asset Encumbrances. The 9% Notes and the 10%
Notes are subordinated to all Senior Debt (as defined in each indenture) of
the Company, which at April 15, 1995, includes $1,349 million of indebtedness
under the Bank Credit Agreement, $60 million under the Receivables Facility
Agreement, $100 million principal amount of the 8 1/4% Notes, $450 million
principal amount of the 9 1/4% Notes and $267 million of other borrowings of
the Company. At April 15, 1995, Senior Debt was approximately $2.2 billion
with respect to the 9% Notes and $2.9 billion with respect to the 10% Notes.
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 and the 10% Notes only after all Senior Indebtedness has been
paid in full, and sufficient assets may not exist to pay amounts on the 9%
Notes and the 10% Notes. The subordination provisions of the 9% Note
Indenture and the 10% Note 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 and the 10% Notes 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 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 and the
Receivables Facility 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
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 and the 10% Notes.
See "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 and the 10% Notes. 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 and the Receivables Facility
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
- 21 -
$1,440 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 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, 1995, the Company's
subsidiaries had outstanding liabilities of $134 million, which included trade
payables.
Pricing. Prices for tissue paper products are significantly affected by
the levels of industry capacity and operating rates, demand, general economic
conditions and competitive conduct, all of which are beyond the Company's
control. The high level of growth in tissue industry capacity from 1990
through 1992, coupled with weakening commercial demand resulting from the
recession and competitive new product introductions in the consumer market,
caused industry operating rates and pricing to fall. The Company's average
domestic net selling prices declined by approximately 5% in each of 1991 and
1992 and by 1.2% in 1993 which adversely affected the Company's operating
results. Due to the impact of industry conditions on the Company's then
projected operating results, which assumed that net selling prices and cost
increases would approximate 1% per year and that further capacity expansion
would not be justifiable given the Company's high leverage and adverse tissue
industry operating conditions, the Company wrote off its remaining goodwill
balance of $1.98 billion in the third quarter of 1993. As discussed in
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" included in the Company's 1994 Annual Report on Form
10-K and incorporated herein by reference, although the Company believes that
the adverse economic and industry operating conditions which persisted from
1991 and into 1994 are beginning to improve, there can be no assurance that
the improvement in industry operating conditions, including industry operating
rates and pricing, which is not within the Company's control, will continue.
In addition, beginning in the third quarter of 1994, the Company's wastepaper
costs increased significantly and there can be no assurance that the
improvement in industry operating conditions will enable the Company to
recover increases in wastepaper costs through price increases for its
products. See "--Increasing Wastepaper Prices," included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" included in the Company's 1994 Annual
Report on Form 10-K and incorporated herein by reference.
Increasing Wastepaper Prices. Fort Howard uses wastepaper for
substantially all its fiber requirements. The price of wastepaper is affected
by demand which is primarily dependent upon de-inking and recycling capacity
levels in the paper industry overall and by the price of market pulp. Prices
for de-inking grades of wastepaper used by tissue producers increased sharply
beginning in the third quarter of 1994. Wastepaper prices for the grades of
wastepaper used in Fort Howard's products more than doubled from July 1994 to
January 1995. Such wastepaper prices may increase further because of
increased demand resulting from substantial additions of de-inking and
recycling capacity in the paper industry which are expected to come on line
during 1995 and 1996, increasing market pulp prices and other factors. If the
current trend in the Company's wastepaper costs continues, there can be no
assurance that the Company will be able to recover increases in the cost of
- 22 -
wastepaper through price increases for its products and the Company's earnings
could be materially adversely affected. Further, a reduction in supply of
wastepaper due to increased demand or other factors could have an adverse
effect on the Company's business.
Competition. The manufacture and sale of tissue products are highly
competitive. The Company's tissue products compete directly with those of a
number of large diversified paper companies, including Chesapeake Corporation,
Georgia-Pacific Corporation, James River Corporation of Virginia, Kimberly-
Clark Corporation, Pope & Talbot, Inc., Scott Paper Company and The Procter &
Gamble Company, as well as regional manufacturers, including converters of
tissue into finished products who buy tissue directly from tissue mills. Over
the last four years, price has become a more important competitive factor
affecting tissue producers. Many of the Company's competitors are larger and
more strongly capitalized than the Company which may enable them to better
withstand periods of declining prices and adverse operating conditions in the
tissue industry.
Environmental Matters. The Company is subject to substantial regulation
by various federal, state and local authorities in the U.S. and national and
local authorities in the U.K. concerned with the impact of the environment on
human health, the limitation and control of emissions and discharges to the
air and waters, the quality of ambient air and bodies of water and the
handling, use and disposal of specified substances and solid waste at, among
other locations, the Company's process waste landfills. Financial
responsibility for the clean-up or other remediation of contaminated property
or for natural resource damages can extend to previously owned or used
properties, waterways and properties owned by third parties, as well as to
properties currently owned and used by the Company even if contamination is
attributable entirely to prior owners. The Company is involved in a voluntary
investigation and potential clean-up of the Lower Fox River in Wisconsin and
has been named as a potentially responsible party ("PRP") for alleged natural
resource damages related to the Lower Fox River and Green Bay system. In
addition, the Company makes capital expenditures and incurs operating expenses
for clean-up obligations and other environmental matters arising in its on-
going operations.
Based upon currently available information and analysis, the Company
recorded a $20 million charge in the fourth quarter of 1994 for estimated or
anticipated liabilities and legal and consulting costs relating to
environmental matters arising from past operations. While the charge reflects
the Company's current estimates of the costs of these environmental matters,
there can be no assurance that the amount accrued will be adequate. In
addition, there can be no assurance that the Company will not be named a PRP
at other sites in the future or that the costs associated with such future
sites would not be material. Environmental legislation and regulations and
the interpretation and enforcement thereof are expected to become increasingly
stringent and 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 increase certain operating expenses, require continuing
capital expenditures and adversely affect the operating flexibility of the
Company's manufacturing operations. While the Company has budgeted for future
capital and operating expenditures to maintain compliance with environmental
legislation and regulations, indeterminable significant expenditures in
connection with such compliance or other environmental matters could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business--Environmental Matters" and "--Legal Proceedings"
- 23 -
included in the Company's 1994 Annual Report on Form 10-K and incorporated
herein by reference.
Principal Shareholders; Potential Conflicts of Interest. Morgan Stanley
Group, directly and through certain affiliated entities which it controls,
including MSLEF II, beneficially own, in the aggregate, 37.8% of the
outstanding shares of the Company's Common Stock. Currently, three of the
seven directors of the Company are officers of MS&Co., a subsidiary of Morgan
Stanley Group. Pursuant to the terms of the Company's Stockholders Agreement
dated as of March 1, 1995, MSLEF II and Fort Howard Equity Investors II, L.P.
a Delaware limited partnership, each have the right to have a designee
nominated for election to the Company's Board of Directors at any annual
meeting of the Company's shareholders, so long as MSLEF II or Fort Howard
Equity Investors II, as the case may be, does not already have a designee as a
member of the Board of Directors at the time of such annual meeting. In
addition, in the event of a vacancy on the Board of Directors created by the
resignation, removal or death of a director nominated by MSLEF II or Fort
Howard Equity Investors II, such shareholders have the right to have a
designee nominated for election to fill such vacancy. As a result of their
large share holdings, Morgan Stanley Group and its affiliates will continue to
have significant influence over the management policies of the Company and
over matters requiring shareholder approval. 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 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 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 1993 Notes, the 1994 Notes and the
Pass Through Certificates.
Since the Acquisition, MS&Co. has acted as lead underwriter in connection
with the public offerings of the Company's various debt securities and as
financial advisor to the Company. Since 1992, MS&Co. has received an
aggregate of $43.7 million of underwriting and financial advisory fees in
connection therewith. In addition, MS&Co. served as the lead underwriter for
the initial public offering of the Company's Common Stock.
Trading Market for the 1993 Notes, the 1994 Notes and the Pass Through
Certificates. The Company does not intend to apply for listing of any of the
1993 Notes, the 1994 Notes or the Pass Through Certificates on a national
securities exchange or to seek approval for quotation through any automated
quotation system. Although MS&Co. currently makes a market in 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 1993 Notes, the 1994 Notes or the
Pass Through Certificates. For so long as a market-making prospectus is
required to be delivered, the ability of MS&Co. to make a market in the 1993
Notes, the 1994 Notes and the Pass Through Certificates may, in part, be
dependent on the ability of the Company to maintain a current market-making
prospectus. See "Market-Making Activities of MS&Co."
- 24 -
The liquidity of, and trading market for, 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 of the Company in 1988 (the "Acquisition"), including the issuance
of the the 1993 Notes and the 1994 Notes to refinance a portion of the
indebtedness incurred to finance the Acquisition, 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 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 secured 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 and
the Receivables Facility Agreement which, under the terms thereof (subject to
applicable law), would allow the Banks 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.
- 25 -
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 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
- 26 -
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 $1,349 million principal amount was outstanding as of
April 15, 1995) and the Lenders under the Receivables Facility Agreement
(pursuant to which $60 million principal amount was outstanding as of
April 15, 1995) 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.
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
- 27 -
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.
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.
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
- 28 -
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."
DEFICIENCY OF EARNINGS TO FIXED CHARGES
The following table sets forth the deficiency of earnings to fixed
charges for the Company for the periods indicated. For purposes of these
computations, earnings consist of consolidated income (loss) before taxes plus
fixed charges (excluding capitalized interest). 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.
Year Ended December 31,
-----------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Deficiency of earnings
available to cover
fixed charges.......... (65) (2,065) (81) (103) (123)
- 29 - <PAGE>
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)
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.
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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)
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 and the Receivables Facility 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 Receivables Facility Agreement. The 8 1/4% Note
Indenture, the 9 1/4% Note Indenture, the 9% Note Indenture and the Pass
Through Certificate Leases also contain covenants limiting the optional
redemption of the 10% Notes.
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,
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without limitation, the Company's obligations under the Bank Credit Agreement,
the Receivables Facility Agreement, the Pass Through Certificate Leases,
certain other leases resulting from sale and leaseback transactions and the
8 1/4% Notes.
The Company's obligations under the Bank Credit Agreement and the
Receivables Facility 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 April 15, 1995, the Company and its subsidiaries
had outstanding approximately $1.6 billion of Secured Indebtedness and an
additional $91 million available for borrowing under the Revolving Credit
Facility. See "Risk Factors -- Subordination and Effect of Asset
Encumbrances."
At March 31, 1995, the Company's subsidiaries had outstanding liabilities
of $134 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 Receivables Facility Agreement, 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 April 15, 1995, approximately $2.9 billion of Senior
Indebtedness of the Company was outstanding with respect to the 10% Notes.
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
- 32 -
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 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 or the
Receivables Facility 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 or the Receivables Facility 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
- 33 -
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 Receivables Facility
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 or the Receivables Facility
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 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 would include 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
Receivables Facility 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
Receivables Facility Agreement, any Interest Rate Agreement or any Currency
Agreement, (ii) any principal of, premium, if any, and interest on the 9 1/4%
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 and the
- 34 -
Receivables Facility Agreement and, if applicable, Currency Agreements and
Interest Rate Agreements; provided that the term "Senior Indebtedness" shall
not include (a) 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 would
include (i) Indebtedness under the Bank Credit Agreement or the Receivables
Facility Agreement 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 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.
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"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" would include the Bank Agent under the Bank Credit
Agreement or the Receivables Facility 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.
- 36 -
"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" would include Bankers Trust Company, as agent for the Banks
pursuant to the Bank Credit Agreement and the Receivables Facility 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
- 37 -
Indentures. For purposes of the 1993 Note Indenture and this Prospectus, the
term Bank Credit Agreement means the Credit Agreement dated as of March 8,
1995 among the Company, the Lenders named therein, and Bankers' Trust Company,
Bank of America National Trust and Savings Association and Chemical Bank as
Arrangers, and Bankers' Trust Company as Administrative Agent.
"Banks" is defined to mean the lenders who are from time to time parties
to the Bank Credit Agreement or the Receivables Facility 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.
"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
- 38 -
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 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
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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.
"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" would include, 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 Receivables Facility Agreement, 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
with the Indebtedness Incurred pursuant to clause above) as if they had
- 41 -
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
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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 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. The
indebtedness incurred under the 1993 Term Loan Agreement was repaid on
March 16, 1995, with proceeds from the Recapitalization.
"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" would include (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
- 43 -
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 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
- 44 -
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 Receivables Facility 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.
"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
- 45 -
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. The Senior Secured Notes were redeemed on March 16,
1995, with proceeds from the Recapitalization.
"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
- 46 -
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
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
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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 1988 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
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%
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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:
FISCAL MAXIMUM
YEAR AMOUNT
------ -------
(In Millions)
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%
- 49 -
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 1988 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
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
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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
- 51 -
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
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.
- 52 -
The foregoing provision shall not restrict or prohibit any encumbrances
or restrictions existing: (i) in the 1988 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 1988 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
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
- 53 -
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
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 1988
Bank Credit Agreement or the 1993 Term Loan Agreement up to the amount of
- 54 -
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 1988 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)
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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
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
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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
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
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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
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
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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 Receivables
Facility 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 Receivables Facility
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
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
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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)
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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 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
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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
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
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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 and the Receivables Facility 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 Receivables Facility Agreement. The 9 1/4% Note
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
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%
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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 and the Receivables Facility 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 Receivables Facility Agreement.
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.
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 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
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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 treasury 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 treasury 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 treasury 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
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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.
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,
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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. 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
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.
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.
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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 and the Receivables Facility 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 Receivables Facility Agreement. 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 Receivables Facility Agreement, the Pass Through Certificate Leases,
certain other leases resulting from sale and leaseback transactions and the
9 1/4% Notes.
The Company's obligations under the Bank Credit Agreement and the
Receivables Facility 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 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 April 15, 1995, the Company and its subsidiaries
had outstanding approximately $1.6 billion of Secured Indebtedness and an
additional $91 million available for borrowing under the Revolving Credit
Facility. See "Risk Factors--Subordination and Effect of Asset Encumbrances."
At March 31, 1995, the Company's subsidiaries had outstanding liabilities
of $134 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
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the Bank Credit Agreement, the Receivables Facility Agreement, 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 April 15, 1995,
approximately $2.2 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 10% Notes.
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,
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.
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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 or the
Receivables Facility 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
or the Receivables Facility 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 Receivables Facility 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 or the Receivables Facility 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.
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"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 would include the
following obligations of the Company, whether outstanding on the date of the
9% Note Indenture or thereafter Incurred: (i) all Indebtedness and other
monetary obligations of the Company under the Bank Credit Agreement, the
Receivables Facility 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,
Receivables Facility Agreement, any Interest Rate Agreement or any Currency
Agreement, (ii) any principal of, premium, if any, and interest on 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 Receivables Facility Agreement and, if applicable, Currency Agreements and
Interest Rate Agreements; provided that the term "Senior Indebtedness" shall
not include (a) the 10% Notes or any amounts payable under the indenture
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 would
include (i) Indebtedness under the Bank Credit Agreement or the Receivables
Facility Agreement 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 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
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" would include the Bank Agent under the Bank Credit
Agreement or the Receivables Facility Agreement, or any successor thereto.
- 72 -
"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
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.
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"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" would include Bankers Trust Company, as agent for the Banks
pursuant to the Bank Credit Agreement and the Receivables Facility 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. For
purposes of the 1994 Note Indenture and this Prospectus, the term Bank Credit
Agreement means the Credit Agreement dated as of March 8, 1995, among the
Company, the Lenders named therein, and Bankers' Trust Company, Bant of
America National Trust and Savings Association and Chemical Bank as arrangers
and Bankers' Trust Company as Administrative Agent.
"Banks" is defined to mean the lenders who are from time to time parties
to the Bank Credit Agreement or the Receivables Facility 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.
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"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 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
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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).
"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.
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"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" would include, 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 Receivables Facility Agreement, 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
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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.
"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
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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
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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
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. The indebtedness incurred under the 1993 Term
Loan Agreement was repaid on March 16, 1995, with proceeds from the
Recapitalization.
"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" would include (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
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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)
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 Receivables Facility 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
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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
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.
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"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. The Senior Secured Notes were redeemed on March 16,
1995 with proceeds from the Recapitalization.
"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,
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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, 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 1988 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
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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
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,
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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)
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 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.
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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 dated as of October 24, 1988, as amended to the
closing date 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
any other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
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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,
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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
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 1988 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
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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 1988 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 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)
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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 1988
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 1988 Bank
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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
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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
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
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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
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
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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
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
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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 Receivables
Facility 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 Receivables Facility
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
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."
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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
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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
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
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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
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)
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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 and the Receivables Facility 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 Receivables Facility Agreement. The 9 1/4% Note Indenture,
the 8 1/4% Note Indenture and the Pass Through Certificate Leases also 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
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 and the Receivables Facility 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 Receivables Facility Agreement.
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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
Company would not be entitled to deduct interest expense or original issue
discount, if any, on such 1994 Notes for federal income tax purposes.
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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 treasury
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 treasury 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.
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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.
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
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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.
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.
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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
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certificates. DTC Participants include securities brokers and dealers
(including MS&Co.), banks, trust companies and clearing corporations.
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
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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
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)
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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
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."
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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
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
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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
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distributions on the Pass Through Certificates, and the resulting Pool Factors
after taking into account each such repayment are set forth below:
Regular Scheduled
Distribution Principal Pool
Date Distribution Factor
------------ ------------ ------
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.
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(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
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))
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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--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)
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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)
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,
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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
- 115 -
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
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
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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
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.
- 117 -
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):
<TABLE><CAPTION>
Payment Date Series A-1 Series A-2 Series B Series C Series D Total
------------ ---------- ---------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
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.
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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
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
- 119 -
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
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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. 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
- 121 -
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
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
- 122 -
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
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)
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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)
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
- 124 -
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)
- 125 -
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 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
- 126 -
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
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,
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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
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
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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."
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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
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.
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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
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
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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
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,
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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
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
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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
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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)
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
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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
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
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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)
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
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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
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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)
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,
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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
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,
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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
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.
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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.
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 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,
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.
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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 CONSIDERATIONS
APPLICABLE TO THE PASS THROUGH CERTIFICATES
The following discussion is a summary of certain federal income tax
considerations 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 considerations 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
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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, 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
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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.
Under the treasury 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.
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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.
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
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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 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 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.
The Company does not intend to apply for listing of the 1993 Notes, the
1994 Notes or the Pass Through Certificates on any securities exchange or
approval for quotation through any automated quotation system. Although
MS&Co. makes a market in 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.
MS&Co. is an affiliate of Morgan Stanley Group which directly and through
certain affiliated entities which it controls, including MSLEF II,
beneficially own, in the aggregate, 37.8% of the outstanding Common Stock of
the Company.
MS&Co. 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.
Although there are no agreements to do so, MS&Co., as well as others, may
act as broker dealer in connection with the sale of the 1993 Notes, the 1994
Notes and the Pass Through Certificates contemplated by this Prospectus and
may receive fees or commissions 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--Principal Shareholders; Potential Conflicts of Interest."
MS&Co. has provided, and continues to provide, investment banking
services to the Company.
LEGAL MATTERS
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.
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The validity of the Pass Through Certificates was passed upon for the
Company by Dewey Ballantine, New York, New York. Dewey Ballantine 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 34,450
shares of Common Stock of the Company, and has options to purchase an
additional 118,989 shares of Common Stock of the Company.
Shearman & Sterling regularly represents Morgan Stanley Group, MSLEF II
and MS&Co. on a variety of matters.
EXPERTS
The consolidated financial statements of Fort Howard Corporation at
December 31, 1994, 1993 and 1992 and for each of the three years in the period
ended December 31, 1994, 1993 and 1992 incorporated by reference in this
Prospectus and Registration Statement have been audited by Arthur Andersen &
Co., independent public accountants, as indicated in their reports with
respect thereto. Such consolidated financial statements are incorporated by
reference herein and in the Registration Statement in reliance upon the
authority of said firm as experts in giving said reports.
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<PAGE>
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.
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"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.
"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.
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"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 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."
"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.
"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.
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"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.
"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.
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"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.
"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.
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"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.
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"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.
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<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.
AII-1
"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
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.
AII-2
"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.
"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
AII-3
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.
"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
AII-4
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-5
"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,
AII-6
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.
"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.
AII-7
"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.
"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
AII-8
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;
(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
AII-9
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,
AII-10
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.
"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
AII-11
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
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
AII-12
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
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
AII-13
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
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
AII-14
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
AII-15
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 of the Company 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,
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
AII-16
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
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
AII-17
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
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
AII-18
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-19
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-20
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides, in summary,
that directors and officers of Delaware corporations are entitled, under
certain circumstances, to be indemnified against all expenses and liabilities
(including attorney's fees) incurred by them as a result of suits brought
against them in their capacity as a director or officer, if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful; provided that no indemnification may be made against expenses in
respect of any claim, issue or matter as to which they shall have been
adjudged to be liable to the Company, unless and only to the extent that the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, they are fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Any such
indemnification may be made by the Company only as authorized in each specific
case upon a determination by the shareholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable
standard of conduct. The Certificate of Incorporation and By-laws of the
Company provide for indemnification of its directors and officers to the
fullest extent permitted by Delaware law, as the same may be amended from time
to time.
In addition, the Company maintains directors' and officers' liability
insurance.
The Company has entered into indemnification agreements ("Agreement")
with certain of its directors and officers (the "Indemnitee"). Each Agreement
provides that the Company will hold harmless and indemnify the Indemnitee
against all liabilities and will advance all expenses (as defined) incurred by
reason of the fact that the Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company, or is or was serving at the
request of the Company or for its benefit as a director, officer, employee or
agent of another enterprise, but only if the Indemnitee acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company and, in the case of a criminal proceeding, had
no reasonable cause to believe that his or her conduct was unlawful.
The right of indemnification and to receive advancement of expenses
pursuant to each Agreement is not exclusive of any other rights to which the
Indemnitee may at any time be entitled to under applicable law, the Company's
Certificate of Incorporation or By-Laws, any agreement, a vote of
shareholders, a resolution of the Company's Board of Directors or otherwise.
Each Agreement further provides that, to the extent that the Company maintains
a policy or policies providing directors' and officers' liability insurance,
the Indemnitee shall be covered by such policy or policies in accordance with
its or their terms to the maximum extent of the coverage available. The
Company is not liable to pay any amounts otherwise indemnifiable under an
Agreement to the extent that the Indemnitee has actually received payment
II-1
under any insurance policy, contract, agreement or otherwise; and, except as
provided in the Agreement, an Indemnitee is not entitled to indemnification or
advancement of expenses with respect to any proceeding or claim brought or
made by such Indemnitee against the Company.
Each Agreement terminates upon the later to occur of: (i) ten years after
the date that the Indemnitee ceases to serve as a director, officer, employee,
agent or fiduciary of the Company or of any other enterprise which the
Indemnitee served at the request or for the benefit of the Company and (ii)
the final termination of all pending proceedings in which the Indemnitee is
granted rights of indemnification under such Agreement.
ITEM 16. EXHIBITS
Exhibit
No. Description
- ------- -----------
1.1 -Form of Underwriting Agreement for the Pass Through Certificates
(previously filed as Exhibit 1.3 to the Registrant's Registration
Statement on Form S-3, No. 33-43448).
1.2 -Form of Underwriting Agreement for the 1993 Notes (previously
filed as Exhibit 1.4 to the Registrant's Registration Statement
on Form S-2, No. 33-51876).
1.3 -Form of Underwriting Agreement for the 1994 Notes (previously
filed as Exhibit 1.6 to the Registrant's Registration Statement
on Form S-2, No. 33-51557).
4.1 -Form of Amended and Restated Pass Through Trust Agreement between
the Pass Through Trustee and the Company relating to the Pass
Through Certificates (previously filed as Exhibit 4.8 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
4.2 -Form of Pass Through Certificates (included in Exhibit 4.1).
4.3 -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).
4.4 -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 (previously filed
as Exhibit 4.11 to the Registrant's Registration Statement on
Form S-3, No. 33-43448).
4.5 -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).
4.6 -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).
II-2
4.7 -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).
4.8 -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).
4.9 -Form of Trust Indenture, Assignment of Leases, Security Agreement
and Deed to Secure Debt between the Owner Trustee and the Secured
Note Indenture Trustee (previously filed as Exhibit 4.16 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
4.10 -Form of Secured Note (included in Exhibit 4.9).
4.11 -Form of Trust Agreement between the Owner Participant and the
Connecticut National Bank, and the Form of First Amendment
thereto (previously filed as Exhibit 4.18 to the Registrant's
Registration Statement on Form S-3, No. 33-43448).
4.12 -Form of Facility Site Lease and Easement Agreement between the
Company and the Owner Trustee (previously filed as Exhibit 4.19
to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
4.13 -Form of Power Plant Site Lease and Easement Agreement between the
Company and the Owner Trustee (previously filed as Exhibit 4.20
to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
4.14 -Form of Facilities Agreement between the Company and the Owner
Trustee (previously filed as Exhibit 4.21 to the Registrant's
Registration Statement on Form S-3, No. 33-43448).
4.15 -Form of Power Plant Facilities Agreement between the Company and
the Owner Trustee (previously filed as Exhibit 4.22 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
4.16 -Agreement dated June 20, 1985 by and among the Company, Effingham
County Industrial Development Authority (the "IDA") and Effingham
County, Georgia (the "County") (previously filed as Exhibit 4.23
to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
4.17 -Ratification of Agreement dated January 1, 1986 by and among the
Company, the IDA and the County (previously filed as Exhibit 4.24
to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
4.18 -Escrow Agreement dated January 1, 1986 by and among the Company,
the IDA and the Marine Trust Company, J.A. (previously filed as
Exhibit 4.25 to the Registrant's Registration Statement on
Form S-3, No. 33-43448).
4.19 -Corrected Lease Agreement dated January 1, 1986 by and between
the IDA and the Company (previously filed as Exhibit 4.26 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
4.20 -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 (previously
filed as Exhibit 4.27 to the Registrant's Registration Statement
on Form S-3, No. 33-43448).
II-3
4.21 -Form of 9-1/4% Note Indenture dated as of March 22, 1993,
between the Registrant and Norwest Bank Wisconsin, N.A., as
Trustee (previously filed as Exhibit 4.29 to the Registrant's
Registration Statement on Form S-2, No. 33-51876).
4.22 -Form of 10% Note Indenture dated as of March 22, 1993, between
the Registrant and United States Trust Company of New York,
as Trustee (previously filed as Exhibit 4.30 to the Registrant's
Registration Statement on Form S-2, No. 33-51876).
4.23 -Form of 8 1/4% Note Indenture dated as of February 1, 1994
between the Registrant and Norwest Bank Wisconsin, N.A., as
Trustee (previously filed as Exhibit 4.31 to the Registrant's
Registration Statement on Form S-2, No. 33-51557).
4.24 -Form of 9% Note Indenture dated as of February 1, 1994 between
the Registrant and The Bank of New York, as Trustee (previously
filed as Exhibit 4.32 to the Registrant's Registration Statement
on Form S-2, No. 33-51557).
4.25 -Credit Agreement dated as of March 8, 1995 among the
Registrant, the lenders named therein, and Bankers' Trust
Company, Bank of America National Trust and Savings Association
and Chemical Bank as arrangeers, and Bankers' Trust Company as
administrative agent (filed as Exhibit 4.0 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
File No. 20473, and incorporated herein by reference).
4.26 -Receivables Credit Agreement dated as of March 8, 1995 among the
Registrant, the lenders named therein, and Bankers' Trust
Company, as administrative agent. (filed as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 20473, and incorporated herein by
reference).
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 Shearman & Sterling for the 1993 Notes (previously
filed as Exhibit 5.2 to the Registrant's Registration Statement
on Form S-2, No. 33-51876).
5.2 -Opinion of Dewey Ballantine, counsel for the Company, for the
Pass Through Certificates (previously filed as Exhibit 5.3 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
5.3 -Opinion of James W. Nellen II, Esq., Vice President and General
Counsel of the Company, for the Pass Through Certificates
(previously filed as Exhibit 5.4 to the Registrant's Registration
Statement on Form S-3, No. 33-43448).
5.4 -Opinion (including tax opinion) of Richards, Layton & Finger,
counsel for the Pass Through Trustee (previously filed as Exhibit
5.5 to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
5.5 -Opinion of Shearman & Sterling for the 1994 Notes (previously
filed as Exhibit 5.6 to the Registrant's Registration Statement
on Form S-2, No. 33-51557).
8.1 -Tax Opinion of Dewey Ballantine, counsel for the Company for the
Pass Through Certificates (previously filed as Exhibit 8.2 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
II-4
8.2 -Tax Opinion of Richards, Layton & Finger, counsel for the Pass
Through Trustee (included in Exhibit 5.4).
*12 -Computation of deficiency of earnings available to cover fixed
charges.
*23.1 -Consent of Arthur Andersen & Co.
23.2 -Consent of Dewey Ballantine for the Pass Through Certificates
(previously filed as Exhibit 24.4 to the Registrant's
Registration Statement on Form S-3, No. 33-43448)
23.3 -Consent of Richards, Layton & Finger for the Pass Through
Certificates (previously filed as Exhibit 24.5 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
23.4 -Consent of Shearman & Sterling for the 1993 Notes (included in
its opinion delivered under Exhibit No. 5.1).
24 -Powers of Attorney (previously filed).
25.1 -Statement of Eligibility of Trustee on Form T-1 for Pass Through
Certificates (previously filed as Exhibit 25.5 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
25.2 -Report of Condition of Wilmington Trust Company (previously filed
as Exhibit 25.6 to the Registrant's Registration Statement on
Form S-3, No. 33-43448).
25.3 -T-1 with respect to eligibility of Norwest Bank Wisconsin, N.A.
under the 9 1/4% Note Indenture (previously filed as Exhibit 25.7
to the Registrant's Registration Statement on Form S-2,
No. 33-51876).
25.4 -T-1 with respect to the eligibility of United States Trust
Company of New York under the 10% Note Indenture (previously
filed as Exhibit 25.8 to the Registrant's Registration Statement
on Form S-2, No. 33-51876).
25.5 -T-1 with respect to the eligibility of Norwest Bank, N.A. under
the 8 1/4% Note Indenture (previously filed as Exhibit 25.9 to
the Registrant's Registration Statement on Form S-2,
No. 33-51557).
25.6 -T-1 with respect to the eligibility of The Bank of New York under
the 9% Note Indenture (previously filed as Exhibit 25.10 to the
Registrant's Registration Statement on Form S-2, No. 33-51557).
- -------------------------------
*Filed herewith.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
II-5
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
provided however, that paragraphs (a)(1)(i) and (a)(1(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the original bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c)-(g), (j) Not applicable
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of the issue.
(i) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of a registration statement in reliance on Rule 430A and
II-6
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of the registration statement at the time it was declared
effective.
(2) For purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Post-Effective Amendment No. 7 to Registration
Statement No. 33-43448, Post-Effective Amendment No. 4 to Registration
Statement No. 33-51876 and Post-Effective Amendment No. 3 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
27th day of April, 1995.
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. 7 to Registration Statement No. 33-43448,
Post-Effective Amendment No. 4 to Registration Statement No. 33-51876 and
Post-Effective Amendment No. 3 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
--------- ----- ----
/s/Donald H. DeMeuse Director, Chairman of the Board April 27, 1995
- ---------------------- of Directors and Chief Executive
Donald H. DeMeuse Officer (principal executive officer)
/s/Kathleen J. Hempel Director, Vice Chairman April 27, 1995
- ---------------------- and Chief Financial Officer
Kathleen J. Hempel (principal financial officer)
* Director, President and Chief April 27, 1995
- ---------------------- Operating Officer
Michael T. Riordan
* Director April 27, 1995
- ----------------------
Donald Patrick Brennan
* Director April 27, 1995
- ----------------------
Frank V. Sica
* Director April 27, 1995
- ----------------------
Robert H. Niehaus
/s/ Charles L. Szews Vice President and Controller April 27, 1995
- ---------------------- (principal accounting officer)
Charles L. Szews
*By: /s/ James W. Nellen II April 27, 1995
- ----------------------
James W. Nellen II
Attorney-In-Fact
II-8 <PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
No. Description
- ------- -----------
1.1 -Form of Underwriting Agreement for the Pass Through Certificates
(previously filed as Exhibit 1.3 to the Registrant's Registration
Statement on Form S-3, No. 33-43448).
1.2 -Form of Underwriting Agreement for the 1993 Notes (previously
filed as Exhibit 1.4 to the Registrant's Registration Statement
on Form S-2, No. 33-51876).
1.3 -Form of Underwriting Agreement for the 1994 Notes (previously
filed as Exhibit 1.6 to the Registrant's Registration Statement
on Form S-2, No. 33-51557).
4.1 -Form of Amended and Restated Pass Through Trust Agreement between
the Pass Through Trustee and the Company relating to the Pass
Through Certificates (previously filed as Exhibit 4.8 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
4.2 -Form of Pass Through Certificates (included in Exhibit 4.1).
4.3 -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).
4.4 -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 (previously filed
as Exhibit 4.11 to the Registrant's Registration Statement on
Form S-3, No. 33-43448).
4.5 -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).
4.6 -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).
4.7 -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).
4.8 -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).
4.9 -Form of Trust Indenture, Assignment of Leases, Security Agreement
and Deed to Secure Debt between the Owner Trustee and the Secured
Note Indenture Trustee (previously filed as Exhibit 4.16 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
INDEX TO EXHIBITS
-----------------
Exhibit
No. Description
- ------- -----------
4.10 -Form of Secured Note (included in Exhibit 4.9).
4.11 -Form of Trust Agreement between the Owner Participant and the
Connecticut National Bank, and the Form of First Amendment
thereto (previously filed as Exhibit 4.18 to the Registrant's
Registration Statement on Form S-3, No. 33-43448).
4.12 -Form of Facility Site Lease and Easement Agreement between the
Company and the Owner Trustee (previously filed as Exhibit 4.19
to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
4.13 -Form of Power Plant Site Lease and Easement Agreement between the
Company and the Owner Trustee (previously filed as Exhibit 4.20
to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
4.14 -Form of Facilities Agreement between the Company and the Owner
Trustee (previously filed as Exhibit 4.21 to the Registrant's
Registration Statement on Form S-3, No. 33-43448).
4.15 -Form of Power Plant Facilities Agreement between the Company and
the Owner Trustee (previously filed as Exhibit 4.22 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
4.16 -Agreement dated June 20, 1985 by and among the Company, Effingham
County Industrial Development Authority (the "IDA") and Effingham
County, Georgia (the "County") (previously filed as Exhibit 4.23
to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
4.17 -Ratification of Agreement dated January 1, 1986 by and among the
Company, the IDA and the County (previously filed as Exhibit 4.24
to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
4.18 -Escrow Agreement dated January 1, 1986 by and among the Company,
the IDA and the Marine Trust Company, J.A. (previously filed as
Exhibit 4.25 to the Registrant's Registration Statement on
Form S-3, No. 33-43448).
4.19 -Corrected Lease Agreement dated January 1, 1986 by and between
the IDA and the Company (previously filed as Exhibit 4.26 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
4.20 -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 (previously
filed as Exhibit 4.27 to the Registrant's Registration Statement
on Form S-3, No. 33-43448).
4.21 -Form of 9-1/4% Note Indenture dated as of March 22, 1993,
between the Registrant and Norwest Bank Wisconsin, N.A., as
Trustee (previously filed as Exhibit 4.29 to the Registrant's
Registration Statement on Form S-2, No. 33-51876).
4.22 -Form of 10% Note Indenture dated as of March 22, 1993, between
the Registrant and United States Trust Company of New York,
as Trustee (previously filed as Exhibit 4.30 to the Registrant's
Registration Statement on Form S-2, No. 33-51876).
- 2 -
INDEX TO EXHIBITS
-----------------
Exhibit
No. Description
- ------- -----------
4.23 -Form of 8 1/4% Note Indenture dated as of February 1, 1994
between the Registrant and Norwest Bank Wisconsin, N.A., as
Trustee (previously filed as Exhibit 4.31 to the Registrant's
Registration Statement on Form S-2, No. 33-51557).
4.24 -Form of 9% Note Indenture dated as of February 1, 1994 between
the Registrant and The Bank of New York, as Trustee (previously
filed as Exhibit 4.32 to the Registrant's Registration Statement
on Form S-2, No. 33-51557).
4.25 -Credit Agreement dated as of March 8, 1995 among the
Registrant, the lenders named therein, and Bankers' Trust
Company, Bank of America National Trust and Savings Association
and Chemical Bank as arrangeers, and Bankers' Trust Company as
administrative agent (filed as Exhibit 4.0 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
File No. 20473, and incorporated herein by reference).
4.26 -Receivables Credit Agreement dated as of March 8, 1995 among the
Registrant, the lenders named therein, and Bankers' Trust
Company, as administrative agent. (filed as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 20473, and incorporated herein by
reference).
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 Shearman & Sterling for the 1993 Notes (previously
filed as Exhibit 5.2 to the Registrant's Registration Statement
on Form S-2, No. 33-51876).
5.2 -Opinion of Dewey Ballantine, counsel for the Company, for the
Pass Through Certificates (previously filed as Exhibit 5.3 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
5.3 -Opinion of James W. Nellen II, Esq., Vice President and General
Counsel of the Company, for the Pass Through Certificates
(previously filed as Exhibit 5.4 to the Registrant's Registration
Statement on Form S-3, No. 33-43448).
5.4 -Opinion (including tax opinion) of Richards, Layton & Finger,
counsel for the Pass Through Trustee (previously filed as Exhibit
5.5 to the Registrant's Registration Statement on Form S-3,
No. 33-43448).
5.5 -Opinion of Shearman & Sterling for the 1994 Notes (previously
filed as Exhibit 5.6 to the Registrant's Registration Statement
on Form S-2, No. 33-51557).
8.1 -Tax Opinion of Dewey Ballantine, counsel for the Company for the
Pass Through Certificates (previously filed as Exhibit 8.2 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
- 3 -
INDEX TO EXHIBITS
-----------------
Exhibit
No. Description
- ------- -----------
8.2 -Tax Opinion of Richards, Layton & Finger, counsel for the Pass
Through Trustee (included in Exhibit 5.4).
*12 -Computation of deficiency of earnings available to cover fixed
charges.
*23.1 -Consent of Arthur Andersen & Co.
23.2 -Consent of Dewey Ballantine for the Pass Through Certificates
(previously filed as Exhibit 24.4 to the Registrant's
Registration Statement on Form S-3, No. 33-43448)
23.3 -Consent of Richards, Layton & Finger for the Pass Through
Certificates (previously filed as Exhibit 24.5 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
23.4 -Consent of Shearman & Sterling for the 1993 Notes (included in
its opinion delivered under Exhibit No. 5.1).
24 -Powers of Attorney (previously filed).
25.1 -Statement of Eligibility of Trustee on Form T-1 for Pass Through
Certificates (previously filed as Exhibit 25.5 to the
Registrant's Registration Statement on Form S-3, No. 33-43448).
25.2 -Report of Condition of Wilmington Trust Company (previously filed
as Exhibit 25.6 to the Registrant's Registration Statement on
Form S-3, No. 33-43448).
25.3 -T-1 with respect to eligibility of Norwest Bank Wisconsin, N.A.
under the 9 1/4% Note Indenture (previously filed as Exhibit 25.7
to the Registrant's Registration Statement on Form S-2,
No. 33-51876).
25.4 -T-1 with respect to the eligibility of United States Trust
Company of New York under the 10% Note Indenture (previously
filed as Exhibit 25.8 to the Registrant's Registration Statement
on Form S-2, No. 33-51876).
25.5 -T-1 with respect to the eligibility of Norwest Bank, N.A. under
the 8 1/4% Note Indenture (previously filed as Exhibit 25.9 to
the Registrant's Registration Statement on Form S-2,
No. 33-51557).
25.6 -T-1 with respect to the eligibility of The Bank of New York under
the 9% Note Indenture (previously filed as Exhibit 25.10 to the
Registrant's Registration Statement on Form S-2, No. 33-51557).
- -------------------------------
*Filed herewith.
- 4 -
EXHIBIT 12
FORT HOWARD CORPORATION
DEFICIENCY OF EARNINGS AVAILABLE TO COVER FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Loss before taxes........ $(61,016) $(2,056,432) $ (69,800) $ (97,999) $(119,659)
Interest expense......... 337,701 342,792 338,374 371,186 422,663
One-fourth of operating
lease rental expense... 1,881 1,731 1,632 1,356 1,435
-------- ----------- --------- --------- ---------
$278,566 $(1,711,909) $ 270,206 $ 274,543 $ 304,439
======== =========== ========= ========= =========
Fixed Charges:
Interest expense......... $337,701 342,792 $ 338,374 $ 371,186 $ 422,663
Capitalized interest..... 4,230 8,369 11,047 5,331 3,503
One-fourth of operating
lease rental expense... 1,881 1,731 1,632 1,356 1,435
-------- ----------- --------- --------- ---------
$343,812 $ 352,892 $ 351,053 $ 377,873 $ 427,601
======== =========== ========= ========= =========
Deficiency of Earnings
Available to Cover
Fixed Charges (1)........ $(65,246) $(2,064,801) $ (80,847) $(103,330) $(123,162)
======== =========== ========= ========= =========
</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. 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.
<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 Form S-3 Post-Effective Amendment No. 7 to Form S-1 Registration
Statement No. 33-43448, Post-Effective Amendment No. 4 to Form S-1
Registration Statement No. 33-51876 and Post-Effective Amendment No. 3 to Form
S-1 Registration Statement No. 33-51557.
s/s Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
April 27, 1995
