AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 1995
REGISTRATION NO. 33-56573
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
FORT HOWARD CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2676 39-1090992
(State or other jurisdiction of (Primary standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
-------------------
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 SECRETARY
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)
-------------------
COPIES TO:
<TABLE>
<S> <C>
FAITH D. GROSSNICKLE RICHARD J. SANDLER
SHEARMAN & STERLING DAVIS POLK & WARDWELL
599 LEXINGTON AVENUE 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 848-4000 (212) 450-4000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be used
in connection with a United States and Canadian offering of the registrant's
Common Stock (the "U.S. Prospectus") and one to be used in connection with a
concurrent international offering of the Common Stock (the "International
Prospectus" and, together with the U.S. Prospectus, the "Prospectuses"). The
International Prospectus will be identical to the U.S. Prospectus except that it
will have a different front cover page. The U.S. Prospectus is included herein
and is followed by the front cover page to be used in the International
Prospectus. The front cover page for the International Prospectus included
herein has been labeled "Alternate Page for International Prospectus."
If required pursuant to Rule 424(b) of the General Rules and Regulations
under the Securities Act of 1933, as amended, ten copies of each of the
Prospectuses in the forms in which they are used will be filed with the
Securities and Exchange Commission.
<PAGE>
FORT HOWARD CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 PART 1 ITEM AND HEADING CAPTION OR LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Additional
Information; Outside Front Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Certain Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriters
6. Dilution................................... Dilution
7. Selling Security Holders................... Not applicable
8. Plan of Distribution....................... Outside Front Cover Page; Underwriters
9. Description of Securities to be
Registered............................... Outside Front Cover Page; Prospectus
Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the
Registrant............................... Prospectus Summary; Certain Risk Factors;
Capitalization; Selected Historical
Consolidated Financial Data; Pro Forma
Financial Data; Management's Discussion
and Analysis of Consolidated Financial
Condition and Results of Operations;
Business; Management; Ownership of Common
Stock; Certain Transactions; Description
of Certain Indebtedness; Description of
Capital Stock; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not applicable
</TABLE>
<PAGE>
PROSPECTUS (Subject to Completion)
Issued March 7, 1995
22,000,000 Shares
Fort Howard Corporation
COMMON STOCK
-------------------
ALL SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE
22,000,000 SHARES OF COMMON STOCK BEING OFFERED, 17,600,000 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 4,400,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$14.00 AND $16.00 PER SHARE. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
-------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE
NASDAQ NATIONAL MARKET UNDER THE TRADING SYMBOL "FORT".
-------------------
SEE "CERTAIN RISK FACTORS" FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE><CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
--------- --------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total(3)............................................. $ $ $
</TABLE>
- ---------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $1,600,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 3,300,000
additional shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the U.S.
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
----------------------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1995, at the office of
Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor
in New York funds.
-------------------
MORGAN STANLEY & CO.
Incorporated
CS FIRST BOSTON
SALOMON BROTHERS INC
, 1995
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
PHOTOS FOR INSIDE FRONT COVER TO S-1/A
UPPER RIGHT-HAND CORNER
TISSUE PAPER MACHINE
Fort Howard has installed
eight of the eleven largest
(270-inch) tissue paper
machines in the world, which
provide long-term
productivity advantages.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PHOTOS FOR INSIDE FRONT COVER TO S-1/A
UPPER RIGHT-HAND CORNER
GREEN FOREST TISSUE PRODUCTS
Environmentally oriented
consumers have made Fort
Howard's Green Forest
line the leading brand
in the environmentally
positioned segment.
MIDDLE RIGHT-HAND SIDE
WASTEPAPER
Fort Howard led the
industry in developing
sanitary tissue products
from recycled wastepaper.
The Company recycles over
1.4 million tons of
wastepaper annually, and
uses 100% wastepaper for
all but a limited number
of its products.
BOTTOM RIGHT-HAND CORNER
COMMERCIAL TISSUE PRODUCTS
Its products hold a leading
share--approximately 26%--of
the U.S. market for
commercial tissue products.
That position is founded on
a commitment to quality and
service, as well as competitive
pricing made possible by the
Company's status as a low cost
producer.
<PAGE>
PHOTOS FOR INSIDE FRONT COVER TO S-1/A
TOP LEFT-HAND CORNER
SAVANNAH GREENFIELD MILL
The Company's greenfield
mill located near Savannah,
Georgia, is a world-class,
fully integrated tissue mill
that can de-ink and process
fiber for tissue products
from low cost wastepaper.
MIDDLE LEFT-HAND SIDE
BRANDED & PRIVATE LABEL TISSUE PRODUCTS
The Company's consumer product
growth strategy has targeted
the branded value and private
label segments of the U.S.
market where the Company enjoys
a competitive advantage as a low
cost producer.
BOTTOM LEFT-HAND CORNER
NOUVELLE TISSUE PRODUCTS
The principal brand of the
Company's Fort Sterling subsidiary
in the U.K. is the Nouvelle line
of tissue paper products. Fort
Sterling is one of four fully
integrated tissue companies in
that nation.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
-------------------
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR
ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR
POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION
FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS INTO
WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY AND THE
UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO
THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.
-------------------
TABLE OF CONTENTS
<TABLE><CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
Certain Risk Factors.................. 10
Use of Proceeds....................... 16
Dividend Policy....................... 17
Dilution.............................. 17
Capitalization........................ 18
Selected Historical Consolidated
Financial Data...................... 19
Pro Forma Financial Data.............. 22
Management's Discussion and Analysis
of Consolidated Financial Condition
and Results of Operations........... 27
Business.............................. 36
Management............................ 55
<CAPTION>
PAGE
----
<S> <C>
Ownership of Common Stock............. 67
Certain Transactions.................. 68
Description of Certain Indebtedness... 71
Description of Capital Stock.......... 82
Shares Eligible for Future Sale....... 85
Certain United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 86
Underwriters.......................... 89
Legal Matters......................... 92
Experts............................... 92
Additional Information................ 93
Index to Financial Statements......... F-1
</TABLE>
-------------------
In this Prospectus, references to "dollar" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction. All tons are short tons.
MARDI GRAS(R), SOFT'N GENTLE(R), SO-DRI(R), PAGE(R), GREEN FOREST(R),
ENVISION(R), GENERATION II(R) and NOUVELLE are trademarks of the Company that
are registered or otherwise protected under laws of various jurisdictions.
The Company intends to make available annual reports to its shareholders
containing audited consolidated financial statements and a report thereon by the
Company's independent auditors and quarterly reports containing unaudited
consolidated financial data for the first three quarters of each fiscal year.
The principal executive offices of the Company are located at 1919 South
Broadway, Green Bay, Wisconsin 54304, and the Company's telephone number is
(414) 435-8821. The Company was incorporated in Delaware in 1967.
3
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the detailed
information and financial statements found elsewhere in this Prospectus. As used
in this Prospectus, unless the context indicates otherwise: (i) the "Company" or
"Fort Howard" means Fort Howard Corporation, and where appropriate, its
subsidiaries; (ii) "Common Stock" means the Common Stock, par value $.01 per
share, of Fort Howard Corporation; (iii) "Offering" means the offering of
22,000,000 shares of Common Stock in the underwritten public offering to which
this Prospectus relates and (iv) numbers and percentages of shares outstanding
assume that the U.S. Underwriters' over-allotment option is not exercised and
have been adjusted to reflect a 6.5-for-one split of the Common Stock effective
January 31, 1995. The market share information and, unless otherwise indicated,
the industry statistical information presented herein reflect the Company's best
estimates based on publicly available information, and no assurance can be given
regarding the accuracy of such estimates and statistics.
THE COMPANY
Founded in 1919, Fort Howard 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 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 that market.
For the past 20 years Fort Howard has maintained annual EBITDA margins in
excess of 30%, approximately double those publicly reported by the Company's
competitors over the past five years. At the same time, the Company has achieved
strong market share growth on the basis of its position as a low cost producer
in the markets in which it competes. 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.
The Company's business strategy is focused on increasing its profitability
by maintaining and enhancing its position in the United States and
internationally. The Company's strategy involves: (i) maintaining its position
as a low cost producer of tissue products in the markets in which it competes;
(ii) sustaining its growth in domestic commercial market shipments and market
share by selectively increasing sales to large distributors and national
accounts, improving its position with club warehouses and expanding its
specialty dry form business; (iii) sustaining its growth in domestic consumer
market shipments and market share by focusing on the value segment of that
market; (iv) developing opportunities for further international growth and (v)
improving its financial flexibility. The Company's current plans to support
growth in domestic tissue shipments include, subject to market conditions and
4
<PAGE>
the successful completion of the Recapitalization described below, adding one
world-class (270-inch) tissue paper machine over the next five years.
The Company was acquired by The Morgan Stanley Leveraged Equity Fund II,
L.P. ("MSLEF II") and other investors in 1988 (the "Acquisition"). Morgan
Stanley Group Inc. ("Morgan Stanley Group"), directly and through certain
affiliated entities which it controls, including MSLEF II, currently
beneficially owns 62.8% of the outstanding Common Stock of Fort Howard. Upon
consummation of the Offering, Morgan Stanley Group and its affiliates will own
39.8% of the outstanding Common Stock (37.7% if the U.S. Underwriters'
over-allotment option is exercised in full). Morgan Stanley Group and MSLEF II
are affiliates of both Morgan Stanley & Co. Incorporated ("MS&Co"), a
representative of the U.S. Underwriters, and Morgan Stanley & Co. International
Limited ("MS&Co International"), a representative of the International
Underwriters.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company:
U.S. Offering.............................. 17,600,000 shares
International Offering..................... 4,400,000 shares
Total.................................. 22,000,000 shares
Common Stock to be outstanding following the
Offering................................... 60,101,239 shares(a)
Use of Proceeds.............................. The net proceeds to the Company from the
Offering will be used to repay or refinance
certain indebtedness of the Company. See
"Use of Proceeds."
Nasdaq National Market
Symbol..................................... "FORT"
</TABLE>
- ------------
(a) Excludes 3,741,465 shares of Common Stock issuable upon exercise of
outstanding options. See "Management--Compensation of Executive Officers and
Directors."
THE PROPOSED RECAPITALIZATION
The Company is implementing a 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 maturities, increase
shareholders' equity and enhance its access to capital markets.
The Recapitalization includes the following components:
(1) The offering by the Company of 22,000,000 shares of Common Stock in
the United States and internationally;
(2) Entering into a bank credit agreement (the "New Bank Credit
Agreement") consisting of a $300 million revolving credit facility (the
"1995 Revolving Credit Facility"), an $810 million term loan (the "1995 Term
Loan A") and a $330 million term loan (the "1995 Term Loan B" and, together
with the 1995 Term Loan A, the "New Term Loans"); and entering into a
receivables credit agreement consisting of a $60 million term loan (the
"1995 Receivables Facility");
(3) The application of the net proceeds of the Offering, together with
borrowings under the New Term Loans and the 1995 Receivables Facility, 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 New Term Loans and the 1995 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 outstanding Senior Secured Floating
5
<PAGE>
Rate Notes (the "Senior Secured Notes") due 1997 through 2000 (the "Senior
Secured Note Redemption"); and
(4) The application approximately one month following the closing of the
Offering of borrowings under the New Term Loans, the 1995 Receivables
Facility and the 1995 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 as the "1995
Debt Redemptions."
Consummation of the Offering is conditioned on the concurrent consummation
of the other components of the Recapitalization (other than the 14 1/8%
Debenture Redemption and the 12 5/8% Debenture Redemption) and the provision by
the Company of notices of redemption to the respective trustees of the 14 1/8%
Debentures and the 12 5/8% Debentures.
The estimated sources and uses of funds required to complete the
Recapitalization, assuming that all components of the Recapitalization occur on
March 15, 1995, are as follows (in millions):
<TABLE><CAPTION>
Sources of Funds: AMOUNT
<S> <C>
Proceeds of the Offering.......................................... $ 330.0
1995 Term Loan A.................................................. 810.0
1995 Term Loan B.................................................. 330.0
1995 Revolving Credit Facility.................................... 180.9
1995 Receivables Facility......................................... 60.0
--------
Total Sources of Funds............................................ $1,710.9
--------
--------
Uses of Funds:
14 1/8% Debenture Redemption...................................... $ 566.9
Senior Secured Note Redemption.................................... 300.0
1988 Revolving Credit Facility Prepayment......................... 300.0
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).......................... 70.0
--------
Total Uses of Funds............................................... $1,710.9
--------
--------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Includes underwriters' commissions and other transaction fees and expenses of the
Recapitalization payable or reimbursable by the Company.
</TABLE>
For more information concerning the Recapitalization, see "Use of Proceeds."
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data of the Company for the years ended December 31, 1994, 1993 and 1992, that
were derived from the consolidated financial statements of the Company, which
were audited by Arthur Andersen LLP, independent public accountants, whose
report thereon appears elsewhere in this Prospectus. Reference is made to such
report which calls attention to a change in the method of accounting for
postretirement benefits other than pensions.
The following table also sets forth summary unaudited pro forma consolidated
financial data of the Company derived from the unaudited pro forma condensed
consolidated statements of income and pro forma condensed consolidated balance
sheet and notes thereto included elsewhere in this Prospectus. The pro forma
financial data were prepared as if the Recapitalization had occurred on December
31, 1994 for consolidated balance sheet purposes, and as if the Recapitalization
had occurred on January 1, 1994 for consolidated statement of income purposes.
In addition, the sale of the Company's 8 1/4% Senior Notes due 2002 (the "8 1/4%
Notes") and the Company's 9% Senior Subordinated Notes due 2006 (the "9%
Notes"), the redemption of $238 million of the 12 5/8% Debentures, the
redemption of all the Company's 12 3/8% Senior Subordinated Notes due 1997 (the
"12 3/8% Notes") and a $100 million prepayment of the term indebtedness (the
"1988 Term Loan") under the 1988 Bank Credit Agreement, all of which occurred in
February and March 1994 (collectively, the "1994 Refinancing"), are also treated
for consolidated statement of income purposes as if they occurred on January 1,
1994. See "Pro Forma Financial Data."
THE PRO FORMA FINANCIAL DATA DO NOT PURPORT TO REPRESENT WHAT THE COMPANY'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD ACTUALLY HAVE BEEN IF THE
RECAPITALIZATION IN FACT HAD OCCURRED AT DECEMBER 31, 1994, OR IF THE
RECAPITALIZATION AND THE 1994 REFINANCING HAD OCCURRED ON JANUARY 1, 1994 OR TO
PROJECT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE
DATE OR PERIOD.
The following financial information should be read in conjunction with
"Capitalization," "Selected Historical Consolidated Financial Data," "Pro Forma
Financial Data," "Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" and the audited consolidated financial
statements and the related notes thereto included elsewhere in this Prospectus.
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE><CAPTION>
PRO FORMA(A) HISTORICAL
------------ -----------------------------
YEAR ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1994 1994 1993 1992
------------ ------- ------- -------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
STATEMENT OF INCOME DATA:
<S> <C> <C> <C> <C>
Net sales............................................ $ 1,274 $ 1,274 $ 1,187 $ 1,151
Cost of sales........................................ 867 867 784 726
------------ ------- ------- -------
Gross income......................................... 407 407 403 425
Selling, general and administrative(b)............... 110 110 97 97
Amortization of goodwill(c).......................... -- -- 43 57
Goodwill write-off(c)................................ -- -- 1,980 --
Environmental charge(d).............................. 20 20 -- --
------------ ------- ------- -------
Operating income (loss)(d)........................... 277 277 (1,717) 271
Interest expense..................................... 287 338 342 338
Other (income) expense, net.......................... -- -- (3) 2
------------ ------- ------- -------
Loss before taxes.................................... (10) (61) (2,056) (69)
Income taxes (credit)................................ 1 (19) (16) --
------------ ------- ------- -------
Loss before extraordinary items and adjustment for
accounting change.................................. (11) (42) (2,040) (69)
Extraordinary items--losses on debt repurchases (net
of income taxes)................................... -- (28) (12) --
Adjustment for adoption of SFAS No. 106 (net of
income taxes)(e)................................... -- -- -- (11)
------------ ------- ------- -------
Net loss(d)(f)....................................... $ (11) $ (70) $(2,052) $ (80)
------------ ------- ------- -------
------------ ------- ------- -------
Loss per share(d)(f)................................. $ (0.19) $ (1.85) $(53.85) $ (2.10)
OTHER DATA:
EBITDA(g)............................................ $ 393 $ 393 $ 387 $ 410
EBITDA as a percent of net sales(g).................. 30.8% 30.8% 32.6% 35.6%
Depreciation of property, plant and equipment........ $ 96 $ 96 $ 88 $ 81
Non-cash interest expense(h)......................... 13 74 101 140
Capital expenditures................................. 84 84 166 233
Weighted average number of shares of Common Stock
outstanding (in thousands)(f)...................... 60,103 38,103 38,107 38,107
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets......................................... $ 1,706 $ 1,681 $ 1,650 $ 3,575
Working capital (deficit)............................ 10 (98) (92) (124)
Long-term debt (including current portion) and Common
Stock with put right............................... 3,050 3,318 3,234 3,104
Shareholders' deficit................................ (1,844) (2,148) (2,081) (29)
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) For a discussion of the pro forma adjustments, see "Pro Forma Financial Data."
(b) Selling, general and administrative expense in 1993 reflects an $8 million reduction
for the reversal of all employee stock compensation expense accrued prior to 1993. See
Note 13 of the Company's audited consolidated financial statements included elsewhere
in this Prospectus.
(c) During the third quarter of 1993, the Company wrote off the remaining unamortized
balance of its goodwill of $1.98 billion and, accordingly, there is no amortization of
goodwill for periods subsequent to September 30, 1993. See "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations" and Note 4 of
the Company's audited consolidated financial statements included elsewhere in this
Prospectus.
</TABLE>
(Footnotes continued on following page)
8
<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<C> <S>
(d) During the fourth quarter of 1994, the Company recorded an environmental charge
totaling $20 million. Excluding the effects of the environmental charge, the Company's
operating income, income before taxes, net income and earnings per share in 1994, on a
pro forma basis after giving effect to the Recapitalization and the 1994 Refinancing,
would have been $296.8 million, $9.7 million, $3.0 million and $0.05 per share,
respectively.
(e) Reflects the cumulative effect on years prior to 1992 of adopting SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
(f) The computation of loss per share is based on the weighted average number of shares of
Common Stock outstanding during the period plus (in periods in which they have a
dilutive effect) the effect of shares of Common Stock contingently issuable upon the
exercise of stock options. The pro forma loss per share also assumes the issuance of
22,000,000 shares of Common Stock at an assumed initial public offering price of $15.00
per share.
(g) EBITDA represents operating income plus depreciation of property, plant and equipment,
amortization of goodwill, the goodwill write-off, the 1994 environmental charge and the
effects of 1993 employee stock compensation (credits). EBITDA is presented here as a
measure of the Company's debt service ability. Certain financial and other restrictive
covenants in the New Bank Credit Agreement and other instruments governing the
Company's indebtedness are based on the Company's EBITDA, subject to certain
adjustments.
(h) Effective November 1, 1994, all of the Company's indebtedness requires cash interest
payments. Accordingly, for periods subsequent to November 1, 1994, non-cash interest
expense consists solely of amortization of debt issuance costs.
</TABLE>
CERTAIN RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Common Stock, including: pricing of the Company's products;
increasing wastepaper prices; competition; recent net losses and shareholders'
deficit; the Company's highly leveraged position and ability to service debt;
the Company's sensitivity to interest rates; covenant restrictions that may
limit the Company's operating flexibility; environmental matters; the Company's
principal shareholders; restrictions on dividends; effect on the public market
of shares of Common Stock eligible for future sale; dilution; anti-takeover
effects of certain provisions of the Restated Certificate of Incorporation and
Restated By-laws of the Company and the absence of a prior public market for the
Common Stock, see "Certain Risk Factors."
9
<PAGE>
CERTAIN RISK FACTORS
In evaluating an investment in the Common Stock, purchasers of the Common
Stock should carefully consider the following factors as well as the other
information set forth in this Prospectus.
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," 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," "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations" and "Business--Industry
Overview."
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 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. See "Business--Industry Overview."
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
10
<PAGE>
strongly capitalized than the Company which may enable them to better withstand
periods of declining prices and adverse operating conditions in the tissue
industry. See "Business--Competition."
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, 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" and "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations." 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 $1,844 million at December 31, 1994. See "Capitalization."
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 $3,050 million at December 31, 1994. See
"Capitalization."
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 $14
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 consummation of 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. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations--Financial Condition" and
"Description of Certain Indebtedness."
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, assuming consummation of the Recapitalization, of $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 or result in a bankruptcy of the Company. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations--Financial Condition" and "Description of Certain Indebtedness."
11
<PAGE>
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. Pursuant to the Recapitalization,
the Company will become more sensitive to prevailing interest rates, as $1.4
billion (or 44%) of its outstanding indebtedness will bear interest at a
floating rate (assuming the Recapitalization is completed in March 1995). 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. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations--Financial Condition"
and "Description of Certain Indebtedness."
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 sold quickly
enough, or for amounts sufficient, to enable the Company to make any such
payments. See "Description of Certain Indebtedness."
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
12
<PAGE>
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."
PRINCIPAL SHAREHOLDERS
Upon consummation of the Offering, Morgan Stanley Group, directly and
through certain affiliated entities which it controls, including MSLEF II,
collectively will beneficially own 39.8% of the outstanding shares of Common
Stock (37.7% if the U.S. Underwriters' over-allotment option is exercised in
full). Currently, three of the six directors of the Company are officers of
MS&Co, a subsidiary of Morgan Stanley Group. Pursuant to the terms of the
Stockholders Agreement (as defined), MSLEF II and Fort Howard Equity Investors
II, L.P., a Delaware limited partnership ("Fort Howard Equity Investors II"),
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,
including the election of all directors, the adoption of amendments to the
Company's Restated Certificate of Incorporation and the approval of mergers and
sales of all or substantially all of the Company's assets, which may deter a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of the Company, even if such events might be favorable to the Company's
shareholders. See "--Anti-Takeover Effects of Provisions of the Restated
Certificate of Incorporation and By-laws" and "Certain
Transactions--Stockholders Agreement."
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. See "Certain Transactions--Other Transactions."
RESTRICTIONS ON DIVIDENDS
Since the Acquisition, the Company has not declared or paid any cash
dividends on any class of its capital stock, and currently does not intend to
pay dividends on the Common Stock. The New Bank Credit Agreement, the 1995
Receivables Facility and the indentures and other agreements governing the
Company's indebtedness limit the payment of cash dividends on the Common Stock.
See "Dividend Policy" and "Description of Certain Indebtedness."
EFFECT ON PUBLIC MARKET OF SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, there will be 60,101,239 shares of Common
Stock outstanding, of which the 22,000,000 shares sold pursuant to the Offering
will be tradeable without restrictions by persons other than "affiliates" of the
Company. The remaining shares of Common Stock will be "restricted" securities
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and may not be sold in the absence of registration under the Securities
Act or an exemption therefrom, including the exemptions contained in Rule 144
under the Securities Act. No prediction can be made as to the effect, if any,
that future sales of shares of Common Stock, or the availability of such shares
for future sale, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of stock
13
<PAGE>
options) in the public market, or the perception that such sales could occur,
could adversely affect the prevailing market price of the Common Stock or the
ability of the Company to raise capital through a public offering of its equity
securities.
Pursuant to the Underwriting Agreement the Company has agreed, and pursuant
to the Stockholders Agreement all current shareholders of the Company are
subject to an agreement, with certain limited exceptions, not to offer, pledge,
sell, contract to sell, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period beginning 7 days
before and ending 180 days after the effective date of the Registration
Statement in the case of current and former officers and other key employees of
the Company (who beneficially own an aggregate of 791,358 shares of Common
Stock), and ending one year after the effective date of the Registration
Statement in the case of the remaining shareholders (who beneficially own an
aggregate of 37,309,881 shares of Common Stock), without the prior written
consent of certain of the representatives of the U.S. Underwriters in the case
of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors, L.P., a
Delaware limited partnership ("Fort Howard Equity Investors"), and Fort Howard
Equity Investors II, or of MS&Co, in the case of the remaining shareholders. See
"Shares Eligible for Future Sale" and "Underwriters."
Pursuant to the Stockholders Agreement, Morgan Stanley Group, MSLEF II and
other shareholders of the Company have certain registration rights with respect
to the shares of Common Stock that they currently own. Subject to the one year
lock-up period described above, Morgan Stanley Group, MSLEF II, Fort Howard
Equity Investors and Fort Howard Equity Investors II may choose to dispose of
the Common Stock owned by them. The timing of such sales or other dispositions
by such shareholders (which could include distributions to MSLEF II's, Fort
Howard Equity Investors' and Fort Howard Equity II's partners) will depend on
market and other conditions, but could occur relatively soon after the one year
lock-up period described above, including pursuant to the exercise of their
registration rights. MSLEF II, Fort Howard Equity Investors and Fort Howard
Equity Investors II are unable to predict the timing of sales by any of their
limited partners in the event of a distribution to them. Such dispositions could
be privately negotiated transactions or public sales.
DILUTION
The deficit in net tangible book value of the Company at December 31, 1994
was $2,225 million or $58.40 per share. Assuming an initial public offering
price of $15.00 per share, purchasers of the Common Stock offered hereby will
incur immediate dilution in net tangible book value of $47.38 per share of
Common Stock purchased. See "Dilution."
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION
AND BY-LAWS
Certain provisions of the Restated Certificate of Incorporation (the
"Certificate of Incorporation") and the Restated By-laws (the "By-laws") of the
Company that will become operative immediately prior to consummation of the
Offering may be deemed to have anti-takeover effects and may discourage or make
more difficult a takeover attempt that a shareholder might consider in its best
interest. Such provisions also may adversely affect prevailing market prices for
the Common Stock. These provisions, among other things: (i) classify the
Company's Board of Directors into three classes, each of which will serve for
different three-year periods; (ii) provide that only the Board of Directors or
the Chief Executive Officer of the Company may call special meetings of the
shareholders; (iii) eliminate the ability of the shareholders to take any action
without a meeting; (iv) permit the adjournment of shareholder meetings in
certain circumstances and (v) limit the ability of the shareholders to amend or
repeal the By-laws or any of the foregoing provisions of the Certificate of
Incorporation, except with the consent of holders of at least 80% of the
Company's outstanding Common Stock. In addition, the By-laws establish certain
advance notice procedures for nomination of candidates for election as directors
and for shareholder proposals to be considered at shareholders' meetings. See
"Description of Capital Stock--Anti-Takeover Effects of Provisions of the
Company's Restated Certificate of Incorporation and By-laws."
14
<PAGE>
ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK
Since the Acquisition, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the Nasdaq National
Market, there can be no assurance that an active trading market will develop for
the Common Stock. Following consummation of the Offering, MS&Co will be
prohibited by the rules of the New York Stock Exchange from making a market in
the Common Stock. The initial public offering price for the Common Stock will be
determined by negotiations among the Company and the representatives of the
Underwriters in accordance with the recommendation of CS First Boston
Corporation ("CS First Boston"), the "qualified independent underwriter," as is
required by the by-laws of the National Association of Securities Dealers, Inc.
(the "NASD"), and may not be indicative of the market price for the Common Stock
after the Offering.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering are
estimated to be approximately $310 million, assuming an initial public offering
price of $15.00 per share, after deducting estimated underwriting commissions
and expenses of the Offering.
Following consummation of the Offering, the Company intends to use the net
proceeds of the Offering, together with borrowings under the New Bank Credit
Agreement and the 1995 Receivables Facility, to: (i) redeem in full all
outstanding 14 1/8% Debentures which mature in 2004; (ii) redeem in full all
outstanding 12 5/8% Debentures which mature in 2000, at 102.5% of the principal
amount thereof; (iii) redeem in full all outstanding Senior Secured Notes, which
bear interest at floating rates (a weighted average rate of 9.46% at December
31, 1994) and mature between 1997 and 2000; (iv) prepay in full $224.5 million
of the 1988 Term Loan, which bears interest at floating rates (a weighted
average rate of 8.19% at December 31, 1994); (v) repay $300.0 million of the
Company's indebtedness under the 1988 Revolving Credit Facility which is part of
the 1988 Bank Credit Agreement (the "1988 Revolving Credit Facility"), which
bears interest at floating rates (a weighted average rate of 8.66% at December
31, 1994); (vi) prepay in full the 1993 Term Loan which bears interest at
floating rates (at 8.57% at December 31, 1994) and (vii) pay certain fees and
expenses incurred in connection with the Recapitalization.
The Company is implementing 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 maturities, increase shareholders' equity and
enhance its access to capital markets. The Recapitalization includes the
following primary components: (i) the Offering; (ii) the Bank Refinancing and
(iii) the 1995 Debt Redemptions.
Consummation of the Offering is conditioned upon the concurrent consummation
of the other components of the Recapitalization (other than the 14 1/8%
Debenture Redemption and the 12 5/8% Debenture Redemption) and the provision by
the Company of notices of redemption to the respective trustees of the 14 1/8%
Debentures and the 12 5/8% Debentures.
The estimated sources and uses of funds required to complete the
Recapitalization, assuming that all components of the Recapitalization occur on
March 15, 1995, are as follows (in millions):
<TABLE><CAPTION>
Sources of Funds: AMOUNT
<S> <C>
Proceeds of the Offering.......................................... $ 330.0
1995 Term Loan A.................................................. 810.0
1995 Term Loan B.................................................. 330.0
1995 Revolving Credit Facility.................................... 180.9
1995 Receivables Facility......................................... 60.0
--------
Total Sources of Funds............................................ $1,710.9
--------
--------
Uses of Funds:
14 1/8% Debenture Redemption...................................... $ 566.9
Senior Secured Note Redemption.................................... 300.0
1988 Revolving Credit Facility Prepayment(a)...................... 300.0
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(b).......................... 70.0
--------
Total Uses of Funds............................................... $1,710.9
--------
--------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Includes estimated accrued interest on all indebtedness to be prepaid or redeemed in
connection with the Recapitalization.
(b) Includes underwriters' commissions and other transaction fees and expenses of the
Recapitalization payable or reimbursable by the Company.
</TABLE>
16
<PAGE>
DIVIDEND POLICY
The Company anticipates that all its earnings in the near future will be
used for the repayment of indebtedness and for the development and expansion of
its business and, therefore, does not anticipate paying dividends on the Common
Stock in the foreseeable future. The New Bank Credit Agreement, the 1995
Receivables Facility and the indentures governing the 8 1/4% Notes, the 9%
Notes, the 9 1/4% Notes and the 10% Notes limit, in each case with certain
exceptions, the ability of the Company to pay dividends on the Common Stock.
Subject to such restrictions, any determination to pay cash dividends in the
future will be at the discretion of the Company's Board of Directors and will be
dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant at the time by the
Board of Directors. See "Description of Certain Indebtedness" and "Description
of Capital Stock."
DILUTION
At December 31, 1994, the deficit in net tangible book value of the Company
was $2,225 million or $58.40 per share of Common Stock. After giving effect to
the sale by the Company of 22,000,000 shares of Common Stock offered hereby at
an assumed initial public offering price of $15.00 per share and the Bank
Refinancing, the pro forma deficit in net tangible book value of the Company at
December 31, 1994, would have been $1,946 million or $32.38 per share. This
represents an immediate increase in pro forma net tangible book value per share
of $26.02 to existing shareholders and an immediate dilution of $47.38 per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $ 15.00
Deficit in net tangible book value per share prior to
the Offering(a)..................................... $(58.40)
Increase in net tangible book value per share
attributable to new investors(a).................... 26.02
-------
Pro forma deficit in net tangible book value per share
after the Offering(a)(b).............................. (32.38)
-------
Dilution in net tangible book value per share to a new
investor(a)(c).......................................... $ 47.38
-------
-------
</TABLE>
- ------------
(a) Deficit in net tangible book value per share is determined by dividing the
number of shares of Common Stock outstanding into the deficit in net
tangible book value of the Company (shareholders' deficit plus debt issuance
costs).
(b) Pro forma deficit in net tangible book value per share is determined by
dividing the number of shares of Common Stock outstanding (after giving
effect to the Offering) into the deficit in net tangible book value of the
Company (shareholders' deficit plus debt issuance costs) after the Offering.
(c) Dilution is determined by subtracting the pro forma deficit in net tangible
book value per share of Common Stock after the Offering from the amount of
cash paid by a new investor for a share of Common Stock.
The following table summarizes on a pro forma basis as of December 31, 1994,
the differences in the total consideration paid and the average price per share
paid by the existing shareholders with respect to the outstanding Common Stock
and by the new investors with respect to the 22,000,000 shares of Common Stock
to be issued by the Company at an assumed initial public offering price of
$15.00 per share.
<TABLE><CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ -------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 38,101,239 63% $613,742,893 65% $ 16.11
New investors................ 22,000,000 37% 330,000,000 35% 15.00
---------- ----- ------------ ----- ---------
Total.................... 60,101,239 100% $943,742,893 100% $ 15.70
</TABLE>
17
<PAGE>
CAPITALIZATION
Set forth below is the actual consolidated capitalization of the Company at
December 31, 1994, and the pro forma consolidated capitalization of the Company
as of that date after giving effect to the Recapitalization. The information
presented below should be read in conjunction with the Company's audited
consolidated financial statements and the Pro Forma Financial Data included
elsewhere in this Prospectus.
<TABLE><CAPTION>
DECEMBER 31, 1994
--------------------------
ACTUAL PRO FORMA (A)
--------- -------------
(IN MILLIONS)
<S> <C> <C>
Current portion of long-term debt................................... $ 116.2 $ 9.0
--------- -------------
Long-Term Debt, less current portion(b):
1995 Term Loan A.................................................. -- 810.0
1995 Term Loan B.................................................. -- 330.0
1995 Receivables Facility......................................... -- 60.0
1995 Revolving Credit Facility(c)................................. -- 77.4
1988 Term Loan.................................................... 117.3 --
1988 Revolving Credit Facility.................................... 196.5 --
1993 Term Loan.................................................... 100.0 --
Senior Secured Notes.............................................. 300.0 --
9 1/4% Notes...................................................... 450.0 450.0
8 1/4% Notes...................................................... 100.0 100.0
9% Notes.......................................................... 650.0 650.0
12 5/8% Debentures................................................ 145.8 --
10% Notes......................................................... 300.0 300.0
14 1/8% Debentures................................................ 566.9 --
Capital lease obligations......................................... 179.8 179.8
Other long-term debt.............................................. 83.3 83.3
--------- -------------
Total Long-Term Debt, less current portion.......................... 3,189.6 3,040.5
Common Stock with put right(d)...................................... 11.7 --
--------- -------------
Total Indebtedness................................................ 3,317.5 3,049.5
Shareholders' Deficit:
Common Stock, par value $.01 per share,
100,000,000 shares authorized, 38,101,239 shares
issued and outstanding and 60,101,239 shares issued and
outstanding on a pro forma basis................................ 0.4 0.6
Paid-in capital................................................... 600.1 921.8
Cumulative translation adjustment................................. (2.3) (2.3)
Retained deficit.................................................. (2,746.6) (2,764.0)
--------- -------------
Total Shareholders' Deficit..................................... (2,148.4) (1,843.9)
--------- -------------
Total Capitalization............................................ $ 1,169.1 $ 1,205.6
--------- -------------
--------- -------------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Calculated based upon estimated proceeds to the Company from the Recapitalization. See
"Use of Proceeds" and "Pro Forma Financial Data."
(b) See Note 8 of the Company's audited consolidated financial statements for additional
information with respect to long-term debt.
(c) Upon the consummation of the Offering, borrowings under the 1995 Revolving Credit
Facility are expected to be $180.9 million.
(d) Reclassification of 791,358 shares of Common Stock with put right to Common Stock
assumes termination of the put with respect to all of such shares at the time of the
Offering. The Company is considering extending the benefit of the put right with respect
to 314,925 shares held by the Company's former chairman and chief executive officer as
described in "Management-- Management Equity Participation Agreement." See Note 12 of
the Company's audited consolidated financial statements included elsewhere in this
Prospectus.
</TABLE>
18
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data of the Company for the years ended December 31, 1994, 1993, 1992, 1991 and
1990 that were derived from the consolidated financial statements of the
Company, which were audited by Arthur Andersen LLP, independent public
accountants. The report of such accountants with respect to the years ended
December 31, 1994, 1993 and 1992 appears elsewhere in this Prospectus. Reference
is made to such report which calls attention to a change in the method of
accounting for postretirement benefits other than pensions.
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" and the audited consolidated financial statements and the
related notes thereto included elsewhere in this Prospectus.
19
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................................... $ 1,274 $ 1,187 $ 1,151 $ 1,138 $ 1,151
Cost of sales(a).................................. 867 784 726 713 719
------- ------- ------- ------- -------
Gross income...................................... 407 403 425 425 432
Selling, general and administrative(a)(b)......... 110 97 97 98 105
Amortization of goodwill(c)....................... -- 43 57 57 57
Goodwill write-off(c)............................. -- 1,980 -- -- --
Environmental charge(d)........................... 20 -- -- -- --
------- ------- ------- ------- -------
Operating income (loss)(d)........................ 277 (1,717) 271 270 270
Interest expense.................................. 338 342 338 371 423
Other (income) expense, net....................... -- (3) 2 (3) (33)
------- ------- ------- ------- -------
Loss before taxes(d).............................. (61) (2,056) (69) (98) (120)
Income taxes (credit)............................. (19) (16) -- (24) (37)
------- ------- ------- ------- -------
Loss before equity earnings, extraordinary items
and adjustment for accounting change............ (42) (2,040) (69) (74) (83)
Equity in net loss of unconsolidated
subsidiaries(e)................................. -- -- -- (32) (23)
------- ------- ------- ------- -------
Net loss before extraordinary items and adjustment
for accounting change........................... (42) (2,040) (69) (106) (106)
Extraordinary items--losses on debt repurchases
(net of income taxes)........................... (28) (12) -- (5) --
Adjustment for adoption of SFAS No. 106 (net of
income taxes)(f)................................ -- -- (11) -- --
------- ------- ------- ------- -------
Net loss(a)(d).................................... $ (70) $(2,052) $ (80) $ (111) $ (106)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Loss per share(d)(g).............................. $ (1.85) $(53.85) $ (2.10) $ (3.17) $ (3.64)
OTHER DATA:
EBITDA(h)......................................... $ 393 $ 387 $ 410 $ 444 $ 441
EBITDA as a percent of net sales(h)............... 30.8% 32.6% 35.6% 39.0% 38.3%
Depreciation of property, plant and
equipment(a).................................... $ 96 $ 88 $ 81 $ 116 $ 112
Non-cash interest expense......................... 74 101 140 141 145
Capital expenditures.............................. 84 166 233 144 97
Weighted average number of shares of Common Stock
outstanding
(in thousands)(g)............................... 38,103 38,107 38,107 34,868 29,197
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets...................................... $ 1,681 $ 1,650 $ 3,575 $ 3,470 $ 3,627
Working capital (deficit)......................... (98) (92) (124) 2 (80)
Long-term debt (including current portion) and
Common Stock with put right......................... 3,318 3,234 3,104 2,947 3,125
Shareholders' equity (deficit).................... (2,148) (2,081) (29) 62 13
</TABLE>
(Footnotes on following page)
20
<PAGE>
(Footnotes for preceding page)
- ------------
<TABLE>
<C> <S>
(a) Effective January 1, 1992, the Company prospectively changed its estimates of the depreciable
lives of certain machinery and equipment. The change had the effect of reducing depreciation
expense by approximately $38 million and net loss by $24 million in 1992.
(b) Selling, general and administrative expense in 1993 reflects an $8 million reduction for the
reversal of all employee stock compensation expense accrued prior to 1993. See Note 13 of the
Company's audited consolidated financial statements included elsewhere in this Prospectus.
(c) During the third quarter of 1993, the Company wrote off the remaining unamortized balance of its
goodwill of $1.98 billion and, accordingly, there is no amortization of goodwill for periods
subsequent to September 30, 1993. See "Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations" and Note 4 of the Company's audited consolidated
financial statements included elsewhere in this Prospectus.
(d) During the fourth quarter of 1994, the Company recorded an environmental charge totaling $20
million. Excluding the effects of the environmental charge, the Company's operating income, loss
before taxes, net loss and loss per share in 1994 would have been $296.8 million, $41 million,
$56.1 million and $1.47 per share, respectively.
(e) In 1989, the Company transferred all the capital stock of Fort Howard Cup to Sweetheart for a
49.9% equity interest in Sweetheart and other assets for a total consideration of $620 million.
The Company also undertook a plan to divest all its remaining international cup operations. As a
result, the Company recorded a $120 million charge in 1989. As of December 31, 1991, the Company
had sold all its international cup operations and had discontinued recording equity in net losses
of Sweetheart because the carrying value of the Company's investment in Sweetheart was reduced to
zero.
(f) Reflects the cumulative effect on years prior to 1992 of adopting SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This change in accounting principle,
excluding the cumulative effect, decreased operating income for 1992 by $1.2 million.
(g) The computation of loss per share is based on the weighted average number of shares of Common
Stock outstanding during the period plus (in periods in which they have a dilutive effect) the
effect of shares of Common Stock contingently issuable upon the exercise of stock options.
(h) EBITDA represents operating income plus depreciation of property, plant and equipment,
amortization of goodwill, the goodwill write-off, the 1994 environmental charge and the effects
of 1993 employee stock compensation (credits). EBITDA is presented here as a measure of the
Company's debt service ability. Certain financial and other restrictive covenants in the New Bank
Credit Agreement and other instruments governing the Company's indebtedness are based on the
Company's EBITDA, subject to certain adjustments. See "Description of Certain Indebtedness."
</TABLE>
21
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed consolidated statements of
income and condensed consolidated balance sheet (collectively, the "Pro Forma
Statements") were prepared to illustrate the estimated effects of the
Recapitalization as if it had occurred for consolidated statement of income
purposes on January 1, 1994, and for consolidated balance sheet purposes on
December 31, 1994. The 1994 Refinancing is treated for consolidated statement of
income purposes as if such transaction had occurred on January 1, 1994.
The Pro Forma Statements assume an offering of 22,000,000 shares at an
initial public offering price of $15.00 per share. The estimated transaction
fees and expenses included in the following Pro Forma Statements are provided
solely for the purpose of presenting the Pro Forma Statements set forth below.
The actual transaction fees and expenses may differ from the assumptions set
forth below.
THE PRO FORMA STATEMENTS DO NOT PURPORT TO REPRESENT WHAT THE COMPANY'S
FINANCIAL POSITION OR RESULTS OF OPERATIONS WOULD ACTUALLY HAVE BEEN IF THE
RECAPITALIZATION IN FACT HAD OCCURRED AT DECEMBER 31, 1994, OR IF THE
RECAPITALIZATION AND THE 1994 REFINANCING HAD OCCURRED ON JANUARY 1, 1994 OR TO
PROJECT THE COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS FOR ANY FUTURE
DATE OR PERIOD.
The following financial information should be read in conjunction with
"Capitalization," "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations" and the audited consolidated financial statements and the
related notes thereto included elsewhere in this Prospectus.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE><CAPTION>
1994
RECAPITALIZATION REFINANCING
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ---------------- ------------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1994:
Net sales.............................. $1,274,445 $1,274,445
Cost of sales.......................... 867,357 867,357
---------- ----------
Gross income........................... 407,088 407,088
Selling, general and administrative.... 110,285 110,285
Environmental charge................... 20,000 20,000(a)
---------- ----------
Operating income....................... 276,803 276,803(a)
Interest expense....................... 337,701 $(42,082)(b) $(8,680)(b) 286,939
Other expense, net..................... 118 -- -- 118
---------- -------- ------------- ----------
Income (loss) before taxes............. (61,016) 42,082 8,680 (10,254)
Income taxes (credit).................. (18,891) 16,412(c) 3,385(c) 906
---------- -------- ------------- ----------
Net income (loss) before extraordinary
item................................. (42,125) 25,670 5,295 (11,160)
Extraordinary item..................... (28,170) -- 28,170(d) --
---------- -------- ------------- ----------
Net income (loss)...................... $ (70,295) $ 25,670 $33,465 $ (11,160)(a)
---------- -------- ------------- ----------
---------- -------- ------------- ----------
Earnings (loss) per share(e)........... $ (1.85) $ (0.19)(a)
---------- ----------
---------- ----------
Weighted average number of shares
outstanding (in thousands)(e)........ 38,103 60,103
</TABLE>
- ------------
(a) During the fourth quarter of 1994, the Company recorded an environmental
charge totaling $20 million. Excluding the effects of the environmental
charge, the Company's operating income, income before taxes, net income and
earnings per share in 1994, on a pro forma basis after giving effect to the
Recapitalization and the 1994 Refinancing, would have been $296.8 million,
$9.7 million, $3.0 million and $0.05 per share, respectively.
(Footnotes continued on following page)
23
<PAGE>
(Footnotes continued from preceding page)
(b) Decreased interest expense is based upon the pro forma consolidated debt of
the Company as if the Recapitalization and the 1994 Refinancing had been
consummated on January 1, 1994, as follows:
<TABLE><CAPTION>
1994
RECAPITALIZATION REFINANCING
----------------- ------------
(IN THOUSANDS)
<S> <C> <C>
1995 Term Loan A(1)(2)..................... $ 70,875
1995 Term Loan B(1)(2)..................... 30,525
1995 Receivables Facility(1)(2)............ 5,250
1995 Revolving Credit Facility(1)(2)(3).... 3,868
8 1/4% Notes............................... -- $ 1,009
9% Notes................................... -- 7,073
Amortization of debt issuance costs(4)..... 7,096 284
Elimination of historical interest expense
including amortization of debt issuance
costs(5)................................. (159,696) (17,046)
----------------- ------------
$ (42,082) $ (8,680)
----------------- ------------
----------------- ------------
</TABLE>
- ------------
(1) The interest rates utilized in the calculation of the pro forma
adjustments assume a reserve adjusted Eurodollar rate of 6.25% and a
margin of 2.5% for the Term Loan A, the 1995 Revolving Credit
Facility and the 1995 Receivables Facility and a margin of 3.0% for
the 1995 Term Loan B.
(2) A change in the interest rate of 0.25% would change interest expense
and income (loss) before taxes as follows:
YEAR ENDED
DECEMBER 31, 1994
-----------------
(IN THOUSANDS)
1995 Term Loan A................... $ 2,025
1995 Term Loan B................... 825
1995 Receivables Facility.......... 150
1995 Revolving Credit Facility..... 111
-----
$ 3,111
-----
-----
(3) Because interest on the 14 1/8% Debentures accrued to principal until
November 1, 1994, the $566.9 million of proceeds required to retire
the 14 1/8% Debentures in 1995 exceeds the $506.2 million principal
amount of 14 1/8% Debentures outstanding at January 1, 1994 by $60.7
million (the "Excess Principal Amount"). For purposes of the Pro
Forma Condensed Consolidated Statements of Income, the proceeds which
will be used to retire the Excess Principal Amount have been assumed
to be applied to the elimination of borrowings under the 1995
Revolving Credit Facility and to reduce borrowings assumed to be
outstanding under the 1988 Revolving Credit Facility.
(4) Debt issuance costs with respect to the New Bank Credit Agreement and
the 1995 Receivables Facility are amortized over the life of the
related new debt, ranging from 7 to 8 years. The Pro Forma Condensed
Consolidated Statements of Income do not include nonrecurring charges
of approximately $28.6 million representing the write-off of debt
issuance costs of $24.9 million and redemption premiums of $3.7
million to be charged to expense in connection with the
Recapitalization.
(5) Reflects the elimination of interest expense, including amortization
of debt issuance costs, associated with debt retired in connection
with the Recapitalization and the 1994 Refinancing. Floating rate
debt assumed to be retired as of January 1, 1994 of $1.0 billion bore
interest at a weighted average rate of 6.1% in 1994. The 1995 Term
Loan A, the 1995 Term Loan B and the 1995 Receivables Facility, which
are being issued to retire such floating rate debt, are assumed to
bear interest at substantially higher interest rates of 8.75%, 9.25%
and 8.75%, respectively, because the reserve adjusted Eurodollar rate
is assumed to be 6.25%, a substantial increase over interest rates in
effect in 1994.
(c) Reflects the adjustment of income taxes (credit) at an effective rate of 39%
as a result of the pro forma adjustments described in these notes.
(d) Reflects the elimination of an extraordinary loss resulting from the 1994
Refinancing.
(e) The computation of earnings (loss) per share is based on the weighted
average number of shares of Common Stock outstanding during the period plus
(in periods in which they have a dilutive effect) the effect of shares of
Common Stock contingently issuable upon the exercise of stock options. The
pro forma earnings (loss) per share also assumes the issuance of 22,000,000
shares of Common Stock in the Offering.
24
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE><CAPTION>
DECEMBER 31, 1994
-------------------------------------------------
RECAPITALIZATION
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ---------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 422 $ 422
Receivables--net................................ 123,150 123,150
Inventories..................................... 130,843 130,843
Deferred income taxes........................... 20,000 20,000
Income taxes receivable......................... 5,200 5,200
----------- -----------
Total current assets........................ 279,615 279,615
Property, plant and equipment..................... 1,932,713 1,932,713
Less: Accumulated depreciation.................. 611,762 611,762
----------- -----------
Net property, plant and equipment............... 1,320,951 1,320,951
Other assets...................................... 80,332 $ 25,331(a) 105,663
----------- ---------------- -----------
Total assets................................ $ 1,680,898 $ 25,331 $ 1,706,229
----------- ---------------- -----------
----------- ---------------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................ $ 100,981 $ 100,981
Interest payable................................ 84,273 84,273
Income taxes payable............................ 224 224
Other current liabilities....................... 75,450 75,450
Current portion of long-term debt............... 116,203 $ (107,219)(b) 8,984
----------- ---------------- -----------
Total current liabilities................... 377,131 (107,219) 269,912
Long-term debt:...................................
1995 Term Loan A................................ -- 810,000(b) 810,000
1995 Term Loan B................................ -- 330,000(b) 330,000
1995 Receivables Facility....................... -- 60,000(b) 60,000
1995 Revolving Credit Facility.................. -- 77,363(b) 77,363
1988 Term Loan.................................. 117,315 (117,315)(b) --
1988 Revolving Credit Facility.................. 196,500 (196,500)(b) --
1993 Term Loan.................................. 100,000 (100,000)(b) --
Senior Secured Notes............................ 300,000 (300,000)(b) --
9 1/4% Notes.................................... 450,000 -- 450,000
8 1/4% Notes.................................... 100,000 -- 100,000
9% Notes........................................ 650,000 -- 650,000
12 5/8% Debentures.............................. 145,815 (145,815)(b) --
10% Notes....................................... 300,000 -- 300,000
14 1/8% Debentures.............................. 566,869 (566,869)(b) --
Capital lease obligations....................... 179,821 -- 179,821
Other........................................... 83,324 -- 83,324
----------- ---------------- -----------
Total long-term debt........................ 3,189,644 (149,136) 3,040,508
Deferred income taxes............................. 209,697 (11,140)(c) 198,557
Other liabilities................................. 41,162 -- 41,162
Common Stock with put right....................... 11,711 (11,711)(d) --
Shareholders' deficit:
Common Stock and additional paid-in capital..... 600,471 321,961(b)(e) 922,432
Cumulative translation adjustment............... (2,330) -- (2,330)
Retained deficit................................ (2,746,588) (17,424)(f) (2,764,012)
----------- ---------------- -----------
Total shareholders' deficit................. (2,148,447) 304,537 (1,843,910)
----------- ---------------- -----------
Total liabilities and shareholders'
deficit................................... $ 1,680,898 $ 25,331 $ 1,706,229
----------- ---------------- -----------
----------- ---------------- -----------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Balance Sheet
25
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) Net increase in other assets is summarized as follows (in thousands):
Estimated debt issuance costs associated with the
Recapitalization................................................. $ 50,250
Write-off of debt issuance costs related to existing long-term
debt to be repaid or retired................................... (24,919)
--------
$ 25,331
--------
--------
(b) Represents (i) the issuance of $330 million of Common Stock, (ii) prepayment
or redemption of existing indebtedness, (iii) issuance of new indebtedness
under the New Bank Credit Agreement and the 1995 Receivables Facility and
(iv) payment of fees and expenses related to the Recapitalization of $70.0
million (including estimated underwriting fees).
(c) Reflects income tax benefit associated with the extraordinary loss on early
extinguishment of debt arising from the Recapitalization as calculated in
Note (f).
(d) Reclassification of 791,358 shares of Common Stock with put right to Common
Stock assumes termination of the put with respect to all of such shares at
the time of the Offering. The Company is considering extending the benefit
of the put right with respect to 314,925 shares held by the Company's former
chairman and chief executive officer as described in "Management--Management
Equity Participation Agreement."
(e) Includes issuance of $330 million of Common Stock in the Offering less
estimated underwriting fees and expenses related to the Offering of $19.75
million and the reclassification from Common Stock with put right described
in Note (d).
(f) Represents the after-tax costs related to the extraordinary loss from early
extinguishment of debt as a result of the Recapitalization, summarized as
follows (in thousands):
Write-off of debt issuance costs related to existing long-term
debt to be repaid or retired................................... $ 24,919
Redemption premium associated with 12 5/8%
Debenture Redemption........................................... 3,645
--------
28,564
Assumed tax benefit at 39%....................................... (11,140)
--------
$ 17,424
--------
--------
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Industry Conditions
Sales of the Company's tissue products are generally subject to changes in
industry capacity and cyclical changes in the economy, both of which can
significantly impact net selling prices and the Company's profitability. From
1990 through 1992, domestic tissue industry capacity additions significantly
exceeded historic capacity addition rates. At the same time, commercial demand
weakened as a result of the recession. These and other factors 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. Due to the impact of industry conditions on the Company's then projected
operating results, which assumed that net selling price 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. Low industry operating rates,
competitive pricing and other factors continued to adversely affect the
Company's operating results in 1994. In addition, the Company's operating
results in the fourth quarter of 1994 were adversely affected by rising
wastepaper costs as discussed below.
The Company currently believes that pricing and demand in the tissue sector
of the domestic paper industry are beginning to improve. While the Company's
introduction of three price increases in the commercial market in 1993 and one
in April 1994 led to a decline in commercial volume for the first nine months of
1994 compared to the same period in 1993, the Company's commercial volume
improved slightly during the fourth quarter of 1994 compared to the same period
in 1993. The Company introduced another commercial price increase in mid-October
1994. Because a substantial portion of the Company's commercial sales are
pursuant to contracts which generally specify pricing over periods of three
months to one year, there is a time lag before the Company realizes the full
benefit of commercial market price increases. The Company believes that retail
shelf prices in the consumer market improved slightly in 1993 and 1994 but
remained competitive. Overall domestically, the Company realized average price
increases of 5% in 1994 as compared to 1993. Further price increases were
announced for the commercial and consumer markets effective in January 1995.
Taking into account announced tissue papermaking capacity additions and normal
population growth, the Company believes that the rate of capacity growth in
1995, 1996 and 1997 will fall short of the demand increase, resulting in higher
industry operating rates for the period. Historically, tissue manufacturers have
sought price increases during periods of higher operating rates. Accordingly,
while there can be no assurance that pricing will continue to increase, the
Company believes that in addition to the Company's price increases announced for
the commercial and consumer markets for January 1995, further price increases
are likely in 1995.
The Company's operating results are also affected by the price it pays for
wastepaper. Wastepaper is the principal raw material used in manufacturing the
Company's tissue products. Industry costs for wastepaper and market pulp have
recently begun to increase sharply. From July 1994 to January 1995, wastepaper
prices for the grades of wastepaper used in the Company's products more than
doubled. 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. Since late 1993, market pulp
prices have also nearly doubled as a result of increased demand and the Company
expects such prices to continue to increase due to worldwide tightening
supply/demand conditions for market pulp. However, the Company believes that as
market pulp and wastepaper prices increase, tissue producers will seek to
increase prices to maintain profitability.
27
<PAGE>
RESULTS OF OPERATIONS
<TABLE><CAPTION>
THREE MONTHS
ENDED FOR THE YEARS ENDED
DECEMBER 31, DECEMBER 31,
-------------- ---------------------------
1994 1993 1994 1993 1992
----- ----- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Net sales:
Domestic tissue.................................. $ 284 $ 247 $1,060 $ 1,004 $ 978
International operations......................... 35 33 131 143 143
Other............................................ 25 12 83 40 30
----- ----- ------ ------- ------
Consolidated..................................... $ 344 $ 292 $1,274 $ 1,187 $1,151
----- ----- ------ ------- ------
----- ----- ------ ------- ------
Operating income (loss):
Domestic tissue (a)(b)(c)........................ $ 49 $ 70 $ 264 $(1,715) $ 252
International operations (a)..................... 2 -- 8 (1) 17
Other (a)........................................ 2 1 5 (1) 2
----- ----- ------ ------- ------
Consolidated (a)(b)(c)........................... 53 71 277 (1,717) 271
Amortization of goodwill and goodwill write-off
(a).............................................. -- -- -- 2,023 57
Depreciation....................................... 26 26 96 89 82
Environmental charge (b)........................... 20 -- 20 -- --
Employee stock compensation (c).................... -- -- -- (8) --
----- ----- ------ ------- ------
EBITDA(d)........................................ $ 99 $ 97 $ 393 $ 387 $ 410
----- ----- ------ ------- ------
----- ----- ------ ------- ------
Consolidated net loss.............................. $ (25) $ (6) $ (70) $(2,052) $ (80)
----- ----- ------ ------- ------
----- ----- ------ ------- ------
EBITDA as a percent of net sales(d)................ 28.8% 33.1% 30.8% 32.6% 35.6%
</TABLE>
- ------------
(a) During the third quarter of 1993, the Company wrote off the remaining
unamortized balance of its goodwill of $1.98 billion. See Note 4 to the
Company's audited consolidated financial statements included elsewhere in
this Prospectus.
(b) During the fourth quarter of 1994, operating income for domestic tissue
operations was reduced by a $20 million environmental charge. See Note 15 to
the Company's audited consolidated financial statements included elsewhere
in this Prospectus.
(c) Selling, general and administrative expense in 1993 reflects an $8 million
reduction for the reversal of all employee stock compensation expense
accrued prior to 1993. See Note 13 to the Company's audited consolidated
financial statements included elsewhere in this Prospectus.
(d) EBITDA represents operating income plus depreciation of property, plant and
equipment, amortization of goodwill, the goodwill write-off, the 1994
environmental charge and the effects of 1993 employee stock compensation
(credits). EBITDA is presented here as a measure of the Company's debt
service ability. Certain financial and other restrictive covenants in the
New Bank Credit Agreement and other instruments governing the Company's
indebtedness are based on the Company's EBITDA, subject to certain
adjustments. See "Description of Certain Indebtedness."
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
Net Sales. Consolidated net sales for 1994 increased 7.3% compared to 1993,
while consolidated net sales for the fourth quarter of 1994 increased 17.9% as
compared to the comparable quarter in 1993. These increases were due to
increases in domestic tissue net sales and significant net sales increases by
the Company's wastepaper brokerage subsidiary. Domestic tissue net sales
increased 5.5% for fiscal year 1994 and 15.0% during the fourth quarter of 1994,
in each case as compared to 1993. For 1994, the higher domestic tissue net sales
were due to higher net selling prices principally in the commercial market and
higher sales volume in the consumer and parent roll export markets that were
partially offset by volume decreases in the commercial market during the first
nine months of 1994. Overall, domestic tissue sales volume for 1994 increased
slightly over 1993. The Company's decision to implement net selling price
increases in the commercial market during each of the first three quarters of
1993 and to follow with a price increase in the second quarter of 1994 led to
the decline in commercial volume during the first nine months of 1994. For the
fourth quarter of 1994, the higher domestic tissue net sales were due to higher
net selling prices and slightly higher volume in the commercial market,
significantly higher volume offset by lower net selling prices in the consumer
market and higher sales volume in parent roll export markets. The Company
announced further price increases in the
28
<PAGE>
commercial market effective mid-October 1994 and January 1995 and a price
increase in the consumer market effective in January 1995. Because a substantial
portion of the Company's commercial sales are pursuant to contracts which
generally specify pricing over periods of three months to one year, there is a
time lag before the Company realizes the full benefit of commercial market price
increases. Net sales of the Company's international operations decreased 8.4%
for fiscal year 1994 and increased 4.7% for the fourth quarter of 1994 as
compared to 1993. The decrease in international net sales in 1994 was due to
significantly lower net selling prices on flat volume. The increase in
international net sales for the fourth quarter was due to higher volume
partially offset by lower net selling prices. The international net selling
price declines were attributable to product mix changes and continued
competitive conditions. The significant increase in net sales of the Company's
wastepaper brokerage subsidiary during 1994 and for the fourth quarter of 1994
compared to 1993 principally reflects higher net selling prices.
Gross income. For fiscal year 1994 and the fourth quarter of 1994,
consolidated gross margins decreased to 31.9% and 29.3% from 34.0% and 33.5% for
the same periods in 1993, respectively, principally due to lower margins in
domestic tissue operations where unit manufacturing cost increases exceeded net
selling price increases. Such cost increases primarily resulted from higher
wastepaper and other raw material costs, lower converting volume, higher
depreciation expense resulting from the start-up of a new paper machine at the
Muskogee mill late in the first quarter of 1994 and higher maintenance costs.
From July 1994 to January 1995, wastepaper prices for the grades of wastepaper
used in Fort Howard's products more than doubled and wastepaper prices may
increase further due to increased demand for those wastepaper grades used by the
Company. Gross margins of international operations declined in 1994 compared to
1993 principally due to the lower net selling prices. For the fourth quarter of
1994 compared to the same period in 1993, gross margins of international
operations improved due to lower promotional costs and the results of cost
containment activities. However, from July 1994 to January 1995, wastepaper
prices for the grades of wastepaper used by international operations increased
approximately 65% and wastepaper prices are expected to increase further for
such operations due to increased demand for those wastepaper grades used by the
Company. In addition, consolidated gross margins were negatively affected for
fiscal year 1994 and the fourth quarter of 1994 by the increased proportion of
net sales represented by the Company's wastepaper brokerage subsidiary which
typically has lower margins than domestic tissue operations.
Selling, General and Administrative Expenses. In the third quarter of 1993,
the Company reversed all previously accrued employee stock compensation expense
resulting in a reduction of selling, general and administrative expenses of $8
million for 1993. Excluding the effects of the reversal, selling, general and
administrative expenses, as a percent of net sales, were 8.6% and 8.2% for
fiscal year 1994 and fourth quarter of 1994, compared to 8.8% and 9.0% for
fiscal year 1993 and fourth quarter of 1993, respectively. The decreases
resulted principally from the increased proportion of net sales represented by
the Company's wastepaper brokerage subsidiary and, to a lesser degree, cost
containment.
Amortization of Goodwill. As a result of the goodwill write-off in the third
quarter of 1993, there was no amortization of goodwill in 1994 compared to $43
million for fiscal year 1993. There was no goodwill amortization in the fourth
quarter of 1994 or 1993.
Environmental Charge. 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. The Company
expects these costs to be incurred over an extended number of years. See
"Business-- Environmental Matters" and "--Legal Proceedings" and Note 15 of the
Company's audited consolidated financial statements included elsewhere in this
Prospectus.
Operating Income (Loss). Operating income increased to $277 million in 1994
compared to an operating loss of $1,717 million in 1993. The operating loss in
1993 resulted entirely from the goodwill write-off in the third quarter of 1993.
Excluding the environmental charge from 1994 results and
29
<PAGE>
amortization of goodwill, the goodwill write-off and the reversal of employee
stock compensation expense from 1993 results, operating income would have
declined to $297 million in 1994 from $299 million in 1993. For the fourth
quarters of 1994 and 1993, operating income was $53 million and $71 million,
respectively. Excluding the environmental charge from 1994 results, operating
income would have increased to $73 million in the fourth quarter of 1994.
Income Taxes. The income tax credits for 1994 and 1993 principally reflect
the reversal of previously provided deferred income taxes.
Extraordinary Losses. The Company's net loss in 1994 was increased by an
extraordinary loss of $28 million (net of income taxes of $15 million)
representing the redemption premiums on the repurchases of all the Company's
remaining 12 3/8% Notes at the redemption price of 105% of the principal amount
thereof and of $238 million of 12 5/8% Debentures at the redemption price of
105% of the principal amount thereof on March 11, 1994, and the write off of
deferred loan costs associated with the prepayment of $100 million of the 1988
Term Loan on February 10, 1994, and the repurchases of the 12 3/8% Notes and the
12 5/8% Debentures. The Company's net loss in 1993 was increased by an
extraordinary loss of $12 million (net of income taxes of $7 million)
representing the write-off of deferred loan costs associated with the prepayment
of $250 million of the 1988 Term Loan on March 23, 1993, the repurchase of all
outstanding 14 5/8% Debentures on April 21, 1993 and the repurchase of $50
million of 12 3/8% Notes on November 1, 1993.
Net Loss. The Company reported net losses of $70 million and $25 million for
fiscal year 1994 and the fourth quarter of 1994, respectively, as compared to
net losses of $2,052 million and $6 million for the same periods in 1993. The
increase in the net loss in the fourth quarter of 1994 is principally due to the
environmental charge. The significant net loss for fiscal year 1993 resulted
principally from the goodwill write-off in the third quarter of 1993.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
Net Sales. Consolidated net sales for 1993 increased 3.1% compared to 1992.
Domestic tissue net sales for 1993 increased 2.7% compared to 1992 due to volume
increases that were largely offset by lower net selling prices. In mid-1992,
average net selling prices rose principally as a result of an attempted price
increase in the commercial market but then fell to pre-price increase levels in
the fourth quarter of 1992 and fell again in the first quarter of 1993, periods
of seasonally lower volume shipments. Average net selling prices held flat from
the first quarter of 1993 to the second quarter of 1993 and increased in each of
the third and fourth quarters of 1993 from the previous quarter levels. However,
in spite of introductions of net selling price increases in each of the first
three quarters of 1993, average net selling prices for 1993 were below average
net selling prices for 1992. Net sales of the Company's international operations
were flat in 1993 compared to 1992 primarily due to significantly lower net
selling prices and lower exchange rates offset by volume increases resulting
from the acquisition of Stuart Edgar Limited ("Stuart Edgar") and the start-up
of a new paper machine. United Kingdom retailers engaged in increasingly
competitive pricing activity in 1993 across a broad range of consumer products
including disposable paper products.
Gross Income. Consolidated gross margins decreased to 34.0% in 1993 compared
to 36.9% in 1992. Domestic tissue gross margins decreased to 37.4% in 1993 from
40.0% in 1992 primarily due to lower net selling prices and an increase in
wastepaper costs as prices for wastepaper grades utilized by the Company
returned to pre-recession levels. Gross margins of international operations also
declined in 1993 principally due to the lower net selling prices. Unit
manufacturing costs of international operations declined in 1993 compared to
1992 as a result of the start-up of a new paper machine and related facilities
in the first quarter of 1993 at the Company's United Kingdom tissue operations.
Selling, General and Administrative Expenses. Due to the effects of adverse
tissue industry operating conditions on its long-term earnings forecast as of
September 30, 1993, the Company decreased the estimated fair market valuation of
its Common Stock. Accordingly, in 1993 the Company
30
<PAGE>
reversed all previously accrued employee stock compensation expense of $8
million, resulting in a decrease in selling, general and administrative
expenses, as a percent of net sales, to 8.2% in 1993 from 8.5% in 1992.
Excluding the effects of employee stock compensation from both years, selling,
general and administrative expenses, as a percent of net sales, would have
increased slightly in 1993 to 8.8% from 8.4% for 1992.
Goodwill Write-Off. As further described below, low industry operating rates
and aggressive competitive pricing among tissue producers resulting from the
1991-1992 recession, additions to industry capacity and other factors adversely
affected tissue industry operating conditions and the Company's operating
results beginning in 1991 and through the third quarter of 1993.
Declining selling prices. Although sales volume increased, industry
pricing was very competitive due to the factors discussed below. The
Company's average domestic net selling prices declined by approximately 5%
in each of 1991 and 1992. Commercial market price increases attempted in
mid-1992 were not achieved as commercial market pricing fell to pre-price
increase levels in the fourth quarter of 1992 and fell again in the first
quarter of 1993, periods of seasonally lower volume shipments. Average net
selling prices held flat from the first quarter of 1993 to the second
quarter of 1993 and increased from the second to the third quarter of 1993.
However, in spite of introductions of net selling price increases in each of
the first three quarters of 1993, average net selling prices for the first
nine months of 1993 were below average net selling prices for the same
period in 1992. Pricing in the Company's international markets declined
significantly over this time period as well.
Industry Operating Rates. Based on publicly available information,
including data collected by the American Forest & Paper Association
("AFPA"), industry capacity additions in 1990 through 1992 significantly
exceeded historic capacity addition rates. Such additions and weak demand
caused industry operating rates to fall to very low levels in 1991 and 1992
in comparison to historic rates. Tissue industry operating rates increased
only slightly during the first nine months of 1993 from the low levels
experienced in 1991 and 1992. Announced tissue industry capacity additions
through 1995, as reported by the AFPA through the first three quarters of
1993, approximated average industry shipment growth rates after 1990. For
the first nine months of 1993, the industry shipment growth rate fell
sharply from the already low rates in 1991 and 1992. Consequently, without
an improved economic recovery and improved industry demand, tissue industry
operating rates were expected to remain at relatively low levels for the
near term, adversely affecting industry pricing.
Economic Conditions. The 1991-1992 recession and weak recovery adversely
affected tissue market growth. Job formation is an important stimulus for
growth in the commercial tissue market where approximately two-thirds of the
Company's domestic tissue sales are targeted. From 1990 through the first
nine months of 1993, job formation was weak and was projected to improve
only slightly in 1994. Accordingly, demand growth was weak in 1991, 1992 and
in the first nine months of 1993, and did not appear to offer any
substantial relief to the outlook for industry operating rates and pricing
for the near term.
Gross Margins. The Company's gross margins steadily declined in 1991,
1992 and 1993 as a result of the three factors noted above. In the first
nine months of 1993, the Company's gross margins were also affected by
increased wastepaper costs as prices for wastepaper grades utilized by the
Company returned to pre-recession levels.
As a result of these conditions, the Company expected that the
significant pricing deterioration experienced in 1991 through mid-1993 would
be followed by average annual price increases that approximated the
Company's annual historical price increase trend for the years 1984 through
1993 of approximately 1% per year. Accordingly, during the second quarter of
1993, the Company commenced an evaluation of the carrying value of its
goodwill for possible impairment. The Company revised its projections as of
September 30, 1993 and concluded its evaluation in the third
31
<PAGE>
quarter of 1993 determining that its forecasted cumulative net income before
goodwill amortization was inadequate to recover the future amortization of
the Company's goodwill balance over the remaining amortization period of the
goodwill.
For a more detailed discussion of the methodology and assumptions
employed to assess the recoverability of the Company's goodwill, refer to
Note 4 of the Company's audited consolidated financial statements included
elsewhere in this Prospectus.
Operating Income (Loss). As a result of the goodwill write-off, the
Company's operating loss was $1,717 million for 1993 compared to operating
income of $271 million for 1992. Excluding amortization of goodwill, the
goodwill write-off and the reversal of employee stock compensation expense from
1993 and 1992 results, operating income declined to $299 million for 1993 from
$328 million for 1992.
Income Taxes. The income tax credit for 1993 principally reflects the
reversal of previously provided deferred income taxes. The income tax credit for
1992 reflects the reversal of previously provided deferred income taxes related
to domestic tissue operations offset almost entirely by foreign income taxes.
Extraordinary Loss and Accounting Change. The Company's net loss in 1993 was
increased by an extraordinary loss of $12 million (net of income taxes of $7
million) representing the write-off of unamortized deferred loan costs
associated with the repayment of $250 million of indebtedness under the 1993
Term Loan, the repurchase of all the 14 5/8% Debentures and the repurchase of
$50 million of the 12 3/8% Notes. The net loss for 1992 was increased by the
Company's adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
No. 106"). The cumulative effect on years prior to 1992 of adopting SFAS No. 106
is stated separately in the Company's unaudited condensed consolidated statement
of income for 1992 as a one-time, after-tax charge of $11 million.
Net Loss. For 1993, the Company's net loss increased, principally due to the
goodwill write-off, to $2,052 million compared to $80 million for 1992.
FINANCIAL CONDITION
Year Ended December 31, 1994
During 1994, cash increased $195,000. Capital additions of $84 million and
debt repayments of $759 million, including the prepayment of $100 million of the
1988 Term Loan, the repurchases of all outstanding 12 3/8% Notes and of $238
million of the 12 5/8% Debentures, a reduction in the 1988 Revolving Credit
Facility and the purchase of interest rate cap agreements for $10 million were
funded by cash provided from operations of $125 million and net proceeds of the
sale of 8 1/4% Notes and 9% Notes of $728 million in February 1994. Receivables
increased $17 million during 1994 due principally to higher net selling prices
in the domestic tissue and wastepaper brokerage operations and sales volume
increases in domestic tissue operations in the fourth quarter of 1994. The $13
million increase in inventories in 1994 resulted from increases in inventory
quantities to improve service levels and the revaluation of inventories to
reflect higher manufacturing costs. The liability for interest payable increased
$29 million due to a change in interest payment schedules resulting from the
1994 debt repurchases from the net proceeds of the sale of the 8 1/4% Notes and
9% Notes in 1994 and for the liability with respect to the 14 1/8% Debentures
for interest accruing in cash commencing on November 1, 1994. As a result of all
these changes, the net working capital deficit increased to $98 million at
December 31, 1994, from a deficit of $92 million at December 31, 1993. The $15
million increase in long-term other liabilities in 1994 principally reflects the
classification of $18 million of the environmental charge taken in the fourth
quarter as a long-term liability. Deferred and other long-term income taxes
declined $34 million from 1993 to 1994 principally due to the reversal of
deferred income taxes related to continuing operations and the extraordinary
item.
32
<PAGE>
Cash provided from operations declined in 1994 compared to 1993 principally
due to increased interest payments resulting from the 1993 repurchases of all
outstanding 14 5/8% Debentures (which accrued interest in kind) from the net
proceeds of the sale of the 9 1/4% Notes and 10% Notes in 1993 (which accrue
interest in cash) and higher floating interest rates. Cash provided from
operations was further impacted by the increase in receivables.
Year Ended December 31, 1993
During 1993, cash increased $39,000. Capital additions of $166 million and
debt repayments of $841 million, including the prepayment of $250 million of the
1988 Term Loan, the repurchase of all outstanding 14 5/8% Debentures, and the
repurchase of $50 million of the 12 3/8% Notes, were funded principally by cash
provided from operations of $151 million, net proceeds from the sale of the 9
1/4% Notes and 10% Notes of $729 million, net proceeds of the 1993 Term Loan of
$95 million, borrowings of $28 million under the 1988 Revolving Credit Facility
and borrowings of $9 million by Fort Sterling Limited ("Fort Sterling"), the
Company's United Kingdom tissue operations subsidiary, under its credit
agreements.
Inventories and interest payable increased $17 million and $22 million,
respectively, during 1993. The Company increased inventories principally to
improve its service levels, and secondarily due to the effects of lower volume
resulting from increases in net selling prices in the third quarter of 1993,
immediately preceding a period of seasonally lower volume. Interest payable
increased in 1993 principally due to the repurchase of all outstanding 14 5/8%
Debentures (which accrued interest in kind) from the net proceeds of the sale of
the 9 1/4% Notes and 10% Notes (which accrue interest in cash). The net working
capital deficit declined $32 million from $124 million at December 31, 1992 to
$92 million at December 31, 1993, principally due to a $25 million reduction in
the current portion of long-term debt as a result of lower current maturities
under the 1988 Term Loan.
Liquidity and Capital Resources; The Recapitalization
The Company's principal uses of cash for the next several years will be
interest and principal payments on its indebtedness and capital expenditures.
The Company is implementing 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 maturities, increase shareholders' equity and
enhance its access to capital markets. The Recapitalization includes the
following primary components: (i) the Offering; (ii) the Bank Refinancing and
(iii) the 1995 Debt Redemptions. Proceeds of the Recapitalization will be used
to prepay or redeem all of the Company's remaining indebtedness under its 1988
Bank Credit Agreement, the Senior Secured Notes, the 1993 Term Loan, the 12 5/8%
Debentures and the 14 1/8% Debentures. After giving effect to the
Recapitalization, on a pro forma basis as of December 31, 1994, the Company
would have had approximately $3,050 million of long-term debt outstanding.
Following the Recapitalization, the Company will have estimated repayment
obligations of $9 million in 1995, $60 million in 1996, $115 million in 1997,
$138 million in 1998 and $153 million in 1999 (and increasing thereafter). In
addition, there may be additional required payments under the New Bank Credit
Agreement out of excess cash flow, if any, and from proceeds of asset sales, if
any. See "Description of Certain Indebtedness--The New Bank Credit Agreement."
Capital expenditures were $84 million, $166 million and $233 million in
1994, 1993 and 1992, respectively, including an aggregate of over $350 million
during those periods for capacity expansions. Subject to market conditions and
the successful completion of the Recapitalization, the Company's current plans
to support growth in domestic tissue shipments include adding one world-class
(270-inch) tissue paper machine over the next five years and the start up of
another dry form machine in the next few years. The New Bank Credit Agreement
will impose limits for domestic capital expenditures, with certain exceptions,
of $75 million per year. The Company will also be permitted to spend up to $250
million for domestic expansion projects including, without restriction, an
additional tissue paper
33
<PAGE>
machine at one of its existing domestic mills. Other domestic expansion projects
are restricted unless the Company's ratio of Consolidated EBITDA to Consolidated
Interest Expense (as such terms are defined in the New Bank Credit Agreement)
exceeds certain amounts. In addition, the Company will be permitted to make
capital expenditures for international expansion of up to $40 million through
June 30, 1996, and up to $100 million in the aggregate after June 30, 1996 if
the Company's ratio of Consolidated EBITDA to Consolidated Interest Expense
exceeds certain amounts. Under the New Bank Credit Agreement, the Company may
carry over to one or more years (thereby increasing the scheduled permitted
limit for capital expenditures in respect of such year) the amount by which the
scheduled permitted limit for each year (beginning with fiscal year 1995)
exceeded the capital expenditures actually made in respect of such prior year.
The Company does not believe such limitations will impair its plans for capital
expenditures. Capital expenditures are projected to approximate $55 to $75
million annually for the next several years, plus $225 million of domestic
expansion capital spending that is subject to market conditions and the
successful completion of the Recapitalization. The portion of the above capital
expenditures which are attributable to environmental matters is described in
"Business--Environmental Matters."
The 1995 Revolving Credit Facility will mature on the seventh anniversary of
the completion of the Offering. Assuming the Recapitalization is consummated on
March 15, 1995, the Company expects to have $119.1 million in available capacity
under the 1995 Revolving Credit Facility.
Assuming the Recapitalization is completed in March 1995, approximately $1.4
billion of the Company's outstanding indebtedness is expected to bear interest
at floating rates. The Company's policy is to enter into interest rate cap and
swap agreements as a hedge to effectively fix or limit its exposure to floating
interest rates to, at a minimum, comply with the terms of its senior secured
debt agreements. The Company is a party to LIBOR-based interest rate cap
agreements which limit the interest cost to the Company with respect to $500
million of floating rate obligations 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 to June 1, 1999. The Company monitors the risk of default by the
counterparties to the interest rate cap agreements and does not anticipate
nonperformance. See Note 8 to the Company's audited consolidated financial
statements included elsewhere in this Prospectus for additional information
concerning these agreements.
The limitations contained in the New Bank Credit Agreement and in the
Company's indentures on the ability of the Company and its subsidiaries to incur
indebtedness, together with the highly leveraged position of the Company, could
limit the Company's ability to effect future financings and may otherwise
restrict corporate activities, including the Company's ability to respond to
market conditions, to provide for unanticipated capital expenditures (including
capital expenditures for environmental matters) or to take advantage of business
opportunities which may arise or to take actions that require funds in excess of
those available to the Company. However, the Company believes that cash provided
by operations, unused borrowing capacity under the 1995 Revolving Credit
Facility and access to financing in public and private markets will be
sufficient to enable it to fund capital expenditures (including planned capital
expenditures for environmental matters) and meet its debt service requirements
for the foreseeable future.
Assuming a favorable resolution of the U.S. Tax Court appeal discussed in
"Business--Legal Proceedings," the Company will have approximately $131 million
of net operating loss ("NOL") carryforwards as of December 31, 1994 for federal
income tax purposes which expire as follows: $11 million in 2007, $47 million in
2008 and $73 million in 2009. The aggregate amount of net operating loss
carryforwards available to the Company as of December 31, 1994 could be reduced
to approximately $71 million if the U.S. Tax Court decision is affirmed.
Further, under the Internal Revenue Code of 1986, as amended (the "Code"), the
utilization of NOL carryforwards against future taxable income is potentially
limited if the Company experiences an "ownership change," as defined in the
Code. The Company believes that it will not experience an ownership change in
connection with the Offering or that, if it does, the resulting limitation on
NOL carryforward utilization is not expected to
34
<PAGE>
have a significant effect on the Company's financial condition or on its results
of operations. It is possible, however, that following the Offering, future
events (such as transfers of Common Stock by shareholders, or certain Common
Stock issuances) could cause an ownership change which under the circumstances
at that time could result in a limitation on the Company's ability to utilize
NOL carryforwards existing at such time to offset future taxable income.
Refer to Note 7 to the audited consolidated financial statements included
elsewhere in this Prospectus for a description of certain matters related to
income taxes. See "Business--Legal Proceedings."
Seasonality
During the years ended December 31, 1994, 1993, and 1992, a slightly higher
amount of the Company's revenues and EBITDA have been recognized during the
second and third quarters. Following the Recapitalization, the Company expects
to fund seasonal working capital needs from the 1995 Revolving Credit Facility.
35
<PAGE>
BUSINESS
THE COMPANY
Founded in 1919, Fort Howard 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 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.
INDUSTRY OVERVIEW
United States
Demand
According to statistics compiled by the AFPA, sanitary tissue paper
converted product shipments in the United States were approximately 5.4 million
tons in 1994. Shipments to the commercial and consumer markets represent
approximately 37% and 63% of total shipments, respectively.
Historically, sanitary tissue demand as evidenced by product shipments has
fluctuated somewhat less than demand in the paper industry overall. Although the
rate of growth in tissue market shipments slackened during the industry's
recessionary period between 1991 and 1993, tissue market shipments continued to
grow because of population growth, which has a stabilizing effect on demand.
Total domestic tissue shipments grew from 4.1 million tons in 1984 to 5.4
million tons in 1994 for a compound annual growth rate of 2.4%. The Company
believes that except in recessionary years, commercial market shipment growth
rates have generally exceeded consumer market shipment growth rates. The Company
also believes that, because of the increasing number of dual income households,
more frequent travel and recreation and longer life expectancy, which result in
increased use of away-from-home facilities, the commercial market will continue
to grow faster on average than the consumer market. Shipments tend to be
stronger in the second and third quarters because of seasonal demand.
36
<PAGE>
The following table shows sanitary tissue paper converted product shipments
in the United States for the years indicated according to the AFPA.
<TABLE><CAPTION>
1984-1994
COMPOUND
ANNUAL
GROWTH
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 RATE
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ---------
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial(1)............. 1,522 1,554 1,576 1,671 1,783 1,918 1,971 1,987 2,012 2,003 1,961 2.6%
Consumer.................. 2,716 2,718 2,820 2,846 2,903 2,992 3,025 3,080 3,176 3,268 3,395 2.3%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total.................. 4,238 4,272 4,396 4,517 4,686 4,910 4,996 5,067 5,188 5,271 5,356 2.4%
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
- ------------
(1) Club warehouse production and shipments are not separately reported to the
AFPA. Prior to 1994, AFPA member companies reporting tissue production and
shipments to the AFPA ("Reporting Companies") had varying practices with
respect to classifying reported shipments to club warehouses as either
commercial market or consumer market shipments. Although Fort Howard
reported all shipments to club warehouses as commercial market shipments
prior to 1994, it is unclear what practices had been followed by other
Reporting Companies. During 1993, it appeared that certain Reporting
Companies had changed their reporting of club warehouse shipments.
Accordingly, beginning in 1994, Reporting Companies were requested by the
AFPA to classify reported shipments to club warehouses as either commercial
market or consumer market shipments based on Reporting Companies' estimates
of whether the finished product was used in the commercial or consumer
market.
The Company believes that the decreases in commercial market shipments in
1993 and 1994 are attributable to reclassifications of reported club warehouse
shipments between the commercial and consumer markets as described in footnote
(1) above. Consequently, while total tissue shipment growth as reported by the
AFPA was 1.6% in each of 1994 and 1993, the Company believes that shipment
growth rates in the commercial and consumer markets in 1993 and 1994 as reported
by the AFPA may not reflect actual shipments in the respective markets and that
the long-term compound annual growth rates may not reflect actual trends for the
respective markets.
Commercial Market. In the commercial market, domestic tissue shipments grew
from 1.5 million tons in 1984 to 2.0 million tons in 1994 for a compound annual
growth rate of 2.6%. The Company believes that shipment growth rates in the
commercial market are affected principally by job formation, the strength of
other cyclical economic variables and changing demographic and socio-economic
trends. For the three-year period prior to 1990, commercial tissue shipments
showed strong growth as a result of favorable economic conditions and strong job
formation during the period. From 1990 through 1993, job formation was weak and
unemployment was high, adversely affecting commercial tissue market shipments
during this period. According to U.S. Department of Labor statistics, in late
1993 and in 1994, job formation began to improve. To the extent economic
recovery continues, the Company believes that job formation should provide an
important stimulus for commercial market demand.
The commercial market is comprised of a few large tissue producers that have
large market positions and a significant number of small, regional
manufacturers. While the full range of premium, value and economy products exist
in this market, the value and economy ranges of products are predominant in the
commercial market. The Company believes that advertising does not have a
significant influence on commercial demand.
Consumer Market. In the consumer market, domestic tissue shipments grew from
2.7 million tons in 1984 to 3.4 million tons in 1994, for a compound annual
growth rate of 2.3%. The Company believes that shipment growth rates in the
consumer market are principally affected by population growth trends and general
economic conditions including the level of consumer confidence.
The consumer market is comprised of a few large, mostly branded premium
product manufacturers that actively advertise to stimulate consumer demand for
their products. The product range in this market covers branded premium products
(45% of market), branded value products (39%) and private
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label products (16%). Discount retailers have been emphasizing the development
of private label products to achieve higher gross margins and to lower retail
shelf prices to appeal to increasingly price conscious consumers.
Capacity
For the ten years ended December 31, 1989, tissue industry capacity grew at
a 1.8% average annual growth rate and operating rates remained at a relatively
strong average level of 92.0%. The Company believes that tissue industry
operating rates of approximately 92-93% represent balanced supply and demand in
the tissue market. Tissue industry operating rates peaked at 97.0% in 1989.
Subsequently, tissue industry capacity additions in 1990 through 1992
significantly exceeded historic capacity addition rates. At the same time,
commercial demand slackened due to the recession. These and other factors caused
annual operating rates to fall to a low of 89.8% in 1992. Tissue industry
operating rates have increased from the low levels experienced in 1992 and were
at 91.7% for 1994.
Tissue industry operating rates in 1995 and future years will depend upon
the level of demand and capacity growth. Taking into account announced tissue
papermaking capacity additions and normal population growth, the Company
believes that the rate of capacity growth in 1995, 1996 and 1997 will fall short
of the demand increase, resulting in higher industry operating rates for the
period.
Pricing
Since 1983, pricing has correlated strongly with the levels of industry
operating rates. The high level of growth in tissue industry capacity from 1990
through 1992, coupled with the weakening commercial demand resulting from the
recession and competitive new product introductions in the consumer market,
caused industry operating rates and pricing to fall. Although specific industry
pricing information is not available, the Company believes that industry pricing
fell in each of 1991 and 1992 and may have fallen in 1993. In the commercial
market, three industry price increases were introduced in 1993 and two were
introduced in April and mid-October 1994. The Company believes that retail shelf
prices in the consumer market improved slightly in 1993 and 1994, but remained
competitive. Overall domestically, the Company realized average price increases
of 5% for the year ended December 31, 1994 as compared to 1993. Because a
substantial portion of commercial sales are pursuant to contracts which
generally specify pricing over periods of three months to one year, there is a
time lag before the full benefit of commerical market price increases are
realized.
The Company believes that growing market shipments resulting from normal
population growth, together with a reduced rate of announced capacity growth,
will result in higher industry operating rates in 1995, 1996 and 1997. In
addition, as further discussed below, because market pulp and wastepaper prices
may continue to increase, the Company believes tissue producers will seek to
increase prices to maintain profitability. As a result of these factors, during
the fourth quarter of 1994, the Company announced further price increases for
the commercial and consumer markets effective in January 1995, and while there
can be no assurance that pricing will continue to increase, the Company believes
that additional price increases are likely in 1995.
Raw Material Supply
Fiber, which constitutes the principal raw material for making paper, is
obtained either by processing virgin wood pulp or by de-inking and processing
wastepaper. The Company estimates that approximately 44% of domestic total
tissue production in 1993 was manufactured using wastepaper. In 1993, the latest
year for which independent industry data is available, 91 million tons of
wastepaper were generated in the United States of which 36 million tons were
collected for recycling (including 6 million tons that were exported), 36
million tons were put into landfills and 19 million tons were incinerated or
otherwise disposed of. Different grades of wastepaper are available from
different sources. For example, newsprint is primarily generated by curb-side
collection, corrugated containers by
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retailers and mid to higher-grade papers by printers and through the collection
of office wastepaper. Although virtually any grade of wastepaper can be used in
some form of tissue production, generally only mid to higher grades of
wastepaper, representing about one-third of recycled wastepaper in 1993, are
used in tissue production.
Historically, most large tissue manufacturers have had integrated virgin
wood pulp operations and have therefore been less dependent upon market pulp for
their wood pulp requirements. Recently, some large tissue producers have sold or
announced an intent to consider the sale of their pulp operations and,
accordingly, tissue producers increasingly are or may become more dependent on
market pulp for their wood pulp requirements.
According to statistics compiled in independent industry reports, the
following table shows the price per ton for wastepaper and market pulp for the
periods indicated. Wastepaper prices are not directly comparable to market pulp
prices because wastepaper yields are generally lower than market pulp yields,
wastepaper processing costs are generally higher than those associated with
market pulp and market pulp prices are widely reported per metric ton while
wastepaper prices are widely reported per the smaller short ton.
<TABLE><CAPTION>
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Market pulp per metric ton(a)......................... $830 $765 $500 $570 $415 $700
Wastepaper per short ton(b)........................... $106 $ 80 $ 67 $ 81 $ 86 $176
</TABLE>
- -------------------
<TABLE>
<C> <S>
(a) Year-end market prices per metric ton for Northern Bleached Softwood Kraft.
(b) Year-end market prices per short ton for Coated Book. The market price trends for this
wastepaper grade are representative of the percentage price changes experienced by the
Company over the period 1990 through 1994 for the grades of wastepaper used by the
Company. The market price trends for Coated Book may not be representative of future
price trends for the grades of wastepaper Fort Howard uses. In addition, the market
prices shown in this table are not necessarily indicative of Fort Howard's or any other
tissue manufacturer's actual wastepaper costs, which will depend on the particular
grades of wastepaper used.
</TABLE>
Beginning in the third quarter of 1994, wastepaper prices for de-inking
grades utilized by tissue producers increased significantly. 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. Since late 1993, market pulp prices also have increased sharply
as a result of increased demand. The Company expects market pulp prices to
continue to increase due to worldwide tightening supply/demand conditions for
market pulp. For the month of February 1995, the average market prices for
Northern Bleached Softwood Kraft pulp and Coated Book wastepaper increased to
$750 per metric ton and $213 per short ton, respectively. Historically, as
market pulp and wastepaper prices increase, tissue producers have sought to
increase prices to maintain profitability.
United Kingdom
General
The tissue market in the United Kingdom is roughly one-eighth the size of
the U.S. market or approximately 684,000 tons in 1993. The commercial market
represents approximately one-third of the total market and the consumer market
represents approximately two-thirds. Fort Sterling's operations are primarily in
the consumer market. Because no definitive industry reports covering the U.K.
market are available, the following information is based in part on reports
commissioned by the Company and on the Company's estimates.
Demand
Total U.K. tissue shipments increased from 540,000 tons in 1983 to 684,000
tons in 1993 for a compound annual growth rate of 2.4%. In the consumer market,
U.K. tissue shipments grew from
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<PAGE>
361,000 tons in 1983 to 458,000 tons in 1993 for a compound annual growth rate
of 2.4%. In the commercial market, U.K. tissue shipments increased from 179,000
tons in 1983 to 226,000 tons in 1993, for a compound annual growth rate of 2.4%.
Growth in the U.K. commercial market is affected by the same factors that affect
growth in the U.S. commercial market. The U.K. commercial market has been
growing at the same rate as the consumer market. In comparison to the U.S.
commercial market, the commercial market in the U.K. has an underdeveloped
distribution network and more limited product penetration, thereby offering
opportunities for improved shipment growth.
Fort Sterling is one of the four largest tissue producers in the U.K. and
has the fourth largest market share of the total tissue market. The U.K. tissue
market is characterized by low consumption of paper towels and table napkins as
compared to the U.S. tissue market. Private label products command an equal and
growing consumer market share compared to branded products. Private label
products are more likely to be premium quality/high priced than economy/value
priced. However, beginning in late 1992, as Europe began to experience a
recession and as U.K. grocery price competition increased due to the emergence
of grocery discounters and the introduction of club warehouses to the U.K.
market, U.K. consumers began to move more heavily to economy products. From 1991
to 1993, the market share of grocery discounters in the consumer grocery market
increased from 8% to 15%. The Company believes that shipment growth rates in the
consumer market are principally affected by population growth trends, and to a
lesser extent, changing consumption habits as the acceptance and use of paper
towels and table napkins develops further.
Capacity
For the period from 1983 to 1993, U.K. tissue papermaking capacity grew at a
compound annual growth rate of 2.6% to 668,000 tons from 518,000 tons. Taking
into account waste on conversion to finished products of 6%-9%, U.K. tissue
papermaking capacity falls significantly short of U.K. tissue consumption.
Unlike the U.S. market, there are a large number of small, partially integrated
or non-integrated tissue converters that purchase parent rolls (unconverted
rolls of finished tissue) and hold a combined U.K. market share of tissue
shipments of approximately 25%. Also, all the large U.K. tissue manufacturers,
with the exception of Fort Sterling, purchase significant quantities of market
pulp or parent rolls because there is no U.K. timber harvesting to support fully
integrated, virgin wood pulp production. Taking into account announced
papermaking capacity shut-downs and additions, as well as an anticipated modest
consolidation of independent tissue converters, the Company expects supply
conditions to tighten in 1995, 1996 and 1997.
Pricing
U.K. retailers have engaged in increasingly competitive pricing activity in
1993 and 1994 across a broad range of consumer products, including sanitary
tissue paper products, due in part to the greater penetration of large discount
chains, the entry of club warehouse chains from the U.S. and the recession in
the U.K. As a result, tissue prices have declined significantly in the U.K. from
1992 through late 1994.
Consumer and commercial market price increases were announced by Fort
Sterling effective late in the fourth quarter of 1994 and another consumer
market price increase was announced effective late in the first quarter of 1995.
Although there can be no assurances, due to expected tightening supply
conditions in 1995 and 1996, an improving U.K. economy and recent pressure on
worldwide prices for market pulp and wastepaper, the Company believes that
further price increases are likely in 1995.
Raw Material Supply
Market pulp and wastepaper supply and demand and cost trends in the U.K. are
substantially similar to those in the United States.
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<PAGE>
STRATEGIC POSITION
For the past 20 years Fort Howard has maintained annual EBITDA margins in
excess of 30%, approximately double those publicly reported by the Company's
competitors over the past five years. At the same time, the Company has achieved
strong market share growth on the basis of its position as a low cost producer
in the markets in which it competes. 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.
The Company currently believes that pricing and demand in the tissue sector
of the paper industry are beginning to improve. This improvement comes after an
unprecedented period of depressed industry pricing over the past three years,
which led the Company to write off its remaining goodwill balance of $1.98
billion in the third quarter of 1993. See "--Industry Overview," "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations" and the Company's audited consolidated financial statements included
elsewhere in this Prospectus. The Company introduced three price increases in
the commercial market in 1993 and two further increases in April 1994 and mid-
October 1994. The Company believes that retail shelf prices in the consumer
market improved slightly in 1993 and 1994, but remained competitive. Overall
domestically, the Company realized average price increases of 5% for the year
ended December 31, 1994 as compared to 1993. Further price increases were
announced for the commercial and consumer markets effective in January 1995.
Because a substantial portion of the Company's commercial market sales are
pursuant to contracts which generally specify pricing over periods of three
months to one year, there is a time lag before the Company realizes the full
benefit of commercial market price increases. Taking into account announced
tissue papermaking capacity additions and normal population growth, the Company
believes that the rate of capacity growth in 1995, 1996 and 1997 will fall short
of the demand increase, resulting in higher industry operating rates for the
period. In addition, industry costs for market pulp and wastepaper have recently
begun to increase sharply. Historically, as market pulp and wastepaper prices
increase, tissue producers have sought to increase prices to maintain
profitability. Accordingly, while there can be no assurance that pricing will
continue to increase, the Company believes that in addition to the Company's
price increases announced for the commercial and consumer markets for January
1995, further price increases are likely in 1995.
BUSINESS STRATEGY
Fort Howard's business strategy is focused on increasing its profitability
by maintaining and enhancing its position in the United States and
internationally. The Company's strategy involves:
Maintaining Position as Low Cost Producer. Fort Howard is committed to
maintaining its position as a low cost producer of tissue products in the
markets in which it competes. The Company believes that its use of
wastepaper for substantially all of its fiber requirements and, in
particular, its increasingly effective consumption of lower cost wastepaper
grades without sacrificing end product quality, are key components of its
low cost producer strategy. Over the last ten years, because of continuous
improvements in its proprietary de-inking process, Fort Howard has been able
to shift significantly the mix of wastepaper to lower cost grades, thereby
achieving substantial cost savings. In addition, Fort Howard owns a
wastepaper brokerage company which provides it with access to sources of
supply and market information for all grades of wastepaper.
41
<PAGE>
The Company believes that it has a competitive advantage because of the
Company's proprietary de-inking technology and know-how and the substantial
capital investment in new equipment and technologies required by competitors
to achieve operating income margins comparable to those of the Company. The
Company's annual capital spending program for 1995, 1996 and 1997 includes
significant amounts for the ongoing modernization of its mills, including
the addition of a new coal-fired boiler in Savannah, productivity projects
and continued development of improved de-inking technologies, all of which
should produce additional cost savings in the near term. See
"Operations--Domestic Tissue."
Sustaining Growth in Commercial Market Shipments and Market
Share. Approximately two-thirds of the Company's tissue shipments are to the
commercial market. Fort Howard intends to continue its focus on the
commercial market which has grown at a 2.6% compound annual growth rate for
the decade ending December 31, 1994, compared to the consumer market which
has grown at a 2.3% rate during the same period. The commercial market is
expected to continue to grow at a faster rate. The Company intends to use
its leading commercial market share position to capture incremental growth
in the commercial market by focusing on increased sales to large
distributors and national accounts, by emerging as a major supplier to club
warehouses and by expanding its specialty dry form business as described
below:
Increasing Sales to Large Distributors and National Accounts. The
Company has developed an aggressive sales team of over 200 salaried
representatives that is focused on meeting the special requirements of
large distributors and national accounts in the foodservice, health care,
lodging, buildings and industrial subsegments of the commercial market.
Such requirements include, for example, the ability to offer a full line
of tissue products, strict sanitary production requirements, the ability
to service locations nationwide, Electronic Data Interchange ("EDI")
capabilities, and superior on-time and complete order shipping
performance. The Company believes it is well-positioned to increase sales
to these key customers as demand improves.
Improving Position With Club Warehouses. The growing patronage of
club warehouses represents an important growth opportunity for the
Company. Its newly organized club warehouse sales and marketing team
focuses on the special requirements of these customers, including unique
product specifications, packaging sizes and design, palletized
distribution, EDI capabilities, the ability to service locations
nationwide, superior on-time and complete order shipping performance and
the ability to grow rapidly to support new warehouse openings. The
Company is relatively new to club warehouse distribution and still
underrepresented in this distribution channel. The Company, however, has
increased its volume in this channel substantially during the last three
years.
Expanding Specialty Dry Form Business. Fort Howard maintains the
leading market position in the domestic production of dry form paper, the
principal base fiber for baby wet wipes and a key component for feminine
hygiene products. The Company believes the growth rate for the baby wet
wipe industry to date has exceeded the growth rate of the tissue industry
as a whole. Subject to market conditions and the successful completion of
the Recapitalization, the Company's current plans are to start-up its
third dry form machine in the next few years to meet the demand in this
rapidly expanding market.
Sustaining Growth in Consumer Market Shipments and Market Share. The
Company is continuing to grow its share in the domestic consumer market and
has developed the leading branded napkin, Mardi Gras, the leading
environmental brand of tissue products, Green Forest, and the leading
private label market share. Management expects the value segment of the 3.4
million ton consumer market, a part of the market in which the Company
competes, to grow at a faster rate than the premium brand segment of that
market as consumers become more value
42
<PAGE>
conscious. The Company continues to work toward full national distribution
and greater market penetration of its key value brands Soft 'N Gentle, Mardi
Gras, Green Forest and So-Dri and has recently added a distribution center
to serve customers in California. The Company seeks to offer its retailers
margins which are among the highest in the trade and emphasizes promotional
spending rather than advertising. The Company's strategy of expanding its
private label market share should also enable it to benefit from the
continuing growth in the value segment of the consumer market.
Expanding Internationally. The Company views expansion of its
international operations as an increasingly important component of its
long-term business strategy and intends to focus on the following:
Sustaining Growth in U.K. Shipments and Market Share. Management
believes that its commercial market share in the United Kingdom is
underdeveloped and that its experience in building its commercial market
share in the U.S. can continue to be applied to improve results in the
United Kingdom. In addition to consolidating its commercial brands, Fort
Sterling is acquiring new converting capacity to fill key gaps in its
napkin and wiper product lines in an effort to achieve full penetration
of the foodservice channel. Fort Sterling also has restaged its Nouvelle
bath tissue with enhanced attributes and is consolidating its other
consumer branded products.
Expanding into New International Markets. The Company also believes
that significant opportunities may exist for additional growth by
applying its low cost producer technology to international markets
outside of the United Kingdom. The Company is exploring new international
markets in Asia and Latin America whose size, competitive profile and end
use tendencies will allow it to capitalize on its proprietary de-inking
technologies and its experience in the United Kingdom.
Improving Financial Flexibility. The Company has undertaken the
Recapitalization to improve its operating and financial flexibility by
reducing the level and overall cost of its debt, extending maturities of
indebtedness, increasing shareholders' equity and enhancing its access to
capital markets. In addition, as a result of the Recapitalization, the
Company believes that it will be able to execute better its strategy and
take advantage of growth opportunities.
The Company's current plans to support growth in domestic tissue shipments
include, subject to market conditions and the successful completion of the
Recapitalization, adding one world-class (270-inch) tissue paper machine over
the next five years. Any such expansion would only be undertaken after a careful
evaluation of industry capacity conditions. The Company believes that this rate
of expansion will contribute to improved long-term tissue industry operating
conditions.
DOMESTIC TISSUE OPERATIONS
Fort Howard produces its domestic tissue products at three facilities: its
original facility in Green Bay, Wisconsin; its Muskogee, Oklahoma mill
constructed as a greenfield site which commenced papermaking production in 1978;
and its greenfield mill near Savannah, Georgia which commenced production in
1987. Each of these facilities is a world-class, fully integrated tissue mill
that can de-ink and process fiber from low cost wastepaper to provide virtually
all of the mill's tissue fiber. In addition, each mill contains at least two
270-inch tissue paper machines, is geographically located to minimize
distribution costs to its regional markets, produces all its steam and
electrical power, manufactures some of the chemicals used in whitening tissue
fiber and some of its converting materials, and converts, prints and packages
Fort Howard's tissue products.
Fort Howard has installed eight of the eleven largest (270-inch) tissue
paper machines in the world which provide long-term productivity advantages.
Approximately 90% of Fort Howard's domestic
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<PAGE>
production comes from tissue paper machines capable of making 50,000 tons or
more annually, whereas the Company believes that less than one-quarter of
competitors' production comes from machines with a capacity of 50,000 tons or
more. Approximately 50% of Fort Howard's papermaking capacity came on-line
during the last 10 years, while the Company believes that approximately
three-quarters of competitors' tissue paper machines in the U.S. were built over
10 years ago, with approximately one-third over 30 years old. Because tissue
paper machines are often operated for over 50 years, the Company believes that
its new large machines offer a long-term competitive advantage. In addition,
with each new capacity expansion, Fort Howard installed new, world-class
supporting equipment consisting of large scale wastepaper processing and
cleaning systems and converting equipment that provide further productivity
advantages.
Facilities. In Green Bay, Wisconsin, the Company operates nine tissue paper
machines, including two world-class 270-inch tissue paper machines completed in
1984 and 1992. In addition, the Green Bay mill contains two dry form machines
which commenced operation in 1978 and 1989. Although the Green Bay mill is the
Company's original facility, having commenced production in 1920, it is well
maintained, includes virtually all of Fort Howard's latest technologies and
equipment and is cost competitive with the Company's newer facilities. The
Company's Muskogee, Oklahoma mill contains a new 270-inch tissue paper machine
which was added during the first quarter of 1994, and another 270-inch and three
200-inch tissue paper machines which were installed between 1978 and 1985. Fort
Howard's greenfield mill located near Savannah, Georgia contains four 270-inch
tissue paper machines that commenced production in 1987, 1988, 1989 and 1991.
Each of the Company's mills also includes a coal-fired cogeneration power
plant capable of producing all of the mill's steam and electricity, a modern
de-inking and pulp processing plant that processes virtually all of the mill's
fiber requirements from wastepaper, a chemical plant that produces high volume
chemicals used in whitening fibers, high speed converting equipment for cutting,
folding, printing and packaging paper into the Company's finished products and
related facilities and warehousing. The Muskogee mill also includes a polywrap
manufacturing plant that processes approximately one-half of the polywrap
required by the Company's domestic mills and the Green Bay mill includes a large
machine shop that services all the Company's domestic mills.
Wastepaper. Fort Howard has led the industry in developing sanitary tissue
paper products from recycled wastepaper. Fort Howard uses 100% wastepaper for
all but a limited number of dry form and specialty products representing
approximately 3% of its volume. Currently, Fort Howard recycles over 1.4 million
tons of wastepaper annually into tissue products--about four times as much as
any other U.S. tissue company. The Company believes that its use of wastepaper
for substantially all of its fiber requirements gives it a cost advantage over
its competitors.
The Company has developed the largest network for obtaining de-inking grades
of wastepaper in the domestic tissue industry. A large portion of its wastepaper
requirements is sourced through Harmon Assoc. Corp. ("Harmon"), the Company's
100% owned wastepaper brokerage subsidiary. The remainder of the Company's
wastepaper requirements are sourced through an in-house wastepaper purchasing
group. As a wastepaper broker, Harmon can accept the total wastepaper generation
from a supplier whether or not all the wastepaper is needed to meet Fort
Howard's production requirements. This ability effectively increases the sources
of supply to Fort Howard. In addition, Harmon's activities in export markets, as
well as in grades not usually purchased by Fort Howard, provide the Company with
valuable intelligence on trends in the worldwide wastepaper market. The Company
also maintains innovative curbside collection programs with several
municipalities and enters into contracts with large office complexes to
effectively increase its sources of wastepaper supply.
Energy. Each of the Company's mills includes a coal-fired cogeneration plant
for the production of all its steam, which Fort Howard uses both in
manufacturing tissue and in generating virtually all its electricity. The
Company believes that its energy cost is significantly lower than the cost of
energy
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<PAGE>
available to it from public utilities. In recent years, the Company has
installed fluidized bed boilers to burn lower cost coal and petroleum coke
efficiently and in conformity with environmental standards.
Chemical, Printing and Packaging. The Company operates chemical plants at
all three mills to produce some of the whitening agents used in high volumes in
processing fiber. The Muskogee mill also operates a plant to process resin into
polywrap to supply much of the Company's polywrap needs. The Company's own
artists and graphic designers create the many and varied colored print designs
for certain of Fort Howard's tissue products. In addition, all the cores and a
large percentage of the labels and boxes used in packaging tissue products are
manufactured at each mill using Company manufactured or purchased paper and
chipboard.
Distribution. The Company has geographically sited its tissue mills to serve
its largest regional markets in the Midwest, Northeast and Southeast which
permits it to ship its products at a low cost. The Company maintains a small
number of distribution points enabling it to ship full truckloads of its broad
product line at a low cost. The Company uses independent haulers to transport
most of its shipments. The Company seeks to maximize the productivity of its
haulers by applying a "round trip" transport concept for shipping finished goods
out and hauling wastepaper back. The Company's own truck fleet is used to
minimize truckload carrying costs to select markets and to handle "rush"
shipments to meet customer requirements.
Capital Expenditures. The Company has invested heavily in its manufacturing
operations. Capital expenditures in the Company's tissue business were
approximately $724 million for the five year period ended December 31, 1994,
$538 million of which was incurred for capacity expansion projects. In addition,
the Company's annual capital spending program includes significant investments
for the ongoing modernization of each of its mills. For example, as new
de-inking technologies and converting equipment are developed, the Company adds
such technology and equipment at each mill to maintain low cost structures.
A significant portion of the Company's capital budget since 1985 has been
invested in the Savannah mill, which was completed in 1991. Total expenditures
for the Savannah mill were $570 million. In 1993, the Company completed an
expansion of its Green Bay tissue mill, including the addition of a new tissue
paper machine and related environmental protection, pulp processing, converting,
and steam generation equipment. The new tissue paper machine at the Green Bay
mill commenced production in August 1992. Total expenditures for the expansion
project were $180 million. In 1994, the Company completed the installation of a
fifth tissue paper machine, environmental protection equipment and associated
facilities at its Muskogee tissue mill. Total expenditures for the expansion
were approximately $140 million.
Research and Development. The Company maintains laboratory facilities with a
permanent staff of engineers, scientists and technicians who are responsible for
improving existing products, development of new products and processes, product
quality, process control and providing technical assistance in adhering to
regulatory standards. Continuing emphasis is being placed upon expanding the
Company's capability to de-ink a broader range of wastepaper grades, designing
new products, further automating manufacturing operations and developing
improved manufacturing and environmental processes.
Engineering and Maintenance. The Company's internal engineering staff
provides the engineering expertise to assist in the designing, constructing,
upgrading and maintenance of the Company's tissue mills. The Company's
engineering staff has managed the start-up of eight of the world's largest
tissue paper machines since 1984, and has designed many vital components of the
tissue paper machines, wastepaper processing systems and converting equipment
related to these expansions. In addition, the Company's engineers have designed
key wastepaper processing and converting equipment which is manufactured in the
Company's Green Bay machine shop. The Company's maintenance program at each of
its domestic mills emphasizes preventive maintenance to minimize production
stoppages.
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<PAGE>
Products
Commercial Products. Fort Howard's commercial tissue products include folded
and roll towels, bath and facial tissue, bulk and dispenser napkins, disposable
wipers, specialty printed merchandise and dispensers. Because commercial market
manufacturers offer similar product attributes to this value conscious market,
competition principally involves value pricing and service. Management believes
that Fort Howard's commitment to quality and service and its competitive pricing
strategy afforded by its low cost producer status have provided the foundation
for the continuation of its leading commercial market share of approximately
26%.
The Company constantly strives to grow in new or underdeveloped subsegments
of its commercial products business. With the Envision line, made from 100%
recycled paper, Fort Howard was the first company to position a line of tissue
paper products as made from recycled paper that meet or exceed U.S.
Environmental Protection Agency ("U.S. EPA") guidelines for post-consumer
wastepaper ("PCW") content of 5% to 40%. The Company believes Envision is the
market leader in the rapidly growing environmental segment of the commercial
market. Utilizing its advanced de-inking technology, Fort Howard set the
standard dramatically higher for PCW content in commercial products by
increasing the minimum PCW content of its Envision line to 90% or higher and by
commissioning an outside audit of its internal controls which are maintained to
assure that Envision manufacturing processes yield the stated minimum PCW
content.
In addition, the Company also produces parent rolls for sale to converters
in international markets, including Latin America and the Middle East.
Specialty Dry Form Products. In another growing product area, dry form
products (used to make baby wet wipes and a key component in feminine hygiene
products), the Company believes it is the largest domestic producer and one of
only 13 manufacturers in the world. Dry form production is a process that
converts soft, randomly laid fibers made from wood pulp into a sturdy and
absorbent pulp web using air instead of water to transfer the pulp. Synthetic
bonding agents are then sprayed on the pulp web, creating a sheet of fabric-like
paper. Dry form is principally sold in parent roll form to meet rigorous
specifications for large consumer product companies which convert it into their
branded products. The Company believes that it is the leading marketer of dry
form to companies in the domestic private label baby wipe market. The growth
rate for this business to date has exceeded the growth rate of the tissue
industry as a whole. In addition, the Company converts dry form paper into
premium wipers and dinner napkins for the commercial market.
Consumer Products. Fort Howard's consumer product growth strategy has
targeted the branded value and private label segments of the market, where the
Company enjoys a competitive advantage as a low cost producer. Management
believes that these segments will continue to grow as consumers become more
price conscious.
The Company's value branded products such as Mardi Gras, Soft 'N Gentle and
Green Forest offer a high level of softness, absorbency and brightness at
substantial price savings. The appeal of Mardi Gras napkins and paper towels is
enhanced by their multi-color prints with changing patterns and special seasonal
designs. The attractiveness of the Mardi Gras designs and its value positioning
have enabled the Company to increase the Mardi Gras napkin market share to
approximately 14% in 1994, giving the Company the leading consumer napkin share.
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Soft 'N Gentle bath tissue is the Company's largest selling consumer brand.
Soft 'N Gentle bath tissue is a quality product that targets retail pricing at
20-25% below premium tissue products. The Company introduced the Green Forest
line of bath tissue, paper towels and napkins in 1990 on the 20th anniversary of
Earth Day. Environmentally oriented consumers have made the Green Forest line
the leading brand in the environmentally positioned segment.
The Company's Page bath tissue, paper towels and napkins and So-Dri paper
towels are targeted to the more price conscious shopper in the economy segment
of the consumer market. The retail prices of these products are typically
targeted at 25-30% below the premium brands.
Fort Howard is the leading tissue producer in the growing consumer private
label business with an estimated one-third market share in 1994. Many national
grocery chains have focused on the development of private label tissue products
to support the positioning of the chain with their shoppers as well as to
enhance margins. Since 1984, Fort Howard's private label business has tripled
and in 1994 represented approximately 40% of Fort Howard's consumer tissue
sales. Typically offered on a limited supplier basis, private label products
enable the Company to form close relationships with many of the nation's fastest
growing, leading grocery chains and mass merchandisers and afford opportunities
for Fort Howard's branded products with these same customers. The Company
believes that its ability to position branded and private label tissue products
with the same grocer or mass merchandiser is a major competitive advantage, as
no other major competitor emphasizes, to the same extent as Fort Howard, both
branded and private label tissue products.
Marketing
Approximately two-thirds of the Company's products are sold through paper,
institutional food and janitorial distributors into the commercial market, with
the balance being principally sold through brokers to major food store chains,
wholesale grocers and mass merchandisers for household (or "consumer") use.
These products are produced in a broad range of weights, textures, sizes, colors
and package configurations providing Fort Howard with distinct advantages as a
full-line manufacturer. The Company also creates and prints logos, commercial
messages and artistic designs on paper napkins and place mats for commercial
customers and party goods and specialty print merchandisers. Most products are
sold under Company-owned brand names, with an increasing percentage of products
being sold under private labels. In the commercial segment the Company sells its
products primarily under the Fort Howard name. Principal brand names of consumer
products include Soft 'N Gentle, Mardi Gras, Green Forest, So-Dri and Page.
Commercial Market. Fort Howard's commercial sales force of over 200 salaried
representatives combines broad geographical reach and frequency of contact with
the Company's major commercial customers, including large distributors, national
accounts and club warehouses. Because the commercial sales force is dedicated to
the sale of the Company's commercial tissue products, the Company's sales
representatives are able to devote substantial time to developing end user
demand, an important selling point for the Company's distributors.
The Company is forging a growing number of strategic alliances with
customers. The Company believes Fort Howard offers customers a number of
important competitive advantages, including: (i) a profitable market growth
strategy; (ii) a broad line of tissue paper products that permits distributors
to limit the number of suppliers they use, increase inventory turns and profits,
and reduce warehouse requirements and (iii) significant end user demand that
makes Fort Howard an attractive product line.
The continued development of the Company's national accounts business in the
foodservice, health care, lodging, buildings and industrial subsegments of the
commercial market has been an important factor in growing the Company's leading
commercial market share. The Company's national accounts sales team focuses on
meeting the special requirements of these large customers who prefer to
negotiate purchases directly with the Company. Such requirements include, for
example, strict sanitary production requirements, the ability to service
locations nationwide, EDI capabilities and superior on-time and
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complete order shipping performance. Certain of these customers, particularly
the large, environmentally conscious fast food or other national chains,
increasingly require the ability to offer 100% recycled paper products.
The Company's newly organized club warehouse sales and marketing team
focuses on the special requirements of these customers, including unique product
specifications, packaging sizes and design, palletized distribution, EDI
capabilities, the ability to service locations nationwide, superior on-time and
complete order shipping performance and the ability to grow rapidly to support
new warehouse openings.
Consumer Market. Sales of the Company's consumer products are principally
made through a nationwide network of independent food brokers. Regional sales
managers focus on sustaining close relationships with brokers and retailers by
emphasizing Fort Howard's historic strengths--value, competitive pricing and
enhanced margins for retailers. The Company's national accounts sales force
focuses on mass merchandisers and on implementing their "everyday low pricing"
strategies. The private label sales team deals with both national accounts and
food brokers and their customers. In contrast to tissue producers who emphasize
marketing of their consumer products through advertising and promotion to the
end consumer, Fort Howard incurs minimal advertising expense. Rather, the
Company focuses its marketing efforts for consumer products on trade promotion
and incentive programs targeted to grocery and mass merchandising retailers.
INTERNATIONAL TISSUE OPERATIONS
When it was acquired by Fort Howard in 1982, Fort Sterling was an
independent recycler of wastepaper into sanitary tissue paper products sold
principally under private labels into the consumer market. Since 1982, Fort
Sterling has funded significant investments in recycling and other process
technologies and equipment through strong cash flow from operations and
borrowings, doubled its U.K. market share, introduced premium quality Nouvelle
tissue paper products produced from 100% wastepaper to the United Kingdom
consumer market, expanded into the commercial market and developed a strong
local management team and workforce. Today, Fort Sterling is one of the four
fully integrated tissue companies in the United Kingdom. For an analysis of net
sales, operating income (loss) and identifiable operating assets in the United
States and the U.K., see Note 16 to the audited consolidated financial
statements included elsewhere in this Prospectus.
Facilities. Fort Sterling currently operates three tissue paper machines and
a de-inking and wastepaper processing plant at its Ramsbottom paper mill and
cuts, folds, prints and packages paper into finished tissue products at its
Bolton and Wigan converting facilities, all of which are located in Greater
Manchester, England.
In recent years, Fort Sterling has increased its capital spending to expand
significantly the productive capacity of its two older tissue paper machines and
to improve the capacity and productivity of its converting operations. In 1993,
Fort Sterling completed a $96 million expansion which doubled the capacity of
its paper mill. The expansion project added a 206-inch tissue paper machine and
related de-inking and pulp processing plants. In September 1992, Fort Sterling
acquired Stuart Edgar, a converter of consumer tissue products. The acquisition
significantly increased Fort Sterling's converting capacity at a low capital
cost and provided Fort Sterling with a modern converting plant.
Fort Sterling's expansion provided an opportunity for significant market
share growth. Since 1984, Fort Sterling's sales volume has increased at a
compound annual growth rate of 10.0% per year. The additional tissue paper
machine capacity and de-inking technologies have enabled Fort Sterling to
significantly reduce its manufacturing costs. In addition, the Company believes
that these improvements should better position Fort Sterling to take advantage
of rising market prices if industry operating rates continue to improve and the
U.K. economy continues to recover.
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Products
Consumer Products. Unlike the Company's domestic tissue operations, Fort
Sterling's primary thrust has been in the larger consumer segment of the United
Kingdom tissue market where over 85% of its sales are targeted. In a market
where private label represents slightly less than half of all tissue sales, the
Company believes that Fort Sterling maintains a leading share of the consumer
private label market. Approximately two-thirds of Fort Sterling's consumer
business in 1994 was sold under private labels to large grocers and convenience
stores. Fort Sterling's principal brand is its Nouvelle line of tissue paper
products. The Nouvelle line is positioned as 100% recycled with the product
attributes approaching those of the leading United Kingdom premium brands.
Commercial Products. Fort Sterling's commercial market volume in the United
Kingdom has grown from less than 1% of the U.K. commercial market upon its
acquisition in 1982 to 5% in 1994, and management intends to use its expanded
capacity to increase its position in the commercial market.
Marketing
Fort Sterling maintains a direct sales force serving large and independent
grocers and mass merchandisers in the consumer market. Fort Sterling has a
commercial sales force which markets the Company's products via a network of
independent distributors. A separate national accounts sales team targets
commercial foodservice, health care and national industrial accounts.
PATENTS, LICENSES, TRADEMARKS AND TRADE NAMES
While the Company owns or is a licensee of a number of patents, its
operations and products are not materially dependent on any patent. The Company
relies on trade secret protection for its proprietary de-inking technology which
is not covered by patent. The Company's domestic tissue products for at-home use
are sold under the principal brand names Soft 'N Gentle, Mardi Gras, Green
Forest, So-Dri and Page. For the Company's domestic commercial tissue business,
principal brand names include Envision and Generation II. All brand names are
registered trademarks of the Company. A portion of the Company's tissue products
are sold under private labels or brand names owned by customers.
QUALITY MANAGEMENT
In 1989, the Company commenced a program to educate and train all employees
at its three domestic mills in the principles of "Total Quality" and to adopt
total quality principles. Employees at all levels of the Company are encouraged
to understand customer and supplier requirements, measure performance, develop
systems and procedures to prevent nonconformance with requirements and produce
continuous improvement in all work processes. Since the introduction of the
program, the Company has reduced its lead times, improved on-time and complete
order shipping performance, delivered improved adherence to key product
specifications and fostered and implemented improvement opportunity ideas from
employees that have yielded significant annual cost savings. Most recently, in
May 1994, the Company's Savannah mill became the first domestic recycled tissue
mill to obtain ISO-9002 certification, an achievement recognizing the Company's
commitment to Total Quality. The Company's other two domestic mills will seek
certification in 1995. Fort Sterling achieved similar certification, BS5750, in
1991.
RAW MATERIALS AND ENERGY SOURCES
The principal raw materials and supplies used to manufacture tissue products
are wastepaper (which is processed to reclaim fiber), chemicals, corrugated
shipping cases and packaging materials. From July 1994 to January 1995,
wastepaper prices for the grades of wastepaper used in Fort Howard's products
more than doubled. See "Certain Risk Factors--Increasing Wastepaper Prices."
Virtually all of the Company's tissue products are made with 100% recycled fiber
derived from wastepaper. The de-
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inking technology employed by the Company allows it to use a broad range of
wastepaper grades, which effectively increases both the number of sources and
the quantity of wastepaper available for its manufacturing process. The Company
manufactures some of the process chemicals required for the Company's tissue
production at each of its domestic mill locations. The balance of its chemical
requirements is purchased from outside sources. The Company also purchases
significant quantities of coal for generation of electrical power and steam at
all three of its domestic tissue mills. The Company seeks to maintain
inventories of wastepaper, other raw materials and supplies which are adequate
to meet its anticipated manufacturing needs.
The Company's major sources of energy for its domestic tissue mills are coal
and other fuels which are burned to produce the heat necessary to dry paper,
process wastepaper, provide steam and produce virtually all the electric power
at those mills. Coal is received in Green Bay in self-unloading vessels during
the Great Lakes shipping season and at the Muskogee and Savannah mills by truck
and rail. The Company maintains inventories of coal and other fuels at all
mills. The Savannah mill can also generate electrical power by burning natural
gas in combustion turbines. The primary sources of energy for the Company's
United Kingdom tissue facilities are purchased electrical power and natural gas.
CUSTOMERS AND BACKLOG
The Company principally markets its products to customers in the United
States and, to a lesser extent, the United Kingdom, Mexico, Canada and the
Middle East. The business of the Company is not dependent on a single customer.
Currently, a substantial portion of the Company's sales are pursuant to
contracts which generally specify pricing over periods of three months to one
year.
The Company's products are manufactured with relatively short production
time from basic materials. Products marketed under the Company's trademarks and
stock items are sold from inventory. The backlog of customer orders is not
significant in relation to sales.
COMPETITION
All the markets in which the Company sells its products are extremely
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. 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. Although customers
generally take into account price, quality, distribution and service as factors
when considering the purchase of products from the Company, over the last four
years, price has become a more important competitive factor affecting tissue
producers.
PROPERTIES
Except for certain facilities and equipment constructed or acquired in
connection with sale and leaseback transactions pursuant to which the Company
continues to possess and operate such facilities and equipment, substantially
all the Company's manufacturing facilities and equipment are owned in fee. The
Company's domestic and United Kingdom tissue manufacturing facilities are
pledged as collateral under the terms of the Company's debt agreements. See Note
8 to the audited consolidated financial statements included elsewhere in this
Prospectus.
The Green Bay, Muskogee, Savannah, and United Kingdom facilities generally
operate tissue paper machines at full capacity seven days per week, except for
downtime for routine maintenance and the temporary shut-downs of one or two
small tissue paper machines at the Green Bay mill. Converting facilities are
generally operated on a 3-shift, 5-day per week basis or a 7-day per week
schedule.
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Converting capacity could be expanded by working additional hours and/or adding
converting equipment.
EMPLOYEES
At December 31, 1994, the Company's world-wide employment was approximately
6,800, of which 5,800 persons were employed in the United States and 1,000
persons were employed in the United Kingdom. There is no union representation at
any of the Company's domestic facilities. The Company's employees at its
facilities in the United Kingdom are unionized and the union contracts generally
require annual renegotiation of employee wage awards. The Company considers its
relationship with its employees to be good.
ENVIRONMENTAL MATTERS
The Company is subject to substantial regulation by various federal, state
and local authorities in the U.S., and by 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.
Compliance with existing laws and regulations presently requires the Company
to incur substantial capital expenditures and operating costs. In addition,
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 to expand the scope of regulation. As a
result, it is likely that certain of the Company's operating expenses will
increase and that the Company will be required to make additional capital
expenditures. In addition, the operating flexibility of the Company's
manufacturing operations is likely to be adversely impacted. Because other paper
manufacturers are generally subject to similar environmental restrictions, the
Company believes that compliance with environmental laws and regulations is not
likely to have a material adverse effect on its competitive position. It is
possible, however, that such compliance could have a material adverse effect on
the Company's financial condition and results of operations at some point in the
future.
In 1994, the Company made capital expenditures of $9 million with respect to
pollution abatement and environmental compliance. Included in the 1994 capital
expenditures was $4 million for pollution abatement equipment in connection with
completing expansion projects initiated in 1993 and prior years. The Company
expects to commit to approximately $12 million of capital expenditures to
maintain compliance with environmental control standards at its facilities
during 1995 and 1996. Included in the 1995-96 expected expenditures is $1
million for pollution abatement equipment to be installed in connection with
constructing a coal-fired boiler at the Company's Savannah mill. Although some
pollution abatement and solid waste disposal facilities produce improvements in
operating efficiency, most increase product costs without enhancing capacity or
operating efficiency. Because the impact of new environmental laws and
regulations and the implementation and enforcement of existing laws and
regulations cannot be determined with certainty at this time, it is possible
that there will be additional capital expenditures during these years, including
but not limited to those described below.
The U.S. EPA has proposed guidance for basin-wide water quality standards
pursuant to the Great Lakes Water Quality Agreement between the U.S. and Canada
regarding the development of water quality standards for the Great Lakes and
their tributaries. This guidance is required by Court order to be issued in
final form by March 1995, with a two-year period to follow in which the affected
states will be required to utilize the guidance to implement specific
regulations. Dischargers would then have an additional period of up to three
years in which to comply with such regulations. Many manufacturers, municipal
wastewater treatment authorities and others believe that the present terms of
the guidance are unnecessarily complex, burdensome and environmentally
unjustified. Whether the U.S. EPA will revise the proposed guidance in response
to those concerns, however, cannot be determined at this time.
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The guidance, as currently drafted and if not modified, would impose
limitations on the Company's wastewater discharge from its Green Bay mill into
the Fox River that as a practical matter would prohibit the Company from
discharging any wastewater into the Fox River. The Company is exploring
alternative technologies to enable it to discontinue all wastewater discharge to
the Fox River, if required, and presently estimates cumulative capital
expenditures of approximately $65 million (which includes $20 million of
currently planned capital expenditures) over a several year period would be
required to discontinue wastewater discharge to the Fox River. The costs to
attain compliance with the guidance as proposed could vary depending upon
several factors, including, among others: (i) the ultimate form of the final
guidance, which could vary from the proposed guidance; (ii) the form and
substance of state laws or regulations implementing the final guidance; (iii)
delays or changes resulting from potential administrative and judicial
challenges to the guidance which might be filed and (iv) new developments in
control and process technology.
The U.S. EPA has proposed new air emission and revised wastewater discharge
standards for the pulp and paper industry which are commonly known as the
"Cluster Rules." The components of the Cluster Rules that deal with wastewater
discharges are expected to be finalized by late 1995 or early 1996. If the final
rules on wastewater discharges are substantially the same as the proposed rules,
the Company estimates that it will incur additional aggregate capital
expenditures of approximately $1.2 million.
Components of the currently proposed Cluster Rules that address air
emissions will have little impact on de-inking paper mills such as the Company's
mills. However, additional installments of the Cluster Rules, expected to be
proposed during 1996 with expected compliance deadlines as late as the year
2000, are expected to specifically address chloroform and other air emissions
from de-inking mills and likely will have a greater impact on the Company. The
Company is presently unable to estimate that impact since the applicable rules
have not been proposed and therefore no assurances can be given as to whether
the impact will be material to the Company.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes liability, without regard to fault or to the legality of the
original action, on certain classes of persons (referred to as potentially
responsible parties or PRPs) associated with a release or threat of a release of
hazardous substance into the environment. 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 and has been named a PRP for alleged natural
resource damages to the Fox River, both of which are discussed in "Legal
Proceedings" below. Except for the United States Department of Interior, Fish
and Wildlife Service ("FWS") assessment of the Fox River discussed below, the
Company is not presently named as a PRP at any CERCLA-related sites. However,
there can be no certainty that the Company will not be named as a PRP at any
other sites in the future or that the costs associated with additional sites
would not be material to the Company's financial condition or results of
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. The Company expects these costs to be
incurred over an extended number of years. 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.
LEGAL PROCEEDINGS
On December 16, 1994, the Company received a Civil Investigative Demand
("CID") issued by the U.S. Department of Justice, Antitrust Division pursuant to
the Antitrust Civil Process Act, Title 15
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of the United States Code. The CID seeks documents and information as part of an
Antitrust Division civil investigation to determine whether there are agreements
in restraint of trade in connection with sales of sanitary paper products. The
Company is cooperating with the investigation.
Since July 1992, the Company has been participating with a coalition
consisting of industry, local government, state regulatory commission and public
interest members studying the nature and extent of PCB (polychlorinated
biphenyl) and other sediment contamination of the Lower Fox River in northeast
Wisconsin. The objective of the coalition is to identify, recommend and
implement cost effective remediation of contaminated deposits which can be
implemented on a voluntary basis. Based upon presently available information,
the Company believes that there are additional parties, some of which may have
substantial resources, who may in the future contribute to the remediation
effort. One of the current industry coalition members, in cooperation with the
Wisconsin Department of National Resources, is in the process of undertaking a
demonstration of river remediation techniques on the Lower Fox River to
remediate one sediment deposit located approximately 35 miles upstream from the
Company's Green Bay mill. The Company's participation in the studies undertaken
by the coalition is voluntary and its contributions to funding those activities
to date have not been significant. The Company's participation in the coalition
is not an admission of liability for any portion of any remediation and the
Company does not believe its participation will prejudice any defenses available
to the Company.
On June 20, 1994, the FWS, a federal natural resources trustee, informed the
Company that it had identified the Company and four other companies with
facilities located along the Lower Fox River as PRPs for purposes of natural
resource liability under CERCLA, commonly known as the "Superfund Act," and the
Federal Water Pollution Control Act arising from alleged releases of PCBs to the
Fox River and Green Bay system. The FWS alleges that natural resources including
endangered species, fish, birds and tribal lands or lands held by the United
States in trust for various tribes have been exposed to PCBs that were released
from facilities located along the Fox River. The FWS has stated that it intends
to undertake an assessment to determine and quantify the nature and extent of
injury to natural resources. The FWS has invited the Company and the other four
companies to participate in the development of the type and scope of the
assessment and in the performance of the assessment, pursuant to federal
regulations. It is anticipated that any assessment would require considerable
time to complete. Based upon presently available information, the Company
believes that there are additional parties, some of which may have substantial
resources, who may be identified as PRPs for alleged natural resource damages.
On July 15, 1992, Region V of the U.S. EPA issued a Finding of Violation to
the Company concerning the No. 8 boiler at its Green Bay mill. The Finding
alleged violation of regulations issued by the U.S. EPA under the Clean Air Act
relating to New Source Performance Standards for Fossil Fuel Fired Steam
Generators. In response to an accompanying Request for Information, the Company
furnished certain information concerning the operation of the boiler. The
Company met with representatives of the U.S. EPA in August 1992 and February
1993 to discuss the alleged violations. On January 11, 1994, the U.S. EPA
informally advised the Company that, due to its internal guidelines that limit
the authority of the agency to administratively resolve matters that include
alleged violations extending over a period of more than one year, disposition of
the Finding of Violation was being transferred to the U.S. Department of
Justice. The Company met with representatives of the U.S. EPA and the U.S.
Department of Justice in September 1994. On October 5, 1994, the Company and the
U.S. EPA, with concurrence from the U.S. Department of Justice, reached an
agreement in principle whereby the Company, without admitting any wrongdoing,
has agreed to make certain modifications to the boiler which will limit its
physical capacity to the level specified in the alleged relevant New Source
Performance Standards. The physical modifications, which require expenditures of
approximately $40,000, will not affect the utility of the No. 8 boiler. In
addition, the Company has agreed to pay $350,000 to settle this matter.
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The Company believes, based upon currently available information and
analysis, that the environmental charge it has accrued in the fourth quarter of
1994 for environmental matters adequately reflects the Company's estimated or
anticipated liabilities and legal and consulting costs relating to environmental
matters arising from past operations. The Company expects these costs to be
incurred over an extended number of years. 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 1992, the IRS issued a statutory notice of deficiency (the "Notice") to
the Company for additional income tax due for the 1988 tax year. In the Notice,
the IRS disallowed deductions for its 1988 tax year for fees and expenses, other
than interest, related to the 1988 debt financing and refinancing transactions.
In disallowing these deductions, the IRS relied on Code Section 162(k) (which
denies deductions for otherwise deductible amounts paid or incurred in
connection with stock redemptions). The Company had deducted a portion of the
disallowed fees and expenses in 1988 and has been deducting the balance of the
fees and expenses over the terms of the 1988 long-term debt financing and
refinancing. Following receipt of the Notice, the Company filed a petition in
the U.S. Tax Court contesting the deficiency. In August 1994, the U.S. Tax Court
issued its opinion in which it essentially adopted the interpretation of Code
Section 162(k) advanced by the IRS and disallowed the deductions claimed by the
Company. At present, the U.S. Tax Court is preparing an order in which it will
determine the amount of the tax deficiency owed by the Company as a result of
the court's decision. The Company intends to appeal the U.S. Tax Court decision
to the U.S. Court of Appeals for the Seventh Circuit. In anticipation of its
appeal, the Company has paid to the IRS tax of approximately $5 million
potentially due for its 1988 tax year pursuant to the U.S. Tax Court opinion
along with $4 million for the interest accrued on such tax. If the decision of
the U.S. Tax Court is ultimately sustained, the Company estimates that the
potential amount of additional taxes due on account of such disallowance for the
period 1989 through 1994 would be approximately $34 million and for the period
after 1994 (assuming current statutory tax rates) would be approximately $4
million, in each case exclusive of interest. While the Company is unable to
predict the final result of its appeal of the U.S. Tax Court decision with
certainty, it has accrued for the potential tax liability as well as for the
interest charges thereon for the period 1989 through 1994 and thus the Company
believes that the ultimate resolution of this case will not have a material
adverse effect on the Company's financial condition or on its results of
operations.
The Company and its subsidiaries are parties to other lawsuits and state and
federal administrative proceedings in connection with their businesses. Although
the final results in all suits and proceedings cannot be predicted with
certainty, the Company presently believes that the ultimate resolution of all
such lawsuits and proceedings, after taking into account the liabilities accrued
with respect to such matters, will not have a material adverse effect on the
Company's financial condition or results of operations.
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MANAGEMENT
DIRECTORS OF THE COMPANY
The following table provides certain information about each of the current
directors of the Company as of December 31, 1994.
Within 90 days following completion of the Offering, the Company will
appoint two independent directors to the Board of Directors who are not
employees of the Company or Morgan Stanley Group and its affiliates. Upon
consummation of the Offering, the Company's Board of Directors will be divided
into three classes of directors serving staggered three-year terms. The terms of
office of the directors expire as follows: Ms. Hempel in 1996; Messrs. Riordan
and Sica in 1997; and Messrs. DeMeuse, Brennan and Niehaus in 1998. See
"Description of Capital Stock--Restated Certificate of Incorporation and
By-laws."
<TABLE><CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER
WITH THE COMPANY AGE DIRECTORSHIPS
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Donald H. DeMeuse......................... 58 Chairman of the Board of Directors and
Chairman of the Board Chief Executive Officer since March
1992; President and Chief Executive
Officer from July 1990 to March 1992.
Prior to July 1990, President for more
than five years. Director of Associated
Bank Green Bay.
Kathleen J. Hempel........................ 44 Vice Chairman and Chief Financial Officer
Vice Chairman since March 1992; Senior Executive Vice
President and Chief Financial Officer
prior to that time. Director of
Whirlpool Corporation.
Michael T. Riordan........................ 44 President and Chief Operating Officer
Director since March 1992; Vice President prior to
that time.
Donald Patrick Brennan.................... 54 Managing Director of MS&Co since prior to
Director 1989 and head of MS&Co's Merchant
Banking Division. Chairman and President
of Morgan Stanley Leveraged Equity Fund
II, Inc. ("MSLEF II, Inc."), Chairman
of Morgan Stanley Capital Partners III,
Inc. ("MSCP III") and Chairman of Morgan
Stanley Venture Partners. Director of
MS&Co, Jefferson Smurfit Corporation,
PSF Finance Holdings, Inc., Stanklav
Holdings, Inc. and Waterford Wedgwood plc.
Robert H. Niehaus......................... 39 Managing Director of MS&Co since 1990;
Director Principal of MS&Co prior to that time.
Vice President and Director of MSLEF II,
Inc. and Vice Chairman of MSCP III.
Director of American Italian Pasta
Company, PSF Finance Holdings, Inc.,
Randall's Food Markets, Inc., Silgan
Corporation, Silgan Holdings Inc.,
Waterford Wedgwood U.K. plc (Chairman)
and Waterford Crystal Ltd.
</TABLE>
55
<PAGE>
<TABLE><CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER
WITH THE COMPANY AGE DIRECTORSHIPS
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Frank V. Sica............................. 43 Managing Director of MS&Co since prior to
Director 1989. Vice President and Director of
MSLEF II, Inc. since 1989 and Vice
Chairman of MSCP III. Director of ARM
Financial Group, Inc., Emmis Broadcasting
Corporation, Interstate Natural Gas
Company, Kohl's Corporation, PageMart, Inc.,
Southern Pacific Rail Corporation and
Sullivan Communications, Inc.
</TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table provides certain information about each of the current
executive officers of the Company as of December 31, 1994. All executive
officers are elected by, and serve at the discretion of, the Board of Directors.
None of the executive officers of the Company is related by blood, marriage or
adoption to any other executive officer or director of the Company.
<TABLE><CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT;
NAME AND POSITION FIVE-YEAR EMPLOYMENT HISTORY AND OTHER
WITH THE COMPANY AGE DIRECTORSHIPS
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Donald H. DeMeuse......................... 58 See description under "--Directors of the
Chairman of the Board and Chief Company."
Executive Officer
Kathleen J. Hempel........................ 44 See description under "--Directors of the
Vice Chairman and Chief Financial Officer Company."
Michael T. Riordan........................ 44 See description under "--Directors of the
President and Chief Operating Officer Company."
Andrew W. Donnelly........................ 52 Executive Vice President for more than
Executive Vice President five years.
John F. Rowley............................ 54 Executive Vice President for more than
Executive Vice President five years.
George F. Hartmann, Jr.................... 52 Vice President for more than five years.
Vice President
R. Michael Lempke......................... 42 Vice President since September 1994;
Vice President and Treasurer Treasurer since November 1989.
James W. Nellen II........................ 47 Vice President and Secretary for more than
Vice President and Secretary five years.
Daniel J. Platkowski...................... 43 Vice President for more than five years.
Vice President
Timothy G. Reilly......................... 44 Vice President for more than five years.
Vice President
Donald J. Schneider....................... 58 Vice President for more than five years.
Vice President
Charles L. Szews.......................... 38 Vice President since September 1994;
Vice President and Controller Controller since November 1989.
Charles D. Wilson......................... 49 Vice President since June 1994; Director
Vice President of Government Affairs prior to that time.
David K. Wong............................. 45 Vice President since June 1993; Director
Vice President of Personnel from September 1990 until
June 1993. Director of Recruiting and
Training prior to that time.
David A. Stevens.......................... 45 Assistant Vice President for more than
Assistant Vice President five years.
</TABLE>
56
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors currently has three committees: an
Executive Committee, an Audit Committee and a Compensation Committee.
The Executive Committee is authorized to exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Company, except that it does not have the power or authority to
amend the Company's Certificate of Incorporation or By-laws, adopt an agreement
of merger or consolidation, recommend to the shareholders the sale, lease or
exchange of all or substantially all of the Company's property and assets,
recommend to the shareholders the dissolution of the Company, declare a dividend
or authorize the issuance of shares of stock. The Executive Committee acts as a
compensation committee for determining certain aspects of the compensation of
the executive officers of the Company. The responsibilities of the Compensation
Committee include administering the Company's 1995 Stock Incentive Plan and
selecting the officers and key employees to whom awards will be granted. The
Compensation Committee is comprised of non-management directors. See
"--Compensation Committee Interlocks and Insider Participation."
The responsibilities of the Audit Committee include: recommending to the
Board of Directors the independent public accountants to be selected to conduct
the annual audit of the accounts of the Company; reviewing the proposed scope of
such audit and approving the audit fees to be paid; and reviewing the adequacy
and effectiveness of the internal auditing, accounting and financial controls of
the Company with the independent public accountants and the Company's financial
and accounting staff. The Audit Committee will be comprised of non-management
directors.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information concerning compensation paid for
services to the Company during fiscal years 1992 through 1994 to the Chief
Executive Officer and the four other most highly compensated executive officers
of the Company (the "Named Executive Officers").
57
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
OTHER ANNUAL NUMBER OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(A) OPTIONS/SARS COMPENSATION(B)
- ------------------------------ ---- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Donald H. DeMeuse............. 1994 $750,000 $307,500 $ 7,802 0 $69,366
Chairman and Chief 1993 653,846 55,250 4,840 0 62,742
Executive Officer 1992 675,000 55,250 3,831 0 57,480
Kathleen J. Hempel............ 1994 480,000 196,800 1,036 0 27,311
Vice Chairman and Chief 1993 453,077 38,381 0 0 27,388
Financial Officer 1992 456,923 37,400 0 0 27,222
Michael T. Riordan............ 1994 375,000 153,750 4,671 0 21,400
President and Chief 1993 302,885 25,500 0 48,750 18,437
Operating Officer 1992 248,846 20,171 317 0 15,028
Andrew W. Donnelly............ 1994 330,000 135,300 162 0 18,603
Executive Vice President 1993 350,000 29,750 0 0 20,859
1992 342,692 28,050 0 0 20,133
John F. Rowley................ 1994 237,885 96,350 338 0 13,676
Executive Vice President 1993 255,000 21,675 0 0 15,111
1992 244,039 19,975 0 0 14,561
</TABLE>
- ------------
(a) Consists of amounts reimbursed for the payment of taxes.
(b) Consists of Company contributions to the Company's profit sharing plan and
supplemental retirement plan, including Company contributions to the
supplemental retirement plan which were paid to the participant.
The following table presents information concerning unexercised stock
options for the Named Executive Officers. No stock options were exercised by or
granted to the Named Executive Officers during 1994.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE><CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT DECEMBER 31, IN-THE-MONEY OPTIONS HELD
1994 AT DECEMBER 31, 1994(A)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Donald H. DeMeuse............................ 505,537 37,700 -- --
Kathleen J. Hempel........................... 562,347 13,000 -- --
Michael T. Riordan........................... 119,008 54,600 -- --
Andrew W. Donnelly........................... 141,927 16,900 -- --
John F. Rowley............................... 102,323 15,600 -- --
</TABLE>
- ------------
(a) Prior to the Offering, the Common Stock was not registered or publicly
traded and, therefore, a public market price for the Common Stock was not
available. Without the benefit of the Bank Refinancing and the 1995 Debt
Redemptions, the Company believes that none of the exercisable or
unexercisable stock options held at December 31, 1994 were in-the-money as
of such date. See Notes 12 and 13 of the Company's audited consolidated
financial statements included elsewhere in this Prospectus.
58
<PAGE>
DIRECTORS' COMPENSATION
Prior to the completion of the Offering, directors of the Company did not
receive any compensation for service on the Board of Directors. Following the
completion of the Offering, the Company intends to pay all of its directors who
are not officers of the Company an annual fee (the "Annual Fee") of $30,000 plus
$2,000 for attendance at each meeting, plus $1,000 for attendance at each
committee meeting. In addition, the Company intends to reimburse all of its
directors for their travel expenses in connection with their attendance at board
and committee meetings. The Company intends to pay 50% of the Annual Fee in the
form of cash and 50% of the Annual Fee in the form of shares of Common Stock
pursuant to the Company's 1995 Stock Plan for Non-Employee Directors. The
payment of the cash portion of the Annual Fee may be deferred by any director at
such director's election pursuant to the Company's Deferred Compensation Plan
for Non-Employee Directors until the earliest of (i) the date of termination of
such director's service as a non-employee director, (ii) the date specified by
such director in his deferred election form and (iii) the date of such
director's death.
EMPLOYMENT AGREEMENTS
The Named Executive Officers have entered into employment agreements with
the Company (the "Employment Agreements") which took effect in 1993. The
Employment Agreements contain customary employment terms, have an initial term
that expires on December 31, 1997, provide for automatic one-year extensions
(unless notice not to extend is given by either party at least six months prior
to the end of the effective term) and provide for base annual salaries and
annual incentive bonuses. The present base salaries for Mr. DeMeuse, Ms. Hempel,
Mr. Riordan, Mr. Donnelly and Mr. Rowley are $750,000, $480,000, $375,000,
$330,000 and $250,000, respectively. In addition, the Employment Agreements for
Mr. DeMeuse, Ms. Hempel and Mr. Riordan provide for participation in additional
bonus arrangements which may be agreed upon in good faith from time to time with
the Company. The Employment Agreements provide that certain payments in lieu of
salary and bonus are to be made and certain benefits are to be continued for a
stated period following termination of employment. The time periods for such
payments vary depending on the cause of termination. The amount of the payments
to be made to each individual would vary depending upon such individual's level
of compensation and benefits at the time of termination and whether such
employment is terminated prior to the end of the term by the Company for "cause"
or by the employee for "good reason" (as such terms are defined in the
Employment Agreements) or otherwise during the term of the agreements. In
addition, the Employment Agreements for Mr. DeMeuse, Ms. Hempel and Mr. Riordan
include noncompetition and confidentiality provisions.
MANAGEMENT INCENTIVE PLAN
The Company maintains a Management Incentive Plan which is administered by
the Executive Committee. Participation is based upon individual selection by the
Executive Committee from among the full-time salaried employees who, in the
judgment of the Chief Executive Officer, serve in key executive, administrative,
professional or technical capacities. Presently, approximately 85 individuals
participate in the Management Incentive Plan. Awards are based upon the extent
to which the Company's financial performance (in terms of net earnings,
operating income, earnings per share, cash flow, absolute and/or relative return
on equity or assets, pre-tax profits, earnings growth, revenue growth,
comparison to peer companies, any combination of the foregoing and/or other
appropriate measures in such manner as the Executive Committee deems
appropriate) during the year has met or exceeded certain performance goals
specified by the Executive Committee. Some performance goals applicable to
senior managers may include elements which specify individual achievement
objectives directly related to such individual's areas of management
responsibility. In determining whether performance goals have been satisfied,
the Executive Committee in its discretion may direct that adjustments be made to
the performance goals or actual financial performance as reported to reflect
extraordinary changes that have occurred during the year. The Executive
Committee may alternatively
59
<PAGE>
grant a discretionary bonus. A participant must be employed by the Company on
the last day of the year in order to receive a bonus for such year, except in
the case of death, disability or retirement after age 55, in which case such
participant would receive a pro rata bonus. In the event of termination of a
participant's employment without "cause" (as defined in the Management Incentive
Plan) within two years following a "change in control" (as defined below under
"1995 Stock Incentive Plan"), participants will receive a pro rata bonus for
such year calculated as if the applicable performance targets have been
attained.
Because the performance goals under the Management Incentive Plan are
determined by the Executive Committee in its discretion, it is not possible to
determine the benefits and amounts that will be received by any individual
participant or group of participants in the future.
The Board of Directors may terminate or amend the Management Incentive Plan,
in whole or in part, at any time; provided that no such termination or amendment
may impair any rights which may have accrued under such plan.
SUPPLEMENTAL RETIREMENT PLAN
In 1983, the Company adopted a Supplemental Retirement Plan (the
"Supplemental Retirement Plan"). Participation is limited to employees of the
Company who are selected to participate by the Chief Executive Officer.
Presently, nine individuals participate in the Supplemental Retirement Plan.
Benefits under the Supplemental Retirement Plan are specified in agreements
entered into between the Company and each participant. Any benefit granted in
favor of an employee also serving as a director must be approved by the
Executive Committee. Benefits accrued from the Company are substantially equal
to the additional amount that could have been allocated to each participant's
account under the Company's Profit Sharing Retirement Plan (the "Profit Sharing
Plan") (which is a tax-qualified defined contribution plan with "401(k)"
features) if, in the absence of the Code limitations on retirement plan
contributions, the participant's entire contribution had been made to the Profit
Sharing Plan. Vesting of benefits is determined by reference to each
participant's vested percentage under the Profit Sharing Plan. Participants'
account balances are credited with earnings based upon the investment
performance of the Profit Sharing Plan. Benefits under the Supplemental
Retirement Plan are distributable upon death, disability, retirement or
separation from service and are payable from the general assets of the Company.
The agreement with Mr. DeMeuse provides for an annual cash payment determined by
reference to the difference in the amount of the Company's contribution to the
Profit Sharing Plan allocated to his Profit Sharing Plan account and the amount
which would have been allocated to such account in the absence of the
limitations imposed by the Code.
Because benefits under the Supplemental Retirement Plan are based on Company
contributions to the Profit Sharing Plan, the amount of which is not presently
ascertainable, it is not possible to determine the benefits and amounts that
will be received by any individual participant or group of participants in the
future. The Company may amend or discontinue the Supplemental Retirement Plan at
any time.
1995 STOCK INCENTIVE PLAN
The Company has adopted a 1995 Stock Incentive Plan (the "1995 Plan"). The
1995 Plan will be administered by the Compensation Committee, which is comprised
exclusively of non-employee Directors, each of whom is "disinterested" within
the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). The 1995 Plan provides for the granting of
incentive and nonqualified stock options, stock appreciation rights, restricted
stock, performance shares, stock equivalents and dividend equivalents
(individually, an "Award" or collectively, "Awards"). Employees who are eligible
to receive Awards are those officers or other key employees with potential to
contribute to the future success of the Company or its subsidiaries. The
Compensation Committee has discretion to select the employees to whom Awards
will be granted (from among those
60
<PAGE>
eligible), to determine the type, size and terms and conditions applicable to
each Award and the authority to interpret, construe and implement the provisions
of the 1995 Plan. The Compensation Committee's decisions are binding on the
Company and employees eligible to participate in the 1995 Plan and all other
persons having any interest in the 1995 Plan. It is presently anticipated that
approximately 130 individuals will initially participate in the 1995 Plan.
A total of 3,359,662 shares of Common Stock may be subject to Awards under
the 1995 Plan, subject to adjustment in accordance with the terms of the 1995
Plan. Common Stock issued under the 1995 Plan may be either authorized but
unissued shares, treasury shares, or any combination thereof. To the fullest
extent permitted under Rule 16b-3 under the Exchange Act and Section 422 of the
Code, any shares of Common Stock subject to an Award which lapses, expires or is
otherwise terminated without the issuance of such shares may become available
for new Awards. The number of dividend equivalents which may be granted under
the 1995 Plan will be determined by the Compensation Committee in its
discretion; provided, however, that in no event will such number correspond to a
greater number of shares than the maximum number of shares available for
issuance under the 1995 Plan.
Awards under the 1995 Plan are determined by the Compensation Committee in
its discretion. For this reason, it is not possible to determine the benefits
and amounts that will be received by any individual participant or group of
participants in the future.
Set forth below is a description of the types of Awards which may be granted
under the 1995 Plan:
Stock Options. Options (each, an "Option") to purchase shares of Common
Stock, which may be nonqualified or incentive stock options, may be granted
under the 1995 Plan at an exercise price (the "Option Price") determined by the
Compensation Committee in its discretion, provided that the Option Price may be
no less than the fair market value of the underlying Common Stock on the date of
grant (110% of fair market value in the case of an incentive stock option
granted to a ten percent shareholder).
Options will expire not later than ten years after the date on which they
are granted (five years in the case of an incentive stock option granted to a
ten percent shareholder). Options become exercisable at such times and in such
installments as determined by the Compensation Committee, and such
exercisability will generally be based on (i) length of service or (ii) the
attainment of performance goals established by the Compensation Committee,
provided that no Option may be exercised within the first six months following
the date of grant. The Compensation Committee may also accelerate the period for
the exercise of any or all Options held by an optionee. Payment of the Option
Price must be made in full at the time of exercise in cash, certified or bank
check, note or other instrument acceptable to the Compensation Committee. As
determined by the Compensation Committee, payment in full or in part may also be
made by tendering to the Company shares of Common Stock having a fair market
value equal to the Option Price (or such portion thereof), by a "cashless
exercise" procedure to be approved by the Compensation Committee or by
withholding shares of Common Stock that would otherwise have been received by
the optionee.
Stock Appreciation Rights. A stock appreciation right ("SAR") is an Award
entitling an employee to receive an amount equal to (or subject to certain
limitations, less than, if the Compensation Committee so determines at the time
of grant) the excess of the fair market value of a share of Common Stock on the
date of exercise over the exercise price per share specified for the SAR,
multiplied by the number of shares of Common Stock with respect to which the SAR
was exercised. An SAR granted in connection with an Option will be exercisable
to the extent that the related Option is exercisable. Upon the exercise of an
SAR related to an Option, the Option related thereto will be cancelled to the
extent of the number of shares covered by such exercise, and such shares will no
longer be available for grant under the 1995 Plan. Upon the exercise of a
related Option, the SAR will be cancelled automatically to the extent of the
number of shares covered by the exercise of the Option. SARs unrelated to an
Option will contain such terms and conditions as to exercisability, vesting and
duration as the Compensation
61
<PAGE>
Committee may determine, but such duration will not be greater than ten years.
The Compensation Committee may accelerate the period for the exercise of an SAR
unrelated to an Option. Payment upon exercise of an SAR will be made, at the
election of the Compensation Committee, in cash, in shares of Common Stock or a
combination thereof.
The Compensation Committee may grant limited stock appreciation rights (an
"LSAR") under the 1995 Plan. An LSAR is an SAR which becomes exercisable only in
the event of a "change in control" (as defined below). Any such LSAR will be
settled solely in cash. An LSAR must be exercised within the 30-day period
following a change in control.
Restricted Stock. An Award of restricted stock ("Restricted Stock") is an
Award of Common Stock which is subject to such restrictions as the Compensation
Committee deems appropriate, including forfeiture conditions and restrictions
against transfer for a period specified by the Compensation Committee.
Restricted Stock Awards may be granted under the 1995 Plan for or without
consideration. Restrictions on Restricted Stock may lapse in installments based
on factors selected by the Compensation Committee. The Compensation Committee,
in its sole discretion, may waive or accelerate the lapsing of restrictions in
whole or in part. Prior to the expiration of the restricted period, except as
otherwise provided by the Compensation Committee, a grantee who has received a
Restricted Stock Award has the rights of a shareholder of the Company, including
the right to vote and to receive cash dividends on the shares subject to the
Award. Stock dividends issued with respect to shares covered by a Restricted
Stock Award will be treated as additional shares under such Award and will be
subject to the same restrictions and other terms and conditions that apply to
the shares with respect to which such dividends are issued.
Performance Shares. A performance share Award (a "Performance Share") is an
Award of a number of units which represent the right to receive a specified
number of shares of Common Stock upon satisfaction of certain specified
performance criteria, subject to such other terms and conditions as the
Compensation Committee deems appropriate. Performance objectives will be
established before, or as soon as practicable after, the commencement of the
performance period (the "Performance Period") and may be based on net earnings,
operating earnings or income, absolute and/or relative return on equity or
assets, earnings per share, cash flow, pre-tax profits, earnings growth, revenue
growth, comparisons to peer companies, any combination of the foregoing and/or
such other measures, including individual measures of performance, as the
Compensation Committee deems appropriate. Prior to the end of a Performance
Period, the Compensation Committee, in its discretion and only under conditions
which do not affect the deductibility of compensation attributable to
Performance Shares under Section 162(m) of the Code, may adjust the performance
objectives to reflect an event which may materially affect the performance of
the Company, a subsidiary or a division, including, but not limited to, market
conditions or a significant acquisition or disposition of assets or other
property by the Company, a subsidiary or a division. The extent to which a
grantee is entitled to payment in settlement of a Performance Share Award at the
end of the Performance Period will be determined by the Compensation Committee,
in its sole discretion, based on whether the performance criteria have been met.
Payment in settlement of a Performance Share Award will be made as soon as
practicable following the last day of the Performance Period, or at such other
time as the Compensation Committee may determine, in shares of Common Stock.
Stock Equivalents. A stock equivalent Award (a "Stock Equivalent") is a
grant of a number of units valued, in whole or in part by reference to, or
otherwise based on, shares of Common Stock. At the discretion of the
Compensation Committee, Stock Equivalent Awards may relate in whole or in part
to the attainment by the grantee of certain specified performance criteria.
The Compensation Committee in its discretion will determine the basis for
the value of units granted under a Stock Equivalent Award at the time of grant
of the Award. In determining unit value, the Committee may use such measures as
fair market value or appreciation in the value of a share of
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<PAGE>
Common Stock and may specify the date or dates over which the appreciation shall
be measured, in such manner as it deems appropriate.
Payment in settlement of a Stock Equivalent Award will be made as soon as
practicable after the Award is earned, or at such other time as the Compensation
Committee may determine, in cash, in shares of Common Stock, or some combination
thereof, as determined by the Compensation Committee.
Dividend Equivalents. A dividend equivalent Award (a "Dividend Equivalent")
is an Award which entitles an employee to receive from the Company cash
payments, in the same amount that the holder of record of a share of Common
Stock on the dividend record date would be entitled to receive as cash dividends
on such share of Common Stock.
Grants of Options, SARs, Performance Share Awards and Stock Equivalent
Awards may, in the discretion of the Compensation Committee, earn Dividend
Equivalents. The Compensation Committee will establish such rules and procedures
governing the crediting of Dividend Equivalents, including any timing and
payment contingencies of such Dividend Equivalents, as it deems appropriate or
necessary.
Additional Information. Under the 1995 Plan, if there is any change in the
outstanding shares of Common Stock by reason of any stock dividend,
recapitalization, merger, consolidation, stock split, combination or exchange of
shares or other form of reorganization, or any other change involving the Common
Stock, such proportionate adjustments as may be necessary (in the form
determined by the Compensation Committee) to reflect such change will be made to
prevent dilution or enlargement of the rights with respect to the aggregate
number of shares of Common Stock for which Awards in respect thereof may be
granted under the 1995 Plan, the number of shares of Common Stock covered by
each outstanding Award, and the price per share in respect thereof. Generally,
an individual's rights under the 1995 Plan may not be assigned or transferred
(except in the event of death).
In the event of a change in control and except as the Compensation Committee
(as constituted prior to such change in control) may expressly provide
otherwise: (i) all Stock Options or SARs then outstanding will become fully
exercisable as of the date of the change in control, whether or not then
exercisable; (ii) all restrictions and conditions of all Restricted Stock Awards
then outstanding will lapse as of the date of the change in control; (iii) all
Performance Share Awards will be deemed to have been fully earned as of the date
of the change in control and (iv) all Stock Equivalent Awards will be deemed to
be free of any restrictions or conditions and fully earned as of the date of the
change in control. The above notwithstanding, any Award granted within six (6)
months of a change in control will not be afforded any such acceleration as to
exercise, vesting and payment rights or lapsing as to conditions or
restrictions. For purposes of the 1995 Plan, a "change in control" shall have
occurred when (A) any person (other than (x) the Company, any subsidiary of the
Company, any employee benefit plan of the Company or of any subsidiary of the
Company, or any person or entity organized, appointed or established by the
Company or any subsidiary of the Company for or pursuant to the terms of any
such plans, (y) Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors,
Fort Howard Equity Investors II, or any of their respective affiliates or (z)
any general or limited partner of MSLEF II, Fort Howard Equity Investors or Fort
Howard Equity Investors II), alone or together with its affiliates and
associates (collectively, an "Acquiring Person")), shall become the beneficial
owner of 20% or more of the then outstanding shares of Common Stock or the
combined voting power of the Company's then outstanding voting securities
(except pursuant to an offer for all outstanding shares of Common Stock at a
price and upon such terms and conditions as a majority of the Continuing
Directors (as defined below) determine to be in the best interests of the
Company and its shareholders (other than an Acquiring Person on whose behalf the
offer is being made)), or (B) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors and any new director (other than a director who is a representative or
nominee of an Acquiring Person) whose election by the Board of Directors or
nomination for election by the Company's shareholders was approved by a vote of
at least a majority of the directors then still in office who either were
directors at
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the beginning of the period or whose election or nomination for election was
previously so approved (collectively, the "Continuing Directors"), no longer
constitute a majority of the Board of Directors.
The 1995 Plan will remain in effect until terminated by the Board of
Directors and thereafter until all Awards granted thereunder are satisfied by
the issuance of shares of Common Stock or the payment of cash or otherwise
terminated pursuant to the terms of the 1995 Plan or under any Award agreements.
Notwithstanding the foregoing, no Awards may be granted under the 1995 Plan
after the tenth anniversary of the effective date of the 1995 Plan. The Board of
Directors may at any time terminate, modify or amend the 1995 Plan; provided,
however, that no such amendment, modification or termination may adversely
affect an optionee's or grantee's rights under any Award theretofore granted
under the 1995 Plan, except with the consent of such optionee or grantee, and no
such amendment or modification will be effective unless and until the same is
approved by the shareholders of the Company where such shareholder approval is
required to comply with Rule 16b-3 under the Exchange Act, or other applicable
law, regulation or Nasdaq National Market or stock exchange rule. Rule 16b-3
currently requires shareholder approval if the amendment would, among other
things, materially increase the benefits accruing to optionees or grantees under
the 1995 Plan.
Certain Federal Income Tax Consequences of Options. Certain of the federal
income tax consequences to optionees and the Company of Options granted under
the 1995 Plan should generally be as set forth in the following summary.
An employee to whom an incentive stock option ("ISO") which qualifies under
Section 422 of the Code is granted will not recognize income at the time of
grant or exercise of such Option. No federal income tax deduction will be
allowable to the employee's employer upon the grant or exercise of such ISO.
However, upon the exercise of an ISO, any excess in the fair market price of the
Common Stock over the Option Price constitutes a tax preference item which may
have alternative minimum tax consequences for the employee. When the employee
sells such shares more than one year after the date of transfer of such shares
and more than two years after the date of grant of such ISO, the employee will
normally recognize a long-term capital gain or loss equal to the difference, if
any, between the sale prices of such shares and the Option Price. If the
employee does not hold such shares for the required period, when the employee
sells such shares, the employee will recognize ordinary compensation income and
possibly capital gain or loss in such amounts as are prescribed by the Code and
the regulations thereunder and the Company will generally be entitled to a
federal income tax deduction in the amount of such ordinary compensation income.
An employee to whom a nonqualified stock option ("NSO") is granted will not
recognize income at the time of grant of such Option. When such employee
exercises such NSO, the employee will recognize ordinary compensation income
equal to the difference, if any, between the Option Price paid and the fair
market value, as of the date of Option exercise, of the shares the employee
receives. The tax basis of such shares to such employee will be equal to the
Option Price paid plus the amount includible in the employee's gross income, and
the employee's holding period for such shares will commence on the date on which
the employee recognized taxable income in respect of such shares. Subject to the
applicable provisions of the Code and regulations thereunder, the Company will
generally be entitled to a federal income tax deduction in respect of a NSO in
an amount equal to the ordinary compensation income recognized by the employee.
MANAGEMENT EQUITY PLAN
Effective as of April 29, 1991, the Board of Directors adopted the Fort
Howard Corporation Management Equity Plan (the "Management Equity Plan"). The
Management Equity Plan provides for the offer of Common Stock and the grant of
options to purchase Common Stock to executive officers and certain other key
employees of the Company.
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<PAGE>
Executive officers or other key employees of the Company who hold shares of
Common Stock or options pursuant to the Management Equity Plan ("Equity
Investors") have entered into a Management Equity Plan Agreement with the
Company. Executive officers or other key employees of the Company who have
acquired shares of Common Stock pursuant to the Management Equity Plan have
agreed to become bound by the terms of the Company's Stockholders Agreement. See
"Certain Transactions--Stockholders Agreement."
Options, whether or not vested, may not be transferred, except that vested
options may be transferred in certain limited circumstances. Subject to certain
exceptions, options which have not vested at the time an Equity Investor's
employment is terminated are forfeited to the Company.
In April 1991, certain executive officers and other key employees of the
Company purchased an aggregate of 40,300 shares of Common Stock at $18.46 per
share pursuant to the Management Equity Plan. In addition, options to purchase a
total of 722,150 shares of Common Stock at an exercise price of $18.46 per share
were granted in 1991, 1992 and 1993 pursuant to the Management Equity Plan to
certain executive officers and other key employees of the Company. All options
outstanding under the Management Equity Plan will become fully vested prior to
the consummation of the Offering. Further, the terms and conditions of options
to purchase 100,750 shares of Common Stock granted in December 1988 at an
exercise price of $15.38 per share pursuant to a predecessor plan are now
governed by the Management Equity Plan. The federal income tax consequences of
the options granted under the Management Equity Plan are substantially similar
to those for nonqualified options to be granted under the 1995 Plan, as
described above. See "1995 Stock Incentive Plan--Certain Federal Income Tax
Consequences of Options." It is expected that no additional shares of Common
Stock or options will be sold or granted under the Management Equity Plan after
the consummation of the Offering.
MANAGEMENT EQUITY PARTICIPATION AGREEMENT
Mr. DeMeuse, Ms. Hempel, Mr. Riordan and other current executive officers
and members of the Company's senior management (the "Management Investors") are
parties to an Amended and Restated Management Equity Participation Agreement, as
amended, with the Company, Morgan Stanley Group and MSLEF II (the "Management
Equity Participation Agreement"), pursuant to which the Management Investors
purchased 410,196 shares of Common Stock in 1988 and 31,824 shares of Common
Stock in 1990 at $15.38 and $20.77 per share, respectively. Management Investors
who purchased shares of Common Stock pursuant to the Management Equity
Participation Agreement were also granted stock options to acquire 1,807,338 and
275,990 shares of Common Stock pursuant to the Management Equity Participation
Agreement at exercise prices of $15.38 and $18.46 per share, respectively. All
such options will become fully vested prior to the consummation of the Offering.
Certain of the Management Investors have also purchased shares of Common Stock
and have been granted options to acquire additional shares of Common Stock
pursuant to the terms of the Management Equity Plan. See "--Management Equity
Plan."
The Management Equity Participation Agreement prohibits, except in certain
limited circumstances with respect to vested options ("Vested Options"), the
transfer of options, whether vested or not vested, held by the Management
Investors.
The Management Equity Participation Agreement also provides that the Company
will indemnify Management Investors for taxes on income which may be recognized
upon the vesting of shares of Common Stock under certain circumstances. The
indemnity is limited to the tax benefit to the Company, and if the tax benefit
has not yet been received by the Company in cash at the time when the taxes must
be paid by a Management Investor, the Company will make a nonrecourse loan to
the Management Investor (secured by Common Stock and Vested Options) until the
time the tax benefit is actually received.
65
<PAGE>
The Management Equity Participation Agreement contains noncompetition
provisions applicable to each Management Investor except Mr. DeMeuse, Ms. Hempel
and Mr. Riordan, whose noncompetition agreements are contained in their
respective Employment Agreements. (Similar noncompetition provisions are
applicable to the Equity Investors under the Management Equity Plan.)
The federal income tax consequences of the options granted under the
Management Equity Participation Agreement are substantially similar to those for
nonqualified options granted under the 1995 Plan, as described above. See "1995
Stock Incentive Plan--Certain Federal Income Tax Consequences of Options."
In 1988 and 1990, the Company's former chairman of the board and chief
executive officer (the "former executive") acquired shares of Common Stock and
was granted options to acquire additional shares of Common Stock pursuant to the
Management Equity Participation Agreement. Under the terms of an agreement
entered into with the Company at the time of his resignation in July 1990, as
amended, he retained his entire interest in the Company's Common Stock and all
options to acquire additional shares thereof granted to him pursuant to the
Management Equity Participation Agreement were vested. In addition, all the
shares of the Company's Common Stock then owned by him became putable to the
Company, and he retained certain other put rights previously granted to him with
respect to such options and the shares issuable upon the exercise thereof. Such
put rights are, with certain limited exceptions, currently scheduled to expire
upon consummation of the Offering. The Company is considering extending the
benefit of the put right with respect to the shares of Common Stock to the
ten-day period following expiration of the 180-day lock-up agreement contained
in the Stockholders Agreement, if the former executive agrees not to exercise
his current put right with respect to such shares prior to consummation of the
Offering. If such an agreement is not reached, the Company does not believe that
exercise of the put would have a material impact on the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Committee currently acts as a compensation committee for
determining certain aspects of the compensation of the executive officers of the
Company. The members of the Executive Committee are Donald H. DeMeuse, the
Company's Chairman and Chief Executive Officer, and Donald Patrick Brennan.
The Executive Committee administers the Company's Management Equity Plan
which provides for the offer of Common Stock and the grant of options to
purchase Common Stock to executive officers and certain other key employees of
the Company.
The Executive Committee also administers the Company's Management Incentive
Plan under which annual cash awards are paid to employees serving in key
executive, administrative, professional and technical capacities. Awards
generally are based upon the extent to which the Company's financial performance
during the year has met or exceeded certain performance goals specified by the
Executive Committee.
The Board of Directors has appointed a Compensation Committee, the members
of which are Donald Patrick Brennan and Robert H. Niehaus. The Compensation
Committee will administer the Company's 1995 Plan and select the officers and
key employees to whom Awards under the 1995 Plan will be granted.
Salaries and employment contract terms are determined by the entire Board of
Directors for the Chief Executive Officer, by the Executive Committee for other
executive officers who also serve as directors of the Company and by the
Company's Chief Executive Officer for other executive officers of the Company.
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<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1994, by holders
having beneficial ownership of more than five percent of the Company's Common
Stock, by certain other principal holders, by each of the Company's directors,
by the Named Executive Officers, and by all directors and all executive officers
of the Company as a group.
<TABLE><CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
------------------------ ------------------------
NUMBER OF PERCENT NUMBER OF PERCENT
NAME SHARES OF CLASS SHARES OF CLASS
- ----------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
The Morgan Stanley Leveraged................... 20,889,290(a) 54.8% 20,889,290(a) 34.8%
Equity Fund II, L.P.
1221 Avenue of the Americas
New York, New York 10020
Mellon Bank, N.A., as Trustee for.............. 6,715,507(b) 17.6 6,715,507(b) 11.2
First Plaza Group Trust
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
Leeway & Co.................................... 3,357,750 8.8 3,357,750 5.6
1 Enterprise Drive
North Quincy, Massachusetts 02171
Morgan Stanley Group Inc....................... 3,036,884(c) 8.0 3,036,884(c) 5.1
1251 Avenue of the Americas
New York, New York 10020
Donald H. DeMeuse.............................. 672,749(d) 1.7 672,749(d) 1.1
Kathleen J. Hempel............................. 594,691(e) 1.5 594,691(e) 1.0
Michael T. Riordan............................. 135,420(f) * 135,420(f) *
Donald Patrick Brennan......................... 0 -- 0 --
Frank V. Sica.................................. 0 -- 0 --
Robert H. Niehaus.............................. 0 -- 0 --
Andrew W. Donnelly............................. 158,177(g) * 158,177(g) *
John F. Rowley................................. 113,373(h) * 113,373(h) *
All Directors and Executive Officers as a
Group........................................ 2,301,693(i) 5.8 2,301,693(i) 3.7
</TABLE>
- ------------
<TABLE>
<C> <S>
* Less than 1%.
(a) MSLEF II, Inc. is the sole general partner of MSLEF II and is a wholly owned subsidiary
of Morgan Stanley Group. Includes 1,701,290 shares held by Fort Howard Equity Investors
II and 663,000 shares held by Fort Howard Equity Investors. Morgan Stanley Equity
Investors Inc. is the sole general partner of both of these partnerships and is a
wholly owned subsidiary of Morgan Stanley Group.
(b) Mellon Bank, N.A., acts as the trustee (the "Trustee") for First Plaza Group Trust
("First Plaza"), a trust under and for the benefit of certain employee benefit plans of
General Motors Corporation ("GM") and its subsidiaries. These shares may be deemed to
be owned beneficially by General Motors Investment Management Corporation ("GMIMCo"), a
wholly owned subsidiary of GM. GMIMCo's principal business is providing investment
advice and investment management services with respect to the assets of certain
employee benefit plans of GM and its subsidiaries and with respect to the assets of
certain direct and indirect subsidiaries of GM and associated entities. GMIMCo is
serving as First Plaza's investment manager with respect to these shares and in that
capacity it has the sole power to direct the Trustee as to the voting and disposition
of these shares. Because of the Trustee's limited role, beneficial ownership of the
shares by the Trustee is disclaimed.
</TABLE>
(Footnotes continued on following page)
67
<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<C> <S>
(c) Includes 260,000 shares for which Morgan Stanley Group exercises exclusive voting
rights but as to which it disclaims beneficial ownership.
(d) Includes 505,537 shares subject to acquisition within 60 days by exercise of employee
stock options.
(e) Includes 562,347 shares subject to acquisition within 60 days by exercise of employee
stock options.
(f) Includes 119,008 shares subject to acquisition within 60 days by exercise of employee
stock options.
(g) Includes 141,927 shares subject to acquisition within 60 days by exercise of employee
stock options.
(h) Includes 102,323 shares subject to acquisition within 60 days by exercise of employee
stock options.
(i) Includes 1,897,681 shares subject to acquisition within 60 days by exercise of employee
stock options.
</TABLE>
CERTAIN TRANSACTIONS
STOCKHOLDERS AGREEMENT
The Company, Morgan Stanley Group, MSLEF II, certain other investors and the
Management Investors (each, a "Holder") have entered into a stockholders
agreement (the "Stockholders Agreement"), which contains certain restrictions
with respect to the transferability of Common Stock by certain parties
thereunder, certain registration rights granted by the Company with respect to
such shares and certain arrangements with respect to the nomination of designees
to the Board of Directors.
Pursuant to the terms of the Stockholders Agreement, in the event that one
or more Holders (other than certain individual investors including the
Management Investors) (each, a "Controlling Shareholder") sell a majority
of the shares of Common Stock subject to the Stockholders Agreement to a
third party, certain other Holders have the right to elect to sell on
the same terms the same percentage of such other Holder's shares to the third
party as the Controlling Shareholder is selling of its shares of Common
Stock. In addition, if a Controlling Shareholder sells all of its shares
of Common Stock to a third party, the Controlling Shareholder has the
right to require that certain remaining Holders sell all of their shares to the
third party on the same terms.
Pursuant to the terms of the Stockholders Agreement, Holders of specified
percentages of Common Stock will be entitled to certain demand registration
rights ("Demand Rights") with respect to shares of Common Stock held by them;
provided, however, that the Company (or purchasers designated by the Company)
shall have the right to purchase at fair market value the shares which are the
subject of Demand Rights in lieu of registering such shares of Common Stock. In
addition to the Demand Rights, Holders are, subject to certain limitations,
entitled to register shares of Common Stock in connection with a registration
statement prepared by the Company to register its equity securities. The
Stockholders Agreement contains customary terms and provisions with respect to,
among other things, registration procedures and certain rights to
indemnification granted by parties thereunder in connection with the
registration of Common Stock subject to such agreement.
Pursuant to the terms of the Stockholders Agreement, MSLEF II and Fort
Howard Equity Investors II 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.
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<PAGE>
Pursuant to the Stockholders Agreement, all Holders are subject to an
agreement, with certain limited exceptions, not to offer, pledge, sell, contract
to sell, or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period beginning 7 days before and ending
180 days after the effective date of the Registration Statement in the case of
current and former officers and other key employees of the Company (who
beneficially own an aggregate of 791,358 shares of Common Stock), and ending one
year after the effective date of the Registration Statement in the case of the
remaining Holders (who beneficially own an aggregate of 37,309,881 shares of
Common Stock), without the prior written consent of certain of the
representatives of the U.S. Underwriters in the case of Morgan Stanley Group,
MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors II, or
of MS&Co, in the case of the remaining Holders.
The Stockholders Agreement also provides that, in connection with any future
underwritten offering of Common Stock by the Company, the Holders will not,
subject to certain limited exceptions, offer, pledge, sell, contract to sell or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, for a period beginning 7 days before and ending 180 days after the
effective date of the related registration statement without the prior written
consent of certain of the representatives of the underwriters thereof, in the
case of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort
Howard Equity Investors II, or of MS&Co, in the case of the remaining Holders.
See "Shares Eligible for Future Sale."
THE CUP TRANSFER AND CUP SALES
On November 14, 1989, the Company transferred all the capital stock of Fort
Howard Cup to Sweetheart, a new company organized on behalf of MSLEF II, the
Company and certain executive officers of Sweetheart and other investors in the
Cup Transfer. The business transferred to Sweetheart constituted all the
Company's U.S. and Canadian disposable foodservice operations.
As a result of the Cup Transfer, the Company received: (i) $532.25 million
in cash; (ii) 430,172 shares of Sweetheart Class B Common Stock representing
49.9% of the Sweetheart Common Stock then outstanding, with a fair value of
$87.4 million and (iii) certain other adjustments. The total value of the cash
and other assets received by the Company as a result of the Cup Transfer was
approximately $620 million. The Company has not undertaken any guarantees of
Sweetheart's indebtedness as a result of the Cup Transfer.
On the date of the Cup Transfer, the Sweetheart Class B Common Stock owned
by the Company constituted 49.9% of the shares of Sweetheart Common Stock then
outstanding, and the Sweetheart Class A Common Stock owned by MSLEF II, Morgan
Stanley Group and certain executive officers and key employees of Sweetheart and
other investors constituted 22.4%, 14% and 13.7%, respectively, of the shares of
Sweetheart Common Stock then outstanding.
On December 29, 1989, the Company sold its Pacific Basin cup business for
approximately $10.7 million in cash as part of a program to divest its remaining
international cup operations. The Company sold its European disposable
foodservice operations for a net selling price of approximately $49 million on
December 30, 1991. On August 30, 1993, the Company sold all of its Sweetheart
Class B Common Stock for $5.1 million.
As a result of the completion of the Cup Transfer and the sales of its
remaining international cup operations, the Company has divested all of its
operating interests in those businesses.
OTHER TRANSACTIONS
The Company has entered into an agreement with MS&Co for financial advisory
services in consideration for which the Company pays MS&Co an annual fee of $1
million. MS&Co is also entitled to reimbursement for all reasonable expenses
incurred in performance of the foregoing services.
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<PAGE>
The Company paid MS&Co approximately $1.0 million, $1.0 million and $1.1 million
for these and other miscellaneous services in 1994, 1993 and 1992, respectively.
This agreement was terminated on December 31, 1994.
In connection with the sale of the 8 1/4% Notes and the 9% Notes in 1994,
MS&Co received approximately $20.4 million in underwriting fees. In connection
with the sale of the 9 1/4% Notes and the 10% Notes in 1993, MS&Co received
approximately $19.5 million in underwriting fees. In 1992, MS&Co received
approximately $0.7 million in connection with the underwriting of the reissuance
of the Company's Development Authority of Effingham County Pollution Control
Revenue Refunding Bonds, Series 1988.
Based on transactions of similar size and nature, the Company believes the
foregoing fees received by MS&Co are no less favorable to the Company than would
be available from unaffiliated third parties.
MS&Co served as lead underwriter for the initial public offering of the 9
1/4% Notes, the 10% Notes, the 8 1/4% Notes, the 9% Notes, the 12 3/8% Notes,
the 12 5/8% Debentures, the 14 1/8% Debentures and the Pass Through Certificates
and is a market-maker with respect to such securities. In connection with the
repurchases of certain of the Company's securities as described in Note 8 to the
audited consolidated financial statements included elsewhere in the Prospectus,
$52.8 million aggregate principal amount at maturity of the 14 5/8% Debentures
and $132.7 million aggregate principal amount at maturity of the 14 1/8%
Debentures were purchased through MS&Co. In addition, $46.5 million and $77.5
million aggregate principal amount at maturity of the 14 1/8% Debentures were
purchased from Leeway & Co. and First Plaza Group Trust, respectively,
shareholders of the Company. The purchases were made in negotiated transactions
at market prices.
The Company is a party to an interest rate cap agreement with MS&Co that was
purchased in 1994 for $2.1 million.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of the instruments governing certain indebtedness of
the Company does not purport to be complete and is qualified in its entirety by
reference to such instruments, copies of which have been filed, or incorporated
by reference, as exhibits to the Registration Statement of which this Prospectus
is a part. Capitalized terms used but not defined herein have the meanings
ascribed to them in such instruments.
THE NEW BANK CREDIT AGREEMENT
The Company has entered into a commitment letter dated January 31, 1995 (the
"Commitment Letter") with Bankers Trust Company ("Bankers Trust"), Chemical Bank
and Bank of America National Trust and Savings Association with respect to the
New Bank Credit Agreement and the 1995 Receivables Facility. Set forth below is
a description of the New Bank Credit Agreement that the Company contemplates
entering into pursuant to the Commitment Letter.
General. The New Bank Credit Agreement will provide for the 1995 Term Loan A
(in an amount of $810 million), the 1995 Term Loan B (in an amount of $330
million) and the 1995 Revolving Credit Facility (in an amount of $300 million).
The 1995 Term Loan A and the 1995 Revolving Credit Facility will each have a
final maturity on the seventh anniversary of the consummation of the Offering.
The 1995 Term Loan B will have a final maturity of December 31, 2002. It is
anticipated that $180.9 million will be borrowed under the 1995 Revolving Credit
Facility in connection with the Recapitalization (assuming all components of the
Recapitalization are consummated on March 15, 1995) and that the Company will
have $119.1 million in available capacity under the 1995 Revolving Credit
Facility after the consummation of the Recapitalization.
As part of the 1995 Revolving Credit Facility, the New Bank Credit Agreement
will provide for the issuance of letters of credit in the normal course of
business of up to $50 million. Bankers Trust will provide a $25 million swing
line facility within the 1995 Revolving Credit Facility, which is available for
working capital and other general corporate purposes. It is anticipated that
upon the consummation of the Recapitalization no letters of credit will be
outstanding under the New Bank Credit Agreement.
Interest. The 1995 Term Loan A and the 1995 Revolving Credit Facility will
bear interest, at the Company's option, at Bankers Trust's prime rate, plus
1.50% or, subject to certain limitations, at a reserve adjusted Eurodollar rate,
plus 2.50%; the foregoing rates will be subject to adjustment downward based on
the ratings by Standard & Poor's Ratings Group ("S&P") or Moody's Investors
Services, Inc. ("Moody's") of the Company's long-term senior unsecured debt
and/or certain operating performance measures. The 1995 Term Loan B will bear
interest, at the Company's option, at Bankers Trust's prime rate, plus 2.00% or,
subject to certain limitations, at a reserve adjusted Eurodollar rate, plus
3.00%.
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<PAGE>
Repayment. The New Term Loans and the 1995 Revolving Credit Facility will be
subject to mandatory and optional repayments and prepayments. As indicated
below, the Company will be required to make scheduled repayments of the New Term
Loans. The New Term Loans will be payable in installments on the last day of
each six-month period following the date of the closing of the Offering, except
that payment of the sixteenth installment shall be made on December 31, 2002.
The amount of each installment for the 1995 Term Loan A and the 1995 Term Loan B
are as follows:
<TABLE><CAPTION>
1995 TERM 1995 TERM
INSTALLMENT LOAN A LOAN B
- ------------------------------------------------------ --------- ---------
(IN MILLIONS)
<S> <C> <C>
1st.................................................. $ 0.0 $ 0.0
2nd.................................................. $ 0.0 $ 0.0
3rd.................................................. $ 42.0 $ 2.0
4th.................................................. $ 42.0 $ 2.0
5th.................................................. $ 55.0 $ 2.0
6th.................................................. $ 55.0 $ 2.0
7th.................................................. $ 67.5 $ 2.0
8th.................................................. $ 67.5 $ 2.0
9th.................................................. $ 67.5 $ 2.0
10th.................................................. $ 67.5 $ 2.0
11th.................................................. $ 80.0 $ 2.0
12th.................................................. $ 80.0 $ 2.0
13th.................................................. $ 93.0 $ 45.0
14th.................................................. $ 93.0 $ 45.0
15th.................................................. $ 0.0 $ 110.0
16th.................................................. $ 0.0 $ 110.0
</TABLE>
The Company will also be required to make mandatory prepayments of the New
Term Loans on or before the last day of March of each year commencing March 31,
1996 and ending on but including March 31, 2002 in an amount equal to 50% of
Excess Cash Flow for the year ending on the immediately preceding December 31.
"Excess Cash Flow" for any period is defined as the Net Cash Provided From
Operations during such period, reduced by the sum, without duplication, of: (i)
the scheduled principal payments of the New Term Loans paid during such period;
(ii) payments with respect to the principal portion of indebtedness constituting
capital leases; (iii) with certain exceptions, each of the following amounts
paid during such period: (a) certain mandatory prepayments of the New Term
Loans, (b) certain voluntary prepayments of the New Term Loans, (c) scheduled,
voluntary or mandatory payments or prepayments of the principal of permitted
indebtedness other than intercompany indebtedness, the New Term Loans and
certain obligations owed for all or any part of the deferred purchase price of
property or services, (d) payments in respect of Consolidated Domestic Capital
Expenditures, (e) payments in respect of Consolidated Capital Expenditures
(other than Consolidated Domestic Capital Expenditures) but only to the extent
not financed with the proceeds of indebtedness (excluding intercompany
indebtedness) incurred by a foreign subsidiary, (f) certain permitted payments
in respect of equity and (g) certain investments made by the Company and its
subsidiaries in joint ventures and foreign subsidiaries.
"Net Cash Provided From Operations" for any period is defined as the
Adjusted Consolidated Net Income for such period, minus (plus) the increase
(decrease), if any, in Adjusted Working Capital from the first day to the last
day of such period.
"Adjusted Consolidated Net Income" for any period is defined as consolidated
net income during such period plus (minus) the sum, without duplication, of the
amount of depreciation, depletion, amortization of intangibles, deferred taxes,
accreted and zero coupon bond interest and other non-cash
72
<PAGE>
expenses (income), losses (gains) or other charges (credits) that, pursuant to
GAAP, were deducted (added) in determining such consolidated net income.
"Adjusted Working Capital" means, at any time, Consolidated Current Assets
minus Consolidated Current Liabilities at such time.
"Consolidated Current Assets" means, at any time, the consolidated current
assets of the Company and its subsidiaries (whether or not consolidated with the
Company for financial reporting purposes and including, without limitation, all
receivables subsidiaries) at such time.
"Consolidated Current Liabilities" means, at any time, the consolidated
current liabilities of the Company and its subsidiaries (whether or not
consolidated with the Company for financial reporting purposes and including,
without limitation, all receivables subsidiaries) at such time, but excluding
the current portion of any long-term indebtedness which would otherwise be
included therein and any indebtedness with a maturity which may, by the terms of
the instrument evidencing or governing such indebtedness, be extended, renewed
or reborrowed by the Company to a date that is later than one year after such
time.
"Consolidated Capital Expenditures" means, for any period, the sum of: (i)
the aggregate of all capital expenditures by the Company and its subsidiaries
during such period, plus (ii) to the extent not covered by clause (i) hereof,
the aggregate of all expenditures by the Company and its subsidiaries to acquire
by purchase or otherwise the business, property or fixed assets of, or stock or
other evidence of beneficial ownership of or interest in, any person, including,
without limitation, the amount of any indebtedness of any such acquired person
existing at the date of or by reason of such purchase or acquisition, whether or
not such indebtedness is assumed or guaranteed by the Company or any subsidiary
of the Company, it being understood that each item covered by this clause (ii)
shall be deemed incurred as of the date of the applicable acquisition, provided
that any indebtedness referred to in this clause (ii) of any acquired person
that is not a wholly owned subsidiary of the Company shall only be included in
an amount equal to the product of (1) the Company's direct or indirect
percentage of equity ownership in such acquired person at the time such
indebtedness is incurred or deemed incurred and (2) the amount of such
indebtedness.
"Consolidated Domestic Capital Expenditures" means, for any period, the sum
of: (i) the aggregate of all capital expenditures by the Company and its
domestic subsidiaries during such period, plus (ii) to the extent not covered by
clause (i) hereof, the aggregate of all expenditures by the Company and its
domestic subsidiaries to acquire by purchase or otherwise the business, property
or fixed assets of, or stock or other evidence of beneficial ownership of or
interest in, any person, including, without limitation, the amount of any
indebtedness of any such acquired person existing at the date of or by reason of
such purchase or acquisition, whether or not such indebtedness is assumed or
guaranteed by the Company or any subsidiary of the Company, it being understood
that each item covered by this clause (ii) shall be deemed incurred as of the
date of the applicable acquisition, provided that any indebtedness referred to
in this clause (ii) of any acquired person that is not a wholly owned subsidiary
of the Company shall only be included in an amount equal to the product of (1)
the Company's direct or indirect percentage of equity ownership in such acquired
person at the time such indebtedness is incurred or deemed incurred and (2) the
amount of such indebtedness.
Excess Cash Flow prepayments under the New Bank Credit Agreement will be
allocated pro rata between the New Term Loans. The portion of any such
prepayment allocable to the 1995 Term Loan A will be applied in the direct order
of maturity until such application results in the prepayment in whole of all the
amortization payments scheduled to become due in the 12-month period following
such date of prepayment, and then on a pro rata basis to the remaining scheduled
amortization installments. The portion of any such prepayment allocable to the
1995 Term Loan B will be applied pro rata to the remaining scheduled
amortization installments. In the event that any such prepayment is due at a
time when the New Term Loans have been fully repaid, the 1995 Revolving Credit
Facility commitments
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will be reduced by an amount equal to the amount of such prepayment and the
Company will be required to (a) prepay the 1995 Revolving Credit Facility in an
amount equal to the excess, if any, of the aggregate principal amount of the
1995 Revolving Credit Facility then outstanding over the aggregate amount of the
1995 Revolving Credit Facility commitments (after giving effect to such
reduction) and (b) retain the remaining amount of such prepayment.
The New Term Loans will also provide for mandatory prepayments from proceeds
of Asset Sales, permitted sale/leaseback transactions and permitted receivables
transactions; provided, however, that no prepayments will be required with
respect to any permitted receivables transaction the net proceeds of which are
used to pay amounts owing pursuant to the 1995 Receivables Facility, except to
the extent that the net proceeds of such receivables transaction exceed the then
outstanding principal amount of the 1995 Receivables Facility. "Asset Sale" is
defined as the sale, transfer or other disposition after the date of the closing
of the Offering (in a single transaction or a series of related transactions) by
the Company or any of its subsidiaries of: (i) any of the stock of any of the
Company's subsidiaries; (ii) substantially all of the assets of any geographic
or other division or line of business of the Company or any of its subsidiaries
or (iii) any real property or any other assets (including, without limitation,
any assets which do not constitute substantially all of the assets of any
geographic or other division or line of business but excluding any assets
manufactured, constructed or otherwise produced or purchased for sale to others
in the ordinary course of business) of the Company or any of its subsidiaries
having a fair value in excess of $2 million; provided that any asset sale
described in clause (iii) above shall not be deemed to be an "Asset Sale" unless
and until the aggregate amount of the fair value of the proceeds of all such
sales after the date of the Offering by the Company and its subsidiaries
occurring in any fiscal year of the Company equals or exceeds $10 million.
Excluded from Asset Sales are: (A) sales of cash and cash equivalents in the
ordinary course of business; (B) sales or other transfers of receivables
pursuant to certain permitted receivables transactions; (C) sales of assets
effected pursuant to certain permitted sale/leaseback transactions and (D) up to
$30 million of dispositions of plants or facilities of the Company, or of a
subsidiary of the Company, located outside the United States if the proceeds of
such dispositions are redeployed outside the United States within six months
following each such disposition. So long as the New Bank Credit Agreement
remains in effect, the net cash proceeds of Asset Sales are to be applied to
prepay the indebtedness under the New Bank Credit Agreement. It is contemplated
that the net cash proceeds from Asset Sales, permitted sale/leaseback
transactions and permitted receivables transactions will be applied in the same
manner as the Excess Cash Flow prepayments.
If the utilization of the 1995 Revolving Credit Facility exceeds the
commitment thereunder, the Company will be required to prepay the 1995 Revolving
Credit Facility by an amount equal to such excess.
The New Term Loans and the 1995 Revolving Credit Facility may be prepaid in
whole or in part at any time without premium or penalty (subject to
reimbursement of the lender's redeployment costs in the case of a prepayment of
Eurodollar loans other than on the last day of the relevant interest period),
and the 1995 Revolving Credit Facility commitment may be reduced by the Company
in whole or in part at any time without premium or penalty.
Security. The indebtedness under the New Bank Credit Agreement will be
secured by a first lien (subject to permitted liens) on the Collateral other
than certain trade receivables of the Company and its subsidiaries, and will be
secured by a second lien on such trade receivables. "Collateral" is defined as
the inventory, certain receivables, intellectual property and real property of
the Company and certain of its subsidiaries, and the capital stock of or other
evidence of the ownership interest in certain of the Company's subsidiaries.
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Covenants; Events of Default. The New Bank Credit Agreement will contain two
financial covenants that require the Company to maintain certain specified
ratios at specified times. These financial covenants will be as follows:
(i) A requirement that the Company maintain a ratio of (a) Consolidated
EBITDA to (b) Consolidated Interest Expense of not less than 1.25 to 1.00
for the first and second full fiscal quarters (taken as one accounting
period) following the Recapitalization, 1.25 to 1.00 for the first, second
and third full fiscal quarters (taken as one accounting period) following
the Recapitalization and for any period of four consecutive full fiscal
quarters (in each case taken as one accounting period) following the
Recapitalization not less than the ratio shown below during the indicated
period ending December 30:
1996-- 1.40 to 1.00
1997-- 1.50 to 1.00
1998-- 1.60 to 1.00
1999-- 1.75 to 1.00
2000-- 1.85 to 1.00
Thereafter-- 2.00 to 1.00
"Consolidated EBITDA" for any period is defined as the total of the amounts
for such period of (a) consolidated net income (subject to certain adjustments),
plus (b) provision for taxes based on income, plus (c) total interest expense
(including that attributable to capital leases and including, without
limitation, to the extent not otherwise included by this clause (c), all
interest expense or expenses in the nature of interest expense incurred by any
receivables subsidiary), plus (d) depreciation expense, plus (e) amortization
expense, plus (f) other non-cash items reducing or deducted in calculating
consolidated net income, minus (g) other non-cash items increasing consolidated
net income, minus (h) charges against the Company's $20,000,000 special reserve
established in respect of certain environmental matters, all as determined on a
consolidated basis for the Company and its subsidiaries for such period taken as
a single accounting period determined (other than in the case of clause (h)) in
conformity with GAAP.
"Consolidated Interest Expense" for any period is defined as the sum of: (i)
total interest expense for such period (including that attributable to capital
leases) of the Company and its subsidiaries on a consolidated basis with respect
to all outstanding indebtedness of the Company and its subsidiaries; (ii) net
costs under interest rate swap, cap, collar or similar agreements for such
period and (iii) to the extent not otherwise included above, all interest
expense or expenses in the nature of interest expense incurred by any
receivables subsidiary, but excluding interest expense not payable in cash
(including amortization of discount), certain fees payable to the administrative
agent and the Banks under the New Bank Credit Agreement on or prior to the date
of the Offering and the transaction costs relating to the Recapitalization, all
as determined on a consolidated basis for the Company and its subsidiaries in
conformity with GAAP.
(ii) A requirement that the Company maintain at all times a ratio of (a)
Senior Secured Indebtedness as of the end of any fiscal quarter to (b)
Consolidated EBITDA for the prior four
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fiscal quarters, of not more than the ratio shown below during the indicated
period:
September 30, 1995 to December 30, 1995 --4.25 to 1
December 31, 1995 to March 30, 1996 --4.00 to 1
March 31, 1996 to June 29, 1996 --3.90 to 1
June 30, 1996 to September 29, 1996 --3.80 to 1
September 30, 1996 to December 30, 1996 --3.70 to 1
December 31, 1996 to March 30, 1997 --3.45 to 1
March 31, 1997 to June 29, 1997 --3.30 to 1
June 30, 1997 to September 29, 1997 --3.20 to 1
September 30, 1997 to December 30, 1997 --3.10 to 1
December 31, 1997 to December 30, 1998 --3.00 to 1
December 31, 1998 to December 30, 1999 --2.75 to 1
December 31, 1999 to December 30, 2000 --2.50 to 1
Thereafter --2.00 to 1
"Senior Secured Indebtedness" is defined as the following obligations of the
Company and/or any of its subsidiaries: (i) the amount of any indebtedness
incurred by the Company or any subsidiary of the Company in connection with the
1995 Receivables Facility or any permitted receivables transaction; (ii) that
portion of obligations with respect to capital leases which is properly
classified as a liability on a balance sheet in conformity with GAAP; (iii)
indebtedness incurred with respect to certain permitted sale/leaseback
transactions and certain permitted expansion construction financings; (iv)
indebtedness of the Company or any subsidiary of the Company that is not
Subordinated Indebtedness and is secured by any lien on any property of the
Company or any subsidiary of the Company and (v) the full amount of the
obligations of the Company or any subsidiary of the Company under any letter of
credit issued for the account of the Company or any subsidiary of the Company
that are secured by a lien on any property of the Company or any subsidiary of
the Company.
"Subordinated Indebtedness" is defined as indebtedness of the Company
subordinated in right of payment to the obligations of the Company and its
subsidiaries under the New Bank Credit Agreement and certain other related
documents.
The New Bank Credit Agreement will contain additional covenants which, among
other things, require the Company: (i) to maintain the properties of the Company
and its subsidiaries, together with insurance thereon; (ii) to enter into
interest rate agreements with respect to a certain portion of the New Bank
Credit Agreement; (iii) to provide certain reports to the Banks and permit
inspections by the Banks; (iv) with certain exceptions, to cause subsidiaries
accounting for more than 10% of consolidated assets or consolidated revenues of
the Company (each a "Material Subsidiary") to provide a guarantee of the
Company's obligations under the New Bank Credit Agreement and to secure the same
with a pledge of inventory and receivables and (v) with certain exceptions, to
pledge the stock of certain Material Subsidiaries.
The New Bank Credit Agreement will also contain covenants which, among other
things (in each case, subject to certain exceptions): (i) limit the ability of
the Company and its subsidiaries to incur additional indebtedness and contingent
obligations or grant liens or additional negative pledges in respect of their
assets; (ii) limit the investments and capital expenditures which may be made by
the Company and its subsidiaries; (iii) limit the ability of the Company and its
subsidiaries to make prepayments of subordinated debt and limit the ability of
the Company to pay dividends or make other distributions on account of any
shares of any class of its capital stock (other than dividends payable solely in
other shares of such class of capital stock and cash dividends up to certain
specified amounts); (iv) limit the ability of the Company and its subsidiaries
to incur obligations under leases or to enter into sale and leaseback
transactions; (v) limit the ability of the Company and its subsidiaries to enter
into certain transactions or arrangements with certain affiliates of the Company
or any holder of 5% or more of any class of its equity securities or affiliates
of such holders; (vi) restrict the ability of the Company and its subsidiaries
to make fundamental changes and to enter into new lines of business and (vii)
limit the ability of the Company or its subsidiaries to dispose of their
respective assets.
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The New Bank Credit Agreement will contain certain events of default which
permit the Banks to cease making loans and to declare all amounts outstanding
under the New Term Loans and the 1995 Revolving Credit Facility to be due and
payable. These events will include, among other things: (i) failure to pay any
installment of principal under the New Bank Credit Agreement when due; (ii)
failure to pay for five days after the due date any interest or any other amount
due under the New Bank Credit Agreement; (iii) default in or relating to other
indebtedness of the Company or any of its subsidiaries in a principal amount of
$15 million or more individually or $30 million or more in the aggregate; (iv)
breach of certain covenants contained in the New Bank Credit Agreement; (v) any
representation or warranty contained in the New Bank Credit Agreement or certain
other related documents proving to have been false in any material respect when
made; (vi) default in the performance of any other terms contained in the New
Bank Credit Agreement or certain other related documents without being remedied
or waived within 30 days after receipt of notice from the administrative agent
or any Bank of such default; (vii) bankruptcy or dissolution of the Company or
any of its Material Subsidiaries; (viii) a judgment or attachment involving an
amount in excess of $10 million individually or $20 million in the aggregate
shall be entered or filed against the Company or any of its Material
Subsidiaries which is not discharged within a specified period; (ix) certain
ERISA defaults; (x) the invalidity of any guarantee given by a subsidiary of the
Company in connection with the New Bank Credit Agreement; (xi) failure to
maintain the validity and perfection of any security interest (to the extent
required under the New Bank Credit Agreement) with respect to collateral with a
fair market value or book value (whichever is greater) of more than $20 million
in the aggregate and (xii) a Change in Control. A "Change in Control" under the
New Bank Credit Agreement is deemed to have occurred if (i) any person or group
other than (x) MSLEF II, Morgan Stanley Group, Fort Howard Equity Investors,
Fort Howard Equity Investors II and their respective general or limited partners
and affiliates or (y) any employee benefit plan of the Company or any of its
affiliates, shall become the beneficial owner of shares representing 25% or more
of any outstanding class of capital stock having ordinary voting power in the
election of directors of the Company, or (ii) there shall occur during any
period after the date of the closing of the Offering a change in the Board of
Directors of the Company pursuant to which the individuals who constituted the
Board of Directors of the Company at the beginning of such period (together with
any other director whose election by the Board of Directors of the Company (or
whose nomination by the Board of Directors for election by the shareholders of
the Company) was approved by a vote of at least a majority of the directors then
in office who either were directors at the beginning of such period or whose
election was previously so approved or by a duly authorized committee of the
Board of Directors (which committee was designated by at least a majority of
directors then in office who either were directors at the beginning of such
period or whose election was previously so approved)) cease to constitute 75% of
the Board of Directors of the Company at the end of such period.
Fees and Expenses. A commitment fee of 0.5% per annum, subject to adjustment
based on the ratings by S&P or Moody's of the Company's long-term senior
unsecured debt and/or certain operating performance measures, on the unused
portion of each Bank's commitment under the 1995 Revolving Credit Facility and
the 1995 Term Loan A will be payable to the Banks quarterly in arrears. In
addition, an annual agent's commission of $500,000 will be payable to Bankers
Trust. Additional facility and syndication fees will be payable to certain of
the lenders in connection with the initial funding under the New Bank Credit
Agreement in an aggregate amount of $45,750,000. It is contemplated that the
Company will agree to pay certain of the Banks' expenses incurred in connection
with the New Bank Credit Agreement and to provide the Banks and their respective
directors, officers, employees and affiliates with customary indemnification.
1995 RECEIVABLES FACILITY
Pursuant to the terms of the Commitment Letter, the Company anticipates that
on or prior to the date of the Offering, the Company will enter into the 1995
Receivables Facility with Bankers Trust, Chemical Bank and Bank of America
National Trust and Savings Association (collectively, the
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"Receivables Lenders"). Indebtedness under the 1995 Receivables Facility will be
secured solely by a first priority security interest in favor of the Receivables
Lenders in all trade receivables of the Company and its U.S. subsidiaries,
subject to customary eligibility standards (the "Eligible Receivables"). A
second priority security interest in the Receivables will be granted in favor of
the Banks to secure the indebtedness of the Company under the New Bank Credit
Agreement. The 1995 Receivables Facility will, unless sooner refinanced with the
proceeds of the A/R Securitization (defined below), mature on the seventh
anniversary of the date of the Offering, and will bear interest at the same rate
as the 1995 Term Loan A. The 1995 Receivables Facility will contain covenants
and events of default substantially identical to those set forth in the New Bank
Credit Agreement. No amortization payments in respect of the 1995 Receivables
Facility will be due prior to maturity. To the extent the Eligible Receivables
of the Company and its subsidiaries are inadequate to secure the 1995
Receivables Facility, the 1995 Receivables Facility will be cash collateralized.
The Company will be required to prepay indebtedness under the New Bank Credit
Agreement with any proceeds from the sale of Eligible Receivables in excess of
$60 million. Although there is no contractual obligation to do so, subject to
favorable market conditions, the Company intends to refinance the 1995
Receivables Facility as soon as practicable after completion of the Offering
with the proceeds of a securitized accounts receivables financing (the "A/R
Securitization") which will be on terms that are acceptable to the Company and
the Banks.
PASS THROUGH CERTIFICATES, SERIES 1991
The Pass Through Certificates were issued pursuant to the Amended and
Restated Pass Through Trust Agreement dated as of December 13, 1991 between the
Company and Wilmington Trust Company, as trustee. The Pass Through Certificates
bear interest at 11% per annum and have a final distribution date of January 2,
2002.
The Pass Through Certificates represent fractional undivided interests in a
pass through trust (the "Pass Through Trust") holding the Pass Through Secured
Notes issued on a nonrecourse basis by an owner trustee (the "Owner Trustee") in
connection with leveraged lease transactions to finance or refinance not more
than 85% of the cost to the Owner Trustee of acquiring the Company's interest in
a paper manufacturing facility, power plant and certain equipment related
thereto located at the Company's Savannah mill (the "Pass Through Assets").
Simultaneously with the acquisition of the Pass Through Assets by the Owner
Trustee, it leased the Pass Through Assets back to the Company pursuant to the
Pass Through Certificate Leases. Amounts payable under the Pass Through
Certificate Leases will be at least sufficient to pay in full when due all
payments of principal and interest on the Pass Through Secured Notes. However,
neither the Pass Through Certificates nor the Pass Through Secured Notes are
direct obligations of, or guaranteed by, the Company.
Prior to December 20, 1998, the Pass Through Certificates may not be
redeemed except in connection with an event of loss to a Pass Through Asset, or
in certain cases of obsolescence of any Pass Through Asset and during the
continuance of any lease event of default with respect to a Pass Through Asset.
On or after December 20, 1998, the Pass Through Certificates may be redeemed at
any time. Unless earlier redeemed, 74.20% (or $62,041,625) of the principal
amount of the Pass Through Certificates will be distributed to the holders
thereof on the final distribution date.
The Company's obligations under the Pass Through Certificate Leases, which
are treated as capital leases, rank pari passu in right of payment with all
other general obligations of the Company and are secured by a security interest
in all of the Pass Through Assets. The Company's obligations under the New Bank
Credit Agreement are secured by essentially all of the Company's assets,
including the Company's leasehold interest in the Pass Through 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 8 1/4% Notes and the 9%
Notes.
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At December 31, 1994, $84.4 million under the Pass Through Certificate
Leases was outstanding.
8 1/4% 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. ("Norwest"), as Trustee.
The 8 1/4% Notes are senior unsecured obligations of the Company, and rank
pari passu in right of payment with other senior indebtedness of the Company and
are senior to all existing and future subordinated indebtedness of the Company.
The 8 1/4% Notes mature on February 1, 2002, and bear interest at a rate of 8
1/4% per annum. The 8 1/4% Notes currently have a face amount outstanding of
$100 million and may not be redeemed prior to maturity.
The New Bank Credit Agreement contains a provision prohibiting the optional
redemption of the 8 1/4% Notes without the consent of a specified percentage in
interest of lenders under the New Bank Credit Agreement. The 8 1/4% Note
Indenture also contains a covenant limiting the optional redemption of the 9%
Notes.
The 8 1/4% Note Indenture contains certain restrictive covenants which
impose limitations on the Company and certain of its subsidiaries' ability to,
among other things: (i) incur additional indebtedness; (ii) pay dividends and
make certain other payments and distributions; (iii) create liens and (iv) merge
or consolidate or sell substantially all of the Company's assets.
At December 31, 1994, $100 million of aggregate principal amount of 8 1/4%
Notes was outstanding.
9 1/4% 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, as Trustee.
The 9 1/4% Notes constitute senior unsecured obligations of the Company,
limited to $450 million aggregate principal amount, and will mature on March 15,
2001. The 9 1/4% Notes bear interest at the rate of 9 1/4% per annum. The 9 1/4%
Notes are not redeemable prior to maturity. The 9 1/4% Notes rank pari passu
with the 8 1/4% Notes and constitute senior indebtedness with respect to the 9%
Notes.
The New Bank Credit Agreement contains a provision prohibiting the optional
redemption of the 9 1/4% Notes without the consent of a specified percentage in
interest of lenders under the New Bank Credit Agreement.
The 9 1/4% Note Indenture contains certain restrictive covenants which
impose limitations on the Company and certain of its subsidiaries' ability to,
among other things: (i) incur additional indebtedness; (ii) pay dividends and
make other distributions; (iii) create liens and (iv) merge or consolidate or
transfer substantially all of the Company's assets.
At December 31, 1994, $450 million of aggregate principal amount of 9 1/4%
Notes was outstanding.
9% NOTES
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% Notes are unsecured senior subordinated obligations of the Company.
The 9% Notes mature on February 1, 2006, and bear interest at a rate of 9% per
annum. The 9% Notes currently have
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a face amount outstanding of $650 million, and 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 and declining to 100% of their
principal amount on or after February 1, 2001, in all cases plus accrued
interest to the redemption date. 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 9% Notes are redeemable, at 109% plus accrued interest, from the
proceeds of a public equity offering.
The New Bank Credit Agreement contains a provision prohibiting the optional
redemption of the 9% Notes without the consent of a specified percentage in
interest of lenders under the New Bank Credit Agreement.
The 9% Note Indenture contains certain restrictive covenants which impose
limitations on the Company and certain of its subsidiaries' ability to, among
other things: (i) incur additional indebtedness; (ii) pay dividends and make
certain other payments and distributions; (iii) create liens and (iv) merge or
consolidate or sell substantially all of the Company's assets.
At December 31, 1994, $650 million of aggregate principal amount of 9% Notes
was outstanding.
10% NOTES
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 ("U.S. Trust"), as Trustee.
The 10% Notes constitute unsecured subordinated obligations of the Company,
limited to $300 million aggregate principal amount, and will mature on March 15,
2003. The 10% Notes bear interest at the rate of 10% per annum. The 10% Notes
are redeemable at any time on or after March 15, 1998 at 105.0% of the principal
amount thereof, on or after March 15, 1999 at 103.75% of the principal amount
thereof, on or after March 15, 2000 at 102.50% of the principal amount thereof,
on or after March 15, 2001 at 101.25% of the principal amount thereof, and after
March 15, 2002, at 100% of the principal amount thereof, in each case together
with accrued and unpaid interest to the redemption date. In addition, at any
time prior to March 15, 1995, the Company may redeem up to $75 million aggregate
principal amount of 10% Notes with the proceeds of one or more public equity
offerings following which there is a public market, at any time or from time to
time, at a redemption price (expressed as a percentage of principal amount) of
110%, plus accrued interest to the redemption date. The 10% Notes are
subordinated to the 8 1/4% Notes and the 9% Notes.
The New Bank Credit Agreement contains a provision prohibiting the optional
redemption of the 10% Notes without the consent of a specified percentage in
interest of lenders under the New Bank Credit Agreement. The 9 1/4% Note
Indenture also contains a covenant limiting the optional redemption of the 10%
Notes.
At December 31, 1994, $300 million of aggregate principal amount of 10%
Notes was outstanding.
SENIOR SECURED NOTES
The Senior Secured Notes were issued pursuant to the Senior Secured Note
Purchase Agreement, dated as of September 11, 1991 (the "Senior Secured Note
Agreement"). The Senior Secured Notes are limited to $300 million aggregate
principal amount and have been issued in five series, Series A, B, C1, C2 and D,
maturing in years 1997 through 2000. Series A, B, C1, C2 and D of the Senior
Secured Notes bear interest at three-month LIBOR plus 275 basis points, 300
basis points, 325 basis points, 300 basis points, and 350 basis points,
respectively.
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The Senior Secured Notes contain certain restrictive and financial covenants
and events of default that are substantially similar to those contained in the
1988 Bank Credit Agreement.
At December 31, 1994, $300 million of aggregate principal amount Senior
Secured Notes was outstanding. The Senior Secured Notes will be redeemed in
whole in connection with the Recapitalization. See "Use of Proceeds."
12 5/8% DEBENTURES
The 12 5/8% Debentures were issued under an Indenture dated as of November
1, 1988 (the "12 5/8% Debenture Indenture"), between the Company and U.S. Trust,
as Trustee.
The 12 5/8% Debentures constitute unsecured subordinated obligations of the
Company, and will mature on November 1, 2000, respectively. The 12 5/8%
Debentures bear interest at a rate of 12 5/8% per annum. The 12 5/8% Debentures
are subordinated in right of payment to the 8 1/4% Notes and 9 1/4% Notes and
rank pari passu with the 10% Notes.
The 12 5/8% Debentures are redeemable at the option of the Company at 102.5%
of the principal amount thereof on or after November 1, 1994, and decreasing to
100% of the principal amount after October 31, 1995, in each case together with
accrued and unpaid interest to the redemption date.
The 12 5/8% Debenture Indenture contains certain restrictive covenants
similar to those contained in the 8 1/4% Note Indenture and the 9% Note
Indenture.
At December 31, 1994, $145.8 million of aggregate principal amount of 12
5/8% Debentures was outstanding. All outstanding 12 5/8% Debentures will be
redeemed in connection with the Recapitalization. See "Use of Proceeds."
14 1/8% DEBENTURES
The 14 1/8% Debentures were issued under an Indenture dated as of November
1, 1988 (the "14 1/8% Debenture Indenture"), between the Company and Society
National Bank, as Trustee.
The 14 1/8% Debentures constitute unsecured subordinated obligations of the
Company. The 14 1/8% Debentures currently have a face amount outstanding of
approximately $567 million and will mature on November 1, 2004. No interest is
payable on the 14 1/8% Debentures prior to May 1, 1995. From and after November
1, 1994, interest on the 14 1/8% Debentures accrues at a rate of 14 1/8% per
annum. The 14 1/8% Debentures are subordinated to the 8 1/4% Notes, the 9%
Notes, the 9 1/4% Notes, the 10% Notes and the 12 5/8% Debentures until redeemed
as described herein.
The 14 1/8% Debentures are redeemable at any time at the option of the
Company at a redemption price equal to 100% of their principal amount, together
with accrued and unpaid interest, if any, to the redemption date.
The 14 1/8% Debenture Indenture contains certain limited covenants which
restrict the Company's ability to pay dividends on or repurchase or retire
Common Stock prior to November 1, 1994 or to merge or consolidate or transfer
substantially all of its assets.
At December 31, 1994, $566.9 million of aggregate principal amount of 14
1/8% Debentures was outstanding. The 14 1/8% Debentures will be redeemed in
whole in connection with the Recapitalization. See "Use of Proceeds."
OTHER DEBT OF THE COMPANY
In addition to borrowings under the 1988 Bank Credit Agreement, the 1993
Term Loan Agreements, the Senior Secured Note Agreement, the 8 1/4% Notes, the
9% Notes, the 9 1/4% Notes, the 10% Notes, the 12 5/8% Debentures, the 14 1/8%
Debentures and the Pass Through Certificates at December 31, 1994, the Company
and its subsidiaries had outstanding approximately $187.7 million of other
long-term debt (including the current portion thereof).
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company will consist of 100,000,000
shares of Common Stock, par value $.01 per share and 50,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). The following
summary does not purport to be complete and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the Certificate of
Incorporation and By-laws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part, and to the applicable
provisions of the General Corporation Law of the State of Delaware (the "DGCL").
COMMON STOCK
Upon completion of the Offering, the Company will have 60,101,239 shares of
Common Stock outstanding, assuming no exercise of any options granted by the
Company.
Voting Rights. Each share of Common Stock entitles the holder thereof to one
vote in elections of directors and all other matters submitted to a vote of
shareholders.
Dividends. Each share of Common Stock has an equal and ratable right to
receive dividends to be paid from the Company's assets legally available
therefor when, as and if declared by the Board of Directors. Since the
Acquisition, the Company has not declared or paid any cash dividends on any
class of its capital stock, and currently does not intend to pay dividends on
the Common Stock. The New Bank Credit Agreement, 1995 Receivables Facility and
the indentures governing the 8 1/4% Notes, the 9% Notes, the 9 1/4% Notes and
the 10% Notes limit, in each case with certain exceptions, the ability of the
Company to pay dividends on the Common Stock. Delaware law generally requires
that dividends are payable only out of a company's surplus or current net
profits in accordance with the DGCL. The Company would be permitted under
Delaware law to pay dividends out of its current net profits, despite its
shareholders' deficit. See "Dividend Policy."
Liquidation. Subject to the rights of any holders of Preferred Stock
outstanding, upon the dissolution, liquidation or winding up of the Company, the
holders of Common Stock are entitled to share equally and ratably in the assets
available for distribution after payments are made to the Company's creditors.
Other. The holders of shares of Common Stock offered hereby have no
preemptive, subscription, redemption or conversion rights and are not liable for
further call or assessment. All of the outstanding shares of Common Stock are,
and the Common Stock offered hereby will be, fully paid and nonassessable.
Since the Acquisition, there has been no public market for the Common Stock.
Although the Common Stock has been approved for listing on the Nasdaq National
Market, there can be no assurance that an active trading market will develop for
the Common Stock. Following consummation of the Offering, MS&Co will be
prohibited by the rules of the New York Stock Exchange from making a market in
the Common Stock. The initial public offering price for the Common Stock will be
determined by negotiations among the Company and the representatives of the
Underwriters in accordance with the recommendation of CS First Boston, the
"qualified independent underwriter," as required by the by-laws of the NASD, and
may not be indicative of the market price for the Common Stock after the
Offering. See "Certain Risk Factors--Absence of Prior Public Market."
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
shareholder action, to divide any or all shares of authorized Preferred Stock
into one or more series and to fix and determine the designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereon, of any series so
established, including voting powers, dividend rights, liquidation preferences,
redemption rights and conversion or exchange privileges. As of the date of this
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Prospectus, the Board of Directors of the Company has not authorized any series
of Preferred Stock and there are no plans, agreements or understandings for the
issuance of any shares of Preferred Stock.
RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Shareholders' rights and related matters are governed by the DGCL, the
Certificate of Incorporation and By-laws. Certain provisions of the Certificate
of Incorporation and the By-laws, which are summarized below, may discourage or
make more difficult a takeover attempt that a shareholder might consider in its
best interest. Such provisions may also adversely affect prevailing market
prices for the Common Stock. See "Certain Risk Factors--Anti-Takeover Effects of
Provisions of the Restated Certificate of Incorporation and By-laws."
Classified Board of Directors and Related Provisions. The Certificate of
Incorporation will provide that the Board of Directors of the Company be divided
into three classes of directors serving staggered three-year terms. The classes
of directors will be as nearly equal in number as possible. Accordingly,
approximately one-third of the Company's Board of Directors will be elected each
year. See "Management--Directors." The classified board provision will prevent a
party who acquires control of a majority of the outstanding voting stock of the
Company from obtaining control of the Board of Directors until the second annual
shareholders meeting following the date such party obtains the controlling
interest. The provisions of the Certificate of Incorporation relating to the
classified nature of the Company's Board of Directors may not be amended without
the affirmative vote of the holders of at least 80% of the Company's outstanding
voting stock.
The Certificate of Incorporation will provide that the number of directors
will be no greater than fifteen or less than three. The Certificate of
Incorporation will provide that directors may not be removed without cause and
that any vacancies on the Board of Directors may only be filled by the remaining
directors and not by the shareholders. These provisions will preclude
shareholders from removing incumbent directors without cause and filling the
resulting vacancies with their own nominees.
No Shareholder Action by Written Consent; Special Meeting. The Certificate
of Incorporation will prohibit shareholders from taking action by written
consent in lieu of an annual or special meeting, and thus shareholders may only
take action at an annual or special meeting called in accordance with the
By-laws. The Certificate of Incorporation and By-laws will provide that special
meetings of shareholders may only be called by the Chief Executive Officer or a
majority of the Board of Directors. Special meetings may not be called by the
shareholders.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Certificate of Incorporation and By-laws will establish advance
notice procedures with regard to shareholder proposals and the nomination, other
than by or at the direction of the Board of Directors or a committee thereof, of
candidates for election as directors. These procedures provide that the notice
of shareholder proposals and shareholder nominations for the election of
directors at an annual meeting must be in writing and received by the Secretary
of the Company not less than 60 days nor more than 90 days prior to the
anniversary date of the immediately preceding annual meeting of shareholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, notice by
the shareholder in order to be timely must be received not later than the close
of business on the 10th day following the day on which such notice of the date
of the annual meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs. The notice of shareholder
nominations must set forth certain information with respect to the shareholder
giving the notice and with respect to each nominee.
Indemnification. The Certificate of Incorporation and By-laws will provide
that the Company shall advance expenses to and indemnify each director and
officer of the Company to the fullest extent permitted by law.
Amendments. Shareholders may adopt, alter, amend or repeal provisions of the
By-laws only by vote of the holders of 80% or more of the outstanding Common
Stock and any other voting securities. In addition, the affirmative vote of the
holders of 80% or more of the outstanding Common Stock and any
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other voting securities is required to amend certain provisions of the
Certificate of Incorporation, including the provisions referred to above
relating to the classification of the Company's Board of Directors, filling
vacancies on the Board of Directors, removal of directors only for cause,
prohibiting shareholder action by written consent, prohibiting the calling of
special meetings by shareholders and approval of amendments to the By-laws.
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate of Incorporation will provide that no director of the
Company shall be personally liable to the Company or its shareholders for
monetary damages for any breach of fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty to the Company
or its shareholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) in respect
of certain unlawful dividend payments or stock redemptions or purchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its shareholders (through shareholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above. These provisions
will not limit the liability of directors under federal securities laws and will
not affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of DGCL prohibits certain transactions between a Delaware
corporation and an "interested shareholder," which is defined as a person who,
together with any affiliates and/or associates of such person, beneficially
owns, directly or indirectly, 15 percent or more of the outstanding voting
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value of 10 percent or more of the
consolidated assets of the corporation, and certain transactions that would
increase the interested shareholder's proportionate share ownership in the
corporation) between an interested shareholder and a corporation for a period of
three years after the date the interested shareholder acquired its stock,
unless: (i) the business combination is approved by the corporation's board of
directors prior to the date the interested shareholder acquired shares; (ii) the
interested shareholder acquired at least 85 percent of the voting stock of the
corporation in the transaction in which it became an interested shareholder or
(iii) the business combination is approved by a majority of the board of
directors and by the affirmative vote of two-thirds of the outstanding voting
stock owned by disinterested shareholders at an annual or special meeting. A
Delaware corporation, pursuant to a provision in its certificate of
incorporation or by-laws, may elect not to be governed by Section 203 of the
DGCL. The Company will not make such an election and, as a result, the Company
will be subject to the provisions of Section 203 of the DGCL upon consummation
of the Offering.
REGISTER AND TRANSFER AGENT
Chemical Bank will act as Registrar and Transfer Agent for the Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering, the Company will have 60,101,239 shares
of common stock outstanding, assuming no exercise of any options granted by the
Company. Of these shares, the 22,000,000 shares of Common Stock issued in the
Offering will be tradeable without restriction or further registration under the
Securities Act, except for any of such shares held by "affiliates" (as defined
under the Securities Act) of the Company. The remaining 38,101,239 shares of
common stock will be deemed "restricted" securities within the meaning of Rule
144. Neither shares held by an affiliate nor restricted securities may be
publicly sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemptions contained in
Rule 144. Of such shares of common stock which are deemed to be restricted
securities as described above, approximately 13,771,051 shares may be freely
tradeable under Rule 144 by the holders thereof (subject, in certain cases, to
certain transfer restrictions contained in the Stockholders Agreement) and, if
certain partnerships (including MSLEF II) which currently own such restricted
shares of common stock distribute to their respective partners all of their
current holdings, approximately up to an additional 20,889,290 shares could
become freely tradeable under Rule 144(k) by the partners of such partnerships.
Generally, Rule 144 provides that a person who has owned restricted
securities for at least two years, or who may be deemed an "affiliate" of the
Company, is entitled to sell, within any three-month period, up to the number of
restricted securities that does not exceed the greater of (i) one percent of the
then outstanding shares of Common Stock or (ii) the average weekly trading
volume during the four calendar weeks preceding the date on which notice of sale
is filed with the Securities and Exchange Commission (the "Commission"). Sales
under Rule 144 are subject to certain restrictions relating to manner of sale,
volume of sales and the availability of current public information about the
Company. In addition, restricted securities that have been held for at least
three years by a person who has not been an "affiliate" of the Company during
the preceding three months may be sold under Rule 144(k) without regard to the
volume limitations or current public information or manner of sale requirements
of Rule 144. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly, or indirectly through the use of one or more intermediaries,
controls, or is controlled by, or is under the common control with, such issuer.
Pursuant to the Underwriting Agreement the Company has agreed, and pursuant
to the Stockholders Agreement all current shareholders of the Company are
subject to an agreement, with certain limited exceptions, not to offer, pledge,
sell, contract to sell, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period beginning 7 days
before and ending 180 days after the effective date of the Registration
Statement in the case of current and former officers and other key employees of
the Company (who beneficially own an aggregate of 791,358 shares of Common
Stock), and ending one year after the effective date of the Registration
Statement in the case of the remaining shareholders (who beneficially own an
aggregate of 37,309,881 shares of Common Stock), without the prior written
consent of certain of the representatives of the U.S. Underwriters in the case
of Morgan Stanley Group, MSLEF II, Fort Howard Equity Investors and Fort Howard
Equity Investors II, or of MS&Co, in the case of the remaining shareholders. See
"Underwriters."
Pursuant to the terms of the Stockholders Agreement, holders of specified
percentages of Common Stock are entitled to certain demand registration rights
with respect to shares of Common Stock held by them provided, however, that the
Company (or purchasers designated by the Company) has the right to purchase at
fair market value the shares which are the subject of Demand Rights in lieu of
registering such shares of Common Stock. In addition to the Demand Rights,
holders are entitled, subject to certain limitations, to register shares of
Common Stock in connection with a registration statement prepared by the Company
to register its equity securities.
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Subject to the one year lock-up period described above, Morgan Stanley
Group, MSLEF II, Fort Howard Equity Investors and Fort Howard Equity Investors
II may choose to dispose of the Common Stock owned by them. The timing of such
sales or other dispositions by such shareholders (which could include
distributions to MSLEF II's, Fort Howard Equity Investors' and Fort Howard
Equity Investors II's partners) will depend on market and other conditions, but
could occur relatively soon after the one year lock-up period, including
pursuant to the exercise of their registration rights. MSLEF II, Fort Howard
Equity Investors and Fort Howard Equity Investors II are unable to predict the
timing of sales by any of their limited partners in the event of a distribution
to them. Such dispositions could be privately negotiated transactions or public
sales.
Prior to the Offering, there has been no public market for the Common Stock.
Trading of the Common Stock is expected to commence following the completion of
the Offering. There can be no assurance that an active trading market will
develop or continue after the completion of the Offering or that the market
price of the Common Stock will not decline below the initial public offering
price. Following consummation of the Offering, MS&Co will be prohibited by the
rules of the New York Stock Exchange from making a market in the Common Stock.
No prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sale, will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Stock
(including shares issued upon the exercise of stock options) in the public
market, or the perception that such sales could occur, could adversely affect
the prevailing market price of the Common Stock or the ability of the Company to
raise capital through a public offering of its equity securities. See "Certain
Risk Factors--Absence of Prior Public Market."
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by "Non-U.S. Holders." In general, a "Non-U.S. Holder" is an individual or
entity other than: (i) a citizen or resident of the United States; (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state or (iii) an estate or trust, the
income of which is includible in gross income for United States federal income
tax purposes regardless of its source. The term "Non-U.S. Holder" does not
include individuals who were United States citizens within the ten-year period
immediately preceding the date of this Prospectus and whose loss of United
States citizenship had as one of its principal purposes the avoidance of United
States taxes. This discussion is based on current law, which is subject to
change and is for general information only. There are a number of proposed
changes to existing law under President Clinton's 1996 Tax Proposals that
affect the taxation of income earned by foreign trusts and their beneficiaries,
and the taxation of citizens or residents of the U.S. who abandon their U.S.
citizenship or residence. It is not clear whether these proposals will
ultimately be enacted, but holders should consult with their tax advisors
concerning the possible effect of such proposed legislation. This discussion
does not address aspects of United States federal taxation other than income
and estate taxation and does not address all aspects of income and estate
taxation, nor does it consider any specific facts or circumstances that may
apply to a particular Non-U.S. Holder. PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR OWN TAX ADVISERS REGARDING THE UNITED STATES FEDERAL, STATE,
LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND
DISPOSING OF SHARES OF COMMON STOCK.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States or (ii) if certain income tax treaties apply, attributable to a permanent
establishment in the United States maintained by the Non-U.S. Holder. Dividends
effectively connected with such a United States trade or business or
attributable to such a United States permanent establishment generally will not
be subject to withholding tax (if the Non-U.S. Holder files certain forms,
including IRS Form 4224,
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with the payor of the dividend) and generally will be subject to United States
federal tax on a net income basis, in the same manner as if the Non-U.S. Holder
were resident of the United States. In the case of a Non-U.S. Holder that is a
corporation, dividend income so connected or attributable may also be subject to
the branch profits tax (which is generally imposed on a foreign corporation on
the repatriation from the United States of its effectively connected earnings
and profits subject to certain adjustments) at a 30% rate (or a lower rate
prescribed by an applicable income tax treaty). For purposes of determining
whether tax is to be withheld at a 30% rate or at a lower rate as prescribed by
an applicable tax treaty, the Company ordinarily will presume that dividends
paid to an address in a foreign country are paid to a resident of such country
absent knowledge that such presumption is not warranted. However, under United
States Treasury regulations proposed in 1984 that have not been finally adopted,
to claim the benefits of an applicable tax treaty, a Non-U.S. Holder of Common
Stock would be required to file certain information forms with the payor of the
dividends.
A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the IRS.
SALE OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain recognized upon the disposition of Common Stock unless:
(i) the gain is effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States or, alternatively, if certain tax
treaties apply, attributable to a permanent establishment in the United States
maintained by the Non-U.S. Holder (and in either such case, the branch profits
tax may also apply if the Non-U.S. Holder is a corporation); (ii) in the case of
a Non-U.S. Holder who is a nonresident alien individual and holds shares of
stock as a capital asset, such individual is present in the United States for
183 days or more in the taxable year of disposition, and either (a) such
individual has a "tax home" (as defined for United States federal income tax
purposes) in the United States, or (b) the gain is attributable to an office or
other fixed place of business maintained by such individual in the United
States; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions
of United States tax law applicable to certain United States expatriates; or
(iv) the Company is or has been a United States real property holding
corporation (a "USRPHC") for United States federal income tax purposes (which
the Company does not believe that it is or is likely to become) at any time
within the shorter of the five-year period preceding such disposition or such
Non-U.S. Holder's holding period. If the Company were or were to become a
USRPHC, gains realized upon a disposition of Common Stock by a Non-U.S. Holder
which did not directly or indirectly own more than 5% of the Common Stock during
the shorter of the periods described above generally would not be subject to
United States federal income tax so long as the Common Stock is "regularly
traded" on an established securities market.
ESTATE TAX
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as defined for United States federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise, and therefore may be subject to United
States federal estate tax.
BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-U.S.
Holder. These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of this information
also may be made available under the provisions of a specific treaty or
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agreement with the tax authorities in the country in which the Non-U.S. Holder
resides or is established.
United States backup withholding (which generally is imposed at the rate of
31% on certain payments to persons that fail to furnish the information required
under the United States information reporting requirements) and information
reporting generally will not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside the United States.
The payment of proceeds from the disposition of Common Stock to or through a
United States office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of proceeds from the disposition of Common Stock to or
through a non-U.S. office of a non-U.S. broker generally will not be subject to
backup withholding and information reporting, except as noted below. In the case
of proceeds from the disposition of Common Stock paid to or through a non-United
States office of a broker that is: (i) a United States person; (ii) a
"controlled foreign corporation" for United States federal income tax purposes
or (iii) a foreign person 50% or more of whose gross income from certain periods
is effectively connected with a United States trade or business, (a) backup
withholding will not apply unless such broker has actual knowledge that the
owner is not a Non-U.S. Holder, and (b) information reporting will apply unless
the broker has documentary evidence in its files that the owner is a Non-U.S.
Holder (and the broker has no actual knowledge to the contrary).
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded or
credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below, for whom MS&Co, CS First Boston and Salomon Brothers Inc are
serving as U.S. Representatives, have severally agreed to purchase, and the
Company has agreed to sell to them, and the International Underwriters named
below, for whom MS&Co International, CS First Boston Limited, Salomon Brothers
International Limited and S.G.Warburg Securities Limited are serving as
International Representatives, have severally agreed to purchase, and the
Company has agreed to sell to them, the respective number of shares of the
Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ----------------------------------------------------------- ----------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated........................
CS First Boston Corporation..............................
Salomon Brothers Inc.....................................
----------------
Subtotal............................................. 17,600,000
----------------
International Underwriters:
Morgan Stanley & Co. International Limited...............
CS First Boston Limited..................................
Salomon Brothers International Limited...................
S.G.Warburg Securities Limited...........................
----------------
Subtotal............................................. 4,400,000
----------------
Total...................................................... 22,000,000
----------------
----------------
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the several Underwriters to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby if any such
shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any International Shares (as defined below)
for the account of
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any United States or Canadian Person and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any International Shares or
distribute any prospectus relating to the International Shares within the United
States or Canada or to any United States or Canadian Person. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the Agreement Between U.S. and International
Underwriters. As used herein, "United States or Canadian Person" means any
national or resident of the United States or Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States and Canada of any United States
or Canadian Person) and includes any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the U.S. Underwriters and the International
Underwriters are referred to herein as the "U.S. Shares" and the "International
Shares," respectively.
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of shares of Common Stock to be purchased pursuant to the Underwriting
Agreement as may be mutually agreed. The per share price of any shares sold
shall be the Price to Public set forth on the cover page hereof, in United
States dollars, less an amount not greater than the per share amount of the
concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in any
province or territory of Canada in contravention of the securities laws thereof
and has represented that any offer or sale of Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer or sale is made. Each
U.S. Underwriter has further agreed to send to any dealer who purchases from it
any shares of Common Stock a notice stating in substance that, by purchasing
such Common Stock, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Common
Stock in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer or sale is
made, and that such dealer will deliver to any other dealer to whom it sells any
of such Common Stock a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and will not offer or sell any shares of Common Stock in the
United Kingdom by means of any document (other than in circumstances which do
not constitute an offer to the public within the meaning of the Companies Act
1985); (ii) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in relation
to the shares of Common Stock offered hereby in, from or otherwise involving the
United Kingdom and (iii) it has only issued or passed on and will only issue or
pass on to any person in the United Kingdom any document received by it in
connection with the issue of the shares of Common Stock, other than any document
which consists of, or is a part of, listing particulars, supplementary listing
particulars or any other document required or permitted to be published by
listing rules under Part IV of the Financial Services Act 1986, if that person
is of a kind described in Article 9(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1988.
The Underwriters initially propose to offer part of the Common Stock
directly to the public at the Price to Public set forth on the cover page hereof
and part to certain dealers at a price which represents a concession not in
excess of $ per share under the Price to Public. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to other Underwriters or
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<PAGE>
to certain dealers. After the initial offering of the Common Stock the offering
price and other selling terms may from time to time be varied by the
Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 3,300,000 additional shares of Common Stock at the
public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, made in
connection with the Offering. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to the total
number of shares of Common Stock offered by the U.S. Underwriters hereby.
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "FORT."
Pursuant to the Underwriting Agreement, the Company has agreed that, without
the prior written consent of the U.S. Representatives, it will not register for
sale or offer, pledge, sell, contract to sell or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, for a period
beginning 7 days before and ending 180 days after the effective date of the
Registration Statement, other than: (i) the shares of Common Stock offered
hereby; (ii) any shares of Common Stock issued upon the exercise of an option or
warrant or the conversion of a security outstanding on the date of the
Underwriting Agreement and (iii) any shares of Common Stock issued pursuant to
existing employee benefit plans of the Company. Pursuant to the Stockholders
Agreement, all current shareholders of the Company are subject to an agreement,
with certain limited exceptions, not to offer, pledge, sell, contract to sell,
or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock for a period beginning 7 days before and ending 180 days after
the effective date of the Registration Statement in the case of current and
former officers and other key employees of the Company (who beneficially own an
aggregate of 791,358 shares of Common Stock), and ending one year after the
effective date of the Registration Statement in the case of the remaining
shareholders (who beneficially own an aggregate of 37,309,881 shares of Common
Stock), without the prior written consent of certain of the representatives of
the U.S. Underwriters in the case of Morgan Stanley Group, MSLEF II, Fort Howard
Equity Investors and Fort Howard Equity Investors II, or of MS&Co, in the case
of the remaining shareholders.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
Upon consummation of the Offering, affiliates of MS&Co will own
approximately 39.8% of the outstanding shares of Common Stock (37.7% if the
Underwriters' over-allotment option is exercised in full). See "Ownership of
Common Stock." For a description of certain transactions between the Company,
MSLEF II, MS&Co and affiliates of MS&Co, see "Certain Transactions."
The provisions of Schedule E ("Schedule E") to the by-laws of the NASD apply
to the Offering. Accordingly, the public offering price can be no higher than
that recommended by a "qualified independent underwriter." The NASD requires
that the "qualified independent underwriter" (i) be an NASD member experienced
in the securities or investment banking business and (ii) not be an affiliate of
the issuer of the securities and (iii) agree to undertake the responsibilities
and liabilities of an underwriter under the Securities Act. In accordance with
this requirement, CS First Boston is serving in such role, and the initial
public offering price of the Common Stock offered hereby is not higher than CS
First Boston's recommended initial public offering price. CS First Boston also
participated in the preparation of the Registration Statement of which this
Prospectus is a part and has performed due diligence with respect thereto. The
Company has agreed to indemnify CS First Boston against certain liabilities,
including liabilities under the Securities Act.
91
<PAGE>
Pursuant to the provisions of Schedule E, NASD members may not execute
transactions in Common Stock offered hereby to any accounts over which they
exercise discretionary authority without prior written approval of the customer.
The Company has reserved up to 1,100,000 shares of Common Stock,
representing approximately 5% of the shares of Common Stock to be sold in the
Offering, for sale to certain of its directors, officers and other employees. If
such shares are not so sold to directors, officers and other employees of the
Company, they will be sold to the public.
From time to time MS&Co has provided, and continues to provide, investment
banking services to the Company and its affiliates. See "Certain Transactions."
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiations among the Company and the Representatives in accordance with the
recommendation of CS First Boston, the "qualified independent underwriter," as
is required by the by-laws of the NASD. Among the factors which were considered
in determining the initial public offering price were the sales, earnings and
certain other financial and operating information of the Company in recent
periods, the future prospects of the Company and its industry in general, and
certain ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to those of the Company.
LEGAL MATTERS
The validity of the Common Stock and certain other legal matters relating to
the Offering have been passed upon for the Company by Shearman & Sterling, New
York, New York. Certain legal matters have been passed upon for the Underwriters
by Davis Polk & Wardwell, New York, New York. Shearman & Sterling regularly
represents Morgan Stanley Group and MSLEF II on a variety of legal matters.
Davis Polk & Wardwell is currently representing the Company in connection with
the CID issued by the U.S. Department of Justice, Antitrust Division and the
Company's anticipated appeal of the U.S. Tax Court decision discussed under
"Business--Legal Proceedings." Shortly after the Acquisition, certain partners
of Davis Polk & Wardwell, acting through a general partnership, acquired shares
of Common Stock of the Company from Morgan Stanley Group which, in the
aggregate, amount to less than 1% of the outstanding shares.
EXPERTS
The consolidated financial statements and schedules of the Company included
in this Prospectus and elsewhere in this Registration Statement for the years
ended December 31, 1994, 1993 and 1992 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated by their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
92
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendment thereto) on Form S-1 under the Securities
Act, with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
Upon completion of the Offering, the Company will be subject to the
informational requirements of the Exchange Act, and in accordance therewith will
file reports and other information with the Commission. The Registration
Statement and the exhibits and schedules thereto, as well as all such reports
and other information filed with the Commission, may be inspected at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and are also available for
inspection and copying at prescribed rates at the regional offices of the
Commission located at 500 West Madison Street, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048, and at the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
93
<PAGE>
FORT HOWARD CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE><CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF FORT HOWARD CORPORATION
Report of Independent Public Accountants........................................... F-2
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and
1992............................................................................. F-3
Consolidated Balance Sheets at December 31, 1994 and 1993.......................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992......................................................................... F-5
Notes to Consolidated Financial Statements......................................... F-6
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
FORT HOWARD CORPORATION:
We have audited the accompanying consolidated balance sheets of Fort Howard
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income and cash flows for
the years ended December 31, 1994, 1993 and 1992. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fort Howard Corporation and subsidiaries as of December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for the years
ended December 31, 1994, 1993 and 1992, in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 10 to the consolidated financial statements,
effective January 1, 1992, the Company changed its method of accounting for
postretirement benefits other than pensions.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 1995
F-2
<PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
---------- ----------- ----------
<S> <C> <C> <C>
Net sales............................................. $1,274,445 $ 1,187,387 $1,151,351
Cost of sales......................................... 867,357 784,054 726,356
---------- ----------- ----------
Gross income.......................................... 407,088 403,333 424,995
Selling, general and administrative................... 110,285 96,966 97,620
Amortization of goodwill.............................. -- 42,576 56,700
Goodwill write-off.................................... -- 1,980,427 --
Environmental charge.................................. 20,000 -- --
---------- ----------- ----------
Operating income (loss)............................... 276,803 (1,716,636) 270,675
Interest expense...................................... 337,701 342,792 338,374
Other (income) expense, net........................... 118 (2,996) 2,101
---------- ----------- ----------
Loss before taxes..................................... (61,016) (2,056,432) (69,800)
Income taxes (credit)................................. (18,891) (16,314) (398)
---------- ----------- ----------
Loss before extraordinary items and adjustment for
accounting change..................................... (42,125) (2,040,118) (69,402)
Extraordinary items--losses on debt repurchases (net
of income taxes of $14,731 in 1994 and $7,333 in
1993)............................................... (28,170) (11,964) --
Adjustment for adoption of SFAS No. 106 (net of income
taxes of $6,489).................................... -- -- (10,587)
---------- ----------- ----------
Net loss.............................................. $ (70,295) $(2,052,082) $ (79,989)
---------- ----------- ----------
---------- ----------- ----------
Loss per share:
Net loss before extraordinary items and adjustment
for accounting change............................. $ (1.11) $ (53.54) $ (1.82)
Extraordinary items................................. (0.74) (0.31) --
Adjustment for adoption of SFAS No. 106............. -- -- (0.28)
---------- ----------- ----------
Net loss............................................ $ (1.85) $ (53.85) $ (2.10)
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE><CAPTION>
DECEMBER 31,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 422 $ 227
Receivables, less allowances of $1,589 in 1994 and $2,366 in
1993.......................................................... 123,150 105,834
Inventories..................................................... 130,843 118,269
Deferred income taxes........................................... 20,000 14,000
Income taxes receivable......................................... 5,200 9,500
----------- -----------
Total current assets........................................ 279,615 247,830
Property, plant and equipment..................................... 1,932,713 1,845,052
Less: Accumulated depreciation.................................. 611,762 516,938
----------- -----------
Net property, plant and equipment........................... 1,320,951 1,328,114
Other assets...................................................... 80,332 73,843
----------- -----------
Total assets................................................ $ 1,680,898 $ 1,649,787
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................ $ 100,981 $ 101,665
Interest payable................................................ 84,273 54,854
Income taxes payable............................................ 224 122
Other current liabilities....................................... 75,450 70,138
Current portion of long-term debt............................... 116,203 112,750
----------- -----------
Total current liabilities................................... 377,131 339,529
Long-term debt.................................................... 3,189,644 3,109,838
Deferred and other long-term income taxes......................... 209,697 243,437
Other liabilities................................................. 41,162 26,088
Common Stock with put right....................................... 11,711 11,820
Shareholders' deficit:
Common Stock.................................................... 600,471 600,459
Cumulative translation adjustment............................... (2,330) (5,091)
Retained deficit................................................ (2,746,588) (2,676,293)
----------- -----------
Total shareholders' deficit................................. (2,148,447) (2,080,925)
----------- -----------
Total liabilities and shareholders' deficit................. $ 1,680,898 $ 1,649,787
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE><CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
-------- ----------- --------
<S> <C> <C> <C>
Cash provided from (used for) operations:
Net loss............................................... $(70,295) $(2,052,082) $(79,989)
Depreciation and amortization.......................... 95,727 130,671 137,977
Goodwill write-off..................................... -- 1,980,427 --
Non-cash interest expense.............................. 74,238 100,844 139,700
Deferred income taxes (credit)......................... (33,832) (17,874) (17,799)
Environmental charge................................... 20,000 -- --
Employee stock compensation............................ -- (7,832) 1,120
Pre-tax loss on debt repurchases....................... 42,901 19,297 --
Pre-tax adjustment for adoption of SFAS No. 106........ -- -- 17,076
Increase in receivables................................ (17,316) (2,343) (5,284)
Increase in inventories................................ (12,574) (17,294) (1,215)
(Increase) decrease in income taxes receivable......... 4,300 (7,000) (2,500)
Increase (decrease) in accounts payable................ (684) (2,740) 13,572
Increase (decrease) in interest payable................ 29,419 21,797 (298)
Increase (decrease) in income taxes payable............ 102 (1,670) (5,094)
All other, net......................................... (6,896) 6,848 12,684
-------- ----------- --------
Net cash provided from operations.................. 125,090 151,049 209,950
Cash used for investment activities:
Additions to property, plant and equipment............. (83,559) (165,539) (232,844)
Acquisition of Stuart Edgar Limited, net of acquired
cash of $749......................................... -- -- (8,302)
-------- ----------- --------
Net cash used for investment activities............ (83,559) (165,539) (241,146)
Cash provided from (used for) financing activities:
Proceeds from long-term borrowings..................... 750,000 887,088 189,518
Repayment of long-term borrowings...................... (759,202) (841,399) (167,731)
Debt issuance costs.................................... (32,134) (31,160) --
-------- ----------- --------
Net cash provided from (used for) financing
activities....................................... (41,336) 14,529 21,787
-------- ----------- --------
Increase (decrease) in cash.............................. 195 39 (9,409)
Cash, beginning of year.................................. 227 188 9,597
-------- ----------- --------
Cash, end of year.................................. $ 422 $ 227 $ 188
-------- ----------- --------
-------- ----------- --------
Supplemental Cash Flow Disclosures:
Interest paid.......................................... $237,650 $ 228,360 $208,051
Income taxes paid, net................................. $ 2,483 $ 4,432 $ 9,997
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
(A) Principles of Consolidation--The consolidated financial statements
include the accounts of Fort Howard Corporation and all domestic and foreign
subsidiaries. Assets and liabilities of foreign subsidiaries are translated at
the rates of exchange in effect at the balance sheet date. Income amounts are
translated at the average of the monthly exchange rates. The cumulative effect
of translation adjustments is deferred and classified as a cumulative
translation adjustment in the consolidated balance sheet. The Company does not
hedge its translation exposure. The Company does not engage in material hedging
activity with respect to foreign currency transaction risks. All significant
intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to conform prior years' data to the current
format.
On September 4, 1992, Fort Sterling Limited ("Fort Sterling"), the Company's
United Kingdom tissue operations, acquired for $25 million, including debt
assumed of $17 million, Stuart Edgar Limited ("Stuart Edgar"), a converter of
consumer tissue products with annual net sales approximating $43 million. The
operating results of Stuart Edgar are included in the consolidated financial
statements since September 4, 1992.
(B) Cash and Cash Equivalents--The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. The carrying amount of cash equivalents approximates fair value due
to the short maturity of the investments.
(C) Inventories--Inventories are carried at the lower of cost or market,
with cost principally determined on a first-in, first-out basis (see Note 2).
(D) Property, Plant and Equipment--Prior to August 9, 1988, property, plant
and equipment were stated at original cost and depreciated using the
straight-line method. Effective with the Acquisition (as defined below),
properties were adjusted to their estimated fair values and are being
depreciated on a straight-line basis over useful lives of 30 to 50 years for
buildings and 2 to 25 years for equipment.
Assets under capital leases principally arose in connection with sale and
leaseback transactions as described in Note 9 and are stated at the present
value of future minimum lease payments. These assets are amortized over the
respective periods of the leases which range from 15 to 25 years. Amortization
of assets under capital leases is included in depreciation expense.
The Company follows the policy of capitalizing interest incurred in
conjunction with major capital expenditure projects. The amounts capitalized in
1994, 1993 and 1992 were $4,230,000, $8,369,000 and $11,047,000, respectively.
(E) Revenue Recognition--Sales of the Company's paper products are recorded
upon shipment of products.
(F) Environmental Expenditures--Environmental expenditures that relate to
current operations are expensed or capitalized as appropriate. Expenditures that
relate to an existing condition caused by past operations, and which do not
contribute to current or future revenue generation, are expensed. Liabilities
are recorded when material environmental assessments and/or remedial efforts are
probable, and the cost can be reasonably estimated. Recoveries of environmental
remediation costs from other potentially responsible parties and recoveries from
insurance carriers are not recorded as assets until such time as their receipt
is deemed probable and the amounts are reasonably estimable.
F-6
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(G) Goodwill--In 1988, FH Acquisition Corp., a company organized on behalf
of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"), acquired the
Company in a leveraged buyout and was subsequently merged with and into the
Company (the "Acquisition"). Goodwill (the acquisition costs in excess of the
fair value of net assets of acquired businesses) acquired in connection with the
Acquisition and the purchases of other businesses was amortized on a
straight-line basis over 40 years through the third quarter of 1993 when the
Company wrote off its remaining goodwill balance (see Note 4). The Company
evaluates the carrying value of goodwill for possible impairment using a
methodology which assesses whether forecasted cumulative net income before
goodwill amortization is adequate to recover the future amortization of the
Company's goodwill balance over the remaining amortization period of the
goodwill.
(H) Employee Benefit Plans--A substantial majority of the Company's
employees are covered under defined contribution plans. The Company's annual
contributions to defined contribution plans are based on pre-tax income, subject
to percentage limitations on participants' earnings and a minimum return on
shareholders' equity. In recent years, the Company made discretionary
contributions as permitted under the plans. Participants may also contribute a
certain percentage of their wages to the plans. Costs charged to operations for
defined contributions plans were approximately $12,716,000, $12,725,000 and
$11,716,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
Employees retiring prior to February 1, 1990 from the Company's U.S. tissue
operations who had met certain eligibility requirements are entitled to
postretirement health care benefit coverage. These benefits are subject to
deductibles, copayment provisions, a lifetime maximum benefit and other
limitations. In addition, employees who retire after January 31, 1990 at age 55
or older with ten years of service may purchase health care benefit coverage
from the Company up to age 65. The Company has reserved the right to change or
terminate this benefit for active employees at any time. As of January 1, 1992,
the Company adopted Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
The standard requires that the expected cost of postretirement health care
benefits be charged to expense during the years that employees render service
(see Note 10). Prior to 1992, the annual cost of these benefits had been
expensed as claims and premiums were paid. Employees of the Company's U.K.
tissue operations are not entitled to Company-provided postretirement benefit
coverage.
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112, "Employers' Accounting for Postemployment Benefits." This new standard
requires that the expected cost of benefits to be provided to former or inactive
employees after employment but before retirement be charged to expense during
the years that the employees render service. In the fourth quarter of 1992, the
Company retroactively adopted the new standard effective January 1, 1992.
Adoption of the new accounting standard had no effect on the Company's 1992
consolidated statement of income.
(I) Interest Rate Cap and Swap Agreements--The cost of interest rate cap
agreements is amortized over the respective lives of the agreements. The
differential to be paid or received in connection with interest rate swap
agreements is accrued as interest rates change and is recognized over the lives
of the agreements.
(J) Income Taxes--The Company follows SFAS No. 109, "Accounting for Income
Taxes." As a result, deferred income taxes are provided to recognize temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities using enacted tax rates in effect
F-7
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
in the years in which the differences are expected to reverse. The principal
difference relates to depreciation expense. Deferred income tax expense
represents the change in the deferred income tax asset and liability balances,
excluding the deferred tax benefit related to extraordinary losses.
(K) On January 31, 1995, the Company's shareholders approved an increase in
the number of authorized shares of voting Common Stock to 99,400,000 shares and
approved a 6.5-for-one stock split of the Common Stock, effective January 31,
1995. All share and per share amounts included in the consolidated financial
statements and notes thereto have been restated to give effect to the increase
in authorized shares and the stock split.
(L) Loss Per Share--Loss per share has been computed on the basis of the
average number of common shares outstanding during the years. The average number
of shares used in the computation was 38,103,215, 38,107,154 and 38,107,453 for
the years ended December 31, 1994, 1993 and 1992, respectively. The assumed
exercise of all outstanding stock options has been excluded from the computation
of loss per share in 1994, 1993 and 1992 because the result was antidilutive.
(M) Segment Information--The Company operates in one industry segment as a
manufacturer, converter and marketer of a diversified line of single-use paper
products for the home and away-from-home markets.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE><CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Components
Raw materials and supplies.......................... $ 63,721 $ 61,285
Finished and partly-finished products............... 67,122 56,984
-------- --------
$130,843 $118,269
-------- --------
-------- --------
Value at lower of cost or market:
First-in, first-out (FIFO).......................... $107,493 $ 94,436
Average cost by specific lot........................ 23,350 23,833
-------- --------
$130,843 $118,269
-------- --------
-------- --------
</TABLE>
F-8
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
3. PROPERTY, PLANT AND EQUIPMENT
The Company's major classes of property, plant and equipment are:
<TABLE><CAPTION>
DECEMBER 31,
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................. $ 44,422 $ 44,429
Buildings......................................... 325,395 318,955
Machinery and equipment........................... 1,527,865 1,367,839
Construction in progress.......................... 35,031 113,829
---------- ----------
$1,932,713 $1,845,052
---------- ----------
---------- ----------
</TABLE>
Included in the property, plant and equipment totals above are assets under
capital leases, as follows:
<TABLE><CAPTION>
DECEMBER 31,
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Buildings......................................... $ 4,012 $ 3,989
Machinery and equipment........................... 186,281 185,624
---------- ----------
Total assets under capital leases............. $ 190,293 $ 189,613
---------- ----------
---------- ----------
</TABLE>
4. GOODWILL
Changes in the Company's goodwill are summarized as follows:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1992
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year........................ $ 2,023,416 $2,075,525
Acquisition of Stuart Edgar....................... -- 6,043
Amortization of goodwill.......................... (42,576) (56,700)
Effects of foreign currency translation........... (413) (1,452)
Goodwill write-off................................ (1,980,427) --
----------- ----------
Balance, end of year.............................. $ -- $2,023,416
----------- ----------
----------- ----------
</TABLE>
Low industry operating rates and aggressive competitive activity among
tissue producers resulting from the recession, additions to capacity and other
factors adversely affected tissue industry operating conditions and the
Company's operating results from 1991 through September 30, 1993. Accordingly,
the Company revised its projections and determined that its projected results
would not support the future amortization of the Company's remaining goodwill
balance of approximately $1.98 billion at September 30, 1993.
The methodology employed to assess the recoverability of the Company's
goodwill first involved the projection in September 1993 of operating results
forward 35 years, which approximated the remaining amortization period of the
goodwill as of October 1, 1993. The Company then evaluated the recoverability of
goodwill on the basis of this forecast of future operations as of September 30,
1993. Based on such forecast, the cumulative net income before goodwill
amortization of approximately $100 million
F-9
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
4. GOODWILL--(CONTINUED)
over the remaining 35-year amortization period was insufficient to recover the
goodwill balance. Accordingly, the Company wrote off its remaining goodwill
balance of $1.98 billion in the third quarter of 1993.
The Company's forecast as of September 30, 1993 assumed that sales volume
increases would be limited to production from a new paper machine then under
construction at the Company's Muskogee mill which was subsequently started-up in
1994 and that further capacity expansion was not justifiable given the Company's
high leverage and adverse tissue industry operating conditions. Such projections
assumed that net selling price and cost increases would approximate 1% per year,
based on the Company's annual historical price increase trend for the years 1984
through 1993 and management's estimates of future performance. Through the year
2001, the Company's projections as of September 30, 1993 indicated that interest
expense would exceed operating income, which is determined after deducting
annual depreciation expense. However, projected operating income before
depreciation was adequate to cover projected interest expense. Inflation and
interest rates were assumed to remain low at 1993 levels during the projected
period. Each of the Company's then outstanding higher yielding debt securities,
the 12 3/8% Senior Subordinated Notes due 1997 (the "12 3/8% Notes"), the 12
5/8% Subordinated Debentures due 2000 (the "12 5/8% Debentures") and the 14 1/8%
Junior Subordinated Discount Debentures due 2004 (the "14 1/8% Debentures"),
were further assumed to be refinanced at lower interest rates. Total capital
expenditures were projected to approximate $55-$80 million annually over the ten
years ending December 31, 2003 plus $32 million in 1994 to complete the Muskogee
mill expansion and another $32 million over 1994 and 1995 for a new coal-fired
boiler under construction at the Company's Savannah mill. Management believed
that the projected future results based on these assumptions were the most
likely scenario at the time given the Company's high leverage and adverse tissue
industry operating conditions experienced for the period 1991 through September
30, 1993.
5. OTHER ASSETS
The components of other assets are as follows:
<TABLE><CAPTION>
DECEMBER 31,
------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred loan costs, net of accumulated amortization.... $76,640 $71,459
Prepayments and other................................... 3,692 2,384
------- -------
$80,332 $73,843
------- -------
------- -------
</TABLE>
Amortization of deferred loan costs for the years ended December 31, 1994,
1993 and 1992 totaling $13,466,000, $13,488,000 and $14,910,000, respectively,
is reported as non-cash interest expense. During 1994, $14,195,000 of deferred
loan costs were written off in conjunction with the retirement of long-term
debt, $21,584,000 of deferred loan costs were incurred for the issuance of the 8
1/4% Senior Notes due 2002 (the "8 1/4% Notes") and the 9% Senior Subordinated
Notes due 2006 (the "9% Notes"), and $10,550,000 of deferred loan costs were
incurred for the purchase of interest rate cap agreements. During 1993,
$19,297,000 of deferred loan costs were written off in conjunction with the
retirement of long-term debt and $31,160,000 of deferred loan costs were
incurred for the issuance of a new bank term loan (the "1993 Term Loan"), the 9
1/4% Senior Unsecured Notes due 2001 (the "9 1/4%
F-10
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
5. OTHER ASSETS--(CONTINUED)
Notes") and the 10% Subordinated Notes due 2003 (the "10% Notes") and for the
purchase of an interest rate cap agreement (see Note 8).
6. OTHER CURRENT LIABILITIES
The components of other current liabilities are as follows:
<TABLE><CAPTION>
DECEMBER 31,
------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Salaries and wages...................................... $41,959 $38,152
Contributions to employee benefit plans................. 12,816 12,805
Taxes other than income taxes........................... 5,615 5,492
Other accrued expenses.................................. 15,060 13,689
------- -------
$75,450 $70,138
------- -------
------- -------
</TABLE>
7. INCOME TAXES
The income tax provision (credit) includes the following components:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal.................................. $ 1,800 $ (6,012) $ 10,501
State.................................... 509 465 411
Foreign.................................. (2,099) (225) --
--------- -------- --------
Total current........................ 210 (5,772) 10,912
Deferred
Federal.................................. (18,826) (7,731) (13,678)
State.................................... (2,793) (2,956) (2,380)
Foreign.................................. 2,518 145 4,748
--------- -------- --------
Total deferred....................... (19,101) (10,542) (11,310)
--------- -------- --------
$ (18,891) $(16,314) $ (398)
--------- -------- --------
--------- -------- --------
</TABLE>
The effective tax rate varied from the U.S. federal tax rate as a result of
the following:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
U.S. federal tax rate............................ (34.0)% (34.0)% (34.0)%
Amortization of intangibles...................... -- 33.4 27.6
State income taxes net of U.S. tax benefit....... (4.1) (0.1) (3.0)
Interest on long-term income taxes............... 3.3 -- 5.7
Permanent differences related to accruals........ 3.3 -- --
Other, net....................................... 0.5 (0.1) 3.1
----- ----- -----
Effective tax rate............................... (31.0)% (0.8)% (0.6)%
----- ----- -----
----- ----- -----
</TABLE>
F-11
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
7. INCOME TAXES--(CONTINUED)
The domestic and foreign components of loss before income taxes are as
follows:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
-------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic................................. $(62,711) $(2,048,746) $(85,597)
Foreign.................................. 1,695 (7,686) 15,797
-------- ----------- --------
$(61,016) $(2,056,432) $(69,800)
-------- ----------- --------
-------- ----------- --------
</TABLE>
The net deferred income tax liability at December 31, 1994 includes $232
million related to property, plant and equipment. All other components of the
gross deferred income tax assets and gross deferred income tax liabilities are
individually not significant. The Company has not recorded a valuation allowance
with respect to any deferred income tax asset.
In 1992, the Internal Revenue Service (the "IRS") issued a statutory notice
of deficiency (the "Notice") to the Company for additional income tax due for
the 1988 tax year. In the Notice, the IRS disallowed deductions for its 1988 tax
year for fees and expenses, other than interest, related to the 1988 debt
financing and refinancing transactions. In disallowing these deductions, the IRS
relied on Section 162(k) of the Internal Revenue Code (the "Code") (which denies
deductions for otherwise deductible amounts paid or incurred in connection with
stock redemptions). The Company had deducted a portion of the disallowed fees
and expenses in 1988 and has been deducting the balance of the fees and expenses
over the terms of the 1988 long-term debt financing and refinancing. Following
receipt of the Notice, the Company filed a petition in the U.S. Tax Court
contesting the deficiency. In August 1994, the U.S. Tax Court issued its opinion
in which it essentially adopted the interpretation of Code Section 162(k)
advanced by the IRS and disallowed the deductions claimed by the Company. At
present, the U.S. Tax Court is preparing an order in which it will determine the
amount of the tax deficiency owed by the Company as a result of the court's
decision. The Company intends to appeal the U.S. Tax Court decision to the U.S.
Court of Appeals for the Seventh Circuit. In anticipation of its appeal, the
Company has paid to the IRS tax of approximately $5 million potentially due for
its 1988 tax year pursuant to the U.S. Tax Court opinion along with $4 million
for the interest accrued on such tax. If the decision of the U.S. Tax Court is
ultimately sustained, the Company estimates that the potential amount of
additional taxes due on account of such disallowance for the period 1989 through
1994 would be approximately $34 million and for the period after 1994 (assuming
current statutory tax rates) would be approximately $4 million, in each case
exclusive of interest. While the Company is unable to predict the final result
of its appeal of the U.S. Tax Court decision with certainty, it has accrued for
the potential tax liability as well as for the interest charges thereon for the
period 1989 through 1994 and thus the Company believes that the ultimate
resolution of this case will not have a material adverse effect on the Company's
financial condition or on its results of operations.
Assuming a favorable resolution of the U.S. Tax Court appeal, the Company
will have approximately $131 million of net operating loss carryforwards as of
December 31, 1994 for federal income tax purposes which expire as follows: $11
million in 2007, $47 million in 2008 and $73 million in 2009. The aggregate
amount of net operating loss carryforwards available to the Company as of
December 31, 1994 could be reduced to approximately $71 million if the U.S. Tax
Court decision is affirmed. During 1994, the Company reclassified $11 million
from the liability for other long-term income taxes to the liability for current
income taxes principally to reflect the payments totaling $9 million made to the
IRS with respect to the 1988 tax year.
F-12
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
8. LONG-TERM DEBT
Long-term debt and capital lease obligations, including amounts payable
within one year, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
1988 Term Loan, at prime plus 1.50% or, subject to certain
limitations, at a reserve adjusted Eurodollar rate plus 2.25%
subject to downward adjustment if certain financial criteria are
met (at a weighted average rate of 8.19% at December 31, 1994),
due in varying annual repayments with a final maturity of
December 31, 1996................................................ $ 224,534 $ 331,753
1988 Revolving Credit Facility, at prime plus 1.50% or, subject to
certain limitations, at a reserve adjusted Eurodollar rate plus
2.25% subject to downward adjustment if certain financial
criteria are met (at a weighted average rate of 8.66% at December
31, 1994), due December 31, 1996................................. 196,500 243,700
1993 Term Loan, at prime plus 1.75% or, subject to certain
limitations, at a reserve adjusted Eurodollar rate plus 3.0%
(8.57% at December 31, 1994), due May 1, 1997.................... 100,000 100,000
Senior Secured Notes, at three month LIBOR plus 2.75% to 3.50%
(9.13% to 9.88% at December 31, 1994), due in varying amounts
between 1996 and 2000............................................ 300,000 300,000
Senior Unsecured Notes, 9 1/4%, due March 15, 2001................. 450,000 450,000
Senior Unsecured Notes, 8 1/4%, due February 1, 2002............... 100,000 --
Senior Subordinated Notes, 12 3/8%, repurchased in 1994............ -- 333,910
Senior Subordinated Notes, 9%, due February 1, 2006................ 650,000 --
Subordinated Debentures, 12 5/8%, due November 1, 2000............. 145,815 383,910
Subordinated Notes, 10%, due March 15, 2003........................ 300,000 300,000
Junior Subordinated Discount Debentures, 14 1/8%, due November 1,
2004............................................................. 566,869 506,186
Capital lease obligations, at interest rates approximating 10.9%... 182,936 184,023
Pollution Control Revenue Refunding Bonds, 7.90%, due October 1,
2005............................................................. 42,000 42,000
Debt of foreign subsidiaries, at rates ranging from 7.00% to 8.36%,
due in varying annual installments through March 2001............ 47,193 47,106
---------- ----------
3,305,847 3,222,588
Less: Current portion of long-term debt............................ 116,203 112,750
---------- ----------
$3,189,644 $3,109,838
---------- ----------
---------- ----------
</TABLE>
The aggregate fair values of the Company's long-term debt and capital lease
obligations approximated $3,152 million and $3,276 million compared to aggregate
carrying values of $3,306 million and $3,223 million at December 31, 1994 and
1993, respectively. The fair values of the Term Loan, Revolving Credit Facility
and 1993 Term Loan are estimated based on secondary market transactions in such
securities. Fair values for the Senior Secured Notes, the 9 1/4% Notes, the 8
1/4% Notes, the 9% Notes, the 12 5/8% Debentures, the 10% Notes, the 14 1/8%
Debentures and the Pollution Control Revenue Refunding Bonds were estimated
based on trading activity in such securities. Of the capital lease obligations,
the fair values of 1991 Series Pass Through Certificates were estimated based on
trading
F-13
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
8. LONG-TERM DEBT--(CONTINUED)
activity in such securities. The fair values of other capital lease
obligations were estimated based on interest rates implicit in the valuation of
the 1991 Series Pass Through Certificates. The fair value of debt of foreign
subsidiaries is deemed to approximate its carrying amount.
The 14 1/8% Debentures did not accrue interest in cash until November 1,
1994, and were issued at a discount to yield a 14 1/8% effective annual rate.
The 14 1/8% Debentures require payments of interest in cash commencing on May 1,
1995. Interest incurred in 1994 through October and for the years ended December
31, 1993 and 1992 related to these debentures was added to the balance due.
On February 9, 1994, the Company sold $100 million principal amount of 8
1/4% Notes and $650 million principal amount of 9% Notes in a registered public
offering (collectively, the "1994 Notes"). Net proceeds from the sale of the
1994 Notes were applied to the repurchase of all the remaining 12 3/8% Notes at
the redemption price of 105% of the principal amount thereof, to the repurchase
of $238 million of 12 5/8% Debentures at the redemption price of 105% of the
principal amount thereof, to the prepayment of $100 million of the 1988 Term
Loan, to the repayment of a portion of the Company's indebtedness under the 1988
Revolving Credit Facility and to the payment of fees and expenses.
The 8 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. The 9% Notes are subordinated in right of payment to all existing and
future senior indebtedness of the Company, and constitute senior indebtedness
with respect to the 10% Notes, the 12 5/8% Debentures and the 14 1/8%
Debentures.
In connection with the sale of the 1994 Notes, the Company amended the Bank
Credit Agreement, the 1993 Term Loan Agreement and the Senior Secured Note
Agreement. Among other changes, the amendments reduced the required ratio of
earnings before non-cash charges, interest and taxes to cash interest for the
four fiscal quarters ending March 31, 1994, to 1.40 to 1.00 from 1.50 to 1.00.
The Company incurred an extraordinary loss of $28 million (net of income
taxes of $15 million) in the first quarter of 1994 representing the redemption
premiums on the repurchases of the 12 3/8% Notes and the 12 5/8% Debentures, and
the write-off of deferred loan costs associated with the prepayment of $100
million of the 1988 Term Loan and the repurchases of the 12 3/8% Notes and the
12 5/8% Debentures.
On March 22, 1993, the Company sold $450 million principal amount of 9 1/4%
Notes and $300 million principal amount of 10% Notes in a registered public
offering. On April 21, 1993, the Company borrowed $100 million pursuant to the
1993 Term Loan. Proceeds from the sale of the 9 1/4% Notes and the 10% Notes and
from the 1993 Term Loan were applied to the prepayment of $250 million of the
1988 Term Loan, to the repayment of a portion of the Company's indebtedness
under the 1988 Revolving Credit Facility, to the repurchase of all the Company's
outstanding Junior Subordinated Debentures due 2004 (the "14 5/8% Debentures")
and to the payment of fees and expenses. As a result of the repayment of $250
million of the 1988 Term Loan and the repurchases of the 14 5/8% Debentures, the
Company incurred an extraordinary loss of $10 million (net of income taxes of $6
million) representing the write-off of unamortized deferred loan costs.
The 9 1/4% Notes are senior unsecured obligations of the Company, rank
equally in right of payment with the other senior indebtedness of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. The 10% Notes are subordinated in right of payment to all
existing and
F-14
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
8. LONG-TERM DEBT--(CONTINUED)
future senior indebtedness of the Company, including the 9% Notes,
rank equally with the 12 5/8% Debentures and constitute senior indebtedness with
respect to the 14 1/8% Debentures. The 1993 Term Loan constitutes senior secured
indebtedness of the Company.
The Company redeemed $50 million of its 12 3/8% Notes at the redemption
price of 105% of the principal amount thereof on November 1, 1993, the first
date that such notes were redeemable. The redemption was funded principally from
excess funds from the sale of the 9 1/4% Notes and the 10% Notes. In connection
with the redemption, the Company incurred an extraordinary loss of $2 million
(net of income taxes of $1 million), representing the redemption premium and
unamortized deferred loan costs.
Debt of foreign subsidiaries bears interest at floating rates and is secured
by certain assets of Fort Sterling and Stuart Edgar but is nonrecourse to the
Company.
Obligations under the Bank Credit Agreement, the 1993 Term Loan Agreement,
the Senior Secured Notes and debt of foreign subsidiaries bear interest at
floating rates. The Company's policy is to enter into interest rate cap and swap
agreements as a hedge to effectively fix or limit its exposure to floating
interest rates to, at a minimum, comply with the terms of its senior secured
debt agreements. The Company is a party to LIBOR-based interest rate cap
agreements which limit the interest cost to the Company with respect to $500
million of floating rate obligations 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. At current market rates at December 31, 1994, the fair
value of the Company's interest rate cap agreements is $23 million. The
counterparties to the Company's interest rate cap agreements consist of major
financial institutions. While the Company is exposed to credit risk to the
extent of nonperformance by these counterparties, management monitors the risk
of default by the counterparties and believes that the risk of incurring losses
due to nonperformance is remote.
In addition to the scheduled mandatory annual repayments, the Bank Credit
Agreement provides for mandatory repayments from proceeds of any significant
asset sales (except for proceeds from certain foreign asset sales which are
redeployed outside the U.S.), from proceeds of sale and leaseback transactions,
and annually an amount equal to 50% of excess cash flow for the prior calendar
year, as defined.
Among other restrictions, the Bank Credit Agreement, the 1993 Term Loan
Agreement, the Senior Secured Note Agreement, the debt of foreign subsidiaries
and the Company's indentures: (1) restrict payments of dividends, repayments of
subordinated debt, purchases of the Company's Common Stock, additional
borrowings and acquisition of property, plant and equipment; (2) require that
the ratios of current assets to current liabilities, senior debt to adjusted net
worth plus subordinated debt and earnings before non-cash charges, interest and
taxes to cash interest be maintained at prescribed levels; (3) restrict the
ability of the Company to make fundamental changes and to enter into new lines
of business, the pledging of the Company's assets and guarantees of indebtedness
of others and (4) limit dispositions of assets, the ability of the Company to
enter lease and sale and leaseback transactions, and investments which might be
made by the Company. The Company believes that such limitations should not
impair its plans for continued maintenance and modernization of facilities or
other operating activities.
F-15
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
8. LONG-TERM DEBT--(CONTINUED)
On October 14, 1994, the Company entered into an amendment of its Bank
Credit Agreement, 1993 Term Loan Agreement and Senior Secured Note Agreement.
Among other things, this amendment adjusted certain financial covenants,
including the reduction of the required ratio of earnings before non-cash
charges, interest and taxes to cash interest to 1.25 to 1.00 from 1.50 to 1.00
and the increase of the maximum ratio of senior debt to adjusted net worth plus
subordinated debt to 0.85 to 1.00 from 0.80 to 1.00 effective for the rolling
four quarters ended December 31, 1994 through December 31, 1995. The ratios were
adjusted to give effect to the Company's higher aggregate cash interest expense
which results from the Company's 14 1/8% Debentures accruing interest in cash
commencing on November 1, 1994, with payments of interest in cash commencing on
May 1, 1995.
At December 31, 1994, receivables totaling $114 million, inventories
totaling $131 million and property, plant and equipment with a net book value of
$1,313 million were pledged as collateral under the terms of the Bank Credit
Agreement, the 1993 Term Loan Agreement, the Senior Secured Note Agreement, the
debt of foreign subsidiaries and under the indentures for sale and leaseback
transactions.
The Company is charged a 0.5% fee with respect to any unused balance
available under its $350 million 1988 Revolving Credit Facility, and a 2% fee
with respect to any letters of credit issued under the 1988 Revolving Credit
Facility. At December 31, 1994, $197 million of borrowings reduced available
capacity under the 1988 Revolving Credit Facility to $153 million.
The aggregate annual maturities of long-term debt and capital lease
obligations at December 31, 1994, are as follows:
<TABLE><CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- -------------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1995.......................................................... $ 116,203
1996.......................................................... 331,307
1997.......................................................... 207,793
1998.......................................................... 87,804
1999.......................................................... 81,551
2000 and thereafter........................................... 2,481,189
--------------
$3,305,847
--------------
--------------
</TABLE>
9. SALE AND LEASEBACK TRANSACTIONS
Buildings and machinery and equipment related to various capital additions
at the Company's tissue mills were sold and leased back from various financial
institutions (the "sale and leaseback transactions") for periods from 15 to 25
years. The terms of the sale and leaseback transactions contain restrictions
which are less restrictive than the covenants of the Bank Credit Agreement
described in Note 8.
F-16
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
9. SALE AND LEASEBACK TRANSACTIONS--(CONTINUED)
These leases are treated as capital leases in the accompanying consolidated
financial statements. Future minimum lease payments at December 31, 1994, are as
follows:
<TABLE><CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- -------------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1995.......................................................... $ 23,449
1996.......................................................... 24,541
1997.......................................................... 24,541
1998.......................................................... 24,330
1999.......................................................... 24,005
2000 and thereafter........................................... 362,839
--------------
Total payments................................................ 483,705
Less imputed interest at rates approximating 10.9%............ 300,769
--------------
Present value of capital lease obligations.................... $182,936
--------------
--------------
</TABLE>
10. EMPLOYEE POSTRETIREMENT BENEFIT PLANS
As of January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The cumulative
effect on years prior to 1992 of adopting SFAS No. 106 is stated separately in
the Company's consolidated statement of income for 1992 as a one-time after-tax
charge of $10.6 million. This change in accounting principle, excluding the
cumulative effect, decreased operating income by $1.2 million in 1992.
Net periodic postretirement benefit cost included the following components:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $1,138 $1,140 $ 902
Interest cost..................................... 1,719 1,800 1,366
Other............................................. 85 99 --
------ ------ ------
Net periodic postretirement benefit cost........ $2,942 $3,039 $2,268
------ ------ ------
------ ------ ------
</TABLE>
F-17
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
10. EMPLOYEE POSTRETIREMENT BENEFIT PLANS--(CONTINUED)
The following table sets forth the components of the plan's unfunded
accumulated postretirement benefit obligation:
<TABLE><CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................ $ 7,068 $ 7,504
Fully eligible active plan participants............. 3,411 4,401
Other active plan participants...................... 11,505 12,037
-------- --------
21,984 23,942
Unrecognized actuarial gains (losses)................. 457 (3,517)
-------- --------
Accrued postretirement benefit cost................... $ 22,441 $ 20,425
-------- --------
-------- --------
</TABLE>
The medical trend rate assumed in the determination of the accumulated
postretirement benefit obligation at December 31, 1994 begins at 11.5% in 1995,
decreases 1% per year to 6.5% for 2000 and remains at that level thereafter.
Increasing the assumed medical trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of December
31, 1994 by $3.2 million and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost by $0.5 million. The
medical trend rate assumed in the determination of the accumulated
postretirement benefit obligation as of December 31, 1993 began at 12% in 1994,
decreasing 1% per year to 6% for 2000 and remained at that level thereafter.
The discount rate used in determining the accumulated postretirement benefit
obligation was 8% and 7% compounded annually with respect to the 1994 and 1993
valuations, respectively.
11. SHAREHOLDERS' DEFICIT
The Company is authorized to issue up to 99,400,000 shares of $.01 par value
voting Common Stock. At December 31, 1994, 38,107,778 shares were issued and
38,101,239 shares were outstanding. At December 31, 1993, 38,107,778 shares were
issued and 38,107,128 shares were outstanding. In addition, 600,000 shares of
$.01 par value nonvoting Common Stock have been authorized, of which none were
issued or outstanding at both December 31, 1994 and 1993.
F-18
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
11. SHAREHOLDERS' DEFICIT--(CONTINUED)
Changes in the Company's shareholders' deficit accounts for the years ended
December 31, 1994, 1993 and 1992, are as follows:
<TABLE><CAPTION>
CUMULATIVE
COMMON TRANSLATION RETAINED
STOCK ADJUSTMENT DEFICIT
------ ----------- --------
<S> <C> <C> <C>
(IN MILLIONS)
Balance, December 31, 1991.................................... $601 $ 7 $ (545)
Net loss...................................................... -- -- (80)
Amortization of the increase in fair market value of Common
Stock with put right........................................ -- -- (1)
Foreign currency translation adjustment....................... -- (11) --
------ ----- --------
Balance, December 31, 1992.................................... 601 (4) (626)
Net loss...................................................... -- -- (2,052)
Decrease in fair market value of Common Stock with put
right....................................................... -- -- 2
Foreign currency translation adjustment....................... -- (1) --
------ ----- --------
Balance, December 31, 1993.................................... 601 (5) (2,676)
Net loss...................................................... -- -- (71)
Foreign currency translation adjustment....................... -- 3 --
------ ----- --------
Balance, December 31, 1994.................................... $601 $ (2) $ (2,747)
------ ----- --------
------ ----- --------
</TABLE>
The aggregate par value of the Common Stock reported in the amounts above at
December 31, 1994 was $381,012.
12. COMMON STOCK WITH PUT RIGHT
All Common Stock acquired by management investors, including shares acquired
by the Company's former chairman and chief executive officer, are collectively
referred to as the "Putable Shares." Beginning with the fifth anniversary of the
respective dates of purchase of certain of the Putable Shares to the date on
which 15% or more of the Company's Common Stock has been sold in one or more
public offerings, specified percentages of the shares may be put to the Company
at the option of the holders thereof, with certain limitations, at their fair
market value. Subject to certain exceptions and prior to the date on which 15%
or more of the Company's Common Stock has been sold in one or more public
offerings, management investors who terminate their employment with the Company
shall sell their shares of Common Stock and vested options to the Company or its
designee. All the Putable Shares owned by the Company's former chairman and
chief executive officer became putable to the Company at the time of his
resignation.
During 1993, the Company decreased the estimated fair market valuation of
its Common Stock as a result of the effects of adverse tissue industry operating
conditions on its long-term earnings forecast and, as a result, reduced the
carrying amount of its Common Stock with put right to its original cost. The
effect of the adjustment was to reduce both the Common Stock with put right and
the retained deficit by approximately $1.4 million.
F-19
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
12. COMMON STOCK WITH PUT RIGHT--(CONTINUED)
Changes in the Company's Common Stock with put right are as follows:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year.................... $11,820 $13,219 $12,963
Amortization of the increase (decrease) in
fair market value and increased vested
portion of Putable Shares................... -- (1,399) 256
Repurchased into Treasury..................... (109) -- --
------- ------- -------
Balance, end of year.......................... $11,711 $11,820 $13,219
------- ------- -------
------- ------- -------
</TABLE>
13. STOCK OPTIONS
Pursuant to the Management Equity Participation Agreement and the Management
Equity Plan, 5,253,463 shares of Common Stock are reserved for sale to officers
and key employees as stock options as of December 31, 1994. The exercisability
of such options is subject to certain conditions. Such options must be exercised
within ten years of the date of grant. All such options and shares to be issued
under the terms of these plans are restricted as to transferability. Under
certain conditions, the Company has the right or obligation to redeem shares
issued under terms of the options at a price equal to their fair market value.
Changes in stock options outstanding are summarized as follows:
<TABLE><CAPTION>
EXERCISE
NUMBER OF PRICE
OPTIONS PER OPTION
--------- ---------------
<S> <C> <C>
Balance, December 31, 1991..................... 3,663,803 $15.38 to 18.46
Options Granted.............................. 80,600 18.46
Options Cancelled............................ (6,890) 15.38 to 18.46
--------- ---------------
Balance, December 31, 1992..................... 3,737,513 15.38 to 18.46
Options Granted.............................. 98,800 18.46
Options Cancelled............................ (10,660) 15.38 to 18.46
--------- ---------------
Balance, December 31, 1993..................... 3,825,653 15.38 to 18.46
Options Cancelled............................ (82,888) 15.38 to 18.46
--------- ---------------
Balance, December 31, 1994..................... 3,742,765 $15.38 to 18.46
--------- ---------------
--------- ---------------
Exercisable at December 31, 1994............... 3,358,537 $15.38 to 18.46
--------- ---------------
--------- ---------------
Shares available for future grant at December
31, 1994..................................... 1,510,698
---------
---------
</TABLE>
On January 31, 1995, the Company's shareholders approved the 1995 Stock
Incentive Plan under which a total of 3,359,662 shares of Common Stock are
reserved for awards to officers and key employees as stock options, stock
appreciation rights, restricted stock, performance shares, stock equivalents and
dividend equivalents and approved the Non-Employee Director Plan under which a
total of 80,000 shares of Common Stock are reserved for grant to non-employee
directors. Following adoption of such plans, no additional shares will be
available for future grant under the Management
F-20
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
13. STOCK OPTIONS--(CONTINUED)
Equity Participation Agreement or Management Equity Plan. As a result, the total
number of shares available for future grant will be 3,439,662 shares as of
January 31, 1995. Any options to be issued subject to the 1995 Stock Incentive
Plan will expire not later than ten years after the date on which they are
granted. The vesting schedule and exercisability of stock options will generally
be based on length of service or attainment of performance goals. On December
19, 1994, the Company's Board of Directors approved the full vesting and
exercisability of all unvested options outstanding effective just prior to an
initial public offering of Common Stock. If such an offering proceeds, the
number of exercisable options would increase to 3,741,465 as of January 31,
1995.
Until such date on which 15% or more of the Company's Common Stock has been
sold in one or more public offerings, the Company amortizes the excess of the
fair market value of its Common Stock over the strike price of options granted
to employees over the periods the options vest. After such date, no amortization
will be required because the options will not be putable to the Company. There
was no employee stock compensation expense in 1994. Due to the effects of
adverse tissue industry operating conditions on its long-term earnings forecast
as of September 30, 1993, the Company decreased the estimated fair market
valuation of its Common Stock and, as a result, reversed all previously accrued
employee stock compensation expense in 1993. The reversal of the accrued
employee stock compensation expense resulted in a credit to operations of
$7,832,000 for 1993. Employee stock compensation expense was $1,120,000 for
1992.
14. RELATED PARTY TRANSACTIONS
Morgan Stanley Group Inc. ("Morgan Stanley Group") and an affiliate acquired
a substantial majority equity interest in the Company to effect the Acquisition.
At December 31, 1994, Morgan Stanley Group and its affiliates controlled 57% (on
a fully diluted basis) of the Company's Common Stock.
Pursuant to an agreement terminated effective December 31, 1994, Morgan
Stanley & Co. Incorporated ("MS&Co") provided financial advisory services to the
Company in consideration for which the Company paid MS&Co an annual fee of $1
million. MS&Co was also entitled to reimbursement for all reasonable expenses
incurred in the performance of the foregoing services. The Company paid MS&Co
$1,023,000, $1,046,000 and $1,096,000 for these and other miscellaneous services
in 1994, 1993 and 1992, respectively. The Company is a party to several interest
rate cap agreements (see Note 8) including one such agreement with MS&Co which
was purchased in 1994 for $2.1 million. In connection with the sale of the 1994
Notes, MS&Co received approximately $20.4 million in underwriting fees in 1994.
In 1993, MS&Co received approximately $19.5 million related to the underwriting
of the issuance of the 1993 Notes. In 1992, MS&Co received approximately $0.7
million related to the underwriting of the reissuance of the Company's Pollution
Control Revenue Refunding Bonds. MS&Co served as lead underwriter for the
initial offering of the Company's subordinated debt securities and since the
Acquisition has been a market maker with respect to those securities.
15. COMMITMENTS AND CONTINGENCIES
In 1994, the Company commenced construction of a new coal-fired boiler at
its Savannah mill. Total expenditures for the new boiler are projected to be $35
million. As of December 31, 1994, expenditures on the project had totaled $19
million.
F-21
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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 wastes. 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 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 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. The Company expects these costs to be
incurred over an extended number of years.
The Company and its subsidiaries are parties to other lawsuits and state and
federal administrative proceedings in connection with their businesses. Although
the final results in all such suits and proceedings cannot be predicted with
certainty, the Company currently believes that the ultimate resolution of all of
such lawsuits and proceedings, after taking into account the liabilities accrued
with respect to such matters, will not have a material adverse effect on the
Company's financial condition or on its result of operations.
16. GEOGRAPHIC INFORMATION
A summary of the Company's operations by geographic area as of December 31,
1994, 1993 and 1992, and for the years then ended is presented below:
<TABLE><CAPTION>
UNITED UNITED
STATES KINGDOM CONSOLIDATED
----------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
1994
Net sales........................................... $ 1,143,205 $131,240 $ 1,274,445
Operating income.................................... 268,620 8,183 276,803
Identifiable operating assets....................... 1,517,992 162,906 1,680,898
1993
Net sales........................................... $ 1,044,174 $143,213 $ 1,187,387
Operating loss...................................... (1,715,777) (859) (1,716,636)
Identifiable operating assets....................... 1,486,166 163,621 1,649,787
1992
Net sales........................................... $ 1,008,129 $143,222 $ 1,151,351
Operating income.................................... 253,437 17,238 270,675
Identifiable operating assets....................... 3,411,833 162,734 3,574,567
</TABLE>
Intercompany sales and charges between geographic areas and export sales are
not material.
In 1993, the Company determined that its projected results would not support
the future amortization of the Company's remaining goodwill balance.
Accordingly, the Company wrote off its remaining
F-22
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
16. GEOGRAPHIC INFORMATION--(CONTINUED)
goodwill balance of $1,980 million in the third quarter of 1993, resulting in
charges of $1,968 million and $12 million to the operating income of the United
States and United Kingdom operations, respectively.
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of the quarterly results of operations for 1994 and 1993 follows
(in millions, except per share data):
<TABLE><CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1994
Net sales...................................... $ 275 $ 315 $ 340 $ 344 $ 1,274
Gross income................................... 87 107 113 100 407
Operating income............................... 60 79 85 53 277
Net income (loss) before extraordinary item.... (15) (2) -- (25) (42)
Extraordinary item-loss on debt repurchases.... (28) -- -- -- (28)
Net income (loss).............................. (43) (2) -- (25) (70)
Earnings (loss) per share:
Net income (loss) before extraordinary
item....................................... (0.40) (0.05) 0.01 (0.65) (1.11)
Extraordinary item-loss on debt
repurchases................................ (0.74) -- -- -- (0.74)
Net income (loss) per share.................. (1.14) (0.05) 0.01 (0.65) (1.85)
Dividends per share............................ -- -- -- -- --
1993
Net sales...................................... $ 285 $ 302 $ 309 $ 291 $ 1,187
Gross income................................... 96 101 109 97 403
Operating income (loss)........................ 56 61 (1,905) 71 (1,717)
Net loss before extraordinary items............ (26) (24) (1,986) (4) (2,040)
Extraordinary items--losses on debt
repurchases.................................. (10) -- -- (2) (12)
Net loss....................................... (36) (24) (1,986) (6) (2,052)
Loss per share:
Net loss before extraordinary items.......... (0.69) (0.62) (52.12) (0.10) (53.54)
Extraordinary items--losses on debt
repurchases................................ (0.25) -- -- (0.06) (0.31)
Net loss per share........................... (0.94) (0.62) (52.12) (0.16) (53.85)
Dividends per share............................ -- -- -- -- --
</TABLE>
F-23
<PAGE>
PHOTOS FOR INSIDE BACK COVER TO S-1/A
TOP LEFT-HAND CORNER
ENVIRONMENTAL PROTECTION AGENCY AWARD
Fort Howard was the first large
corporation to receive the U.S.
Environmental Protection Agency's
"Administrator's Award" for national
recycling leadership.
MIDDLE LEFT-HAND SIDE
ENVISION TISSUE PRODUCTS
Fort Howard believes its Envision
line of products is the market
leader in the rapidly growing
environmental segment of the
commercial market.
BOTTOM LEFT-HAND CORNER
LARGE ROLL OF TISSUE
Fort Howard employs approximately
5,800 persons in the United States,
and 1,000 in the United Kingdom.
Employees have participated in a
successful "Total Quality" effort
since 1989.
<PAGE>
[BACK COVER LOGO]
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (Subject to Completion)
Issued March 7, 1995
22,000,000 Shares
Fort Howard Corporation
COMMON STOCK
-------------------
ALL SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE
22,000,000 SHARES OF COMMON STOCK BEING OFFERED, 4,400,000 SHARES ARE BEING
OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 17,600,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS.
SEE "UNDERWRITERS." PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$14.00 AND $16.00 PER SHARE. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
-------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE
NASDAQ NATIONAL MARKET UNDER THE TRADING SYMBOL "FORT".
-------------------
SEE "CERTAIN RISK FACTORS" FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE><CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
--------- --------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total(3)............................................. $ $ $
</TABLE>
- ---------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $1,600,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 3,300,000
additional shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the U.S.
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
----------------------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters and subject to approval of certain legal matters
by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1995, at the office of
Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor
in New York funds.
-------------------
MORGAN STANLEY & CO.
International
CS FIRST BOSTON
SALOMON BROTHERS INTERNATIONAL LIMITED
S.G.WARBURG SECURITIES
, 1995
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate (except for the Commission registration fee
and the Nasdaq National Market listing fee) of the fees and expenses payable by
the Company in connection with the distribution of the Common Stock:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 139,587
Nasdaq National Market listing fee............................. 50,000
NASD filing fee................................................ 30,500
Printing and engraving costs................................... 250,000
Legal fees..................................................... 650,000
Accountants' fees.............................................. 100,000
Blue Sky qualification fees and expenses....................... 20,000
Transfer Agent and Registrar fees.............................. 10,000
Miscellaneous.................................................. 349,913
----------
Total.................................................... $1,600,000
----------
----------
</TABLE>
ITEM 14. 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.
Reference is made to Article VII of the Underwriting Agreement contained in
Exhibit 1.1 hereto, which provides certain indemnification rights to the
directors and officers of the Company.
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
II-1
<PAGE>
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 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.
In addition, the Company maintains directors' and officers' liability
insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 16. EXHIBITS
<TABLE><CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<C> <S>
*1.1 --Form of Underwriting Agreement.
+3.1 --Form of Restated Certificate of Incorporation of the Registrant.
+3.2 --Form of Restated By-laws of the Registrant.
+4.0 --Specimen Certificate of Common Stock.
4.1 --Indenture dated as of February 1, 1994 between the Registrant and the Bank of
New York, as Trustee, relating to 8 1/4% Senior Notes due 2002 (filed as
Exhibit 4.1 to the Registrant's Registration Statement on Form S-2, No.
33-51557, and incorporated herein by reference).
4.2 --Indenture dated as of February 1, 1994 between the Registrant and the Bank of
New York, as Trustee, relating to 9% Senior Subordinated Notes due 2006 (filed
as Exhibit 4.2 to the Registrant's Registration Statement on Form S-2, No.
33-51557, and incorporated herein by reference).
4.3 --Indenture dated as of March 22, 1993 between the Registrant and Norwest Bank,
N.A., as Trustee, relating to 9 1/4% Senior Unsecured Notes due 2001 (filed as
Exhibit 4.1 to the Registrant's Registration Statement on Form S-2, No.
33-51876, and incorporated herein by reference).
4.4 --Indenture dated as of March 22, 1993 between the Registrant and United States
Trust Company of New York, as Trustee, relating to 10% Subordinated Notes due
2003 (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form
S-2, No. 33-51876, and incorporated herein by reference).
4.5 --Amended and Restated Credit Agreement dated as of October 24, 1988, among the
Registrant, FH Acquisition and Bankers Trust, as agent for the bank parties
thereto, with respect to the Bank Bridge Loan, the Term Loan and the Revolving
Credit Facility (filed as Exhibit No. 4.5 to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1, No. 33-23826, and
incorporated herein by reference).
4.5(A) --Amendment No. 1 dated February 21, 1989 to the Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.E-1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, File No. 1-6901, and incorporated herein by reference).
</TABLE>
II-2
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<C> <S>
4.5(B) --Amendment No. 2 dated October 20, 1989 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed with the Registrant's September
30, 1989 Quarterly Report on Form 10-Q, File No. 1-6901, and incorporated
herein by reference).
4.5(C) --Amendment No. 3 dated as of November 14, 1989 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed with the Registrant's September
30, 1989 Quarterly Report on Form 10-Q, File No. 1-6901, and incorporated
herein by reference).
4.5(D) --Amendment No. 4 dated as of November 9, 1990 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.J to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1990, File No. 1-6901, and incorporated herein by reference).
4.5(E) --Amendment No. 5 dated as of December 19, 1990 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.K to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990,
File No. 1-6901, and incorporated herein by reference).
4.5(F) --Amendment No. 6 dated as of September 11, 1991 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.A to the
Registrant's Current Report on Form 8-K on September 13, 1991, File No.
1-6901, and incorporated herein by reference).
4.5(G) --Amendment No. 7 dated as of December 2, 1991 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit No. 4.N to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1991,
File No. 1-6901, and incorporated herein by reference).
4.5(H) --Amendment No. 8 dated as of October 7, 1992 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.0 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1992, File
No. 1-6901, and incorporated herein by reference).
4.5(I) --Amended and Restated Amendment No. 8 dated as of November 12, 1992, to Amended
and Restated Credit Agreement dated as of October 24, 1988 (filed as Exhibit
4.P to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992, File No. 1-6901, and incorporated herein by reference).
4.5(J) --Form of Second Amended and Restated Amendment No. 8 dated as of March 4, 1993,
to Amended and Restated Credit Agreement dated as of October 24, 1988 (filed
as Exhibit 4.3(J) to the Registrant's Registration Statement on Form S-2, No.
33-51876, and incorporated herein by reference).
4.5(K) --Amendment No. 9 dated as of December 31, 1993 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4.4(L) to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993,
File No. 1-6901, and incorporated herein by reference).
4.5(L) --Amendment No. 10 dated as of October 14, 1994 to Amended and Restated Credit
Agreement dated as of October 24, 1988 (filed as Exhibit 4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, File
No. 1-6901, and incorporated herein by reference).
*4.6 --Form of 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 arrangers, and
Bankers' Trust Company, as administrative agent.
*4.7 --Form of Receivables Credit Agreement dated as of March 8, 1995 among the
Registrant, the lenders named therein, and Bankers Trust Company, as
administrative agent.
+5.1 --Opinion of Shearman & Sterling.
*10.1 --Form of Amended and Restated Stockholders Agreement dated as of March 1, 1995,
among the Registrant, Morgan Stanley Group, MSLEF II, certain institutional
investors and the Management Investors which amends and restates the
Stockholders Agreement dated as of December 7, 1990, as amended.
+10.2 --Management Incentive Plan as amended and restated as of December 19, 1994.
10.3 --Supplemental Retirement Plan (filed as Exhibit No. 10.7 to Amendment No. 2 to
the Registrant's Registration Statement on Form S-1, No. 33-23826, and
incorporated herein by reference).
</TABLE>
II-3
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<C> <S>
10.3(A) --Amendment No. 1 to the Supplemental Retirement Plan dated December 21, 1988
(filed as Exhibit 10.P to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988, File No. 1-6901, and incorporated herein by
reference).
10.4 --Form of Supplemental Retirement Agreement for Mr. DeMeuse, as amended (filed
as Exhibit 10.M to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988, File No. 1-6901, and incorporated herein by
reference).
10.5 --Supplemental Retirement Agreements for certain directors and officers (filed
as Exhibit 10.T to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989, File No. 1-6901, and incorporated herein by
reference).
10.5(A) --Form of Amendment No. 1 to Supplemental Retirement Agreements for certain
directors and officers (filed as Exhibit 10.U to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
10.6 --Employment Agreements dated October 15, 1993, with the Company's Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer (filed
as Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, File No. 1-6901, and incorporated herein by
reference).
+10.6(A) --Amendments dated January 1, 1995 to Employment Agreements dated October 15,
1993, with the Company's Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer.
10.7 --Amended and Restated Management Equity Participation Agreement dated as of
August 8, 1988, among Holdings, Morgan Stanley, MSLEF II and the Management
Investors (filed as Exhibit 10.9 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1, No. 33-23826, and incorporated herein by
reference).
10.7(A) --Form of Letter Agreement dated June 27, 1990, among the Registrant and
Management Investors, which modifies Amended and Restated Management Equity
Participation Agreement (filed as Exhibit 10.V to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
10.7(B) --Letter Agreement dated as of July 31, 1990, among the Company and the
Principal Management Investors which amends Amended and Restated Management
Equity Participation Agreement (filed as Exhibit 10.W to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990, File No.
1-6901, and incorporated herein by reference).
10.7(C) --Letter Agreement dated as of July 31, 1990, between the Company and the
Management Investor Committee which amends Amended and Restated Management
Equity Participation Agreement (filed as Exhibit 10.X to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990, File No.
1-6901, and incorporated herein by reference).
10.7(D) --Letter Agreement dated February 7, 1991, between the Company and the
Management Investors Committee which amends the Amended and Restated
Management Equity Participation Agreement (filed as Exhibit 10.GG to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990,
File No. 1-6901, and incorporated herein by reference).
10.7(E) --Form of Letter Agreement dated February 7, 1991 among the Company, the
Management Investors Committee and Management Investors which cancels certain
stock options, grants new stock options and amends the Amended and Restated
Management Equity Participation Agreement (filed as Exhibit 10.HH to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990,
File No. 1-6901, and incorporated herein by reference).
*10.7(F) --Form of Letter Agreement dated March 1, 1995, between the Company and the
Management Investors Committee which amends the Amended and Restated
Management Equity Participation Agreement.
10.8 --Agreement dated as of July 31, 1990, among the Company and its former Chief
Executive Officer (filed as Exhibit 10.Y to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990, File No. 1-6901, and
incorporated herein by reference).
</TABLE>
II-4
<PAGE>
<TABLE><CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<C> <S>
10.8(A) --Modification dated December 11, 1990 to Agreement dated as of July 31, 1990,
among the Company and its former Chief Executive Officer (filed as Exhibit
10.Z to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-6901, and incorporated herein by reference).
10.8(B) --Letter Agreement dated February 7, 1991, among the Company, its former Chief
Executive Officer and his spouse which cancels stock options, grants new stock
options and amends the Agreement dated as of July 31, 1990, among the Company,
its former Chief Executive Officer and his spouse (filed as Exhibit 10.II to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1990, File No. 1-6901, and incorporated herein by reference).
10.9 --Subscription Agreement dated as of December 7, 1990, among the Company, Mellon
Bank, N.A., Trustee for First Plaza Group Trust and Leeway & Co. (filed as
Exhibit 10.DD to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990, File No. 1-6901, and incorporated herein by
reference).
10.10 --Subscription Agreement dated as of March 12, 1991, between the Company and
Fort Howard Equity Investors II, L.P. (filed as Exhibit 10.EE to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990,
File No. 1-6901, and incorporated herein by reference).
10.11 --Management Equity Plan (filed as Exhibit 10.23 to the Registrant's
Registration Statement on Form S-2, No. 33-51557, and incorporated herein by
reference).
*10.11(A) --Form of Amendment dated March 1, 1995 to the Management Equity Plan.
10.12 --Form of Management Equity Agreement dated as of April 30, 1991, between the
Registrant and Management Investors (filed as Exhibit 10.24 to the
Registrant's Registration Statement on Form S-2, No. 33-51557, and
incorporated herein by reference).
10.13 --Employment Agreements with certain executive officers of the Company (filed as
Exhibit No. 10.13 to the Registrant's Registration Statement on Form S-2, No.
33-51557, and incorporated herein by reference).
+10.13(A) --Amendments to Employment Agreements with certain executive officers of the
Company.
+10.14 --Deferred Compensation Plan for Non-Employee Directors.
+10.15 --1995 Stock Incentive Plan.
+10.16 --1995 Stock Plan for Non-Employee Directors.
10.17 --Form of Indemnification Agreement dated April 22, 1987 between the Company and
certain of its directors and executive officers (filed as Exhibit 10 to the
Registrant's Current Report on Form 8-K dated April 22, 1987, and incorporated
herein by reference).
+12.1 --Computation of Deficiency of Earnings Available to Cover Fixed Charges.
*12.2 --Computation of Pro Forma Deficiency of Earnings Available to Cover Fixed
Charges.
21 --Subsidiaries of Fort Howard Corporation (filed as Exhibit 22 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993,
File No. 1-6901, and incorporated herein by reference).
*23.1 --Consent of Arthur Andersen LLP.
+23.2 --Consent of Shearman & Sterling (included in its opinion delivered under
Exhibit No. 5.1).
+24 --Powers of Attorney.
99 --Stock Transfer Agreement dated November 2, 1989 between the Company and
Sweetheart Holdings Inc., a Delaware corporation (filed as Exhibit 28 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1989, File No. 1-6901, and incorporated herein by reference).
</TABLE>
- ------------
* Filed herewith.
+ Previously filed.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
1. For the purposes of determining any liability under the Securities
Act of 1933, as amended (the "Securities Act"), the information omitted from
the form of Prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and 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 this Registration Statement as of the time
it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The Registrant hereby further undertakes to provide the Underwriters at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Green Bay,
State of Wisconsin on the 7th day of March, 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 Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE><CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ ---------------
<S> <C> <C>
* Chairman of the Board of Directors March 7, 1995
.................................. and Chief Executive Officer
Donald H. DeMeuse (principal executive officer)
* Director, Vice Chairman and Chief March 7, 1995
.................................. Financial Officer (principal
Kathleen J. Hempel financial officer)
* Director, President and Chief March 7, 1995
.................................. Operating Officer
Michael T. Riordan
* Director March 7, 1995
..................................
Donald Patrick Brennan
* Director March 7, 1995
..................................
Frank V. Sica
* Director March 7, 1995
..................................
Robert H. Niehaus
* Vice President and Controller March 7, 1995
.................................. (principal accounting officer)
Charles L. Szews
* /s/ JAMES W. NELLEN II Attorney-in-Fact March 7, 1995
..................................
James W. Nellen II
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Fort Howard Corporation included in
this Registration Statement and have issued our report thereon dated January 31,
1995. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 1995
S-1
<PAGE>
SCHEDULE II
FORT HOWARD CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE><CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Allowance for Doubtful Accounts:
Balance at beginning of year.................................... $2,366 $1,376 $1,379
Charges (credits) to earnings................................... (92) 1,633 792
Charges for purpose for which reserve was created............... (685) (643) (795)
------ ------ ------
Balance at end of year.......................................... $1,589 $2,366 $1,376
------ ------ ------
------ ------ ------
</TABLE>
S-2
EXHIBIT 1.1
22,000,000 Shares
FORT HOWARD CORPORATION
COMMON STOCK, PAR VALUE $.01 PER SHARE
UNDERWRITING AGREEMENT
March , 1995
--
<PAGE>
March , 1995
--
Morgan Stanley & Co. Incorporated
CS First Boston Corporation
Salomon Brothers Inc
c/o Morgan Stanley & Co. Incorporated
1251 Avenue of the Americas
New York, New York 10020
Morgan Stanley & Co. International Limited
CS First Boston Limited
Salomon Brothers International Limited
S.G. Warburg Securities Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Street
Canary Wharf
London E14 4QA
England
Dear Sirs:
FORT HOWARD CORPORATION, a Delaware corporation
(the "Company"), proposes to issue and sell to the several
Underwriters (as defined below) 22,000,000 shares of its
Common Stock, par value $.01 per share (the "Firm Shares").
It is understood that, subject to the conditions
hereinafter stated, 17,600,000 Firm Shares (the "U.S. Firm
Shares") will be sold to the several U.S. Underwriters named
in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the
United States and Canada to United States and Canadian
Persons (as such terms are defined in the Agreement Between
U.S. and International Underwriters of even date herewith),
and 4,400,000 Firm Shares (the "International Shares") will
be sold to the several International Underwriters named in
Schedule II hereto (the "International Underwriters") in
connection with the offering and sale of such International
Shares outside the United States and Canada to persons other
than United States and Canadian Persons. Morgan Stanley &
Co. Incorporated, CS First Boston Corporation and Salomon
Brothers Inc shall act as representatives (the "U.S.
Representatives") of the several U.S. Underwriters, and
Morgan Stanley & Co. International Limited, CS First Boston
Limited, Salomon Brothers International Limited and S.G.
Warburg Securities Limited shall act as representatives (the
<PAGE>
"International Representatives") of the several
International Underwriters. The U.S. Underwriters and the
International Underwriters are hereinafter collectively
referred to as the Underwriters. The Company has reserved
up to 1,100,000 shares of its Common Stock for sale to
certain of its employees and other persons pursuant to a
directed share program, up to [ ] of which shares
will be reserved for sale to certain of its employees
resident in the United Kingdom (the "U.K. Directed Share
Program"). These Shares of Common Stock will be sold to the
employees and other individuals by the Underwriters pursuant
to this Agreement.
The Company also proposes to issue and sell to the
several U.S. Underwriters not more than an additional
3,300,000 shares of its Common Stock, par value $.01 per
share (the "Additional Shares") if and to the extent that
the U.S. Representatives shall have determined to exercise,
on behalf of the U.S. Underwriters, the right to purchase
such shares of common stock granted to the U.S. Underwriters
in Article II hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the
Shares. The shares of Common Stock, par value $.01 per
share, of the Company to be outstanding after giving effect
to the sales contemplated hereby are hereinafter referred to
as the Common Stock.
The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration
statement on Form S-1 (File No. 33-56573) relating to the
Shares. The registration statement contains two
prospectuses to be used in connection with the offering and
sale of the Shares: the U.S. prospectus, to be used in
connection with the offering and sale of Shares in the
United States and Canada to United States and Canadian
Persons, and the international prospectus, to be used in
connection with the offering and sale of Shares outside the
United States and Canada to persons other than United States
and Canadian Persons. The international prospectus is
identical to the U.S. prospectus except for the outside
front cover page. The registration statement as amended at
the time it becomes effective, including the information (if
any) deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"),
is hereinafter referred to as the Registration Statement;
the U.S. prospectus and the international prospectus in the
respective forms first used to confirm sales of Shares are
hereinafter collectively referred to as the Prospectus.
2
<PAGE>
I.
The Company represents and warrants to each of the
Underwriters that:
(a) The Registration Statement has become
effective; no stop order suspending the effectiveness
of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or, to
the knowledge of the Company, threatened by the
Commission.
(b) When the Registration Statement became
effective and at all times subsequent thereto up to and
including the Closing Date referred to below, the
Registration Statement and Prospectus, and any
amendments or supplements thereto, will in all material
respects conform to the requirements of the Securities
Act and the rules and regulations of the Commission
thereunder (the "Rules and Regulations"), and the
Registration Statement and any amendment or supplement
thereto at their respective effective dates will not
contain any untrue statement of a material fact or omit
to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading and the Prospectus at the time the
Registration Statement became effective or the
Prospectus together with any supplement thereto at
their respective issue dates and at the Closing Date
referred to below, will not contain any untrue
statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading, except that this
representation and warranty does not apply to
statements or omissions made in reliance upon and in
conformity with information relating to any Underwriter
furnished in writing by such Underwriter through you
expressly for use in connection with the Registration
Statement or Prospectus or any amendment or supplement
thereto.
(c) The Company is a corporation duly organized,
validly existing and in good standing under the laws of
the State of Delaware and has the corporate power and
authority to carry on its business as presently
conducted, as described in the Prospectus. The Company
has not failed to qualify to do business in any
jurisdiction where failure so to qualify could
reasonably be expected to materially adversely affect
3
<PAGE>
its financial condition, business, operations, or its
ability to perform any of its obligations under this
Agreement.
(d) Each of Fort Sterling Limited ("Fort
Sterling") and Harmon Assoc., Corp. ("Harmon") is a
corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority
to carry on its business as presently conducted, as
described in the Prospectus. Fort Sterling and Harmon
have not failed to qualify to do business in any
jurisdiction where failure so to qualify could
reasonably be expected to materially adversely affect
each of their respective financial condition, business
or operations.
(e) The authorized capital stock of the Company
conforms in all material respects as to legal matters
to the description thereof contained in the Prospectus.
(f) The shares of Common Stock outstanding prior
to the issuance of the Shares have been duly authorized
and are validly issued, fully paid and non-assessable.
(g) The Shares have been duly authorized and,
when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid
and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar
rights.
(h) This Agreement has been duly authorized,
executed and delivered by the Company.
(i) The execution and delivery by the Company of,
and the performance by the Company of its obligations
under, this Agreement will not (i) contravene any
provision of applicable law, (ii) violate or be
inconsistent with the certificate of incorporation or
by-laws of the Company, (iii) contravene any provision
of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which the
Company is a party or by which it or any of its
property is bound except for such contraventions or
defaults which would not materially adversely affect
the business, properties, prospects, assets,
liabilities, operations or conditions (financial or
otherwise) of the Company and its subsidiaries taken as
a whole (a "Material Adverse Effect"), (iv) contravene
any judgment, order or decree applicable to the Company
4
<PAGE>
or any of its subsidiaries of any governmental body,
agency or court having jurisdiction over the Company or
any subsidiary noncompliance with which would have a
Material Adverse Effect, and (v) no consent, approval,
authorization or order of, or qualification with, any
governmental body or agency is required for the
performance by the Company of its obligations under
this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) Each of the Company and its subsidiaries has
all necessary consents, authorizations, approvals,
orders, certificates and permits of and from, and has
made all declarations and filings with, all Federal,
state, local and other governmental authorities, all
self-regulatory organizations and all courts and other
tribunals, to carry on its business as presently
conducted, as described in the Prospectus (except for
those which, if not obtained or made, would not have a
Material Adverse Effect).
(k) There has not occurred any material adverse
change, or any development involving a prospective
material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations
of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus.
(l) There are no legal or governmental
proceedings pending or, to the best knowledge of the
Company, threatened to which the Company or any of its
subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is
subject that are required to be described in the
Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or
other documents that are required to be described in
the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that
are not described or filed as required.
(m) The Company is not an "investment company" as
such term is defined in the Investment Company Act of
1940, as amended.
(n) The Company and its subsidiaries are (i) in
compliance with any and all applicable foreign,
federal, state and local laws and regulations relating
to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes,
5
<PAGE>
pollutants or contaminants ("Environmental Laws"), (ii)
have received or applied for all permits, licenses or
other approvals required of them under applicable
Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval,
except where such noncompliance with Environmental
Laws, failure to receive or apply for required permits,
licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, have a
Material Adverse Effect.
(o) In the ordinary course of its business, the
Company conducts a periodic review of the effect of
Environmental Laws on the business and operations of
the Company and its subsidiaries, as a result of which
it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital
or operating expenditures required for clean-up,
closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related
constraints on operating activities and any potential
liabilities to regulatory authorities). On the basis
of such review, the Company has reasonably concluded
that such associated costs and liabilities would not,
singly or in the aggregate, have a Material Adverse
Effect other than associated costs and liabilities
disclosed in the Prospectus.
(p) On the Closing Date the Company will have
entered into an amendment and restatement of the
Stockholders Agreement dated as of December 7, 1990 (as
so amended the "Stockholders Agreement"). The
provisions of Section 4.3(c) of the Stockholders
Agreement which prohibit the sale of shares of Common
Stock of the Company or of securities convertible into
or exercisable or exchangeable for such Common Stock by
any of the parties to the Stockholders Agreement (other
than the Company) for a period begining seven days
before and ending 180 days after the effective date of
the Registration Statement are in full force and effect
and are binding on each of the parties to the
Stockholders Agreement (other than the Company).
(q) Each preliminary prospectus filed as part of
the registration statement as originally filed or as
part of any amendment thereto, or filed pursuant to
Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act
6
<PAGE>
and the rules and regulations of the Commission
thereunder.
(r) The Company has complied with all provisions
of Section 517.075, Florida Statutes (Chapter 92-198,
Laws of Florida) related to doing business with the
Government of Cuba or with any person or affiliate
located in Cuba.
(s) The U.K. Directed Share Program complies with
applicable laws in the United Kingdom and no consent,
approval, authorization or order of, or qualification
with, any governmental body or agency is required for
the consummation of the U.K. Directed Share Program.
II.
The Company hereby agrees to sell to the several
Underwriters, and the Underwriters, upon the basis of the
representations and warranties herein contained, but subject
to the conditions hereinafter stated, agree, severally and
not jointly, to purchase from the Company the respective
numbers of Firm Shares set forth in Schedules I and II
hereto opposite their names at $_____ a share -- the
purchase price.
On the basis of the representations and warranties
contained in this Agreement, and subject to its terms and
conditions, the Company agrees to sell to the U.S.
Underwriters the Additional Shares, and the U.S.
Underwriters shall have a one-time right to purchase,
severally and not jointly, up to 3,300,000 Additional Shares
at the purchase price. Additional Shares may be purchased
as provided in Article IV hereof solely for the purpose of
covering over-allotments made in connection with the
offering of the Firm Shares. If any Additional Shares are
to be purchased, each U.S. Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares
as the U.S. Representatives may determine) that bears the
same proportion to the total number of Additional Shares to
be purchased as the number of U.S. Firm Shares set forth in
Schedule I hereto opposite the name of such U.S. Underwriter
bears to the total number of U.S. Firm Shares. The
Additional Shares to be purchased by the U.S. Underwriters
hereunder and the U.S. Firm Shares are hereinafter
collectively referred to as the U.S. Shares.
7
<PAGE>
The Company hereby agrees that, without the prior
written consent of the U.S. Representatives on behalf of the
Underwriters, it will not, during the period beginning seven
days before and ending 180 days after the effective date of
the Registration Statement, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, the
economic consequence of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold
hereunder, (B) any shares of Common Stock issued by the
Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof, (C)
any shares of Common Stock issued or options to purchase
Common Stock granted pursuant to existing employee benefit
plans of the Company, including, without limitation, the
Company's 1995 Stock Incentive Plan or (D) any shares of
Common Stock issued pursuant to the Company's Non-Employee
Director Stock Plan.
III.
The Company is advised by you that the
Underwriters propose to make a public offering of their
respective portions of the Shares as soon after the
Registration Statement and this Agreement have become
effective as in your judgment is advisable. The Company is
further advised by you that the Shares are to be offered to
the public initially at U.S.$_____ a share (the "public
offering price") and to certain dealers selected by you at a
price that represents a concession not in excess of
U.S.$____ a share under the public offering price, and that
any Underwriter may allow, and such dealers may reallow, a
concession, not in excess of U.S.$____ a share, to any
Underwriter or to certain other dealers.
Each U.S. Underwriter hereby makes to and with the
Company the representations and agreements of such U.S.
Underwriter contained in the fifth paragraph of Article III
of the Agreement Between U.S. and International Underwriters
of even date herewith. Each International Underwriter
hereby makes to and with the Company the representations and
agreements of such International Underwriter contained in
8
<PAGE>
the seventh, eighth and ninth paragraphs of Article III of
such Agreement.
IV.
Payment for the Firm Shares shall be made by
certified or official bank check or checks payable to the
order of the Company in New York Clearing House funds at the
office of Shearman & Sterling, 599 Lexington Avenue, New
York, New York at 10:00 A.M., local time, on March , 1995,
--
or at such other time on the same or such other date, not
later than March , 1995, as shall be designated in writing
--
by you. The time and date of such payment are hereinafter
referred to as the Closing Date.
Payment for any Additional Shares shall be made by
certified or official bank check or checks payable to the
order of the Company in New York Clearing House funds at the
office of Shearman & Sterling, 599 Lexington Avenue, New
York, New York, at 10:00 A.M., local time, on such date
(which may be the same as the Closing Date but shall in no
event be earlier than the Closing Date nor later than ten
business days after the giving of the notice hereinafter
referred to) as shall be designated in a written notice from
the U.S. Representatives to the Company of their
determination, on behalf of the U.S. Underwriters, to
purchase a number, specified in said notice, of Additional
Shares, or on such other date, in any event not later than
_______, 1995, as shall be designated in writing by the U.S.
Representatives. The time and date of such payment are
hereinafter referred to as the Option Closing Date. The
notice of the determination to exercise the option to
purchase Additional Shares and of the Option Closing Date
may be given at any time within 30 days after the date of
this Agreement.
Certificates for the Firm Shares and Additional
Shares shall be in definitive form and registered in such
names and in such denominations as you shall request in
writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be.
The certificates evidencing the Firm Shares and Additional
Shares shall be delivered to you on the Closing Date or the
Option Closing Date, as the case may be, for the respective
accounts of the several Underwriters, with any transfer
taxes payable in connection with the transfer of the Shares
to the Underwriters duly paid, against payment of the
purchase price therefor.
9
<PAGE>
V.
The obligations of the Company and the several
obligations of the Underwriters hereunder are subject to the
condition that the Registration Statement shall have become
effective not later than the date hereof.
The several obligations of the Underwriters
hereunder are subject to the following further conditions:
(a) No stop order suspending the effectiveness of
the Registration Statement shall have been issued under
the Securities Act and no proceedings therefor shall
have been instituted or threatened by the Commission.
(b) There shall not have occurred any change, or
any development involving a prospective change, in the
condition, financial or otherwise, or in the earnings,
business or operations, of the Company and its
subsidiaries, taken as a whole, from that set forth in
the Prospectus, that, in your judgment, is material and
adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in
the manner contemplated in the Prospectus.
(c) The Underwriters shall have received on the
Closing Date a certificate, dated the Closing Date and
signed on behalf of the Company by an authorized
officer of the Company, to the effect set forth in
clauses (a), (j), (k), (l) and (m) of this Article V,
and to the effect that: (x) to the best knowledge of
such officer, after due inquiry, the representations
and warranties of the Company contained herein are true
and correct in all respects as of the Closing Date, (y)
the Company has performed in all material respects all
of the obligations to be performed hereunder on or
before the Closing Date and (z) there has not occurred
any change, or any development involving a prospective
change, in the condition, financial or otherwise, or in
the earnings, business or operations, of the Company
and its subsidiaries, taken as a whole, from that set
forth in the Prospectus.
(d) You shall have received on the Closing Date
an opinion of James W. Nellen II, Esq., General Counsel
for the Company, in form and substance satisfactory to
you and your counsel, dated the Closing Date, to the
effect that:
10
<PAGE>
(i) the Company is a corporation duly
organized, validly existing and in good
standing under the laws of the State of
Delaware, is in good standing under the laws
of the States of Georgia, Oklahoma and
Wisconsin and has the corporate power and
authority to carry on its business as
described in the Prospectus, to own or hold
under lease its properties, and to enter into
and perform its obligations under this
Agreement;
(ii) the execution, delivery and
performance by the Company of this Agreement
and the issuance of the Shares has been duly
authorized by all necessary corporate action
on the part of the Company and do not and
will not require the consent or approval of
any shareholder of the Company or any trustee
or holder of any indebtedness or other
obligation of the Company, except for such as
have been obtained on or prior to the date
hereof;
(iii) this Agreement has been duly
executed and delivered by the Company;
(iv) neither the execution and delivery
by the Company, nor the fulfillment of or
compliance by the Company with the provisions
of this Agreement or the Shares, nor the
consummation of the transactions contemplated
in the Prospectus conflicts with, or results
in a breach of the terms, conditions or
provisions of, or constitutes a default
under, or results in a violation of, its
certificate of incorporation or by-laws, any
statute, law, rule, code, ordinance or
regulation or, to such counsel's knowledge
after due inquiry, any judgment, order or
decree, in each case applicable to it or its
properties which is material to the issuance
and sale of the Shares, this Agreement or the
transactions contemplated in the Prospectus
under the captions "Prospectus Summary -- The
Proposed Recapitalization" and "Use of
Proceeds," or any indenture, mortgage,
contract or other instrument to which the
Company is a party or by which it or any of
its property is bound (except for such
breaches, defaults, and violations which
11
<PAGE>
would not have a Material Adverse Effect) or
result in the creation or the imposition of
any material lien, charge or encumbrance upon
any property or assets of the Company;
(v) no consent, approval, authorization
or order of, or qualification with, any
Wisconsin governmental body or agency is
required for the valid authorization,
execution, delivery and performance by the
Company of this Agreement, or for the valid
authorization, issuance, sale and delivery of
the Shares, or for the consummation by the
Company of the transactions contemplated in
the Prospectus under the captions "Prospectus
Summary -- The Proposed Recapitalization" and
"Use of Proceeds," or this Agreement, except
(x) for those which if not obtained would not
have a Material Adverse Effect and (y) such
as may be required by the securities or blue
sky laws of Wisconsin in connection with the
offer and sale of the Shares;
(vi) each of the Company and its
subsidiaries has all necessary consents,
authorizations, approvals, orders,
certificates and permits of and from, and has
made all declarations and filings with, all
Federal, state, local and other governmental
authorities, all self-regulatory
organizations and all courts and other
tribunals, to own, lease, license and use its
properties and assets and to conduct its
business in the manner described in the
Prospectus (except for those which, if not
obtained or made, would not have a Material
Adverse Effect); and
(vii) except as disclosed in the
Prospectus, there is no action, suit or
proceeding pending or, to the best of such
counsel's knowledge after due inquiry,
threatened against the Company or its
properties before any governmental body or
agency which, individually or in the
aggregate (so far as the Company now can
reasonably foresee), is reasonably likely
materially and adversely to affect the
ability of the Company to consummate any of
the transactions contemplated by the
Prospectus or this Agreement.
12
<PAGE>
Such opinion shall also state that such counsel has
participated in the preparation of the Registration
Statement and the Prospectus and no facts have come to
the attention of such counsel which have led such
counsel to believe (A) that the Registration Statement
(except for the financial statements and other
financial or statistical data included or incorporated
by reference therein or omitted therefrom as to which
such counsel need express no opinion), at the time the
Registration Statement became effective, contained any
untrue statement of a material fact or omitted to state
a material fact required to be stated therein or
necessary to make the statements therein not
misleading, or (B) that the Prospectus (except for the
financial statements and other financial or statistical
data included or incorporated by reference therein or
omitted therefrom, as to which such counsel need
express no opinion), at the time the Prospectus was
issued or at the Closing Date, contained or contains
any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the
statements therein, in light of the circumstances under
which they were made, not misleading. Such opinion
shall cover the matters referred to in subparagraphs
(i) through (vii) above with respect to the General
Corporation Law of the State of Delaware (with respect
to the due organization, authorization, execution and
delivery, valid existence and good standing of the
Company), federal law and solely with respect to
paragraphs (iv), (v) and (vi), Wisconsin law.
(e) You shall have received on the Closing Date
an opinion of Shearman & Sterling, counsel for the
Company, dated the Closing Date, to the effect that
(i) the Company is a corporation duly
incorporated, validly existing and in good
standing under the laws of Delaware and has the
corporate power and authority to carry on its
business and to own or hold under lease its
properties as described in the Prospectus;
(ii) Harmon is a corporation duly
incorporated and in good standing under the laws
of the State of New York and has the corporate
power and authority to carry on its business as
presently conducted as described in the
Prospectus.
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<PAGE>
(iii) the authorized capital stock of the
Company conforms as to legal matters to the
description thereof contained in the Prospectus.
(iv) the shares of Common Stock outstanding
prior to the issuance of the Shares have been duly
authorized and are validly issued, fully paid and
non-assessable;
(v) the Shares have been duly authorized
and, when issued and delivered in accordance with
the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any
preemptive or similar rights;
(vi) this Agreement has been duly authorized,
executed and delivered by the Company;
(vii) the execution and delivery by the
Company of, and the performance by the Company of
its obligations under, this Agreement will not
contravene any provision of the laws of the State
of New York, the General Corporation Law of the
State of Delaware or the Federal laws of the
United States or the certificate of incorporation
or by-laws of the Company or, to the best of such
counsel's knowledge, any material agreement or
other material instrument binding upon the Company
or any of its properties, or, to the best of such
counsel's knowledge, any judgment, order or decree
of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary,
and no consent, approval, authorization or order
of or qualification with any governmental body or
agency or court of the State of New York or United
States is required for the performance by the
Company of its obligations under this Agreement,
except such as may be required by the securities
or Blue Sky laws of the various states in
connection with the offer and sale of the Shares
by the U.S. Underwriters;
(viii) the statements (1) in the Prospectus
under the captions "Management -- Employment
Agreements," "-- Management Incentive Plan,"
"-- Supplemental Retirement Plan," "-- 1995 Stock
Incentive Plan," "-- Management Equity Plan," and
"-- Management Equity Participation Agreement,"
"Certain Transactions -- Stockholders Agreement,"
"Description of Certain Indebtedness,"
14
<PAGE>
"Description of Capital Stock" and "Underwriters"
and (2) in the Registration Statement in Items 14
and 15, in each case insofar as such statements
constitute summaries of the legal matters,
documents or proceedings referred to therein,
fairly present in all material respects the
information called for with respect to such legal
matters, documents and proceedings and fairly
summarize in all material respects the matters
referred to therein;
(ix) after due inquiry, such counsel does not
know of any statutes, regulations, contracts or
other documents that are required to be described
in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration
Statement that are not described or filed as
required;
(x) the Company is not an "investment
company" as such term is defined in the Investment
Company Act of 1940, as amended; and
(xi) the Registration Statement and
Prospectus (except for financial statements and
other financial and statistical data included or
incorporated by reference therein as to which such
counsel need not express any opinion) comply as to
form in all material respects with the Securities
Act and the rules and regulations of the
Commission thereunder.
Such opinion shall also state that such counsel has
participated in the preparation of the Registration
Statement and the Prospectus and no facts have come to the
attention of such counsel which have led such counsel to
believe (A) that the Registration Statement, (except for the
financial statements and other financial or statistical data
included therein or omitted therefrom, as to which such
counsel need express no opinion) at the time the
Registration Statement became effective, contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading, or (B) that the
Prospectus (except for the financial statements and other
financial or statistical data included therein or omitted
therefrom, as to which such counsel need express no
opinion), at the time the Prospectus was issued or at the
Closing Date, contained or contains any untrue statement of
a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light
15
<PAGE>
of the circumstances under which they were made, not
misleading.
(f) You shall have received on the Closing Date
an opinion of Pannone & Partners, United Kingdom
counsel to the Company, dated the Closing Date, to the
effect that Fort Sterling is a private limited company
duly incorporated in England under Registered number
445297 which has been in continuous existence since the
date of its incorporation, and no action is currently
being taken by the Registrar of Companies for striking
Fort Sterling off the Register or dissolving it as
defunct, and it is not in liquidation or subject to an
administration order, and no receiver or manager of its
property has been appointed and that Fort Sterling has
the corporate power and authority to carry on its
business as presently conducted.
(g) You shall have received on the Closing Date
an opinion of Linklaters & Paines, special United
Kingdom counsel to the Company, dated the Closing Date,
to the effect that (i) the U.K. Directed Share Program
complies with applicable law in the United Kingdom and
(ii) no consent, approval, authorization or order of,
or qualification with any United Kingdom governmental
body or agency is required for the consummation of the
U.K. Directed Share Program.
(h) You shall have received on the Closing Date
an opinion of Davis Polk & Wardwell, special counsel
for the Underwriters, dated the Closing Date, covering
the matters referred to in subparagraphs (v), (vi),
(viii) (but only as to the statements in the Prospectus
under "Description of Capital Stock" and
"Underwriters"), (xi) and the paragraph following
subparagraph (xi) of paragraph (e) above.
With respect to the last paragraph of paragraph
(e) above, Davis Polk & Wardwell may state that their
opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and
any amendments or supplements thereto and review and
discussion of the contents thereof, but are without
independent check or verification except as specified.
The opinions of Shearman & Sterling, Pannone &
Partners, and Linklaters & Paines described in paragraphs
(e), (f) and (g) above shall be rendered to you at the
request of the Company and shall so state therein.
16
<PAGE>
(i) You shall have received, on each of the date
hereof and the Closing Date, a letter dated the date
hereof or the Closing Date, as the case may be, in form
and substance satisfactory to you, from Arthur Andersen
LLP, independent public accountants, containing
statements and information of the type ordinarily
included in accountants' "comfort letters" to
underwriters with respect to the financial statements
and certain financial information contained in the
Registration Statement and the Prospectus.
(j) The provisions of the Stockholders Agreement
which prohibit the sale of shares of Common Stock of
the Company or of securities convertible into or
exercisable or exchangeable for such Common Stock by
any of the parties to the Stockholders Agreement for a
period beginning seven days before and ending 180 days
after the effective date of the Registration Statement
hereof are in full force and effect on the Closing
Date.
(k) The Shares have been approved for quotation
on the Nasdaq National Market, subject only to official
notice of issuance.
(l) On or prior to the Closing Date, notices of
redemption shall have been delivered to the relevant
trustees with respect to the 14 1/8% Debentures and the
12 5/8% Debentures (as such terms are defined in the
Prospectus), subject only to the closing of the
offering of the Shares.
(m) On or prior to the Closing Date, all
conditions precedent to the effectiveness of the New
Bank Credit Agreement and the 1995 Receivables Facility
(as each such term is defined in the Prospectus) have
been satisfied, other than the closing of the offering
of the Shares, and substantially contemporaneous with
the closing of the offering of the Shares, the Company
has borrowed under the New Bank Credit Agreement and
the 1995 Receivables Facility the amounts described as
being borrowed on the Closing Date under "Prospectus
Summary -- The Proposed Recapitalization" in the
Prospectus.
The several obligations of the U.S. Underwriters
to purchase Additional Shares hereunder are subject to the
delivery to the U.S. Representatives on the Option Closing
Date of such documents as they may reasonably request with
respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and
17
<PAGE>
other matters set forth in this Article V related to the
issuance of the Additional Shares.
VI.
In further consideration of the agreements of the
Underwriters herein contained, the Company covenants as
follows:
(a) To furnish to you, without charge, four
signed copies of the Registration Statement (including
exhibits thereto) and for delivery to each other
Underwriter a conformed copy of the Registration
Statement (without exhibits thereto) and, during the
period mentioned in paragraph (c) below, as many copies
of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the
Registration Statement or the Prospectus, to furnish to
you a copy of each such proposed amendment or
supplement and to file no such proposed amendment or
supplement to which you reasonably object.
(c) If, during such period after the first date
of the public offering of the Shares as in the opinion
of your counsel the Prospectus is required by law to be
delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus
is delivered to a purchaser, not misleading, or if, in
the opinion of your counsel, it is necessary to amend
or supplement the Prospectus to comply with law,
forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by
you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply
with law.
18
<PAGE>
(d) To endeavor to qualify the Shares for offer
and sale under the securities or Blue Sky laws of such
jurisdictions as you shall reasonably request and to
pay all expenses (including fees and disbursements of
counsel) in connection with such qualification and in
connection with any review of the offering of the
Shares by the National Association of Securities
Dealers, Inc. (the "NASD"), including, without
limitation, expenses (including fees and disbursements
of counsel) incurred by CS First Boston Corporation
("CS First Boston") in its capacity as a "qualified
independent underwriter" within the meaning of Section
1 of Article III of the Rules of Fair Practice of the
NASD; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action
which would subject it to general service of process in
any jurisdiction where it is now so subject.
(e) To make generally available to the Company's
security holders and to you as soon as practicable an
earning statement covering the twelve-month period
ending March 31, 1996 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
(f) To pay all expenses incident to the
performance of its obligations under this Agreement,
including (i) the preparation and filing of the
Registration Statement and the Prospectus and all
amendments and supplements thereto, (ii) the
preparation, issuance and delivery of the Shares,
including any transfer taxes payable in connection with
the transfer of the Shares to the Underwriters, (iii)
the fees and disbursements of the Company's counsel and
accountants, (iv) the qualification of the Shares under
state securities or Blue Sky laws in accordance with
the provisions of paragraph (d) of Article VI,
including filing fees and the reasonable fees and
disbursements of U.S. counsel for the Underwriters in
connection therewith and in connection with the
preparation of any Blue Sky Memoranda, (v) the filing
of trade reports in the provinces of Canada, if any,
including filing fees and fees and disbursements of
Canadian counsel to the Underwriters in connection
therewith, (vi) the printing and delivery to the
Underwriters, in quantities as hereinabove stated, of
copies of the Registration Statement and all amendments
thereto and of each preliminary prospectus and the
Prospectus and any amendments or supplements thereto,
(vii) the printing and delivery to the Underwriters of
19
<PAGE>
copies of any Blue Sky Memoranda, (viii) the filing
fees and expenses if any, incurred with respect to any
filing with the NASD, made in connection with the
offering of the Shares, (ix) any transportation,
accommodation and meal expenses incurred by the Company
in connection with a "road show" presentation to
potential investors, (x) fees and disbursements of
foreign counsel to the Company in connection with the
U.K. Directed Share Program and (xi) the approval for
quotation of the Common Stock on the Nasdaq National
Market.
(g) The Company will apply the net proceeds from
the sale of the Shares as set forth under "Use of
Proceeds" in the Prospectus.
(h) The Company hereby agrees that it will ensure
that any and all Shares sold to employees of the
Company pursuant to the U.K. Directed Share Program
will be restricted from sale, transfer, assignment,
pledge or hypothecation for a period of thirty days
following the Closing Date. Specifically, the Company
will place a restrictive legend on the face of such
securities stating that the securities may not be sold,
transferred, assigned, pledged or hypothecated for a
period of thirty days following the Closing Date and
direct the transfer agent to place a stop transfer
restriction upon such securities for such period of
time.
VII.
The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), from and against
any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses
reasonably incurred by any Underwriter or any such
controlling person in connection with defending or
investigating any such action or claim) (i) caused by any
untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein
a material fact required to be stated therein or necessary
to make the statements therein not misleading, except
20
<PAGE>
insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating
to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein;
provided, however, that the foregoing indemnity agreement
-------- -------
with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such
Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required
by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such losses, claims, damages
or liabilities and (ii) arising out of the Company's U.K.
Directed Share Program.
The Company also agrees to indemnify and hold
harmless CS First Boston and each person, if any, who
controls CS First Boston within the meaning of either
Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments incurred as a result of
CS First Boston's participation as a "qualified independent
underwriter" within the meaning of Section 1 of Article III
of the Rules of Fair Practice of the NASD in connection with
the offering of the Shares, except for any losses, claims,
damages, liabilities and judgments resulting from CS First
Boston's, or its controlling person's, gross negligence or
willful misconduct.
Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement
and each person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to such Underwriter,
but only with reference to information relating to such
Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
In case any proceeding (including any governmental
investigation) shall be instituted involving any person in
respect of which indemnity may be sought pursuant to any of
21
<PAGE>
the three preceding paragraphs, such person (the
"indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying
party") in writing and the indemnifying party, upon request
of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party
shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any
such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests
between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for
the fees and expenses of more than one separate firm (in
addition to any local counsel) for all such indemnified
parties and that all such reasonable fees and expenses shall
be reimbursed as they are incurred and billed. In the case
of any such separate firm for the Underwriters and such
control persons of Underwriters, such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated.
In the case of any such separate firm for the Company, and
such directors, officers and control persons of the Company,
such firm shall be designated in writing by the Company.
Notwithstanding anything contained herein to the contrary,
if indemnity may be sought pursuant to the second paragraph
of this Article VII in respect of such action or proceeding,
then in addition to such separate firm for the indemnified
parties the indemnifying party shall be liable for the
reasonable fees and expenses of not more than one separate
firm for CS First Boston in its capacity as a "qualified
independent underwriter" and all persons, if any, who
control CS First Boston within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act
if representation of CS First Boston in such capacity and
the other indemnified parties by the same counsel would be
inappropriate due to actual or potential differing interests
between them.
The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a
22
<PAGE>
final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for
fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying
party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i)
such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed
the indemnified party in accordance with such request prior
to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of
such proceeding.
If the indemnification provided for in the first
or second paragraph of this Article VII is unavailable to an
indemnified party or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other hand from the
offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the
statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters
on the other hand in connection with the offering of the
Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the
Shares (before deducting expenses) received by the Company
and the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in
23
<PAGE>
the table on the cover of the Prospectus, bear to the
aggregate public offering price of the Shares. The relative
fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The
Underwriters' respective obligations to contribute pursuant
to this Article VII are several in proportion to the
respective number of Shares they have purchased hereunder,
and not joint.
The Company and the Underwriters agree that it
would not be just or equitable if contribution pursuant to
this Article VII were determined by pro rata allocation
--- ----
(even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to
in the immediately preceding paragraph. The amount paid or
payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this
Article VII, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price
at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of
any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in
this Article VII are not exclusive and shall not limit any
rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution provisions
contained in this Article VII and the representations and
warranties of the Company contained in this Agreement shall
remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter or by or on behalf of the
24
<PAGE>
Company, its officers or directors or any person controlling
the Company and (iii) acceptance of and payment for any of
the Shares.
VIII.
This Agreement shall be subject to termination in
your absolute discretion by notice given by you to the
Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on
or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the National
Association of Securities Dealers, Inc., the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange or the
Chicago Board of Trade, (ii) trading of any securities of
the Company shall have been suspended on any exchange or in
any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been
declared by either Federal or New York State authorities or
(iv) there shall have occurred any outbreak or escalation of
hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and
adverse and (b) in the case of any of the events specified
in clauses (a)(i) through (iv), such event singly or
together with any other such event makes it, in your
judgment, impracticable to market the Shares on the terms
and in the manner contemplated in the Prospectus.
IX.
This Agreement shall become effective upon the
later of (x) execution and delivery hereof by the parties
hereto and (y) release of notification of the effectiveness
of the Registration Statement by the Commission.
If, on the Closing Date or the Option Closing
Date, as the case may be, any one or more of the
Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and
the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to
purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions
that the number of Firm Shares set forth opposite their
respective names in Schedule I or Schedule II bears to the
25
<PAGE>
aggregate number of Firm Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other
proportions as you may specify, to purchase the Shares which
such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in
--------
no event shall the number of Shares that any Underwriter has
agreed to purchase pursuant to Article II be increased
pursuant to this Article IX by an amount in excess of
one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date or the
Option Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Shares and the
aggregate number of Shares with respect to which such
default occurs is more than one-tenth of the aggregate
number of Shares to be purchased on such date, and
arrangements satisfactory to you and the Company for the
purchase of such Shares are not made within 36 hours after
such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter or
the Company. In any such case either you or the Company
shall have the right to postpone the Closing Date or the
Option Closing Date, as the case may be, but in no event for
longer than seven days, in order that the required changes,
if any, in the Registration Statement and in the Prospectus
or in any other documents or arrangements may be effected.
Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the
Underwriters, or any of them, because of any failure or
refusal on the part of the Company to comply with the terms
or to fulfill any of the conditions of this Agreement, or if
for any reason not attributable to your actions or your
failure to take actions reasonably contemplated by this
Agreement, the Company shall be unable to perform its
obligations under this Agreement, the Company will reimburse
the Underwriters or such Underwriters as have so terminated
this Agreement with respect to themselves, severally, for
all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the
offering contemplated hereunder.
This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were
upon the same instrument.
26
<PAGE>
This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New
York.
Very truly yours,
FORT HOWARD CORPORATION
By________________________
Accepted, March , 1995
--
MORGAN STANLEY & CO.
INCORPORATED
CS FIRST BOSTON CORPORATION
SALOMON BROTHERS INC
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.
By Morgan Stanley & Co.
Incorporated
By ___________________________
MORGAN STANLEY & CO.
INTERNATIONAL LIMITED
CS FIRST BOSTON LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
S.G. WARBURG SECURITIES LIMITED
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co.
International Limited
By ____________________________
27
<PAGE>
Schedule I
U.S. Underwriters
-----------------
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. Incorporated
CS First Boston Corporation
Salomon Brothers Inc
[NAMES OF OTHER U.S. UNDERWRITERS]
_______________
Total U.S. Firm Shares .............. 17,600,000
===============
28
<PAGE>
Schedule II
International Underwriters
--------------------------
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. International Limited
CS First Boston Limited
Salomon Brothers International Limited
S.G. Warburg Securities Limited
[NAMES OF OTHER INTERNATIONAL UNDERWRITERS]
_______________
Total International Firm Shares ...... 4,400,000
===============
29
Exhibit 4.6
$1,440,000,000
CREDIT AGREEMENT
Dated as of
March __, 1995,
among
FORT HOWARD CORPORATION,
THE LENDERS IDENTIFIED HEREIN
and
BANKERS TRUST COMPANY,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
and
CHEMICAL BANK,
as Arrangers,
and
BANKERS TRUST COMPANY,
as Administrative Agent
FORT HOWARD CORPORATION
CREDIT AGREEMENT
dated as of March __, 1995
<PAGE>
TABLE OF CONTENTS
Heading Page
INTRODUCTION................................ 1
RECITALS.................................... 1
ARTICLE I DEFINITIONS................................. 2
Section 1.1 Certain Defined Terms....................... 2
Section 1.2 Accounting Terms............................ 62
Section 1.3 Other Definitional Provisions; Anniversaries 62
Section 1.4 Adjustment for Special Reserve.............. 62
Section 1.5 Currency Equivalent Generally............... 62
ARTICLE II COMMITMENTS AND LOANS; NOTES................ 63
Section 2.1 Term Loans and Term Notes................... 63
2.1.1 Term Loan Commitments....................... 63
2.1.2 Notice of Borrowing......................... 64
2.1.3 Disbursement of Funds....................... 64
2.1.4 Term Notes.................................. 66
2.1.5 Scheduled Payments of Term Loans............ 66
Section 2.2 Letters of Credit........................... 66
2.2.1 Letters of Credit........................... 66
2.2.2 Request for Issuance........................ 68
2.2.3 Determination of Fronting Bank.............. 69
2.2.4 Payment of Amounts Drawn Under Letters
of Credit................................ 70
2.2.5 Payment by the Lenders...................... 71
2.2.6 Compensation................................ 72
2.2.7 Obligations Absolute........................ 73
2.2.8 Additional Payments......................... 74
2.2.9 Indemnification; Nature of Fronting Bank's
Duties................................... 76
2.2.10 Computation of Interest..................... 77
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Section 2.3 Revolving Loans and Revolving Notes......... 78
2.3.1 Revolving Loan Commitments.................. 78
2.3.2 Notice of Borrowing......................... 79
2.3.3 Disbursement of Funds....................... 80
2.3.4 Revolving Notes............................. 81
Section 2.4 Total Loan Commitments; Limitations on
Outstanding Loan Amounts................. 81
Section 2.5 Interest on the Loans....................... 81
2.5.1 Rate of Interest............................ 81
2.5.2 Interest Periods............................ 84
2.5.3 Interest Payments........................... 86
2.5.4 Conversion or Continuation.................. 86
2.5.5 Post-Maturity Interest...................... 87
2.5.6 Computation of Interest..................... 88
Section 2.6 Commissions................................. 88
2.6.1 Commitment Commissions...................... 88
2.6.2 Bankers and Arrangers Commissions........... 88
2.6.3 No Refund of Fees........................... 88
Section 2.7 Prepayments and Payments; Reductions in
Commitments.............................. 89
2.7.1 Voluntary Prepayments....................... 89
2.7.2 Mandatory Prepayments....................... 89
2.7.3 Company's Mandatory Prepayment
Obligation; Application of Prepayments... 92
2.7.4 Manner and Time of Payment.................. 95
2.7.5 Apportionment of Payments................... 95
2.7.6 Payments on Non-Business Days............... 96
2.7.7 Payment Accounts; Notation of Payment....... 96
2.7.8 Voluntary Reductions of Swing Line
Commitment and Revolving Loan
Commitments.............................. 97
2.7.9 Mandatory Reductions of Revolving Loan
Commitments and Swing Line
Commitment............................... 97
Section 2.8 Use of Proceeds............................. 98
2.8.1 Term Loans.................................. 98
2.8.2 Revolving Loans............................. 98
2.8.3 Swing Line Loans............................ 98
2.8.4 Margin Regulations.......................... 99
Section 2.9 Special Provisions Governing Adjusted
LIBOR Loans.............................. 99
2.9.1 Determination of Interest Rate.............. 99
2.9.2 Increased Costs............................. 99
2.9.3 Required Termination and Prepayment......... 101
2.9.4 Options of Company.......................... 101
2.9.5 Compensation................................ 102
2.9.6 Quotation of LIBOR.......................... 102
2.9.7 Taxes....................................... 103
2.9.8 Booking of Adjusted LIBOR Loans............. 107
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2.9.9 Assumptions Concerning Funding of
Adjusted LIBOR Loans..................... 107
2.9.10 Adjusted LIBOR Loans After an Event of
Default.................................. 107
2.9.11 Affected Lender's Obligation to Mitigate.... 108
Section 2.10 Capital Requirements........................ 108
Section 2.11 Replacement Rights of Company............... 109
Section 2.12 Swing Line Loans and Swing Line Notes....... 109
2.12.1 Swing Line Loans............................ 109
2.12.2 Notice of Borrowing......................... 110
2.12.3 Disbursement of Funds....................... 111
2.12.4 Swing Line Note............................. 111
2.12.5 Purchase of Swing Line Loans................ 111
ARTICLE III CONDITIONS TO LOANS AND LETTERS OF
CREDIT.................................... 112
Section 3.1 Conditions to Loans Made on the Closing
Date..................................... 112
3.1.1 ............................................ 112
3.1.2 ............................................ 112
3.1.3 ............................................ 113
3.1.4 ............................................ 114
3.1.5 ............................................ 116
3.1.6 ............................................ 117
3.1.7 ............................................ 117
3.1.8 ............................................ 117
3.1.9 ............................................ 117
3.1.10 ............................................ 118
3.1.11 ............................................ 118
3.1.12 ............................................ 118
3.1.13 ............................................ 118
Section 3.2 Conditions to Loans......................... 118
3.2.1 ............................................ 119
3.2.2 ............................................ 119
3.2.3 ............................................ 120
Section 3.3 Conditions to Tranche A Term Loans and
Certain Revolving Loans on the Deferred
Funding Date............................. 120
3.3.1 ............................................ 120
3.3.2 ............................................ 121
3.3.3 ............................................ 121
Section 3.4 Conditions to Initial Revolving Loans and
Swing Line Loans......................... 121
3.4.1 ............................................ 121
3.4.2 ............................................ 121
3.4.3 ............................................ 121
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Section 3.5 Conditions to All Letters of Credit......... 121
3.5.1 ............................................ 121
3.5.2 ............................................ 122
3.5.3 ............................................ 122
ARTICLE IV REPRESENTATIONS AND WARRANTIES.............. 122
Section 4.1 Organization, Powers, Good Standing,
Business and Subsidiaries................ 122
4.1.1 Organization and Powers..................... 122
4.1.2 Good Standing............................... 122
4.1.3 Conduct of Business......................... 123
4.1.4 Subsidiaries................................ 123
Section 4.2 Authorization of Borrowing, etc............. 123
4.2.1 Authorization of Borrowing.................. 123
4.2.2 No Conflict................................. 123
4.2.3 Governmental Consents....................... 124
4.2.4 Binding Obligation.......................... 124
4.2.5 Valid Issuance of Common Stock.............. 124
Section 4.3 Financial Condition......................... 125
Section 4.4 No Adverse Material Change; No Stock
Payments................................. 125
Section 4.5 Title to Properties; Liens.................. 125
Section 4.6 Litigation; Adverse Facts................... 126
Section 4.7 Payment of Taxes............................ 126
Section 4.8 Performance of Agreements................... 127
Section 4.9 Governmental Regulation..................... 127
Section 4.10 Securities Activities....................... 127
Section 4.11 Employee Benefit Plans...................... 127
4.11.1 ............................................ 127
4.11.2 ............................................ 128
4.11.3 ............................................ 128
4.11.4 ............................................ 128
4.11.5 ............................................ 128
4.11.6 ............................................ 128
Section 4.12 Certain Fees................................ 128
Section 4.13 Disclosure.................................. 129
Section 4.14 Patents, Trademarks, etc.................... 130
Section 4.15 Environmental Protection.................... 130
4.15.1 ............................................ 130
4.15.2 ............................................ 131
4.15.3 ............................................ 131
4.15.4 ............................................ 131
Section 4.16 Security Interests.......................... 131
Section 4.17 IDA and Certain Documents................... 132
Section 4.18 Solvency.................................... 132
4.18.1 ............................................ 132
-iv-
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4.18.2 ............................................ 133
ARTICLE V AFFIRMATIVE COVENANTS....................... 133
Section 5.1 Financial Statements and Other Reports...... 133
Section 5.2 Corporate Existence, etc.................... 140
Section 5.3 Payment of Taxes and Claims; Tax
Consolidation............................ 140
5.3.1 ............................................ 140
5.3.2 ............................................ 140
Section 5.4 Maintenance of Properties; Insurance........ 140
Section 5.5 Inspection.................................. 141
Section 5.6 No Further Negative Pledges................. 141
Section 5.7 Compliance with Laws, etc................... 142
Section 5.8 Interest Rate Agreements.................... 142
Section 5.9 Lender Meeting.............................. 143
Section 5.10 Security Interests.......................... 143
5.10.1 ............................................ 143
5.10.2 ............................................ 143
Section 5.11 Future Guarantor Subsidiaries and Additional
Pledge Agreements; Certain Future
Acquisitions of Material Assets.......... 143
5.11.1 ............................................ 143
5.11.2 Grant of Security Interest in Material Assets..144
5.11.3 Limitations on Pledging of Shares and other
Assets of Certain Foreign Subsidiaries and
Delivery of Certain Guarantees........... 146
5.11.4 ............................................ 147
5.11.5 ............................................ 147
5.11.6 ............................................ 148
Section 5.12 Expansion Projects.......................... 148
5.12.1 Mill Expansion Transactions................. 148
5.12.2 Greenfield Expansion Projects............... 152
Section 5.13 Certain Dispositions of Collateral.......... 154
Section 5.14 Georgia Mill Lease and Mortgage............. 156
5.14.1 ............................................ 156
5.14.2 ............................................ 157
5.14.3 ............................................ 157
5.14.4 ............................................ 157
Section 5.15 Transfer of Permits and Licenses............ 157
Section 5.16 Recapitalization............................ 157
Section 5.17 Green Bay Sludge Boiler..................... 158
5.17.1 ............................................ 158
5.17.2 ............................................ 158
-v-
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ARTICLE VI NEGATIVE COVENANTS.......................... 158
Section 6.1 Indebtedness................................ 158
Section 6.2 Liens....................................... 162
Section 6.3 Investments; Joint Ventures................. 164
Section 6.4 Contingent Obligations...................... 168
Section 6.5 Restricted Junior Payments.................. 170
Section 6.6 Financial Covenants......................... 172
6.6.1 Interest Coverage Ratio..................... 172
6.6.2 Maximum Leverage Ratio...................... 172
Section 6.7 Restriction on Fundamental Changes.......... 172
6.7.1 ............................................ 173
6.7.2 ............................................ 173
6.7.3 ............................................ 174
6.7.4 ............................................ 174
6.7.5 ............................................ 174
6.7.6 ............................................ 174
6.7.7 ............................................ 175
Section 6.8 ERISA....................................... 175
6.8.1 ............................................ 175
6.8.2 ............................................ 175
6.8.3 ............................................ 175
6.8.4 ............................................ 175
Section 6.9 Restriction on Leases....................... 175
Section 6.10 Sales and Leasebacks........................ 176
Section 6.11 Sale or Discount of Receivables; Receivables
Transactions............................. 177
6.11.1 ............................................ 177
6.11.2 ............................................ 177
6.11.3 ............................................ 177
Section 6.12 Transactions with Shareholders and
Affiliates............................... 177
Section 6.13 Disposal of Subsidiary Stock................ 178
6.13.1 ............................................ 178
6.13.2 ............................................ 178
Section 6.14 Limitation on Capital Expenditures.......... 178
6.14.1 ............................................ 178
6.14.2 ............................................ 178
6.14.3 ............................................ 179
6.14.4 ............................................ 179
6.14.5 ............................................ 180
6.14.6 ............................................ 180
Section 6.15 Conduct of Business......................... 180
Section 6.16 Amendments or Waivers of Certain
Documents; Prepayments of Indebtedness... 181
6.16.1 ............................................ 181
6.16.2 ............................................ 181
6.16.3 ............................................ 182
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6.16.4 ............................................ 182
6.16.5 ............................................ 182
6.16.6 ............................................ 182
6.16.7 ............................................ 183
6.16.8 ............................................ 183
Section 6.17 Payment of Cash Interest on Subordinated
Debt..................................... 184
ARTICLE VII EVENTS OF DEFAULT........................... 184
Section 7.1 Failure To Make Payments When Due........... 184
Section 7.2 Default in Other Agreements................. 184
Section 7.3 Breach of Certain Covenants................. 185
Section 7.4 Breach of Warranty.......................... 185
Section 7.5 Other Defaults Under Agreement or Loan
Document................................. 185
Section 7.6 Involuntary Bankruptcy; Appointment of
Receiver, etc............................ 185
7.6.1 ............................................ 185
7.6.2 ............................................ 185
Section 7.7 Voluntary Bankruptcy; Appointment of
Receiver, etc............................ 186
Section 7.8 Judgments and Attachments................... 186
Section 7.9 Dissolution................................. 187
Section 7.10 Unfunded ERISA Liabilities.................. 187
7.10.1 ............................................ 187
7.10.2 ............................................ 187
7.10.3 ............................................ 187
7.10.4 ............................................ 187
7.10.5 ............................................ 187
Section 7.11 Withdrawal Liability Under Multiemployer
Plan..................................... 187
Section 7.12 Invalidity of Guarantees.................... 188
Section 7.13 Failure of Security......................... 188
Section 7.14 Change in Control........................... 188
ARTICLE VIII THE ADMINISTRATIVE AGENT.................... 190
Section 8.1 Appointment................................. 190
Section 8.2 Powers; General Immunity.................... 190
8.2.1 Duties Specified............................ 190
8.2.2 No Responsibility for Certain Matters....... 191
8.2.3 Exculpatory Provisions...................... 191
8.2.4 Administrative Agent Entitled to Act as
Lender................................... 192
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Section 8.3 Representations and Warranties; No
Responsibility for Appraisal of
Creditworthiness......................... 192
Section 8.4 Right to Indemnity.......................... 193
Section 8.5 Registered Holder of Note Treated as Owner.. 193
Section 8.6 Resignation by Administrative Agent......... 193
8.6.1 ............................................ 193
8.6.2 ............................................ 193
8.6.3 ............................................ 194
8.6.4 ............................................ 194
Section 8.7 Guarantor Subsidiary Guarantee and
Collateral Documents..................... 194
Section 8.8 Successor Administrative Agent.............. 195
ARTICLE IX MISCELLANEOUS............................... 195
Section 9.1 Successors and Assigns; Participations...... 195
9.1.1 ............................................ 195
9.1.2 ............................................ 195
9.1.3 ............................................ 197
9.1.4 ............................................ 199
9.1.5 ............................................ 199
Section 9.2 Expenses.................................... 200
Section 9.3 Indemnity................................... 201
Section 9.4 Set Off..................................... 202
Section 9.5 Ratable Sharing............................. 202
9.5.1 ............................................ 202
9.5.2 ............................................ 203
Section 9.6 Amendments and Waivers...................... 204
Section 9.7 Independence of Covenants................... 205
Section 9.8 Change in Accounting Principles; Fiscal
Year or Tax Laws......................... 205
Section 9.9 Notices..................................... 206
Section 9.10 Survival of Warranties and Certain
Agreements............................... 206
Section 9.11 Failure or Indulgence Not Waiver; Remedies
Cumulative............................... 206
Section 9.12 Severability................................ 206
Section 9.13 Obligations Several; Independent Nature of
the Lenders' Rights...................... 207
Section 9.14 Headings.................................... 207
Section 9.15 Applicable Law.............................. 207
Section 9.16 Consent to Jurisdiction and Service of
Process.................................. 207
Section 9.17 Confidentiality............................. 208
Section 9.18 Counterparts; Effectiveness................. 208
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Section 9.19 Determinations Pursuant to Collateral
Documents................................ 209
Section 9.20 Certain Obligations of Company.............. 209
Section 9.21 Waiver of Jury Trial........................ 209
Section 9.22 Defaulting Lenders.......................... 210
9.22.1 ............................................ 210
9.22.2 ............................................ 210
9.22.3 ............................................ 211
Section 9.23 Lenders' ERISA Matters...................... 211
9.23.1 Lenders' Representations and Warranties..... 211
9.23.2 General Account Assets...................... 212
9.23.3 Representations of Transferees.............. 212
9.23.4 Additional ERISA Representations............ 213
SIGNATURE PAGES..................................................... 214
SCHEDULES
A LOAN PARTIES AND SUBSIDIARIES
B LENDERS' COMMITMENTS, PRO RATA SHARES AND FUNDING
PERCENTAGES
C EXISTING INDEBTEDNESS
D EXISTING LIENS
E EXISTING INVESTMENTS
F CREDIT FACILITIES TO BE TERMINATED ON THE CLOSING DATE
G CONTINGENT OBLIGATIONS
H LEASEHOLD MORTGAGEE PROVISIONS
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF TRANCHE A TERM NOTE
IV FORM OF REVOLVING NOTE
V FORM OF TRANCHE B TERM NOTE
VI FORM OF COMPLIANCE CERTIFICATE
VII FORM OF SWING LINE NOTE
VIII FORM OF OPINION OF SHEARMAN & STERLING, COUNSEL TO
FORT HOWARD
IX-A FORM OF OPINION OF JAMES W. NELLEN, II, ESQ., COUNSEL TO
FORT HOWARD
IX-B FORMS OF OPINION OF LOCAL COUNSEL TO FORT HOWARD
(REAL PROPERTY)
IX-C FORMS OF OPINION OF LOCAL COUNSEL TO FORT HOWARD
(PERSONAL PROPERTY)
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<PAGE>
IX-D FORM OF OPINION OF MICHAEL, BEST & FRIEDRICH
(INTELLECTUAL PROPERTY)
X FORM OF OPINION OF CAHILL GORDON & REINDEL
XI FORM OF OFFICER'S CLOSING CERTIFICATE
XII FORM OF IDA ESTOPPEL
XIII FORM OF GUARANTOR SUBSIDIARY GUARANTEE
XIV-A FORM OF COMPANY RECEIVABLE/INVENTORY PLEDGE
AGREEMENT
XIV-B FORM OF GUARANTOR SUBSIDIARY RECEIVABLE/INVENTORY
PLEDGE AGREEMENT
XV FORM OF COMPANY STOCK PLEDGE AGREEMENT
XVI FORM OF SPECIAL FUNDING PROCEDURES LETTER
XVII FORM OF INTELLECTUAL PROPERTY PLEDGE AGREEMENT
XVIII FORM OF REGISTERED TRANSFER SUPPLEMENT
XIX-A(i) FORM OF MORTGAGE - WISCONSIN
XIX-A(ii) FORM OF MILL MORTGAGE - WISCONSIN
XIX-B(i) FORM OF MILL MORTGAGE - OKLAHOMA
XIX-B(ii) FORM OF MORTGAGE - OKLAHOMA
XIX-C(i) FORM OF GEORGIA MILL DEED TO SECURE DEBT
XIX-C(ii) FORM OF GEORGIA DEED TO SECURE DEBT
XX FORM OF LETTER ESCROW AND SECURITY AGREEMENT
XXI FORM OF OFFICER'S FUNDING DATE CERTIFICATE
XXII FORM OF OFFICER'S SECTION 5.1(iv) CERTIFICATE
XXIII FORM OF OFFICER'S SECTION 5.1(xiv) CERTIFICATE
XXIV FORM OF EXPANSION INTERCREDITOR AGREEMENT
XXV NONDISTURBANCE, CURE RIGHTS AND PURCHASE
OPTION AGREEMENT, DATED AS OF OCTOBER 20, 1989
XXVI CURE RIGHTS AND PURCHASE OPTION AGREEMENT,
DATED AS OF OCTOBER 20, 1989
XXVII RECEIVABLES PROGRAM TERM SHEET
XXVIII FORM OF STATUS CERTIFICATE
XXIX FORM OF COLLATERAL TRUST AGREEMENT
XXX FAIR VALUE DETERMINATION PROCEDURES
-x-
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of March __, 1995, by and among
FORT HOWARD CORPORATION, a Delaware corporation (the "Company"), THE
PARTIES IDENTIFIED AS LENDERS ON THE SIGNATURE PAGES HEREOF (each,
together with its successors and assigns, a "Lender"), BANKERS TRUST
COMPANY ("Bankers"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("BOA") and CHEMICAL BANK, as Arrangers (each (exclusive
of any assignee or successor), an "Arranger"), and BANKERS TRUST
COMPANY, as administrative agent for the Lenders (in such capacity and
together with its successors in such capacity, the "Administrative
Agent").
R E C I T A L S :
A. The parties hereto desire to provide for, among
other things,(i) the Company to borrow on a term basis Tranche A Term
Loans (as hereinafter defined; other capitalized terms used in these
Recitals having the meanings set forth in Section 1.1 hereof) in an
aggregate principal amount not to exceed $840,000,000, (ii) the
Company to borrow on a term basis Tranche B Term Loans in an aggregate
principal amount not to exceed $300,000,000, (iii) the Company to
borrow on a revolving basis Swing Line Loans in an aggregate principal
amount at any time outstanding not to exceed $25,000,000, (iv) one or more
Fronting Banks to issue letters of credit, on the terms and subject to
the conditions set forth in this Agreement, in an aggregate face
amount at any time outstanding not in excess of $50,000,000 and (v)
the Company to borrow on a revolving basis, at any time and from time
to time prior to the Revolving Credit Maturity Date Revolving Loans,
in an aggregate principal amount at any time outstanding not to exceed
$300,000,000 minus the sum of the aggregate principal amount of the
Swing Line Loans outstanding at such time and the Letters of Credit
Usage at such time.
B. The Lenders desire that the Obligations be secured
by (i) a security interest in certain Inventory and a junior security
interest in certain Receivables in each case owned by the Company and
certain of its Subsidiaries, (ii) a security interest in certain
Intellectual Property owned by the Company, (iii) a security interest
in stock of certain Subsidiaries of the Company, and (iv) a Mortgage
of each of the Existing Mills and certain other property.
C. From time to time hereafter, one or more of the
Lenders and the Company may be parties to a Qualified Interest Rate
Agreement or a Qualified Currency Agreement and the parties hereto
intend that the obligations of the Company pursuant thereto (to the
extent not in excess of $200,000,000) be secured on an equal and
ratable basis with the Obligations.
A G R E E M E N T :
The Company, the Lenders, the Administrative Agent and the
Arrangers agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. The following terms
used in this Agreement shall have the following meanings:
"ABR Borrowing" means a Borrowing comprised of ABR Loans.
"ABR Loan" means any ABR Term Loan or ABR Revolving Loan.
"ABR Revolving Borrowing" means a Borrowing comprised of
ABR Revolving Loans.
"ABR Revolving Loan" means any Revolving Loan bearing
interest at a rate determined by reference to the Alternate Base Rate
in accordance with the provisions of subsection 2.5.1.
"ABR Spread" means (A) with respect to Tranche A Term
Loans and Revolving Loans, the percent per annum from time to time in
effect pursuant to paragraph (d) of subsection 2.5.1, and (B) with
respect to Tranche B Term Loans, 2% per annum.
"ABR Term Borrowing" means a Borrowing comprised of ABR
Term Loans.
"ABR Term Loan" means any Term Loan bearing interest at a
rate determined by reference to ABR in accordance with the provisions
of subsection 2.5.1.
"Accepting Tranche B Lenders" has the meaning assigned to
that term in paragraph (c) of subsection 2.7.3.
"A Credit Exposure Amount" has the meaning assigned to
that term in the definition of "Credit Exposure Amount."
"Additional Collateral Documents" has the meaning assigned
to that term in paragraph (a) of subsection 5.11.2.
"Additional Georgia Mortgage" has the meaning assigned to
that term in subsection 5.14.1.
"Adjusted Consolidated Net Income" means, for any period,
Consolidated Net Income during such period, plus (minus) the amount of
depreciation, depletion, amortization of intangibles, deferred taxes,
accreted and zero coupon bond interest and other non-cash expenses
(income), losses (gains) or charges (credits) that, pursuant to GAAP,
were deducted (added) in determining such Consolidated Net Income.
<PAGE>
"Adjusted LIBOR" means, for any Interest Rate
Determination Date, the rate per annum (rounded upward to the next
higher one hundredth of one percent) obtained by dividing (A) LIBOR
for such Interest Rate Determination Date by (B) a percentage equal to
100% minus the stated maximum rate, as of such Interest Rate
Determination Date, of all reserves required to be maintained against
"Eurocurrency Liabilities" as specified in Regulation D (or against
any other category of liabilities specified in Regulation D which
includes deposits by reference to which the interest rate on Adjusted
LIBOR Loans is determined or any category of extensions of credit or
other assets specified in Regulation D which includes loans by a
non-United States office of any Lender to United States residents).
"Adjusted LIBOR Borrowing" means a Borrowing comprised of
Adjusted LIBOR Loans.
"Adjusted LIBOR Loan" means any Adjusted LIBOR Term Loan
or Adjusted LIBOR Revolving Loan.
"Adjusted LIBOR Loans" means Loans bearing interest at
rates determined by reference to Adjusted LIBOR as provided in
subsection 2.5.1.
"Adjusted LIBOR Revolving Borrowing" means a Borrowing
comprised of Adjusted LIBOR Revolving Loans.
"Adjusted LIBOR Revolving Loan" means any Revolving Loan
bearing interest at a rate determined by reference to Adjusted LIBOR
in accordance with the provisions of subsection 2.5.1.
"Adjusted LIBOR Term Borrowing" means a Borrowing
comprised of Adjusted LIBOR Term Loans.
"Adjusted LIBOR Term Loan" means any Term Loan bearing
interest at a rate determined by reference to Adjusted LIBOR in
accordance with the provisions of subsection 2.5.1.
"Adjusted Revolving Loan Commitments" means at any time
the aggregate of the Revolving Loan Commitments of all Lenders less
the sum of the Defaulting Lender Deduction Amounts of all Defaulting
Lenders.
"Adjusted Revolving Loan Percentage" means (A) at a time
when no Lender Default exists, for each Lender its percentage
determined by dividing such Lender's Revolving Loan Commitment at such
time by the aggregate amount of all Revolving Loan Commitments at such
time and (B) at a time when a Lender Default exists (1) for each
Lender that is a Defaulting Lender, zero and (2) for each Lender that
is a Non-Defaulting Lender, the percentage determined by dividing such
Lender's Revolving Loan Commitment at such time by the aggregate
Revolving Loan Commitments of all Lenders that are not Defaulting
Lenders at such time, it being understood that all references herein
to Revolving Loan Commitments at a time when the Total Revolving Loan
Commitment has been terminated shall be references to the Revolving
Loan Commitments in effect immediately prior to such termination;
provided, that (x) no Lender's Adjusted Revolving Loan Percentage
shall change upon the occurrence of a Lender Default from that in
effect immediately
<PAGE>
prior to such Lender Default if, after giving effect to such Lender
Default, and any repayment of Revolving Loans and Swing Line Loans at
such time pursuant to paragraph (c) of subsection 2.7.2 or otherwise,
the Total Utilization of Revolving Loan Commitments exceeds the
Adjusted Revolving Loan Commitments (after giving effect to such
Lender Default), and (y) the changes to the Adjusted Revolving Loan
Percentage that would have become effective upon the occurrence of a
Lender Default but that did not become effective as a result of the
preceding subclause (x) shall become effective on the first date after
the occurrence of the relevant Lender Default on which the Total
Utilization of Revolving Loan Commitments is equal to or less than the
Adjusted Revolving Loan Commitments (after giving effect to such
Lender Default).
"Adjusted Working Capital" means, at any time,
Consolidated Current Assets minus Consolidated Current Liabilities at
such time.
"Administrative Agent" has the meaning assigned to that
term in the introduction to this Agreement.
"Affected Interest Period" has the meaning assigned to
that term in subsection 2.9.2.
"Affected Lender" means any Lender affected by any of the
events described in subsection 2.9.2 or subsection 2.9.3.
"Affiliate", as applied to any Person, means any other
Person directly or indirectly controlling, controlled by, or under
common control with such 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 such Person, whether through the ownership of voting
securities or otherwise. No Lender or parent or Subsidiary of any
Lender shall be treated as an Affiliate of the Company solely by
virtue of its being a Lender or a parent or Subsidiary of a Lender.
"Agreement" has the meaning assigned to that term in the
introduction to this Agreement.
"ALTA Survey" means a survey of any Real Property (and all
improvements thereon): (A) prepared by a surveyor or engineer
licensed to perform surveys in the state where such Real Property is
located, (B) dated (or redated) not earlier than six months prior to
the date of delivery thereof (unless there shall have occurred within
six months prior to such date of delivery any exterior construction on
the site of such Real Property, in which event such survey shall be
dated (or redated) after the completion of such construction or if
such construction shall not have been completed as of such date of
delivery, not earlier than 20 days prior to such date of delivery, (C)
certified by the surveyor (in a manner reasonably acceptable to the
Requisite Lenders) to the Administrative Agent, as agent for the
Lenders, and (D) complying in all respects with the minimum detail
requirements of the American Land Title Association as such
requirements are in effect on the later of the date of preparation of
such survey or the date such survey is redated.
<PAGE>
"Alternate Base Rate" or "ABR" means, for any day, a rate
per annum (rounded upwards, if necessary, to the next 1/16 of 1%)
equal to the greatest of (A) the Prime Rate in effect on such day, (B)
the Base CD Rate in effect on such day plus 1% and (C) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof, the term "Base CD Rate" means, the sum of (A) the
product of (1) the Three-Month Secondary CD Rate multiplied by (2)
Statutory Reserves and (B) the Assessment Rate. The term "Three-Month
Secondary CD Rate" means, for any day, the secondary market rate for
three-month certificates of deposit reported as being in effect on
such day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week
following such day) or, if such rate shall not be so reported on such
day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00
a.m., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the
Administrative Agent from three New York City negotiable certificate
of deposit dealers of recognized standing selected by it. The term
"Federal Funds Effective Rate" means, for any day, the weighted
average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by the Federal funds
broker, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by it. If
for any reason the Administrative Agent shall have determined (which
determination shall be conclusive absent manifest error) that it is
unable to ascertain the Base CD Rate or the Federal Funds Effective
Rate or both for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance
with the terms thereof, the Alternate Base Rate shall be determined
without regard to clause (B) or (C), or both, of the first sentence of
this definition, as appropriate, until the circumstances giving rise
to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD
Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate, respectively.
"Alternative Existing Mill Expansion Conditions" has the
meaning assigned to that term in subsection 5.12.1.
"Annual Prepayment" has the meaning assigned to that term
in paragraph (b) of subsection 2.7.2.
"Annual Voluntary Prepayment Adjustment Amount" means (A)
in each fiscal year of the Company in which Excess Cash Flow is a
positive amount or zero, zero and (B) in each fiscal year in which
Excess Cash Flow is less than zero, the lesser of (1) the amount of
voluntary prepayments which constitute Discretionary Voluntary
Prepayments of Term Loans pursuant to Section 2.7.1 in respect of such
fiscal year and (2) the amount of additional Net Cash Provided From
Operations
<PAGE>
which would have been required in respect of such fiscal year to
result in Excess Cash Flow for such fiscal year being zero.
"Applicable Category" means, at any date of determination
thereof, the category in the table appearing in paragraph (d) of
subsection 2.5.1 having the lowest spreads and which, as of the last
day of the fiscal quarter of the Company immediately preceding such
date of determination, is applicable to the Company based upon both
Ratio 1 and Ratio 2 for the period of four consecutive fiscal quarters
of the Company ending on such last day.
"A/R Eligible Receivables" means those Receivables of the
Company pledged under the 1995 A/R Bridge.
"Arranger" has the meaning assigned to that term in the
introduction to this Agreement.
"Assessment Rate" means for any date the annual rate most
recently estimated by Bankers as the then-current net annual
assessment rate that will be employed in determining amounts payable
by Bankers to the Federal Deposit Insurance Corporation (or any
successor) for insurance by such Corporation (or such successor) of
time deposits made in Dollars at Bankers' domestic offices.
"Asset Sale" means the sale, transfer or other disposition
after the Closing Date (in a single transaction or a series of related
transactions) by the Company or any of its Subsidiaries to any Person
(other than the Company or any of its Subsidiaries) of (A) any of the
stock of any of the Company's Subsidiaries, (B) substantially all of
the assets of any geographic or other division or line of business of
the Company or any of its Subsidiaries, or (C) any Real Property or a
portion of any Real Property or any other asset or assets (including,
without limitation, any assets which do not constitute substantially
all of the assets of any geographic or other division or line of
business but excluding any assets manufactured, constructed or
otherwise produced or purchased for sale to others in the ordinary
course of business) of the Company or any of its Subsidiaries having a
Fair Value in excess of $2,000,000 (it being understood that if the
Fair Value thereof exceeds $2,000,000, the entire amount and not just
the portion in excess of $2,000,000 shall be subject to paragraph (a)
of subsection 2.7.2); provided that any asset sale described in clause
(C) above shall not be deemed to be an "Asset Sale" unless and until
the aggregate amount of the Fair Values of the proceeds of all such
sales after the Closing Date by the Company and its Subsidiaries
occurring in any fiscal year of the Company equals or exceeds
$10,000,000 (it being understood that any such amounts less than
$10,000,000 in any fiscal year of the Company shall not be included in
the calculation of "Asset Sales" in any subsequent fiscal year of the
Company); and provided, further, that "Asset Sales" shall not include
(1) sales of Cash and Cash Equivalents in the ordinary course of
business, (2) sales or other transfers of Program Receivables pursuant
to a Receivables Transaction or so long as the 1995 A/R Bridge shall
be in effect, any other transaction to the extent that net proceeds of
such transaction are required to be applied as a prepayment under the
1995 A/R Bridge, (3) sales of assets effected pursuant to a
Sale/Leaseback Transaction that is subject to the provisions of
Section 5.12, and (4) dispositions of plants or facilities of the
Company, or of a Subsidiary of the Company, located outside the United
States of America, its territories and its possessions, but only to
<PAGE>
the extent that the Company or a Subsidiary of the Company prior to,
simultaneously with or within six months following each such
disposition, uses or irrevocably commits to use the proceeds of such
disposition to build or purchase another facility in the same
jurisdiction or to invest in other assets located outside the United
States of America, its territories and its possessions; and provided,
further, that (i) the greater of the aggregate book value or Fair
Value of all assets subject to dispositions referred to in clause (4)
in the proviso above during the term of this Agreement shall not
exceed $30,000,000 and (ii) the Administrative Agent shall have been
provided with (a) upon the Company's determination to make any
disposition referred to in clause (4) in the proviso above, a
certificate of the chief financial officer of the Company describing
in reasonable detail such disposition, the anticipated proceeds of
such disposition, the anticipated use of such proceeds and a
description of the facility to be so built or acquired or the
investment in such other assets to be made, and (b) if there is any
material change in the matters set forth in such certificate, a
certificate of the chief financial officer of the Company describing
such material change(s), to be delivered upon receipt of the proceeds
of such disposition.
"Average Life to Stated Maturity" means, with respect to
any Indebtedness, as at any date of determination thereof, the
quotient obtained by dividing (A) the sum of the products of (1) the
number of years from such date to the date or dates of each successive
scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (2) the
amount of each such principal payment by (B) the sum of all such
principal payments.
"Bankers" means Bankers Trust Company, in its individual
capacity.
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any
successor statute.
"Base Annual Capex Amount" has the meaning assigned to
that term in subsection 6.14.3.
"B Credit Exposure Amount" has the meaning assigned to
that term in the definition of "Credit Exposure Amount."
"Benefited Subsidiary" means, with respect to any Letter
of Credit, the Person for whose benefit such Letter of Credit was
issued, which shall be either the Company or one of its Subsidiaries,
as specified by the Company in the request for issuance of such Letter
of Credit made pursuant to paragraph (a) of subsection 2.2.1.
"Borrowing" means the borrowing of any Loan or group of
Loans occurring on the same date and having the same maturity and
bearing interest computed on the same basis.
"Business Day" means (A) for all purposes other than as
covered by clause (B) below, any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of New
York or is a day on which banking institutions located in such State
are authorized or required by law or other governmental action to
close and (B) with respect to all notices, determinations, fundings
and payments in connection with LIBOR, any day which is a Business Day
<PAGE>
described in clause (A) and which is also a day for trading by and
between banks in Dollar deposits in the applicable London interbank
market.
"Capex Carryover Amount" has the meaning assigned to that
term in subsection 6.14.5.
"Capital Expenditures" means, in respect of any Person,
(A) expenditures (whether paid in cash or accrued as a liability and
including, without limitation, interest which is required to be
capitalized under GAAP) by such Person which, in conformity with GAAP,
are required to be included in "additions to property, plant or
equipment" or similar items reflected in a statement of changes in
financial position of such Person and (B) to the extent not included
in clause (A) above, any Indebtedness (whether or not recourse to such
Person and whether or not assumed or guaranteed by such Person)
secured by any asset acquired by such Person pursuant to any
expenditure of the type described in clause (A) above, or owing by any
entity acquired by such Person pursuant to any expenditure of the type
described in clause (A) above (it being understood that each item
covered in this clause (B) shall be deemed incurred as of the date of
the applicable acquisition), provided that any Indebtedness referred
to in this clause (B) owing by an entity acquired by such Person that
is not a Wholly-Owned Subsidiary of such Person shall only be included
in an amount equal to the product of (1) such Person's direct or
indirect percentage of equity ownership in such entity at the time
such Indebtedness is incurred or deemed incurred and (2) the amount of
such Indebtedness.
"Capital Lease", as applied to any Person, means any lease
of any property (whether real, personal or mixed) by that Person as
lessee which, in conformity with GAAP, is accounted for as a capital
lease on the balance sheet of that Person.
"Cash" means money, currency or a credit balance in a
Deposit Account.
"Cash Equivalents" means (A) marketable direct obligations
issued or unconditionally guaranteed by the United States Government
or issued by any agency thereof and backed by the full faith and
credit of the United States of America, in each case maturing within
one year from the date of acquisition thereof, (B) marketable direct
obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality
thereof maturing within one year from the date of acquisition thereof
and, at the time of acquisition, having the highest rating obtainable
from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (C) commercial paper maturing no more than one year
from the date of creation thereof and, at the time of acquisition,
having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., (D) certificates of
deposit or bankers' acceptances maturing within one year from the date
of acquisition thereof issued by any Lender or by any commercial bank
organized under the laws of the United States of America or any state
thereof or the District of Columbia having combined capital and
surplus of not less than $250,000,000, (E) Eurodollar time deposits
having a maturity of less than one year purchased from any Lender
directly (whether such deposit is with such Lender or any other Lender
hereunder) and (F) repurchase agreements and reverse repurchase
agreements with any Lender or any primary dealer of United States
<PAGE>
government securities relating to marketable direct obligations
issued or unconditionally guaranteed by the United States Government
or issued by any agency thereof and backed by the full faith and
credit of the United States, in each case maturing within one year
from the date of acquisition thereof; provided that the terms of such
agreements comply with the guidelines set forth in the Federal
Financial Institutions Examination Council Supervisory
Policy--Repurchase Agreements of Depository Institutions With
Securities Dealers and Others, as adopted by the Comptroller of the
Currency on October 31, 1985 (the "Supervisory Policy") and, in the
case of a repurchase agreement with a primary dealer, the Company or a
Subsidiary of the Company shall take possession of the obligations
subject to such arrangement.
"Cash Proceeds" means, with respect to any Asset Sale,
cash payments (including any cash received by way of deferred payment
pursuant to a note receivable or otherwise (other than the portion of
such deferred payment constituting interest which shall be deemed not
to constitute Cash Proceeds), but only as and when so received)
received from such Asset Sale.
"CG&R" means Cahill Gordon & Reindel, as counsel for the
Lenders in connection with this Agreement and the transactions
contemplated hereby, and any successor counsel thereto.
A "Change in Control" shall be deemed to have occurred if
(A) any person or group (within the meaning of Rule 13d-5 of the
Securities and Exchange Act of 1934, as in effect on the date hereof)
other than (1) The Morgan Stanley Leveraged Equity Fund II, L.P.
("MSLEF II"), Morgan Stanley Group Inc. ("MS Group"), Fort Howard
Equity Investors L.P., Fort Howard Equity Investors II, L.P. and their
respective general or limited partners and/or Affiliates or (2) any
employee benefit plan of the Company or of any of its Affiliates shall
become the beneficial owner of shares representing 25% or more of any
outstanding class of capital stock having ordinary voting power in the
election of directors of the Company or (B) there shall occur during
any period after the Closing Date a change in the Board of Directors
of the Company pursuant to which the individuals who constituted the
Board of Directors of the Company at the beginning of such period
(together with any other director whose election by the Board of
Directors of the Company (or whose nomination by the Board of
Directors for election by the stockholders of the Company) was
approved by a vote of at least a majority of the directors then in
office who either were directors at the beginning of such period or
whose election was previously so approved or by a duly authorized
committee of the Board of Directors (which committee was designated by
at least a majority of directors then in office who either were
directors at the beginning of such period or whose election was
previously so approved)) cease to constitute 75% of the Directors of
the Company at the end of such period.
"Closing Date" means the date of the initial funding of
the Term Loans.
"Closing Date Excess Equity Proceeds Amount" means the
amount of net cash proceeds derived from the Common Stock Offering in
excess of the difference between (A) $300,000,000 and (B) the amount
of Transaction Costs reasonably estimated by the Company to be
attributable to the issuance of common
<PAGE>
stock in the Common Stock Offering assuming it provides gross
proceeds to the Company equal to $300,000,000.
"Closing Date Tranche A Funding Amount" means that portion
of the aggregate amount of the Tranche A Commitments that is equal to
the difference between (A) the sum of the principal amount of all
loans outstanding as of the Closing Date pursuant to the Existing
Credit Facilities, together with all interest accrued thereon and
other amounts then due and payable pursuant to the Existing Credit
Facilities, plus the principal amount of all Senior Secured Notes
outstanding as of the Closing Date, together with all interest accrued
thereon and other amounts then due in respect thereof, plus the amount
reasonably estimated by the Company to be due and payable on and as of
the Closing Date in respect of Transaction Costs and (B) the gross
proceeds received by the Company on the Closing Date from the issuance
of Common Stock in the Common Stock Offering, plus the aggregate
principal amount of the Tranche B Term Loans made on the Closing Date.
"Collateral" means, as of any date of determination, the
Inventory and Receivables (other than any Program Receivables), the
Intellectual Property, the Real Properties, the interest of the
Company in and to the Project Agreement, the Escrow Agreement, the
Georgia Mill Lease, the capital stock of or other evidence of the
ownership interest in each Receivables Subsidiary (except as otherwise
provided in the definition of Receivables Subsidiary), the capital
stock of or other evidence of the ownership interest in each
Subsidiary, but only to the extent such capital stock or other
evidence has been pledged to the Administrative Agent on or prior to
such date pursuant to the provisions of Section 5.11, and all the
other property described in the Collateral Documents (including,
without limitation, all Material Assets which shall have on or prior
to such date become Collateral pursuant to Section 5.11).
"Collateral Documents" means the Mortgages, the Collateral
Trust Agreement, the Pledge Agreements and all other instruments or
documents delivered by the Company or any Subsidiary thereof in order
to grant Liens on any Collateral (including, without limitation, any
Additional Collateral Document delivered pursuant to Section 5.11), as
amended, supplemented or otherwise modified from time to time in
accordance herewith and therewith.
"Collateral Trust Agreement" means the Collateral Trust
Agreement, substantially in the form annexed as Exhibit XXIX between
the Company and the Collateral Trustee, as amended, supplemented or
otherwise modified from time to time in accordance herewith and
therewith.
"Collateral Trustee" means the Administrative Agent or
such other Person that is the collateral trustee pursuant to the
Collateral Trust Agreement.
"Commercial Letter of Credit" means any letter of credit
or similar instrument issued for the account of the Company for the
purpose of providing the primary payment mechanism in connection with
the purchase of any materials, goods or services by the Company or any
of its Subsidiaries in the ordinary course of business of the Company
or such Subsidiary.
"Commitment Fee Letters" means, collectively, the fee
letter agreement dated November 2, 1994 among the Company and the
Arrangers and the
<PAGE>
three supplementary fee letter agreements of the Company dated
November 2, 1994, in each case as such agreements are in effect on the
Closing Date and as thereafter amended, supplemented or otherwise
modified from time to time.
"Commitment Percentage" means (A) during the one year
period following the Closing Date, .50% and (B) at all times after the
first anniversary of the Closing Date, (1) .50%, when the LIBOR Spread
is 1.50% or greater, (2) .375%, when the LIBOR Spread is 1.25% or
1.00%, (3) .25%, when the LIBOR Spread is .75% and (4) .1875%, when
the LIBOR Spread is .625%.
"Commitments" means the commitments of the Lenders as set
forth in subsections 2.1.1, 2.2.1, 2.3.1 and 2.12.1.
"Commodities Agreement" means any forward contract,
option, futures contract, futures option, or similar agreement or
arrangement entered into by the Company designed to protect the
Company or any of its Subsidiaries from fluctuations in the price of
commodities.
"Common Stock" means the common stock of the Company, par
value $.01 per share.
"Common Stock Offering" means the initial public offering
by the Company on the Closing Date of shares of newly issued Common
Stock, on the terms and subject to the conditions described in the
Prospectus (including, without limitation, any shares sold pursuant to
any over-allotment option granted in connection therewith).
"Company" has the meaning assigned to that term in the
introduction to this Agreement.
"Company Stock Pledge Agreement" means the Company Stock
Pledge Agreement, in substantially the form annexed hereto as Exhibit
XV, made by the Company, HAC Holding Corp., Harmon Assoc. Corp., and
Fort Howard Holding, Inc., on the Closing Date, as it may be amended,
supplemented or otherwise modified from time to time in accordance
herewith and therewith.
"Company's Portion of Excess Cash Flow" means, at any date
of determination thereof, the cumulative amount of Excess Cash Flow
for each full fiscal year of the Company (other than a fiscal year for
which Excess Cash Flow shall be less than zero) commencing on or after
January 1, 1995, and ending prior to such date of determination that
was not or is not required to be applied to the prepayment of Loans or
the reduction of Commitments, in each case as described in paragraph
(b) of subsection 2.7.2 or subsection 2.7.9.
"Compliance Certificate" means a certificate substantially
in the form annexed hereto as Exhibit VI delivered to the Lenders by
the Company pursuant to clause (B) of subparagraph (iv) of Section
5.1.
"Consolidated Capital Expenditures" means, for any period,
the sum of (A) the aggregate of all Capital Expenditures by the
Company and its Subsidiaries during such period, plus (B) to the
extent not covered by clause (A) hereof, the
<PAGE>
aggregate of all expenditures by the Company and its Subsidiaries to
acquire by purchase or otherwise any business, property or fixed
assets of, or stock or other evidence of beneficial ownership of or
interest in, any Person, including, without limitation, the amount of
any Indebtedness of any such acquired Person existing at the date of
or by reason of such purchase or acquisition, whether or not such
Indebtedness is assumed or guaranteed by the Company or any Subsidiary
of the Company (other than any such expenditures of the type permitted
under clause (x) or clause (xi) of Section 6.3), it being understood
that each item covered by this clause (B) shall be deemed incurred as
of the date of the applicable acquisition; provided that any
Indebtedness referred to in this clause (B) of any acquired Person
that is not a Wholly-Owned Subsidiary of the Company shall only be
included in an amount equal to the product of (1) the Company's direct
or indirect percentage of equity ownership in such acquired Person at
the time such Indebtedness is incurred or deemed incurred and (2) the
amount of such Indebtedness.
"Consolidated Current Assets" means, at any time, the
consolidated current assets (other than Cash and Cash Equivalents) of
the Company and its Subsidiaries (whether or not consolidated with
the Company pursuant to GAAP for financial reporting purposes and
including, without limitation, all Receivables Subsidiaries) at such
time.
"Consolidated Current Liabilities" means, at any time, the
consolidated current liabilities of the Company and its Subsidiaries
(whether or not consolidated with the Company pursuant to GAAP for
financial reporting purposes and including, without limitation, all
Receivables Subsidiaries) at such time, but excluding the current
portion of any long-term Indebtedness which would otherwise be
included therein and any Indebtedness with a maturity which may, by
the terms of the instrument evidencing or governing such Indebtedness,
be extended, renewed or reborrowed (whether conditionally or
unconditionally) by the Company or any of its Subsidiaries to a date
that is later than one year after such time.
"Consolidated Domestic Capital Expenditures" means, for
any period, the sum of (A) the aggregate of all Capital Expenditures
by the Company and its Domestic Subsidiaries during such period, plus
(B) to the extent not covered by clause (A) hereof, the aggregate of
all expenditures by the Company and its Domestic Subsidiaries to
acquire by purchase or otherwise the business, property or fixed
assets of, or stock or other evidence of beneficial ownership of, any
Person, including, without limitation, the amount of any Indebtedness
of any such acquired Person, whether or not such Indebtedness is
assumed or guaranteed by the Company or any Subsidiary of the Company
(other than any such expenditures of the type permitted under clause
(x) or clause (xi) of Section 6.3), it being understood that each item
covered by this clause (B) shall be deemed incurred as of the date of
the applicable acquisition; provided that any Indebtedness referred to
in this clause (B) of any acquired Person that is not a Wholly-Owned
Subsidiary of the Company shall only be included in an amount equal to
the product of (1) the Company's direct or indirect percentage of
equity ownership in such acquired Person at the time such Indebtedness
is incurred or deemed incurred and (2) the amount of such
Indebtedness.
"Consolidated EBITDA" means, without duplication, for any
period, the total of the amounts for such period of (A) Consolidated
Net Income, plus (B) provision for taxes based on income, plus (C)
total interest expense (including that
<PAGE>
attributable to Capital Leases and including, without limitation, to
the extent not otherwise included in this clause (C), all interest
expense or expenses in the nature of interest expense incurred by any
Receivables Subsidiary), plus (D) depreciation expense, plus (E)
amortization expense, plus (F) other non-cash items reducing or
deducted in calculating Consolidated Net Income, minus (G) other
non-cash items increasing Consolidated Net Income, minus (H) charges
against the Special Reserve, all as determined on a consolidated basis
for the Company and its Subsidiaries for such period taken as a single
accounting period determined (other than in the case of clause (H)) in
conformity with GAAP.
"Consolidated Interest Expense" means, for any period,
without duplication, (A) total interest expense for such period
(including that attributable to Capital Leases) of the Company and its
Subsidiaries on a consolidated basis with respect to all outstanding
Indebtedness of the Company and its Subsidiaries including, without
limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing
(and excluding capitalized interest, to the extent such capitalized
interest constitutes a Capital Expenditure or a Consolidated Domestic
Capital Expenditure) and (B) net costs under Interest Rate Agreements
for such period, and (C) to the extent not otherwise included above,
all interest expense or expenses in the nature of interest expense
incurred by any Receivables Subsidiary but excluding, however, in the
case of clause (A), interest expense not payable in cash (including
amortization of discount), any amounts referred to in Section 2.6
payable to the Administrative Agent and the Lenders on or before the
Closing Date and Transaction Costs relating to the Recapitalization,
all as determined on a consolidated basis for the Company and its
Subsidiaries in conformity with GAAP.
"Consolidated Net Income" for any period, means the net
income (or loss) of the Company and its Subsidiaries (whether or not
consolidated with the Company pursuant to GAAP for financial reporting
purposes and including, without limitation, all Receivables
Subsidiaries) on a consolidated basis for such period taken as a
single accounting period determined in conformity with GAAP; provided
that there shall be excluded (A) the income (or loss) of any Person
(other than a Subsidiary of the Company) in which any other Person
(other than the Company or any of its Subsidiaries) has a joint
interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any of its Subsidiaries
by such Person during such period, (B) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of the
Company or is merged into or consolidated with any of the Company's
Subsidiaries or that Person's assets are acquired by the Company or
any of its Subsidiaries, (C) the income of any Subsidiary of the
Company 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 (D) any
after-tax cash gains or losses attributable to Asset Sales.
"Consolidated Rental Payments" means, for any period, the
aggregate amount of all amounts paid or payable or accrued or
accruable during such period under all Capital Leases and Operating
Leases of the Company and its Subsidiaries (net of sublease income),
all as determined on a consolidated basis for the Company and its
Subsidiaries in conformity with GAAP.
<PAGE>
"Construction Cost" means, in respect of the cost of any
assets purchased or constructed in connection with any Expansion
Project, the total cost of all labor and materials and professional
and permitting fees to acquire and construct such assets, including,
without limitation, all capitalized interest in respect thereof and
other items which, in accordance with GAAP, would be required to be
reflected in the financial statements of the Company as additions to
plant, property and equipment.
"Contingent Obligation", as applied to any Person, means
any direct or indirect liability, contingent or otherwise, of that
Person (A) with respect to any indebtedness, lease, dividend, letter
of credit or other obligation of another if the primary purpose or
intent thereof by the Person incurring the Contingent Obligation is to
provide assurance to the obligee of such obligation of another that
such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders
of such obligation will be protected (in whole or in part) against
loss in respect thereof, (B) under any letter of credit issued for the
account of that Person or for which that Person is otherwise liable
for reimbursement thereof, or (C) under Currency Agreements or
Interest Rate Agreements. Contingent Obligations shall include,
without limitation, (A) the direct or indirect guarantee, endorsement
(otherwise than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse
by such Person of the obligation of another, and (B) any liability of
such Person for the obligations of another through any agreement
(contingent or otherwise) (1) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form
of loans, advances, stock purchases, capital contributions or
otherwise), (2) to maintain the solvency or any balance sheet item,
level of income or financial condition of another, or (3) to make
take-or-pay or similar payments if required regardless of
non-performance by any other party or parties to an agreement, if in
the case of any such agreement the primary purpose or intent thereof
is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to in the case of a Contingent
Obligation described in clause (A) in the first sentence of this
definition, the amount of the obligation so guaranteed or otherwise
supported, in the case of a Contingent Obligation described in clause
(B) in the first sentence of this definition, the amount available to
be drawn under the relevant letter of credit and in the case of a
Contingent Obligation described in clause (C) in the first sentence of
this definition, the relevant Termination Value.
"Contractual Obligation", as applied to any Person, means
any provision of any security issued by that Person or of any material
indenture, mortgage, deed of trust, contract, undertaking, agreement
or other instrument to which that Person is a party or by which it or
any of its properties is bound or to which it or any of its properties
is subject.
"Controlled Foreign Corporation" means any direct or
indirect Subsidiary of the Company which is a controlled foreign
corporation, as defined in section 957(a) (or successor provision) of
the Internal Revenue Code.
"Corresponding Debt Instrument" means, (A) in respect of
any Secured Expansion Financing, the Loan Documents, as the same may
be amended,
<PAGE>
supplemented or otherwise modified from time to time, (B) in respect
of any Sale/ Leaseback Financing, the leases, indentures and related
instruments (as in effect on the Closing Date) comprising (1) the
Sale/Leaseback Transaction of the Company's "Phase III" expansion at
its Savannah, Georgia, Mill or (2) the Sale/Leaseback Transaction of
the Company's "Phase IV" expansion at its Savannah, Georgia, Mill, (C)
in respect of any Unsecured Expansion Financing that constitutes
Subordinated Debt, the instruments (as in effect on the Closing Date)
evidencing or governing the Subordinated Notes and (D) in respect of
any Unsecured Expansion Financing that is not Subordinated
Indebtedness, the instruments (as in effect on the Closing Date)
evidencing or governing the Senior Unsecured Notes.
"Credit Exposure Amount" of any Lender means, as of any
date of determination, an amount equal to the sum of (A) the aggregate
amount of such Lender's unused Term Loan Commitments, if any, then in
effect (it being understood that the amount of such unused Term Loan
Commitment of a Defaulting Lender shall be deemed to be zero),
increased by the aggregate principal amount of such Lender's Term
Loans then outstanding, plus (B) such Lender's Revolving Loan
Commitment (whether used or unused) in effect on such date, reduced by
such Lender's Defaulting Lender Deduction Amount, if any, then in
effect. The "A Credit Exposure Amount" of any Lender means the
"Credit Exposure Amount" of such Lender adjusted so that each of such
Lender's Tranche B Commitment and Tranche B Term Loans are deemed to
equal zero. The "B Credit Exposure Amount" of any Lender means the
"Credit Exposure Amount" of such Lender adjusted so that each of such
Lender's Tranche A Commitment, Tranche A Term Loans and Revolving Loan
Commitment are deemed to equal zero.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement
entered into by the Company designed to protect the Company or any of
its Subsidiaries against fluctuations in currency values.
"Current Maturities of Funded Debt" means, as applied to
any Person as at any date of determination, all payments of principal
due under the terms of any Funded Debt of such Person within 12
calendar months after that date.
"Defaulting Lender" means any Lender as to which a Lender
Default has occurred.
"Defaulting Lender Deduction Amount" means, as to each
Defaulting Lender at any date, the sum of (A) the aggregate amount of
participations of such Lender in respect of drawn but unreimbursed
Letters of Credit and all undrawn Letters of Credit as of such date,
plus (B) any amount owing by such Defaulting Lender to Bankers
pursuant to subsection 2.12.5 as of such date, plus (C) the unutilized
portion of the Revolving Loan Commitment of such Lender as of such
date.
"Deferred Funding Date" means a Business Day selected by
the Company and identified in a Notice of Borrowing delivered in
accordance with subsection 2.1.2 for the funding by the Lenders having
Tranche A Commitments of the Deferred Tranche A Commitment Amount,
which Business Day shall not be later than 45 days after the Closing
Date.
<PAGE>
"Deferred Tranche A Funding Amount" means the difference,
if any, between the aggregate amount of the Tranche A Commitments and
the Closing Date Tranche A Funding Amount.
"Deposit Account" means a demand, time, savings, passbook
or like account with a bank, savings and loan association, credit
union or like organization, other than an account evidenced by a
negotiable certificate of deposit.
"Destruction" has the meaning assigned to that term in the
Mortgages.
"DGCL" means the Delaware General Corporation Law.
"Discretionary Equity Proceeds Balance" means, as at any
date of determination thereof, the sum (which shall not be less than
zero) of the Closing Date Excess Equity Proceeds Amount, plus the
aggregate amount of net cash proceeds received by the Company or any
of its Subsidiaries after the Closing Date and on or prior to such
date of determination of all Equity Offerings after the Closing Date,
minus the sum of (1) the aggregate of all such amounts applied by the
Company, on or prior to such date of determination, (A) as a voluntary
prepayment pursuant to subsection 2.7.1 which constitutes a
Discretionary Voluntary Prepayment, (B) to the making of Consolidated
Domestic Capital Expenditures pursuant to the provisions of subsection
6.14.5, (C) to the making of Investments pursuant to the provisions of
clause (C) of subparagraph (x) of Section 6.3 or clause (B) of
subparagraph (xvi) of Section 6.3 and (D) to the making of Restricted
Junior Payments pursuant to the provisions of clause (G) of Section
6.5 and (2) the sum of the Discretionary Equity Proceeds Deduction
Amounts in respect of each fiscal year of the Company (commencing with
fiscal year 1995) which has ended prior to the March 31st immediately
preceding such date of determination.
"Discretionary Equity Proceeds Deduction Amount" means, in
respect of each fiscal year of the Company, the portion of the
Discretionary Equity/Cash Flow Proceeds Deduction Amount (as defined
below) in respect of such fiscal year that the Company shall have
elected to allocate (in accordance with the following sentence) to the
Discretionary Equity Proceeds Balance in respect of such fiscal year.
For purposes of this definition and the definition of "Discretionary
Excess Cash Flow Deduction Amount", the Company shall allocate the
Discretionary Equity/Cash Flow Proceeds Deduction Amount in respect of
any fiscal year to the Discretionary Equity Proceeds Balance or the
Discretionary Excess Cash Flow Balance in respect of such fiscal year,
or to both, as the Company shall elect in its sole discretion;
provided that, all such Discretionary Equity/Cash Flow Proceeds
Deduction Amounts shall be allocated as aforesaid and no such
allocation shall reduce such Discretionary Equity Proceeds Balance or
such Discretionary Excess Cash Flow Balance below zero. As used
herein, "Discretionary Equity/Cash Flow Proceeds Deduction Amount"
means, in respect of any fiscal year, the lesser of (i) the Annual
Voluntary Prepayment Adjustment Amount in respect of such fiscal year
and (ii) the sum of the Discretionary Equity Proceeds Balance and the
Discretionary Excess Cash Flow Balance, in each case under this clause
(ii), as of the March 31st immediately following the end of such
fiscal year.
"Discretionary Excess Cash Flow Balance" means, as at any
date of determination thereof, the sum (which shall not be less than
zero) of the aggregate
<PAGE>
amount of the Company's Portion of Excess Cash Flow for all fiscal
years of the Company (commencing with fiscal year 1995) which have
ended prior to the March 31st immediately preceding such date of
determination, minus the sum of (1) the aggregate of all such amounts
applied by the Company on or prior to such date of determination (A)
as a voluntary prepayment pursuant to subsection 2.7.1 which
constitutes a Discretionary Voluntary Prepayment, (B) to the making of
Consolidated Domestic Capital Expenditures pursuant to the provisions
of subsection 6.14.5, (C) to the making of Investments pursuant to the
provisions of clause (C) of subparagraph (x) of Section 6.3 or clause
(B) of subparagraph (xvi) of Section 6.3 and (D) to the making of
Restricted Junior Payments pursuant to the provisions of clause (C) of
Section 6.5, clause (H) of Section 6.5 and (2) the sum of the
Discretionary Excess Cash Flow Deduction Amounts in respect of each
fiscal year of the Company (commencing with fiscal year 1995) which
has ended prior to the March 31st immediately preceding such date of
determination.
"Discretionary Excess Cash Flow Deduction Amount" means,
in respect of each fiscal year of the Company, the portion of the
Discretionary Equity/Cash Flow Proceeds Deduction Amount (as defined
in the definition of "Discretionary Equity Proceeds Deduction Amount")
in respect of such fiscal year that the Company shall have elected to
allocate (in accordance with the second sentence of the definition of
"Discretionary Equity Proceeds Deduction Amount") to the Discretionary
Excess Cash Flow Balance in respect of such fiscal year.
"Discretionary Voluntary Prepayment" means a prepayment
made by the Company pursuant to subsection 2.7.1 which is elected by
the Company to be charged against the Discretionary Excess Cash Flow
Balance or the Discretionary Equity Proceeds Balance.
"Dollars" or the sign "$" means the lawful money of the
United States of America.
"Domestic Capex Maximum" has the meaning assigned to such
term in subsection 6.14.4.
"Domestic Subsidiary" means, at any date of determination,
any Subsidiary of the Company other than a Foreign Subsidiary.
"8-1/4% Unsecured Note Obligations" means all obligations
of every nature of the Company and its Subsidiaries from time to time
in respect of the 8-1/4% Unsecured Notes and under the indenture
relating thereto.
"8-1/4% Unsecured Notes" means the Company's 8-1/4% Senior
Notes due February 1, 2002, issued and outstanding pursuant to a
certain indenture, dated as of February 1, 1994 between the Company
and Norwest Bank Wisconsin, N.A., as Trustee, as in effect on the
Closing Date and as thereafter amended, supplemented or otherwise
modified from time to time in accordance herewith or therewith.
"Environmental Laws" means federal, state, local and
foreign law or regulations, codes, orders, decrees, judgments,
permits, authorizations, agreements, or injunctions issued,
promulgated, approved or entered thereunder relating to pollution or
protection of the environment, including, without limitation, laws
<PAGE>
relating to occupational safety and health and other laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, ambient
air, surface water, ground water, land surface or subsurface strata)
or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes.
"Equity Offering" means any issuance or sale by the
Company or any Subsidiary of the Company whether pursuant to a
registered public offering, private placement or otherwise of any
shares of capital stock or other equity securities of the Company or
any Subsidiary of the Company, or any obligations convertible into or
exchangeable for, or giving any Person a right, option or warrant to
acquire, such securities or such convertible or exchangeable
obligations, other than issuances or sales of Common Stock pursuant to
the Common Stock Offering and other than issuances and sales of shares
of capital stock or other equity securities of a Subsidiary of the
Company to the Company or a Subsidiary of the Company.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended from time to time, and any successor statute.
"ERISA Affiliate", as applied to any Person, means any
trade or business (whether or not incorporated) which is under common
control with that Person within the meaning of Section 4001(b) of
ERISA and the regulations promulgated thereunder or that would be
treated as a single employer with that Person (A) under Section 414(b)
or (c) of the Internal Revenue Code or (B) solely for purposes of any
section or sections of the Internal Revenue Code or ERISA to which
such section or sections apply, under Section 414(m) or (o) of the
Internal Revenue Code.
"Escrow Agreement" has the meaning assigned to that term
in the Georgia Mill Mortgage.
"Escrow Letter" means a letter agreement of the Company
substantially in the form of Exhibit XX annexed hereto.
"Estimated Net Cash Proceeds" means, with respect to any
Asset Sale, an amount equal to 90% of the amount estimated in good
faith by the Company to be the Net Cash Proceeds of Sale of such Asset
Sale.
"Event of Default" means each of the events set forth in
ARTICLE VII.
"Excepted Agreements" means each of those Contractual
Obligations (other than any indenture or debt instrument) of the
Company or any Subsidiary identified in a writing delivered by the
Lenders on the Closing Date, such Contractual Obligations having
reasonably been determined by the Lenders to be of such a nature that
any breach thereof or conflict therewith occurring by reason of the
Recapitalization or the other transaction herein contemplated would
not involve any material risk of liability to the Lenders or any
material adverse effect on the Company and its Subsidiaries taken as a
whole.
<PAGE>
"Excess Cash Flow" means, in respect of any fiscal year
of the Company and its Subsidiaries, (A) the Net Cash Provided From
Operations in respect of such fiscal year, reduced by (B) the sum,
without duplication, of each of the following amounts paid during such
fiscal year (but only to the extent that the Company shall not have
elected to charge the payment of such amounts against the
Discretionary Equity Proceeds Balance or the Discretionary Excess Cash
Flow Balance): (1) the amount of Scheduled Term Loans Principal
Payments paid by the Company, plus (2) payments by the Company or any
of its Subsidiaries with respect to the principal portion of
Indebtedness constituting Capital Leases, plus (3) mandatory
prepayments of Loans pursuant to clause (c) of subsection 2.7.2 (but
only to the extent by the terms of this Agreement, as in effect on the
date of determination of such Excess Cash Flow, such prepaid amount
could not be reborrowed) or clause (d) of subsection 2.7.2, plus (4)
voluntary prepayments of Term Loans in accordance with subsection
2.7.1, plus (5) scheduled, mandatory or voluntary payments or
prepayments by the Company or any of its Subsidiaries of the principal
of any Indebtedness permitted to be incurred or outstanding pursuant
to any provision of this Agreement (other than (w) Intercompany
Indebtedness, (x) Loans, (y) amounts which, by the terms of the
instruments evidencing or governing such Indebtedness, may be
reborrowed and (z) Indebtedness of the type specified in clause (D) of
the definition of Indebtedness), plus (6) payments by the Company or
any of its Subsidiaries which constitute Consolidated Domestic Capital
Expenditures, plus (7) payments by the Company or any of its
Subsidiaries which constitute Consolidated Capital Expenditures (other
than Consolidated Domestic Capital Expenditures) but only to the
extent not financed with the proceeds of Indebtedness (excluding
Intercompany Indebtedness) incurred by a Foreign Subsidiary, plus, (8)
Restricted Junior Payments made pursuant to clause (A), (B) or (D)(2)
of Section 6.5, plus (9) Investments of Cash and Cash Equivalents
pursuant to (a) clause (vi) of Section 6.3 or pursuant to clause
(x)(A) or (x)(B) of Section 6.3 (but only to the extent that the
Person in which such Investment is made does not constitute a
Subsidiary of the Company and does not become a Subsidiary of the
Company by virtue of such Investment) or (b) clause (xvi)(A) of
Section 6.3 (but only to the extent that each such Investment is of a
type and relates to a Person such that it would be permitted to be
deducted from Net Cash Provided From Operations pursuant to clause
(9)(a) above, without giving effect (for purposes of this clause (b))
to the limitations set forth in clause (vi), (x)(A) or (x)(B) of
Section 6.3, as applicable).
"Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, and any successor statute.
"Excluded New Indebtedness" means Refinancing Senior
Unsecured Debt, Refinancing Foreign Debt, Indebtedness constituting
Permitted Expansion Construction Financing and Indebtedness incurred
pursuant to clause (i), (iii), (vi), (viii), (ix), (xiii) or (xiv) of
Section 6.1.
"Existing Credit Facilities" means the 1988 Credit
Agreement and the 1992 Credit Agreement, together with, in each case,
all notes, mortgages, security instruments and other ancillary or
related documentation.
"Existing Indebtedness" means Indebtedness of the Company
and its Subsidiaries listed in Schedule C annexed hereto.
<PAGE>
"Existing Mill" and "Existing Mills" mean, respectively,
(A)(1) the Mill leased by the Company in Effingham County, Georgia,
(2) the Company's Muskogee, Oklahoma Mill and (3) the Company's Green
Bay, Wisconsin Mill, in each case as more particularly described in
the Mill Mortgage applicable thereto, including, in each case, all
leasehold estates, real estate and improvements thereon, and all
equipment used in the operations thereof owned by the Company or a
Subsidiary of the Company and (B) any one of such Mills.
"Existing Mill Expansion Conditions" has the meaning
assigned to that term in subsection 5.12.1.
"Existing Mill Expansion Documents" means, with respect to
any Existing Mill Expansion Transaction, an Expansion Easement, an
Expansion Lease, a Recognition Instrument or Expansion Intercreditor
Agreement and such other instruments in form and substance reasonably
satisfactory to the Requisite Lenders as may reasonably be required to
consummate such Existing Mill Expansion Transaction.
"Existing Mill Expansion Easement" means an instrument in
form and substance reasonably satisfactory to the Requisite Lenders
pursuant to which an Expansion Lessor is granted an easement (or, in
the case of an Existing Mill Expansion Transaction involving Land
subject to the Georgia Mill Lease, a sublease) to construct and
maintain upon any Land any Existing Mill Expansion Equipment, which
instrument shall provide for (A) rights of access to and egress from
such Existing Mill Expansion Equipment and (B) rights to utility lines
and structures necessary for the use and enjoyment of such Existing
Mill Expansion Equipment; provided that no Existing Mill Expansion
Easement shall provide rights which conflict in any material respect
with the rights of the Company in and to a Mill or which impair in any
material respect the value, legality or utility of such Mill
(determined without regard to the installation or construction of any
Existing Mill Expansion Equipment).
"Existing Mill Expansion Equipment" means those
structures, equipment, facilities, apparatus and other property which
are not necessary for the proper and efficient operation of a Mill (as
constituted on the Closing Date or, in the case of a Mill acquired or
constructed after the Closing Date, as constituted on the date such
Mill becomes Collateral) or for the compliance by any such Mill (as
constituted on the Closing Date or, in the case of a Mill acquired or
constructed after the Closing Date, as constituted on the date such
Mill becomes Collateral) with any applicable law, code or ordinance,
including, without limitation, any Environmental Law, all of which
property, structures, equipment, facilities and apparatus shall be
subject to the provisions of Article 4 of the applicable Mill
Mortgage.
"Existing Mill Expansion Lease" means (A) any lease,
sublease, license or similar instrument pursuant to which the Company
is granted the use and enjoyment of Existing Mill Expansion Equipment
and (B) any and all rights of reversion relating to Existing Mill
Expansion Equipment and any purchase options or similar rights to
acquire such Existing Mill Expansion Equipment.
<PAGE>
"Existing Mill Expansion Lessor" means the Person named
as lessor, licensor or grantor in any Existing Mill Expansion Lease.
"Existing Mill Expansion Transaction" has the meaning
assigned to that term in paragraph (a) of subsection 5.12.1.
"Existing Subordinated Debt" means the 12-5/8%
Subordinated Debentures and the 14-1/8% Discount Debentures, together
with, in each case, all obligations of the Company set forth in the
indentures relating thereto.
"Expansion Conditions" has the meaning assigned to that
term in subsection 5.12.1.
"Expansion Intercreditor Agreement" has the meaning
assigned to that term in subsection 5.12.1.
"Expansion Lease" means any Preexisting Expansion Lease or
any Existing Mill Expansion Lease.
"Expansion Project" means the acquisition or construction
of Existing Mill Expansion Equipment or a Greenfield Expansion
Project; provided that neither (A) the Green Bay Sludge Boiler nor (B)
the Savannah Boiler shall constitute an Expansion Project.
"Facing Fee" has the meaning assigned to that term in
paragraph (c) of subsection 2.2.6.
"Fair Value" means, with respect to any asset or property
(including intangibles or instruments), the fair market value thereof
as determined by the Board of Directors of the Company or a committee
thereof (or, if authorized to do so by the Board of Directors of the
Company or a committee thereof, by the Chief Financial Officer or the
Chief Accounting Officer of the Company) in each case pursuant to
standards, assumptions and procedures set forth in Exhibit XXX.
"First Tier Foreign Subsidiary" means, at any date of
determination, a Foreign Subsidiary of the Company (A)(i) which is
organized under the laws of a jurisdiction other than the United
States or any State thereof and (ii) as to which the Company and/or
one or more Subsidiaries organized under the laws of the United States
of America or any State thereof hold directly shares of stock or other
equity interests having more than 50% of the total voting power of
shares of the capital stock or other equity interests therein (without
regard to the occurrence of any contingency) to vote in the election
of directors, managers or trustees thereof or (B) which is organized
under the laws of the United States of America or any State therein
and which does not have any Subsidiaries other than Domestic
Subsidiaries.
"Foreign Subsidiary" means each of the following: (A)
each Subsidiary or Joint Venture of the Company identified as such on
Schedule A annexed hereto, (B) each Subsidiary or Joint Venture of the
Company which is organized under the laws of a jurisdiction other than
the United States of America or any State thereof and (C) each
Subsidiary or Joint Venture of the Company which is organized under
the laws of the United States of America or any State thereof more
than 80% of the
<PAGE>
sales, earnings or assets (determined on a consolidated basis) of
which are located or derived from operations in territories of the
United States of America and jurisdictions outside the United States
of America.
"Fort Howard Holding, Inc." means Fort Howard Holding,
Inc., a Delaware corporation and a Wholly Owned Subsidiary of the
Company.
"Fort Sterling" means Fort Sterling Limited, an English
limited liability company and a Foreign Subsidiary of the Company.
"14-1/8% Discount Debentures" means the Company's 14-1/8%
Junior Subordinated Discount Debentures due November 1, 2004, issued
and outstanding pursuant to a certain indenture, dated as of November
1, 1988 between the Company and Society National Bank as in effect on
the Closing Date and as thereafter amended, supplemented or otherwise
modified from time to time in accordance herewith or therewith.
"Fronting Bank" means, as the context may require, (A) (1)
Bankers, with respect to Letters of Credit issued by Bankers, and (2)
with respect to each Letter of Credit issued by an Arranger other than
Bankers, the issuer thereof, or (B) collectively, all of the
foregoing.
"Funded Debt", as applied to any Person, means all
Indebtedness of that Person which by its terms or by the terms of any
instrument or agreement relating thereto matures more than one year
from, or is directly renewable or extendable at the option of the
debtor to a date more than one year from (including an option of the
debtor under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of one year or more
from) the date of the creation thereof.
"Funding Date" means the date of the borrowing of one or
more Loans, including, without limitation, the Closing Date and the
Deferred Funding Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of determination;
provided that compliance by the Company with the financial covenants
set forth in Section 6.6 shall be calculated in accordance with GAAP
as in effect on the Closing Date.
"General Account Assets" means the assets allocated to the
general account of an insurance company subject to state regulation.
"Georgia Mill Lease" has the meaning assigned to that term
in the Georgia Mill Mortgage.
"Georgia Mill Mortgage" means the Mill Mortgage to be
executed and delivered by the Company in respect of the Georgia Mill
Lease and other property
<PAGE>
relating to the Company's Effingham County, Georgia Mill as it may be
amended, supplemented or otherwise modified from time to time.
"Government Acts" has the meaning assigned to that term in
paragraph (a) of subsection 2.2.9.
"Governmental Authority" means any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Green Bay Dry Form Machine" means the third air-laid (dry
form) paper machine installed at the Company's Green Bay, Wisconsin
Mill, together with related ancillary improvements or equipment.
"Green Bay Sludge Boiler" means the industrial boiler
installed in the vicinity or as a part of the Company's Green Bay,
Wisconsin Mill following the date of this Agreement which is designed
to burn, among other things, sludge generated by the Company's
wastepaper recycling operations.
"Greenfield Expansion Assets" means those parcels of land,
leasehold estates, easements or other realty interests in the United
States and those structures, equipment, facilities, apparatus and
other property acquired or constructed by the Company in connection
with the consummation of any Greenfield Expansion Project.
"Greenfield Expansion Financing Conditions" has the
meaning assigned to that term in subsection 5.12.2.
"Greenfield Expansion Lease" means (A) any lease,
sublease, license or similar instrument pursuant to which the Company
or any Domestic Subsidiary of the Company is granted the use and
enjoyment of Greenfield Expansion Assets and (B) any and all rights of
reversion relating to Greenfield Expansion Assets and any purchase
options or similar rights to acquire such Greenfield Expansion
Equipment.
"Greenfield Expansion Project" means the acquisition or
construction by the Company or any Domestic Subsidiary of the Company
of any assets consisting of land or interests (including, without
limitation, easement or leasehold interests) in land in the United
States or improvements not, at the time of acquisition or construction
thereof, adjacent, contiguous to or located on any land comprising a
portion of any Mill (including any facility in the general area of a
Mill that is used in connection with such Mill) existing at the
Closing Date, which land or improvements are intended to be utilized
by the Company or any Domestic Subsidiary of the Company, upon the
completion and placing into service thereof, as a Mill.
"Guarantor Subsidiary" means, after any Material
Subsidiary has executed a counterpart of the Guarantor Subsidiary
Guarantee pursuant to subsection 5.11.1, such Material Subsidiary.
"Guarantor Subsidiary Guarantee" means the guarantee
agreement executed and delivered by each Guarantor Subsidiary pursuant
to subparagraph (v) of subsection 3.1.2 or subsection 5.11.1, which
shall be substantially in the form of Exhibit XIII annexed hereto,
with appropriate modifications as consented to by the
<PAGE>
Requisite Lenders, as such guarantee agreement may hereafter be
amended, supplemented or otherwise modified from time to time.
"HAC Holding Corp." means HAC Holding Corp., a Delaware
corporation and a Wholly Owned Subsidiary of the Company.
"Harmon Assoc. Corp." means Harmon Assoc. Corp., a New
York corporation and a Wholly Owned Subsidiary of the Company.
"IDA" means the Effingham County Industrial Development
Authority and its successors and assigns.
"IDA Estoppel" means a certificate substantially in the
form of Exhibit XII annexed hereto executed by an officer of the IDA
certifying as to certain matters relating to the Georgia Mill Lease.
"Improvements" has the meaning assigned to that term in
the Mortgages.
"Indebtedness", as applied to any Person, means (A) all
indebtedness for borrowed money, (B) that portion of obligations with
respect to Capital Leases which is properly classified as a liability
on a balance sheet in conformity with GAAP, (C) notes payable and
drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money, (D) any obligation owed
for all or any part of the deferred purchase price of property or
services which purchase price is (1) 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 in respect thereof,
or (2) evidenced by a note or similar written instrument and (E) all
indebtedness secured by any Lien on any property or asset owned or
held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to
the credit of that Person.
"Indemnities" has the meaning assigned to that term in
Section 9.3.
"Information Package" means, collectively, the Memorandum
dated November 1994 delivered by the Administrative Agent to the
Lenders, the Registration Statement and any Supplementary Letter
delivered by the Company to the Administrative Agent, in each case as
it may be supplemented on or prior to the date of the signing of this
Agreement.
"Initial Cash Proceeds Payment" has the meaning assigned
to that term in paragraph (a) of subsection 2.7.2.
"Initial Major Expansion Project" means the first
Expansion Project to be commenced by the Company or any of its
Subsidiaries after the Closing Date that involves or will involve
Capital Expenditures by the Company and its Subsidiaries in respect
thereof in an aggregate amount estimated by the Company in its
reasonable judgment to be $100,000,000 or more to complete and put in
service.
"Intellectual Property" has the meaning assigned to that
term in the Intellectual Property Pledge Agreement.
<PAGE>
"Intellectual Property Pledge Agreement" means the
Intellectual Property Pledge Agreement substantially in the form of
Exhibit XVII annexed hereto executed and delivered by the Company, as
the same may be amended, supplemented or otherwise modified from time
to time.
"Intercompany Indebtedness" means any Indebtedness of the
Company or any Subsidiary of the Company which, in the case of the
Company, is owing to any Subsidiary or which, in the case of any such
Subsidiary, is owing to the Company or any other Subsidiary of the
Company.
"Interest Coverage Ratio" means, for any period, the ratio
of Consolidated EBITDA for such period to Consolidated Interest
Expense for such period.
"Interest Payment Date" means, with respect to any
Adjusted LIBOR Loan, the last day of each Interest Period applicable
to such Loan; provided that in the case of each Interest Period of six
or more months, "Interest Payment Date" shall also include each
Interest Period Anniversary Date for such Interest Period.
"Interest Period" means any interest period applicable to
a Loan as determined pursuant to subsection 2.5.2.
"Interest Period Anniversary Date" means, for each
Interest Period which is six or more months, each three-month
anniversary of the commencement of such Interest Period.
"Interest Rate Agreement" means any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement
or other similar agreement or arrangement entered into by the Company
designed to protect the Company or any of its Subsidiaries against
fluctuations in interest rates.
"Interest Rate Determination Date" means, for each
Interest Period, the second Business Day prior to the first day of the
related Interest Period for an Adjusted LIBOR Loan.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time hereafter and any successor
statute.
"Inventory" means, inclusively, all inventory of the
Company and each Guarantor Subsidiary, wherever located in the United
States of America, its territories or possessions, and whether now
existing or hereafter acquired, including, without limitation, all raw
materials, work in process, supplies, returned goods, finished goods,
samples, and consigned goods to the extent of the consignee's interest
therein.
"Investment", as applied to any Person (the "Investor"),
means any direct or indirect purchase or other acquisition by the
Investor of, or a beneficial interest in, stock or other Securities of
any other Person other than (A) in the case of each Investor that is a
Foreign Subsidiary, a direct or indirect Subsidiary of such Foreign
Subsidiary and (B) in the case of each Investor that is the Company or
a Domestic Subsidiary, a Subsidiary that is not a Foreign Subsidiary
or a Receivables
<PAGE>
Subsidiary, or any direct or indirect loan, advance (other than
advances to employees for moving and travel expenses, drawing accounts
and similar expenditures in the ordinary course of business) or
capital contribution by the Investor to any other Person other than
(A) in the case of each Investor that is a Foreign Subsidiary, a
direct or indirect Subsidiary of such Foreign Subsidiary and (B) in
the case of each Investor that is the Company or a Domestic
Subsidiary, a Subsidiary that is not a Foreign Subsidiary or a
Receivables Subsidiary, including all indebtedness and accounts
receivable owing to the Investor from such other Person which are not
current assets or did not arise from sales to such other Person in the
ordinary course of the Investor's business (other than Royalty or
Management Fees). The amount of any Investment shall be the original
cost of such Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment.
A Contingent Obligation of the Company or any of its Subsidiaries in
respect of the obligations of a Foreign Subsidiary shall constitute an
Investment in such Foreign Subsidiary to the extent of such Contingent
Obligation. The amount of such Investment shall be equal to the
amount of the Contingent Obligation as determined by the last sentence
of the definition of Contingent Obligation. Any renewals, extensions
or replacements of an existing Contingent Obligation or other
Indebtedness which constitutes an Investment hereunder shall not
constitute a new Investment at the time of such renewal, extension or
replacement except to the extent such renewal, extension or
replacement increases the amount of such Contingent Obligation or
other Indebtedness and then only to the extent of such increase.
"Investment Grade Ratings" has the meaning assigned to
that term in subsection 2.5.1.
"Investor" has the meaning assigned to that term in the
definition of Investment.
"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.
"Land" has the meaning assigned to that term in the
Mortgages.
"Landfill Area" has the meaning assigned to that term in
the form of Mortgage attached hereto as Exhibit XIX-A(i).
"Lender" has the meaning assigned to that term in the
introduction to this Agreement and includes Bankers, BOA and Chemical
Bank, in their individual capacities.
"Lender Default" means (A) the refusal (which has not been
retracted) of a Lender to make available its portion of any Borrowing
or to fund its portion of any drawing under a Letter of Credit or to
pay any amount owing to Bankers pursuant to subsection 2.12.5 or (B) a
Lender having refused to comply, or having notified in writing (which
notification has not been retracted) the Administrative
<PAGE>
Agent that it does not intend to comply, with its obligations under
Section 2.1, 2.2, 2.3 or 2.12.
"Letter of Credit" means (A) a Standby Letter of Credit or
(B) a Commercial Letter of Credit, in each case, issued or to be
issued by a Fronting Bank for the account of the Company pursuant to
Section 2.2.
"Letters of Credit Usage" means, as at any date of
determination, the sum of (A) the maximum aggregate amount which is,
or, with respect to any Letter of Credit that by its terms provides
for increases over time in the maximum amount available to be drawn
thereunder, may become at any given time, available under all Letters
of Credit then outstanding plus (B) the aggregate amount of all
drawings under Letters of Credit honored by one or more Fronting Banks
and not theretofore reimbursed by the Company or any Benefited
Subsidiary; provided that the Letters of Credit Usage of a Fronting
Bank shall be deemed to be only such portion of the Letters of Credit
Usage of such Fronting Bank which the Lenders have not bought by
participation pursuant to paragraph (b) of subsection 2.2.1.
"Leverage Ratio" means, for any period, the ratio of the
principal amount of Senior Secured Indebtedness outstanding at the
last day of such period to Consolidated EBITDA for such period.
"Leveraged Swap" means any Currency Agreement or Interest
Rate Agreement pursuant to which any party shall be entitled to
receive from the counterparty thereto, in respect of each notional
Dollar or other applicable unit that is the subject thereof, any
payment or credit in excess of the amount necessary to compensate such
party for the actual and direct cost or deemed cost to such party of
any fluctuation in interest rates or currency exchange rates in
respect of such Dollar or other unit of currency.
"LIBOR" means, in respect of any Adjusted LIBOR Borrowing
for any Interest Period, the rate per annum at which dollar deposits
approximately equal in principal amount to the Administrative Agent's
portion of such Adjusted LIBOR Borrowing and for a maturity comparable
to such Interest Period are offered to the Administrative Agent in
immediately available funds in the London interbank market at
approximately 11:00 a.m. (London time) on the Interest Rate
Determination Date for such Interest Period.
"LIBOR Spread" means (A) with respect to Tranche A Term
Loans and Revolving Loans, the percent per annum from time to time in
effect pursuant to paragraph (d) of subsection 2.5.1, and (B) with
respect to Tranche B Term Loans, 3% per annum.
"Lien" means any lien, mortgage, pledge, security
interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement or any lease in the nature
thereof).
"Loan" or "Loans" means one or more of the Revolving
Loans, the Swing Line Loans or the Term Loans or any combination
thereof.
<PAGE>
"Loan Documents" means this Agreement, the Notes, the
Guarantor Subsidiary Guarantees and the Collateral Documents.
"Loan Parties" means the Company, Fort Howard Holding,
Inc., HAC Holding Corp., Harmon Assoc. Corp. and the Guarantor
Subsidiaries.
"Lower Tier Foreign Subsidiary" means, as at any date of
determination, a Foreign Subsidiary of the Company other than (A) a
First Tier Foreign Subsidiary or (B) any other Foreign Subsidiary
which is organized under the laws of the United States of America or
any State thereof.
"Management Agreements" means (A) the Management Equity
Participation Agreements between the Company and certain officers and
directors and holders of stock (or options on stock), (B) the Fort
Howard Corporation Management Equity Plan (the "Plan") effective as of
April 29, 1991, and the Agreements (as defined in the Plan) related
thereto, (C) the Fort Howard Corporation 1995 Stock Incentive Plan
(the "1995 Plan") effective as of January 15, 1995, and the Award
Agreements (as defined in the 1995 Plan) related thereto, and (D) any
equity-based plan (a "Broad-Based Plan") adopted by the Company for
its employees generally (provided that any such Broad-Based Plan may
not cause the Company to exceed (i) the limitation on Investments set
forth in subparagraph (xiv) of Section 6.3 or (ii) the limitation on
repurchases or redemptions of Common Stock set forth in subclause
(D)(2) of Section 6.5), as such Management Equity Participation
Agreements, the Plan, the Agreements, the 1995 Plan and the Award
Agreements and any Broad-Based Plan are in effect on ___________, 1995
(or the date of adoption in the case of any Broad-Based Plan) and as
they may have been and hereafter may be amended, supplemented or
otherwise modified from time to time in accordance herewith and
therewith.
"Margin Stock" has the meaning assigned to that term in
Regulation U of the Board of Governors of the Federal Reserve System
of the United States as in effect from time to time.
"Material Asset" means (A) any asset or group of related
assets (other than equity interests or other securities in Foreign
Subsidiaries) acquired (whether by purchase, lease, grant of contract
rights or otherwise) after the Closing Date or constructed (whether
contemporaneously or pursuant to a series of related transactions)
after the Closing Date by the Company or any Domestic Subsidiary of
the Company having a Fair Value (for any such asset, individually or,
for any such group in the aggregate) at the date of its acquisition or
construction (or, in the case of related acquisitions or
constructions, as of the date of the last of such acquisitions or
constructions) in excess of $15,000,000 other than (1) assets acquired
or constructed as part of any Greenfield Expansion Project or (2) any
Existing Mill Expansion Transaction and (B) the equity interests or
other securities owned by the Company or any Domestic Subsidiary of
the Company in any Foreign Subsidiary of the Company in respect of
which the total of the Fair Values of all Investments (measured as of
the date of each Investment) of the Company and its Domestic
Subsidiaries after the Closing Date exceeds at any time the Dollar
equivalent of $10,000,000 (it being understood that any Investment by
the Company or any Domestic Subsidiary of the Company in a Subsidiary
of a First Tier Foreign Subsidiary shall be deemed to be an Investment
in an equal amount in such First Tier Foreign
<PAGE>
Subsidiary); provided that the term "Material Asset" shall not
include acquisitions of inventory, Receivables and other assets
(including Cash and Cash Equivalents) in the ordinary course of
business (other than any such assets of the character described in
clause (A) of the definition of "Capital Expenditures").
"Material Subsidiary" means each Subsidiary of the Company
or its successors now existing or hereafter acquired or formed by the
Company or such successors (other than any Receivables Subsidiary)
which (A) for the most recent fiscal year of the Company or such
successors accounted for more than 10% of the consolidated revenues of
the Company or such successors, or (B) as at the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Company or such successors as shown on the consolidated financial
statements of the Company or such successors, as the case may be, for
such fiscal year.
"Mill" means any Existing Mill or any completed and
operational facility (other than a warehouse) located in the United
States acquired or constructed by the Company or any Subsidiary of the
Company after the Closing Date (whether pursuant to a Greenfield
Expansion Project or otherwise) for the purpose of expanding the
Company's capacity to produce and/or convert tissue or paper products.
"Mill Lot" has the meaning assigned to that term in
subsection 5.14.1.
"Mill Mortgage" means any Mortgage affecting a Mill.
"Moody's" means Moody's Investors Service, Inc., together
with any successor thereto that issues ratings of corporate
securities.
"Mortgage" and "Mortgages" mean each of the mortgage
instruments required to be delivered by the Company under this
Agreement with respect to Real Properties (including, without
limitation, any such instrument required to be delivered pursuant to
Section 5.11), which shall be substantially in the form of Exhibit
XIX-A, XIX-B or XIX-C, as applicable, and containing such schedules
and including such additional provisions and other deviations from
each such Exhibit as shall not be inconsistent with the provisions of
subsection 3.1.4 or shall be necessary to conform such Exhibit to
applicable law and which shall be dated the date of delivery thereof
and made by the Company for the benefit of the Administrative Agent,
as agent for the Lenders, as mortgagee or grantee, assignee and
secured party, as the same may be amended, supplemented or otherwise
modified from time to time in accordance herewith and therewith.
"Mortgaged Property" means those items of property from
time to time subject to any Mortgage.
"MS Group" means Morgan Stanley Group Inc.
"Multiemployer Plan" means a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA which is maintained for
employees of the Company or any ERISA Affiliate of the Company.
<PAGE>
"Muskogee/Oklahoma Mortgage Recording Taxes" means any
mortgage recording taxes arising from the recording of the Mortgage
relating to the Mill located in Muskogee, Oklahoma.
"Net Award" has the meaning assigned to that term in the
Mortgages.
"Net Cash Proceeds of Sale" means cash payments (including
any cash received by way of deferred payment pursuant to a note
receivable or otherwise (other than the portion of such deferred
payment constituting interest, which shall be deemed not to constitute
Net Cash Proceeds of Sale), but only as and when so received) received
from an Asset Sale, net of costs of sale (including payment of the
outstanding principal amount of, premium or penalty, if any, and
interest on any Indebtedness other than Loans or other Obligations
required to be repaid under the terms thereof as a result of such
Asset Sale) and taxes paid or payable by the Company or any of its
Subsidiaries as a result thereof or directly as a result of
distributions by the Company or any of its Subsidiaries of such
payments.
"Net Cash Provided From Operations" means, in respect of
any period, the Adjusted Consolidated Net Income for such period,
minus (plus) the increase (decrease), if any, in Adjusted Working
Capital from the opening of business on the first day to the close of
business on the last day of such period.
"Net Proceeds" has the meaning assigned to that term in
the Mortgages.
"9% Senior Subordinated Notes" means the Company's 9%
Senior Subordinated Notes due February 1, 2006, issued and outstanding
pursuant to a certain indenture, as amended, dated as of February 1,
1994 between the Company and The Bank of New York, as Trustee, as in
effect on the Closing Date and as thereafter amended, supplemented or
otherwise modified from time to time in accordance herewith and
therewith.
"9-1/4% Unsecured Notes" means the Company's 9-1/4% Senior
Notes due March 15, 2001, issued and outstanding pursuant to a certain
indenture, dated as of March 15, 1993 between the Company and Norwest
Bank Wisconsin, N.A., as Trustee, as in effect on the Closing Date and
as thereafter amended, supplemented or otherwise modified from time to
time in accordance herewith and therewith.
"1988 Credit Agreement" means that certain Amended and
Restated Credit Agreement, dated as of October 24, 1988, among FH
Acquisition Corp. and the lenders party thereto and Bankers Trust
Company, Bank of America National Trust and Savings Association, The
Bank of Nova Scotia, Chemical Bank, The Industrial Bank of Japan,
Limited, New York Branch and Wells Fargo, N.A., as Lead Managers and
Bankers Trust Company, as agent, as amended to the Closing Date.
"1988 Revenue Bond Indenture" means the indenture pursuant
to which the 1988 Revenue Bonds were issued.
"1988 Revenue Bonds" means the Development Authority of
Effingham County Pollution Control Revenue Bonds (Fort Howard
Corporation Project) Series
<PAGE>
1988, issued by the Development Authority of Effingham County to
refund the 1985 Revenue Bonds.
"1995 A/R Bridge" means the $[60,000,000] receivables
facility provided pursuant to that certain Receivables Credit
Agreement, dated as of the date hereof, by and among the Company and
the Arrangers.
"1992 Credit Agreement" means that certain Credit
Agreement, dated as of March 22, 1993, among Fort Howard Corporation,
the lenders party thereto and Bankers Trust Company, as agent, as
amended to the Closing Date.
"Non-Defaulting Lender" means and includes each Lender
other than a Defaulting Lender.
"Non-U.S. Person" has the meaning assigned to that term in
paragraph (f) of subsection 2.9.7.
"Notes" means one or more of the Term Notes, the Swing
Line Notes, the Revolving Notes or any combination thereof.
"Notice of Borrowing" means a notice substantially in the
form of Exhibit I annexed hereto with respect to a proposed Borrowing.
"Notice of Conversion/Continuation" means a notice
substantially in the form of Exhibit II annexed hereto with respect to
a proposed conversion or continuation.
"Obligations" means all obligations of every nature of the
Company, each of the Guarantor Subsidiaries and the respective
Subsidiaries of the Company and such Guarantor Subsidiaries from time
to time owed to the Administrative Agent or the Lenders or any of them
under the Loan Documents.
"Officers' Certificate" means, as applied to any
corporation, a certificate executed on behalf of such corporation by
its Chairman of the Board (if an officer) or its President or one of
its Vice Presidents and by its Chief Financial Officer or its
Treasurer; provided that every Officers' Certificate with respect to
the compliance with a condition precedent to the making of any Loans
hereunder shall include (A) a statement that the officer or officers
making or giving such Officers' Certificate have read such condition
and any definitions or other provisions contained in this Agreement
relating thereto, (B) a statement that, in the opinion of the signer
or signers, he or they have made or have caused to be made such
examination or investigation as is necessary to enable him or them to
express an informed opinion as to whether or not such condition has
been complied with, and (C) a statement as to whether, in the opinion
of the signer or signers, such condition has been complied with.
"Operating Lease" means, as applied to any Person, any
lease (including, without limitation, leases which may be terminated
by the lessee at any time) of any property (whether real, personal or
mixed) under which that Person is a lessee and which is not a Capital
Lease.
<PAGE>
"Other Taxes" has the meaning assigned to that term in
paragraph (b) of subsection 2.9.7.
"Participants" has the meaning assigned to that term in
subsection 9.1.2.
"Pension Plan" means any employee plan which is subject to
the provisions of Title IV of ERISA and which is maintained for
employees of the Company or any ERISA Affiliate of the Company, other
than a Multiemployer Plan.
"Permitted After Acquired Collateral Liens" means, in
respect of any Material Asset, (A) Liens of the type described in
clause (i) or (vi) of the definition of Permitted Encumbrances, (B)
Preexisting Assumed Liens and (C) Liens which, pursuant to the
provisions of the applicable form of Additional Collateral Document to
be used to encumber such Material Asset, are or may be superior to the
Lien created by such Additional Collateral Document.
"Permitted Encumbrances" means the following types of
Liens:
(i) Liens for taxes, assessments or governmental charges
or claims the payment of which is not at the time required by
Section 5.3;
(ii) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate provision,
if any, as shall be required by GAAP shall have been made therefor;
(iii) Liens (other than any Lien imposed by ERISA) incurred
or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations,
bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment of
borrowed money);
(iv) Any attachment or judgment Lien not in excess of
$20,000,000 (exclusive of any amount adequately covered by insurance as
to which the insurance company has acknowledged coverage) and any other
attachment or judgment lien unless the judgment it secures shall, within
60 days after the entry thereof, not have been discharged or execution
thereof stayed pending appeal, or shall not have been discharged within
60 days after the expiration of any such stay;
(v) Leases or subleases granted to others not interfering
in any material respect with the business of the Company or any of its
Subsidiaries;
(vi) Easements, rights-of-way, restrictions, minor defects
or irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of the Company or any of its Subsidiaries;
<PAGE>
(vii) Any interest or title of a lessor under any lease
permitted by Section 6.9;
(viii) Liens arising from UCC financing statements regarding
leases permitted by this Agreement;
(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) Liens securing surety bonds in an amount not to
exceed individually or in the aggregate $5,000,000 at any time
outstanding; and
(xi) Liens securing appeal bonds, which Liens do not cover
assets having a value in excess of $20,000,000 individually or
in the aggregate at any time and which assets are valued at the
greater of (A) fair market value and (B) book value.
"Permitted Expansion Construction Financing" means a
conventional short term construction loan facility in respect of the
construction of the Initial Major Expansion Project or any Greenfield
Expansion Project which (A) is secured only by the applicable assets
constituting the Initial Major Expansion Project or the applicable
Greenfield Expansion Assets, (B) provides for interest at market rates
for such type of financing as of the date of incurrence thereof, (C)
matures not later than one year after the applicable assets
constituting all or a substantial part of the Initial Major Expansion
Project or the applicable Greenfield Expansion Assets are first placed
in service, (D) provides for disbursements as construction progresses
and (E) in the case of any such facility that is utilized in
connection with the Initial Major Expansion Project, meets the
requirements of paragraphs (c) and (d) of subsection 5.12.1 (assuming
such subsection were applicable to the Initial Major Expansion
Project).
"Permitted Expansion Financing" means (A) in respect of
any Existing Mill Expansion Transaction, (1) a Sale/Leaseback
Financing, (2) a Secured Expansion Financing or (3) an Unsecured
Expansion Financing, in each case, consummated in accordance with the
provisions of subsection 5.12.1 and (B) in respect of any Greenfield
Expansion Transaction, (1) a Sale/Leaseback Financing, (2) a Secured
Expansion Financing or (3) an Unsecured Expansion Financing, in each
case consummated in accordance with the provisions of subsection
5.12.2.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies,
joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations,
whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"Plan" shall mean an employee benefit plan (as defined in
Section 3(3) of ERISA) which is subject to Section 406 of ERISA and a
plan (as defined in Section 4975 of the Code) which is subject to
Section 4975 of the Code.
<PAGE>
"Pledge Agreements" means the Intellectual Property
Pledge Agreement, the Receivable/Inventory Pledge Agreements and the
Stock Pledge Agreements.
"Potential Event of Default" means a condition or event
which, after notice or lapse of time or both, would constitute an
Event of Default if that condition or event were not cured or waived
within any applicable grace or cure period.
"Preexisting Assumed Lien" means any Lien securing
Indebtedness (A) of any Person that becomes a Foreign Subsidiary (or a
Subsidiary of such Person) at the time such Person becomes a Foreign
Subsidiary, which Indebtedness was not incurred in connection with the
acquisition of such Person or an interest therein by the Company or
any Subsidiary of the Company and which Indebtedness and Lien are not
prohibited under Section 6.1 or Section 6.2 hereof, or (B) incurred by
the Company or a Subsidiary of the Company specifically to finance the
acquisition of assets (which acquisition is not prohibited hereunder)
and which Indebtedness and Lien are (1) as of the date of such
acquisition, held by the seller of such assets, (2) not prohibited
under the provisions of Section 6.1 or 6.2 of this Agreement and (3)
evidenced by an instrument or instruments which (i) neither prohibit
or restrict the granting of a junior Lien on the encumbered assets in
favor of the Lenders nor limit any rights or remedies of the Lenders
in respect of any such junior Lien and (ii) contain a warranty by the
applicable seller that, as of the date of such acquisition, such
seller has no present intention or plan to transfer for value or
pledge such Indebtedness and Lien to any other Person.
"Preexisting Expansion Lease" means any of (A) the
documents entitled Facility Lease Agreement and Facilities Agreement,
each dated as of October 20, 1989, by and between the Company and The
Connecticut National Bank, as owner trustee, (B) the documents
entitled Power Installation Lease and Power Installation Facilities
Agreement, each dated as of October 20, 1989, by and between the
Company and The Connecticut National Bank, as owner trustee, (C) the
document entitled Equipment Lease Agreement, dated as of October 20,
1989, by and between the Company and The Connecticut National Bank, as
owner trustee, (D) the document entitled Dry Former Lease Agreement,
dated as of October 20, 1989, by and between the Company and The
Connecticut National Bank, as owner trustee, (E) the document entitled
Equipment Lease Agreement, dated as of October 20, 1989, by and
between the Company and The Connecticut National Bank, as owner
trustee, (F) the documents entitled Facility Lease Agreement, Facility
Site Lease and Easement Agreement and Facilities Agreement, each dated
as of December 19, 1991, by and between the Company and The
Connecticut National Bank, as owner trustee, (G) the documents
entitled Power Plant Lease Agreement, Power Plant Site Lease and
Easement Agreement and Power Plant Facilities Agreement, each dated as
of December 19, 1991, by and between the Company and The Connecticut
National Bank, as owner trustee, (H) the document entitled Amended and
Restated Equipment Lease Agreement [1990], dated as of December 19,
1991, by and between the Company and The Connecticut National Bank, as
owner trustee, (I) the document entitled Equipment Lease Agreement
[1991], dated as of December 19, 1991, by and between the Company and
The Connecticut National Bank, as owner trustee, (J) the document
entitled Amended and Restated Participation Agreement, dated as of
October 21, 1991, as amended by the First Amendment thereto, in each
case by and
<PAGE>
among the Company, as lessee, Bell Atlantic TriCon Leasing
Corporation, as owner participant, the initial loan participant
described therein, Wilmington Trust Company, as pass through trustee
and loan participant, The Connecticut National Bank, as owner trustee,
and Wilmington Trust Company, as indenture trustee, (K) the document
entitled Pass Through Trust Agreement, dated as of October 21, 1991,
as amended by the Amended and Restated Pass Through Trust Agreement,
dated as of December 13, 1991, in each case by and between the Company
and Wilmington Trust Company, as pass through trustee, and (L) the
document entitled Amended and Restated Tax Indemnification Agreement,
dated as of December 19, 1991, by and between the Company and Bell
Atlantic TriCon Leasing Corporation, as owner participant).
"Premises" has the meaning assigned to that term in the
Mortgages.
"Prime Rate" means the rate which Bankers announces from
time to time as its prime lending rate, as in effect from time to
time. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer.
Bankers may make commercial loans or other loans at rates of interest
at, above or below the Prime Rate.
"Prior Liens" means, in respect of the Collateral
described in any Collateral Document, the Liens described in Schedule
B annexed to such Collateral Document (if any) and any other Liens
which, pursuant to the provisions of such Collateral Document, are or
may be superior to the Lien of such Collateral Document.
"Prior Property Documents" means, in respect of any Real
Property (including any Mill), any leases, overleases, easement
agreements, covenants or other instruments of record relating to such
Real Property, which instruments have a priority superior to the
priority of the Lien of the Mortgage relating to such Real Property,
including, without limitation, the Georgia Mill Lease.
"Proceeds Adjustment" has the meaning assigned to that
term in paragraph (a) of subsection 2.7.2.
"Proceeds Payment Date" has the meaning assigned to that
term in paragraph (a) of subsection 2.7.2.
"Program Receivables" means all trade receivables and
related contract and other rights and property (including all general
intangibles, collections and other proceeds relating thereto, all
security therefor and any goods that have been repossessed in
connection with any thereof) sold or contributed by the Company to a
Receivables Subsidiary to consummate a Receivables Transaction
pursuant to the Receivables Program Documents.
"Project Agreement" has the meaning assigned to that term
in the Georgia Mill Mortgage.
"Projections" has the meaning assigned to such term in
subsection 3.1.12.
<PAGE>
"Prospectus" means the prospectus of the Company dated
February 8, 1995, relating to the Common Stock Offering, as amended
and supplemented on or prior to the date of the signing of this
Agreement.
"Purchasing Lenders" has the meaning assigned to that term
in subsection 9.1.3.
"Qualified Currency Agreement" means a Currency Agreement
(other than a Leveraged Swap) which meets the requirements set forth
in the Collateral Documents for the obligations of the Company
therewith to be secured by the Collateral.
"Qualified Interest Rate Agreement" means an Interest Rate
Agreement (other than a Leveraged Swap) which meets the requirements
set forth in the Collateral Documents for the obligations of the
Company thereunder to be secured by the Collateral.
"Ratio 1" means, for each period of four consecutive
fiscal quarters of the Company (treated as a single accounting
period), the Interest Coverage Ratio for such period.
"Ratio 2" means, for each period of four consecutive
fiscal quarters of the Company (treated as a single accounting
period), the Leverage Ratio, as of the last day of such period.
"Real Properties" means, whether now owned or leased or
hereafter acquired or leased, the Mills and each parcel of realty
constituting a Material Asset.
"Recapitalization" means, collectively, (A) the Common
Stock Offering, (B) the repayment in full of all loans outstanding,
and other amounts due, under the Existing Credit Facilities and the
Senior Secured Notes, (C) the redemption and retirement of the
Existing Subordinated Debt, (D) the execution and delivery of the
documents evidencing the 1995 A/R Bridge and (E) the execution and
delivery of this Agreement and the Loan Documents and the consummation
of the transactions contemplated hereunder and thereunder.
"Receivable/Inventory Pledge Agreement" means each of (A)
the Company Receivable/Inventory Pledge Agreement substantially in the
form of Exhibit XIV-A annexed hereto executed and delivered by the
Company and (B) any Receivable/Inventory Pledge Agreement entered into
pursuant to Section 5.11 hereof, as each such agreement may be
amended, supplemented or otherwise modified from time to time in
accordance herewith and therewith.
"Receivables" means, with respect to the Company and each
Guarantor Subsidiary, all of such Person's rights to payment for goods
sold or leased or services performed by such Person or any other party
for or to any Person (other than a Foreign Subsidiary of the Company
that is a Controlled Foreign Corporation), whether now in existence or
arising from time to time hereafter, including, without limitation,
rights evidenced by an account, note, contract, security agreement,
chattel paper, or other evidence of indebtedness or security, together
with (1) all security pledged, assigned, hypothecated or granted to or
held by such Person to
<PAGE>
secure the foregoing, (2) general intangibles arising out of such
Person's rights in any goods, the sale of which gave rise thereto, (3)
all guarantees, endorsements and indemnifications on, or of, any of
the foregoing, (4) all powers of attorney for the execution of any
evidence of indebtedness or security or other writing in connection
therewith, and (5) all evidences of the filing of financing statements
and other statements and the registration of other instruments in
connection therewith and amendments thereto, notices to other
creditors or secured parties, and certificates from filing or other
registration officers.
"Receivables Program" means a receivables securitization
program to be instituted and conducted by the Company and other
Sellers (as defined in the Receivables Term Sheet) after the Closing
Date in accordance with the provisions of Section 6.11 and the
Receivables Term Sheet.
"Receivables Program Documents" means the documents giving
effect to the Receivables Program, as such documents may be amended,
modified or supplemented from time to time in accordance herewith and
therewith.
"Receivables Subsidiary" means any Subsidiary (regardless
of the form thereof) of the Company which has been formed for the
specific purpose of effecting a Receivables Transaction, all of the
stock or other equity interests in which have been pledged to the
Administrative Agent pursuant to an instrument in form and substance
reasonably satisfactory to the Administrative Agent and which (A) is a
Wholly Owned Subsidiary, (B) contains provisions in its charter or
other governing documents which satisfy the requirements set forth in
the Receivables Term Sheet as applicable to such Subsidiary, (C) does
not engage in any business or have any assets or liabilities other
than those directly related to the Receivables Program and (D) is not
and will not at any time be a Benefited Subsidiary; provided that if a
Subsidiary of a Receivables Subsidiary is formed for the specific
purpose of effecting a Receivables Transaction, the stock or equity
interests of such second Receivables Subsidiary (1) need not be
wholly-owned to the extent contemplated by the Receivables Term Sheet
and (2) need not be pledged to the Administrative Agent and equity
interests in such Subsidiary (other than the residuary interest) may
be sold to investors in respect of such Receivables Transaction but
such Subsidiary shall otherwise constitute a Receivables Subsidiary.
"Receivables Term Sheet" means one or more of the
Receivables Term Sheets annexed hereto as Exhibit XXVII.
"Receivables Transaction" means any transaction (other
than the 1995 A/R Bridge) meeting the requirements of Section 6.11 and
the Receivables Term Sheet.
"Recognition Instrument" means, with respect to any
Existing Mill Expansion Lease (A) relating to Land or Improvements
subject to the Georgia Mill Lease, an instrument in form and substance
reasonably satisfactory to the Requisite Lenders, pursuant to which
the Administrative Agent agrees that if the Administrative Agent or
any purchaser in foreclosure shall succeed to the Company's interest
in such Mill, the Existing Mill Expansion Lease described in such
instrument shall remain in full force and effect so long as no default
shall occur and continue thereunder (it being understood that an
instrument in form and substance
<PAGE>
substantially similar to that certain Nondisturbance, Cure Rights and
Purchase Option Agreement, dated as of October 20, 1989, a copy of
which is attached hereto as Exhibit XXV, in respect of an Existing
Mill Expansion Transaction relating to Land and Improvements located
in Effingham County, Georgia (with such changes as shall be reasonably
satisfactory to the Administrative Agent), shall qualify as an
instrument reasonably satisfactory to Requisite Lenders) and (B)
relating to Land or Improvements other than any subject to the Georgia
Mill Lease, an instrument, in form and substance reasonably
satisfactory to the Requisite Lenders, subordinating the Lien of the
Mill Mortgage relating thereto to the interest of an Expansion Lessor
under an Existing Mill Expansion Easement (it being understood that an
instrument in form and substance substantially similar to that certain
Cure Rights and Purchase Option Agreement, dated as of October 20,
1989, a copy of which is attached hereto as Exhibit XXVI, in respect
of an Existing Mill Expansion Transaction relating to Land and
Improvements located in Brown County, Wisconsin (with such changes as
shall be reasonably satisfactory to the Administrative Agent) shall
qualify as an instrument reasonably satisfactory to the Requisite
Lenders).
"Refinancing Foreign Debt" means any Indebtedness of a
Foreign Subsidiary of the Company, incurred in accordance with the
provisions of subparagraph (iv) of Section 6.1, all the net cash
proceeds of which are used to refinance the Indebtedness identified in
Schedule C as "Foreign Indebtedness" or any previously incurred
Refinancing Foreign Debt of such Subsidiary.
"Refinancing Senior Unsecured Debt" or "Refinancing Senior
Unsecured Indebtedness" means any unsecured Indebtedness of the
Company, incurred in accordance with the provisions of subparagraph
(ii) of Section 6.1, all of the net cash proceeds of which are used to
refinance Senior Unsecured Notes or any previously incurred
Refinancing Senior Unsecured Debt.
"Register" has the meaning assigned to that term in
subsection 9.1.5.
"Registered Transfer Supplement" has the meaning assigned
to that term in subsection 9.1.3.
"Registration Statement" means the Registration Statement
No. 33-56573, filed by the Company on February 8, 1995 with the
Securities and Exchange Commission in connection with the Common Stock
Offering, as it may be amended or supplemented on or prior to the date
of the signing of this Agreement.
"Regulation D" means Regulation D of the Board of
Governors of the Federal Reserve System of the United States as in
effect from time to time.
"Release" has the meaning assigned to that term in Section
5.13.
"Release Condition" has the meaning assigned to that term
in Section 5.13.
"Release Notice" has the meaning assigned to that term in
Section 5.13.
"Release Transaction" has the meaning assigned to that
term in Section 5.13.
<PAGE>
"Replaced Lender" has the meaning assigned to that term
in subsection 9.22.1.
"Replacement Lender" has the meaning assigned to that term
in subsection 9.22.1.
"Required A Lenders" means, as of any date of
determination, one or more Tranche A Lenders having an aggregate A
Credit Exposure Percentage as of such date greater than 50%. As used
herein, the "A Credit Exposure Percentage" of one or more Lenders as
of any date is a fraction, expressed as a percentage, of which (A) the
numerator is the A Credit Exposure Amounts of such Lenders as of such
date and (B) the denominator is the Total A Credit Exposure Amount as
of such date.
"Required B Lenders" means, as of any date of
determination, one or more Tranche B Lenders having an aggregate B
Credit Exposure Percentage as of such date greater than 50%. As used
herein, the "B Credit Exposure Percentage" of one or more Lenders as
of any date is a fraction, expressed as a percentage, the numerator of
which is the B Credit Exposure Amounts of such Lenders as of such date
and the denominator is the Total B Credit Exposure Amount as of such
date.
"Requisite Lenders" means, as of any date of
determination, one or more Lenders having an aggregate Credit Exposure
Percentage as of such date greater than 50%. As used herein, the
"Credit Exposure Percentage" of one or more Lenders as of any date is
a fraction, expressed as a percentage, of which (A) the numerator is
the Credit Exposure Amounts of such Lenders as of such date and (B)
the denominator is the Total Credit Exposure Amount as of such date.
"Restoration" has the meaning assigned to that term in the
Mortgages.
"Restricted Junior Payment" means (A) any dividend or
other distribution, direct or indirect, on account of any shares of
any class of stock of the Company, now or hereafter outstanding,
except a dividend payable solely in shares of that class of stock to
the holders of that class, (B) any redemption, retirement, sinking
fund or similar payment, purchase or other acquisition for value,
direct or indirect, of any shares of any class of stock of the Company
now or hereafter outstanding, (C) whether in cash or additional
securities, any payment or prepayment of principal of, premium, if
any, or interest on, or any redemption, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any
Subordinated Indebtedness and (D) any payment made to retire, or to
obtain the surrender of, any outstanding warrants, options or other
rights to acquire shares of any class of stock of the Company (other
than Common Stock of the Company or options or rights to acquire
Common Stock of the Company) now or hereafter outstanding.
"Revolving Credit Maturity Date" means the date which is
the seventh anniversary of the Closing Date.
"Revolving Loan Commitment" means the aggregate amount of
the commitment (whether used or unused) of a Lender to make Revolving
Loans and issue or purchase participations in Letters of Credit and
make or purchase participations in Swing Line Loans, which may be
reduced from time to time
<PAGE>
pursuant to the provisions of this Agreement or by virtue of
assignments effected pursuant to a Registered Transfer Supplement. As
of the Closing Date, the Revolving Loan Commitment of each Lender is
the amount set forth opposite such Lender's name in Schedule B annexed
hereto under the heading "Revolving Loan Commitment."
"Revolving Loan Deduction Amount" means, as of any date of
determination thereof, the aggregate amount of Indebtedness then
outstanding which constitutes Permitted Expansion Construction
Financing.
"Revolving Loans" means the Loans made by the Lenders to
the Company pursuant to subsection 2.3.1.
"Revolving Notes" means the promissory notes of the
Company issued in registered form pursuant to subsection 2.3.4 or
issued as replacement notes in connection with an assignment made
pursuant to this Agreement and, in each case, substantially in the
form of Exhibit IV annexed hereto, as the same may be modified,
endorsed or amended from time to time.
"Royalty or Management Fees" means those amounts owed or
owing from time to time by a Foreign Subsidiary of the Company to the
Company or any of its Domestic Subsidiaries pursuant to agreements
which provide for the provision of management or technical services or
advice or the licensing of patents, trademarks, trade secrets,
know-how or proprietary information; provided that such amounts for
any period in respect of the services or advice so provided or such
licenses, as the case may be, shall not exceed the fees that would be
charged by a third party for such services, advice or licenses.
"Sale/Leaseback Financing" means a Sale/Leaseback
Transaction involving Existing Mill Expansion Equipment or Greenfield
Expansion Assets; provided that the principal amount of Indebtedness
incurred by the Company or any Subsidiary of the Company in connection
with such transaction is (A) not less than 50% of the Construction
Cost to the Company or such Subsidiary to acquire or construct such
Existing Mill Expansion Equipment or the assets constituting such
Greenfield Expansion Project, as applicable, (B) not more than 100% of
the Construction Cost to the Company or such Subsidiary to acquire or
construct such Existing Mill Expansion Equipment or the assets
constituting such Greenfield Expansion Project, as applicable, and (C)
contains no representation and warranty, covenant or event of default
that (i) is in addition to the representations and warranties,
covenants and events of default that are currently set forth in one or
more of the Corresponding Debt Instruments or (ii) is more burdensome
(to the Company) than the most burdensome (to the Company)
corresponding representation and warranty, covenant or event of
default set forth in any of the Corresponding Debt Instruments.
"Sale/Leaseback Transaction" means an arrangement with any
bank, insurance company or other lender or investor or to which any
such lender or investor is a party, providing for the leasing by the
Company or a Subsidiary of the Company of any property, whether now
owned or hereafter acquired, which has been or is to be sold or
transferred by the Company or any Subsidiary of the Company to such
lender or investor.
<PAGE>
"Savannah Boiler" means the next industrial boiler
installed at the Company's Effingham County, Georgia Mill following
the date of this Agreement.
"Savannah Project" means the acquisition and construction
of the next tissue paper manufacturing machine to be constructed or
acquired after the Closing Date at the Company's Effingham County,
Georgia Mill, together with related manufacturing, converting and
ancillary equipment, improvements and facilities.
"Scheduled Term Loans Principal Payment" means, with
respect to the principal payments on Term Loans pursuant to subsection
2.1.5, for each six-month period following the Closing Date set forth
below, the correlative amount set forth opposite thereto (as such
amount may from time to time be reduced by virtue of prepayments made
under this Agreement):
6-Month Tranche A Tranche B
Period Term Loans Term Loans
1st $ -0- $ -0-
2nd -0- -0-
3rd 45,000,000 1,875,000
4th 45,000,000 1,875,000
5th 57,500,000 1,875,000
6th 57,500,000 1,875,000
7th 70,000,000 1,875,000
8th 70,000,000 1,875,000
9th 70,000,000 1,875,000
10th 70,000,000 1,875,000
11th 82,500,000 1,500,000
12th 82,500,000 1,500,000
13th 95,000,000 41,000,000
14th 95,000,000 41,000,000
15th -0- 100,000,000
16th -0- 100,000,000
"Second Expansion Project" has the meaning assigned to
that term in subsection 6.14.4.
"Secured Expansion Financing" means the incurrence by the
Company or any Domestic Subsidiary of the Company of Indebtedness
which is secured by assets comprising Existing Mill Expansion
Equipment or Greenfield Expansion Assets and which (A) is in an amount
not less than 50% of the Construction Cost to the Company or such
Domestic Subsidiary to acquire or construct the applicable Existing
Mill Expansion Equipment or Greenfield Expansion Assets and not more
than 100% of the Construction Cost to the Company or such Domestic
Subsidiary to acquire or construct the applicable Existing Mill
Expansion Equipment or Greenfield Expansion Assets, (B) has a final
scheduled maturity date that is subsequent to the date on which the
final Scheduled Term Loans Principal Payment in respect of Tranche B
Term Loans is due hereunder, (C) has an Average Life to Stated
Maturity that is greater than the remaining Average Life to Stated
Maturity of the Tranche B Term Loans on the date such Indebtedness is
incurred, (D) is nonrecourse to the Company or any Subsidiary of the
Company or any assets of the Company or any Subsidiary of
<PAGE>
the Company except the assets comprising such Existing Mill Expansion
Equipment or Greenfield Expansion Assets, as the case may be, and (E)
contains no representation and warranty, covenant or event of default
that (i) is in addition to the representations and warranties,
covenants and events of default that are currently set forth in one or
more of the Corresponding Debt Instruments in respect thereof or (ii)
is more burdensome (to the Company) than the most burdensome (to the
Company) corresponding representation and warranty, covenant or event
of default set forth in any of the Corresponding Debt Instruments in
respect thereof.
"Securities" means any stock, shares, voting trust
certificates, bonds, debentures, options, warrants, notes, or other
evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly
known as "securities" or any certificates of interest, shares or
participations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire,
any of the foregoing.
"Securities Act" means the Securities Act of 1933, as
amended from time to time, and any successor statute.
"Seller" has the meaning assigned to that term in the
Receivables Term Sheet.
"Senior Note Purchase Agreement" means that certain Note
Purchase Agreement, dated as of September 11, 1991, as amended, by and
among the Company and the other persons listed on the signature pages
thereto, relating to the Senior Secured Notes.
"Senior Secured Indebtedness" means the following
obligations of the Company and/or any of its Subsidiaries: (A) the
amount of any Indebtedness incurred by the Company or any Subsidiary
of the Company (including, without limitation, any Receivables
Subsidiary) in connection with the 1995 A/R Bridge or any Receivables
Transaction, (B) Indebtedness of the type described in clause (B) of
the definition of Indebtedness, (C) the Indebtedness described in
subparagraph (vii) and subparagraph (x) of Section 6.1, (D) any other
Indebtedness of the Company or any Subsidiary of the Company that is
not Subordinated Indebtedness and is secured by any Lien on any
property of the Company or any Subsidiary of the Company and (E) the
full amount of the obligations of the Company or any Subsidiary of the
Company under any Letter of Credit issued for the account of the
Company or any Subsidiary of the Company that are secured by a Lien on
any property of the Company or any Subsidiary of the Company. In
calculating the amount of Senior Secured Indebtedness, there shall be
excluded in the case of any revolving loan facility or Letter of
Credit commitment issued in favor of the Company or any Subsidiary of
the Company, the then unutilized portion of such facility or
commitment and, except as specified in clause (E) of the preceding
sentence, any Contingent Obligation.
"Senior Secured Notes" means the Series A Senior Secured
Floating Rate Notes due 1997, the Series B Senior Secured Floating
Rate Notes due 1998, the Series C-1 Senior Secured Floating Rate Notes
due 1999, the Series C-2 Senior Secured Floating Rate Notes due 1999
and the Series D Senior Secured Floating Rate
<PAGE>
Notes due 2000, each as issued, and as amended from time to time,
pursuant to the Senior Note Purchase Agreement.
"Senior Unsecured Notes" means the 9-1/4% Unsecured Notes
and the 8-1/4% Unsecured Notes.
"Sensitive Information" has the meaning assigned to that
term in Section 5.5.
"Severed Parcel" has the meaning assigned to that term in
subsection 5.14.1.
"SIL Company" means SIL Company, a California corporation
that is Wholly Owned by Fort Howard Holdings Inc. and which owns
indirectly 100% of the outstanding equity securities of Fort Sterling.
"Sludge Boiler Land" has the meaning assigned to that term
in subsection 5.17.1.
"S&P" means Standard & Poor's Corporation, together with
any successor that issues ratings of corporate securities.
"Special Funding Procedures Letter" means a letter
agreement among the Company, the Administrative Agent and each Lender,
substantially in the form of Exhibit XVI annexed hereto with
appropriate insertions, pursuant to which special procedures are
established with respect to the Loans to be made on the Closing Date.
"Special Reserve" means the special reserve, in the amount
of $20,000,000, established as of December 31, 1994 by the Company in
respect of certain environmental matters.
"Standby Letter of Credit" means any standby letter of
credit or similar instrument issued for the purpose of supporting (A)
workers' compensation liabilities of the Company or any of its
Subsidiaries, (B) the obligations of third party insurers of the
Company or any of its Subsidiaries arising by virtue of the laws of
any jurisdiction requiring third party insurers to obtain such letters
of credit, (C) Indebtedness of the Company or any of its Subsidiaries
in respect of industrial revenue or development bonds or financings,
(D) obligations with respect to Capital or Operating Leases of the
Company or any of its Subsidiaries, or (E) performance, payment,
deposit or surety obligations of the Company or any of its
Subsidiaries if required by law or governmental rule or regulation or
in accordance with custom and practice in the industry.
"Statutory Reserves" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator
of which is the number one minus the aggregate of the maximum
applicable reserve percentages, including, without limitation, any
marginal, special, emergency or supplemental reserves (expressed as a
decimal) established by the Board of Governors of the Federal Reserve
System of the United States and any other banking authority to which
the Administrative Agent is subject, with respect to the Base CD Rate
(as such term is used in the definition of the term "Alternate Base
Rate") for new negotiable
<PAGE>
nonpersonal time deposits in dollars of over $100,000 with maturities
approximately equal to three months. Statutory Reserves shall be
adjusted automatically on and as of the effective date of any change
in any reserve percentage.
"Sterling International Limited" means Sterling
International Limited, an English limited liability company and a
Foreign Subsidiary of the Company.
"Stock Pledge Agreement" means the Company Stock Pledge
Agreement or any Stock Pledge Agreement entered into pursuant to
subsection 5.11.1 hereof.
"Stockholders Agreement" means one or more Stockholders
Agreements dated as of ___________, 1995, in the form delivered to the
Lenders, as the same may be amended, supplemented or otherwise
modified from time to time in accordance herewith or therewith.
"Subordinated Indebtedness" means the Indebtedness of the
Company subordinated in right of payment to the Obligations,
including, without limitation, the Subordinated Notes and the Existing
Subordinated Debt.
"Subordinated Notes" means the 9% Senior Subordinated
Notes and the 10% Subordinated Notes.
"Subsidiary" of any Person means any corporation,
association or other Person of which more than 50% of the total voting
power of shares of stock or other equity interests therein entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person or a combination
thereof. Unless otherwise indicated, "Subsidiary" means a Subsidiary
of the Company.
"Swing Line Borrowing" means a Borrowing comprised of
Swing Line Loans.
"Swing Line Commitment" has the meaning assigned to that
term in paragraph (a) of subsection 2.12.1.
"Swing Line Loans" means the Loans made by Bankers to the
Company pursuant to subsection 2.12.1.
"Swing Line Note" means the promissory note of the Company
issued in registered form pursuant to subsection 2.12.4 and in
substantially the form of Exhibit VI annexed hereto, as the same may
be modified, endorsed or amended from time to time in accordance
herewith or therewith.
"Taking" has the meaning assigned to that term in the
Mortgages.
"Taxes" has the meaning assigned to that term in paragraph
(a) of subsection 2.9.7.
<PAGE>
"10% Subordinated Notes" means the Company's 10%
Subordinated Notes due March 15, 2003, issued pursuant to a certain
indenture dated as of March 15, 1993 between the Company and United
States Trust Company of New York, as Trustee, as such notes and
indenture shall be in effect on the Closing Date and as thereafter
amended, supplemented or otherwise modified from time to time in
accordance herewith or therewith.
"Term Borrowing" means a Borrowing comprised of Tranche A
Term Loans or Tranche B Term Loans.
"Term Loan Commitment" or "Term Loan Commitments" means
the commitment or commitments of a Lender or the Lenders to make Term
Loans as set forth in subsection 2.1.1.
"Term Loans" means the Tranche A Term Loans and Tranche B
Term Loans.
"Term Notes" means the promissory notes of the Company
issued in registered form in respect of Tranche A Term Loans or
Tranche B Term Loans pursuant to subsection 2.1.4 or issued as
replacement notes in connection with an assignment made pursuant to
this Agreement and, in each case, substantially in the form of Exhibit
III or Exhibit V annexed hereto, as the same may be modified, endorsed
or amended from time to time in accordance herewith or therewith.
"Termination Event" means (A) a "Reportable Event"
described in Section 4043 of ERISA and the regulations issued
thereunder (other than a "Reportable Event" not subject to the
provision for 30-day notice to the Pension Benefit Guaranty
Corporation or any successor thereof under such regulations), or (B)
the withdrawal of the Company or any of its ERISA Affiliates from a
Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (C) the filing
of a notice of intent to terminate a Pension Plan or the treatment of
a Pension Plan amendment as a termination under Section 4041 of ERISA,
or (D) the filing by the Pension Benefit Guaranty Corporation (or any
successor thereof) of a notice of its intent to terminate a Pension
Plan, or (E) the receipt by the Company or any ERISA Affiliate of
notice of the termination or reorganization of any Multiemployer Plan
or (F) the occurrence of any other event or condition that might
constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan; provided
that, for the purposes of Section 4.11 only, the termination of any
Pension Plan or termination or reorganization of any Multiemployer
Plan and any action taken with respect to any such termination or
reorganization shall not be a Termination Event if the Company and its
ERISA Affiliates shall not incur net liabilities aggregating more than
$25,000,000 (such liabilities to include, without limitation, any
liability to the Pension Benefit Guaranty Corporation (or any
successor thereof), or to any other party under ERISA or the Internal
Revenue Code) resulting from all such terminations or reorganizations.
"Termination Value" of an Interest Rate Agreement or
Currency Agreement at any time means the amount that would be payable
by the Company to the counterparty thereto if such agreement was
terminated at such time because of default of the Company thereunder.
<PAGE>
"Title Company" means First American Title Insurance
Company of New York or such other title insurance or abstract company
as shall be designated by the Requisite Lenders.
"Total Credit Exposure Amount" means, as of any date of
determination, an amount equal to the sum of the Credit Exposure
Amounts of all Lenders as of such date.
"Total A Credit Exposure Amount" means, as of any date of
determination, an amount equal to the sum of the A Credit Exposure
Amounts of all Lenders as of such date.
"Total B Credit Exposure Amount" means, as of any date of
determination, an amount equal to the sum of the B Credit Exposure
Amounts of all Lenders as of such date.
"Total Loan Commitment" and "Total Loan Commitments" have
the meanings assigned to those terms in Section 2.4.
"Total Revolving Loan Commitment" means, at any time, an
amount equal to the maximum aggregate amount of the Adjusted Revolving
Loan Commitments of all Lenders then in effect less the then effective
Revolving Loan Deduction Amount.
"Total Utilization of Revolving Loan Commitments" means,
at any date of determination, the sum of (A) the aggregate principal
amount of all outstanding Revolving Loans and Swing Line Loans plus
(B) the Letters of Credit Usage.
"Tranche" means the distinction among the Tranche A Term
Loans, the Tranche B Term Loans and the Revolving Loans.
"Tranche A Commitment" means, with respect to each Lender,
the aggregate amount of the commitment of such Lender to make Tranche
A Term Loans hereunder pursuant to subsection 2.1.1, which may be
reduced from time to time pursuant to the provisions of this Agreement
or by virtue of assignments effected pursuant to a Registered Transfer
Supplement. As of the Closing Date, the Tranche A Commitment of each
Lender is the amount set forth opposite such Lender's name in Schedule
B annexed hereto under the heading "Tranche A Commitment".
"Tranche A Funding Percentage" means, with respect to each
Lender having a Tranche A Commitment, the percentage designated as
such Lender's Tranche A Funding Percentage on Schedule B annexed
hereto under the heading "Tranche A Funding Percentage".
"Tranche A Lenders" means the Lenders having outstanding
Tranche A Term Loans.
"Tranche A Term Borrowing" means a Borrowing comprised of
Tranche A Term Loans.
<PAGE>
"Tranche A Term Loans" means the term loans made by the
Lenders to the Company pursuant to subsection 2.1.1. Each Tranche A
Term Loan shall be either an Adjusted LIBOR Term Loan or an ABR Term
Loan.
"Tranche A Term Maturity Date" has the meaning assigned to
that term in subsection 2.1.5.
"Tranche B Commitment" means, with respect to each Lender,
the aggregate amount of the commitment of such Lender to make Tranche
B Term Loans hereunder pursuant to subsection 2.1.1, which may be
reduced from time to time pursuant to the provisions of this Agreement
or by virtue of assignments effected pursuant to a Registered Transfer
Supplement. As of the Closing Date, the Tranche B Commitment of each
Lender is the amount set forth opposite such Lender's name in Schedule
B annexed hereto under the heading "Tranche B Commitment".
"Tranche B Escrow Account" has the meaning assigned to
that term in paragraph (c) of subsection 2.7.3.
"Tranche B Funding Percentage" means, with respect to each
Lender having a Tranche B Commitment, the percentage designated as
such Lender's Tranche B Funding Percentage on Schedule B annexed
hereto under the heading "Tranche B Funding Percentage".
"Tranche B Lender" means each Lender having outstanding a
Tranche B Term Loan.
"Tranche B Mandatory Prepayment Date" has the meaning
assigned to that term in paragraph (c) of subsection 2.7.3.
"Tranche B Term Maturity Date" has the meaning assigned to
that term in subsection 2.1.5.
"Tranche B Prepayment Amount" has the meaning assigned to
that term in paragraph (c) of subsection 2.7.3.
"Tranche B Prepayment Option Notice" has the meaning
assigned to that term in paragraph (c) of subsection 2.7.3.
"Tranche B Term Borrowing" means a Borrowing comprised of
Tranche B Term Loans.
"Tranche B Term Loans" means the term loans made by the
Lenders to the Company pursuant to subsection 2.1.1.
"Tranche B Term Notes" means the promissory notes of the
Company issued in respect of Tranche B Term Loans pursuant to
subsection 2.1.4 or issued as replacement notes in connection with an
assignment made pursuant to this Agreement and substantially in the
form of Exhibit V annexed hereto, as the same may be modified,
endorsed or amended from time to time in accordance herewith or
therewith.
<PAGE>
"Transaction Costs" means the fees, costs and expenses
payable by the Company pursuant hereto and other fees, costs and
expenses payable by the Company or a Subsidiary thereof in connection
with the Recapitalization (other than interest expense).
"Transferee" has the meaning assigned to that term in
subsection 9.1.4.
"12-5/8% Subordinated Debentures" means the Company's
12-5/8% Subordinated Debentures due November 1, 2000, issued and
outstanding pursuant to a certain indenture, dated as of November 1,
1988 between the Company and United States Trust Company of New York,
as Trustee, as in effect on the Closing Date and as thereafter
amended, supplemented or otherwise modified from time to time in
accordance herewith or therewith.
"UCC" means the Uniform Commercial Code, as in effect in
the applicable jurisdiction.
"Unsecured Expansion Financing" means, in respect of any
Existing Mill Expansion Equipment or Greenfield Expansion Assets, the
incurrence by the Company or any Subsidiary of the Company of
Indebtedness which is not secured by a Lien on any property or assets
of the Company or any Subsidiary of the Company, which Indebtedness
(A) is in an amount that does not exceed 100% of the Construction Cost
to the Company or such Subsidiary to acquire or construct such
Existing Mill Expansion Equipment or Greenfield Expansion Assets, (B)
provides for interest at rates which do not exceed the market rates in
respect of similar types of financing prevailing at the time such
Indebtedness is incurred, (C) has a final scheduled maturity date that
is subsequent to the date on which the final Scheduled Term Loans
Principal Payment in respect of Tranche B Term Loans is due hereunder,
(D) has an Average Life to Stated Maturity that is greater than the
remaining Average Life to Stated Maturity of the Tranche B Term Loans
on the date such Indebtedness is incurred, (E) contains no
representation and warranty, covenant or event of default that (i) is
in addition to the representations and warranties, covenants and
events of default that are currently set forth in one or more of the
Corresponding Debt Instruments applicable thereto or (ii) is more
burdensome (to the Company) than the most burdensome (to the Company)
corresponding representation and warranty, covenant or event of
default set forth in any of the Corresponding Debt Instruments
applicable thereto and (F) if such Indebtedness is Subordinated
Indebtedness, contains subordination provisions no less favorable to
the Lenders than the least favorable subordination provisions (to the
Lenders) in the Existing Subordinated Debt.
"Wholly-Owned Subsidiary" of any Person means any
Subsidiary all of the shares of capital stock of which (except
directors' qualifying shares) are at the time directly or indirectly
owned by such Person.
Section 1.2 Accounting Terms. For the purposes of this
Agreement, all accounting terms not otherwise defined herein shall
have the meanings assigned to them in conformity with GAAP.
Section 1.3 Other Definitional Provisions; Anniversaries.
References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of
<PAGE>
this Agreement unless otherwise specifically provided. Any of the
terms defined in Section 1.1 may, unless the context otherwise
requires, be used in the singular or the plural depending on the
reference. For purposes of this Agreement, a monthly anniversary of
the Closing Date shall occur on the same day of the applicable month
as the day of the month on which the Closing Date occurred; provided
that if the applicable month has no such day (i.e., 29, 30 or 31), the
monthly anniversary shall be deemed to occur on the last day of the
applicable month.
Section 1.4 Adjustment for Special Reserve. For purposes
of calculating the Leverage Ratio in respect of periods which include
fiscal quarters ending on or prior to December 31, 1994, Consolidated
EBITDA shall be determined without taking into account the
establishment of the Special Reserve.
Section 1.5 Currency Equivalent Generally. For all
purposes of this Agreement, (A) the equivalent in Dollars of any
amount in any other currency shall be determined at the rate of
exchange quoted by the Administrative Agent in New York City at 9:00
A.M. (New York City time) on the date of determination to prime banks
in New York City for the spot purchase in the New York foreign
exchange market of such amount of such other currency with Dollars and
(B) the equivalent in any currency (other than Dollars) of any amount
in Dollars shall be determined at the rate of exchange quoted by the
Administrative Agent in New York City at 9:00 A.M. (New York City
time) on the date of determination to prime banks in New York City for
the spot purchase in the New York foreign exchange market of such
amount of Dollars with such other currency. In determining compliance
with the covenants and other terms of this Agreement that require
amounts of another currency to be converted into Dollars or amounts of
Dollars to be converted into another currency, as the case may be,
such amounts shall be converted pursuant to the first sentence of this
Section 1.5 on the date that (A) Indebtedness is incurred, (B) an
Investment is made, (C) a transfer of assets occurs or (D) any other
relevant transaction occurs, as the case may be.
ARTICLE II
COMMITMENTS AND LOANS; NOTES
Section 2.1 Term Loans and Term Notes.
2.1.1. Term Loan Commitments. Subject to the terms and
conditions of this Agreement and in reliance upon the representations
and warranties of the Loan Parties set forth herein and in each of the
other Loan Documents, (A) on the Closing Date, (1) each Lender having
a Tranche A Commitment hereby severally agrees to lend the Company an
aggregate amount not exceeding its Tranche A Funding Percentage of the
Closing Date Tranche A Funding Amount and (2) each Lender having a
Tranche B Commitment hereby severally agrees to lend the Company an
aggregate amount not exceeding its Tranche B Funding Percentage of the
aggregate Tranche B Commitments and (B) on the Deferred Funding Date,
each Lender having a Tranche A Commitment severally agrees to lend the
Company an aggregate amount not exceeding its Tranche A Funding
Percentage of the Deferred Tranche A Funding Amount. The aggregate
amount of the Tranche A Commitments
<PAGE>
is $840,000,000. Each Lender's Tranche A Commitment shall expire on
the Deferred Funding Date (immediately following any funding made on
such date) but, in any event, not later than 5:00 P.M. (New York time)
on the date 45 days after the Closing Date; provided that the Tranche
A Commitment of any Lender that is a Defaulting Lender by reason of
the failure to advance its Tranche A Funding Percentage of the
Deferred Tranche A Funding Amount on the Deferred Funding Date shall
not so terminate until such Lender (or its assignee) shall have so
funded such Tranche A Funding Percentage. The aggregate amount of the
Tranche B Commitments is $300,000,000. Each Lender's Tranche B
Commitment shall expire on the Closing Date (immediately following the
funding of the Tranche B Term Loans). All Tranche A Term Loans under
this Agreement shall be made by the Lenders having a Tranche A
Commitment simultaneously and proportionately to their Tranche A
Funding Percentages and all Tranche B Term Loans under this Agreement
shall be made by the Lenders having a Tranche B Commitment
simultaneously and proportionately to their Tranche B Funding
Percentages, it being understood that no Lender shall be responsible
for any default by any other Lender in such other Lender's obligation
to make a Term Loan hereunder nor shall the Tranche A Commitment or
Tranche B Commitment, as the case may be, of any Lender be increased
or decreased as a result of the default by any other Lender in such
other Lender's obligation to make a Term Loan hereunder. Term Loans
made on any Funding Date shall be made in an aggregate minimum amount
of $5,000,000 and integral multiples of $1,000,000 in excess of that
amount.
2.1.2. Notice of Borrowing. The Company shall deliver to
the Administrative Agent a Notice of Borrowing substantially in the
form of Exhibit I annexed hereto in respect of the Borrowings to be
made on the Closing Date or the Deferred Funding Date as follows: (A)
to the extent such Borrowings will consist of an Adjusted LIBOR Term
Borrowing, such Notice of Borrowing shall be received by the
Administrative Agent no later than 11:00 a.m. (New York time), at
least three Business Days in advance of the Closing Date or the
Deferred Funding Date, as the case may be, and (B) to the extent such
Borrowings will consist of an ABR Term Borrowing, such Notice of
Borrowing shall be received by the Administrative Agent no later than
11:00 a.m. (New York time), at least one Business Day in advance of
the Closing Date or the Deferred Funding Date, as the case may be;
provided that the Notice of Borrowing delivered by the Company in
respect of the Tranche A Term Loans to be borrowed on the Deferred
Funding Date shall in any event be delivered to the Administrative
Agent at least three days prior to the Deferred Funding Date. Each
such Notice of Borrowing shall be irrevocable and shall specify (A)
the date on which Term Loans are to be made (which shall be a Business
Day), (B) whether such Term Loans are Tranche A Term Loans or Tranche
B Term Loans and the total amount of such Term Loans, (C) in the case
of Borrowings to be made on the Closing Date, a computation, in
reasonable detail, of the Closing Date Tranche A Funding Amount, and
(D) whether the Term Loans will be based on Adjusted LIBOR or ABR; and
provided, further, in the case of any such Loans borrowed on or prior
to the 90th day following the Closing Date, such Loans may consist
only of Adjusted LIBOR Loans having a one month Interest Period or ABR
Loans.
2.1.3. Disbursement of Funds. (a) Promptly after
receipt of a Notice of Borrowing pursuant to subsection 2.l.2, the
Administrative Agent shall notify each applicable Lender of the
proposed Borrowing. Arrangements may be made satisfactory to the
Company, the Administrative Agent and each Lender whereby an
<PAGE>
amount up to the aggregate amount of Term Loans to be borrowed on the
Closing Date may be placed in escrow to facilitate the making of such
Loans on the Closing Date; provided that in any event each Lender
shall have made arrangements satisfactory to the Company, the
Administrative Agent and such Lender (pursuant to the Special Funding
Procedures Letter or otherwise) whereby the funds for the Term Loans
to be made on the Closing Date shall be made available by the Lenders
to the Administrative Agent, as escrow agent under the Special Funding
Procedures Letter, not later than 1:00 P.M. (New York time) on the
Closing Date. It is understood and agreed that the Term Loans to be
made on the Closing Date shall not be considered to have been made for
any purposes of this Agreement, and the Company shall have no interest
in such funds, until the escrow agent delivers such funds to the
Administrative Agent pursuant to [paragraph 4] of the Special Funding
Procedures Letter. Upon satisfaction or waiver of the conditions
precedent specified in Sections 3.2 and 3.3, and, in the case of Term
Loans made on the Closing Date, Section 3.1, the Administrative Agent
shall make the proceeds of the Term Loans available to the Company on
the relevant Funding Date by causing an amount of same day funds equal
to the proceeds of all such Loans received by the Administrative Agent
at its office located at One Bankers Trust Plaza, New York, New York
to be credited to the account of the Company at such office of the
Administrative Agent. The parties hereto acknowledge and agree that
all Term Loans will be borrowed in New York, New York, and that no
Term Loans will be made other than in New York, New York.
(b) Unless the Administrative Agent shall have been
notified by any Lender prior to the date of borrowing of Term Loans
that such Lender does not intend to make available to the
Administrative Agent the amount of funds necessary to satisfy such
Lender's obligations under subsection 2.1.1 on such date, the
Administrative Agent may assume that such Lender has made such amount
available to the Administrative Agent on such date and the
Administrative Agent in its sole discretion may, but shall not be
obligated to, make available to the Company a corresponding amount on
such date. If such corresponding amount is not in fact made available
to the Administrative Agent by such Lender, the Administrative Agent
shall be entitled to recover such corresponding amount on demand from
such Lender together with interest thereon, for each day from the date
of borrowing of Term Loans until the date such amount is paid to the
Administrative Agent, at the customary rate set by the Administrative
Agent for the correction of errors among banks for three Business Days
and thereafter at ABR. If such Lender does not pay such corresponding
amount forthwith upon the Administrative Agent's demand therefor, the
Administrative Agent shall promptly notify the Company and the Company
shall immediately pay such corresponding amount to the Administrative
Agent. Nothing in this subsection 2.l.3 shall be deemed to relieve
any Lender from its obligation to fulfill its Tranche A Commitment
and/or Tranche B Commitment, as the case may be, hereunder or to
prejudice any rights which the Company may have against any Lender as
a result of any default by such Lender hereunder.
2.1.4. Term Notes. As of the Closing Date or, in the
case of Tranche A Term Borrowings made after the Closing Date, the
Deferred Funding Date, the Company has executed and delivered to each
Lender, as applicable (or to the Administrative Agent for that
Lender), a Tranche A Term Note substantially in the form of Exhibit
III or a Tranche B Term Note substantially in the form of Exhibit V,
each as annexed hereto, to evidence such Lender's Term Loan(s), in the
principal
<PAGE>
amount of such Lender's Tranche A Commitment and/or Tranche B
Commitment, as the case may be, with other appropriate insertions.
2.1.5. Scheduled Payments of Term Loans. For each
six-month period after the Closing Date, the Company shall make a
principal payment in respect of Tranche A Term Loans and Tranche B
Term Loans in the amount of the Scheduled Term Loans Principal Payment
applicable to such Term Loans for such period. Each Scheduled Term
Loans Principal Payment shall be due and payable on the last day of
the relevant six-month period identified in the definition of
Scheduled Term Loans Principal Payment, except that the principal
payment for the 16th such six-month period shall be made on December
31, 2002 (the "Tranche B Term Maturity Date"). Any payment or
prepayment of the Term Loans may not be reborrowed. The Tranche A
Term Loans and all other amounts owed hereunder with respect to
Tranche A Term Loans shall be paid in full no later than the date
which is the seventh anniversary of the Closing Date (such seventh
anniversary, the "Tranche A Term Maturity Date"). The Tranche B Term
Loans and all other amounts owed hereunder with respect to the Tranche
B Term Loans shall be paid in full no later than the Tranche B Term
Maturity Date.
Section 2.2 Letters of Credit.
2.2.1. Letters of Credit. (a) In addition to requesting
that the Lenders make Revolving Loans pursuant to Section 2.3, the
Company may request, in accordance with the provisions of this
subsection 2.2.1, that on and after the Closing Date and prior to the
date that is thirty Business Days preceding the Revolving Credit
Maturity Date one or more Fronting Banks issue, subject to the terms
and conditions of this Agreement and in reliance upon the
representations and warranties of the Loan Parties set forth herein
and in each of the other Loan Documents, Letters of Credit for the
Company's account; provided that (A) the Company shall not request
that any Fronting Bank issue any Letter of Credit if, after giving
effect to such issuance, the Total Utilization of Revolving Loan
Commitments would exceed the Total Revolving Loan Commitment then in
effect, (B) in no event shall any Fronting Bank issue (1) any Letter
of Credit having an expiration date later than the Revolving Credit
Maturity Date or (2) subject to the foregoing subclause (1), any
Commercial Letter of Credit having an expiration date more than 270
days after its date of issuance or any Standby Letter of Credit having
an expiration date more than one year after its date of issuance,
provided that, subject to the foregoing subclause (1), this subclause
(2) shall not prevent any Fronting Bank from agreeing that a Standby
Letter of Credit will automatically be renewed annually for a period
not to exceed one year if such Fronting Bank does not cancel such
renewal, and (C) the Company shall not request that any Fronting Bank
issue any Letter of Credit if, after giving effect to such issuance,
the Letters of Credit Usage in respect of Letters of Credit would
exceed $50,000,000. The issuance of any Letter of Credit in
accordance with the provisions of this subsection 2.2.1 shall be given
effect in the calculation of the Total Utilization of Revolving Loan
Commitments and shall require the satisfaction of each condition set
forth in Sections 3.2 and 3.5.
(b) Immediately upon the issuance of each Letter of
Credit, each Lender having an Adjusted Revolving Loan Percentage
greater than zero shall be deemed to, and hereby agrees to, have
irrevocably purchased from the Fronting Bank a participation in such
Letter of Credit and all drawings thereunder in an amount
<PAGE>
equal to such Lender's Adjusted Revolving Loan Percentage of the
maximum amount which is or at any time may become available to be
drawn thereunder. Upon any change in the Revolving Loan Commitments
or Adjusted Revolving Loan Percentages of the Lenders pursuant to
Section 9.22 or 9.1 or as a result of the occurrence of a Lender
Default or the cure by any Defaulting Lender of a Lender Default, with
respect to all outstanding Letters of Credit and all then unreimbursed
drawings under any Letters of Credit, there shall be an automatic
adjustment to the participations pursuant to this subsection 2.2.1 to
reflect the new Adjusted Revolving Loan Percentages of the Lenders;
provided that no such adjustment shall relieve any Defaulting Lender
of its obligations under this Agreement to the Company or, in the
circumstances contemplated in the proviso to the definition of
Adjusted Revolving Loan Percentage, to the other Lenders and the
Fronting Bank or Fronting Banks.
(c) Each Letter of Credit may provide that the applicable
Fronting Bank may (but shall not be required to) pay the beneficiary
thereof, upon the occurrence of an Event of Default or, if payment is
not then due to the beneficiary, provide for the deposit of funds in
an account to secure payment to the beneficiary and that any funds so
deposited shall be paid to the beneficiary of the Letter of Credit if
conditions to such payment are satisfied or returned to the
Administrative Agent for ratable distribution to the Lenders (or, if
all Obligations then due shall have been indefeasibly paid in full, to
the Company) if no payment to the beneficiary has been made and the
final date available for drawings under such Letter of Credit has
passed. Each payment or deposit of funds by a Fronting Bank as
provided in this paragraph shall be treated for all purposes of this
Agreement as a drawing duly honored by such Fronting Bank under the
related Letter of Credit.
2.2.2. Request for Issuance. Whenever the Company
desires the issuance of a Letter of Credit, it shall deliver to the
Administrative Agent a written notice no later than 1:00 P.M. (New
York time) at least ten Business Days (in the case of Standby Letters
of Credit), or five Business Days (in the case of Commercial Letters
of Credit), or, in each such case, such shorter period as may be
agreed to by any Fronting Bank in any particular instance, in advance
of the proposed date of issuance. Such notice shall specify (A) the
proposed date of issuance (which shall be a business day under the
laws of the jurisdiction of the applicable Fronting Bank), (B) the
face amount and type of the Letter of Credit requested, (C) the
expiration date of the Letter of Credit requested, (D) the name and
address of the beneficiary thereof and (E) the Benefited Subsidiary or
Benefited Subsidiaries, if any, with respect to such Letter of Credit
and the amount inuring to the benefit of each such Benefited
Subsidiary. As soon as practicable after delivery of such notice, the
Fronting Bank for such Letter of Credit shall be determined as
provided in subsection 2.2.3. Prior to the date of issuance of any
Letter of Credit, the Company shall specify a precise description of
the form of such Letter of Credit and documents and the verbatim text
of any certificate to be presented by the beneficiary of such Letter
of Credit which, if presented by such beneficiary prior to the
expiration date of such Letter of Credit, would require the applicable
Fronting Bank to make payment under such Letter of Credit; provided
that the Fronting Bank, in its sole reasonable judgment, may prior to
the date of issuance require changes in the form of such Letter of
Credit and any such documents and certificates; and provided, further,
that no Letter of Credit shall require payment against a conforming
draft to be made thereunder on the same business day (under the laws
of the jurisdiction of the Fronting Bank) that such draft is presented
if such presentation is made after
<PAGE>
1:00 p.m. (in the time zone of the jurisdiction of the Fronting Bank)
on such business day. Promptly after receipt of a request for
issuance of a Letter of Credit and the determination of the Fronting
Bank therefor, the Administrative Agent shall notify each Lender
having a Revolving Loan Commitment of the proposed issuance, the
identity of the Fronting Bank and the amount of each such other
Lender's respective participation therein, determined in accordance
with subsection 2.2.1.
2.2.3. Determination of Fronting Bank. (a) Upon receipt
by the Administrative Agent of a notice from the Company pursuant to
subsection 2.2.2 requesting the issuance of a Letter of Credit, in the
event Bankers elects to issue such Letter of Credit, the
Administrative Agent shall so notify the Company and Bankers shall be
the Fronting Bank with respect thereto. In the event that Bankers, in
its sole discretion, elects not to issue such Letter of Credit,
Bankers shall promptly so notify the Company and the Company may
request any other Arranger to issue such Letter of Credit. Each such
Arranger so requested to issue such Letter of Credit shall promptly
notify the Company and the Administrative Agent whether or not, in its
sole discretion, it has elected to issue such Letter of Credit, and
any such Arranger which so elects to issue such Letter of Credit shall
be the Fronting Bank with respect thereto. In the event that all
Arrangers shall have declined to issue such Letter of Credit,
notwithstanding the prior election of each Arranger not to issue such
Letter of Credit, each Arranger shall be obligated to issue a Letter
of Credit in a maximum aggregate amount available for drawing equal to
such Arranger's proportionate share (based upon the relative Adjusted
Revolving Loan Percentages of the Arrangers) of the Letter of Credit
requested by the Company and each Arranger shall be a Fronting Bank
with respect to the Letter of Credit issued by it.
(b) Each Fronting Bank which elects to issue a Letter of
Credit shall promptly give written notice to the Administrative Agent
and each other Lender having an Adjusted Revolving Loan Percentage
greater than zero of the information required under clauses (A)
through (E) of the second sentence of subsection 2.2.2 relating to
such Letter of Credit and shall deliver a copy of such Letter of
Credit, and any amendment thereto, to the Administrative Agent.
2.2.4. Payment of Amounts Drawn Under Letters of Credit.
(a) In determining whether to pay under any Letter of Credit, the
Fronting Bank with respect thereto shall be responsible only to
determine that the documents and certificates required to be delivered
under such Letter of Credit have been delivered and that they
substantially comply on their face with the requirements of such
Letter of Credit.
(b) In the event of any drawing under any Letter of
Credit by the beneficiary thereof, the Fronting Bank shall notify the
Company and the Administrative Agent on or before 11:00 a.m. (New York
time) on the Business Day on which such Fronting Bank intends to honor
such drawing, and if notified on or before such time, the Company
shall reimburse such Fronting Bank on the day on which such drawing is
honored in an amount in same day funds equal to the amount of such
drawing; provided that, if the Fronting Bank notifies the Company and
the Administrative Agent after 11:00 a.m. (New York time) on the
Business Day on which such Fronting Bank intends to honor such
drawing, the Company shall reimburse such Fronting Bank on the
Business Day immediately following the day on which it
<PAGE>
receives notice that such drawing was honored in an amount in same
day funds equal to the amount of such drawing plus accrued interest on
such amount at, notwithstanding the provisions of subparagraph (a)(ii)
of subsection 2.2.6, the rate payable under this Agreement for ABR
Loans; and provided, further, that, anything contained in this
Agreement to the contrary notwithstanding, (A) unless the Company
shall have notified the Administrative Agent and such Fronting Bank
prior to 11:00 a.m. (New York time) on the Business Day immediately
prior to the second Business Day after the date on which the Fronting
Bank has notified the Company of its intent to honor such drawing that
the Company intends to reimburse such Fronting Bank for the amount of
such drawing with funds other than the proceeds of Revolving Loans or
unless the Company shall have previously given to the Administrative
Agent a timely Notice of Borrowing for Revolving Loans that are
Adjusted LIBOR Loans in an amount at least equal to the amount of such
drawing, the Company shall be deemed to have timely given a Notice of
Borrowing to the Administrative Agent requesting the Lenders having
Revolving Loan Commitments to make Revolving Loans which are ABR Loans
on the date on which the Company is obligated to reimburse the
Fronting Bank in an amount equal to the amount of such drawing, and
(B) subject to satisfaction or waiver of the conditions specified in
Section 3.2, such Lenders shall, on the date on which the Company is
obligated to reimburse the applicable Fronting Bank, make Revolving
Loans which are Adjusted LIBOR Loans or ABR Loans, as the case may be,
in the amount of such drawing, the proceeds of which shall be applied
directly by the Administrative Agent to reimburse such Fronting Bank
for the amount of such drawing; and provided, further, that if, for
any reason, proceeds of Revolving Loans are not received by such
Fronting Bank on such date in an amount equal to the amount of such
drawing the Company shall reimburse such Fronting Bank, on the
business day (under the laws of the jurisdiction of such Fronting
Bank) immediately following the date of such drawing, in an amount in
same day funds equal to the excess of the amount of such drawing over
the amount of such Revolving Loans, if any, which are so received,
plus accrued interest on such amount at the rate set forth in
subparagraph (a)(ii) of subsection 2.2.6; and provided, further, that,
if proceeds of any Revolving Loan are not received by the Fronting
Bank as a result of the failure of a Lender to fund such Revolving
Loan when required to do so by the terms of this Agreement, then the
accrued interest on the amount so reimbursed shall be at the rate set
forth in subsection 2.5.1 which would have applied to such Revolving
Loan.
(c) The Fronting Bank shall, to the fullest extent
permitted by applicable law, apply all reimbursement funds received by
it from the Company pursuant to subsection 2.2.4(b) in the following
order of priority: first, to the Fronting Bank for any amount then
due and payable to such Fronting Bank in connection with such Letter
of Credit, second, to all other Lenders (other than Defaulting
Lenders) ratably (according to the respective amounts paid by such
other Lenders in connection with such Letter of Credit pursuant to
subsection 2.2.5) for any amounts then due and payable to such other
Lenders in connection with such Letter of Credit, and third, to all
Defaulting Lenders ratably (according to the respective amounts paid
by such Lenders in connection with such Letter of Credit pursuant to
Section 2.2.5) for any amounts then due and payable to such Lenders in
connection with such Letter of Credit.
2.2.5. Payment by the Lenders. In the event that the
Company shall fail to reimburse a Fronting Bank as provided in
subsection 2.2.4 in an amount equal
<PAGE>
to the amount of any drawing honored by such Fronting Bank under a
Letter of Credit issued by it, such Fronting Bank shall promptly
notify each Lender of the unreimbursed amount of such drawing, plus
accrued interest thereon, and of such Lender's respective
participation therein. Each Lender shall make available to such
Fronting Bank an amount equal to its respective participation in same
day funds, at the office of such Fronting Bank specified in such
notice, not later than 1:00 P.M. (New York time) on the business day
(under the laws of the jurisdiction of such Fronting Bank) after the
date notified by such Fronting Bank. In the event that any Lender
fails to make available to such Fronting Bank the amount of such
Lender's participation in such Letter of Credit as provided in this
subsection 2.2.5, such Fronting Bank shall be entitled to recover such
amount on demand from such Lender together with interest at the
customary rate set by the Administrative Agent for the correction of
errors among banks for three Business Days and thereafter at ABR.
Nothing in this subsection 2.2.5 shall be deemed to prejudice the
right of any Lender to recover from such Fronting Bank any amounts
made available by such Lender to such Fronting Bank pursuant to this
subsection 2.2.5 in the event that it is determined by a court of
competent jurisdiction that the payment with respect to a Letter of
Credit by such Fronting Bank in respect of which payment was made by
such Lender constituted gross negligence or willful misconduct on the
part of such Fronting Bank. Each Fronting Bank shall distribute to
each other Lender which has paid all amounts payable by it under this
subsection 2.2.5 with respect to any Letter of Credit issued by such
Fronting Bank such other Lender's Adjusted Revolving Loan Percentage
of all payments received by such Fronting Bank from the Company in
reimbursement of drawings honored by such Fronting Bank under such
Letter of Credit when such payments are received.
2.2.6. Compensation. (a) The Company agrees to pay the
following amounts to each Fronting Bank with respect to each Letter of
Credit issued by it:
(i) with respect to the issuance, amendment or transfer
of each Letter of Credit and each drawing made thereunder,
documentary and processing charges in accordance with such
Fronting Bank's standard schedule for such charges in effect at
the time of such issuance, amendment, transfer or drawing, as
the case may be; and
(ii) except as otherwise provided in subsection 2.2.4,
with respect to drawings made under any Letter of Credit,
interest, payable on demand, on the amount paid by such Fronting
Bank in respect of each such drawing from the date of the
drawing through the date such amount is reimbursed by the
Company (including any such reimbursement out of the proceeds of
Revolving Loans or Swing Line Loans, as the case may be,
pursuant to subsection 2.2.4) at a rate which is at all times
equal to 2.0% per annum in excess of the rate of interest
otherwise payable under this Agreement for ABR Loans.
(b) The Company agrees to pay to the Administrative Agent
for distribution to each Lender having a Revolving Loan Commitment in
respect of all Letters of Credit outstanding such Lender's Adjusted
Revolving Loan Percentage of a commission on the maximum amount
available from time to time to be drawn under such outstanding Letters
of Credit at a rate per annum equal to the LIBOR Spread then
applicable to Adjusted LIBOR Revolving Loans, payable in arrears on
and through the last day of each fiscal quarter of the Company (or the
first date on
<PAGE>
which the Revolving Loan Commitment shall have expired or been
terminated and there shall be no outstanding Letters of Credit, if
earlier) and calculated on the basis of a 360-day year and the actual
number of days elapsed.
(c) The Company agrees to pay to each Fronting Bank in
respect of all Letters of Credit outstanding issued by such Fronting
Bank a facing fee (the "Facing Fee") equal to .25% per annum of the
maximum amount available from time to time to be drawn under such
outstanding Letters of Credit, payable in arrears on and through the
last day of each fiscal quarter of the Company (or the first date on
which the Revolving Loan Commitments shall have expired or been
terminated and there shall be no outstanding Letters of Credit, if
earlier) and calculated on the basis of a 360-day year and the actual
number of days elapsed, provided that in no event shall the annual
Facing Fee with respect to each Letter of Credit be less than $500, it
being agreed that, on the date of issuance of any Letter of Credit and
on each anniversary thereof prior to the expiration or termination of
such Letter of Credit, if $500 will exceed the amount of Facing Fees
that will accrue with respect to such Letter of Credit for the
immediately succeeding 12-month period, the full $500 shall be payable
on the date of issuance of such Letter of Credit and on each such
anniversary thereof prior to the expiration or termination of such
Letter of Credit.
(d) Promptly upon receipt by the Administrative Agent or
any Fronting Bank of any amount described in subparagraph (a)(ii) or
paragraph (b) of this subsection 2.2.6, the Administrative Agent on
behalf of such Fronting Bank, or such Fronting Bank, as applicable,
shall distribute to each Lender its Adjusted Revolving Loan Percentage
of such amount. Amounts payable under subparagraph (a)(i) and
paragraph (c) of this subsection 2.2.6 shall be paid directly to the
applicable Fronting Bank.
(e) Once paid, any commissions or fees described in this
subsection shall not be refundable or creditable in any circumstances.
2.2.7. Obligations Absolute. The obligation of the
Company to reimburse each Fronting Bank for drawings made under the
Letters of Credit issued by it and the obligations of the Lenders
under subsection 2.2.5 shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Agreement
under all circumstances including, without limitation, the following
circumstances:
(i) any lack of validity or enforceability of any Letter
of Credit;
(ii) the existence of any claim, set-off, defense or other
right which the Company or any Affiliate of the Company may have
at any time against a beneficiary or any transferee of any
Letter of Credit (or any persons or entities for whom any such
beneficiary or transferee may be acting), such Fronting Bank,
any Lender or any other Person, whether in connection with this
Agreement, the 1988 Credit Agreement, the transactions contemplated
herein or therein or any unrelated transaction (including any
underlying transaction between the Company or one of its
Subsidiaries and the beneficiary for which the Letter of Credit
was procured);
<PAGE>
(iii) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect
other than solely as the result of gross negligence or willful
misconduct of the applicable Fronting Bank;
(iv) payment by such Fronting Bank under any Letter of
Credit against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such
Letter of Credit other than if said payment is solely the result
of the gross negligence or willful misconduct of such Fronting
Bank;
(v) any other circumstance or happening whatsoever, which
is similar to any of the foregoing;
(vi) the fact that an Event of Default or a Potential
Event of Default shall have occurred and is continuing; or
(vii) any Lender Default.
2.2.8. Additional Payments. Without duplication of
payments under subsection 2.9.7, if by reason of (A) after the date of
this Agreement any change in applicable law, regulation, rule, decree
or regulatory requirement or any change in the interpretation or
application by any judicial or regulatory authority of any applicable
law, regulation, rule, decree or regulatory requirement or (B)
compliance by any Fronting Bank or any Lender with any direction,
request or requirement (whether or not having the force of law) of any
governmental or monetary authority including, without limitation,
Regulation D:
(i) such Fronting Bank or any Lender shall be subject to
any tax, levy, charge or withholding of any nature or to any
variation thereof or to any penalty with respect to the
maintenance or fulfillment of its obligations in respect of
Letters of Credit or participations therein under this Section 2.2
(except for changes in the rate of tax on the overall net income of
such Fronting Bank or Lender or its applicable lending office
imposed by the jurisdiction in which such Fronting Bank's or
Lender's principal executive office or applicable lending office
is located), whether directly or by such tax, levy, charge or
withholding being imposed on payments in respect of Letters of
Credit or participations therein made to such Fronting Bank or any
Lender;
(ii) any reserve, deposit or similar requirement is or
shall be applicable, imposed or modified in respect of any
Letter of Credit issued by such Fronting Bank or participations
therein purchased by any Lender; or
(iii) there shall be imposed on such Fronting Bank or any
Lender any other condition regarding this Section 2.2, any
Letter of Credit or any participation therein;
and the result of any of the foregoing is directly or indirectly to
increase the cost to such Fronting Bank or any Lender of issuing,
making or maintaining any Letter of Credit or of purchasing or
maintaining any participation between a Lender and the
<PAGE>
Fronting Bank in any Letter of Credit, or to reduce the amount
receivable in respect thereof by such Fronting Bank or any Lender,
then and in any such case such Fronting Bank or such Lender may, from
time to time after obtaining actual knowledge that the additional cost
was incurred or the amount received was reduced, notify the Company
and the Company shall, within 5 days of receipt of the request
therefor, pay such amounts as such Fronting Bank or such Lender may
specify to be necessary to compensate such Fronting Bank or such
Lender for such additional cost or reduced receipt, together with
interest on such amount from the date demanded until payment in full
thereof at a rate per annum equal at all times to the rate applicable
to ABR Loans; provided that the Company shall have no obligation to
such Fronting Bank or such Lender under this subsection 2.2.8 if (A)
such Fronting Bank or such Lender shall not have notified the Company
within six months following the later of (1) the date of the
occurrence of the event which forms the basis for such request and (2)
the date such Fronting Bank or such Lender shall have become aware of
such event or (B) the obligation to pay additional amounts on account
of taxes, levies, charges or withholdings would not have arisen but
for (1) the failure of such Fronting Bank or such Lender to provide
any applicable forms or other documents requested by the Company which
such Fronting Bank or Lender is otherwise required to provide under
this Agreement that would establish the entitlement of such Fronting
Bank or such Lender to a reduced rate of, or an exemption from, such
tax, levy, charge, withholding or similar item or (2) any
representation or warranty made by such Fronting Bank or such Lender
with respect to an exemption (partial or complete) from taxes, levies,
charges or withholdings proving to have been incorrect, false or
misleading in any material respect when so made. The determination by
such Fronting Bank or any Lender, as the case may be, of any amount
due pursuant to this subsection 2.2.8 as set forth in a certificate
setting forth the calculation thereof in reasonable detail, shall, in
the absence of manifest error, be final and conclusive and binding on
all of the parties hereto.
2.2.9. Indemnification; Nature of Fronting Bank's Duties.
(a) In addition to amounts payable as elsewhere provided in this
Section 2.2, without duplication, the Company hereby agrees to
protect, indemnify, pay and save each Fronting Bank, upon its demand
and as incurred, harmless from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable attorneys' fees and reasonable allocated costs
of internal counsel) which such Fronting Bank may incur or be subject
to as a consequence, direct or indirect, of (A) the issuance of the
Letters of Credit, other than such claims, demands, liabilities,
damages, losses, costs, changes and expenses as result from the gross
negligence or willful misconduct of such Fronting Bank or (B) the
failure of such Fronting Bank to honor a drawing under any Letter of
Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
governmental authority or court (all such acts or omissions,
"Government Acts").
(b) As between the Company, on the one hand, and each
Fronting Bank, on the other hand, the Company assumes all risks of the
acts and omissions of, or misuse of the Letters of Credit issued by
such Fronting Bank by, the respective beneficiaries of such Letters of
Credit. In furtherance and not in limitation of the foregoing, such
Fronting Bank shall not be responsible: (A) for the form, validity,
sufficiency, accuracy, genuineness or legal effects of any document
submitted by any party in connection with the application for and
issuance of such Letters of Credit,
<PAGE>
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged, (B) for the validity
or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason, (C)
for failure of the beneficiary of any such Letter of Credit to comply
fully with conditions required in order to draw upon such Letter of
Credit, (D) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph,
telex, telephone, facsimile or otherwise, whether or not they be in
cipher, (E) for errors in interpretation of technical terms, (F) for
any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under any such Letter of Credit or
of the proceeds thereof, (G) for the misapplication by the beneficiary
of any such Letter of Credit of the proceeds of any drawing under such
Letter of Credit and (H) for any consequences arising from causes
beyond the control of such Fronting Bank, including, without
limitation, any Government Acts. None of the above shall affect,
impair, or prevent the vesting of any of such Fronting Bank's rights
or powers hereunder.
(c) In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, any action taken or
omitted by any Fronting Bank under or in connection with the Letters
of Credit issued by it or the related certificates, if taken or
omitted in good faith, shall not put such Fronting Bank under any
resulting liability to the Company.
(d) Notwithstanding anything to the contrary contained in
this subsection 2.2.9, the Company shall not have any obligation to
indemnify any Fronting Bank in respect of any liability incurred by
such Fronting Bank which (A) results from the gross negligence or
willful misconduct of such Fronting Bank or (B) arises out of the
wrongful dishonor by such Fronting Bank of proper demand for payment
made under any Letter of Credit issued by it.
2.2.10. Computation of Interest. Interest payable
pursuant to this Section 2.2 shall be computed on the basis of a
360-day year (except for interest payable in respect of ABR Loans
based on the Prime Rate, which shall be computed on the basis of a
365/66 day year) and the actual number of days elapsed in the period
during which it accrues.
Section 2.3 Revolving Loans and Revolving Notes.
2.3.1. (a) Revolving Loan Commitments. Subject to the
terms and conditions of this Agreement and in reliance upon the
representations and warranties of the Loan Parties set forth herein
and in each of the other Loan Documents, each Lender having a
Revolving Loan Commitment hereby severally agrees to lend to the
Company, from time to time during the period from and including the
Closing Date to but excluding the Revolving Credit Maturity Date, its
Adjusted Revolving Loan Percentage of Revolving Loans which may from
time to time be borrowed by the Company hereunder to be used for the
purposes identified in subsection 2.8.2. Each Lender's Revolving Loan
Commitment shall expire on the Revolving Credit Maturity Date and all
Revolving Loans and all other amounts owed hereunder with respect to
the Revolving Loans shall be paid in full no later than the Revolving
Credit Maturity Date. In no event shall the aggregate principal
amount of
<PAGE>
the Revolving Loans from and Letters of Credit Usage of any Lender
outstanding at any time exceed its Revolving Loan Commitment then in
effect less such Lender's Adjusted Revolving Loan Percentage of the
Revolving Loan Deduction Amount and such Lender's Adjusted Revolving
Loan Percentage of the amount of any Swing Line Loans then
outstanding, and in no event shall the Total Utilization of Revolving
Loan Commitments exceed the Total Revolving Loan Commitment.
(b) Subject to subsection 2.9.4, all Revolving Loans
under this Agreement shall be made by the Lenders simultaneously and
proportionately to their Adjusted Revolving Loan Percentages, it being
understood that no Lender shall be responsible for any default by any
other Lender in such other Lender's obligation to make Revolving Loans
hereunder nor shall the amount of the Revolving Loan Commitment of any
Lender be increased or decreased as a result of the default by any
other Lender in such other Lender's obligation to make Revolving Loans
hereunder. Amounts borrowed by the Company under this subsection
2.3.1 may, subject to the limitations set forth in subsection 2.7.1,
be repaid and, subject to the other limitations set forth in this
Agreement, to but excluding the Revolving Credit Maturity Date, be
reborrowed. Revolving Loans made on any Funding Date shall, except as
provided in Section 2.9 and subsection 2.11.1, be made in an aggregate
minimum amount of $10,000,000 and integral multiples of $1,000,000 in
excess of that amount or, if less, the unutilized amount of the Total
Revolving Loan Commitment.
2.3.2. Notice of Borrowing. (a) Whenever the Company
desires to borrow under this Section 2.3, it shall deliver to the
Administrative Agent a Notice of Borrowing substantially in the form
of Exhibit I annexed hereto (A) to the extent such Borrowings will
consist of ABR Revolving Borrowings, no later than 2:00 P.M. (New York
time) at least one Business Day in advance of the proposed Funding
Date or (B) to the extent such Borrowings consist of Adjusted LIBOR
Revolving Borrowings, no later than 2:00 P.M. (New York time) at least
three Business Days in advance of the proposed Funding Date. The
Notice of Borrowing shall specify (A) the proposed Funding Date (which
shall be a Business Day), (B) the amount of the proposed Revolving
Loans, (C) whether such Revolving Loans are initially to consist of
ABR Loans or Adjusted LIBOR Loans or a combination thereof, and (D) if
such Revolving Loans, or any portion thereof, are initially to be
Adjusted LIBOR Loans, the amount thereof and the initial Interest
Periods therefor; provided that the minimum amount of Adjusted LIBOR
Loans with a particular Interest Period included as a portion of any
such combination, if any, shall be $25,000,000 and integral multiples
of $1,000,000 in excess of that amount; and provided, further, in the
case of any such Loans borrowed on or prior to the 90th day following
the Closing Date, such Loans may consist only of Adjusted LIBOR Loans
having a one month Interest Period or ABR Loans. Revolving Loans may
be continued as or converted into ABR Loans or Adjusted LIBOR Loans in
the manner provided in subsection 2.5.4. In lieu of delivering the
above-described Notice of Borrowing, the Company may give the
Administrative Agent telephonic notice by the required time of any
proposed borrowing under this Section 2.3; provided that such notice
shall be promptly confirmed in writing by delivery of a Notice of
Borrowing to the Administrative Agent on or prior to the Funding Date
of the requested Revolving Loans.
(b) Neither the Administrative Agent nor any Lender shall
incur any liability to the Company in acting upon any telephonic
notice referred to above
<PAGE>
which the Administrative Agent believes in good faith to have been
given by a duly authorized officer or other person authorized to
borrow on behalf of the Company or for otherwise acting in good faith
under this subsection 2.3.2 and, upon the making of Revolving Loans by
the Lenders in accordance with this Agreement pursuant to any
telephonic notice, the Company shall have borrowed Revolving Loans
hereunder.
(c) Except as provided in subsection 2.9.4, a Notice of
Borrowing for an Adjusted LIBOR Loan (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and the Company shall be bound to make a Borrowing
in accordance therewith.
2.3.3. Disbursement of Funds. (a) Promptly after
receipt of a Notice of Borrowing pursuant to subsection 2.3.2 (or
telephonic notice in lieu thereof), the Administrative Agent shall
notify each Lender having an Adjusted Revolving Loan Percentage
greater than zero of the proposed Borrowing. Each such Lender shall
make the amount of its Revolving Loan available to the Administrative
Agent, in same day funds, at the office of the Administrative Agent
located at One Bankers Trust Plaza, New York, New York not later than
12:00 Noon (New York time) on the applicable Funding Date. Upon
satisfaction or waiver of the conditions precedent specified in
Sections 3.1, 3.2 and 3.4, the Administrative Agent shall make the
proceeds of such Loans available to the Company on the applicable
Funding Date by causing an amount of same day funds equal to the
proceeds of all such Loans received by the Administrative Agent at its
office located at One Bankers Trust Plaza, New York, New York, to be
credited to the account of the Company at such office of the
Administrative Agent. The parties hereto acknowledge and agree that
all Revolving Loans will be borrowed in New York, New York, and that
no Revolving Loans will be made other than in New York, New York.
(b) Unless the Administrative Agent shall have been
notified by any Lender having a Revolving Loan Commitment prior to any
Funding Date in respect of any Revolving Loans that such Lender does
not intend to make available to the Administrative Agent such Lender's
Revolving Loan on such Funding Date, the Administrative Agent may
assume that such Lender has made such amount available to the
Administrative Agent on such Funding Date and the Administrative Agent
in its sole discretion may, but shall not be obligated to, make
available to the Company a corresponding amount on such Funding Date.
If such corresponding amount is not in fact made available to the
Administrative Agent by such Lender, the Administrative Agent shall be
entitled to recover such corresponding amount on demand from such
Lender, together with interest thereon, for each day from such Funding
Date until the date such amount is paid to the Administrative Agent at
the customary rate set by the Administrative Agent for the correction
of errors among banks for three Business Days and thereafter at ABR.
If such Lender does not pay such corresponding amount forthwith upon
the Administrative Agent's demand therefor, the Administrative Agent
shall promptly notify the Company and the Company shall immediately
pay such corresponding amount to the Administrative Agent. Nothing in
this subsection 2.3.3 shall be deemed to relieve any Lender having a
Revolving Loan Commitment from its obligation to fulfill its Revolving
Loan Commitment hereunder or to prejudice any rights which the Company
may have against any such Lender as a result of any default by such
Lender hereunder.
<PAGE>
2.3.4. Revolving Notes. The Company shall execute and
deliver to each Lender having a Revolving Loan Commitment (or to the
Administrative Agent for such Lender) a Revolving Note substantially
in the form of Exhibit IV annexed hereto to evidence such Lender's
Revolving Loans, in the principal amount of such Lender's Revolving
Loan Commitment.
Section 2.4 Total Loan Commitments; Limitations on
Outstanding Loan Amounts. The aggregate amount of the Tranche A
Commitment, the Tranche B Commitment and the Revolving Loan Commitment
of each Lender hereunder, as in effect at any time, is called its
"Total Loan Commitment"; and the aggregate amount of the Tranche A
Commitments, Tranche B Commitments and Adjusted Revolving Loan
Commitments of all the Lenders hereunder as in effect at any time is
herein called the "Total Loan Commitments" at such time. The Total
Loan Commitment as of the Closing Date is $1,440,000,000. Anything
contained in this Agreement to the contrary notwithstanding, (A) in no
event shall the sum of (1) the aggregate principal amount of all Loans
made by a Lender and (2) the amount of Letters of Credit Usage of such
Lender outstanding at any time exceed its Total Loan Commitment less
such Lender's Adjusted Revolving Loan Percentage of the Revolving Loan
Deduction Amount and such Lender's Adjusted Revolving Loan Percentage
of the amount of any Swing Line Loans then outstanding, and (B) in no
event shall the sum of (1) the aggregate principal amount of all Loans
made by all the Lenders and (2) the amount of Letters of Credit Usage
of all the Lenders outstanding exceed the Total Loan Commitments less
the Revolving Loan Deduction Amount and the amount of any portion of
the Deferred Tranche A Funding Amount that was not funded on the
Deferred Funding Date (because of a Lender Default).
Section 2.5 Interest on the Loans.
2.5.1. Rate of Interest. (a) The Loans shall bear
interest on the unpaid principal amount thereof from the date made
through maturity (whether by acceleration or otherwise) at a rate
determined by reference to ABR or Adjusted LIBOR. The applicable
basis for determining the rate of interest with respect to Term Loans
and Revolving Loans shall be selected by the Company at the time a
Notice of Borrowing is given pursuant to subsection 2.1.2 or 2.3.2.
If on any day a Term Loan or Revolving Loan is outstanding with
respect to which notice has not been delivered to the Administrative
Agent in accordance with the terms of this Agreement specifying the
basis for determining the rate of interest, then for that day that
Term Loan or Revolving Loan shall bear interest determined by
reference to ABR.
(b) Loans comprising each ABR Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed
over a year of 365 or 366 days, as the case may be, when ABR is
determined by reference to the Prime Rate and over a year of 360 days
at all other times) at a rate per annum equal to ABR (as ABR changes
from time to time) plus the ABR Spread in effect at such time with
respect to such Loans. Swing Line Loans shall bear interest at the
rate applicable to ABR Revolving Loans.
(c) Loans comprising each Adjusted LIBOR Borrowing shall
bear interest (computed on the basis of the actual number of days
elapsed over a year of 360 days) at a rate per annum equal to Adjusted
LIBOR for the Interest Period in
<PAGE>
effect for such Borrowing plus the LIBOR Spread in effect at such
time with respect to such Loans.
(d) The ABR Spread and LIBOR Spread per annum in respect
of Tranche A Term Loans and Revolving Loans (but not Tranche B Term
Loans) shall initially be as specified in "Category 1" in the table
set forth below and shall be subject to adjustment from time to time
after the Closing Date as provided in this paragraph. If, as of the
last day of any fiscal quarter of the Company, the results of Ratio 1
and Ratio 2, as set forth in a Compliance Certificate delivered
pursuant to subparagraph (iv) of Section 5.1, are such as to cause to
be applicable any Applicable Category other than the Category in the
table below which was applicable on the date of delivery of such
Compliance Certificate, the ABR Spread and the LIBOR Spread shall
automatically be adjusted (effective as of the times set forth in the
next succeeding sentence) to equal the amounts set forth as ABR Spread
and LIBOR Spread, respectively, in such new Applicable Category and
the spreads set forth in such new Applicable Category shall continue
to be the ABR Spread and the LIBOR Spread until such time as there
shall be delivered a Compliance Certificate indicating results of
Ratio 1 and Ratio 2 which cause to be applicable a different
Applicable Category. Each adjustment of the ABR Spread and the LIBOR
Spread pursuant to this paragraph (d) shall take effect (A) in the
case of the ABR Spread, with respect to all ABR Loans outstanding on
and after the date that is five Business Days following the date of
delivery to the Administrative Agent of a Compliance Certificate
pursuant to subparagraph (iv) of Section 5.1 relating to the
immediately preceding fiscal quarter and (B) in the case of the LIBOR
Spread, with respect to all Interest Periods commencing on and after
the date that is five Business Days following the date of delivery to
the Administrative Agent of such Compliance Certificate.
<PAGE>
Interest Rate Step-Downs for
Tranche A Loans and Revolving Loans
Category 1 ABR Spread LIBOR Spread
When none of the Categories
below is applicable 1.50% 2.50%
Category 2
Ratio 1: 2.00 to 1 or higher 1.25% 2.25%
Ratio 2: 3.00 to 1 or lower
Category 3
Ratio 1: 2.25 to 1 or higher 1.00% 2.00%
Ratio 2: 2.75 to 1 or lower
Category 4
Ratio 1: 2.50 to 1 or higher 0.75% 1.75%
Ratio 2: 2.50 to 1 or lower
Category 5
Ratio 1: 2.75 to 1 or higher 0.50% 1.50%
Ratio 2: 2.25 to 1 or lower
Category 6
Ratio 1: 3.00 to 1 or higher 0.25% 1.25%
Ratio 2: 2.00 to 1 or lower
Category 7
Ratio 1: 3.25 to 1 or higher 0.00% 1.00%
Ratio 2: 1.50 to 1 or lower
Notwithstanding the foregoing provisions of this paragraph (d), (i)
there shall not be any adjustment to the ABR Spread or the LIBOR
Spread, as provided above, until the first anniversary of the Closing
Date (except if an Event of Default shall have occurred and is
continuing) and (ii) at any time during which the Company has failed
to deliver a Compliance Certificate described in subparagraph (iv) of
Section 5.1 with respect to a fiscal quarter in accordance with the
provisions thereof, or at any time that an Event of Default shall have
occurred and shall be continuing, as of the date such Compliance
Certificate is due or as of the date such Event of Default shall have
occurred, as the case may be, the ABR Spread shall be reset, if
necessary, to be 1-1/2% and the LIBOR Spread shall be reset, if
necessary, to be 2-1/2% until such time as the Company shall deliver
such certificate in accordance with the provisions
<PAGE>
of subparagraph (iv) of Section 5.1 or such Event of Default shall be
cured or waived or shall otherwise no longer be continuing.
(e) Notwithstanding the foregoing and except where an
Event of Default shall have occurred and be continuing, if any senior
unsecured debt obligations of the Company receive a rating from S&P of
at least BBB-, or from Moody's of at least Baa3, from the date that is
the fifth Business Day of the fiscal quarter of the Company following
the fiscal quarter containing the first date that either such rating
is announced and for so long as such rating shall remain in effect the
LIBOR Spread and the ABR Spread, respectively, with respect to Tranche
A Term Loans and Revolving Loans (but not Tranche B Term Loans) shall
be 0.75% and 0.00% and if any senior unsecured debt obligations of the
Company receive ratings from both S&P and Moody's of at least BBB- and
Baa3, respectively (such ratings, the "Investment Grade Ratings"),
from the date that is the fifth Business Day of the fiscal quarter of
the Company following the fiscal quarter containing the first date
that both the Investment Grade Ratings shall be effective and for so
long as both such ratings shall remain in effect the LIBOR Spread and
the ABR Spread, respectively, shall be 0.625% and 0.00%.
(f) The applicable ABR Spread or LIBOR Spread for each
Interest Period or day within an Interest Period, as the case may be,
shall be determined by the Administrative Agent, and such
determination shall be presumptively correct absent manifest error.
2.5.2. Interest Periods. In connection with each
Adjusted LIBOR Loan, the Company shall elect an interest period (each
an "Interest Period") to be applicable to such Loan, which Interest
Period shall be either a one, two, three or six month period or, if
permitted under subparagraph (viii) of this subsection 2.5.2, a
twelve-month period; provided that:
(i) subject to subparagraph (vi) below, the Interest
Period for any Adjusted LIBOR Loan shall commence on the date of
such Loan and each Interest Period occurring thereafter in
respect of such Adjusted LIBOR Loan shall commence on the day on
which the next preceding Interest Period applicable thereto
expires;
(ii) if an Interest Period would otherwise expire on a day
which is not a Business Day but is a day of the month after
which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iii) if an Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire
on the next succeeding Business Day; provided that if such
Business Day occurs in a different month, such Interest Period
shall expire on the Business Day next preceding such day;
(iv) no Interest Period with respect to any Revolving
Loan, any Tranche A Term Loan or any Tranche B Term Loan shall
extend beyond the Revolving Credit Maturity Date, the Tranche A
Term Maturity Date or the Tranche B Term Maturity Date,
respectively;
<PAGE>
(v) no Interest Period may extend beyond a date on which
the Company is required to make a scheduled payment of principal
of such Loan;
(vi) the initial Interest Period for a Loan which is
converted pursuant to subsection 2.9.4 shall commence on the
date of such conversion and shall expire on the date on which
the Interest Periods for the Loans of the other Lenders which
were not converted expire;
(vii) there shall be no more than 20 Interest Periods
relating to Loans outstanding at any time (it being understood
that Interest Periods for Adjusted LIBOR Loans that are part of
the same Tranche and which are scheduled to end on the same date
shall constitute one Interest Period for purposes of this clause
vii); and
(viii) no Tranche B Term Loan may have an Interest Period
longer than six months; and no Tranche A Term Loan or Revolving
Loan may have an Interest Period of twelve months unless the
Administrative Agent, after consultation with the Lenders, has
determined in good faith based on prevailing conditions in the
London interbank market on any date of determination that U.S.
dollar deposits are generally offered by the Lenders to first
class banks in the London interbank market for a comparable maturity.
2.5.3. Interest Payments. Subject to subsection 2.5.5,
interest shall be payable on the Loans as follows:
(i) interest on each ABR Loan shall be payable in arrears
on and to each September 30, December 30, March 30 and June 30
of each year, commencing on the first of such dates to occur
after the Closing Date, upon any prepayment of any such Loan (to
the extent accrued on the principal amount being prepaid) and at
maturity of such ABR Loan; and
(ii) interest on each Adjusted LIBOR Loan shall be payable
in arrears on and to each Interest Payment Date applicable to
that Loan, upon any prepayment of that Loan (to the extent
accrued on the principal amount being prepaid) and at maturity
of such Adjusted LIBOR Loan.
2.5.4. Conversion or Continuation. (a) Subject to the
provisions of Section 2.9, the Company shall have the option (A) to
convert at any time all or any part of its outstanding ABR Loans equal
to $10,000,000 principal amount and integral multiples of $1,000,000
in excess of that amount to Adjusted LIBOR Loans; provided that, after
giving effect to each such conversion, there shall not exist any
Adjusted LIBOR Loan with a particular Interest Period that has a
principal amount less than $25,000,000 (it being understood that
Interest Periods for Adjusted Libor Loans that are part of the same
Tranche and which are scheduled to end on the same date shall
constitute one Interest Period for this purpose) or (B) upon the
expiration of any Interest Period applicable to an Adjusted LIBOR
Loan, to continue all or any portion of such Loan equal to $25,000,000
principal amount and integral multiples of $1,000,000 in excess of
that amount as an Adjusted LIBOR Loan and the succeeding Interest
Period(s) of such continued Loan shall commence on the last day of the
Interest Period of the Loan to be continued; provided that an Adjusted
LIBOR Loan may only be converted into an ABR Loan on the expiration
date of an Interest Period
<PAGE>
applicable thereto; and provided, further, that no outstanding Loan
may be continued as, or be converted into, an Adjusted LIBOR Loan when
any Event of Default or Potential Event of Default has occurred and is
continuing.
(b) The Company shall deliver a Notice of
Conversion/Continuation substantially in the form of Exhibit II
annexed hereto to the Administrative Agent no later than 1:00 P.M.
(New York time) at least three Business Days in advance of the
proposed conversion/continuation date. A Notice of
Conversion/Continuation shall specify (A) the proposed
conversion/continuation date (which shall be a Business Day), (B) the
amount of the Loan to be converted/continued and whether such Loan is
a Tranche A Term Loan, a Tranche B Term Loan or a Revolving Loan, (C)
the nature of the proposed conversion/continuation and (D) the
requested Interest Period. In lieu of delivering the above-described
Notice of Conversion/Continuation, the Company may give the
Administrative Agent telephonic notice by the required time of any
proposed conversion/continuation under this subsection 2.5.4; provided
that such notice shall be promptly confirmed in writing by delivery of
a Notice of Conversion/Continuation to the Administrative Agent on or
before the proposed conversion/continuation date. If the Company has
failed timely to deliver a Notice of Conversion/Continuation or give
such telephonic notice with respect to an Adjusted LIBOR Loan, the
Company shall be deemed to have delivered to the Administrative Agent
a Notice of Conversion/Continuation to convert such Adjusted LIBOR
Loan into an ABR Loan.
(c) Neither the Administrative Agent nor any Lender shall
incur liability to the Company in acting upon any telephonic notice
referred to above which the Administrative Agent believes in good
faith to have been given by a duly authorized officer or other person
authorized to act on behalf of the Company or for otherwise acting in
good faith under this subsection 2.5.4 and upon conversion/
continuation by the Administrative Agent in accordance with this
Agreement pursuant to any telephonic notice, the Company shall have
continued or converted, as the case may be, Loans hereunder.
(d) Except as provided in subsection 2.9.4, a Notice of
Conversion/ Continuation for conversion to, or continuation of, an
Adjusted LIBOR Loan (or telephonic notice in lieu thereof) shall be
irrevocable on and after the related Interest Rate Determination Date,
and the Company shall be bound to convert or continue in accordance
therewith.
2.5.5. Post-Maturity Interest. Any principal payments on
the Loans not paid when due and, to the extent permitted by applicable
law, any interest payment on the Loans not paid when due, in each case
whether at stated maturity, by notice of prepayment, by acceleration
or otherwise, shall thereafter bear interest payable upon demand at a
rate which is 2.00% per annum in excess of the rate of interest
otherwise payable under this Agreement for ABR Loans.
2.5.6. Computation of Interest. Interest on the Loans
shall be computed on the basis of a 360-day year (except for interest
payable in respect of ABR Loans based on the Prime Rate, which shall
be computed on the basis of a 365/66 day year) and the actual number
of days elapsed in the period during which it accrues. In computing
interest on any Loan, the date of the making of the Loan or the first
day of an Interest Period, as the case may be, shall be included and
the date
<PAGE>
of payment or, in the case of Adjusted LIBOR Loans, the Interest
Payment Date, as the case may be, shall be excluded; provided that if
a Loan is repaid on the same day on which it is made, one day's
interest shall be paid on such Loan.
Section 2.6 Commissions.
2.6.1. Commitment Commissions. The Company agrees to pay
to the Administrative Agent for distribution to each Non-Defaulting
Lender having a Revolving Loan Commitment and/or a Tranche A
Commitment commitment commissions with respect to the unused portion
of the Adjusted Revolving Loan Commitments and/or the Tranche A
Commitments for the period from and including the Closing Date to and
excluding the date such Commitments expire or terminate, at an annual
rate equal to the Commitment Percentage applicable from time to time.
Such annual rate shall be applied on a daily basis to the aggregate of
the daily unused portion of the Adjusted Revolving Loan Commitments
and the Tranche A Commitments from time to time. Such commitment
commissions shall be payable in arrears on September 30, December 30,
March 30 and June 30 of each year, commencing on the first such date
to occur after the Closing Date, and the date such Commitments expire
or terminate, calculated, in all cases, on the basis of a 360-day year
and the actual number of days elapsed. Letters of Credit Usage and
Swing Line Loans shall constitute usage of the Revolving Loan
Commitments for all purposes of this Agreement.
2.6.2. Bankers and Arrangers Commissions. The Company
agrees to pay to Bankers and the other Arrangers the commissions and
other amounts at such times or upon the happening of such events as
are set forth in the Commitment Fee Letters. Nothing herein set forth
shall limit the rights of Bankers or the other Arrangers to receive
the fees and other amounts payable under the Commitment Fee Letters.
2.6.3. No Refund of Fees. Once paid, all fees and
commissions payable pursuant to this Section 2.6 shall not be
refundable under any circumstances.
Section 2.7 Prepayments and Payments;
Reductions in Commitments.
2.7.1. Voluntary Prepayments. The Company may, upon not
less than two Business Days' (same Business Day's in the case of Swing
Line Loans) prior written or telephonic notice confirmed in writing to
the Administrative Agent (which notice the Administrative Agent will
promptly transmit by telegram, telex or telephone to each Lender), at
any time and from time to time, prepay Term Loans, Revolving Loans or
Swing Line Loans in whole or in part at any time, without penalty or
premium, in an aggregate minimum amount of (A) in the case of any Loan
other than Swing Line Loans, $5,000,000 and integral multiples of
$1,000,000 in excess of that amount or (B) in the case of Swing Line
Loans, $100,000 and integral multiples of $100,000 in excess of such
amount or, if less, the outstanding principal amount thereof.
Voluntary prepayments of Term Loans made by the Company out of (A) the
Company's Portion of Excess Cash Flow or (B) the net cash proceeds of
any Equity Offering shall be allocated between (x) the then
outstanding Tranche A Term Loans and (y) the then outstanding Tranche
B Term Loans in a manner determined at the discretion of the Company.
In the case of such prepayments elected by the
<PAGE>
Company to be applied to (A) the Tranche A Term Loans, all such
prepayments shall be applied to such Scheduled Term Loans Principal
Payments as shall be elected by the Company and (B) the Tranche B Term
Loans, all such prepayments shall be applied pro rata to all then
remaining Scheduled Term Loans Principal Payments in respect of
Tranche B Term Loans. All other voluntary prepayments of Term Loans
shall be applied in the amounts and manner applicable to mandatory
prepayments as set forth in paragraph (b) of subsection 2.7.3. At the
Company's election in connection with any prepayment pursuant to this
subsection 2.7.1, amounts prepaid in respect of Revolving Loans shall
not be applied to any Revolving Loan of a Defaulting Lender until all
Revolving Loans of all Non-Defaulting Lenders have been paid in full.
Notice of prepayment having been given as aforesaid, the principal
amount of the Loans specified in such notice shall become due and
payable on the prepayment date. Amounts of Term Loans that are so
prepaid may not be reborrowed.
2.7.2. Mandatory Prepayments. Subject to the provisions
of the last sentence of this subsection 2.7.2, the Company shall upon
the occurrences set forth below make prepayments of Loans in the
amounts and manner set forth below.
(a) Prepayments from Asset Sales. Upon the later of (A)
the first date on which, in accordance with the definition of
"Asset Sale," any sale, transfer or other disposition of assets
or properties becomes an "Asset Sale" and (B) the date of the
initial receipt by the Company or any Subsidiary of the Company
of Cash Proceeds of such Asset Sale (such later date being a "Proceeds
Payment Date"), the Company shall prepay the Loans in an amount
equal to the lesser of (x) the Net Cash Proceeds of Sale then
received in respect of such Asset Sale and (y) Estimated Net
Cash Proceeds of such Asset Sale (such lesser amount being the
"Initial Cash Proceeds Payment"). On or before the sixtieth day
after the Proceeds Payment Date with respect to an Asset Sale,
and at or before the end of each thirty-day period thereafter, the
Company shall prepay the Loans in an amount equal to the excess
("Proceeds Adjustment"), if any, of (A) Net Cash Proceeds of
Sale of such Asset Sale theretofore received over (B) the amount
previously paid with respect to such Asset Sale hereunder;
provided that the Company shall not be required to apply any
Initial Cash Proceeds Payment or Proceeds Adjustments of an Asset
Sale to the prepayment of the Loans to the extent that the assets
transferred pursuant to such Asset Sale are located in a
jurisdiction outside the United States, the laws of such
jurisdiction prohibit the transfer of the proceeds of such Asset
Sale to the United States, such proceeds have not been transferred
to the United States and the Company is using its reasonable best
efforts to transfer such funds on a basis that complies with
applicable law (and has informed the Administrative Agent in
writing of such efforts). Concurrently with the making of any
prepayment pursuant to this paragraph (a) of subsection 2.7.2,
the Company shall deliver to the Administrative Agent an Officers'
Certificate demonstrating the derivation of Net Cash Proceeds of Sale
from the gross sales price of the related Asset Sale.
(b) Prepayments Due to Excess Cash Flow. On or before
the last day of March in each year, commencing March 31, 1996
and ending on but including March 31, 2002, the Company shall
make a mandatory prepayment (each such prepayment, an "Annual
Prepayment") in an amount equal to 50%
<PAGE>
of Excess Cash Flow for the twelve-month period commencing on
January 1 (the first such period to commence January 1, 1995)
and ending on December 31 immediately preceding such March 31.
Concurrently with the making of any prepayment pursuant to this
paragraph (b) of subsection 2.7.2, the Company shall deliver to
the Administrative Agent an Officers' Certificate demonstrating
the derivation of Excess Cash Flow.
(c) Prepayments Due to Other Reductions of Revolving Loan
Commitments. The Company shall make prepayments of Swing Line
Loans and Revolving Loans, and the Company shall cash
collateralize (pursuant to customary documentation and
arrangements determined in the reasonable discretion of the
Administrative Agent) Letters of Credit then outstanding, to the
extent necessary so that the Total Utilization of Revolving Loan
Commitments at any time does not exceed the aggregate amount of the
Revolving Loan Commitments of all Lenders reduced by the sum of (A)
the Revolving Loan Deduction Amount then in effect, plus (B) the
aggregate of amounts described in clauses (A) and (B) of the
definition of Defaulting Lender Deduction Amount in respect of
all Lenders that are Defaulting Lenders.
(d) Prepayments Due to Casualty or Condemnation. In the
event there shall occur any Taking or Destruction of any Real
Property and, pursuant to the provisions of the applicable
Mortgage, amounts payable with respect thereto are to be applied
to the Obligations in accordance with the terms of such
Mortgage, the Company shall prepay Loans in such amount.
(e) Prepayments from Proceeds of Expansion Transactions.
On each date on which the Company or any Subsidiary of the
Company receives any net cash proceeds of a Sale/Leaseback
Transaction that is subject to the provisions of Section 5.12,
the Company shall prepay Loans in the amount rounded to the
nearest thousand Dollars of such net cash proceeds (reduced by
the actual expenditures of the Company or any Subsidiary for customary
and reasonable transaction costs incurred in connection
therewith).
(f) Prepayments from Proceeds of Receivables
Transactions. On the first date (on or immediately following
the termination of the A/R Bridge) on which the Company or any
Subsidiary of the Company (other than a Receivables Subsidiary)
receives proceeds of a Receivables Transaction, the Company
shall prepay Loans in the amount of such proceeds (reduced by the
actual expenditures of the Company or any Subsidiary for customary and
reasonable transaction costs incurred in connection therewith);
provided that no such prepayment shall be due under this
subparagraph (f) in respect of any Receivables Transaction to
the extent that the net proceeds thereof are used to pay amounts
owing pursuant to the 1995 A/R Bridge or to refinance any other
Receivables Transaction.
(g) Prepayments with Proceeds of Indebtedness. In the
event that the Company or any Subsidiary of the Company shall
incur any Indebtedness after the date hereof (including, without
limitation, all Indebtedness constituting Permitted Expansion
Financings but excluding (A) Indebtedness the proceeds of which
are required to be used to prepay Loans pursuant to the provisions of
paragraphs (e) or (f) above and (B) Excluded New Indebtedness),
the Company
<PAGE>
shall, on the date of receipt of the net cash proceeds of such
Indebtedness, prepay Loans in an amount equal to such net cash
proceeds. The provisions of this Section shall not in any
manner affect or limit the obligations of the Company pursuant
to Section 6.1 hereof nor be construed as a consent by the
Lenders to any noncompliance with such Section.
Notwithstanding the foregoing provisions of this subsection 2.7.2, the
Company shall not be required to make any mandatory prepayments (other
than by reason of paragraph (c) above) under this Section 2.7.2 so
long as there shall be in effect in respect of the senior unsecured
debt obligations of the Company the Investment Grade Ratings.
2.7.3. Company's Mandatory Prepayment Obligation;
Application of Prepayments. (a) All prepayments shall include
payment of accrued interest on the principal amount so prepaid and
shall be applied to payment of accrued and unpaid interest on the
principal amount being prepaid before application to principal.
Subject to compliance with subsection 2.7.3(b), when Term Loans, Swing
Line Loans and Revolving Loans are being prepaid separately, any
mandatory prepayment shall be applied first to ABR Loans to the full
extent thereof before application to Adjusted LIBOR Loans as
determined by the Administrative Agent; provided that in lieu of
application of any such prepayment to Adjusted LIBOR Loans prior to
the expiration of the Interest Period with respect thereto, the
Company may execute an Escrow Letter substantially in the form of
Exhibit XX annexed hereto with respect to the principal and interest
due in respect of such prepayment and deposit with the Administrative
Agent funds equal to such amount for application to Loans in
accordance with the terms of the Escrow Letter.
(b) Mandatory prepayments made by the Company pursuant to
subsection 2.7.2 above shall be applied first to the prepayment of
Term Loans then to the prepayment of Swing Line Loans and then to the
prepayment of Revolving Loans; provided that all prepayments that are
to be applied to Revolving Loans shall be applied first, to all
Lenders (other than Defaulting Lenders) ratably (according to the
respective amounts of Revolving Loans then held by such Lenders) for
the amounts then due and payable to such Lenders in connection with
such prepayment and, second, to all Defaulting Lenders ratably
(according to the respective amounts of Revolving Loans then held by
such Defaulting Lenders) for any amount then due and payable to such
Lenders in connection with such prepayment. Except as otherwise
provided in paragraph (c) below, all prepayments of Term Loans shall
be allocated pro rata between (A) the then outstanding Tranche A Term
Loans and (B) the then outstanding Tranche B Term Loans, with the
amount so allocated in clause (A) above to be applied, first, in
direct order of maturity until such application results in the
prepayment in whole of all Scheduled Term Loans Principal Payments
scheduled to become due in respect of Tranche A Term Loans in the
twelve-month period immediately following such date of prepayment, and
then pro rata to the remaining such Scheduled Term Loans Principal
Payments, and with the amount so allocated in clause (B) above to be
applied pro rata against the remaining Scheduled Term Loans Principal
Payments due in respect of Tranche B Term Loans under Section 2.1.
(c) Notwithstanding the provisions of paragraph (b)
above, with respect to the amount of any mandatory prepayment
described therein that is
<PAGE>
allocated to the then outstanding Tranche B Term Loans (such amount,
the "Tranche B Prepayment Amount"), the Company may, in lieu of
applying such amount to the prepayment of Tranche B Term Loans as
provided in such paragraph, at least one Business Day prior to the
date specified therein for such prepayment, (A) deposit in the Tranche
B Escrow Account the Tranche B Prepayment Amount and (B) provide to
each Tranche B Lender a notice (each, a "Tranche B Prepayment Option
Notice") as described below. Each Tranche B Prepayment Option Notice
shall be in writing, shall refer to this subsection 2.7.3 and shall
(1) set forth the Tranche B Prepayment Amount and the portion thereof
that the applicable Tranche B Lender will be entitled to receive if it
accepts such mandatory prepayment in accordance with this paragraph,
(2) offer to prepay on a specified date (each such date, a "Tranche B
Mandatory Prepayment Date"), which shall be not less than 20 days or
more than 25 days after the date of the Tranche B Prepayment Option
Notice, the Tranche B Term Loans of such Tranche B Lender by an amount
equal to the portion of the Tranche B Prepayment Amount indicated in
such Tranche B Lender's Tranche B Prepayment Option Notice as being
applicable to such Tranche B Lender, (3) request such Tranche B Lender
to notify the Company and the Administrative Agent in writing, no
later than the fifth day prior to the Tranche B Mandatory Prepayment
Date, of such Tranche B Lender's acceptance or rejection (in each
case, in whole and not in part) of such offer of prepayment and (4)
inform such Tranche B Lender that failure by such Tranche B Lender to
accept such offer in writing on or before the fifth day prior to the
Tranche B Mandatory Prepayment Date shall be deemed a rejection of
such prepayment offer. Each Tranche B Prepayment Option Notice shall
be given by telecopy, confirmed by hand delivery, overnight courier
service or registered or certified mail, in each case addressed as
provided in Section 9.9. On the Tranche B Mandatory Prepayment Date,
the Administrative Agent shall withdraw from the Tranche B Escrow
Account the aggregate amount necessary to prepay that portion of the
Tranche B Prepayment Amount in respect of which Tranche B Lenders have
accepted prepayment as described above (such Tranche B Lenders, the
"Accepting Tranche B Lenders"), and shall apply such amount on behalf
of the Company pro rata (based on the respective principal amounts
thereof) against the remaining installments of principal due in
respect of the Tranche B Term Loans of the Accepting Tranche B Lenders
under subsection 2.1.5. The amount remaining in the Tranche B Escrow
Account after the payment described in the immediately preceding
sentence (exclusive of any interest or profits credited to the Tranche
B Escrow Account) shall be allocated pro rata (based on the respective
principal amounts thereof) between (x) the then outstanding Tranche A
Term Loans and (y) the then outstanding Tranche B Term Loans of the
Accepting Tranche B Lenders, and applied against the remaining
Scheduled Term Loans Principal Payments due (i) in respect of Tranche
A Term Loans, in the manner specified in clause (A) of paragraph
2.7.3(b) above and (ii) in respect of the Tranche B Term Loans of the
Accepting Tranche B Lenders, on a pro rata basis (based on the
respective principal amounts thereof). The term "Tranche B Escrow
Account" means an account established by the Company with the
Administrative Agent and over which the Administrative Agent shall
have exclusive dominion and control, including the exclusive right of
withdrawal for application in accordance with this paragraph. The
Administrative Agent will, at the request of the Company, invest
amounts on deposit in the Tranche B Escrow Account in Cash Equivalents
that mature prior to the Tranche B Mandatory Prepayment Date; provided
that (X) the Administrative Agent shall not be required to make any
investment that, in its sole judgment, would require or cause the
Administrative Agent to be in, or would result in any, violation of
any law,
<PAGE>
statute, rule or regulation and (Y) the Administrative Agent shall
have no obligation to invest amounts on deposit in the Tranche B
Escrow Account if a Potential Event of Default or Event of Default
shall have occurred and be continuing. The Company shall indemnify
the Administrative Agent for any losses relating to the investments so
that the amount available to prepay the Tranche B Term Loans of the
Accepting Tranche B Lenders on the Tranche B Mandatory Prepayment Date
is not less than the amount that would have been available had no
investments been made pursuant to this paragraph. Other than any
interest earned on such investments, the Tranche B Escrow Account
shall not bear interest. Interest or profits, if any, on such
investments shall be paid to the Company at the latest date of and
after giving effect to the disbursements contemplated in clauses (x)
and (y) above. If the maturity of the Loans has been accelerated
pursuant to ARTICLE VII, the Administrative Agent may, in its sole
discretion, apply all amounts on deposit in the Tranche B Escrow
Account to satisfy any of the Obligations. The Company hereby grants
to the Administrative Agent, for its benefit and the benefit of any
Fronting Bank, the Swing Line Lender and the Lenders, a security
interest in the Tranche B Escrow Account to secure the Obligations.
2.7.4. Manner and Time of Payment. All payments of
principal, interest and fees hereunder and under the Notes by the
Company shall be made without defense, setoff or counterclaim and in
same day funds and delivered to the Administrative Agent not later
than 12:00 Noon (New York time) on the date due at its office located
at One Bankers Trust Plaza, New York, New York for the account of the
applicable Lenders; funds received by the Administrative Agent after
that time shall be deemed to have been paid by the Company on the next
succeeding Business Day. The Company hereby authorizes the
Administrative Agent to charge its account with Bankers in order to
cause timely payment to be made to the Administrative Agent of all
principal, interest and fees due hereunder (subject to sufficient
funds being available in its account for such purpose).
2.7.5. Apportionment of Payments. Aggregate principal
and interest payments in respect of Loans and payments in respect of
Letters of Credit and commitment commissions shall be apportioned
among all outstanding Loans and Letters of Credit to which such
payments relate, proportionately to the applicable Lenders' respective
interests in such Loans and Letters of Credit, except that in the case
of Swing Line Loans, payments will only be made to Bankers and except
that the rights of Defaulting Lenders to receive pro rata payments in
respect of principal amounts of Revolving Loans and reimbursements of
drawings under Letters of Credit (together with accrued interest in
respect of each thereof) shall be limited as set forth in Section
2.7.3(b). The Administrative Agent shall promptly distribute to each
Lender at its primary address set forth below its name on the
appropriate signature page hereof, or at such other address as any
Lender may request, its share of all such payments received by the
Administrative Agent and the commitment commissions and Letter of
Credit commissions, if any, payable to such Lender when received by
the Administrative Agent pursuant to subsections 2.6.1, 2.6.2, 2.2.6
and 2.2.7, respectively.
2.7.6. Payments on Non-Business Days. Whenever any
payment to be made hereunder or under the Notes shall be stated to be
due on a day which is not a Business Day, such payment shall be made
on the next succeeding Business Day and such extension of time shall
be included in the computation of the payment of
<PAGE>
interest hereunder or under the Notes or of the commitment and other
commissions or fees hereunder, as the case may be; provided that in
the event that the day on which payment relating to an Adjusted LIBOR
Loan is due is not a Business Day but is a day of the month after
which no further Business Day occurs in that month, then the due date
thereof shall be the next preceding Business Day.
2.7.7. Payment Accounts; Notation of Payment. (a) Each
Lender shall maintain in accordance with its usual practice an account
or accounts evidencing the indebtedness to such Lender resulting from
each Loan, from time to time, including the amounts of principal and
interest payable and paid such Lender from time to time under this
Agreement.
(b) The Administrative Agent shall maintain accounts in
which it will record (A) the amount of each Loan made hereunder,
whether such Loans consist of ABR Loans or Adjusted LIBOR Loans, and
the Interest Period applicable thereto, (B) the amount of any
principal or interest due and payable or to become due and payable
from the Company to each Lender hereunder and (C) the amount of any
sum received by the Administrative Agent hereunder from the Company
and each Lender's share thereof.
(c) The entries made in the accounts maintained pursuant
to paragraphs (a) and (b) of this subsection 2.7.7 shall, to the
extent permitted by applicable law, be prima facie evidence of the
existence and amounts of the obligations therein recorded; provided
that the failure of any Lender or the Administrative Agent to maintain
such accounts or any error therein shall not in any manner affect the
obligations of the Company to repay the Loans in accordance with their
terms.
(d) Each Lender agrees that before disposing of any Note
held by it, or any part thereof (other than by granting participations
therein), such Lender will make a notation thereon of all Loans and
principal payments previously made thereon and of the date to which
interest thereon has been paid; provided that the failure to make (or
any error in the making of) a notation of any Loan made under any such
Note shall not limit or otherwise affect the obligation of the Company
hereunder or under such Note with respect to any Loan and payments of
principal or interest on any such Note.
2.7.8. Voluntary Reductions of Swing Line Commitment and
Revolving Loan Commitments. (a) The Company shall have the right, at
any time after the Closing Date and from time to time, to terminate in
whole or permanently reduce in part, without premium or penalty, the
Swing Line Commitment or the Total Revolving Loan Commitment. No such
reduction of the Total Revolving Loan Commitment shall reduce the
amount of the Total Revolving Loan Commitment to an aggregate amount
less than an amount equal to the Total Utilization of Revolving Loan
Commitments then in effect.
(b) The Company shall give not less than three Business
Days' prior written notice to the Administrative Agent designating the
date (which shall be a Business Day) of such termination or reduction,
the amount of any partial reduction and, promptly after receipt of a
notice of such termination or partial reduction, the Administrative
Agent shall notify each Lender of the proposed termination or partial
<PAGE>
reduction. Such termination or partial reduction of the Swing Line
Commitment or the Total Revolving Loan Commitment shall be effective
on the date specified in the notice delivered by the Company and shall
reduce the Revolving Loan Commitment of each Lender having an Adjusted
Revolving Loan Percentage greater than zero proportionately to its
Adjusted Revolving Loan Percentage and the Swing Line Commitment of
Bankers by 100% of such reduction. Any such partial reduction of the
Swing Line Commitment or the Total Revolving Loan Commitment shall be
in an aggregate minimum amount of $5,000,000, and integral multiples
of $1,000,000 in excess of that amount.
2.7.9. Mandatory Reductions of Revolving Loan Commitments
and Swing Line Commitment. In the event and on each occasion that a
prepayment of Term Loans would be required under subsection 2.7.2 in a
principal amount greater than the principal amount of Term Loans then
outstanding, then the Total Revolving Loan Commitment shall be
automatically and permanently reduced at the time and in the amount of
the difference between (A) the prepayment that would have been
required and (B) the principal amount of Term Loans then outstanding;
provided that the Total Revolving Loan Commitment shall not be reduced
at any time to an amount less than the Total Utilization of Revolving
Loan Commitments.
Section 2.8 Use of Proceeds.
2.8.1. Term Loans. The proceeds of the portion of the
Tranche A Term Loans made by the Lenders to the Company on the Closing
Date (in the amount of the Closing Date Tranche A Funding Amount),
together with the entire amount of the proceeds of the Tranche B Term
Loans made by the Lenders to the Company on the Closing Date and the
net cash proceeds of the Common Stock Offering, shall be applied by
the Company on the Closing Date to (A) the payment of Transaction
Costs, (B) the repayment in full of the principal of all loans
outstanding and all other amounts due, if any, under the Existing
Credit Facilities and (C) after the payment or repayment in full of
all amounts referred to in clause (B) above, the prepayment in full,
in accordance with their terms, of 100% of the outstanding Senior
Secured Notes, including, without limitation, the payment of accrued
and unpaid interest thereon, and all other amounts, if any, then due
and payable with respect thereto. The proceeds of the remaining
portion of the Tranche A Term Loans (in the amount equal to the
Deferred Tranche A Funding Amount) made by the Lenders to the Company
on the Deferred Funding Date shall be applied, together with the
proceeds of the loans made pursuant to the 1995 A/R Bridge, as soon as
reasonably practicable, to (A) redeem in full, in accordance with its
terms, 100% of the outstanding principal amount of the Existing
Subordinated Debt and pay accrued interest and premiums, if any, with
respect thereto and (B) pay the fees and expenses payable in
connection with the redemption pursuant to clause (A) of this sentence
above.
2.8.2. Revolving Loans. The proceeds of the Revolving
Loans from and after the Closing Date may be applied by the Company
(A) to refinance Indebtedness constituting Permitted Expansion
Construction Financing, (B) for the purposes applicable to the
proceeds of Term Loans, as specified in the second sentence of
subsection 2.8.1, (C) for the purpose specified in clause (B) of
subsection 6.16.8, (D) for working capital and (E) for other general
corporate purposes (including, without
<PAGE>
limitation, all purposes which would cause a decrease in the
Discretionary Excess Equity Proceeds Balance or the Discretionary
Excess Cash Flow Balance).
2.8.3. Swing Line Loans. The proceeds of up to an
aggregate of $25,000,000 principal amount at any time outstanding of
Swing Line Loans made by Bankers to the Company from and after the
Closing Date may be applied by the Company for working capital and
other general corporate purposes.
2.8.4. Margin Regulations. No portion of the proceeds of
any borrowing under this Agreement shall be used by the Company in any
manner which might cause the borrowing or the application of such
proceeds to violate Regulation G, Regulation U, Regulation T, or
Regulation X of the Board of Governors of the Federal Reserve System
or any other regulation of the Board or to violate the Exchange Act,
in each case as in effect on the date or dates of such borrowing and
such use of proceeds.
Section 2.9 Special Provisions Governing Adjusted LIBOR
Loans. Notwithstanding other provisions of this Agreement, the
following provisions shall govern with respect to Adjusted LIBOR Loans
as to the matters covered:
2.9.1. Determination of Interest Rate. As soon as
practicable after 11:00 a.m. (New York time) on an Interest Rate
Determination Date, the Administrative Agent shall determine (which
determination shall, absent manifest error, be final, conclusive and
binding upon all parties) the interest rate which shall apply to the
Adjusted LIBOR Loans for which an interest rate is then being
determined for the applicable Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to
the Company and to each Lender having an interest in or bound
hereunder to make any of such Adjusted LIBOR Loans.
2.9.2. Increased Costs. Without duplication of payments
under subsection 2.9.7, if, by reason of (A) after the date of this
Agreement, the introduction of or any change in or in the
interpretation of any law or regulation, or (B) the compliance with
any guideline or request after the date of this Agreement from any
central bank or other governmental authority or quasi-governmental
authority exercising control over banks or financial institutions
generally (whether or not having the force of law):
(i) any Lender (or its applicable lending office) shall
be subject to any tax, duty or other charge with respect to its
Adjusted LIBOR Loans or its obligation to make Adjusted LIBOR
Loans, or shall change the basis of taxation of payments to any
Lender of the principal of or interest on its Adjusted LIBOR
Loans or its obligation to make Adjusted LIBOR Loans (except for
changes in the rate of tax on the overall net income of such Lender or
its applicable lending office imposed by the jurisdiction in
which such Lender's principal executive office or applicable
lending office is located); or
(ii) any reserve (including, without limitation, any
imposed by the Board of Governors of the Federal Reserve System
to the extent not already contemplated in the definition of
Adjusted LIBOR Rate), special deposit or similar requirement
against assets of, deposits with or for the account of, or
credit extended by, any Lender's applicable lending office shall be
imposed or
<PAGE>
deemed applicable or any other condition affecting its Adjusted
LIBOR Loans or its obligation to make Adjusted LIBOR Loans shall
be imposed on any Lender or its applicable lending office or the
London interbank market;
and as a result thereof there shall be any increase in the cost to
such Lender of agreeing to make or making, funding or maintaining
Adjusted LIBOR Loans (except to the extent already included in the
determination of the applicable Adjusted LIBOR), or there shall be a
reduction in the amount received or receivable by such Lender or its
applicable lending office, then the Company shall from time to time,
upon written notice from and demand by such Lender (with a copy of
such notice and demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender, within five
Business Days after the date specified in such notice and demand,
additional amounts sufficient to indemnify such Lender against such
increased cost or such reduction; provided that the Company shall have
no obligation to any Lender under this subsection 2.9.2 if (A) such
Lender shall not have delivered such written notice to the Company
within six months following the later of (1) the date of the
occurrence of the event which forms the basis for such notice and (2)
the date such Lender shall have become aware of such event or (B) the
obligation to pay increased costs or indemnify against such reduction
on account of taxes, duties or other charges would not have arisen but
for (1) the failure of such Lender to provide any applicable forms or
other documents requested by the Company which such Lender was
otherwise required to provide under this Agreement, that would
establish the entitlement of such Lender to a reduced rate of, or an
exemption from, any tax, levy, charge, withholding or similar item
with respect to its Adjusted LIBOR Loans or (2) any representation or
warranty made by such Lender in connection with its Adjusted Libor
Loans regarding an exemption (partial or complete) from taxes, levies,
charges or withholdings proving to have been incorrect, false or
misleading in any material respect when so made. A certificate as to
the amount of such increased cost, submitted to the Company and the
Administrative Agent by such Lender, shall, except for manifest error,
be final, conclusive and binding for all purposes.
2.9.3. Required Termination and Prepayment. In the event
that on any date any Lender shall have reasonably determined (which
determination shall be final and conclusive and binding upon all
parties) that the making or continuation of its Adjusted LIBOR Loans
has become unlawful by compliance by such Lender in good faith with
any law, governmental rule, regulation or order (whether or not having
the force of law and whether or not failure to comply therewith would
be unlawful), then, and in any such event, such Lender shall be an
Affected Lender and it shall promptly give notice (by telephone
confirmed in writing) to the Company and the Administrative Agent
(which notice the Administrative Agent shall promptly transmit to each
Lender) of that determination. Subject to the prior withdrawal of a
Notice of Borrowing or a Notice of Conversion/Continuation or
prepayment of the Adjusted LIBOR Loans of an Affected Lender as
contemplated by subsection 2.9.5, the obligation of an Affected Lender
to make or maintain its Adjusted LIBOR Loans during any such period
shall be terminated at the earlier of the termination of the Interest
Period then in effect or when required by law and the Company shall no
later than the termination of the Interest Period in effect at the
time any such determination pursuant to this subsection 2.9.3 is made
or earlier, when required by law, repay its Adjusted LIBOR Loans of
such Affected Lender, together with all
<PAGE>
interest accrued thereon and such Adjusted LIBOR Loans shall be
reborrowed as an ABR Loan.
2.9.4. Options of Company. Without prejudice to the
Company's rights set forth in Section 2.11, in lieu of paying an
Affected Lender such additional moneys as are required by subsection
2.9.2 or the prepayment of an Affected Lender required by subsection
2.9.3, the Company may exercise any one of the following options:
(i) Upon written notice to the Administrative Agent and
each Lender, the Company may terminate the obligations of the
Lenders to make or maintain Loans as, and to convert Loans into,
Adjusted LIBOR Loans and in such event, the Company shall, prior
to the time any payment pursuant to subsection 2.9.3 is required
to be made or, if the provisions of subsection 2.9.2 are
applicable, at the end of the then current Interest Period, convert
all of the Adjusted LIBOR Loans into ABR Loans in the manner
contemplated by subsection 2.5.4 but without satisfying the
advance notice requirements therein; or
(ii) The Company may give notice (by telephone confirmed
in writing) to the Affected Lender and the Administrative Agent
(who shall promptly give similar notice to each Lender) and
require the Affected Lender to make the Adjusted LIBOR Loan then
being requested as an ABR Loan or to continue to maintain its
outstanding ABR Loan then the subject of a Notice of
Conversion/Continuation as an ABR Loan or to convert its Adjusted
LIBOR Loans then outstanding that are so affected into ABR Loans
at the end of the then current Interest Period (or at such
earlier time as prepayment is otherwise required to be made
pursuant to subsection 2.9.3) in the manner contemplated by
subsection 2.5.4 but without satisfying the advance notice
requirements therein, such notice to pertain only to the Loans of the
Affected Lender and to have no effect on the obligations of the
other Lenders to make or maintain Adjusted LIBOR Loans or to
convert ABR Loans into Adjusted LIBOR Loans.
2.9.5. Compensation. The Company shall compensate each
Lender, upon written request by such Lender (which request shall set
forth in reasonable detail the basis for requesting such amounts), for
all reasonable losses, expenses and liabilities (including, without
limitation, any interest paid by such Lender to lenders of funds
borrowed by it to make or carry its Adjusted LIBOR Loans and any loss
sustained by such Lender in connection with the re-employment of such
funds), which such Lender may sustain with respect to the Company's
Adjusted LIBOR Loans: (A) if for any reason (other than a default or
error by such Lender) a Borrowing of any Adjusted LIBOR Loan does not
occur on a date specified therefor in a Notice of Borrowing or a
Notice of Conversion/Continuation or a telephonic request for
borrowing or conversion/continuation or a successive Interest Period
does not commence after notice therefor is given pursuant to
subsection 2.5.4, (B) if any payment or prepayment of any of such
Lender's Adjusted LIBOR Loans occurs on a date which is not the last
day of the Interest Period applicable to that Loan, (C) if any
prepayment of any such Lender's Adjusted LIBOR Loans is not made on
any date specified in a notice of prepayment given by the Company or
(D) as a consequence of any other default by the Company to repay such
Lender's Adjusted LIBOR Loans when required by the terms of this
Agreement; provided that the Company shall
<PAGE>
have no obligation to any Lender under this subsection 2.9.5 if such
Lender shall not have delivered such written notice to the Company
within six months following the later of (1) the date of the
occurrence of the event which forms the basis for such notice and (2)
the date such Lender shall have become aware of such event.
2.9.6. Quotation of LIBOR. Anything herein to the
contrary notwithstanding, if on any Interest Rate Determination Date
LIBOR is not available for any reason, the Administrative Agent shall
give the Company and each Lender prompt notice thereof and the Loans
requested shall be made as ABR Loans.
2.9.7. Taxes.
(a) No Withholding. Except as otherwise provided herein,
any and all payments by the Loan Parties under the Loan Documents
shall be made free and clear of and without deduction for any and all
current or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding
taxes imposed on or measured by the overall net income and franchise
or similar taxes of the Administrative Agent, the Fronting Banks or
any Lender (or any Purchasing Lender) imposed by the United States or
any jurisdiction under the laws of which the Administrative Agent, the
Fronting Bank or any such Lender (or Purchasing Lender) is organized
or has its principal office or lending office or any political
subdivision in which the applicable Administrative Agent, Fronting
Bank, Lender, Replacement Lender or Purchasing Lender is engaged in
business or any taxing authority thereof or therein (all such
nonexcluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities, "Taxes"). If any Taxes are required to be deducted
from or in respect of any sum payable hereunder to any Lender (or any
Purchasing Lender), the Administrative Agent or Fronting Bank, then,
subject to paragraph (e) of this subsection 2.9.7, (A) the sum payable
shall be increased by the amount necessary so that after making all
required deductions (including deductions applicable to additional
sums payable under this subsection 2.9.7) such Lender (or Purchasing
Lender), the Administrative Agent or the Fronting Bank (as the case
may be) shall receive an amount equal to the sum it would have
received had no such deductions been made, (B) the Company shall make
such deductions and (C) the Company shall pay the full amount deducted
to the relevant taxing authority or other Governmental Authority in
accordance with applicable law; provided that no Purchasing Lender or
Replacement Lender shall be entitled to receive any greater payment
under this paragraph (a) or paragraph (c) of subsection 2.9.7 than
such transferring Lender would have been entitled to receive with
respect to the rights assigned or otherwise transferred unless in the
case of a Purchasing Lender or a Replacement Lender (1) such
assignment or transfer shall have been made at a time when the
circumstances (including changes in applicable law) giving rise to
such greater payment did not exist or had not yet occurred or (2) such
assignment or transfer shall have been at the request of or approved
by the Company.
(b) Documentary and Similar Taxes. Except as otherwise
provided in this clause (b), the Company agrees to pay any current or
future stamp, intangible or documentary taxes or any other excise or
property taxes, charges or similar levies (including, without
limitation, mortgage recording taxes and similar fees) that arise from
any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement, any
Registered Transfer Supplement entered into at the request of the
Company or any other Loan Document, but
<PAGE>
excluding any current or future stamp, intangible or documentary
taxes or any other excise or property taxes, charges or similar levies
(including, without limitation, mortgage recording taxes and similar
fees) that arise as a result of sales, assignments or other transfers
of rights hereunder to any Transferee pursuant to Section 9.1
(including participations) or to any Replacement Lender pursuant to
Section 9.22 and any Muskogee/Oklahoma Mortgage Recording Tax (all
such non-excluded taxes, charges and levies are hereinafter referred
to as, collectively, "Other Taxes").
(c) Indemnity. Except as otherwise provided in this
subsection 2.9.7, the Company will indemnify each Lender (or
Purchasing Lender or Replacement Lender), the Administrative Agent and
each Fronting Bank for the full amount of Taxes and Other Taxes
(including any Taxes or Other Taxes on amounts payable under this
subsection 2.9.7) paid by such Lender (or Purchasing Lender or
Replacement Lender), the Administrative Agent or a Fronting Bank, as
the case may be, and any liability (including penalties, interest and
reasonable expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally
asserted by the relevant taxing authority or other Governmental
Authority. Such indemnification shall be made within 30 days after
the date any Lender (or Purchasing Lender or Replacement Lender), the
Administrative Agent or a Fronting Bank, as the case may be, makes
written demand therefor. With respect to any Taxes which are paid by
the Company in accordance with this subsection 2.9.7, each Lender (or
Purchasing Lender or Replacement Lender) or Administrative Agent or
Fronting Bank receiving the benefits of such payment of Taxes hereby
agrees to pay the Company any amount refunded to such party which it
determines in its sole discretion to be a refund in respect of such
Taxes, provided that the Company, upon the request of such Lender (or
Purchasing Lender or Replacement Lender), the Administrative Agent or
such Fronting Bank, agrees to return such refund (plus penalties,
interest or other charges) to such Lender (or Purchasing Lender or
Replacement Lender), the Administrative Agent or such Fronting Bank in
the event the relevant taxing authority or other Governmental
Authority determines that such Lender (or Purchasing Lender or
Replacement Lender), the Administrative Agent or such Fronting Bank
was not entitled to receive such refund.
(d) Receipts. Within 30 days after the date of any
payment of Taxes or Other Taxes withheld by the Company in respect of
any payment to any Lender (or Purchasing Lender or Replacement
Lender), the Administrative Agent or any Fronting Bank, the Company
will furnish to the Administrative Agent, at its address referred to
in Section 9.9, the original or a certified copy of a receipt (if
available) evidencing payment thereof or other evidence reasonably
satisfactory to such Lender (or Transferee), the Administrative Agent
or such Fronting Bank, as the case may be.
(e) Non-U.S. Lenders. Each of the Administrative Agent,
any Fronting Bank and any Lender (or Purchasing Lender or Replacement
Lender) that is not incorporated or otherwise formed under the laws of
the United States of America or a state thereof (a "Non-U.S. Person")
agrees that it shall, on or prior to the Closing Date, or, if later,
the date it becomes a Lender (or Purchasing Lender or Replacement
Lender), the Administrative Agent or a Fronting Bank hereunder,
deliver to the Company and the Administrative Agent (A) two duly
completed copies of United States Internal Revenue Service Forms 1001
or 4224, or (B) in the case of Lenders (or Purchasing Lender or
Replacement Lender) exempt from United States
<PAGE>
Federal withholding tax pursuant to Section 871(h) or 881(c) of the
Internal Revenue Code, two United States Internal Revenue Service
Forms W-8 and a certificate, substantially in the form of Exhibit
XXVIII annexed hereto (such certificate, a "Status Certificate"),
representing that such Non-U.S. Person is not a bank described in
Section 881(c) of the Internal Revenue Code, or any successor
applicable form of any thereof, certifying in each case that such
Lender (or Purchasing Lender or Replacement Lender), the
Administrative Agent or the Fronting Bank is entitled to receive
payments hereunder payable to it without deduction or withholding of
any United States Federal income taxes, or subject to a reduced rate
thereof. Each of the Administrative Agent, the Fronting Bank or any
Lender (or Purchasing Lender or Replacement Lender) that delivers to
the Company and the Administrative Agent any such form or
certification further undertakes to deliver to the Company and the
Administrative Agent further copies of any such form or certification
or other manner of certification reasonably satisfactory to the
Company on or before the date that any such form or certification
expires or becomes obsolete or of the occurrence of any event
requiring a change in the most recent form or certification previously
delivered by it to the Company or the Administrative Agent, and such
extensions or renewals thereof as may reasonably be requested by the
Company or the Administrative Agent, certifying that the
Administrative Agent, Fronting Bank or such Lender (or Purchasing
Lender or Replacement Lender), as the case may be, is entitled to
receive payments hereunder without deduction or withholding of any
United States Federal income taxes, or subject to a reduced rate
thereof. If at any time on or after the date of this Agreement there
has occurred, on or prior to the date on which any delivery of any
such form or certification would otherwise be required, any change in
law, rule, regulation, treaty, convention or directive, or any change
in the interpretation or application of any thereof, that renders all
such forms or certification previously delivered inapplicable or which
would prevent the Administrative Agent, Fronting Bank or such Lender
(or Purchasing Lender or Replacement Lender), as the case may be, from
duly completing and delivering any such form or certificate with
respect to it, the Administrative Agent, Fronting Bank or such Lender
(or Purchasing Lender or Replacement Lender), as the case may be,
shall advise the Company that under applicable law it shall be subject
to withholding of United States Federal income tax at the full
statutory rate, a reduced rate of withholding or without deduction or
withholding. A Non-U.S. Person shall be required to furnish any such
form or certification only if it is entitled to claim an exemption
from or a reduced rate of withholding. Each of the Administrative
Agent, the Fronting Bank and any Lender that is a U.S. or Non-U.S.
Person and that is a party hereto as of the Closing Date hereby
represents and warrants that, as of the Closing Date, payments made to
it hereunder are exempt from withholding of United States Federal
income taxes (A) because the Administrative Agent, the Fronting Bank
or such Lender is organized or otherwise formed under the laws of the
United States or any state thereof; (B) because such payments are
effectively connected with a United States trade or business conducted
by such Non-U.S. Person; (C) pur- suant to the terms of an income tax
treaty between the United States and such Non- U.S. Person's country
of residence; or (D) because such payments are portfolio interest
exempt pursuant to Section 871(h) or 881(c) of the Internal Revenue
Code. Notwithstanding any provision of paragraph (a), (b) or (c) of
this subsection 2.9.7 to the contrary, the Company shall not have any
obligation to pay any Taxes or Other Taxes or to indemnify any Lender
(or Purchasing Lender or Replacement Lender), the Administrative Agent
or the Fronting Bank for such Taxes or Other Taxes pursuant to this
subsection 2.9.7 to the extent that such Taxes or Other Taxes result
<PAGE>
from (A) the failure of any Lender (or Purchasing Lender or
Replacement Lender), the Administrative Agent or the Fronting Bank to
comply with its obligations pursuant to this paragraph (e) or (B) any
representation or warranty made in this paragraph (e), or made on any
form or certification (or successor applicable form or certification)
delivered pursuant to this paragraph (e) by the Lender (or
Transferee), the Administrative Agent or the Fronting Bank incurring
such Taxes or Other Taxes proving to have been incorrect, false or
misleading in any material respect when so made or deemed to be made.
Unless the Company and the Administrative Agent have received forms or
other documents reasonably satisfactory to them indicating that
payments hereunder are not subject to United States withholding tax,
the Company or the Administrative Agent will withhold at the
applicable statutory or treaty rate.
2.9.8. Booking of Adjusted LIBOR Loans. Any Lender may
make, carry or transfer Adjusted LIBOR Loans at, to, or for the
account of, any of its branch offices or the office of an Affiliate of
such Lender. Notwithstanding the foregoing, each Lender shall, to the
extent requested to do so by the Company, use commercially reasonable
efforts consistent with its internal policies and customary business
practices to exercise the right set forth in the preceding sentence so
as to avoid or minimize Taxes or Other Taxes in respect of Adjusted
LIBOR Loans to the extent the exercise of such right would not
otherwise adversely affect such Lender.
2.9.9. Assumptions Concerning Funding of Adjusted LIBOR
Loans. Calculation of all amounts payable to a Lender under this
Section 2.9 shall be made as though such Lender had actually funded
its relevant Adjusted LIBOR Loan through the purchase of a Eurodollar
deposit bearing interest at LIBOR applicable to such Adjusted LIBOR
Loan in an amount equal to the amount of the Adjusted LIBOR Loan and
having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore
office of such Lender to a domestic office of such Lender in the
United States of America; provided that each Lender may fund each of
its Adjusted LIBOR Loans in any manner it sees fit and the foregoing
assumption shall be utilized only for the calculation of amounts
payable under this Section 2.9.
2.9.10. Adjusted LIBOR Loans After an Event of Default.
Unless the Lenders shall otherwise agree, after the occurrence of and
during the continuance of a Potential Event of Default or Event of
Default, the Company may not elect to have a Loan be made or
maintained as, or converted to, an Adjusted LIBOR Loan after the
expiration of any Interest Period then in effect for such Loan.
2.9.11. Affected Lender's Obligation to Mitigate. Each
Lender agrees that, as promptly as practicable after it becomes aware
of the occurrence of an event or the existence of a condition that
would cause it to be an Affected Lender under subsection 2.2.8, 2.9.2
or 2.9.3 or to be entitled to payments pursuant to paragraph (a), (b)
or (c) of subsection 2.9.7, it will so advise the Company and, if
requested to do so by the Company, it will, to the extent not
inconsistent with such Lender's internal policies and customary
business practices, use commercially reasonable efforts to make, fund
or maintain the affected Adjusted LIBOR Loans of such Lender through
another lending office of such Lender if as a result thereof the
additional moneys which would otherwise be required to be paid in
respect of such Loans pursuant to subsection 2.9.2 or such paragraphs
of subsection 2.9.7 would be
<PAGE>
materially reduced or the illegality or other adverse circumstances
which would otherwise require prepayment of such Loans pursuant to
subsection 2.9.3 would cease to exist, and if, as determined by such
Lender, in its sole discretion, the making, funding or maintaining of
such Loans through such other lending office would not otherwise
adversely affect such Loans or such Lender. The Company hereby agrees
to pay all reasonable expenses incurred by any Lender in utilizing
another lending office of such Lender pursuant to this subsection
2.9.11.
Section 2.10 Capital Requirements. If, while any of the
Commitments or Loans or Letters of Credit are outstanding, any
Fronting Bank or Lender determines that the adoption after the date of
this Agreement of any applicable law, rule or regulation regarding
capital adequacy or capital maintenance or any change therein, or any
change after the date of this Agreement in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by such Fronting Bank or Lender, as the case
may be, with any request or directive after the date of this Agreement
regarding capital adequacy or capital maintenance (whether or not
having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate
of return on such Fronting Bank's or Lender's capital, as the case may
be, as a consequence of its Commitments, Letters of Credit, Loans or
participation in Letters of Credit to a level below that which such
Fronting Bank or Lender, as the case may be, could have achieved but
for such adoption, change or compliance (taking into consideration
such Fronting Bank's or Lender's policies with respect to capital
adequacy) by an amount deemed by such Fronting Bank or Lender, as the
case may be, to be material, then from time to time, within 15 days
after written demand by such Fronting Bank or Lender, the Company
shall pay to such Fronting Bank or Lender such additional amount or
amounts as will compensate it for such reduction; provided that the
Company shall have no obligation to any Fronting Bank or Lender under
this Section 2.10 if such Fronting Bank or Lender shall not have
delivered such written demand to the Company within six months
following the later of (1) the date of the occurrence of the event
which forms the basis for such demand and (2) the date such Lender
shall have become aware of such event.
Section 2.11 Replacement Rights of Company. In the event
that any Lender shall have delivered a notice or certificate or
written demand pursuant to subsection 2.2.8, subsection 2.9.2,
subsection 2.9.3, or Section 2.10, or one or more Loan Parties shall
be required to make additional payments to or on behalf of or to
otherwise indemnify any Lender, Replacement Lender or Purchasing
Lender, for its own account or for the account of any Participant,
under paragraph (a), (b) or (c) of subsection 2.9.7, so long as no
Event of Default shall have occurred and be continuing, the Company
shall have the right, but not the obligation, at its own expense
(including with respect to the processing and recordation fee referred
to in subsection 9.1.3), upon notice to such Lender and the
Administrative Agent, to replace such Lender with an assignee (in
accordance with and subject to the restrictions contained in
subsection 9.1.3) approved by the Administrative Agent (which approval
shall not be unreasonably withheld), and such Lender hereby agrees to
transfer and assign without recourse (in accordance with and subject
to the restrictions contained in subsection 9.1.3) all its interests,
rights and obligations under this Agreement to such assignee; provided
that no Lender shall be obligated to make any such assignment unless
(A) such assignment shall not conflict with any law
<PAGE>
or any rule, regulation or order of any Governmental Authority, (B)
such assignee shall pay to the affected Lender in immediately
available funds on the date of such assignment the principal of the
Loans made by such Lender hereunder and (C) the Company shall pay to
the Affected Lender in immediately available funds on the date of such
assignment the interest accrued to the date of payment on the Loans
made by such Lender hereunder and all other amounts accrued for such
Lender's account or owed to it hereunder. The provisions of this
Section 2.11 shall not be construed to limit or otherwise affect the
rights of the Company in respect of Defaulting Lenders pursuant to the
provisions of Section 9.22.
Section 2.12 Swing Line Loans and Swing Line Notes.
2.12.1. Swing Line Loans. (a) Subject to the terms and
conditions of this Agreement and in reliance upon the representations
and warranties of the Loan Parties set forth herein and in each of the
other Loan Documents, Bankers hereby agrees to lend to the Company
from time to time from and after the Closing Date through but
excluding the Revolving Credit Maturity Date its Swing Line Commitment
(as defined below) to be used for the purposes identified in
subsection 2.8.3, notwithstanding the fact that such Swing Line Loans,
when aggregated with Bankers' outstanding Revolving Loans, may exceed
Bankers' Revolving Loan Commitment. Bankers' agreement to make Swing
Line Loans to the Company pursuant to this subsection 2.12.1 is herein
called the "Swing Line Commitment." The initial amount of Bankers'
Swing Line Commitment is $25,000,000. In no event shall the aggregate
principal amount of Swing Line Loans outstanding at any time exceed
the Swing Line Commitment. The Swing Line Commitment is subject to
reduction as set forth in subsections 2.7.8 and 2.7.9. The Swing Line
Commitment shall expire on and the Swing Line Loans shall be paid in
full no later than the Revolving Credit Maturity Date.
(b) Amounts borrowed by the Company under this subsection
2.12.1 may, subject to the limitations set forth in subsection 2.7.1,
be repaid and, subject to the other limitations set forth in this
Agreement, to but excluding the Revolving Credit Maturity Date, be
reborrowed. All Swing Line Loans shall be made as ABR Loans and shall
not be entitled to be converted into Adjusted LIBOR Loans. Swing Line
Loans made on any Funding Date shall be in an aggregate minimum amount
of $100,000 and integral multiples of that amount.
2.12.2. Notice of Borrowing. (a) Subject to subsection
2.12.1, whenever the Company desires to borrow under this Section
2.12, it shall deliver to Bankers, a Notice of Borrowing (which may be
telephonic confirmed promptly in writing) no later than 1:00 p.m. (New
York time) on the proposed Funding Date. The Notice of Borrowing
shall specify (A) the proposed Funding Date (which shall be a Business
Day), (B) the amount of the proposed Swing Line Loan and (C) that such
Swing Line Loan shall be an ABR Loan.
(b) Neither the Administrative Agent nor Bankers shall
incur any liability to the Company in acting upon any telephonic
notice referred to above which the Administrative Agent or Bankers
believes in good faith to have been given by a duly authorized officer
or other Person authorized to borrow on behalf of the Company or for
otherwise acting in good faith under this subsection 2.12.2 and, upon
funding of Swing Line Loans by Bankers in accordance with this
Agreement pursuant
<PAGE>
to any telephonic notice, the Company shall have borrowed Swing Line
Loans hereunder.
2.12.3. Disbursement of Funds. Promptly after receipt of
a Notice of Borrowing pursuant to subsection 2.12.2 (or telephonic
notice in lieu thereof), Bankers shall make the amount of its Swing
Line Loan available, in same day funds, at its office located at One
Bankers Trust Plaza, New York, New York not later than 2:00 p.m. (New
York time) on the Funding Date. Upon satisfaction or waiver (in
accordance with Section 9.6) of all applicable conditions precedent to
the borrowing of such Swing Line Loan, Bankers shall make the proceeds
of such Loans available to the Company on such Funding Date by causing
an amount of same day funds equal to the proceeds of such Swing Line
Loan received by the Administrative Agent to be credited to the
account of the Company at such office of the Administrative Agent.
2.12.4. Swing Line Note. The Company shall execute and
deliver to Bankers on the Funding Date a Swing Line Note substantially
in the form of Exhibit VII annexed hereto to evidence Bankers' Swing
Line Loans, in the principal amount of $25,000,000.
2.12.5. Purchase of Swing Line Loans. Bankers may by
written or telecopy notice given to each Lender not later than 10:00
a.m., New York City time, on any Business Day require the Lenders to
purchase all or any portion of the Swing Line Loans outstanding. Such
notice shall specify the aggregate amount of Swing Line Loans to be
purchased and such Lender's pro rata percentage (based on such
Lender's Adjusted Revolving Loan Percentage) of such Swing Line Loan
or Swing Line Loans. Each Lender having an Adjusted Revolving Loan
Percentage greater than zero shall pay to Bankers, not later than 2:00
p.m., New York City time, on the date of such notice, such Lender's
pro rata percentage (determined as aforesaid) of the principal amount
of such Swing Line Loan or Swing Line Loans. The purchase of such
participations shall not affect the character of the applicable Swing
Line Loans as Swing Line Loans or the Company's rights or obligations
with respect thereto (including, without limitation, the Company's
prepayment rights with respect thereto). Each Lender agrees that (A)
its obligation to purchase any such participation and to pay the
purchase price in respect thereof is absolute and unconditional and
shall not be affected by any event or circumstance whatsoever,
including, without limitation, the occurrence of any Potential Event
of Default or Event of Default hereunder or any Lender Default by such
Lender or any other Lender or the failure of any condition precedent
set forth in ARTICLE III to be satisfied, and (B) each such payment
shall be made without any offset, abatement, withholding or reduction
whatsoever.
ARTICLE III
CONDITIONS TO LOANS AND LETTERS OF CREDIT
The effectiveness of this Agreement and the obligations of
the Lenders to make Loans and to issue Letters of Credit hereunder are
subject to the satisfaction of all of the following conditions:
<PAGE>
Section 3.1 Conditions to Loans Made on the Closing
Date. The obligations of the Lenders to make all Loans hereunder, in
addition to the conditions precedent specified in Section 3.2, are
subject to prior or concurrent satisfaction of the following
conditions on the Closing Date:
3.1.1. The Company shall have delivered, or caused to be
delivered, to the Administrative Agent for the Lenders with sufficient
copies, where appropriate, for each Lender and CG&R:
(i) Certified copies of the Certificate of Incorporation
of the Company, together with a good standing certificate from
the Secretary of State of its jurisdiction of incorporation,
each to be dated a recent date prior to the Closing Date;
(ii) Copies of the By-laws of the Company, certified as of
the Closing Date by its corporate secretary or an assistant
secretary;
(iii) Resolutions of the Board of Directors of the Company
approving and authorizing such documents and actions as are
contemplated hereby in form and substance satisfactory to the
Administrative Agent and the Requisite Lenders, certified by its
corporate secretary or an assistant secretary as being in full
force and effect without modification or amendment;
(iv) Signature and incumbency certificates of officers of
the Company executing instruments, documents or agreements
required to be executed in connection with this Agreement; and
(v) Executed copies of the Collateral Documents.
3.1.2. Each Subsidiary that as of the Closing Date is a
Material Subsidiary or a Guarantor Subsidiary shall have delivered, or
caused to be delivered, to the Administrative Agent for the Lenders
with sufficient copies, where appropriate, for each Lender and CG&R:
(i) Certified copies of the Certificate of Incorporation
of such Subsidiary, together with a certificate from the
secretary or assistant secretary of such Subsidiary, each to be
dated a recent date prior to the Closing Date;
(ii) Copies of the By-laws of such Subsidiary, certified
as of the Closing Date by the corporate secretary or an
assistant secretary of such Subsidiary;
(iii) Resolutions of the Board of Directors of such
Subsidiary approving and authorizing such documents and actions
as are contemplated hereby in form and substance satisfactory to
the Administrative Agent and the Requisite Lenders, certified by
its corporate secretary or an assistant secretary as being in
full force and effect without modification or amendment;
<PAGE>
(iv) Signature and incumbency certificates of the
officers of each Subsidiary executing the Guarantor Subsidiary
Guarantee, the Collateral Documents to which such Guarantor
Subsidiary is party, and the other instruments, documents and
agreements required to be executed in connection therewith;
(v) Executed copies of the Subsidiary Guarantee and the
Collateral Documents to which each Guarantor Subsidiary is
party; and
(vi) Executed copies of any other instruments, documents
and certificates required to be executed in connection with the
execution of the Guarantor Subsidiary Guarantee and the other
Collateral Documents to which such Subsidiary is party.
3.1.3. The Company shall have taken or caused to be taken
such actions in such a manner so that the Administrative Agent, on
behalf of the Lenders, has, immediately following the Closing Date, a
valid and perfected Lien on the entire Collateral, which Lien shall be
a first priority Lien subject only to Prior Liens. Such actions shall
include, without limitation: (A) the delivery of the Pledge
Agreements, (B) the delivery pursuant to the applicable Pledge
Agreement of UCC financing statements (which shall name the
Administrative Agent as secured party, in form and substance
satisfactory to the Administrative Agent) granting a security interest
in all Receivables, Inventory and Intellectual Property or evidence
satisfactory to the Administrative Agent of filing of UCC financing
statements in each office where filing is necessary or appropriate and
(C) appropriate documents, including the applicable filings with the
United States Patent and Trademark Office and United States Copyright
Office, with respect to the Intellectual Property.
3.1.4. The Company shall have caused to be delivered to
the Administrative Agent, on behalf of the Lenders, the following
documents and instruments:
(i) A Mortgage encumbering each Real Property, duly
executed and acknowledged and otherwise in form for recording in
the recording office of each political subdivision where such
Real Property is situated, together with such certificates,
affidavits, questionnaires or returns as shall be required in
connection with the recording or filing thereof and such UCC-1
financing statements and other similar statements as are
contemplated in respect of such Mortgage, accompanied by the
local counsel opinion set forth as Exhibit IX-C, as applicable,
which Mortgage and financing statements and other instruments
shall be effective to create a Lien on such Real Property
securing the Obligations subject to no Liens other than Prior Liens;
(ii) With respect to each Real Property, such consents,
approvals, amendments, supplements, estoppels, tenant
subordination agreements or other instruments as shall
reasonably be deemed necessary by the Administrative Agent and
the Requisite Lenders in order for the owner or holder of the
fee or leasehold interest to grant or continue the Lien
contemplated by the Mortgage with respect to such Real Property;
<PAGE>
(iii) With respect to each Mortgage, a policy of title
insurance (or a commitment, dated and recertified as of the
Closing Date, to issue such a policy) insuring (or committing to
insure) the Lien of such Mortgage as a valid first mortgage Lien
on the Real Property described therein in an amount not less
than the fair market value thereof or, in lieu thereof with respect to
any group of Mortgages, a policy or policies (or commitment)
providing such insurance (or commitment or commitments to
provide such insurance) on a "tie-in" or "cluster" basis (i.e.,
policies or commitments which insure against (or commit to
insure against) losses regardless of location or allocated value of
the insured property up to a stated maximum coverage amount) in an
amount acceptable to the Administrative Agent, each of which
policy or policies (or commitment) shall (A) be issued by the
Title Company, (B) include such reinsurance arrangements (with
provisions for direct access) as shall be reasonably acceptable
to the Administrative Agent and the Requisite Lenders, (C) have
been supplemented by such endorsements, or, where such
endorsements are not available at commercially reasonable premium
costs, opinion letters of special counsel, architects or other
professionals, which counsel, architects or other professionals
shall be reasonably acceptable to the Administrative Agent and
the Requisite Lenders, as shall be requested by the
Administrative Agent and the Requisite Lenders (including, without
limitation, endorsements or opinion letters on matters relating to
usury, zoning, contiguity, revolving credit, last dollar, first
loss, doing business, and so-called comprehensive coverage over
covenants and restrictions) and (D) contain only such exceptions
to title as shall constitute Prior Liens or are otherwise agreed
to by the Administrative Agent and the Requisite Lenders prior
to the Closing Date with respect to such Real Property;
(iv) With respect to each Real Property located in
Oklahoma and Wisconsin, an ALTA Survey thereof, and, with
respect to Real Property located in Georgia, a perimeter survey
thereof which identifies to the reasonable satisfaction of the
Administrative Agent any and all encroachments and any and all
utility and access easements, and other encumbrances, crossing
or otherwise intersecting with the surveyed perimeter or
affecting any of the improvements comprising a portion of such Real
Property;
(v) With respect to each Real Property, policies or
certificates of insurance as required by the Mortgage relating
thereto, which policies or certificates shall bear mortgagee
endorsements of the character required by such Mortgage;
(vi) With respect to each Real Property, UCC, judgment and
tax lien searches confirming that the personal property
comprising a part of such Real Property is subject to no Liens
except Prior Liens and the Liens agreed to by the Administrative
Agent and the Requisite Lenders prior to the Closing Date with
respect to such Real Property;
(vii) With respect to each Real Property, such affidavits,
certificates and instruments of indemnification as shall
reasonably be required to induce the Title Company to issue the
endorsements contemplated in subparagraph (iii) above;
<PAGE>
(viii) With respect to each Real Property, copies of all
Leases (as defined in the Mortgages), all of which Leases shall,
to the extent not previously approved in writing by the
Administrative Agent and the Requisite Lenders, be reasonably
satisfactory to the Administrative Agent and the Requisite
Lenders;
(ix) With respect to each Real Property, confirmation that
there has been issued and is in effect a valid and proper
certificate of occupancy or local equivalent, if required by the
local codes or ordinances, for the use then being made of such
Real Property and that there is not outstanding any citation,
violation or similar notice indicating that such Real Property
contains conditions which are not in material compliance with local
codes or ordinances relating to building or fire safety or
structural soundness (other than any conditions which are being
corrected in a timely manner and other than any provisions of
such codes or ordinances the validity or applicability of which
is being contested in good faith by appropriate proceedings diligently
prosecuted and as to which enforcement proceedings have not been
instituted or, if instituted, have been stayed);
(x) A certificate of an officer of the Company certifying
that, as of the date of delivery of such certificate, there has
not occurred any material Taking or Destruction of any Real
Property or, to the knowledge of such officer, any material
adverse change in respect of any matter described in the
Facilities Environmental Report, dated October 26, 1994, prepared by
the Company and previously provided to the Lenders; and
(xi) The IDA Estoppel.
3.1.5. The Company shall have caused to be delivered to
each Lender an Officer's Certificate and an opinion satisfactory in
all respects to the Requisite Lenders from an independent valuation
firm satisfactory to the Requisite Lenders, in each case to the effect
that, after giving effect to the Recapitalization, the Company will
not be insolvent, will not be rendered insolvent by the indebtedness
incurred in connection therewith, will not be left with unreasonably
small capital with which to engage in its business and will not have
incurred debts beyond its ability to pay such debts as they mature.
3.1.6. The Administrative Agent and CG&R shall have
received copies of one or more favorable written opinions of Shearman
& Sterling, counsel for the Company, substantially in the form of
Exhibit VIII annexed hereto, dated as of the Closing Date, and
pertaining to such other matters as the Administrative Agent may
reasonably request.
3.1.7. The Administrative Agent and CG&R shall have
received copies of one or more favorable written opinions of (A) James
W. Nellen, II, Esq., Vice President and General Counsel for the
Company substantially in the form of Exhibit IX-A annexed hereto, and
Liebmann, Conway, Olejniczak & Jerry, Hunter, MacLean, Exley & Dunn,
and Conner & Winters, special local counsel for the Company in
Wisconsin, Georgia and Oklahoma, respectively, in the form of Exhibit
IX-B annexed hereto, (B) opinions of counsel in each jurisdiction
where there exists any inventory or accounts receivable to be
subjected to the Lien of a Collateral Document which
<PAGE>
has a value in excess of $20,000,000 with respect to the perfection
of the security interests contemplated by the Collateral Documents and
certain related matters, in each case in substantially the form of
Exhibit IX-C annexed hereto, and (C) an opinion of Michael, Best &
Friedrich with respect to the perfection of security interests in the
Intellectual Property contemplated by the Intellectual Property Pledge
Agreement, substantially in the form of Exhibit IX-D annexed hereto,
all of which opinions shall be dated as of the Closing Date, and cover
such other matters as the Administrative Agent may reasonably request.
3.1.8. The Company shall have (A) consummated the Common
Stock Offering, in accordance with applicable law and on terms
satisfactory in all respects to the Requisite Lenders, and received
not less than $300,000,000 in aggregate gross cash proceeds from the
Common Stock Offering, (B) paid any and all amounts owing in respect
of the Senior Secured Notes and the Existing Credit Facilities, (C)
paid any and all amounts owing on or prior to the Closing Date
pursuant to the Commitment Fee Letters and (D) paid all Transaction
Costs in respect of the Recapitalization that are due as of the
Closing Date or made arrangements to do so acceptable to the Requisite
Lenders.
3.1.9. The Company shall have entered into the 1995 A/R
Bridge, on terms satisfactory in all respects to the Requisite
Lenders.
3.1.10. There shall be no governmental or judicial
action, actual or threatened, that is likely to restrain, prevent or
impose burdensome conditions on the transactions contemplated hereby.
3.1.11. The Lenders shall have received satisfactory pro
forma consolidated balance sheets of the Company and its Subsidiaries
after giving effect to the Recapitalization and the Requisite Lenders
shall be reasonably satisfied that such balance sheets are not
inconsistent in any material respect with the Projections.
3.1.12. Except as has been disclosed in the Information
Package delivered to the Lenders prior to the Closing Date, there
shall not have occurred any material adverse change with respect to
the condition (financial or otherwise), operations, business, assets,
liabilities or prospects of the Company and its Subsidiaries, taken as
a whole, since September 30, 1994.
3.1.13. As of the Closing Date, (A) all information and
data (other than the Projections) concerning the Company and its
Subsidiaries or the transactions contemplated hereby that are
contained in the Information Package will not (to the best of the
Company's knowledge with respect to information made available by any
of the Company's authorized representatives), taken as a whole,
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained
therein, in light of the circumstances under which such statements are
made, not misleading and (B) all financial projections concerning the
Company and its Subsidiaries (collectively, the "Projections") that
have been prepared by the Company or any of the Company's authorized
representatives and made available to the Lenders have been prepared
in good faith and are based upon reasonable assumptions (it being
understood that nothing contained herein shall
<PAGE>
constitute a representation that the results forecasted in any
Projections will in fact be achieved).
The acceptance of the proceeds of the Loans and
disbursements made on the Closing Date shall constitute a
representation and warranty to the Administrative Agent and each of
the Lenders that all of the applicable conditions specified above
exist as of that time, except for such conditions that have been duly
waived in writing hereunder by the beneficiaries thereof.
Section 3.2 Conditions to Loans. The obligations of the
Lenders to make all Loans (other than any Tranche A Term Loans and any
Revolving Loans made on the Deferred Funding Date for the purposes
contemplated in subsection 2.8.1) are subject to the prior or
concurrent satisfaction or waiver of the following further conditions
precedent:
3.2.1. The Administrative Agent shall have received, in
accordance with the provisions of subsection 2.1.2, 2.3.2 or 2.12.2,
as the case may be, before any Funding Date, an originally executed
Notice of Borrowing signed by the chief executive officer, the chief
financial officer or the treasurer of the Company requesting a Loan or
by any executive officer of the Company designated by any of the
above-described officers on behalf of the Company in writing delivered
to the Administrative Agent.
3.2.2. As of such Funding Date:
(i) The representations and warranties contained herein
shall be true, correct and complete in all material respects on
and as of such Funding Date to the same extent as though made on
and as of that date except that the representations and
warranties need not be true and correct to the extent that
changes in the facts and conditions on which such representations and
warranties are based are required or permitted under this
Agreement and except to the extent such representations and
warranties specifically relate to an earlier date, in which case
such representations and warranties were true, correct and
complete in all material respects on and as of such earlier
date;
(ii) No event shall have occurred and be continuing or
would result from the consummation of the borrowing contemplated
by such Notice of Borrowing which would constitute (A) an Event
of Default or (B) a Potential Event of Default;
(iii) Each Loan Party shall have performed in all material
respects all agreements and satisfied all conditions which this
Agreement provides shall be performed by it on or before such
Funding Date;
(iv) No order, judgment or decree of any court, arbitrator
or governmental authority shall purport to enjoin or restrain
any Lender from making such Loan;
<PAGE>
(v) The making of the Loans and disbursements requested
on such Funding Date shall not violate Regulation G, T, X or U
of the Federal Reserve Board; and
(vi) Except as has been disclosed in the Information
Package, there shall not be pending or, to the best knowledge of
the Company, threatened, any action, suit, proceeding,
governmental investigation or arbitration against or affecting
any Loan Party or any of its Subsidiaries, or any property of any
Loan Party or any of its Subsidiaries which has not been disclosed by
the Company in writing pursuant to Section 4.6 or subparagraph
(ix) of Section 5.1 prior to the making of the last preceding
Loan (or in the case of the initial Loans, prior to the
execution of this Agreement), and there shall have occurred no
development not so disclosed in any such action, suit, proceeding,
governmental investigation or arbitration so disclosed, which, in
either event, in the opinion of the Requisite Lenders, would
reasonably be expected to materially and adversely affect the
business, operations, properties, assets or condition (financial
or otherwise) of the Company and its Subsidiaries, in each case,
taken as a whole, or to impair the ability or obligation of any Loan
Party to perform or of the Lenders to enforce the Obligations.
No injunction or other restraining order shall have been issued
and no hearing to cause an injunction or other restraining order
to be issued shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise
prevent the consummation of, or to recover any damages or obtain
relief as a result of, this Agreement or the making of Loans or
the issuance of Letters of Credit hereunder.
3.2.3. On such Funding Date, the Administrative Agent
shall have received an Officers' Certificate from the Company, dated
such Funding Date and satisfactory in form and substance to the
Administrative Agent, to the effect that the conditions set forth in
subsection 3.2.2 are satisfied on and as of that Funding Date.
Section 3.3 Conditions to Tranche A Term Loans and
Certain Revolving Loans on the Deferred Funding Date. The obligations
of the Lenders to make Tranche A Term Loans and Revolving Loans on the
Deferred Funding Date for the purposes contemplated in subsection
2.8.1 are subject only to prior or concurrent satisfaction of the
following conditions (in addition to satisfaction of the conditions
set forth in Section 3.1 unless such conditions have been waived in
accordance with Section 9.6):
3.3.1. The Company shall have made all necessary
arrangements, given all necessary notices and taken all other
necessary action to redeem all the outstanding Existing Subordinated
Debt and pay all other amounts and Transaction Costs owing in
connection with such redemption, in accordance with the terms of the
indentures governing the Existing Subordinated Debt.
3.3.2. There shall not have occurred and be continuing
any Event of Default or Potential Default pursuant to Section 7.1,
7.6, 7.7, 7.9, 7.13 or 7.14.
3.3.3. The Company shall have (A) received not less than
[$60,000,000] in aggregate gross cash proceeds from the 1995 A/R
Bridge and
<PAGE>
(B) paid all Transaction Costs in respect of the 1995 A/R Bridge that
are due as of the Deferred Funding Date or made arrangements to do so
acceptable to the Administrative Agent.
Section 3.4 Conditions to Initial Revolving Loans and
Swing Line Loans. The obligations of the Lenders to make the initial
Revolving Loans and Swing Line Loans are, in addition to the
conditions precedent specified in Sections 3.1 and 3.2, subject to
prior or concurrent satisfaction of the following conditions:
3.4.1. On or before the Funding Date of the initial
Revolving Loan, the Company shall deliver to each Lender having a
Revolving Loan Commitment (or to the Administrative Agent for such
Lenders) the Revolving Notes executed by it in accordance with
subsection 2.3.4 substantially in the form of Exhibit IV annexed
hereto, drawn to the order of each such Lender and with appropriate
insertions.
3.4.2. On or before the Funding Date of the initial Swing
Line Loan, the Company shall deliver to Bankers the Swing Line Note
executed by it in accordance with subsection 2.12.4 substantially in
the form of Exhibit VII annexed hereto, drawn to the order of Bankers
and with appropriate insertions.
3.4.3. The conditions precedent specified in Section 3.1
shall have been satisfied or waived in accordance with Section 9.6.
Section 3.5 Conditions to All Letters of Credit. The
obligation of each Fronting Bank to issue any Letter of Credit
hereunder is subject to the prior or concurrent satisfaction of all of
the following conditions:
3.5.1. On or before the date of issuance of the initial
Letter of Credit, each of the conditions set forth in Sections 3.1 and
3.4 shall have been satisfied or waived in accordance with Section
9.6.
3.5.2. On or before the date of issuance of a Letter of
Credit, the Administrative Agent shall have received in accordance
with the provisions of subsection 2.2.2, a notice requesting the
issuance of such Letter of Credit, all other information specified in
subsection 2.2.2, and such other documents as the Fronting Bank may
reasonably require in connection with the issuance of such Letter of
Credit.
3.5.3. On the date of issuance of such Letter of Credit,
all conditions precedent described in subsections 3.2.2 and 3.2.3
shall be satisfied to the same extent as though the issuance of such
Letter of Credit were the making of a Loan and the date of issuance of
such Letter of Credit were a Funding Date; provided that the Officers'
Certificate required to be delivered pursuant to subsection 3.2.3
shall be delivered to the Fronting Bank as well as to the
Administrative Agent.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this
Agreement and to make the Loans and the disbursements pursuant to the
Assignment Agreement and to issue Letters of Credit, the Company
represents and warrants to each Lender as follows:
Section 4.1 Organization, Powers, Good
Standing, Business and Subsidiaries.
4.1.1. Organization and Powers. Each of the Loan Parties
is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation (which
jurisdiction as of the date of this Agreement is set forth on Schedule
A annexed hereto). Each of the Loan Parties has all requisite
corporate power and authority to own and operate its properties, to
carry on its business as now conducted and proposed to be conducted,
to enter into each Loan Document to which it is a party and to carry
out the transactions contemplated hereby and thereby, and in the case
of the Company, to issue the Notes and the Common Stock.
4.1.2. Good Standing. Each of the Loan Parties is in
good standing wherever necessary to carry on its present business and
operations, except in jurisdictions in which the failure to be in good
standing has not had and will not have a material adverse effect on
the conduct of the business of the Company and its Subsidiaries, taken
as a whole.
4.1.3. Conduct of Business. On the date of this
Agreement, the Company and its Subsidiaries are engaged only in the
businesses described in the Prospectus.
4.1.4. Subsidiaries. All of the Subsidiaries (other than
inactive Subsidiaries or Foreign Subsidiaries having no significant
assets or activities) of each of the Loan Parties, as of the date of
this Agreement, are identified in Schedule A annexed hereto. The
capital stock of each of the Subsidiaries identified in Schedule A is
duly authorized, validly issued, fully paid and nonassessable. The
capital stock of each Person identified on Schedule A is not Margin
Stock. Each of the Subsidiaries of each Loan Party is validly
existing and in good standing under the laws of its respective
jurisdiction of incorporation and has full corporate power and
authority to own its assets and properties and to operate its business
as presently owned and conducted except where failure to be in good
standing or a lack of corporate power and authority has not had and
will not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole. Schedule A correctly sets forth as of
the date of this Agreement the ownership interest of each of the Loan
Parties in each of its Subsidiaries identified therein.
<PAGE>
Section 4.2 Authorization of Borrowing, etc.
4.2.1. Authorization of Borrowing. The execution,
delivery and performance of the Loan Documents and the issuance,
delivery and payment of the Notes and the reimbursement of Fronting
Banks of payments made under the Letters of Credit and the grant and
continuation of the security interests in the Collateral pursuant to
the Collateral Documents have been duly authorized by all necessary
corporate action by each Loan Party.
4.2.2. No Conflict. The execution, delivery and
performance by each Loan Party of each Loan Document to which it is
respectively a party and the issuance, delivery and performance of the
Notes, the consummation of the Common Stock Offering and the issuance
of Common Stock and the other transactions comprising the
Recapitalization and the reimbursement of Fronting Banks of payments
made under Letters of Credit and the grant and continuation of the
security interests in the Collateral pursuant to the Collateral
Documents do not and will not (A) violate (1) any provision of law
applicable to any Loan Party, (2) the Certificates of Incorporation or
Bylaws of any Loan Party, or (3) any order, judgment or decree of any
court or other agency of government binding on any Loan Party, (B)
conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any Contractual Obligation of
any Loan Party, (C) result in or require the creation or imposition of
any Lien upon any of its properties or assets (other than Liens in
favor of the Lenders) or (D) require any approval of stockholders or
any approval or consent of any Person under any Contractual Obligation
of any Loan Party, except for such violations, conflicts, breaches,
Liens and defaults which would not have, and such approvals the
absence of which would not have, a material adverse effect on the
Company and its Subsidiaries, taken as a whole.
4.2.3. Governmental Consents. The execution, delivery
and performance by each Loan Party of the Loan Documents to which it
is a party and application of the proceeds of the Loans, the issuance,
delivery and performance of the Notes, the reimbursement of Fronting
Banks of payments made under Letters of Credit, the consummation of
the Common Stock Offering, the issuance of Common Stock, and the grant
and continuation of the security interests in the Collateral pursuant
to the Collateral Documents do not and will not require any
registration with, authorization, order, consent or approval of, or
notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body except such registration,
consent, approval or notice as has been made, obtained or given and is
in full force and effect and except for the filings to perfect
security interests granted pursuant to Collateral Documents, and other
filings, authorizations, notices, orders, consents and approvals the
absence of which would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole or on the legality,
validity or enforceability of any Loan Document.
4.2.4. Binding Obligation. This Agreement is, and the
other Loan Documents and the Notes, when executed and delivered will
be, the legally valid and binding obligations of the Loan Parties
party thereto, enforceable against the applicable Loan Parties in
accordance with their respective terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.
<PAGE>
4.2.5. Valid Issuance of Common Stock. The Common Stock
issued in the Common Stock Offering has been duly and validly issued,
fully paid and nonassessable. Such Common Stock has been registered
or qualified under applicable federal and state securities laws.
Section 4.3 Financial Condition. The Company has
delivered to the Lenders true and complete copies of the Company's
financial statements for the fiscal year of the Company ending
December 31, 1994. Except as set forth in the Information Package,
all such financial statements and all financial statements set forth
in the Prospectus fairly present the consolidated financial position
of the Company and its Subsidiaries as at the respective dates thereof
and the consolidated results of operations and cash flows of the
Company and its Subsidiaries for each of the periods covered thereby,
subject to changes resulting from audit and normal year-end
adjustments. Neither the Company nor any of its Subsidiaries has as
of the Closing Date any material Contingent Obligation, material
contingent liability or material liability for taxes, long-term lease
or unusual forward or long-term commitment which is not reflected in
the foregoing financial statements, or the notes thereto.
Section 4.4 No Adverse Material Change; No Stock
Payments. Except as has been disclosed in the Information Package,
since December 31, 1994, there has been no change in the business,
operations, properties, assets or condition (financial or otherwise)
of the Company and its Subsidiaries, which has been, either in any
case or in the aggregate, materially adverse to the business,
operations, property, assets or conditions (financial or otherwise) of
the Company and its Subsidiaries, taken as a whole.
Section 4.5 Title to Properties; Liens. Each Loan Party
and each Subsidiary thereof has good, sufficient and legal title to
and beneficial ownership of all its respective properties and assets
(other than the Collateral) reflected in the most recent consolidated
balance sheet referred to in Section 4.3 or in the most recent
financial statements delivered pursuant to Section 5.1 of this
Agreement, except for assets acquired or disposed of in the ordinary
course of business since the date of such consolidated balance sheet
and except for sales and other dispositions permitted hereunder and
except for such defects that in the aggregate do not materially
adversely affect the business, operations, properties, assets or
condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole. Except for the Liens created by the
Collateral Documents and other Liens permitted by this Agreement, all
such properties and assets are free and clear of Liens. The Company
or another Loan Party has title to all the Collateral and title to
each item of Collateral is subject to no Liens other than Liens which
would be permitted pursuant to any Collateral Documents; provided that
(A) no such Lien (other than Prior Liens) shall be superior to the
Lien of such applicable Collateral Document and (B) except as
otherwise provided in the form of Mortgage annexed hereto as Exhibit
XIX-A(i), no warranty is made by the Company with respect to the
Company's state of title to any Land within the Landfill Area (as
defined in such form of Mortgage). The Company holds all material
licenses, certificates of occupancy or operation and similar material
certificates and clearances of municipal and other authorities
necessary to own and operate its properties in the manner and for the
purposes currently operated by the Company. Each Mill is suitable for
its intended purposes and is served by such utilities as are necessary
for the proper and efficient operation
<PAGE>
thereof. Each of the Recognition Instruments in existence as of the
Closing Date is in full force and effect and the Administrative Agent
and (assuming the Collateral Trustee, Lenders and the Administrative
Agent shall have executed and delivered the assumption instrument
contemplated in Section 4.2.2 of each such Recognition Instrument) the
Collateral Trustee is entitled, in respect of the Collateral
Documents, to exercise all the rights and receive all the benefits
contemplated in each such Recognition Instrument to be exercisable by
or available to the "Collateral Trustee" thereunder.
Section 4.6 Litigation; Adverse Facts. Except as has
been disclosed in the Information Package, there is no action, suit,
proceeding, governmental investigation of which the Company has
knowledge or arbitration (whether or not purportedly on behalf of any
Loan Party or any respective Subsidiary thereof) at law or in equity
or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, pending or, to the knowledge of the Company,
threatened against or affecting any Loan Party or any of its
respective Subsidiaries or any property of any Loan Party or any
Subsidiary thereof which would reasonably be expected to result in any
material adverse change in the business, operations, properties,
assets or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, or that would impair the ability of
any Loan Party to perform any of the Obligations.
Section 4.7 Payment of Taxes. Except to the extent
permitted by Section 5.3, all material tax returns and reports of each
Loan Party and each Subsidiary thereof required to be filed by any of
them have been filed, and all taxes, assessments, fees and other
governmental charges upon such Persons and upon their respective
properties, assets, income and franchises which are due and payable
have been paid. The Company does not know of any proposed tax
assessment against any such Person that would be material to the
condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, which is not being actively contested
in good faith by such Person to the extent affected thereby in good
faith and by appropriate proceedings; provided that such reserves or
other appropriate provisions, if any, as shall be required in
conformity with GAAP shall have been made or provided therefor.
Section 4.8 Performance of Agreements. None of the Loan
Parties or any Subsidiary of a Loan Party is in default in the
performance, observance or fulfillment of any of the material
obligations, covenants or conditions contained in any Contractual
Obligation of any such Person, and no condition exists which, with the
giving of notice or the lapse of time or both, would constitute such a
default, except where the consequences, direct or indirect, of such
default or defaults, if any, would not have a material adverse effect
on the business, properties, assets, operations or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as
a whole. Schedules C and F correctly identify all credit facilities
of the Company and its Subsidiaries as of December 31, 1994 in excess
of $1,000,000.
Section 4.9 Governmental Regulation. None of the Loan
Parties or any Subsidiary of a Loan Party (A) is subject to regulation
under the Public Utility Holding Company Act of 1935 or to any federal
or state statute or regulation limiting its ability to incur
Indebtedness for money borrowed as contemplated hereby or by
<PAGE>
any other Loan Document or (B) is an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of
1940, as amended.
Section 4.10 Securities Activities. None of the Loan
Parties or any Subsidiary of a Loan Party is engaged principally, or
as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.
Section 4.11 Employee Benefit Plans.
4.11.1. Each of the Loan Parties and each of its ERISA
Affiliates is and each Pension Plan is in compliance in all material
respects with all applicable provisions of ERISA and the Internal
Revenue Code and the regulations and published interpretations
thereunder with respect to all Pension Plans and Multiemployer Plans.
4.11.2. Except for (A) the standard termination in
accordance with Section 4041(b) of ERISA of the Lily-Tulip, Inc.
Salary Retirement Plan and (B) the occurrence of the Reportable Event
described in Regulation 29 C.F.R. Section 2615.23(a)(1)(ii) with
respect to the Fort Howard Cup Corporation Bargaining Unit Pension
Plan upon the transfer of all the issued and outstanding shares of
capital stock of Sweetheart Cup Company, Inc., no Termination Event
has occurred or is reasonably expected to occur with respect to any
Pension Plan and no Termination Event that is described in clause (E)
of the definition of "Termination Event" has occurred.
4.11.3. The sum of the amount of unfunded benefit
liabilities under all Pension Plans (excluding each Pension Plan with
an amount of unfunded benefit liabilities of zero or less) is not more
than $35,000,000.
4.11.4. No Loan Party or any of its ERISA Affiliates has
incurred or reasonably expects to incur any withdrawal liability under
Title IV of ERISA to any Multiemployer Plan individually or in the
aggregate in excess of $25,000,000.
4.11.5. No Loan Party or any of its ERISA Affiliates has
incurred any accumulated funding deficiency (whether or not waived)
with respect to any Pension Plan individually or in the aggregate in
excess of $15,000,000.
4.11.6. No Loan Party or any of its ERISA Affiliates has
or reasonably expects to become subject to a lien in favor of any
Pension Plan under Section 302(f) of ERISA individually or in the
aggregate in excess of $15,000,000.
As used in this Section 4.11, the term "amount of unfunded
benefit liabilities" has the meaning specified in Section 4001(a)(18)
of ERISA, and the term "accumulated funding deficiency" has the
meaning specified in Section 302 of ERISA and Section 412 of the
Internal Revenue Code.
Section 4.12 Certain Fees. Other than as disclosed in
the Information Package by the Company, no broker's or finder's fee or
commission will be payable with respect to the offer, issue and sale,
of the Notes and the Company hereby indemnifies the Lenders against
and agrees that it will hold the Lenders harmless
<PAGE>
from any claim, demand or liability for broker's or finder's fees
alleged to have been incurred in connection with any such offer, issue
and sale or any of the other transactions contemplated hereby and any
expenses, including reasonable legal fees, arising in connection with
any such claim, demand or liability. Except as so disclosed, no other
similar fees or commissions will be payable by any Loan Party or any
of its Subsidiaries for any other services rendered to the Company or
any of its Subsidiaries ancillary to the transactions contemplated
hereby.
Section 4.13 Disclosure. Except as disclosed in the
Information Package, taken as a whole, the representations and
warranties of the Loan Parties contained in this Agreement and any
other document, certificate or written statement furnished to the
Lenders by or on behalf of any Loan Party for use in connection with
the transactions contemplated by this Agreement (including, without
limitation, the Information Package but excluding the Projections (as
to which the Company makes the representations and warranties set
forth below)) do not contain any untrue statement of a material fact
or omit to state a material fact (known to any such person in the case
of any document not furnished by it) necessary in order to make the
statements contained herein or therein not misleading. Any
reaffirmation of the foregoing sentence is subject to any change in
the facts and conditions on which such representations and warranties
are based, which changes are required, contemplated or permitted under
this Agreement and subject to further disclosure contemplated by
Section 5.1 and subparagraph (vi) of subsection 3.2.2; provided that
in all cases, taken as a whole, representations and warranties of any
Loan Party contained in this Agreement and any other document,
certificate or written statement furnished to the Lenders by or on
behalf of any Loan Party for use in connection with the transactions
contemplated by this Agreement did not contain at the time made any
untrue statement of a material fact or omit at the time made to state
a material fact (known to any Loan Party in the case of any document
not furnished by it) necessary in order to make the statement
contained herein or therein not misleading. The Projections are based
upon good faith estimates and assumptions believed by the Loan Parties
to be reasonable at the time made, it being recognized by the Lenders
that projections as to future events are not to be viewed as facts and
that actual results during the period or periods covered by the
Projections may differ from the projected results. Except as
disclosed in the Information Package, there is no fact known to any
Loan Party (other than matters of a general economic nature) which
materially and adversely affects the business, operations, property,
assets or condition (financial or otherwise) of any Loan Party and its
respective Subsidiaries, taken as a whole, which has not been
disclosed herein or in such other documents, certificates and
statements furnished to the Lenders for use in connection with the
transactions contemplated hereby.
Section 4.14 Patents, Trademarks, etc. Each of the Loan
Parties and its Subsidiaries owns, or is licensed to use, all patents,
trademarks, trade names, copyrights, technology, know-how and
processes, service marks and rights with respect to the foregoing used
in or necessary for the conduct of their respective businesses as
currently conducted which are material to the condition (financial or
otherwise), business or operations of the Company and its
Subsidiaries, taken as a whole. To the Company's knowledge, the use
of such patents, trademarks, trade names, copyrights, technology,
know-how, processes and rights with respect to the foregoing by the
Loan Parties and their respective Subsidiaries does not infringe on
the rights of any Person, subject to such claims and infringements as
do not, in the
<PAGE>
aggregate, give rise to any liability on the part of any Loan Party
and its Subsidiaries which is material to the Company and its
Subsidiaries, taken as a whole. The consummation of the transactions
contemplated by this Agreement (including the transactions
contemplated by the Intellectual Property Pledge Agreement and any
Collateral Document Amendment relating thereto) does not require any
consent to be obtained with respect to such patents, trademarks, trade
names, copyrights, technology, know-how or processes, or the license
to use any of such patents, trademarks, trade names, copyrights,
technology, know-how, processes or rights with respect thereto, which
if not obtained will in any material manner or to any material extent
impair the ownership of (or the license to use, as the case may be)
any of such patents, trademarks, trade names, copyrights, technology,
know-how or processes by each Loan Party and its Subsidiaries to an
extent which in the aggregate would have a material adverse effect on
the condition (financial or otherwise), business or operations of the
Company and its Subsidiaries, taken as a whole. To the best knowledge
of the Company, the rights of each Loan Party and its Subsidiaries so
to sell, franchise or license under such brand names then being used
may be transferred in connection with any sale of assets or stock of
the related business by any Loan Party or any of its Subsidiaries with
only such exceptions as are not material to the Company and its
Subsidiaries, taken as a whole.
Section 4.15 Environmental Protection.
4.15.1. Each of the Loan Parties and their respective
Subsidiaries has either (A) obtained all material permits, licenses
and other authorizations which are required with respect to the
operation of its business under any Environmental Law or (B) submitted
a timely application in respect of such permits, licenses or other
authorizations (the submission of which, by itself or in conjunction
with other appropriate action by such Loan Party or its Subsidiaries,
is sufficient under applicable law to allow such Loan Party or any of
its Subsidiaries to continue its business or operations pending a
determination with respect to such application) and received at least
oral confirmation from the relevant government authority that such
permits, licenses or other authorizations will be issued or reserved,
as appropriate under current operating conditions.
4.15.2. Each of the Loan Parties and their respective
Subsidiaries is in material compliance with all terms and conditions
of the required material permits, licenses and authorizations, and is
also in material compliance with all other material limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable
Environmental Laws.
4.15.3. Except as disclosed in the Information Package,
there is no material civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation,
proceeding, notice of demand letter pending or, to the knowledge of
the Company, threatened against any Loan Party or any of their
respective Subsidiaries under the Environmental Laws.
4.15.4. Except as disclosed in the Information Package,
there are no material past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans
which may materially interfere with or prevent material compliance
with the Environmental Laws, or which may give rise to any material
<PAGE>
common law or legal liability, including, without limitation,
liability under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or similar state, local or
foreign laws, or otherwise form the basis of any material claim,
action, demand, suit, proceeding, hearing or notice of violation,
study or investigation, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling, or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical or
industrial, toxic or hazardous substance or waste which would have a
material adverse effect on the business, operations, condition
(financial or otherwise) of the Company and its Subsidiaries taken as
a whole.
Section 4.16 Security Interests. On and as of the
Closing Date, each of the Collateral Documents creates, as security
for the obligations purported to be secured thereby, a valid and
enforceable perfected security interest in and Lien on all of the
Collateral, which Lien shall be a first priority Lien subject only to
Prior Liens. No filings or recordings are required in order to
perfect the Liens created under the Collateral Documents except for
filings or recordings which on or before the date of execution and
delivery of such Collateral Document will have been made; provided
that with respect to any Real Property, no failure to record any
Mortgage relating thereto shall be deemed a breach of this Section if
the Title Company has issued or committed to issue in respect of such
Real Property an endorsement or endorsements complying with the
provisions of subparagraph (iii) of subsection 3.1.4.
Section 4.17 IDA and Certain Documents. Each of the
Georgia Mill Lease, the Escrow Agreement and the Project Agreement is
the valid and binding obligation of IDA, enforceable against IDA in
accordance with its terms. Except as has been disclosed in writing to
the Lenders, none of the Georgia Mill Lease, the Escrow Agreement or
the Project Agreement has been modified, amended, supplemented or
terminated. To the knowledge of the Company (after due inquiry), IDA
is not in default under (and no condition exists which with notice or
the lapse of time or both would constitute a default by IDA under) any
of the Georgia Mill Lease, the Escrow Agreement or the Project
Agreement. To the knowledge of the Company (after due inquiry), IDA's
interest in each of the Georgia Mill Lease, the Escrow Agreement and
the Project Agreement has not been assigned, pledged, mortgaged,
hypothecated or otherwise encumbered or transferred to any party.
Neither the execution and delivery by the Company of the Mortgages nor
consummation of the transactions contemplated therein will conflict or
be inconsistent with or result in any breach of any of the terms,
covenants or provisions of or constitute a default under the Georgia
Mill Lease, the Escrow Agreement or the Project Agreement. As of the
time of the execution of the Escrow Agreement and the concurrent
deposit of the limited warranty deed and bill of sale therein
described from IDA to the Company with the Escrow Agent (as defined in
the Escrow Agreement), all equitable interest in the Project (as
defined in the Project Agreement) was irrevocably vested in the
Company, and, as a result thereof, IDA's estate in the Project is
limited to legal title.
Section 4.18 Solvency.
4.18.1. Immediately after the consummation of the
transactions to occur on the Closing Date and immediately following
the making of each Loan made on the Closing Date and after giving
effect to the application of the proceeds of
<PAGE>
such Loans, (A) the fair value of the assets of the Company and its
Subsidiaries on a consolidated basis, at a fair valuation, will exceed
the debts and liabilities, subordinated, contingent or otherwise, of
the Company and its Subsidiaries on a consolidated basis, (B) the fair
saleable value of the property of the Company and its Subsidiaries on
a consolidated basis will be greater than the amount that will be
required to pay the probable liability of the Company and its
Subsidiaries on a consolidated basis on their debts and other
liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured, (C) the Company and its
Subsidiaries on a consolidated basis will be able to pay their debts
and liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured, and (D) the Company and
its Subsidiaries on a consolidated basis will not have unreasonably
small capital with which to conduct the businesses in which they are
engaged as such businesses are now conducted and are proposed to be
conducted following the Closing Date.
4.18.2. The Company does not intend to, or to permit any
of its Subsidiaries to, and does not believe that it or any of its
Subsidiaries will, incur debts beyond the Company's or such
Subsidiary's ability to pay such debts as they mature, taking into
account the timing of and amounts of cash to be received by the
Company or such Subsidiary and the timing of the amounts of cash to be
payable on or in respect of the Company's Indebtedness or the
Indebtedness of such Subsidiary.
ARTICLE V
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, so long as any of
the Commitments hereunder shall be in effect and until payment in full
of all of the Loans and Notes and the cancellation or expiration of
all Letters of Credit issued hereunder and the reimbursement in full
of all amounts drawn thereunder unless the Requisite Lenders shall
otherwise agree in writing, the Company shall perform all covenants in
this ARTICLE V:
Section 5.1 Financial Statements and Other Reports. The
Company will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting established and administered in accordance with
sound business practices to permit preparation of consolidated
financial statements in conformity with GAAP. The Company will
deliver to the Lenders:
(i) As soon as practicable and in any event within 30
days after the end of each month ending after the Closing Date
in each of the Company's fiscal years, other than months which
are the last month in a fiscal quarter, (A) the consolidated
balance sheet of the Company and its consolidated Subsidiaries,
as at the end of such month, and (B) the related consolidated
statements of earnings and retained earnings and cash flow statements
of the Company and its consolidated Subsidiaries for such month
and for the period from the beginning of the then current fiscal
year to the end of such month;
<PAGE>
(ii) As soon as practicable and in any event within 45
days after the end of each fiscal quarter ending during or after
1995, other than quarters which are the last quarter in a fiscal
year, (A) the consolidated balance sheet of the Company and its
consolidated Subsidiaries, as at the end of such period and (B)
the related consolidated statements of earnings and retained earnings
and cash flow statements of the Company and its consolidated
Subsidiaries for such fiscal quarter and for the period from the
beginning of the then current fiscal year to the end of such
fiscal quarter, all prepared in accordance with Rule 10-01 of
Regulation S-X of the General Rules and Regulations Under the
Securities Act of 1933, or any successor rule that sets forth the
manner in which interim financial statements shall be prepared,
it being understood that the foregoing shall include (1) a
statement of profit and loss to the gross margin, including
specified cost components and (2) statements of capital
expenditures setting forth in comparative form, the corresponding
periods of the previous fiscal year, the corresponding figures
from the consolidated plan for the then current fiscal year
delivered pursuant to subparagraph (xii) of this Section 5.1,
all in reasonable detail and certified by the chief financial
officer of the Company that, in the case of such consolidated
financial statements, they fairly present the financial
condition of the Company and its consolidated Subsidiaries as at
the dates indicated and the results of their operations and cash
flows for the periods indicated, subject to changes resulting
from audit and normal year-end adjustment and, insofar as relates to
divisions, based on the Company's normal accounting procedures
applied on a consistent basis;
(iii) As soon as practicable and in any event within 90
days after the end of each fiscal year of the Company
(commencing with fiscal year 1995) (A) (1) the consolidated
balance sheet of the Company and its consolidated Subsidiaries
as at the end of such year and (2) the related consolidated
statements of earnings and retained earnings and cash flow statements
of the Company and its consolidated Subsidiaries for such fiscal
year, it being understood that the foregoing shall include (x) a
statement of profit and loss to the gross margin, including
specified cost components and (y) statements of capital
expenditures setting forth in comparative form the corresponding
figures for the previous year, the corresponding figures from the
consolidated plan for the current fiscal year delivered pursuant
to subparagraph (xii) of this Section 5.1, all in reasonable
detail, and (B) in the case of such consolidated financial
statements, accompanied by a report thereon of Arthur Andersen &
Co. or such other independent certified public accountants of
recognized national standing selected by the Company which
report shall be unqualified as to going concern and scope of
audit and shall state that such consolidated financial
statements present fairly the financial position of the Company and
its consolidated Subsidiaries as at the dates indicated and the
results of their operations and cash flows for the periods
indicated in conformity with GAAP applied on a basis consistent
with prior years (except for such changes as are concurred in by
such accountants) and that the examination by such accountants
in connection with such consolidated financial statements has
been made in accordance with generally accepted auditing standards;
(iv) Together with each delivery of financial statements
of the Company and its Subsidiaries pursuant to subparagraphs
(ii) and (iii) of this
<PAGE>
Section 5.1, (A) an Officers' Certificate of the Company
stating that the signers have reviewed or caused to be reviewed
under their supervision the terms of this Agreement, the Notes,
the Letters of Credit and the other Loan Documents and have
made, or caused to be made under their supervision, a review in
reasonable detail of the transactions and condition of the Company
and its Subsidiaries during the accounting period covered by such
financial statements and that such review has not disclosed the
existence during or at the end of such accounting period, and
that the signers do not have knowledge of the existence as at
the date of the Officers' Certificate, of any condition or event
which constitutes an Event of Default or Potential Event of Default,
or, if any such condition or event existed or exists, specifying
the nature and period of existence thereof and what action the
Company has taken, is taking and proposes to take with respect
thereto and (B) a Compliance Certificate substantially in the
form of Exhibit VI annexed hereto demonstrating in reasonable
detail compliance (as determined in accordance with GAAP) during
and at the end of such accounting periods with the restrictions
contained in Sections 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.9,
6.10 and 6.14 and a computation as of the last day of the
applicable fiscal quarter of the Company of Ratio 1, Ratio 2 and
the Applicable Category in respect of the period succeeding such
quarter and the then unutilized amounts of the Discretionary Excess
Cash Flow Balance and the Discretionary Equity Proceeds Balance
and a computation of Excess Cash Flow in respect of the most
recently ended fiscal year and, in addition, a written statement
of the chief accounting officer or chief financial officer of
the Company describing in reasonable detail the differences
between the financial information contained in such financial
statements and the information contained in the Compliance Certificate
relating to the Company's compliance with Sections 6.6, 6.9 and
6.14;
(v) Together with each delivery of consolidated financial
statements of the Company and its consolidated Subsidiaries
pursuant to subparagraph (iii) of this Section 5.1, a written
statement by the independent public accountants giving the
report thereon (A) stating that their audit examination has included
a review of the terms of this Agreement and the other Loan
Documents as they relate to accounting matters, (B) stating
whether, in connection with their audit examination, any
condition or event which constitutes an Event of Default or
Potential Event of Default has come to their attention, and if such
a condition or event has come to their attention, specifying the
nature and period of existence thereof; provided that such
accountants shall not be liable to any Lender by reason of any
failure to obtain knowledge of any such Event of Default or
Potential Event of Default that would not be disclosed in the
ordinary course of their audit examination and (C) stating that based
on their audit examination nothing has come to their attention
which causes them to believe that the information contained in
either or both of the certificates delivered therewith pursuant
to subparagraph (iv) of this Section 5.1 is not correct or that
the matters set forth in the Compliance Certificate delivered
therewith pursuant to clause (B) of such subparagraph (iv) of this
Section 5.1 for the applicable fiscal year are not stated in
accordance with the terms of this Agreement;
(vi) Promptly upon receipt thereof, copies of all reports
submitted to the Company or any Subsidiary thereof by
independent public accountants in
<PAGE>
connection with each annual, interim or special audit of the
financial statements of the Company or any Subsidiary thereof
made by such accountants, including, without limitation, any
comment letter submitted by such accountants to management in
connection with their annual audit;
(vii) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent
or made available generally by the Company or by any Subsidiary
thereof to its respective security holders (other than the
Company or any Subsidiary thereof), of all regular and periodic
reports and all registration statements and prospectuses, if
any, filed by the Company or any Subsidiary thereof with any
securities exchange or with the Securities and Exchange
Commission and of all press releases and other statements made
available generally by the Company or any such Subsidiary to the
public concerning material developments in the business of the
Company or any Subsidiary thereof;
(viii) Promptly upon any officer of the Company obtaining
knowledge (A) of any condition or event which constitutes an
Event of Default or Potential Event of Default, or becoming
aware that any Lender has given any notice or taken any other
action with respect to a claimed Event of Default or Potential
Event of Default under this Agreement, (B) that any Person has
given any notice to the Company or any Subsidiary of the Company or
taken any other action with respect to a claimed default or
event or condition of the type referred to in Section 7.2, (C)
of any condition or event which would be required to be
disclosed in a current report filed by the Company with the
Securities and Exchange Commission on Form 8-K (Items 1, 2 and 4 of
such Form as in effect on the date hereof) if the Company were
required to file such reports under the Exchange Act or (D) of a
material adverse change in the business, operations, properties,
assets or condition (financial or otherwise) of the Company and
its Subsidiaries, taken as a whole, an Officers' Certificate
specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by
such holder or Person and the nature of such claimed default,
Event of Default, Potential Event of Default, event or
condition, and what action the Company has taken, is taking and
proposes to take with respect thereto;
(ix) Promptly upon any officer of the Company obtaining
knowledge of (A) the institution of, or non-frivolous threat of,
any action, suit, proceeding, governmental investigation or
arbitration against or affecting the Company or any of its
Subsidiaries or any property of the Company or any of its
Subsidiaries not previously disclosed by the Company to the Lenders,
or (B) any material development in any such action, suit,
proceeding, governmental investigation or arbitration, which, in
either case, if adversely determined, would materially and
adversely affect the business, operations, properties, assets or
condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, the Company shall promptly give notice
thereof to the Lenders and provide such other information as may
be reasonably available to it (without waiver of any applicable
evidentiary privilege) to enable the Lenders and CG&R to
evaluate such matters;
<PAGE>
(x) Promptly upon any officer of the Company becoming
aware of the occurrence of any (A) Termination Event, (B)
"prohibited transaction", within the meaning of Section 406 of
ERISA or Section 4975 of the Internal Revenue Code, or (C)
filing by the Company or any of its ERISA Affiliates of an
application for a waiver of an accumulated funding deficiency, in
connection with any Pension Plan or any trust created thereunder, a
written notice specifying the nature thereof, what action the
Company or its ERISA Affiliates have taken, are taking or
propose to take with respect thereto, and, when known, any
action taken or threatened by the Internal Revenue Service,
Department of Labor or the Pension Benefit Guaranty Corporation with
respect thereto;
(xi) With reasonable promptness copies of (A) all notices
received by the Company or any of its ERISA Affiliates of the
Pension Benefit Guaranty Corporation's intent to terminate any
Pension Plan or to have a trustee appointed to administer any
Pension Plan, (B) each Schedule B (Actuarial Information) to the
annual report (Form 5500 Series) filed by the Company or any of
its ERISA Affiliates with the Internal Revenue Service with respect to
each Pension Plan and (C) all notices received by the Company or
any of its ERISA Affiliates from a Multiemployer Plan sponsor
concerning the imposition or amount of withdrawal liability
pursuant to Section 4202 of ERISA;
(xii) As soon as practicable and in any event by the
sixtieth day of each fiscal year of the Company, a consolidated
plan, prepared in accordance with the Company's normal
accounting procedures applied on a consistent basis, for such
fiscal year of the Company, including, without limitation, (A) a
forecasted consolidated balance sheet and a consolidated statement of
changes in financial position of the Company for such fiscal year,
including a forecasted statement of profit and loss to the gross
margin and forecasted statements of working capital and capital
expenditures and (B) the amount of total forecasted capital
expenditures and forecasted consolidated selling, general and
administrative expenses for such fiscal year;
(xiii) As soon as practicable and in any event by the last
day of each fiscal year of the Company, a report in form and
substance reasonably satisfactory to the Administrative Agent
and the Requisite Lenders outlining all material insurance
coverage maintained as of the date of such report by the Company
and its Subsidiaries and all material insurance coverage planned
to be maintained by such Persons in the subsequent fiscal year;
(xiv) Together with each delivery of financial statements
of the Company and its Subsidiaries pursuant to subparagraph
(ii) of this Section 5.1, an Officers' Certificate of the
Company stating that the signers made, or caused to be made
under their supervision, a review of the terms of, and the
records relating to, all of the Intercompany Indebtedness of the
Company and its Subsidiaries and stating the amount of all
outstanding Intercompany Indebtedness, including all
Intercompany Indebtedness of all Subsidiaries to other
Subsidiaries and the Company and all Intercompany Indebtedness of all
Consolidated Subsidiaries to other Consolidated Subsidiaries and
the Company as of the date of such financial statements; and
<PAGE>
(xv) With reasonable promptness, such other information
and data (other than Sensitive Information), with respect to the
Company or any of its Subsidiaries as from time to time may be
reasonably requested by the Administrative Agent or any Lender.
Notwithstanding anything to the contrary set forth above, the
Company's failure to comply with subparagraphs (viii) and (ix) of this
Section 5.1 (other than clause (A) of subparagraph (viii) of this
Section 5.1, except to the extent that materiality is relevant to the
existence or non-existence of an Event of Default or a Potential Event
of Default) based on a good-faith determination by an officer of the
Company that such condition, event or development is not material
shall not be the basis for an Event of Default.
Section 5.2 Corporate Existence, etc. The Company will
at all times preserve and keep in full force and effect its corporate
existence and rights and franchises material to its business and those
of each of its Subsidiaries; provided that the corporate existence of
any such Subsidiary may be terminated if such termination is in the
best interest of its parent and would not have a material adverse
effect on the ability of the Loan Parties to perform their obligations
under the Loan Documents; and provided, further, that neither the
Company nor any of its Subsidiaries shall be required to preserve any
right or franchise if the Board of Directors of the Company or such
Subsidiary shall have determined that the preservation thereof is no
longer desirable in the conduct of the business of the Company or such
Subsidiary, as the case may be.
Section 5.3 Payment of Taxes and
Claims; Tax Consolidation.
5.3.1. The Company will, and will cause each of its
Subsidiaries to, pay all taxes, assessments and other governmental
charges imposed upon them or any of their properties or assets or in
respect of any of their franchises, business, income or property
before any material penalty accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials
and supplies) for sums which have become due and payable and which by
law have or may become a material Lien upon any of their material
properties or assets, prior to the time when any material penalty or
fine shall be incurred with respect thereto; provided that no such
charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted
and if such reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made therefor.
5.3.2. The Company will not, and will not permit any of
its Subsidiaries to, file or consent to the filing of any consolidated
income tax return with any Person (other than any of their respective
Subsidiaries or such other Person as may be reasonably acceptable to
the Requisite Lenders).
Section 5.4 Maintenance of Properties; Insurance. The
Company will maintain or cause to be maintained in good repair,
working order and condition (ordinary wear and tear excepted) all
material properties used in the business of the Company and its
Subsidiaries and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof and will
maintain and
<PAGE>
renew as necessary all material licenses, permits and other material
clearances necessary to use and occupy the material properties of the
Company and its Subsidiaries. The Company will maintain or cause to
be maintained, with financially sound and reputable insurers,
insurance with respect to its properties and business and the
properties and business of its Subsidiaries against loss or damage of
the kinds customarily insured against by corporations of established
reputation engaged in the same or similar businesses and similarly
situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other corporations to the extent
that such types and such amounts of insurance are available at
commercially reasonable rates. The Company will maintain such
insurance as may be required to comply with any Mortgage and each
Pledge Agreement, and shall otherwise comply with all provisions of
the Collateral Documents relating to insurance. The Company will
furnish to each Lender, upon reasonable request, information as to the
insurance carried, and will not cancel any such insurance without the
consent of the Requisite Lenders.
Section 5.5 Inspection. The Company shall permit any
authorized representatives designated by any Lender to visit and
inspect any of the properties of the Company or any of its
Subsidiaries, including its and their financial and accounting
records, and, subject to Section 9.17, to make copies and take
extracts therefrom, and to discuss its and their affairs, finances and
accounts with its and their officers and independent public
accountants, all upon reasonable notice and at such reasonable times
during normal business hours and as often as may be reasonably
requested; provided that in light of (A) the highly proprietary nature
of the following information, (B) its historically demonstrated and
ongoing value and importance in the Company's operating performance
and (C) the substantial risk to the value of the Company's business if
such information were not maintained on a strictly confidential basis,
in no event shall the Company be required to disclose to any Person
any information with regard to the Company's dry form technology or
deinking technology, any formulas, recipes, process flow diagrams,
equipment specifications, equipment purchase costs or manufacturing
and process costs related thereto (the "Sensitive Information").
Section 5.6 No Further Negative Pledges. Except as
provided in this Section 5.6, neither the Company nor any of its
Subsidiaries shall enter into any agreement prohibiting the creation
or assumption of any Lien upon its properties or assets, whether now
owned or hereafter acquired. The foregoing provisions of this Section
5.6 shall not be deemed violated by the following: (A) any
Contractual Obligation restricting Liens on assets owned by a Foreign
Subsidiary or on the shares of stock of any Foreign Subsidiary (other
than any such shares that constitute Collateral and other than the
shares of stock of Sterling International (U.K.) Limited and Sterling
International Limited) or on the shares of stock of SIL Company (other
than any such shares that constitute Collateral), (B) the provisions
of (1) Section 3.08 of the indenture governing the 9 1/4% Unsecured
Notes, as in effect on the Closing Date, (2) Section 3.08 of the
indenture governing the 8 1/4% Unsecured Notes, as in effect on the
Closing Date, or (3) any similar provision of any instrument
comprising the Refinancing Senior Unsecured Debt that is no less
favorable to the Company and the Lenders than the provisions of each
such Section 3.08 referred to above, (C) the provisions of Section
3.08 of the indenture governing the 9% Senior Subordinated Notes, as
in effect on the Closing Date, or the provisions of Section 3.08 of
the indenture governing the 10% Subordinated Notes, as in effect on
the Closing Date,
<PAGE>
(D) the provisions of any Capital Leases that restrict the imposition
of Liens on the assets specifically demised pursuant thereto, (E) any
agreement entered into by the Receivables Subsidiary in connection
with a Receivables Transaction that prohibits or restricts the
creation or assumption of any Liens upon the assets or properties of
such Receivables Subsidiary or (F) the provisions of any other
instrument governing Indebtedness of the Company or any Domestic
Subsidiary of the Company permitted under Section 6.1, which
Indebtedness is secured by a Lien permitted under Section 6.2, to the
extent such provisions operate to restrict the ability of the Company
or any of its Subsidiaries to grant Liens on the specific assets
securing such Indebtedness.
Section 5.7 Compliance with Laws, etc. The Company and
its Subsidiaries shall comply with the requirements of all applicable
laws, including Environmental Laws, rules, regulations and orders of
any Governmental Authority, noncompliance with which would materially
adversely affect the business, properties, assets, operations or
condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole.
Section 5.8 Interest Rate Agreements. On or prior to the
90th day following the Closing Date, the Company will enter into or
obtain, and thereafter maintain in full force and effect, Interest
Rate Agreements (other than Leveraged Swaps) as shall result in
effectively fixing, for a period of not less than three years from the
Closing Date, the interest rate per annum to the Company of Adjusted
LIBOR Loans having a principal amount of not less than $500 million to
an amount that does not exceed the sum, from time to time, of 10% per
annum plus the LIBOR Spread.
Section 5.9 Lender Meeting. The Company will participate
in a meeting of Lenders once during each fiscal year to be held at a
location and a time selected by the Company.
Section 5.10 Security Interests.
5.10.1. The Company shall and shall cause each of the
other Loan Parties to perform any and all acts and execute any and all
documents (including, without limitation, the execution, amendment or
supplementation of any financing statement, continuation statement or
other statement) for filing under the provisions of the UCC and the
rules and regulations thereunder, or any other statute, rule or
regulation of any applicable federal, state or local jurisdiction,
including, without limitation, any filings in local real estate land
record offices and the United States Patent and Trademark Office, or
the United States Copyright Office, which are necessary or advisable,
from time to time, in order to grant, continue and maintain in favor
of the Collateral Trustee for the benefit of the Lenders a valid and
perfected Lien on the Collateral, which Lien is a first priority Lien
subject only to Prior Liens.
5.10.2. The Company shall and shall cause each of the
other Loan Parties to undertake to deliver or cause to be delivered to
the Administrative Agent from time to time such other documentation,
consents, authorizations, approvals and orders in form and substance
satisfactory to the Collateral Trustee as the Collateral Trustee shall
deem reasonably necessary or advisable to perfect or maintain the
<PAGE>
Liens for the benefit of the Lenders, including assets which are
required to or do become Collateral after the Closing Date.
Section 5.11 Future Guarantor Subsidiaries and
Additional Pledge Agreements; Certain
Future Acquisitions of Material Assets.
5.11.1. Promptly upon any Person or Subsidiary (in each
case, other than a Lower Tier Foreign Subsidiary that constitutes a
Controlled Foreign Corporation) becoming a direct or indirect Material
Subsidiary of the Company, such Person or Subsidiary shall execute a
Guarantor Subsidiary Guarantee guaranteeing all of the obligations
owing to Lenders hereunder, to the fullest extent permitted by
applicable law, substantially in the form of Exhibit XIII annexed
hereto and shall, if it has not previously done so, enter into a
Receivable/Inventory Pledge Agreement, to the fullest extent permitted
by applicable law, substantially in the form of Exhibit XIV-B annexed
hereto, with such changes therein (whether before or after the
execution and delivery thereof) as are otherwise permitted by the
Requisite Lenders. In addition, any Subsidiary of the Company (other
than a Lower Tier Foreign Subsidiary that constitutes a Controlled
Foreign Corporation) that meets the above criteria but cannot execute
any such Pledge Agreement because of applicable law or whose Guarantor
Subsidiary Guarantee or Pledge Agreement is limited because of
applicable law, shall promptly upon any change of law reducing or
removing such prohibition or limitation enter into a Guarantor
Subsidiary Guarantee or such Pledge Agreement or shall promptly amend
such instrument in a manner satisfactory to the Administrative Agent
to reduce or remove such prohibition or limitation consistent with
such law as so changed. In addition, the Company shall, if such
Subsidiary is directly owned by the Company, or shall cause its
relevant directly or indirectly owned Subsidiaries to, if such
Subsidiary is not directly owned by the Company, complete and provide
to the Administrative Agent a form of the Company Stock Pledge
Agreement, substantially in the form of Exhibit XV annexed hereto with
respect to such Subsidiary, which shall be effective to create, in
favor of the Lenders and the Administrative Agent, a perfected, first
priority Lien on all the capital stock or other equity interest in
such Subsidiary.
5.11.2. Grant of Security Interest in Material Assets.
Promptly upon (A) the acquisition by the Company or any Domestic
Subsidiary of the Company of any Material Assets (as defined in clause
(A) of the definition of Material Asset) not acquired in connection
with or as part of an Expansion Project or (B) the capital stock or
other equity interests in any First Tier Foreign Subsidiary of the
Company becoming Material Assets pursuant to the provisions of clause
(B) of the definition of Material Asset:
(a) the Company and the Collateral Trustee will enter
into such amendments or supplements to the Collateral Documents,
or additional Collateral Documents, in each case in recordable
form (if involving real estate) and in substantially the forms
attached hereto as Exhibits XIV-A and XIV-B (to the extent the
Material Assets consist of personal property) and Exhibits XIX-A
through XIX-C (to the extent the Material Assets consist of real
property) with, in each case, such changes thereto as are necessitated
by local law or other applicable circumstances (the "Additional
Collateral Documents") and as are necessary in order to grant to
the Collateral Trustee
<PAGE>
for the benefit of the Lenders a valid first priority Lien and
security interest in such Material Assets subject only to
Permitted After Acquired Collateral Liens; and
(b) the Company will also deliver to the Collateral
Trustee the following:
(i) to the extent the Material Assets consist of
real property, an ALTA Survey and a policy of title
insurance insuring that the Lien of the Additional
Collateral Documents constitutes a valid and perfected
first priority Lien on such real property in an aggregate
amount equal to the fair value of the real property, together with an
Officers' Certificate stating that any specific exceptions
to such title insurance are Permitted After Acquired
Collateral Liens and containing, or accompanied by, to the
extent applicable, such endorsements and other assurances
of the type included in or accompanying the title
insurance policy required to be delivered to the
Collateral Trustee pursuant to subsection 3.1.4;
(ii) to the extent the Material Assets consist of
personal property, UCC financing statements and all such
other filings, notices or other instruments as shall be
deemed necessary (in the reasonable judgment of the
Collateral Trustee) to perfect such Lien of the Additional
Collateral Documents in respect of such Material Assets
and, if such Material Assets shall be of a character such that
possession thereof is required to perfect such Lien, such
Material Assets shall have been delivered to the
Collateral Trustee;
(iii) evidence of payment or a closing statement
indicating payment of all filing fees, recording charges,
transfer taxes and other costs and expenses, including,
without limitation, reasonable legal fees and
disbursements of counsel for the Collateral Trustee (and any local
counsel), that may be incurred to validly and effectively
subject such Material Assets to the Lien of any applicable
Additional Collateral Document and perfect such Lien; and
(iv) an opinion of counsel to the Company (which
shall contain such limitations and exceptions as are
customary for such opinions) to the effect that the
Collateral Trustee has a valid and perfected Lien in
respect of such Material Assets and that any applicable
Additional Collateral Document is enforceable in accordance
with its terms.
5.11.3. Limitations on Pledging of Shares and other
Assets of Certain Foreign Subsidiaries and Delivery of Certain
Guarantees. (a) Notwithstanding the provisions of subsections 5.11.1
and 5.11.2 above, so long as Section 956 (or a successor provision) of
the Internal Revenue Code shall remain in effect and shall operate
with respect to the Company and its Domestic Subsidiaries to (1) cause
restrictive covenants coupled with a pledge of shares possessing 66
2/3% or more of the voting power of all classes of capital stock or
other equity interests entitled to vote of any First Tier Foreign
Subsidiary that constitutes a Controlled Foreign
<PAGE>
Corporation (the stock or other equity interests of which would
otherwise be required to be pledged to the Lenders pursuant to
subsection 5.11.1 or 5.11.2) or (2) cause, in the case of a First Tier
Foreign Subsidiary that is a Material Subsidiary, the granting by such
First Tier Foreign Subsidiary of any security interest pursuant to a
Receivable/Inventory Pledge Agreement or of any rights pursuant to a
Guarantor Subsidiary Guarantee to trigger an inclusion in the income
of the Company or a Domestic Subsidiary pursuant to Section 951 (or a
successor provision) of the Internal Revenue Code, the Company and its
Subsidiaries shall not be required to cause such First Tier Foreign
Subsidiary to execute and deliver such Guarantor Subsidiary Guarantee
or such Receivable/Inventory Pledge Agreement and the Company and its
Domestic Subsidiaries shall only be required to pledge, or to cause to
be pledged, to the Lenders pursuant to subsection 5.11.1 or 5.11.2
shares representing the lesser of (i) the percentage held by the
Company and its Domestic Subsidiaries and (ii) 65% of the voting power
of all shares entitled to vote of such First Tier Foreign Subsidiary.
(b) Upon any change in law or other applicable
circumstances the effect of which is to permit a pledge of shares in a
Foreign Subsidiary in addition to those contemplated to be pledged
pursuant to paragraph (a) of this subsection 5.11.3 or (if such
Foreign Subsidiary shall be a Material Subsidiary) the execution and
delivery by such a Foreign Subsidiary of a Guarantor Subsidiary
Guarantee or the granting by such Foreign Subsidiary of a security
interest pursuant to a Receivable/Inventory Pledge Agreement without
triggering an inclusion in the income of the Company or any Domestic
Subsidiary of the Company pursuant to Section 951 (or a successor
provision) of the Internal Revenue Code, the Company shall, and shall
cause all applicable Subsidiaries of the Company to, (A) execute and
deliver all such instruments, share certificates, financing
statements, amendments or other documents as shall be reasonably
requested by the Collateral Trustee to pledge all such additional
shares to the Lenders as contemplated in subsections 5.11.1 and 5.11.2
and, (B) if such Foreign Subsidiary shall be a Material Subsidiary, to
cause such Foreign Subsidiary to execute and deliver to the
Administrative Agent a Guarantor Subsidiary Guarantee and/or a
Receivables/Inventory Pledge Agreement.
5.11.4. At all times from and after the Closing Date, the
Company shall cause each First Tier Foreign Subsidiary of the Company
either (A) not to own any equity interests or other Investments in any
Lower Tier Foreign Subsidiary or (B) not to engage in any business or
activity other than the ownership of equity interests and/or other
Investments in one or more Lower Tier Foreign Subsidiaries and not to
incur any liabilities of any kind other than the granting of a
guarantee and of a pledge of any such equity interests in Lower Tier
Foreign Subsidiaries in favor of one or more financial institutions or
other lending institutions to support or secure Indebtedness incurred
by such Lower Tier Foreign Subsidiaries in compliance with the
provisions of Section 6.1, each such guarantee and pledge to be
without recourse to such First Tier Foreign Subsidiary, the Company or
the Domestic Subsidiaries (except as permitted by Section 6.4). The
provisions of the preceding sentence of this subsection 5.11.4 shall
not apply to SIL Company or any direct or indirect Wholly Owned
Subsidiary of SIL Company.
5.11.5. The provisions of subsections 5.11.1, 5.11.2 and
5.11.3 shall not be applicable to the capital stock or other equity
securities in SIL Company, Fort Howard Holding or the capital stock or
other equity securities in Sterling International Limited, Sterling
International (U.K.) Limited or Sterling International
<PAGE>
Preference Limited (collectively, the "UK Holding Companies") and
their direct and indirect Wholly Owned Subsidiaries and none of Fort
Howard Holding, SIL Company, the UK Holding Companies and their direct
and indirect Wholly Owned Subsidiaries shall be required to execute
and deliver a Guarantor Subsidiary Guarantee or a Receivable/Inventory
Pledge Agreement or, except as otherwise provided below with respect
to equity securities of SIL Company, to otherwise pledge their assets
or to guarantee the Obligations to the Lenders or the Administrative
Agent hereunder. None of Fort Howard Holding, SIL Company or the UK
Holding Companies shall enter into any new line of business or incur
any new obligations in respect of its existing business after the date
hereof (other than in the ordinary course of its existing business).
The Company shall not create, or permit the creation of, any new
Subsidiaries to own or hold any Investment, direct or indirect, in
Fort Sterling. Notwithstanding the provisions of the first sentence of
this subsection 5.11.5, the Company shall at all times cause to be
maintained, pursuant to the Collateral Documents, in favor of the
Collateral Trustee for the benefit of the Lenders, a first priority
security interest in the equity securities of SIL Company representing
at least 65% of the voting power of all equity securities entitled to
vote of SIL Company.
5.11.6. Notwithstanding the provisions of subsection
5.11.2, the Company shall not be required to cause to be granted in
favor of the Collateral Trustee and the Lenders any Lien in respect of
a Material Asset if such Material Asset is encumbered by a Preexisting
Assumed Lien the granting instrument in respect of which prohibits the
granting to the Collateral Trustee and the Lenders of any Lien in
respect of such Material Asset; provided that, at the earlier of (A)
such time as the Indebtedness secured by such Pre-existing Assumed
Lien shall be retired and (B) the scheduled maturity date of such
Indebtedness (exclusive of any extensions of maturity effected in
connection with the acquisition of such Material Asset or thereafter),
the Company shall promptly comply with the provisions of subsection
5.11.2 in respect thereof to the extent such compliance would not
otherwise be in violation of subsection 5.11.3 or 5.11.5.
Section 5.12 Expansion Projects.
5.12.1. Mill Expansion Transactions. (a) Upon
compliance with the provisions of this subsection 5.12.1, the Company
may enter into a Permitted Expansion Financing with respect to the
construction or installation of Existing Mill Expansion Equipment at a
Mill (whether or not an Existing Mill) that has been encumbered by the
Collateral Documents (each, an "Existing Mill Expansion Transaction").
Not later than 10 days after any Existing Mill Expansion Equipment is
first placed into service by the Company, the Company shall deliver to
the Administrative Agent an Officers' Certificate (i) identifying such
Existing Mill Expansion Equipment, (ii) stating the date such Existing
Mill Expansion Equipment was placed in service and (iii) stating
whether the Company expects to enter into a Permitted Expansion
Financing within 12 months after the date such Existing Mill Expansion
Equipment was first placed in service. If the Company fails to
deliver such Officer's Certificate to the Administrative Agent within
the time period specified above or the Company states in such
Officer's Certificate that it does not intend to enter into a
Permitted Expansion Financing within 12 months of the date on which
the applicable Existing Mill Expansion Equipment was first placed in
service, such Existing Mill Expansion Equipment shall become subject
to the Lien of
<PAGE>
the Collateral Documents and the Company shall promptly deliver to
the Administrative Agent such instruments as the Administrative Agent
or the Requisite Lenders may reasonably require to confirm that the
Lien of the applicable Mortgage or other Collateral Document has
attached thereto, including, without limitation, amendments to the
applicable Mortgage or other Collateral Documents. If at any time
within such 12-month period the Company determines to pursue an
Unsecured Expansion Financing, the Company shall so notify the
Administrative Agent in writing and the applicable Existing Mill
Expansion Equipment shall become subject to the Lien of the Collateral
Documents to the extent it is not already so subject and the Company
shall deliver such instruments and take such other actions as are
contemplated in the immediately preceding sentence. If the Company
elects to enter into a Secured Expansion Financing or a Sale/Leaseback
Financing in respect of such Existing Mill Expansion Equipment, the
Company shall comply with the provisions of paragraphs (b) and (c) of
subsection 5.12.1, as applicable.
(b) If the Company elects to enter into a Permitted
Expansion Financing which constitutes a Sale/Leaseback Financing, the
Company may grant an Existing Mill Expansion Easement in respect of
any Existing Mill Expansion Equipment and enter into an Existing Mill
Expansion Lease with respect thereto upon the satisfaction of all the
Existing Mill Expansion Conditions and delivery to the Administrative
Agent of an Officers' Certificate confirming such satisfaction, which
Officers' Certificate shall be accompanied by the Existing Mill
Expansion Documents, each fully executed and acknowledged by the
Company and all parties thereto other than the Administrative Agent
and in form for execution by the Administrative Agent. The
Administrative Agent shall execute, acknowledge (if applicable) and
deliver to the Company a Recognition Instrument and any other Existing
Mill Expansion Documents to which the Administrative Agent is, or is
to be, a party following receipt thereof by the Administrative Agent
and the satisfaction of the Existing Mill Expansion Conditions. The
Administrative Agent's obligation to deliver any Existing Mill
Expansion Documents and the Company's rights to enter into such
Sale/Leaseback Financing shall be subject to the following conditions
(collectively, the "Existing Mill Expansion Conditions"):
(i) no Event of Default or Potential Event of Default
shall have occurred and be continuing as at the date of delivery
of such Existing Mill Expansion Documents;
(ii) following the delivery of the applicable Recognition
Instrument, the affected Mill (exclusive of the property subject
to any Existing Mill Expansion Easement) shall have sufficient
utility services and sufficient access to public roads, rail
spurs, harbors, canals, terminals and other transportation
structures for the continued use of such Mill for the production
of tissue and paper products in substantially the manner carried on by
the Company prior to such delivery;
(iii) the Existing Mill Expansion Documents shall not
create any Lien on property other than Existing Mill Expansion
Equipment and the Land described in any related Existing Mill
Expansion Easement;
(iv) following commencement of construction relating to
any Existing Mill Expansion Equipment and after completion
thereof, the affected
<PAGE>
Mill shall comply in all material respects with applicable
Environmental Laws and laws, rules, regulations and ordinances
relating to zoning, land use and building and workplace safety;
(v) following the delivery of a Recognition Instrument
and the completion of construction or installation of any
Existing Mill Expansion Equipment, the value of the affected
Mill (exclusive of the value of the Existing Mill Expansion
Equipment) shall not be less than the value of such Mill prior
to such delivery and construction or installation;
(vi) the applicable Existing Mill Expansion Lease shall
provide to the Administrative Agent in substance all the
material rights contemplated by Schedule H annexed to this
Agreement (it being understood that in the event that the
Recognition Instrument is substantially in the form of (A) that
certain Nondisturbance, Cure Rights and Purchase Option Agreement,
dated as of October 20, 1989, in respect of any Existing Mill
Expansion Transaction relating to Land and Improvements located
in Effingham County, Georgia (with such changes as shall be
reasonably satisfactory to the Administrative Agent), or (B)
that certain Cure Rights and Purchase Option Agreement dated as
of October 20, 1989, in respect of any Expansion Transaction relating
to Land and Improvements located in Brown County, Wisconsin
(with such changes as shall be reasonably satisfactory to the
Administrative Agent), the provisions of this subparagraph (vi)
shall be deemed satisfied);
(vii) to the extent that the Title Company shall be
authorized by law to do so, the Title Company shall have
committed to issue an endorsement to the title insurance policy
in favor of the Administrative Agent relating to the affected
Mill confirming that the Lien of the applicable Mortgage has
attached to the tenant's interest under the applicable Existing Mill
Expansion Lease and that the priority of such Lien with respect
to such interest is subject to no Liens other than Prior Liens;
(viii) unless such Existing Mill Expansion Equipment is
located within existing Improvements, the Company shall have
delivered to the Administrative Agent an ALTA Survey showing the
location of the Existing Mill Expansion Equipment and/or, if
applicable, the perimeter of the land affected (or to be
affected) by the Existing Mill Expansion Easement relating to
such Existing Mill Expansion Equipment; and
(ix) such Sale/Leaseback Financing shall comply with the
provisions of Sections 6.10 and 6.14.
(c) If the Company elects to finance an Existing Mill
Expansion Transaction with any Secured Expansion Financing, the
Company's rights to enter into such transaction shall be subject to
the following conditions (collectively, the "Alternative Existing Mill
Expansion Conditions"):
(i) the conditions set forth under subparagraphs (i),
(iv) and (viii) of paragraph (b) of this subsection 5.12.1 shall
be satisfied;
<PAGE>
(ii) the conditions set forth under subparagraphs (iii)
and (v) of paragraph (b) of this subsection 5.12.1 shall be
satisfied except that for purposes of satisfaction of such
conditions, the term "Expansion Intercreditor Agreement" shall
be substituted for the term "Recognition Instrument" as used
therein;
(iii) the lender in respect of such Permitted Expansion
Financing shall have executed and delivered to the
Administrative Agent an intercreditor agreement in substantially
the form of Exhibit XXIV hereto (each, an "Expansion
Intercreditor Agreement"); and
(iv) the asset or assets subject to the Lien of such
lender in connection with such financing shall be of such a
nature that it or they at all times will be capable of being
removed from the Mill at which such asset or assets is or are
located without causing any material damage to or any diminution
(other than a de minimis diminution) in value of any property
comprising such Mill and without interfering with or impairing, in any
material manner or for any material period, the operations of the
Company at such Mill or causing such Mill or any portion thereof
to fail to comply with any Environmental Law or any other law,
rule, regulation or policy of any Governmental Authority.
(d) In connection with the construction or installation
of any Existing Mill Expansion Equipment or the execution of any
Existing Mill Expansion Documents, the Company shall (A) execute,
deliver and record, and obtain from any Expansion Lessor, if
applicable, such instruments as the Administrative Agent or the
Requisite Lenders may reasonably require, including, without
limitation, amendments to the Collateral Documents and this Agreement
and (B) deliver to the Administrative Agent such evidence of the
satisfaction of the Existing Mill Expansion Conditions or Alternative
Existing Mill Expansion Conditions as the Administrative Agent or the
Requisite Lenders may reasonably require. Any and all construction
and construction activities performed in connection with any Existing
Mill Expansion Equipment shall be performed in compliance with the
provisions of any applicable Mortgage and shall conform in all
material respects with the provisions of applicable laws, rules,
regulations and policies of all Governmental Authorities having
jurisdiction and no Existing Mill Expansion Equipment may be operated
or occupied unless, if applicable, a proper certificate of occupancy
(or local equivalent) and, if applicable, all other required permits,
licenses and clearances from all Governmental Authorities having
jurisdiction shall have first been obtained and be in effect.
5.12.2. Greenfield Expansion Projects. (a) Upon
compliance with the provisions of this subsection 5.12.2, the Company
may enter into a Permitted Expansion Financing with respect to a
Greenfield Expansion Project. Not later than 10 days after any Mill
constituting Greenfield Expansion Assets is first placed into service
by the Company, the Company shall deliver to the Administrative Agent
an Officer's Certificate (i) identifying such Greenfield Expansion
Assets, (ii) stating the date such Greenfield Expansion Assets were
first placed in service and (iii) stating whether the Company expects
to enter into a Permitted Expansion Financing with respect to such
Greenfield Expansion Assets within 12 months of the date on which such
Greenfield Expansion Assets were first placed in service. If the
Company fails
<PAGE>
to deliver such Officer's Certificate within the time period
specified above or the Company states in such Officer's Certificate
that it does not intend to enter into such a Permitted Expansion
Financing within 12 months of the date on which such Greenfield
Expansion Assets were first placed in service, the Company shall
promptly grant to the Administrative Agent for the benefit of the
Lenders a first priority Lien (subject only to Permitted Encumbrances)
on all assets and property acquired by the Company in connection with
such Greenfield Expansion Assets by executing amendments or
supplements to the Collateral Documents or by executing Additional
Collateral Documents of the character contemplated to be delivered
pursuant to paragraph (a) of subsection 5.11.2 in connection with the
acquisition by the Company of Material Assets. If at any time within
such 12-month period the Company determines to pursue an Unsecured
Expansion Financing, the Company shall so notify the Administrative
Agent in writing and the applicable Greenfield Expansion Assets shall
become subject to the Lien of the Collateral Documents and the Company
shall deliver such instruments and take such other actions as are
contemplated in the immediately preceding sentence. In addition to
such amendments or Additional Collateral Documents, the Company shall
deliver to the Administrative Agent each of the documents and
instruments enumerated in subsection 5.11.2(b) with respect to the
acquisition of Material Assets except that for purposes of this
requirement the term "Greenfield Expansion Assets" shall be
substituted for the term "Material Asset" as used therein. The
Company's rights to enter into any Permitted Expansion Financing in
respect of Greenfield Expansion Assets shall be subject to the
following conditions (collectively, the "Greenfield Expansion
Financing Conditions"):
(i) no Event of Default or Potential Event of Default
shall have occurred and be continuing as of the date the Company
proposes to enter into such Permitted Expansion Financing;
(ii) no Lien shall be created in connection with such
Permitted Expansion Financing on any asset other than the
Greenfield Expansion Assets acquired or constructed in
connection with such Greenfield Expansion Project and the land
or leasehold estate related thereto; and
(iii) if such Permitted Expansion Financing is a
Sale/Leaseback Financing, such Sale/Leaseback Financing shall
comply with the provisions of Sections 6.10 and 6.14.
(b) Any and all construction and construction activities
performed in connection with any Greenfield Expansion Project shall
conform in all material respects to the provisions of applicable law
and no Greenfield Expansion Assets may be operated or occupied unless,
if applicable, a proper certificate of occupancy or local equivalent)
and, if applicable, all other required permits, licenses and clearance
from governmental authorities shall have first been obtained.
Section 5.13 Certain Dispositions of Collateral. The
Company shall not, and shall not permit any of its Subsidiaries to,
sell, lease, assign, transfer or otherwise dispose of any interest in
any Real Property or any equipment or other tangible Collateral
subject to a Mortgage or transfer or contribute any such Collateral to
a Foreign Subsidiary pursuant to clause (xi) of Section 6.3 (each, a
"Release Transaction") except in compliance with this Section 5.13,
Section 6.7 or
<PAGE>
the Collateral Documents. Upon such compliance, the Company shall be
entitled to receive from the Administrative Agent an instrument (each,
a "Release") releasing the Lien of any applicable Collateral Document
with respect to such Collateral. The Company shall exercise its
rights under this Section 5.13 by delivery to the Administrative Agent
of a notice (each, a "Release Notice"), which shall refer to this
subsection, describe with particularity the items of property proposed
to be covered by the Release and be accompanied by a counterpart of
the Release fully executed and acknowledged by all parties thereto
other than the Administrative Agent and in form for execution by the
Administrative Agent, and an Officers' Certificate certifying as to
the satisfaction of the Release Conditions. The Administrative Agent
shall execute, acknowledge (if applicable) and deliver to the Company
such counterpart within 10 days after receipt by the Administrative
Agent of a Release Notice and the satisfaction of the Release
Conditions. The Administrative Agent's obligation to deliver any
Release and the Company's rights to transfer any Collateral to a
Foreign Subsidiary pursuant to the provisions of subparagraph (xi) of
Section 6.3 or to enter into any sale, lease, assignment, transfer or
other disposition of any Collateral pursuant to the provisions of this
Section shall be subject to the following conditions (collectively,
"Release Conditions"):
(i) no Event of Default or Potential Event of Default
shall have occurred and be continuing as of the proposed
effective date of such Release;
(ii) if such Release relates to only a portion of a
discrete parcel of Real Property or a portion of any property
comprising a Mill, following such sale, transfer or other
disposition and release of the Lien of any applicable Mortgage
with respect thereto, the affected Real Property shall have
sufficient utility services and sufficient access to public roads,
rail spurs, harbors, canals, terminals and other transportation
structures for the continued use of such Real Property for its
use in substantially the manner carried on by the Company prior
to such Release;
(iii) if such Release relates to only a portion of a
discrete parcel of Real Property or a portion of any property
comprising a Mill, following such sale, transfer or other
dispositions the affected Real Property or Mill shall comply in
all material respects with applicable Environmental Laws and laws,
rules, regulations and ordinances relating to zoning, land use and
building and workplace safety;
(iv) if such Release relates to only a portion of a
discrete parcel of Real Property or a portion of any property
comprising a Mill, following such sale, transfer or other
disposition, the value of the affected Real Property or Mill
(exclusive of the value of the released Collateral) shall not be less
than the value of such Real Property or Mill prior to such
Release and the transfer of such Collateral shall not impair the
utility or legality of the affected Mill in any respect;
(v) if such Release relates to only a portion of a
discrete parcel of Real Property or a portion of any property
comprising a Mill, the Title Company shall have committed to
issue an endorsement to the title insurance policy in favor of
the Administrative Agent for the benefit of the Lenders relating
to the affected Real Property confirming that after such release the
<PAGE>
Lien of the applicable Mortgage continues unimpaired as a first
priority Lien upon the remaining Mortgaged Property subject only
to Prior Liens; and
(vi) if such Release relates to a Real Property, the
Company shall have delivered to the Administrative Agent for the
benefit of the Lenders an ALTA Survey showing the property
proposed to be released.
In connection with any Release Transaction, the Company shall (A)
execute, deliver, record and obtain such instruments as the
Administrative Agent or the Requisite Lenders may reasonably require,
including, without limitation, amendments to the Collateral Documents
and this Agreement and (B) deliver to the Administrative Agent such
evidence of the satisfaction of the Release Conditions as the
Administrative Agent or the Requisite Lenders may reasonably require.
The Company shall reimburse the Administrative Agent and Lenders upon
demand for all costs or expenses incurred by each thereof in
connection with any action contemplated by this Section 5.13. The
provisions of this Section shall not be construed to prohibit the
Company from leasing non-essential, non-manufacturing facilities
located on any Real Property subject to a Mortgage so long as the
rights granted to any lessee under such lease do not materially
interfere with the operations of the Company at such Real Property as
presently conducted and so long as the granting of such lease would
not constitute a breach of any provision of such Mortgage.
Section 5.14 Georgia Mill Lease and Mortgage.
5.14.1. Upon any expiration, termination or surrender
(whether pursuant to actions taken by the Administrative Agent under
the provisions of Article 2 of the Georgia Mill Mortgage or otherwise)
of the Georgia Mill Lease, the Company shall take all actions and
execute and file all instruments necessary to cause to be approved by
all authorities having jurisdiction and recorded as soon as reasonably
possible following any such expiration, termination or surrender a
plat of subdivision (in form reasonably acceptable to Requisite
Lenders) relating to the Land affected by the Georgia Mill Mortgage,
which plat shall reflect as a single subdivided parcel ("Mill Lot")
the Land underlying all Improvements constituting the Effingham County
Mill and all additional Land required to meet local zoning and setback
rules and laws and Environmental Laws as they relate to such
Improvements and the severance from the Mill Lot of all other portions
of the Land subject to the Georgia Mill Mortgage (collectively,
"Severed Parcel"), including, without limitation, those portions used
for sludge disposal and landfill purposes. Upon such approval and
recordation, the Company shall (A) execute, deliver and record (and
pay all expenses and taxes imposed in connection therewith and the
reasonable attorneys' fees of the Administrative Agent's attorneys) a
Mortgage ("Additional Georgia Mortgage") in the form of Exhibit
XIX-C(ii) on the Severed Parcel and (B) deliver to the Administrative
Agent on behalf of the Lenders a title insurance commitment or policy,
in form and substance reasonably satisfactory to Requisite Lenders, in
respect of the Additional Georgia Mortgage and such other assurances
(including, without limitation, counsel opinions) as shall be
reasonably requested by the Administrative Agent to confirm that the
Additional Georgia Mortgage creates in favor of the Administrative
Agent on behalf of the Lenders a valid and enforceable Lien on the
Severed Parcel with a priority that is equal to the priority of the
Georgia Mill Mortgage on the Severed Parcel. Upon compliance by the
Company with its obligations set forth in the
<PAGE>
immediately preceding sentence, the Administrative Agent shall
execute and record at the Company's expense (including, without
limitation, payment by the Company of all applicable taxes and
recording fees and the reasonable attorneys' fees of the
Administrative Agent's attorneys) a partial release of the Lien of the
Georgia Mill Mortgage from all Land comprising the Severed Parcel.
5.14.2. Notwithstanding the provisions of subsection
5.14.1, following any such expiration, termination or surrender of the
Georgia Mill Lease and upon compliance by the Company with the
provisions of Section 5.13 of this Agreement, the Administrative Agent
shall deliver to the Company, without consideration or prepayment of
any kind (other than the Administrative Agent's expenses incurred in
connection therewith, including, without limitation, attorneys' fees),
a partial release from the Lien of the Additional Georgia Mortgage of
any parcel of Land encumbered thereby which (A) does not comprise any
portion of the landfill or sludge operation serving or anticipated to
serve the Effingham County Mill and (B) is not necessary for the
proper and efficient operation of the Effingham County Mill or the
landfill property related thereto or the compliance with zoning and
setback rules and laws and Environmental Laws as they relate to any
Improvements comprising such Effingham County Mill or to such
landfill.
5.14.3. Upon failure by the Company to perform any
obligation set forth in this Section 5.14, the Administrative Agent
may perform such obligation on behalf of the Company, and the
Administrative Agent shall be deemed to be the attorney-in-fact of the
Company for such purpose.
5.14.4. The Company shall only be required to comply with
the provisions of this Section 5.14 as and to the extent it is
permitted to do so under the laws of the State of Georgia.
Section 5.15 Transfer of Permits and Licenses. In
addition to, and not in limitation of any right granted to the
Administrative Agent under any Mortgage or obligation of the Company
thereunder, the Company shall, and shall cause its Subsidiaries to,
upon the foreclosure of any Mill that benefits from a permit or
license required for the operation thereof, use its and their
reasonable best efforts to cause the transfer of such permit or
license to the entity then operating or which is to operate such
foreclosed Mill.
Section 5.16 Recapitalization. The Company shall take
all reasonable actions to cause to be consummated as soon as
practicable following the Closing Date the redemption and retirement
of the Existing Subordinated Debt and the other transactions and
payments required to complete the Recapitalization.
Section 5.17 Green Bay Sludge Boiler.
5.17.1. Upon the commencement of construction of the
Green Bay Sludge Boiler on land not then encumbered by a Mill Mortgage
("Sludge Boiler Land"), the Company shall take all actions and execute
and file all instruments reasonably requested by the Administrative
Agent to cause to be granted to the Lenders a mortgage lien on the
Sludge Boiler Land having a priority and being on terms that are
substantially similar to those applicable to the Mill Mortgage which
encumbers the Company's Green Bay Wisconsin Mill. If any such
mortgage is granted by the
<PAGE>
Company, the Company shall deliver to the Administrative Agent on
behalf of the Lenders a title insurance commitment or policy, in form
and substance reasonably satisfactory to the Administrative Agent, in
respect of such mortgage and such other assurances (including, without
limitation, counsel opinions) as shall be reasonably requested by the
Administrative Agent to confirm that such mortgage creates in favor of
the Administrative Agent on behalf of the Lenders a valid and
enforceable Lien on the Sludge Boiler Land having a priority as set
forth above.
5.17.2. Upon failure by the Company to perform any
obligation set forth in this Section 5.17, the Administrative Agent
may perform such obligation on behalf of the Company, and the
Administrative Agent shall be deemed to be the attorney-in-fact of the
Company for such purpose.
ARTICLE VI
NEGATIVE COVENANTS
The Company covenants and agrees that, so long as any of
the Commitments shall be in effect and until payment in full of all of
the Loans and the Notes and the cancellation or expiration of all
Letters of Credit issued hereunder and the reimbursement in full of
all amounts drawn thereunder, unless the Requisite Lenders shall
otherwise give prior written consent, the Company will perform all
covenants in this ARTICLE VI.
Section 6.1 Indebtedness. The Company and its
Subsidiaries shall not directly or indirectly create, incur, assume,
guaranty, or otherwise become or remain directly or indirectly liable
with respect to, any Indebtedness, except:
(i) The Company and its Subsidiaries may become and
remain liable with respect to the Obligations;
(ii) The Company may become and remain liable with respect
to the Indebtedness evidenced by the Refinancing Senior
Unsecured Debt; provided that the principal amount of such
Indebtedness shall not exceed, in the case of a refinancing of
the 9-1/4% Unsecured Notes, the 8-1/4% Unsecured Notes or any
Refinancing Senior Unsecured Debt, the then outstanding principal
amount thereof; and provided, further, that such Indebtedness (A)
provides for interest at rates which do not exceed the market
rates for similar types of Indebtedness prevailing at the time
such Indebtedness is incurred, (B) has a final scheduled
maturity date that is subsequent to the date on which the final
Scheduled Term Loans Principal Payment in respect of Tranche B Loans
is due hereunder, (C) has an Average Life to Stated Maturity
greater than the remaining Average Life to Stated Maturity of
the Tranche B Term Loans on the date such Indebtedness is
incurred, (D) contains no representation and warranty, covenant
or event of default that (1) is in addition to the
representations and warranties, covenants and events of default that
are currently set forth in the instruments (as in effect on the
Closing Date) evidencing or governing the 9-1/4% Unsecured Notes
or the 8-1/4% Unsecured Notes, as the case may be, or (2) is
more burdensome (to the Company) than
<PAGE>
the most burdensome (to the Company) corresponding
representation and warranty, covenant or event of default set
forth in the instruments (as in effect on the Closing Date)
evidencing or governing the 9-l/4% Unsecured Notes or the 8-l/4%
Unsecured Notes, as the case may be and (E) if the Refinancing
Senior Unsecured Debt is Subordinated Indebtedness, contains
subordination provisions no less favorable to the Lenders than the
least favorable subordination provisions (to the Lenders) in the
Existing Subordinated Debt;
(iii) The Company and its Subsidiaries may remain and may
become and remain liable with respect to Intercompany
Indebtedness (including, without limitation, Intercompany
Indebtedness to a Receivables Subsidiary); provided that (A) all
such Intercompany Indebtedness (other than Intercompany
Indebtedness to a Receivables Subsidiary) shall be evidenced by
promissory notes, which may be master promissory notes governing all
advances made by the maker of such note to the payee of such note
and (B) any Intercompany Indebtedness owed by the Company to any
Subsidiary shall be subordinated pursuant to the terms of the
promissory note or notes evidencing such Intercompany
Indebtedness in right of payment, from and after such time as
the Loans shall have become due and payable (whether at date of
maturity, by acceleration or otherwise), to the payment in full of the
Obligations; and provided, further, that the aggregate amount of
Inter- company Indebtedness of all Foreign Subsidiaries owing to
the Company and the Subsidiaries of the Company (other than any
Foreign Subsidiaries) shall not exceed the amounts permitted
pursuant to the provisions of Section 6.3 (other than
Intercompany Indebtedness owing as a result of or incurred to finance
payment of Royalty or Management Fees that are payable by Foreign
Subsidiaries to the Company and the Subsidiaries of the Company);
(iv) The Company and its Subsidiaries may remain liable
with respect to Existing Indebtedness which is described in
Schedule C annexed hereto and may become and remain liable in
respect of the Refinancing Foreign Debt;
(v) The Company and its Subsidiaries (other than any
Foreign Subsidiary) may become and remain liable (A) with
respect to Indebtedness in respect of Capital Leases if such
Capital Leases would be permitted by Section 6.9 and (B) with
respect to other Indebtedness secured by Liens permitted by
Section 6.2;
(vi) The Company and its Subsidiaries (other than any
Foreign Subsidiary) may become and remain liable with respect to
Contingent Obligations permitted by Section 6.4 and, upon any
obligations actually arising pursuant thereto, with respect to
the Indebtedness corresponding to the Contingent Obligations so
extinguished;
(vii) The Company and its Subsidiaries (other than any
Foreign Subsidiary) may become and remain liable with respect to
Indebtedness incurred in connection with Sale/Leaseback
Transactions permitted by Section 6.10 (other than any such
Sale/Leaseback Transaction that is subject to the provisions of
Section 5.12) so long as, if such Sale/Leaseback involves an Asset
<PAGE>
Sale, the Net Cash Proceeds of Sale received by the Company and
its Subsidiaries in connection therewith are used as provided in
such subsection;
(viii) The Company may become and remain liable with respect
to Indebtedness of the Company incurred pursuant to the
Management Agreements;
(ix) Any Foreign Subsidiary of the Company may become and
remain liable with respect to Indebtedness for money borrowed to
the extent that the Dollar equivalent of the aggregate
Indebtedness of such Foreign Subsidiary outstanding pursuant to
this subparagraph (ix) does not exceed, at any time, an amount
equal to 150% of the aggregate amount of (A)(i) each investment
made by the Company (whether in the form of equity contributions,
Intercompany Indebtedness, contribution of a Contingent Obligation or
otherwise) and the amount of each equity investment of all other
investors in such Foreign Subsidiary since the Closing Date (all
such investments being valued as at the time of investment) and
(ii) the Fair Value (as of the Closing Date) of all equity
Investments in such Foreign Subsidiary made by all such other
investors prior to the Closing Date reduced by (B) the excess, if any,
of (1) the aggregate Fair Value of all assets (determined, in
each case, as at the time of transfer thereof) transferred by
such Foreign Subsidiary (whether by dividend, loan, contribution
or otherwise) since the Closing Date (other than interest on
Intercompany Indebtedness in amounts and at rates not in excess
of those payable in transactions between unaffiliated parties and
payments of, or payments of principal of indebtedness related
to, Royalty or Management Fees) to any investor in such Foreign
Subsidiary over (2) the net income of such Foreign Subsidiary
since the later of the Closing Date and the first date of such
Investment by the Company or any Subsidiary of the Company;
provided that, except as otherwise permitted in Section 6.4, neither
the Company nor any of its Domestic Subsidiaries shall have
personal liability for repayment of such Indebtedness;
(x) The Company may become and remain liable with respect
to Indebtedness for money borrowed constituting Permitted
Expansion Construction Financing to the extent that the
aggregate Indebtedness outstanding pursuant to this subparagraph
(x) does not exceed, at any time, the difference between the
Adjusted Revolving Loan Commitments (determined without regard
to any deduction of the Revolving Loan Deduction Amount) and the
then outstanding amount of Revolving Loans and Letters of Credit
Usage;
(xi) The Sellers and one or more Receivables Subsidiaries
may become and remain liable for Indebtedness (in addition to
permitted Intercompany Indebtedness) in an aggregate amount not
exceeding at any one time $[100,000,000] in connection with a
Receivables Program; provided that such Indebtedness shall not
(A) include any obligations other than obligations directly
related to the Receivables Program or (B) be enforceable against the
Company or any Subsidiary of the Company or any of its or their
assets (other than assets of the applicable Receivables
Subsidiary);
<PAGE>
(xii) The Company may become and remain liable with
respect to Indebtedness constituting Permitted Expansion
Financings;
(xiii) The Company may become and remain liable for
Indebtedness in an aggregate amount not exceeding $60,000,000
under the 1995 A/R Bridge; and
(xiv) In addition to the Indebtedness permitted by
subparagraphs (i) through (xiii) of this Section 6.1, the
Company and its Subsidiaries may become and remain liable with
respect to Indebtedness not exceeding $25,000,000 in the
aggregate at any time outstanding.
Section 6.2 Liens. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create,
incur, assume or suffer or permit to exist any Lien (A) upon or with
respect to any property of the Company or any of its Subsidiaries that
is or should (pursuant to the terms hereof) be subject to the Lien of
any Collateral Document or (B) upon any shares of stock of Fort Howard
Holding, Inc., Sterling International (U.K.) Limited and Sterling
International Limited, except, in the case of clause (A), for Liens
which would be permitted pursuant to any applicable Collateral
Documents and, in the case of clause (B), Permitted Encumbrances;
provided that, in the case of clause (A), no such Liens (other than
Prior Liens) shall be superior to the Lien of such applicable
Collateral Document. With respect to all assets of the Company and its
Subsidiaries other than (1) shares of stock of SIL Company and (2)
assets described in clauses (A) and (B) above, the Company will not,
and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume or permit to exist any Lien on or
with respect to such property or asset, whether now owned or hereafter
acquired, or any income or profits therefrom, except:
(i) Permitted Encumbrances;
(ii) Liens described in Schedule D annexed hereto;
(iii) Liens affecting assets, comprised of Existing Mill
Expansion Equipment or Greenfield Expansion Assets, securing
reimbursement obligations of the Company and its Subsidiaries
with respect to letters of credit permitted by subparagraph
(vii) of Section 6.4, in each case which Liens do not encumber
Collateral pledged pursuant to any Collateral Document and which
are granted pursuant to documents relating to such letters of credit;
(iv) Liens encumbering customary initial deposits and
margin deposits, and other Liens incurred in the ordinary course
of business (other than any Lien imposed by ERISA) and which are
either within the general parameters customary in the industry
(as concurred in by the Administrative Agent) or are otherwise
approved by the Requisite Lenders securing obligations under
Commodities Agreements entered into by the Company or any of its
Subsidiaries;
(v) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty
requirements of the Company or any of its Subsidiaries incurred
in the ordinary course of business
<PAGE>
or as a result of this Agreement or the incurrence,
guaranteeing or granting of security interests in respect of
Obligations incurred pursuant to this Agreement or the other
Loan Documents;
(vi) Liens securing Indebtedness permitted under
subparagraph (v) (clause A) or (vii) of Section 6.1, incurred in
connection with Capital Leases or Sale/Leaseback Transactions
permitted by Section 6.9 or 6.10 so long as such Liens do not
extend to assets other than the assets subject to such Capital
Lease or Sale/Leaseback Transaction and do not secure any
Indebtedness other than Indebtedness directly incurred to finance such
Capital Lease or Sale/Leaseback Transaction;
(vii) Liens securing Indebtedness of (or of the
Wholly Owned Subsidiaries of) a Foreign Subsidiary of the
Company permitted under Section 6.1 so long as such Liens do not
extend to assets other than assets owned by such Foreign
Subsidiary or its Wholly Owned Subsidiaries and do not secure
any Indebtedness other than Indebtedness of (or of the Wholly Owned
Subsidiaries of) such Foreign Subsidiary; provided that no such
Liens (other than Liens constituting Preexisting Assumed Liens)
may encumber any common stock or other equity interest in any
First Tier Foreign Subsidiary;
(viii) Liens granted by any Receivables Subsidiary on
Program Receivables or interests therein; provided that no such
Lien may extend to any assets of the Company or any Subsidiary
of the Company that is not a Receivables Subsidiary;
(ix) Liens (which may be pari passu with the Liens
securing the Obligations) granted in favor of a Lender to secure
the obligations of the Company pursuant to any Qualified
Interest Rate Agreement or Qualified Currency Agreement;
(x) Liens securing Indebtedness constituting Permitted
Expansion Construction Financing and incurred in accordance with
the provisions of subparagraph (x) of Section 6.1; provided that
no such Lien may extend to any assets of the Company other than
the assets contemplated in the definition of Permitted Expansion
Construction Financing;
(xi) Liens affecting assets, comprised of Existing Mill
Expansion Equipment or Greenfield Expansion Assets, securing
Indebtedness constituting Permitted Expansion Financings (other
than any such Indebtedness constituting Unsecured Expansion
Financings);
(xii) Liens granted by the Company on A/R Eligible
Receivables; and
(xiii) In addition to Liens permitted by subparagraphs (i)
through (xii) above, the Company and its Subsidiaries may at any
time have Liens securing the payment of Indebtedness with
respect to property or assets with an aggregate Fair Value of
not more than $25,000,000 (as measured from the Closing Date).
<PAGE>
Nothing in this Section 6.2 shall prohibit (A) the sale, assignment,
transfer, conveyance or other disposition of any Margin Stock owned by
the Company or any of its Subsidiaries at its fair value or (B) the
creation, incurrence, assumption or existence of any Lien on or with
respect to any Margin Stock.
Section 6.3 Investments; Joint Ventures. The Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly make or own any Investment in any Person or enter into any
Joint Venture, except:
(i) The Company and its Subsidiaries may make and own
Investments in Cash and Cash Equivalents;
(ii) The Company may acquire and own Common Stock to the
extent permitted under Section 6.5;
(iii) The Company and its Subsidiaries may continue to own
Investments in existence on the date hereof, and which are
specifically described in Schedule E annexed hereto;
(iv) The Company and its Subsidiaries may make
intercompany loans to the Company or any Domestic Subsidiary of
the Company to the extent permitted under Section 6.1;
(v) The Company and its Subsidiaries may continue to own
Investments in respect of Joint Ventures in existence on the date
hereof, and which are specifically described in Schedule E
annexed hereto;
(vi) The Company and its Subsidiaries may make and own
Investments in Joint Ventures operating in the United States after
the date hereof; provided that the aggregate amount of such
Investments made after the date hereof shall not exceed
$25,000,000;
(vii) The Company and its Subsidiaries may acquire and
retain ownership of Investments as part of the consideration
received by them from Asset Sales not prohibited by Section 6.7;
provided that (A) no such Investment may be held or transferred
to a Foreign Subsidiary of the Company unless (i) the asset
which was the subject of such Asset Sale was owned by a Foreign
Subsidiary of the Company or (ii) such transfer is not prohibited
pursuant to the provisions of clause (x) of this Section 6.3, (B) no
more than 25% of the consideration received by the Company and
its Subsidiaries in respect of any Asset Sale for which the
total consideration to be so received is in excess of $5,000,000
shall be represented by evidences of Indebtedness, (C) each
promissory note evidencing such Indebtedness will be secured by a
perfected security interest, subject to no prior Lien securing such
Indebtedness, in all of the assets sold or otherwise disposed of in
such Asset Sale in favor of the seller thereof and (D) the
aggregate Fair Value of all such Investments shall not at any
time exceed $30,000,000; and provided, further, that for
purposes of compliance with this subparagraph (vii) of Section 6.3,
Asset Sales involving the simultaneous receipt of notes and sale of
such notes to a third party shall be excluded if such sale is
permitted by Section 6.11;
<PAGE>
(viii) The Company or any Subsidiary of the Company may
make and own Investments received in connection with the
bankruptcy or reorganization of any of its suppliers and
customers and in settlement of delinquent obligations of, and
other disputes with, its customers and suppliers arising in the
ordinary course of business;
(ix) The Company or any Subsidiary of the Company may make
and own Investments arising in connection with Commodities
Agreements entered into in the ordinary course of its business;
(x) The Company and its Domestic Subsidiaries may make
and own Investments in Foreign Subsidiaries; provided that the
aggregate amount of the Fair Values of all assets (including,
but not limited to, cash, cash equivalents, capital and other
assets) transferred by the Company and its Domestic Subsidiaries
(such Fair Value to be measured in each case as of the actual
date of transfer) to, and the maximum amount of all Contingent
Obligations incurred for the benefit of, one or more Foreign
Subsidiaries by way of capital contribution, loan, guarantee or
otherwise shall not exceed at any time (A) the aggregate Fair
Value of all assets (including, but not limited to, cash, cash
equivalents, capital and other assets) transferred after the
Closing Date by all Foreign Subsidiaries in the aggregate to the
Company and its Domestic Subsidiaries (such Fair Value to be
measured in each case as of the actual date of transfer) by way
of capital contribution, loan, dividend, distribution or
otherwise and all net reductions in Investments constituting
Contingent Obligations (effected as a result of the retirement after
the Closing Date by the applicable Foreign Subsidiary of
Indebtedness guaranteed by the Company or any Domestic
Subsidiary of the Company), plus (B) (i) during the period
commencing on the Closing Date and ending on June 30, 1996,
$40,000,000, and (ii) during all periods after June 30, 1996,
$40,000,000 until such time as the Company shall have achieved an
Interest Coverage Ratio of 1.9 or more, after which time such
amount shall be increased to $100,000,000, plus (C) the
aggregate of all amounts of the unutilized Discretionary Excess
Equity Proceeds Balance and the unutilized Discretionary Excess
Cash Flow Balance which the Company has from time to time
elected to apply to the making of Investments pursuant to this
subparagraph (x) (provided that the total of all amounts of the
unutilized Discretionary Equity Proceeds Balance which the
Company may elect to apply pursuant to this clause (C) shall not
exceed, at any time, an amount equal to 50% of the sum of the
Closing Date Excess Equity Proceeds Amount and the aggregate
amount, as of such time, of all net cash proceeds received by the
Company or any of its Subsidiaries after the Closing Date from all
Equity Offerings after the Closing Date (exclusive of any shares
sold pursuant to an overallotment option in respect of the
Common Stock Offering) plus (D) the aggregate amount of Royalty
and Management Fees on a consolidated basis previously paid
after the Closing Date by Foreign Subsidiaries to the Company
and its Subsidiaries; and provided, further, that nothing set forth in
this subparagraph (x) shall be construed to permit the transfer
to any Foreign Subsidiary of any asset which constitutes
Collateral;
(xi) The Company and its Domestic Subsidiaries may make
and own Investments in any Foreign Subsidiary consisting of the
transfer of tangible
<PAGE>
assets to such Foreign Subsidiary; provided that (A) the
aggregate book value of all such tangible assets so transferred
after the Closing Date pursuant to this subparagraph (xi)
(determined, in each case, as of the date of transfer) after the
Closing Date shall not exceed $10,000,000, (B) the aggregate Fair
Value (as so determined) of all such tangible assets so transferred
after the Closing Date pursuant to this subparagraph (xi) shall
not exceed $25,000,000, and (C) if any such assets shall
constitute, at the time of such transfer, Collateral, the
Company shall have complied with the provisions of Section 5.13
concerning releases of Collateral;
(xii) The Company and its Subsidiaries may make and own
Investments in equity securities (other than equity securities of the
Company or any of its Subsidiaries) listed on the New York Stock
Exchange ("NYSE"); provided that the aggregate value, as
determined by the closing price on the NYSE for such equity
securities on the Business Day prior to making the Investment,
of such equity securities shall not at any time exceed $2,000,000;
(xiii) The Company or any Subsidiary may continue to own
Investments in, and may make and own Investments in, Consolidated
Capital Expenditures permitted to be made or owned by the
Company or such Subsidiary under Section 6.14 and may make
Investments as a direct consequence of the discharge of
Contingent Obligations permitted under Section 6.4;
(xiv) The Company may make Investments constituting
recourse and non-recourse loans to management and other
employees of the Company to purchase Common Stock and to pay
taxes in respect of such purchases as permitted by the
Management Agreements in an aggregate principal amount not to
exceed $10,000,000 (plus accrued and unpaid interest thereon) at any
time outstanding;
(xv) The Company and its Subsidiaries may make and own
Investments in Receivables Subsidiaries in accordance with the
provisions of Section 6.11; and
(xvi) In addition to Investments permitted by
subparagraphs (i) through (xv) of this Section 6.3, the Company and
its Subsidiaries may after the Closing Date make and own
Investments (other than Investments in Foreign Subsidiaries or
other Persons, properties or operations that are not organized
or located in the United States of America (exclusive of its
territories and possessions)) (A) with an aggregate Fair Value
(determined, in each case, at the time such Investment is made) of not
more than $25,000,000 outstanding at any time, and (B) (without
limiting the rights of the Company under clause (A) hereof) in
an aggregate amount (determined, in each case, at the time such
Investment is made) outstanding at any time not exceeding the
aggregate of all amounts of the unutilized Discretionary Excess
Equity Proceeds Balance and the unutilized Discretionary Excess Cash
Flow Balance which the Company has from time to time elected to
apply to the making of Investments pursuant to this subparagraph
(xvi); provided that, except as set forth in subparagraph (xii)
of this Section 6.3, neither the
<PAGE>
Company nor any of its Subsidiaries may make or own Investments
in any Margin Stock other than Common Stock.
Section 6.4 Contingent Obligations. The Company will
not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or become or be liable with respect to any
Contingent Obligation except:
(i) Guarantees resulting from endorsement of negotiable
instruments for collection in the ordinary course of business;
(ii) Obligations under the Guarantor Subsidiary
Guarantees;
(iii) Guarantees of Interest Rate Agreements and Currency
Agreements entered into by the Company which are permitted by
subparagraphs (v) and (vi) of this Section 6.4;
(iv) One or more Receivables Subsidiaries may become and
remain liable for Contingent Obligations directly related to or
comprising a portion of any Receivables Transaction;
(v) Interest Rate Agreements and Currency Agreements
(other than Leveraged Swaps) entered into by the Company and any
Lender;
(vi) Currency Agreements (other than Leveraged Swaps)
entered into by the Company or any Subsidiary of the Company and
any financial institution in the ordinary course of business or
in connection with Asset Sales;
(vii) Contingent reimbursement obligations not exceeding
$10,000,000 in the aggregate outstanding at one time under
letters of credit (including any such letters of credit in
existence as of the date hereof) other than Letters of Credit
under this Agreement;
(viii) Contingent Obligations in existence on the date
hereof described in Schedule G and extensions and renewals
thereof so long as the amount of any such Contingent Obligations
so extended or renewed is not increased thereby from the amount
thereof at the time extended or renewed;
(ix) Contingent Obligations in respect of any obligation
(other than any obligation with respect to Indebtedness) of (A)
the Company or one of its Domestic Subsidiaries and (B) Foreign
Subsidiaries and Foreign Joint Ventures to the extent, in the
case of clause (A) and (B), such Contingent Obligation is an
Investment permitted under Section 6.3;
(x) Contingent Obligations represented by performance
bonds and similar obligations relating to the sale of the
Company's or its Subsidiaries' products incurred in the ordinary
course of business (exclusive of obligations for payment of
borrowed money) not to exceed $10,000,000 at any time;
<PAGE>
(xi) Contingent Obligations represented by surety bonds
and similar obligations incurred in the ordinary course of
business (exclusive of obligations for payment of borrowed
money) not to exceed $15,000,000 at any time;
(xii) Contingent Obligations pursuant to the Management
Agreements;
(xiii) Contingent Obligations in respect of Indebtedness of
(A) the Company or a Domestic Subsidiary of the Company and (B)
Foreign Subsidiaries to the extent such Contingent Obligations
are Investments permitted under Section 6.3; and
(xiv) In addition to the Contingent Obligations permitted
by subparagraphs (i) through (xiii) of this Section 6.4, the
Company and its Subsidiaries may become and remain liable with
respect to other Contingent Obligations except Contingent
Obligations which constitute Investments in Foreign Subsidiaries
pursuant to Section 6.3 or which are for the benefit of any
Foreign Subsidiary of the Company; provided that the maximum aggregate
liability of the Company and its Subsidiaries in respect of all
Contingent Obligations incurred pursuant to this subparagraph
(xiv) shall not at any time exceed $25,000,000.
Section 6.5 Restricted Junior Payments. The Company will
not, and will not permit any of its Subsidiaries to, directly or
indirectly, declare, order, pay, make or set apart any sum for any
Restricted Junior Payment except that (A) during each of the first two
twelve-month periods starting on the Closing Date, the Company may
declare and pay cash dividends to holders of its Common Stock in an
amount up to $3,000,000 for each such period, (B) during any
twelve-month period commencing on or after the second anniversary of
the Closing Date, the Company may declare and pay cash dividends to
holders of its Common Stock in an annual amount not to exceed 6% of
the sum of (1) $300,000,000 less the amount of all Transaction Costs
reasonably determined by the Company to be attributable to the first
$300,000,000 of gross proceeds of the Common Stock Offering and (2)
the aggregate net cash proceeds of all issuances of Common Stock of
the Company occurring after the Closing Date (excluding the Common
Stock Offering and any Common Stock sold pursuant to an overallotment
option in connection with the Common Stock Offering); provided that no
dividend in excess of $3,000,000 that is proposed to be declared or
paid pursuant to this clause (B) may be declared or paid unless at the
date of declaration and the date of payment thereof the unutilized
portion of the Revolving Loan Commitment shall equal or exceed
$100,000,000, (C) the Company may, commencing on March 31, 1996 and on
each March 31 thereafter, declare and pay cash dividends to holders of
its Common Stock in an amount not to exceed the then unutilized
portion of the Discretionary Excess Cash Flow Balance, (D) the Company
may (1) repurchase or redeem the Senior Unsecured Notes, in each case
on the terms provided in the indentures governing the Senior Unsecured
Notes (each as in effect on the date hereof), with the proceeds of
Refinancing Senior Unsecured Indebtedness incurred in compliance with
the provisions of Section 6.1, (2) repurchase or redeem its Common
Stock pursuant to the Management Agreements and the Stockholders
Agreements (each as in effect on the date hereof or, in the case of
the Broad-Based Plan, the date of adoption thereof) to the extent that
the aggregate amount of such repurchases and redemptions does not
<PAGE>
exceed $35,000,000 in the aggregate (as measured from the Closing
Date) and (3) make purchases of Common Stock owned by MS Group for
immediate resale to Persons other than the Company or a Subsidiary of
the Company, (E) the Company may issue Indebtedness permitted under
subparagraph (viii) of Section 6.1, (F) the Company may make
Investments under subparagraph (xiv) of Section 6.3, (G) the Company
may make, from time to time, Restricted Junior Payments of the
character contemplated in clauses (A) and (D)(1) above and, following
the retirement of all the Senior Unsecured Notes, the Company may
repurchase or redeem Subordinated Indebtedness in an aggregate amount
not exceeding, at any time, the aggregate of all amounts of the
unutilized Discretionary Excess Equity Proceeds Balance which the
Company has from time to time elected to apply to the making of
Restricted Junior Payments pursuant to this clause (G); provided that
if and for so long as the Company shall have achieved the Investment
Grade Ratings in respect of the senior unsecured debt obligations of
the Company, the Company shall not be required, as a condition to any
exercise of its rights under this clause (G) with respect to
redemptions and repurchases of Subordinated Indebtedness, to first
refinance, repurchase or retire all Senior Unsecured Notes and all
Refinancing Senior Unsecured Notes, (H) the Company may, from time to
time, make Restricted Junior Payments of the character contemplated in
clauses (A) and (D)(1) above, and the Company may repurchase or redeem
Subordinated Indebtedness in an aggregate amount not exceeding at any
time, the aggregate of all amounts of the unutilized Discretionary
Excess Cash Flow Balance which the Company has from time to time
elected to apply to the making of Restricted Junior Payments pursuant
to this clause (H) and (I) the Company may redeem the 12 5/8%
Subordinated Debentures and the 14 1/8% Discount Debentures as
contemplated by the Recapitalization. Notwithstanding the foregoing,
the Company may not declare or pay any dividends or redeem or
repurchase any Securities or issue any Indebtedness or make any
Investments referred to above (1) except to the extent permitted by
applicable law or (2) if, at the time of such declaration or payment
or redemption, repurchase, issuance or investment and immediately
after giving effect thereto, no Potential Event of Default or Event of
Default shall have occurred and be continuing.
Section 6.6 Financial Covenants.
6.6.1. Interest Coverage Ratio. The Company will not
permit the Interest Coverage Ratio to be less than (A) for the first
and second full fiscal quarters (taken as one accounting period)
beginning after the Closing Date, 1.25, (B) for the first, second, and
third full fiscal quarters (taken as one accounting period) beginning
after the Closing Date, 1.25, and (C) for any period of four
consecutive full fiscal quarters (in each case taken as one accounting
period) beginning after the Closing Date and ended during a period set
forth below, the ratio set forth opposite such period:
Period Ratio
12/31/95 - 12/30/96 1.40x
12/31/96 - 12/30/97 1.50x
12/31/97 - 12/30/98 1.60x
12/31/98 - 12/30/99 1.75x
12/31/99 - 12/30/00 1.85x
12/31/00 and thereafter 2.00x
<PAGE>
6.6.2. Maximum Leverage Ratio. The Company will not
permit the Leverage Ratio as of the end of any fiscal quarter set
forth during any period below to be more than the ratio set forth
opposite such period:
Period Ratio
12/31/94 - 12/30/95 4.25x
12/31/95 - 12/30/96 4.00x
12/31/96 - 12/30/97 3.50x
12/31/97 - 12/30/98 3.00x
12/31/98 - 12/30/99 2.75x
12/31/99 - 12/30/00 2.50x
12/31/00 and thereafter 2.00x
Section 6.7 Restriction on Fundamental Changes. Subject
to Section 5.2, neither the Company nor any of its Subsidiaries will
enter into any transaction of merger or consolidate, or liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution),
or convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or any part of its
business, property or fixed assets, whether now owned or hereafter
acquired, or acquire by purchase or otherwise all or substantially all
the business, property or fixed assets of, or stock or other evidence
of beneficial ownership of, any Person, except:
6.7.1. The Company and the other Sellers, on the one
hand, and any Receivables Subsidiary, on the other hand, may enter
into and perform one or more Receivables Transactions;
6.7.2. Any Subsidiary of the Company (other than a
Receivables Subsidiary) may be merged or consolidated with or into the
Company or any Wholly Owned Subsidiary of the Company (other than a
Foreign Subsidiary or a Receivables Subsidiary), or be liquidated,
wound up or dissolved, or all or substantially all of its business,
property or assets may be conveyed, sold, leased, transferred or
otherwise disposed of, in one transaction or a series of transactions,
to the Company or any Wholly Owned Subsidiary of the Company (other
than a Foreign Subsidiary or a Receivables Subsidiary); provided that
(A) any Foreign Subsidiary of the Company (other than a Foreign
Subsidiary that is a Material Subsidiary) may be merged or
consolidated with or into any other Foreign Subsidiary, or be
liquidated, wound up or dissolved, or (B) all or substantially all of
the business, property or assets of any Foreign Subsidiary (other than
a Foreign Subsidiary that is a Material Subsidiary) may be conveyed,
sold, leased, or transferred or otherwise disposed of, in one
transaction or a series of transactions to another Foreign Subsidiary
(other than to a Foreign Subsidiary that is also a Material
Subsidiary) or (C) any of the foregoing transactions may occur between
two Foreign Subsidiaries that are Material Subsidiaries; and provided,
further, that, in the case of such a merger or consolidation of a
Subsidiary and the Company, the Company shall be the continuing or
surviving corporation, or, in the case of a merger or consolidation of
a Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned
Subsidiary shall be the continuing or surviving corporation, or, in
the case of a merger or consolidation of two Wholly Owned
Subsidiaries, either of such Subsidiaries shall be the surviving or
continuing corporation; and provided, further, that, in the case of
such a merger or
<PAGE>
consolidation or disposition of a majority of the stock of a
Guarantor Subsidiary or of substantially all of the business, property
or assets of a Guarantor Subsidiary (A) the continuing, surviving or
transferee corporation shall expressly assume the obligations of such
Guarantor Subsidiary under the relevant Guarantor Subsidiary Guarantee
and (B) in the case of a merger or consolidation, the net worth of the
continuing or surviving corporation (calculated without giving effect
to any increase in the amount of Intercompany Indebtedness for which
the continuing or surviving corporation is liable as compared to the
amount of Intercompany Indebtedness for which such Guarantor
Subsidiary was liable immediately prior to such merger or
consolidation) shall not be less than the net worth of such Guarantor
Subsidiary immediately prior to such merger or consolidation; and
provided, further, that, subject to the terms of the applicable
Collateral Document, in the case of such a merger or consolidation or
disposition of a majority of the stock of a Subsidiary or of all or
substantially all of the business, property or assets of such a
Subsidiary of the Company, the stock of which is pledged to secure the
Obligations, the stock of the continuing, surviving or transferee
corporation shall, at the time of consummation of such merger,
consolidation or transfer, be pledged to secure the Obligations;
6.7.3. The Company or any of its Subsidiaries may convey,
sell, transfer or otherwise dispose of any Margin Stock, whether now
owned or hereafter acquired; provided that such disposition is for
Fair Value;
6.7.4. The Company and its Subsidiaries may sell or
dispose of in the ordinary course of business (A) property which is
obsolete or no longer useful in any of its businesses or is of de
minimis value (as determined, in the case of any such property the
Fair Value of which is in excess of $10,000,000, in good faith by the
Board of Directors of the Company or any Subsidiary selling such
property, as the case may be), (B) Cash and Cash Equivalents, (C)
other Investments described in subparagraphs (viii), (ix) and (xii) of
Section 6.3; provided that any such sale or other disposition is made
for at least the Fair Value of such assets and (D) Receivables subject
to the requirements of Section 6.11;
6.7.5. Subject to Sections 5.2 and 6.7 so long as no
Event of Default has occurred and is continuing or shall be caused
thereby, the Company and its Subsidiaries may sell or otherwise
dispose of any of their respective assets outside the ordinary course
of business; provided that (A) any such sale or other disposition is
made for at least the Fair Value of such assets, (B) any sale or other
disposition of more than $250,000,000 in Fair Value of stock or other
assets in any one transaction or a related series of transactions
shall be subject to the prior written consent of Requisite Lenders
unless such sale or other disposition is of Margin Stock, (C) in the
case of an Expansion Transaction or disposition of tangible Collateral
shall be subject to the requirements of Sections 5.12 and 5.13,
respectively, and (D) in the case of any Receivables shall be subject
to the requirements of Section 6.11;
6.7.6. The Company and its Subsidiaries may sell, resell
or otherwise dispose of real or personal property held for sale or
resale in the ordinary course of business; and
6.7.7. The Company and its Subsidiaries may make
Investments otherwise permitted pursuant to Section 6.3 and Capital
Expenditures otherwise permitted pursuant to Section 6.14.
<PAGE>
Section 6.8 ERISA. The Company will not, and will not
permit any of its ERISA Affiliates to:
6.8.1. engage in any transaction in connection with which
the Company or any of its ERISA Affiliates could be subject to either
a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax
imposed by Section 4975 of the Internal Revenue Code in either case in
an aggregate amount in excess of $1,000,000;
6.8.2. fail to make full payment when due of all amounts
which, under the provisions of any Pension Plan, or under ERISA or the
Internal Revenue Code, the Company or any of its ERISA Affiliates is
required to pay as contributions thereto; or permit to exist any
accumulated funding deficiencies for which a waiver from the Internal
Revenue Service has not been obtained with respect to all Pension
Plans in an aggregate amount greater than $5,000,000;
6.8.3. permit the sum of the amount of unfunded benefit
liabilities under all Pension Plans (excluding each Pension Plan with
an amount of unfunded benefit liabilities of zero or less) to exceed
$25,000,000; or
6.8.4. fail to make any payments in an amount
individually or in the aggregate greater than $1,000,000 to any
Multiemployer Plan that the Company or any of its ERISA Affiliates may
be required to make under such Multiemployer Plan, any agreement
relating to such Multiemployer Plan, or any law pertaining thereto.
As used in this Section 6.8, the term "accumulated funding
deficiency" has the meaning specified in Section 302 of ERISA and
Section 412 of the Internal Revenue Code, and the term "amount of
unfunded benefit liabilities" has the meaning specified in Section
4001(a)(18) of ERISA.
Section 6.9 Restriction on Leases. The Company will not,
and will not permit any of its Subsidiaries to, become or remain
liable in any way, whether directly or by assignment or as a guarantor
or other surety, for the obligations as or of the lessee under any
lease (other than intercompany leases between and among the Company
and its Domestic Subsidiaries (other than a Receivables Subsidiary)),
whether an Operating Lease or a Capital Lease, unless, immediately
after giving effect to the incurrence of liability with respect to
such lease, the Consolidated Rental Payments at the time in effect
during the then current fiscal year of the Company shall not exceed
the applicable amount set forth below:
Fiscal Year Amount
1995 $ 50,000,000
1996 $ 55,000,000
1997 $ 60,000,000
1998 $ 65,000,000
1999 $ 70,000,000
2000 $ 75,000,000
2001 $ 80,000,000
2002 $ 85,000,000
<PAGE>
Notwithstanding the foregoing, if the Company or any of its
Subsidiaries shall have sold any Subsidiary or any line of business to
any Person (other than the Company or any Subsidiary), each of the
above amounts with respect to any period from or after the date of
such sale shall be reduced by an amount equal to the reasonable good
faith estimates by the Company (using such methods as the
Administrative Agent may reasonably approve) of Consolidated Rental
Payments of such Subsidiary or such line of business for such periods.
Section 6.10 Sales and Leasebacks. The Company will not,
and will not permit any of its Subsidiaries to, directly or
indirectly, become or remain liable as lessee or as guarantor or other
surety with respect to any lease, whether an Operating Lease or a
Capital Lease, of any property (whether real or personal or mixed),
whether now owned or hereafter acquired in a Sale/Leaseback
Transaction; provided that the Company or any of its Subsidiaries may
enter into Sale/Leaseback Transactions otherwise prohibited under this
Section 6.10 if (A) the assets to be subject to such Sale/Leaseback
Transaction are acquired, constructed or placed in service after the
Closing Date, (B) the provisions of Section 6.9 would not be breached
thereby, (C) in the case of assets located at any Mill subject to a
Mill Mortgage, the Company has complied with the applicable provisions
of Section 5.12 of this Agreement, and (D) if such Sale/Leaseback
involves an Asset Sale the Net Cash Proceeds of Sale of such
Sale/Leaseback Transaction are applied as required by Section
2.7.2(a).
Section 6.11 Sale or Discount of Receivables;
Receivables Transactions.
6.11.1. The Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, sell with or without
recourse, or discount or otherwise sell for less than the face value
thereof, notes or accounts receivable except notes issued in favor of
the Company or any of its Subsidiaries in connection with sales or
other dispositions of assets (other than inventory) so long as the
Company or such Subsidiary, as the case may be, receives the Fair
Value of such notes and such notes are sold without recourse.
6.11.2. Notwithstanding the foregoing, the Company and
its Subsidiaries shall be entitled to enter into and perform (and sell
and transfer notes or accounts receivables in accordance with) (i) the
1995 A/R Bridge and (ii) Receivables Transactions pursuant to a
Receivables Program to be established and administered substantially
in accordance with, and to have the characteristics set forth in, the
Receivables Term Sheet and to make contributions to any Receivables
Subsidiary from the funds received in connection therewith; provided
that, for purposes of this Agreement only one Receivables Program may
be in effect at any time.
6.11.3. So long as any Receivables Program shall remain
in effect, the Company shall cause the Administrative Agent and the
Lenders to have a valid and perfected first Lien on the equity
securities of each Receivables Subsidiary (except to the extent
otherwise provided in the proviso to the definition of Receivables
Subsidiary).
Section 6.12 Transactions with Shareholders and
Affiliates. The Company will not, and will not permit any of its
Subsidiaries to, directly or
<PAGE>
indirectly, enter into or permit to exist any transaction (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 equity securities of the Company 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 from Persons who are not
such a holder or Affiliate; provided that the foregoing restriction
shall not apply to (A) any transaction between the Company and any of
its Wholly Owned Subsidiaries or between any of its Wholly Owned
Subsidiaries, (B) customary fees paid to members of the Board of
Directors of the Company and its Subsidiaries, (C) the payment of fees
to MS group or its Affiliates from time to time for financial,
consulting and underwriting services, such fees not to exceed the then
usual and customary fees of MS Group or its Affiliates for similar
services, (D) transactions contemplated by the Management Agreements
and the Stockholders Agreement, (E) transactions permitted by Section
6.5 and (F) any transaction necessary to consummate a Receivables
Transaction pursuant to the Receivables Term Sheet.
Section 6.13 Disposal of Subsidiary Stock. Except as
permitted by Section 5.6, 5.11, 6.2 or 6.7 and as provided in the
Collateral Documents and except with respect to Margin Stock, the
Company will not:
6.13.1. directly or indirectly sell, assign, pledge or
otherwise encumber or dispose of any shares of capital stock or other
equity securities of (or warrants, rights or options to acquire shares
or other equity securities of) any of its Subsidiaries, except to
qualify directors if required by applicable law; or
6.13.2. permit any of its Subsidiaries directly or
indirectly to sell, assign, pledge or otherwise encumber or dispose of
any shares of capital stock or other securities of (or warrants,
rights or options to acquire shares or other securities of) such
Subsidiary, except to the Company, another Wholly Owned Subsidiary of
the Company or to qualify directors if required by applicable law,
except for equity interests in any Subsidiary of a Receivables
Subsidiary as contemplated by the Receivables Program.
Nothing in this Section 6.13 shall prohibit the sale,
assignment, transfer, conveyance or other disposition of any Margin
Stock owned by the Company or any of its Subsidiaries or the creation,
incurrence, assumption or existence of any Lien on or with respect to
any Margin Stock.
Section 6.14 Limitation on Capital Expenditures.
6.14.1. The Company will not, and will not permit any of
its Subsidiaries to, incur Capital Expenditures, except as
specifically permitted in the following subsections of this Section
6.14.
6.14.2. Any one or more of the Foreign Subsidiaries of
the Company may incur Capital Expenditures in such amounts and for
such purposes as shall be determined by the Company or any such
Foreign Subsidiary in its discretion; provided, however, that the
Company and its Subsidiaries shall comply and have complied in all
respects with the provisions of subsections (x) and (xi) of Section
6.3 in respect thereof to the extent applicable to such Capital
Expenditures.
<PAGE>
6.14.3. During each fiscal year of the Company ending on
or after December 31, 1995, the Company and its Domestic Subsidiaries
may incur on or after January 1, 1995, in respect of (A) the Green Bay
Sludge Boiler, (B) the Savannah Boiler and (C) other matters not
constituting Expansion Projects, Consolidated Domestic Capital
Expenditures in an aggregate amount not in excess of $75,000,000 (the
"Base Annual Capex Amount").
6.14.4. Without limiting the rights of the Company and
its Domestic Subsidiaries to incur Consolidated Domestic Capital
Expenditures in accordance with subsection 6.14.3 above, the Company
and its Domestic Subsidiaries may incur Consolidated Domestic Capital
Expenditures in respect of Expansion Projects (other than the Green
Bay Sludge Boiler and the Savannah Boiler) on the following terms and
subject to each of the following conditions:
(i) the aggregate amount (the "Domestic Capex Maximum")
of Consolidated Domestic Capital Expenditures in the aggregate
which may be incurred in respect of all such Expansion Projects
shall not at any time exceed the sum of (a) $250,000,000 plus
(b) the total amount of net cash proceeds received by the
Company or any of its Subsidiaries after the Closing Date and
prior to such time in respect of Permitted Expansion Financings (other
than any Permitted Expansion Financings relating solely to the
Green Bay Sludge Boiler or the Savannah Boiler);
(ii) except for Capital Expenditures incurred in
connection with the Initial Major Expansion Project or the Green
Bay Dry Form Machine, neither the Company nor any of its
Domestic Subsidiaries shall be permitted to incur, or become
bound by any Contractual Obligation to incur, Consolidated
Domestic Capital Expenditures in respect of any single such Expansion
Project (the first of such Expansion Projects, the "Second
Expansion Project") in excess of $30,000,000, unless the Company
shall have, in respect of any period of four full consecutive
fiscal quarters of the Company commencing after the Closing Date
and ending with the quarter immediately preceding the quarter in
which such amount in excess of $30,000,000 is first committed to
be spent by the Company, achieved an Interest Coverage Ratio of 1.9 or
greater, (it being understood that, if such Interest Coverage
Ratio shall have been so achieved, the Company shall not be
required to maintain such Interest Coverage Ratio as a condition
to incurring further expenditures in respect of the Second
Expansion Project); and
(iii) except for Capital Expenditures incurred in
connection with the Initial Major Expansion Project or the
Second Expansion Project (to the extent permitted under clause
(ii) above), neither the Company nor any of its Domestic
Subsidiaries shall be permitted to incur, or become bound by any
Contractual Obligation to incur, Consolidated Domestic Capital
Expenditures in respect of any single Expansion Project in
excess of $30,000,000 unless the Company shall have, in respect
of any period of four consecutive fiscal quarters of the Company
commencing on or after the Closing Date and ending after the
quarter immediately preceding the quarter in which such amount in
excess of $30,000,000 is first spent or committed to be spent by the
Company in respect of such Expansion Project, achieved an
Interest Coverage Ratio of 2.15 or greater (it being understood
that, if such Interest Coverage Ratio shall
<PAGE>
have been so achieved, the Company shall not be required to
maintain such Interest Coverage Ratio as a condition to
incurring further expenditures in respect of such Expansion
Project).
6.14.5. The Company may elect by written notice to the
Lenders to apply to the making of Consolidated Domestic Capital
Expenditures, in addition to the Base Annual Capex Amount and the
Domestic Capex Maximum permitted under subsection 6.14.3 and 6.14.4,
as applicable, (A) portions of the then unutilized Discretionary
Excess Equity Proceeds Balance and the then unutilized Discretionary
Excess Cash Flow Balance and (B) 100% of the unused amount (the "Capex
Carryover Amount") of Consolidated Domestic Capital Expenditures, if
any, in respect of prior fiscal years (beginning with fiscal year
1995) permitted under subsection 6.14.3.
6.14.6. For purposes of this Section 6.14 only, "Capital
Expenditures" shall exclude expenditures of insurance proceeds
received upon destruction of property to the extent such proceeds are
used to effect restoration, replacement or repair of such property.
Section 6.15 Conduct of Business. The Company will not,
and will not permit any of its Subsidiaries (other than any
Receivables Subsidiary) to, engage in any business other than (A) the
business it and its Subsidiaries are engaged in on the date hereof as
described in the Prospectus and similar or related businesses, (B)
such other businesses as are engaged in by it and its Subsidiaries on
the date hereof as shall not be of a nature which are material to it
and its Subsidiaries and (C) such other lines of business as may be
consented to by the Requisite Lenders (such consent not to be
unreasonably withheld). The Company will not permit the Receivables
Subsidiaries to engage in any business other than as contemplated by
the Receivables Program.
Section 6.16 Amendments or Waivers of Certain
Documents; Prepayments of Indebtedness.
6.16.1. Neither the Company nor any of its Subsidiaries
will agree to any (A) amendment to provisions of the Management
Agreements imposing any additional obligation on the Company with
respect to the acquisition by the Company or any of its Subsidiaries
of any capital stock of the Company to the extent the aggregate amount
of all such additional obligations would cause the Company to exceed
the limitation on repurchases or redemptions of its Common Stock set
forth in subclause (D)(2) of Section 6.5 (it being understood that any
and all such additional obligations will be taken into account in
determining whether such limitation has been exceeded), or (B)
amendment to provisions of the Stockholders' Agreement which is
materially adverse to the interests of the Lenders.
6.16.2. Neither the Company nor any of its Subsidiaries
will (A) amend or otherwise change the terms of the Subordinated Notes
or the indentures relating thereto, the Existing Subordinated Debt or
the indentures relating thereto, the Senior Unsecured Notes or the
indentures related thereto, any Refinancing Senior Unsecured Debt, any
Permitted Expansion Financing, any Expansion Lease, the documents
evidencing the 1995 A/R Bridge, the 1988 Revenue Bonds or the 1988
Revenue Bond Indenture, if the effect of such amendment or change is
to increase the interest rate on such Indebtedness or the rental
amounts due thereunder, as the
<PAGE>
case may be, change the dates upon which payments of rent, principal
or interest are due thereon, change any event of default or condition
to an event of default with respect to such Indebtedness or Expansion
Lease, grant any security interest in favor of such Indebtedness,
change the redemption provisions thereof, change the subordination
provisions thereof, cause such Indebtedness or Expansion Lease to be
guaranteed by any Subsidiary of the Company or which, together with
all other amendments or changes made, increase materially the
obligations of the obligor or confer additional rights on the holder
of such Indebtedness or Expansion Lease which would be adverse to the
Company or the Lenders or (B) except as otherwise expressly permitted
in this Agreement, defease, or make any payments the effect of which
is to defease, any such Indebtedness in whole or in part (whether
pursuant to the defeasance provisions of such Indebtedness or
otherwise).
6.16.3. Except for the making of Restricted Junior
Payments expressly permitted under Section 6.5, the Company will not
make any payment or prepayment of principal of, or interest on, or
premium (if any) on, any of the Subordinated Notes except, in each
case, for (A) regularly scheduled payments of principal, if any, and
interest in accordance with the terms of the instruments evidencing or
governing such Indebtedness and (B) payment of principal on the
scheduled final maturity date of such Indebtedness in accordance with
the terms of the governing instruments with respect thereto and (C)
any mandatory payment or prepayment required to be made as a result of
acceleration pursuant to the terms of the instruments governing such
Indebtedness as in effect on the date hereof.
6.16.4. Neither the Company nor any of its Subsidiaries
will make any payment or prepayment of principal of, or interest on,
or premium (if any) on, the Senior Unsecured Notes or the Refinancing
Senior Unsecured Debt, except, in each case, for (A) a refinancing of
the Senior Unsecured Notes with the proceeds of Refinancing Senior
Unsecured Debt permitted under Section 6.5, (B) regularly scheduled
payments of interest in accordance with the terms of the applicable
Senior Unsecured Notes Indenture or the instruments governing the
Refinancing Senior Unsecured Debt, as the case may be, (C) payment of
principal on the scheduled final maturity date of the Senior Unsecured
Notes or the Refinancing Senior Unsecured Debt, in each case, in
accordance with the terms of the applicable loan agreement, indenture
or other governing instruments and (D) any mandatory payment or
prepayment required to be made as a result of acceleration pursuant to
the terms of the applicable Senior Unsecured Notes Indenture or the
instruments governing the Refinancing Senior Unsecured Debt, as the
case may be, in each case as in effect on the date hereof.
6.16.5. Neither the Company nor any of its Subsidiaries
will voluntarily terminate any Expansion Lease or otherwise optionally
make, either directly or indirectly, any payment to acquire or
otherwise reacquire any assets leased by the Company under any
Expansion Lease or any interest therein (including, without
limitation, any beneficial interest therein) or any Indebtedness
secured thereby, or make any optional prepayment of any rental
obligation under any Expansion Lease to any other party to any
Expansion Lease.
6.16.6. Neither the Company nor any of its Subsidiaries
will make any payment or prepayment of principal of, or interest on,
or premium (if any) on, any Indebtedness constituting Permitted
Expansion Financing except for (A) regularly
<PAGE>
scheduled payments of principal, if any, and interest in accordance
with the terms of the instruments governing such Indebtedness, (B)
payment of principal on the scheduled final maturity date of such
Indebtedness in accordance with the terms of the instruments governing
such Indebtedness and (C) any mandatory payment or prepayment required
to be made as a result of acceleration pursuant to the terms of the
instruments governing such Indebtedness.
6.16.7. Neither the Company nor any of its Subsidiaries
will (A) make any payment or prepayment of principal of, or interest
on, any Indebtedness incurred in connection with a Receivables
Transaction except for (1) regularly scheduled payments of interest
thereon or (2) mandatory [or optional] prepayments or prepayments
required to be made as a result of acceleration in each case as
contemplated in the Receivables Term Sheet [, provided that no such
optional prepayment may be made unless (i) there is no reduction in
the commitment amount or other availability under the Receivables
Program for the Company to obtain funds secured directly or indirectly
by Program Receivables and (ii) the Company intends to reborrow or
refund with new Indebtedness the amount so prepaid] or (B) make or
permit any amendment to the documentation governing any Receivables
Transaction which would cause such documentation (after giving effect
thereto) not to comply with the requirements herein set forth with
respect to Receivables Subsidiaries and Receivables Transactions.
6.16.8. Neither the Company nor any of its Subsidiaries
will make any payment or prepayment of principal of, or interest on,
or premium (if any) on the 1995 A/R Bridge, except, in each case, for
(A) a payment of principal at the final maturity or the refinancing of
the 1995 A/R Bridge with the net cash proceeds of the sale of A/R
Eligible Receivables, (B) a payment of principal at the final maturity
or the refinancing of the 1995 A/R Bridge to be funded, at the option
of the Company, with the proceeds of Revolving Loans; provided that
the amount of such Revolving Loans shall not exceed the lesser of
$15,000,000 and the difference between the then outstanding principal
amount of the 1995 A/R Bridge and the net cash proceeds of a
Receivables Transaction utilized to refinance the 1995 A/R Bridge; (C)
regularly scheduled payments of interest in accordance with the terms
of the 1995 A/R Bridge and (D) any mandatory payment or prepayment
required to be made as a result of acceleration or otherwise pursuant
to the terms of the 1995 A/R Bridge as in effect on the date hereof.
Section 6.17 Payment of Cash Interest on Subordinated
Debt. Except with the consent of the Requisite Lenders, the Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, pay any interest in cash on Subordinated Debt where the
Company has the option to pay such interest in securities or to accrue
the interest payable with respect to such Subordinated Debt.
ARTICLE VII
EVENTS OF DEFAULT
If any of the following conditions or events ("Events of
Default") shall occur and be continuing:
<PAGE>
Section 7.1 Failure To Make Payments When Due. Failure
to pay any installment of principal of any Loan when due, whether at
stated maturity, by acceleration, by notice of prepayment or otherwise
or failure to pay for 5 days after the day when due any interest on
any Loan or any other amount due under this Agreement; or
Section 7.2 Default in Other Agreements. Failure of the
Company or any of its Subsidiaries to pay when due (A) any principal
or interest on any Indebtedness (other than Indebtedness referred to
in Section 7.1 or Indebtedness of any Receivables Subsidiary) 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
or (B) any Contingent Obligation in an individual amount of
$15,000,000 or more or Contingent Obligations with an aggregate amount
of $30,000,000 or more, in each case at the stated maturity thereof or
beyond the end of any period after which the obligee thereunder is
permitted to accelerate payment thereunder, or breach or default of
the Company or any of its Subsidiaries (other than any Receivables
Subsidiary) with respect to any other material term of any loan
agreement, mortgage, indenture or other agreement relating to any
Indebtedness 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 or any Contingent Obligation in an individual
amount of $15,000,000 or more or Contingent Obligations with an
aggregate amount of $30,000,000 or more; if the effect of such
failure, default or breach is to cause, or to permit the holder or
holders of that Indebtedness or Contingent Obligation (or a trustee on
behalf of such holder or holders) then to cause, that Indebtedness or
Contingent Obligation to become or be declared due prior to its stated
maturity (or the stated maturity of any underlying obligation, as the
case may be); or
Section 7.3 Breach of Certain Covenants. Failure of the
Company to perform or comply with any term or condition contained in
Section 2.8, 5.2, 5.6 or 5.15, ARTICLE VI or Section 9.6 of this
Agreement; or
Section 7.4 Breach of Warranty. Any representation or
warranty made by any Loan Party in any Loan Document or in any
statement or certificate at any time given by such Person in writing
pursuant hereto or thereto or in connection herewith or therewith
shall be false in any material respect on the date as of which made;
or
Section 7.5 Other Defaults Under Agreement or Loan
Documents. Any Loan Party shall default in the performance of or
compliance with any term contained in this Agreement or other Loan
Documents other than those referred to above in Sections 7.1, 7.3 or
7.4 and such default shall not have been remedied or waived within 30
days after receipt of notice from the Administrative Agent or any
Lender of such default; or
Section 7.6 Involuntary Bankruptcy;
Appointment of Receiver, etc.
7.6.1. A court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Company, or any
of its Subsidiaries which, as of the date of entry of such decree or
order, would constitute a Material Subsidiary
<PAGE>
(whether or not, as of such date, such Subsidiary is or has been
deemed to be, or not to be, a Material Subsidiary under any other
applicable provision of this Agreement) in an involuntary case under
the Bankruptcy Code or any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, which decree or order is not
stayed; or any other similar relief shall be granted under any
applicable federal or state law; or
7.6.2. An involuntary case is commenced against the
Company or any of its Subsidiaries which, as of the date of such
commencement, would constitute a Material Subsidiary (whether or not,
as of such date, such Subsidiary is or has been deemed to be, or not
to be, a Material Subsidiary under any other applicable provision of
this Agreement) under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect; or a decree or order of a
court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over the Company or any of such
Subsidiaries, or over all or a substantial part of the property of the
Company or any of such Subsidiaries, shall have been entered; or an
interim receiver, trustee or other custodian of the Company or any of
such Subsidiaries for all or a substantial part of the property of the
Company or any of such Subsidiaries is involuntarily appointed; or a
warrant of attachment, execution or similar process is issued against
any substantial part of the property of the Company or any of such
Subsidiaries, and the continuance of any such events in this
subsection 7.6.2 for 60 days unless dismissed, bonded or discharged;
or
Section 7.7 Voluntary Bankruptcy; Appointment of
Receiver, etc. The Company or any of its Subsidiaries which, as of
the date of entry of such decree or order, would constitute a Material
Subsidiary (whether or not, as of such date, such Subsidiary is or has
been deemed to be, or not to be, a Material Subsidiary under any other
applicable provision of this Agreement) shall have a decree or an
order for relief entered with respect to it or commence a voluntary
case under the Bankruptcy Code or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or shall
consent to the entry of a decree or an order for relief in an
involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the
appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property; the making by
the Company or any of such Subsidiaries of any general assignment for
the benefit of creditors; or the inability or failure of the Company
or any of such Subsidiaries generally to pay its debts as such debts
become due; or the Board of Directors of the Company or any of such
Subsidiaries (or any committee thereof) adopts any resolution or
otherwise authorizes action to approve any of the foregoing; or
Section 7.8 Judgments and Attachments. Any money
judgment, writ or warrant of attachment, or similar process involving
(A) in any individual case an amount in excess of $10,000,000 or (B)
in the aggregate at any time an amount in excess of $20,000,000 (in
either case not adequately covered by insurance as to which the
insurance company has acknowledged coverage) shall be entered or filed
against the Company or any of its Subsidiaries which, as of the date
of such entry or filing, would constitute a Material Subsidiary
(whether or not, as of such date, such Subsidiary is or has been
deemed to be, or not to be, a Material Subsidiary under any other
applicable provision of this Agreement) or any of their respective
assets and
<PAGE>
shall remain undischarged, unvacated, unbonded or unstayed for a
period of 30 days or in any event later than five days prior to the
date of any proposed sale thereunder; or
Section 7.9 Dissolution. Any order, judgment or decree
shall be entered against the Company or any of its Subsidiaries which,
as of the date of such entry, would constitute a Material Subsidiary
(whether or not, as of such date, such Subsidiary is or has been
deemed to be, or not to be, a Material Subsidiary under any other
applicable provision of this Agreement) decreeing the dissolution or
split up of the Company or such Subsidiary and such order shall remain
undischarged or unstayed for a period in excess of 30 days; or
Section 7.10 Unfunded ERISA Liabilities.
7.10.1. Any Pension Plan maintained by the Company or any
of its ERISA Affiliates shall be terminated within the meaning of
Title IV of ERISA; or
7.10.2. A trustee shall be appointed by an appropriate
United States district court to administer any Pension Plan; or
7.10.3. The Pension Benefit Guaranty Corporation (or any
successor thereto) shall institute proceedings to terminate any
Pension Plan or to appoint a trustee to administer any Pension Plan;
or
7.10.4. The Company or any of its respective ERISA
Affiliates shall withdraw (under Section 4063 of ERISA) from a Pension
Plan; or
7.10.5. The Termination Event that is described in clause
(E) of the definition of "Termination Event" shall have occurred and
be continuing;
if as of the date thereof or any subsequent date, the sum of each of
the Company's and its ERISA Affiliates' various liabilities (such
liabilities to include, without limitation, any liability to the
Pension Benefit Guaranty Corporation (or any successor thereto) or to
any other party under ERISA or the Internal Revenue Code and to be
calculated after giving effect to the tax consequences thereof)
resulting from all such events listed in subsections 7.10.1 through
7.10.5 above exceeds $25,000,000; or
Section 7.11 Withdrawal Liability Under Multiemployer
Plan. The Company or any of its ERISA Affiliates as employer under a
Multiemployer Plan shall have made a complete or partial withdrawal
from such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing employer that
such employer has incurred a withdrawal liability requiring annual
payments in an amount individually or in the aggregate exceeding
$1,500,000 in any one year; unless (A) prior to the time any payment
of such withdrawal liability is due in accordance with Section
4219(c)(2) of ERISA, the plan sponsor agrees in writing that the
correct amount of the annual payment is less than $1,500,000, or (B)
prior to the time any payment of such withdrawal liability is due in
accordance with Section 4219(c)(2) of ERISA, a court of competent
jurisdiction has enjoined and continues to enjoin the collection of
such payment, or (C) Section 4219 of ERISA has been amended to provide
that notification that such withdrawing employer has incurred a
<PAGE>
withdrawal liability would not, in the ordinary course or with the
lapse of time, require the payment; provided that, in the event of
such an amendment, an Event of Default shall be deemed to occur when
any payment of such withdrawal liability becomes due or would, in the
ordinary course or with the lapse of time, become due; or
Section 7.12 Invalidity of Guarantees. Any Guarantor
Subsidiary Guarantee for any reason, other than the satisfaction in
full of all Obligations and termination of this Agreement, ceases to
be in full force and effect or is declared to be null and void, or any
Guarantor Subsidiary denies or disaffirms any of its obligations under
the Guarantor Subsidiary Guarantee to which it is party or gives
notice to such effect; or
Section 7.13 Failure of Security. Any Pledge Agreement,
Mortgage or any other Collateral Document shall, at any time, cease to
be in full force and effect or shall be declared null and void, or the
legality, validity or enforceability thereof shall be contested by any
Loan Party or the Administrative Agent, as agent for the Lenders,
shall not have or shall cease to have valid and perfected (to the
extent required by the Collateral Documents) Lien in the Collateral
with a fair market value or book value (whichever is greater) of more
than $20,000,000 in the aggregate of the priority contemplated by the
applicable Collateral Document in each case for any reason other than
the failure of the Administrative Agent to take any action within its
control, or any Loan Party shall fail to perform or observe in any
material respect any Collateral Document; or
Section 7.14 Change in Control. If there shall occur any
Change in Control;
THEN (A) upon the occurrence of and during the continuance
of any Event of Default described in the foregoing Section 7.6 or 7.7
(other than the last clause of Section 7.7), each of (1) the unpaid
principal amount of and accrued interest on the Loans and (2) an
amount equal to the maximum amount which may at any time be drawn
under all Letters of Credit then outstanding (whether or not any
beneficiary under any Letter of Credit shall have presented, or shall
be entitled at such time to present, the drafts of other documents
required to draw under such Letter of Credit) shall automatically
become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby
expressly waived by the Company and the obligation of each Lender to
make any Loan and the obligation of any Fronting Bank to issue any
Letter of Credit hereunder shall thereupon terminate, and (B) upon the
occurrence of and during the continuance of any other Event of
Default, Requisite Lenders may, by written notice to the Company,
declare all of the Loans and an amount equal to the amounts described
in subclause (2) to be, and the same shall forthwith become, due and
payable, together with accrued interest thereon and the obligation of
each Lender to make any Loan and the obligation of any Fronting Bank
to issue any Letter of Credit hereunder shall thereupon terminate;
provided that the foregoing shall not affect in any way the
obligations of Lenders to purchase from any Fronting Bank
participations in the unreimbursed amount of any drawings under any
Letters of Credit as provided in subsection 2.2.5. Whether or not any
Loans or other Obligations shall have been accelerated or become due
as set forth above, upon the occurrence and during the continuance of
any Event of Default, the Administrative
<PAGE>
Agent or any Lender may exercise any remedy available under the Loan
Documents or applicable law in respect thereof (including, without
limitation, foreclosure of the Liens in respect of the Collateral).
If at any time within 60 days after acceleration of the maturity of
any Loan, the Company shall pay all arrears of interest and all
payments on account of the principal which shall have become due
otherwise than by acceleration (with interest on principal and, to the
extent permitted by law, on overdue interest, at the rates specified
in this Agreement or the Notes) and all Events of Default and
Potential Events of Default (other than non-payment of principal of
and accrued interest on the Loans and the Notes, and payments of
amounts referred to in subclause (2) above, in each case due and
payable solely by virtue of acceleration) shall be remedied or waived
pursuant to Section 9.6, then the Requisite Lenders by written notice
to the Company may rescind and annul the acceleration and its
consequences, but such action shall not affect any subsequent Event of
Default or Potential Event of Default or impair any right consequent
thereon.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Section 8.1 Appointment. Bankers is hereby appointed the
Administrative Agent hereunder by each Lender, and each Lender hereby
authorizes the Administrative Agent to act hereunder and under the
other instruments and agreements referred to herein as its agent
hereunder and thereunder. Bankers is hereby authorized, as the
Administrative Agent to execute consents to service of process and
such other documents on behalf of Lenders, as may be required by law
or as may be necessary or desirable. Bankers agrees to act as such
upon the express conditions contained in this ARTICLE VIII and in the
Collateral Documents. The provisions of this ARTICLE VIII, except as
provided in subsections 8.6.2 and 8.6.3 and Section 8.7 where the
consent of the Company is required, are solely for the benefit of the
Administrative Agent, and the Company shall not have any rights as a
third party beneficiary of any of the provisions hereof except for
those contained in subsections 8.6.2 and 8.6.3 and Section 8.7 where
the consent of the Company is required. In performing its functions
and duties under this Agreement, the Administrative Agent shall act
solely as agent of the Lenders and does not assume and shall not be
deemed to have assumed any obligation towards or relationship of
agency or trust with or for the Company.
Section 8.2 Powers; General Immunity.
8.2.1. Duties Specified. Each Lender irrevocably
authorizes the Administrative Agent to take such action on such
Lender's behalf and to exercise such powers hereunder and under the
other instruments and agreements referred to herein as are
specifically delegated to the Administrative Agent by the terms hereof
and thereof, together with such powers as are reasonably incidental
thereto. The Administrative Agent shall have only those duties and
responsibilities which are expressly specified in this Agreement and
the Collateral Documents and it may perform such duties by or through
its agents or employees. The duties of the Administrative Agent shall
be mechanical and administrative in nature; and the
<PAGE>
Administrative Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender. Nothing in this
Agreement, expressed or implied, is intended to or shall be so
construed as to impose upon the Administrative Agent any obligations
in respect of this Agreement or the other instruments and agreements
referred to herein except as expressly set forth herein or therein.
8.2.2. No Responsibility for Certain Matters. The
Administrative Agent shall not be responsible to any Lender for the
execution, effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency of this Agreement, the Collateral
Documents or the Notes issued hereunder, or for the issuance of
Letters of Credit and such Lender's purchase of participations
therein, if any, or for the perfection or priority of any Lien created
or purported to be created by any Loan Document or for any
representations, warranties, recitals or statements made herein or
therein or made in any written or oral statement or in any financial
or other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by the
Administrative Agent to Lenders or by or on behalf of the Company or
any of its Subsidiaries to the Administrative Agent or any Lender, or
be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or
agreements contained herein or therein or as to the use of the
proceeds of the Loans or of the existence or possible existence of any
Event of Default or Potential Event of Default.
8.2.3. Exculpatory Provisions. Neither the
Administrative Agent nor any of its officers, directors, employees or
agents shall be liable to the Lenders for any action taken or omitted
hereunder or in connection herewith (including, without limitation,
any act or omission under the Collateral Documents) unless caused by
its or their gross negligence or willful misconduct. If the
Administrative Agent shall request instructions from the Lenders with
respect to any act or action (including the failure to take an action)
in connection with this Agreement or the other instruments and
agreements referred to herein, the Administrative Agent shall be
entitled to refrain from such act or taking such action unless and
until the Administrative Agent shall have received instructions from
the Requisite Lenders. Without prejudice to the generality of the
foregoing, (A) the Administrative Agent shall be entitled to rely, and
shall be fully protected in relying, upon any communication,
instrument or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and shall be
entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for the Company),
accountants, experts and other professional advisors selected by it
and (B) no Lender shall have any right of action whatsoever against
the Administrative Agent as a result of the Administrative Agent
acting or (where so instructed) refraining from acting under this
Agreement or the other instruments and agreements referred to herein
in accordance with the instructions of the Requisite Lenders. The
Administrative Agent shall be entitled to refrain from exercising any
power, discretion or authority vested in it under this Agreement or
the other instruments and agreements referred to herein unless and
until it has obtained the instructions of the Requisite Lenders.
8.2.4. Administrative Agent Entitled to Act as Lender.
The agency hereby created shall in no way impair or affect any of the
rights and powers of, or impose any duties or obligations upon, the
Administrative Agent in its individual
<PAGE>
capacity as a Lender hereunder. With respect to its participation in
the Loans or any Letter of Credit, the Administrative Agent shall have
the same rights and powers hereunder as any other Lender and may
exercise the same as though it were not performing the duties and
functions delegated to it hereunder, and the term "Lender" or
"Lenders" or any similar term shall, unless the context clearly
otherwise indicates, include the Administrative Agent in its
individual capacity. The Administrative Agent and its Affiliates may
accept deposits from, lend money to and generally engage in any kind
of banking, trust, financial advisory or other business with the
Company or any Subsidiary or Affiliate of the Company as if it were
not performing the duties specified herein, and may accept fees and
other consideration from the Company or any such Subsidiary or
Affiliate for services in connection with this Agreement and otherwise
without having to account for the same to the Lenders.
Section 8.3 Representations and Warranties; No
Responsibility for Appraisal of Creditworthiness. Each Lender
represents and warrants that it has made its own independent
investigation of the financial condition and affairs of the Company
and its Subsidiaries in connection with the making of the Loans and
other disbursements on the Closing Date and thereafter and the
issuance of Letters of Credit hereunder and has made and shall
continue to make its own appraisal of the creditworthiness of each of
them. The Administrative Agent shall not have any duty or
responsibility either initially or on a continuing basis to make any
such investigation or any such appraisal on behalf of the Lenders or
to provide any Lender with any credit or other information with
respect thereto whether coming into its possession before the making
of the Loans and other disbursements on the Closing Date and
thereafter or the issuance of any Letter of Credit or any time or
times thereafter, and the Administrative Agent shall have no
responsibility with respect to the accuracy of or the completeness of
the information provided to Lenders.
Section 8.4 Right to Indemnity. Each Lender severally
agrees to indemnify the Administrative Agent, on its demand and as
incurred proportionately to its Credit Exposure Amount, to the extent
the Administrative Agent shall not have been reimbursed by the
Company, for and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, counsel fees and disbursements) or
disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Administrative Agent in
performing its duties hereunder or in any way relating to or arising
out of this Agreement or any other Loan Document; provided that no
Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements that result from the Administrative
Agent's gross negligence or willful misconduct. If any indemnity
furnished to the Administrative Agent for any purpose shall, in the
opinion of the Administrative Agent be insufficient or become
impaired, the Administrative Agent may call for additional indemnity
and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.
Section 8.5 Registered Holder of Note Treated as Owner.
The Administrative Agent may deem and treat the registered holder of
any Note as the owner thereof for all purposes hereof unless and until
a written notice of the assignment or transfer thereof shall have been
registered with the Administrative Agent. Any request, authority or
consent of any person or entity who at the time of
<PAGE>
making such request or giving such authority or consent, is the
holder of any Note shall be conclusive and binding on any subsequent
holder, transferee or assignee of that Note or of any Note or Notes
issued in exchange therefor.
Section 8.6 Resignation by Administrative Agent.
8.6.1. The Administrative Agent may resign from the
performance of all its functions and duties hereunder at any time by
giving 15 Business Days' prior written notice to the Company and the
Lenders. Such resignation shall take effect upon the acceptance by a
successor Administrative Agent of appointment pursuant to subsections
8.6.2 and 8.6.3 below or as otherwise provided below.
8.6.2. Upon any such notice of resignation, the Requisite
Lenders shall appoint a successor Administrative Agent acceptable to
the Company in its reasonable discretion and which shall be an
incorporated bank or trust company.
8.6.3. If a successor Administrative Agent shall not have
been so appointed within such 15 Business Day period, the resigning
Administrative Agent with the consent of the Company, shall then
appoint a successor Administrative Agent who shall serve as the
Administrative Agent until such time, if any, as the Requisite Lenders
appoint a successor Administrative Agent as provided above.
8.6.4. If no successor Administrative Agent has been
appointed pursuant to subsection 8.6.2 or 8.6.3 by the 20th Business
Day after the date such notice of resignation was given by the
resigning Administrative Agent, the Administrative Agent's resignation
shall become effective and Requisite Lenders shall thereafter perform
all the duties of the Administrative Agent hereunder until such time,
if any, as the Requisite Lenders appoint a successor Administrative
Agent as provided above.
Section 8.7 Guarantor Subsidiary Guarantee and Collateral
Documents. Each Lender hereby authorizes the Administrative Agent to
act as Collateral Trustee on behalf of and for the benefit of such
Lender. Each Lender hereby authorizes (A) the Collateral Trustee to
enter into the Collateral Documents and to take all action
contemplated by the Collateral Documents and (B) the Administrative
Agent to enter into the Guarantor Subsidiary Guarantee; provided that
the Collateral Trustee shall not enter into or consent to any
amendment, modification, termination or waiver of any provision
contained in the Collateral Documents without the prior consent of the
Requisite Lenders. Each Lender agrees that no Lender shall have any
right individually to seek or to enforce the Guarantor Subsidiary
Guarantee or to realize upon the security granted by any Collateral
Document, it being understood and agreed that such rights and remedies
may be exercised by the Administrative Agent for the benefit of the
Lenders upon the terms of the Guarantor Subsidiary Guarantee and by
the Collateral Trustee upon the terms of the Collateral Documents.
The Collateral Trustee may assign its rights and obligations as the
collateral agent under any of the Collateral Documents to any direct
or indirect Subsidiary of the Collateral Trustee or to any trustee,
with (in the case of any such assignment occurring prior to the
occurrence and continuance of an Event of Default) the consent of the
Company (which consent will not be unreasonably withheld or delayed),
which assignee, in each such case, shall be entitled to all the rights
of the Collateral Trustee under the applicable Collateral Document and
all
<PAGE>
right hereunder of the Collateral Trustee with respect to the
applicable Collateral Document.
Section 8.8 Successor Administrative Agent. Upon the
acceptance of any appointment as the Administrative Agent hereunder by
a successor Administrative Agent, such successor Administrative Agent
shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring or removed
Administrative Agent, and the retiring or removed Administrative Agent
shall be discharged from its duties and obligations as the
Administrative Agent under this Agreement. After any retiring or
removed Administrative Agent's resignation or removal hereunder as the
Administrative Agent the provisions of this ARTICLE VIII shall inure
to its benefit as to any actions taken or omitted to be taken by it
while it was the Administrative Agent under this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Successors and Assigns; Participations.
9.1.1. This Agreement shall be binding upon and inure to
the benefit of the Company, the Lenders, the Administrative Agent and
all future registered holders of the Notes and their respective
successors and registered assigns, except that the Company may not
assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Lender.
9.1.2. Any Lender may at any time sell to one or more
banks or other entities ("Participants") participating interests in
its Revolving Loan Commitment and Revolving Loans, Term Loan
Commitments, Tranche A Term Loans, Tranche B Term Loans, any Letter of
Credit or participation therein or any other right of such Lender
hereunder or thereunder; provided that no sale of participating
interests in any Letter of Credit or participations therein may be
made separately from the sale of a corresponding interest in the
Revolving Loan Commitment and the Revolving Loans of the Lender
effecting such sale. In the event of any such sale by a Lender of
participating interests to a Participant, such Lender's obligations
under this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall
remain the registered holder of any such Note and such interest in
such Letter of Credit for all purposes under this Agreement, and the
Company and the Administrative Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. The Company agrees that if amounts
outstanding under this Agreement, the Notes or the Letters of Credit
are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each
Participant shall, to the extent permitted by applicable law, be
deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement and any Note or Letter
of Credit to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement or
any Note or Letter of Credit; provided that such right of setoff shall
be subject to the obligation of such Participant to share with the
<PAGE>
Lenders, and the Lenders agree to share with such Participant, as
provided in Sec- tions 9.4 and 9.5 hereof. The Company also agrees
that each Participant shall be entitled to the benefits, subject to
any limitations set forth therein, of Sections 2.2, 2.9 and 2.10
hereof with respect to its participation in the Adjusted LIBOR Loans
and ABR Loans outstanding from time to time; provided that no
Participant shall be entitled to receive any greater payment under any
of such Sections than the relevant Lender would have been entitled to
receive with respect to the relevant Loans, unless such participation
is made with the Company's prior written consent. Each Lender agrees
that any agreement between such Lender and any such Participant in
respect of such participating interest shall refer to this Agreement
and shall not restrict such Lender's right to agree to any amendment,
supplement or modification to this Agreement or any of the Loan
Documents except (A) to extend the final maturity of any Loan or Note,
or any installment thereof, or of any Letter of Credit (unless such
Letter of Credit is not extended beyond the Revolving Credit Maturity
Date), in which such Participant is participating, or reduce the rate
or extend the time of payment of interest or fees thereon (except in
connection with a waiver of applicability of any post-default increase
in interest rates) or reduce the principal amount thereof, or increase
the amount of the Participant's participation over the amount thereof
then in effect (it being understood that waivers or modifications of
conditions precedent, covenants, Events of Default or of a mandatory
reduction in Total Loan Commitments shall not constitute a change in
the terms of such participation, and that an increase in any
Commitment or Loan shall be permitted without the consent of any
participant if the Participant's participation is not increased as a
result thereof), or (B) to consent to the assignment or transfer by
the Company of any of its rights and obligations under this Agreement.
Each Lender agrees to use commercially reasonable efforts to include
and require in each participation agreement delivered by it pursuant
to this subsection 9.1.2 to a Participant that is not a commercial
bank a specific acknowledgement by such Participant (and by each other
Person that may obtain, directly or indirectly from such Participant,
an interest in any one or more Commitments and Loans) of the
representations, warranties, covenants and agreements deemed to be
made by such Participant pursuant to the provisions of Section 9.23;
provided that no Lender shall have any liability hereunder in respect
of any act or omission of, or state of facts or circumstances relating
to, any Person to whom the holder of any such participating interest
may grant or sell sub-participating interests.
9.1.3. (a) Any Lender may (A) without the consent of any
Person, at any time, assign to any Lender or any Affiliate thereof and
(B) with the prior written consent of the Company (which consent shall
not be unreasonably withheld or delayed) to one or more additional
banks or financial institutions (all such Affiliates, Lenders and
additional banks or financial institutions being "Purchasing
Lenders"), all or any part of its Credit Exposure pursuant to a
Registered Transfer Supplement, substantially in the form of Exhibit
XVIII annexed hereto (any such Registered Transfer Supplement, a
"Registered Transfer Supplement"), executed by such Purchasing Lender,
such transferor Lender and the Administrative Agent and in compliance
with subsection 9.1.5; provided that (1) each such assignment pursuant
to clause (A) above shall be limited to an amount equal to the lesser
of (x) such Lender's Credit Exposure Amount then in effect and (y) a
minimum amount of $5,000,000 and integral multiples of $1,000,000
above such amount, (2) such transferor Lender and Purchasing Lender
deliver to the Administrative Agent the tax documentation required by
paragraph (e) of subsection 2.9.7, if applicable, (3) in the case of
<PAGE>
assignments of Revolving Loan Commitments or Revolving Loans, such
transferor Lender obtains, additionally, the consent of each Lender
then constituting a Fronting Bank, (4) no such consent of the Company
will be required if a Potential Event of Default or an Event of
Default shall have occurred and be continuing and (5) the Company
shall be entitled to withhold its consent to any such proposed
assignment for any reason or no reason if (x) immediately after giving
effect thereto, the Purchasing Lender would be an Affected Lender or
the Company or other Loan Parties would be required to make payments
pursuant to or on behalf of such Purchasing Lender pursuant to
subsection 2.9.7 and (y) the transferor Lender was not an Affected
Lender as to which the Company has declined or failed to exercise its
rights pursuant to Section 2.11 and was not, at the time of such
assignment, entitled to receive any payments pursuant to paragraph
(a), (b) or (c) of subsection 2.9.7. Subject to compliance with the
foregoing sentence, upon (A) such execution of such Registered
Transfer Supplement, (B) delivery of an executed copy thereof to the
Company, (C) payment by such Purchasing Lender to such transferor
Lender of an amount equal to the purchase price agreed between such
transferor Lender and such Purchasing Lender, (D) the receipt of a
processing and recording fee of $2,500 by the Administrative Agent and
(E) recordation of assignment in the Register pursuant to subsection
9.1.5, such Purchasing Lender shall for all purposes be a Lender party
to this Agreement and shall have all the rights (including, without
limitation, the benefits of Section 2.10) and obligations of a Lender
under this Agreement to the same extent as if it were an original
party hereto with the Tranche A Funding Percentage, Tranche B Funding
Percentage, Revolving Loan Commitment, Adjusted Revolving Loan
Percentage, Credit Exposure Amount, A Credit Exposure Amount and B
Credit Exposure Amount set forth in such Registered Transfer
Supplement, and no further consent or action by the Company, the
Lenders or the Administrative Agent shall be required. Such
Registered Transfer Supplement shall be deemed to amend this Agreement
to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Lender and the resulting adjustment of the
Tranche A Funding Percentages, Tranche B Funding Percentages,
Revolving Loan Commitments, Adjusted Revolving Loan Percentages,
Credit Exposure Amounts, A Credit Exposure Amounts and B Credit
Exposure Amounts arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of such transferor
Lender under this Agreement and the Commitments, the Notes and the
Letters of Credit. Upon the consummation of any transfer to a
Purchasing Lender pursuant to this subsection 9.1.3, the transferor
Lender, the Administrative Agent and the Company shall make
appropriate arrangements as required under subsection 9.1.5 so that a
replacement Note is issued to such transferor Lender and a new Note
or, as appropriate, a replacement Note, issued to such Purchasing
Lender, in each case in principal amounts reflecting their Tranche A
Funding Percentages, Tranche B Funding Percentages, Revolving Loan
Commitments, Adjusted Revolving Loan Percentages, Credit Exposure
Amounts, A Credit Exposure Amounts and B Credit Exposure Amounts or,
as appropriate, their outstanding Loans, as adjusted pursuant to such
Registered Transfer Supplement.
(b) In addition to the assignments permitted under
paragraph (a) of subsection 9.1.3 above, any Lender may at any time
assign all or any portion of its rights under this Agreement to a
Federal Reserve Bank without the prior written consent of the Company,
the Administrative Agent, any Fronting Bank or Bankers; provided that
no such assignment shall release a Lender from any of its obligations
hereunder or substitute any such Federal Reserve Bank for such Lender
as a party or
<PAGE>
entitle such Federal Reserve Bank to require such Lender to take or
omit to take any action hereunder.
9.1.4. The Company authorizes each Lender to disclose to
any Participant or Purchasing Lender (each, a "Transferee") and any
prospective Transferee any and all financial information in such
Lender's possession concerning the Company and any Subsidiary of the
Company which has been delivered to such Lender by or on behalf of the
Company pursuant to this Agreement or any other Loan Document or which
has been delivered to such Lender by the Company in connection with
such Lender's credit evaluation of the Company and its Subsidiaries
prior to entering into this Agreement; provided that if such
information is confidential information as contemplated by Section
9.17 hereof, such Lender may so disclose such information only if such
Transferee or prospective Transferee previously agrees in writing to
be bound by the terms of Section 9.17.
9.1.5. (a) The Company and other Loan Parties hereby
designate the Administrative Agent to serve as the Company's agent,
solely for purposes of this subsection 9.1.5, to maintain a register
(the "Register") on which the Administrative Agent will record the
Commitments from time to time of each Lender, the Loans made by each
Lender and each repayment in respect of the principal amount of the
Loans of each Lender and to retain a copy of each Registered Transfer
Supplement delivered to the Administrative Agent pursuant to this
subsection. Failure to make any such recordation, or any error in
such recordation shall not affect the Company's obligations in
respect of such Loans. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Company, the
other Loan Parties, the Administrative Agent, the Fronting Banks and
the Lenders shall treat each Person in whose name a Loan and the Note
evidencing the same is registered as the owner thereof for all
purposes of this Agreement, notwithstanding notice or any provision
herein to the contrary. With respect to any Lender, the assignment or
other transfer of the Commitments of such Lender and the rights to the
principal of, and interest on, any Loan made and Note issued pursuant
to this Agreement shall not be effective until such assignment or
other transfer is recorded on the Register and, except to the extent
provided in this subsection 9.1.5, otherwise complies with subsec-
tion 9.1.3, and prior to such recordation all amounts owing to the
transferor Lender with respect to such Commitments, Loans and Notes
shall remain owing to the transferor Lender. The registration of
assignment or other transfer of all or part of any Commitments, Loans
and Notes for a Lender shall be recorded by the Administrative Agent
on the Register only upon the acceptance by Agent of a properly
executed and delivered Registered Transfer Supplement substantially in
the form of Exhibit XVIII annexed hereto. Coincident with the
delivery of such Registered Transfer Supplement to the Administrative
Agent for acceptance and registration of assignment or sale of all or
part of a Loan, or as soon thereafter as practicable, the assigning or
transferor Lender shall surrender the Note evidencing such Loan, and
thereupon one or more new Notes in the same aggregate principal amount
shall be issued to the assigning or transferor Lender and/or the new
Lender. The Company agrees to indemnify the Administrative Agent from
and against any and all losses, claims, damages and liabilities or
whatsoever nature which may be imposed on, asserted against or
incurred by the Administrative Agent in performing its duties under
this subsection 9.1.5 (other than losses, claims, damages and
liabilities arising from acts or omissions that represent gross
negligence or willful misconduct on the part of the Administrative
Agent). The Register shall be available
<PAGE>
at the offices where kept by the Administrative Agent for inspection
by the Company and any Lender at any reasonable time upon reasonable
prior notice to the Administrative Agent.
(b) The Company may not replace any Lender pursuant to
Section 2.11 or Section 9.22, unless, with respect to any Notes held
by such Lender, the requirements of subsection 9.1.5(a) have been
satisfied.
Section 9.2 Expenses. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to
promptly pay (A) all the actual and reasonable costs and expenses of
preparation of the Loan Documents and all the costs of furnishing all
opinions by counsel for the Company and the other Loan Parties
(including, without limitation, any opinions requested by Requisite
Lenders as provided in ARTICLE III hereof as to any legal matters
arising hereunder), (B) the reasonable fees, expenses and
disbursements of CG&R in connection with the negotiation, preparation,
execution and administration of the Loan Documents and the Loans
hereunder, and any amendments and waivers hereto or thereto, (C) all
the actual costs and expenses of creating, perfecting, continuing and
maintaining Liens in favor of Lenders pursuant to any Loan Document,
including filing and recording fees and expenses (other than
Muskogee/Oklahoma Mortgage Recording Taxes, which shall be paid by
Bankers, for the account of the Lenders), title insurance, fees and
expenses of counsel for providing such opinions as Requisite Lenders
may reasonably request as provided therein and reasonable fees and
expenses of CG&R, and (D) after the occurrence of an Event of Default,
all costs and expenses (including, without limitation, reasonable
attorneys fees, including allocated costs of internal counsel, and,
with the prior written consent of the Company (which consent shall not
be unreasonably withheld or delayed), costs of settlement) incurred by
the Lenders and/or the Administrative Agent in enforcing any
Obligations of or in collecting any payments due from the Company
hereunder or under the Notes or any of the other Loan Documents by
reason of such Event of Default or in connection with any refinancing
or restructuring of the credit arrangements provided under this
Agreement, including, without limitation, in the nature of a
"work-out" or of any insolvency or bankruptcy proceedings.
Section 9.3 Indemnity. In addition to the payment of
expenses pursuant to Section 9.2, whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to
indemnify, pay and hold the Administrative Agent, and each Person who
is or was a Lender and any holder of any of the Notes, and the
officers, directors, employees, agents, and affiliates of such Person
and such holders (collectively called the "Indemnitees"), upon their
demand and as incurred, harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, the
reasonable fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto), which may be imposed on,
incurred by, or asserted against such Indemnitee, in any manner
relating to or arising out of this Agreement, the other Loan
Documents, the Lenders' agreement to make the Loans or other
disbursements on the Closing Date or thereafter or issue the Letters
of Credit or the use or intended use of the proceeds of any of the
Loans or
<PAGE>
disbursements hereunder or use or intended use of the Letters of
Credit (the "indemnified liabilities"); provided that the Company
shall have no obligation to an Indemnitee hereunder with respect to
indemnified liabilities that result from the gross negligence or
willful misconduct of that Indemnitee or from claims, litigation,
investigations or proceedings made or initiated by, as the case may
be, one Indemnitee against any other Indemnitee. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any
law or public policy, the Company shall contribute the maximum portion
which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all indemnified liabilities incurred by
the Indemnitees or any of them except to the extent set forth in the
proviso to the next preceding sentence.
Section 9.4 Set-Off. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of
any such rights, upon the occurrence of any Event of Default, each
Lender is hereby authorized by the Company at any time or from time to
time, without notice to the Company, or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate
and to apply any and all deposits (general or special, including,
without limitation, Indebtedness evidenced by certificates of deposit,
whether matured or unmatured but not including trust accounts) and any
other Indebtedness at any time held or owing by that Lender to or for
the credit or the account of the Company against and on account of the
obligations and liabilities of the Company to such Lender or that
subsequent holder under this Agreement and the Notes and the Letters
of Credit, including, without limitation, all claims of any nature or
description arising out of or connected with this Agreement or the
Notes, irrespective of whether or not (A) such Lender shall have made
any demand hereunder or (B) such Lender shall have declared the
principal or the interest on the Loans and Notes, any obligation of
the Company with respect to the Letters of Credit and other amounts
due hereunder to be due and payable as permitted by ARTICLE VII and
although said obligations and liabilities, or any of them, may be
contingent or unmatured.
Section 9.5 Ratable Sharing.
9.5.1. Each Lender and each subsequent holder by
acceptance of a Note agree among themselves that (A) with respect to
all amounts received by them which are applicable to the payment of
principal of or interest on the Notes and amounts payable in respect
of Letters of Credit and commitment commissions with respect to the
Commitments, equitable adjustment will be made so that, in effect, all
such amounts will be shared among the Lenders proportionately to their
respective interests in the Notes, the Tranche A Term Loans, the
Revolving Loans or the Tranche B Term Loans, as the same may appear,
whether received by voluntary payment, by the exercise of the right of
set-off or banker's lien, by counterclaim or cross action or by the
enforcement of any or all of the Notes, (B) if any of them shall
exercise any right of counterclaim, set-off, banker's lien or similar
right with respect to amounts owed by the Company hereunder or under
the Notes relating to any facility hereunder or in respect of the
Letters of Credit, such Lender or holder, as the case may be, shall
apportion the amount recovered as a result of the exercise of such
right pro rata in accordance with all amounts outstanding at such time
owed by the Company in respect of such facility, and (C) if any of
them shall thereby
<PAGE>
through the exercise of any right of counterclaim, set-off, banker's
lien or otherwise or as adequate protection of a deposit treated as
cash collateral under the Bankruptcy Code, receive payment or
reduction of a proportion of the aggregate amount of principal and
interest due with respect to the Notes held by the Lender relating to
any facility hereunder, the amount of any Letter of Credit or any
participation therein or any amount payable hereunder, as the case may
be, which is greater than the proportion received by any other holder
of the Notes relating to the same facility in respect to such
aggregate amount of principal and interest due with respect to such
Notes held by it, the amount of any Letter of Credit or any
participation therein or any amount payable hereunder, such Lender or
such holder of such Notes receiving such proportionately greater
payments shall (1) notify each other applicable Lender and the
Administrative Agent of such receipt and (2) purchase participations
(which it shall be deemed to have done simultaneously upon the receipt
of such payment) in the Notes relating to such facility held by the
other holders and in Letters of Credit issued by other Lenders so that
all such recoveries of principal and interest with respect to such
Notes and reimbursement of amounts drawn under or payable with respect
to Letters of Credit, if applicable, shall be proportionate to their
respective interests in such facility or the Letters of Credit, as the
case may be; provided that, if all or part of such proportionately
greater payment received by such purchasing holder is thereafter
recovered from such holder, those purchases shall be rescinded and the
purchase prices paid for such participations shall be returned to that
holder to the extent of such recovery, but without interest. The
Company expressly consents to the foregoing arrangement and agrees
that any holder of a participation in any such Note or Letter of
Credit, as the case may be, so purchased and any other subsequent
holder of a participation in any Note otherwise acquired may to the
extent permitted by applicable law, exercise any and all rights of
banker's lien, set-off or counterclaim with respect to any and all
monies owing by the Company to such holder as fully as if that holder
were a holder of such a Note in the amount of the participation held
by such holder. Any amounts required to be shared or used to purchase
participations pursuant to this subsection 9.5.1 (in each case, in
connection with Revolving Loans, Swing Line Loans and Letters of
Credit) shall be applied first, to all Lenders (other than Defaulting
Lenders), ratably in respect of all such amounts then due and payable
to each such lender and second, to the Defaulting Lenders, ratably for
any amount due and payable to such Lenders.
9.5.2. Notwithstanding anything to the contrary contained
herein, the provisions of the preceding subsection 9.5.1 shall be
subject to the express provisions of this Agreement which require, or
permit, differing payments to be made to Non-Defaulting Lenders as
opposed to Defaulting Lenders.
Section 9.6 Amendments and Waivers. Neither this
Agreement nor any other Loan Document nor any terms hereof or thereof
may be changed, waived, discharged or terminated unless such change,
waiver, discharge or termination is in writing signed by the Company
and the Requisite Lenders; provided that no such change, waiver,
discharge or termination shall, without the consent of each Lender
(other than a Defaulting Lender) affected thereby, (A) extend the
Tranche A Term Maturity Date, the Tranche B Term Maturity Date or the
Revolving Credit Maturity Date (it being understood that any waiver of
the application of any prepayment of or collateralization for or the
method of application of any prepayment to the amortization of the
Loans or other Obligations shall not constitute any such
<PAGE>
extension), or reduce the rate or extend the time of payment of
interest (other than as a result of waiving the applicability of any
post-default increase in interest rates) or reduce the principal
amount thereof, or increase the Commitment of any Lender over the
amount thereof then in effect (it being understood that a waiver of
any Potential Event of Default or Event of Default or of a mandatory
reduction in the Total Commitments or a waiver of the type
contemplated in the second next preceding parenthetical shall not
constitute a change in the terms of any Commitment of any Lender), (B)
release or permit the release of all or substantially all of the
Collateral or release any Guarantor Subsidiary from its Guarantor
Subsidiary Guarantee (in each case except as expressly provided in the
Loan Documents), (C) amend, modify or waive any provision of this
Section, (D) reduce the percentage specified in, or otherwise modify,
the definition of Requisite Lenders, Credit Exposure Amount, A Credit
Exposure Amount, B Credit Exposure Amount, Tranche A Funding
Percentage, Tranche B Funding Percentage or Adjusted Revolving Loan
Percentage or (E) consent to the assignment or transfer by the Company
of any of its rights and obligations under this Agreement; and
provided, further, that no such change, waiver, discharge or
termination shall amend, modify or waive any of the terms contained in
subsection 2.1.5 or Section 2.7 or the definition of Scheduled Term
Loans Principal Payment (x) without the consent of the Required A
Lenders (to the extent that, in any such case, such amendment,
modification or waiver would reduce, or change the time of payment of,
any amounts received by Lenders owning Tranche A Term Loans) or (y)
without the consent of the Required B Lenders (to the extent that, in
any case, such amendment, modification or waiver would reduce, or
change the time of payment of, any amount received by Lenders owning
Tranche B Term Loans). Any amendment, modification, termination or
waiver of any of the provisions contained in ARTICLE III shall be
effective only if evidenced by a writing signed by or on behalf of the
Administrative Agent and the Requisite Lenders. No amendment,
modification, termination or waiver of any provision of ARTICLE VIII
hereof shall be effective without the written concurrence of the
Administrative Agent. The Administrative Agent may, but shall have no
obligation to, with the concurrence of any Lender, execute amendments,
modifications, waivers or consents on behalf of such Lender. Any
waiver or consent shall be effective only in the specific instance and
for the specific purpose for which it was given. No notice to or
demand on the Company in any case shall entitle the Company to any
further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in
accordance with this Section 9.6 shall be binding upon each holder of
the Notes at the time outstanding, each future holder of the Notes,
and, if signed by the Company, on the Company.
Section 9.7 Independence of Covenants. All covenants
hereunder shall be given independent effect so that if a particular
action or condition is prohibited by any of such covenants, the fact
that it would be permitted by an exception to, or be otherwise outside
the limitation of, another covenant shall not avoid the occurrence of
an Event of Default or Potential Event of Default if such action is
taken or condition exists.
Section 9.8 Change in Accounting Principles; Fiscal Year
or Tax Laws. If (A) any change in the accounting principles under GAAP
used in preparation of the financial statements referred to in Section
4.3 hereafter occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by
<PAGE>
the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants (or successors thereto or agencies with
similar functions) result in a change in the method of calculation of
financial covenants, standards or terms found in ARTICLES I, V and VI
hereof, or (B) there is a material change in federal tax laws which
materially affects the Company's ability to comply with the financial
covenants, standards or terms found in ARTICLE I, V or VI hereof, the
parties hereto agree to enter into negotiations in order to amend such
provisions so as to equitably reflect such changes with the desired
result that the criteria for evaluating the Company's financial
condition shall be the same after such changes as if such changes had
not been made; provided that, unless and until an agreement is reached
following such negotiations, such provisions shall remain unchanged
and in full force and effect.
Section 9.9 Notices. Unless otherwise provided herein,
any notice or other communication herein required or permitted to be
given shall be in writing and may be personally served, telecopied,
telexed or sent by United States mail and shall be deemed to have been
given (A) when delivered in person or a legible copy is received by
telecopy or telex or (B) four Business Days after deposit in the
United States mail, registered or certified, with postage prepaid and
properly addressed; provided that notices to the Administrative Agent
shall not be effective until received by the Administrative Agent.
For the purposes hereof, the address of each of the parties hereto
(until notice of a change thereof is delivered as provided in this
Section 9.9) shall be set forth under such party's name on the
signature pages hereto.
Section 9.10 Survival of Warranties and Certain
Agreements. Notwithstanding anything in this Agreement or implied by
law to the contrary and without limiting any survival provision set
forth in any Collateral Document, the agreements of the Company set
forth in subsections 2.2.8, 2.2.9, 2.8.4, 2.9.2, 2.9.5, 2.9.7 and
2.9.9 and Sections 9.2 and 9.3 and the agreements of Lenders set forth
in subsections 2.9.7, 2.9.8, 2.9.11, 8.2.3 and 9.1.2 (last sentence
only) and Sections 8.4, 9.4 and 9.5 shall survive the payment of the
Loans and the Notes, the cancellation or expiration of the Letters of
Credit and the reimbursement of any amount drawn thereunder and the
termination of this Agreement.
Section 9.11 Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay on the part of any Lender or any
holder of any Note in the exercise of any power, right or privilege
under any Loan Document shall impair such power, right or privilege or
be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other
right, power or privilege. All rights and remedies existing under any
Loan Document are cumulative to and not exclusive of, any rights or
remedies otherwise available.
Section 9.12 Severability. In case any provision in or
obligation under this Agreement or the Notes shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not, to the
extent permitted by law, in any way be affected or impaired thereby.
Section 9.13 Obligations Several; Independent Nature of
the Lenders' Rights. The obligation of each Lender hereunder is
several, and no Lender shall be
<PAGE>
responsible for the obligation or commitment of any other Lender
hereunder. Nothing contained in this Agreement and no action taken by
Lenders pursuant hereto shall be deemed to constitute Lenders to be a
partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender
shall be a separate and independent debt, and each Lender shall be
entitled to protect and enforce its rights arising out of this
Agreement and it shall not be necessary for any other Lender to be
joined as an additional party in any proceeding for such purpose.
Notwithstanding the foregoing, each Lender agrees that no Lender shall
have any right individually to realize upon the security granted by
the Collateral Documents, it being understood and agreed that such
rights and remedies may only be exercised by the Administrative Agent
for the benefit of the Lenders.
Section 9.14 Headings. Section and subsection headings
in this Agreement are included herein for convenience of reference
only and shall not constitute a part of this Agreement for any other
purpose or be given any substantive effect.
Section 9.15 Applicable Law. THIS AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF
CREDIT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM
CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS (1993 REVISION),
INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM
CUSTOMS") AND, AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE
LAWS OF THE STATE OF NEW YORK.
Section 9.16 Consent to Jurisdiction and Service of
Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY WITH
RESPECT TO THIS AGREEMENT, ANY NOTE OR ANY LETTER OF CREDIT MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
COMPANY ACCEPTS (TO THE MAXIMUM EXTENT PERMITTED BY LAW) FOR ITSELF
AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH
THIS AGREEMENT SUBJECT TO RIGHT OF APPEAL. THE COMPANY DESIGNATES AND
APPOINTS [THE PRENTICE HALL CORPORATION SYSTEM, ONE GULF & WESTERN
PLAZA, NEW YORK, NEW YORK 10023-7773] AND SUCH OTHER PERSONS AS MAY
HEREAFTER BE SELECTED BY THE COMPANY IRREVOCABLY AGREEING IN WRITING
TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING
HEREBY ACKNOWLEDGED BY THE COMPANY TO BE EFFECTIVE AND BINDING SERVICE
IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY
REGISTERED MAIL TO THE COMPANY AT ITS ADDRESS PROVIDED IN THE
APPLICABLE SIGNATURE PAGE HERETO, EXCEPT THAT UNLESS OTHERWISE
PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT
AFFECT THE VALIDITY OF SERVICE OF PROCESS.
<PAGE>
IF ANY AGENT APPOINTED BY THE COMPANY REFUSES TO ACCEPT SERVICE, THE
COMPANY HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE
SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
OF ANY LENDER TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS
OF ANY OTHER JURISDICTION.
Section 9.17 Confidentiality. Subject to Section 9.1,
the Lenders shall hold all non-public information obtained pursuant to
the requirements of this Agreement which has been identified as such
by the Company in accordance with their customary procedures for
handling confidential information of this nature and in accordance
with safe and sound banking practices and in any event, subject to
Section 9.1, may make disclosure reasonably required by any bona fide
transferee or participant in connection with the contemplated transfer
of any Note or participation therein or in any Obligation or as
required or requested by any governmental agency or representative
thereof or pursuant to legal process; provided that, unless
specifically prohibited by applicable law or court order, each Lender
shall notify the Company of any request by any governmental agency or
representative thereof (other than any such request in connection with
an examination of the financial condition of such Lender by such
governmental agency) for disclosure of any such non-public information
prior to disclosure of such information so that either or both of them
may seek an appropriate protective order; and provided, further, that
in no event shall any Lender be obligated or required to return any
materials furnished by the Company or any of its Subsidiaries.
Section 9.18 Counterparts; Effectiveness. This Agreement
and any amendments, waivers, consents or supplements may be executed
in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument. This Agreement shall
become effective upon the execution of a counterpart hereof by each of
the parties hereto, and written or telephonic notification of such
execution and authorization of delivery thereof has been received by
the Company and the Administrative Agent and all applicable conditions
to such effectiveness have been satisfied.
Section 9.19 Determinations Pursuant to Collateral
Documents. In each circumstance where, under any provision of a
Collateral Document, the Collateral Trustee shall have the right to
grant or withhold any consent, exercise any remedy, make any
determination or direct any action under such Collateral Document, the
Collateral Trustee shall act in respect of such consent, exercise of
remedies, determination or action, as the case may be, only with the
consent of or at the direction of the Requisite Lenders; provided that
no consent of any party shall be required with respect to any consent,
determination or other matter that is, in the reasonable judgment of
the Collateral Trustee, ministerial or administrative in nature. In
each circumstance where any consent of or direction from the Requisite
Lenders is required, the Collateral Trustee shall send to the Lenders
a notice setting forth a description in reasonable detail of the
matter as to which consent or direction is requested and the
Collateral Trustee's proposed course of action with respect thereto.
In the event the Collateral Trustee shall not have received a response
from any Lender within ten Business Days after the giving of such
notice,
<PAGE>
such Lender shall be deemed to have agreed to the course of action
proposed by the Collateral Trustee. Each Lender hereby authorizes the
Collateral Trustee to execute and deliver one or more intercreditor
agreements of the character contemplated in the Receivables Term
Sheet.
Section 9.20 Certain Obligations of Company. Nothing in
this Agreement shall be construed to limit any obligation of the
Company set forth in any Collateral Document.
Section 9.21 Waiver of Jury Trial. Each of the Company
and the Lenders hereby irrevocably waives all right to trial by jury
in any action, proceeding or counterclaim (whether based on contract,
tort or otherwise) arising out of or related to any of the Loan
Documents or the actions of the Administrative Agent, any Arranger and
any Lender in the negotiation, administration, performance or
enforcement hereof and thereof.
Section 9.22 Defaulting Lenders.
9.22.1. If any Lender becomes a Defaulting Lender, the
Company shall have the right to replace such Lender (the "Replaced
Lender"), in accordance with the requirements of Section 9.1, if no
Event of Default or Potential Event of Default will exist after giving
effect to such replacement, with one or more other Lenders or
Purchasing Lenders, none of whom shall constitute a Defaulting Lender
at the time of such replacement (collectively, the "Replacement
Lender"), reasonably acceptable to the Administrative Agent; provided
that (A) at the time of any replacement pursuant to this Section 9.22,
the Replacement Lender shall execute and deliver one or more
Registered Transfer Supplements pursuant to Section 9.1 (and with the
fee payable pursuant to said Section 9.1 to be paid by the Replacement
Lender) pursuant to which the Replacement Lender shall acquire all of
the Commitments and outstanding Loans of, and participations in
Letters of Credit by, the Replaced Lenders and, in connection
therewith, shall pay to (1) the Replaced Lender in respect thereof an
amount equal to the sum of (x) an amount equal to the principal of,
and all accrued interest on, all outstanding Loans of the Replaced
Lender, (y) an amount equal to all unreimbursed drawings that have
been funded by (and not reimbursed to) such Replaced Lender, together
with all then unpaid interest with respect thereto at such time and
(z) an amount equal to all accrued, but theretofore unpaid, fees owing
to the Replaced Lender pursuant to Section 2.6 and subsection 2.2.6,
(2) the Fronting Bank an amount equal to such Replaced Lender's
Adjusted Revolving Loan Percentage of any then unreimbursed drawings
under Letters of Credit to the extent such amount was not theretofore
funded by such Replaced Lender and (3) Bankers an amount equal to such
Replaced Lender's Adjusted Revolving Loan Percentage of any Swing Line
Loans as to which Bankers has exercised the option set forth in
subsection 2.12.5 to the extent such amount was not theretofore funded
by such Replaced Lender, and (B) all obligations of the Company owing
to the Replaced Lender (other than those specifically described in
clause (A) above in respect of which the transfer purchase price has
been, or is concurrently being, paid) shall be paid in full to such
Replaced Lender concurrently with such replacement.
9.22.2. Upon the execution of the respective Registered
Transfer Supplements, the payment of amounts referred to in clauses
(A) and (B) of subsection 9.22.1 and, if so requested by the
Replacement Lender, delivery to the Replacement
<PAGE>
Lender of the appropriate Note or Notes executed by the Company, (A)
the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder, except
with respect to indemnification provisions under this Agreement, which
shall survive as to such Replaced Lender, and (B) the Adjusted
Revolving Loan Percentages of the Lenders shall be automatically
adjusted at such time to give effect to such replacement (and to give
effect to the replacement of a Defaulting Lender with one or more
Non-Defaulting Lenders).
9.22.3. Nothing herein shall relieve any Defaulting
Lender of its liability to the Company for all damages suffered by the
Company as a result of the Lender Default of such Defaulting Lender.
Section 9.23 Lenders' ERISA Matters.
9.23.1. Lenders' Representations and Warranties. Except
as otherwise provided in subsection 9.23.2, each Lender and each
Transferee, solely with respect to itself, severally represents and
warrants that one or more of the following is true with respect to all
of the funds used to make or purchase any interest in any Loan (or one
or more of the following is true with respect to each portion of the
funds used to make or purchase such interest in such Loan if such
funds are from more than one source):
(i) no part of the funds to be used by it constitutes
under the Internal Revenue Code or ERISA the assets of any Plan;
or
(ii) (A) the funds to be used by it constitute, under
the Internal Revenue Code or ERISA, the assets of an insurance
company pooled separate account, as such term is used in
Prohibited Transaction Class Exemption 90-1 issued by the U.S.
Department of Labor, or a "collective investment fund," as
defined in Section IV of Prohibited Transaction Class Exemption 91-38
issued by the U.S. Department of Labor, in which a Plan has an
interest, and (B) such Loan or interest therein is, and the
subsequent holding of the Note or any agreement related thereto
shall at all times thereafter be, entitled to full relief under
Prohibited Transaction Class Exemption 90-1 or 91-38, as
applicable; or
(iii) (A) the funds to be used by it for any Loan or
interest therein which constitute, under the Internal Revenue
Code or ERISA, the assets of any Plan are invested in an
investment fund which is managed by a "Qualified Professional
Asset Manager" as such term is defined in Prohibited Transaction
Class Exemption 84-14 issued by the U.S. Department of Labor,
and (B) such Loan or interest therein is and the subsequent holding of
the Note or any agreement related thereto shall at all times
thereafter be, exempt under Prohibited Transaction Class
Exemption 84-14 to the fullest extent provided therein.
9.23.2. General Account Assets. A Lender or Transferee
which is an insurance company subject to state regulation that is
making or purchasing an interest in a Loan with General Account Assets
represents with respect to the portion of its assets constituting
General Account Assets, in lieu of making a
<PAGE>
representation under subsection 9.23.1 with respect thereto, that one
of the following is true:
(i) no part of the General Account Assets used to
make or purchase such interest in a Loan will be from assets
allocated to a segment of its general account in which one or
more Plans has any interest, other than an interest which will
not result in the Note relating thereto being deemed to be the
assets of any such Plan; or
(ii) such Lender or Transferee is an "insurance
company" and such General Account Assets are assets of an
"insurance company general account" as defined in Section V of
Proposed Class Exemption for Certain Transactions Involving
Insurance Company General Accounts issued by the U.S. Department
of Labor, 59 Federal Register 43134, August 22, 1994
(Application No. D-9662) ("Proposed Prohibited Transaction Exemption
D-9662") and such Loan or interest therein is, and shall at all
times thereafter satisfy the requirements to be and shall be
exempt under the Proposed Prohibited Transaction Exemption
D-9662 to the fullest extent provided therein (assuming for this
purpose that the Proposed Prohibited Transaction Exemption
D-9662 was granted as a final prohibited transaction exemption by
the U.S. Department of Labor on the date and in the form it was
proposed).
9.23.3. Representations of Transferees. Each Person that
becomes a Transferee hereunder shall be deemed to make, effective upon
the acceptance of any assignment of an interest hereunder or the
entering into of any participation agreement contemplated in
subsection 9.1.2, the representations and warranties set forth in
subsection 9.23.1 or, with respect to General Account Assets used to
acquire its interest or participation, subsection 9.23.2. Such deemed
representation shall be effective against, and binding on, such
Transferee to the same extent as if such Transferee had executed an
original counterpart of this Agreement.
9.23.4. Additional ERISA Representations. Each Lender
that now or hereafter makes or maintains any Loan with any assets of
any Plan (i) represents and warrants that it has evaluated for itself
the merits of making or maintaining such Loan; has not solicited and
has not received from the Company, MS Group or any of their
Affiliates, any evaluation or other investment advice on any basis in
respect of the advisability of making or maintaining such Loan; and is
not relying and has not relied on the Company, MS Group or any of
their Affiliates for any investment advice with respect to making or
maintaining such Loan in any manner that would cause the Company, MS
Group or any of their Affiliates to become a "party in interest"
(within the meaning of ERISA) or a "disqualified person" (within the
meaning of the Internal Revenue Code) in connection with making or
maintaining such Loan and (ii) acknowledges and confirms that none of
the Company, MS Group or any of their Affiliates is acting as a
"fiduciary" (within the meaning of ERISA, the Internal Revenue Code or
any other applicable law or any rulings or regulations thereunder) for
such Lender in connection with making or maintaining such Loan.
<PAGE>
WITNESS the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written
above.
BORROWER:
FORT HOWARD CORPORATION
By: ___________________________
Title: ________________________
Notice Address:
Attention:
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Exhibit 4.7
$60,000,000
RECEIVABLES CREDIT AGREEMENT
Dated as of
March 8, 1995,
among
FORT HOWARD CORPORATION
and
BANKERS TRUST COMPANY,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
and
CHEMICAL BANK,
as Lenders,
and
BANKERS TRUST COMPANY,
as Administrative Agent
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<PAGE>
FORT HOWARD CORPORATION
RECEIVABLES CREDIT AGREEMENT
dated as of March 8, 1995
TABLE OF CONTENTS
Heading Page
INTRODUCTION................................
RECITALS....................................
ARTICLE I DEFINITIONS.................................
Section 1.1 Certain Defined Terms.......................
Section 1.2 Accounting Terms............................
Section 1.3 Other Definitional Provisions;
Anniversaries............................
Section 1.4 Adjustment for Special Reserve..............
Section 1.5 Currency Equivalent Generally...............
ARTICLE II COMMITMENTS AND LOANS; NOTES................
Section 2.1 Loans and Notes.............................
2.1.1 Loan Commitments............................
2.1.2 Notice of Borrowing.........................
2.1.3 Disbursement of Funds.......................
2.1.4 Notes.......................................
2.1.5 Maturity Date...............................
Section 2.2 Total Loan Commitments; Limitations on
Outstanding
Loan Amounts.............................
Section 2.3 Interest on the Loans.......................
2.3.1 Rate of Interest............................
2.3.2 Interest Periods............................
2.3.3 Interest Payments...........................
2.3.4 Conversion or Continuation..................
2.3.5 Post-Maturity Interest......................
2.3.6 Computation of Interest.....................
<PAGE>
Heading Page
Section 2.4 Commissions.................................
2.4.1 Commitment Commissions......................
2.4.2 Bankers and Lenders' Commissions............
2.4.3 No Refund of Fees...........................
Section 2.5 Prepayments and Payments....................
2.5.1 Voluntary Prepayments.......................
2.5.2 Mandatory Prepayments.......................
2.5.3 Company's Mandatory Prepayment
Obligation; Application of
Prepayments..............................
2.5.4 Manner and Time of Payment..................
2.5.5 Apportionment of Payments...................
2.5.6 Payments on Non-Business Days...............
2.5.7 Payment Accounts; Notation of Payment.............
Section 2.6 Use of Proceeds.............................
2.6.1 The Loans...................................
2.6.2 Margin Regulations..........................
Section 2.7 Special Provisions Governing Adjusted
LIBOR Loans..............................
2.7.1 Determination of Interest Rate..............
2.7.2 Increased Costs.............................
2.7.3 Required Termination and Prepayment.........
2.7.4 Options of Company..........................
2.7.5 Compensation................................
2.7.6 Quotation of LIBOR..........................
2.7.7 Taxes.......................................
2.7.8 Booking of Adjusted LIBOR Loans.............
2.7.9 Assumptions Concerning Funding of
Adjusted LIBOR Loans.....................
2.7.10 Adjusted LIBOR Loans After an Event of
Default..................................
2.7.11 Affected Lender's Obligation to
Mitigate.................................
Section 2.8 Capital Requirements........................
Section 2.9 Replacement Rights of Company...............
ARTICLE III CONDITIONS TO LOANS.........................
Section 3.1 Conditions to Effectiveness of
Agreement................................
Section 3.2 Conditions to the Loans.....................
-ii-
<PAGE>
Heading Page
ARTICLE IV REPRESENTATIONS AND WARRANTIES..............
Section 4.1 Organization, Powers, Good Standing,
Business and Subsidiaries................
4.1.1 Organization and Powers.....................
4.1.2 Good Standing...............................
4.1.3 Conduct of Business.........................
4.1.4 Subsidiaries................................
Section 4.2 Authorization of Borrowing, etc.............
4.2.1 Authorization of Borrowing..................
4.2.2 No Conflict.................................
4.2.3 Governmental Consents.......................
4.2.4 Binding Obligation..........................
4.2.5 Valid Issuance of Common Stock..............
Section 4.3 Financial Condition.........................
Section 4.4 No Adverse Material Change; No Stock
Payments.................................
Section 4.5 Title to Properties; Liens..................
Section 4.6 Litigation; Adverse Facts...................
Section 4.7 Payment of Taxes............................
Section 4.8 Performance of Agreements...................
Section 4.9 Governmental Regulation.....................
Section 4.10 Securities Activities.......................
Section 4.11 Employee Benefit Plans......................
Section 4.12 Certain Fees................................
Section 4.13 Disclosure..................................
Section 4.14 Patents, Trademarks, etc....................
Section 4.15 Environmental Protection....................
Section 4.16 Security Interests..........................
Section 4.17 Solvency....................................
ARTICLE V AFFIRMATIVE COVENANTS.......................
Section 5.1 Financial Statements and Other Reports............
Section 5.2 Corporate Existence, etc....................
Section 5.3 Payment of Taxes and Claims; Tax
Consolidation............................
Section 5.4 Maintenance of Properties; Insurance........
Section 5.5 Inspection..................................
Section 5.6 No Further Negative Pledges.................
Section 5.7 Compliance with Laws, etc...................
Section 5.8 Lender Meeting..............................
Section 5.9 Security Interests..........................
-iii-
<PAGE>
Heading Page
Section 5.10 Certain Dispositions of Collateral..........
Section 5.11 Recapitalization............................
Section 5.12 Collateral Reporting........................
Section 5.13 Cash Collateral.............................
ARTICLE VI NEGATIVE COVENANTS..........................
Section 6.1 Indebtedness................................
Section 6.2 Liens.......................................
Section 6.3 Investments; Joint Ventures.................
Section 6.4 Contingent Obligations......................
Section 6.5 Restricted Junior Payments..................
Section 6.6 Financial Covenants.........................
6.6.1 Interest Coverage Ratio.....................
6.6.2 Maximum Leverage Ratio......................
Section 6.7 Restriction on Fundamental Changes..........
Section 6.8 ERISA.......................................
Section 6.9 Restriction on Leases.......................
Section 6.10 Sales and Leasebacks........................
Section 6.11 Sale or Discount of Receivables.............
Section 6.12 Transactions with Shareholders and
Affiliates...............................
Section 6.13 Disposal of Subsidiary Stock................
Section 6.14 Limitation on Capital Expenditures..........
Section 6.15 Conduct of Business.........................
Section 6.16 Amendments or Waivers of Certain
Documents; Prepayments of
Indebtedness.............................
Section 6.17 Payment of Cash Interest on
Subordinated Debt........................
ARTICLE VII EVENTS OF DEFAULT...........................
Section 7.1 Failure To Make Payments When Due...........
Section 7.2 Default in Other Agreements.................
Section 7.3 Breach of Certain Covenants.................
Section 7.4 Breach of Warranty..........................
Section 7.5 Other Defaults Under Agreement or Loan
Documents................................
Section 7.6 Involuntary Bankruptcy; Appointment of
Receiver, etc............................
-iv-
<PAGE>
Heading Page
Section 7.7 Voluntary Bankruptcy; Appointment of
Receiver, etc............................
Section 7.8 Judgments and Attachments...................
Section 7.9 Dissolution.................................
Section 7.10 Unfunded ERISA Liabilities..................
Section 7.11 Withdrawal Liability Under
Multiemployer Plan.......................
Section 7.12 Failure of Security.........................
Section 7.13 Change in Control...........................
ARTICLE VIII THE ADMINISTRATIVE AGENT....................
Section 8.1 Appointment.................................
Section 8.2 Powers; General Immunity....................
8.2.1 Duties Specified............................
8.2.2 No Responsibility for Certain Matters.............
8.2.3 Exculpatory Provisions......................
8.2.4 Administrative Agent Entitled to Act as
Lender...................................
Section 8.3 Representations and Warranties; No
Responsibility for Appraisal of
Creditworthiness.........................
Section 8.4 Right to Indemnity..........................
Section 8.5 Registered Holder of Note Treated as
Owner....................................
Section 8.6 Resignation by Administrative Agent.........
Section 8.7 Collateral Documents........................
Section 8.8 Successor Administrative Agent..............
ARTICLE IX MISCELLANEOUS...............................
Section 9.1 Successors and Assigns; Participations............
Section 9.2 Expenses....................................
Section 9.3 Indemnity...................................
Section 9.4 Set Off.....................................
Section 9.5 Ratable Sharing.............................
Section 9.6 Amendments and Waivers......................
Section 9.7 Independence of Covenants...................
Section 9.8 Change in Accounting Principles; Fiscal
Year or Tax Laws.........................
Section 9.9 Notices.....................................
-v-
<PAGE>
Heading Page
Section 9.10 Survival of Warranties and Certain
Agreements...............................
Section 9.11 Failure or Indulgence Not Waiver;
Remedies Cumulative......................
Section 9.12 Severability................................
Section 9.13 Obligations Several; Independent Nature
of the Lenders' Rights...................
Section 9.14 Headings....................................
Section 9.15 Applicable Law..............................
Section 9.16 Consent to Jurisdiction and Service of
Process..................................
Section 9.17 Confidentiality.............................
Section 9.18 Counterparts; Effectiveness.................
Section 9.19 Determinations Pursuant to Collateral
Documents................................
Section 9.20 Certain Obligations of Company..............
Section 9.21 Waiver of Jury Trial........................
Section 9.22 Lenders' ERISA Matters......................
9.22.1 Lenders' Representations and Warranties...........
9.22.2 General Account Assets......................
9.22.3 Representations of Transferees..............
9.22.4 Additional ERISA Representations............
SIGNATURE PAGES.....................................................
SCHEDULES
A SUBSIDIARIES
B LENDERS' COMMITMENTS
C EXISTING INDEBTEDNESS
D EXISTING LIENS
E EXISTING INVESTMENTS
F CREDIT FACILITIES TO BE TERMINATED ON THE CLOSING DATE
G CONTINGENT OBLIGATIONS
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF NOTE
IV FORM OF COMPLIANCE CERTIFICATE
V FORM OF OPINION OF SHEARMAN & STERLING, COUNSEL TO FORT
HOWARD
VI FORM OF OPINION OF JAMES W. NELLEN, II, ESQ., COUNSEL TO FORT
HOWARD
- vi-
<PAGE>
VII FORM OF OPINION OF LOCAL COUNSEL TO FORT HOWARD
VIII FORM OF OFFICER'S CLOSING CERTIFICATE
IX FORM OF COMPANY RECEIVABLES PLEDGE AGREEMENT
X FORM OF REGISTERED TRANSFER SUPPLEMENT
XI FORM OF LETTER ESCROW AND SECURITY AGREEMENT
XII FORM OF OFFICER'S FUNDING DATE CERTIFICATE
XIII FORM OF OFFICER'S SECTION 5.1(iv) CERTIFICATE
XIV FORM OF OFFICER'S SECTION 5.1(xiv) CERTIFICATE
XV FORM OF STATUS CERTIFICATE
XVI FORM OF BORROWING BASE CERTIFICATE
XVII FORM OF CASH COLLATERAL AGREEMENT
XVIII FAIR VALUE DETERMINATION PROCEDURES
<PAGE>
RECEIVABLES CREDIT AGREEMENT
RECEIVABLES CREDIT AGREEMENT, dated as of March 8, 1995, by and
among FORT HOWARD CORPORATION, a Delaware corporation (the "Company"),
BANKERS TRUST COMPANY ("Bankers"), BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION ("BOA") and CHEMICAL BANK, as lenders (each, together
with its successors and assigns, a "Lender"), and BANKERS TRUST COMPANY, as
administrative agent for the Lenders (in such capacity and together with
its successors in such capacity, the "Administrative Agent").
R E C I T A L S:
A. The parties hereto desire to provide for, among other
things, the Company to borrow on a term basis the Loans (as hereinafter
defined) in an aggregate principal amount not to exceed $60,000,000.
B. The Lenders desire that the Obligations (as hereinafter
defined) be secured by a security interest in certain Receivables (as
hereinafter defined) owned by the Company.
A G R E E M E N T:
The Company, the Lenders and the Administrative Agent agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. The following terms used
in this Agreement shall have the following meanings:
"ABR Loan" means any Loan bearing interest at a rate determined
by reference to ABR in accordance with the provisions of subsection 2.3.1.
"ABR Spread" means the percent per annum from time to time in
effect pursuant to paragraph (d) of subsection 2.3.1.
<PAGE>
- 2 -
"Adjusted Consolidated Net Income" means, for any period,
Consolidated Net Income during such period, plus (minus) the amount of
depreciation, depletion, amortization of intangibles, deferred taxes,
accreted and zero coupon bond interest and other non-cash expenses
(income), losses (gains) or charges (credits) that, pursuant to GAAP, were
deducted (added) in determining such Consolidated Net Income.
"Adjusted LIBOR" means, for any Interest Rate Determination
Date, the rate per annum (rounded upward to the next higher one hundredth
of one percent) obtained by dividing (A) LIBOR for such Interest Rate
Determination Date by (B) a percentage equal to 100% minus the stated
maximum rate, as of such Interest Rate Determination Date, of all reserves
required to be maintained against "Eurocurrency Liabilities" as specified
in Regulation D (or against any other category of liabilities specified in
Regulation D which includes deposits by reference to which the interest
rate on Adjusted LIBOR Loans is determined or any category of extensions of
credit or other assets specified in Regulation D which includes loans by a
non-United States office of any Lender to United States residents).
"Adjusted LIBOR Borrowing" means a Borrowing comprised of
Adjusted LIBOR Loans.
"Adjusted LIBOR Loan" means any Loan bearing interest at a rate
determined by reference to Adjusted LIBOR in accordance with the provisions
of subsection 2.3.1.
"Administrative Agent" has the meaning assigned to that term in
the introduction to this Agreement.
"Affected Lender" means any Lender affected by any of the
events described in subsection 2.7.2 or subsection 2.7.3.
"Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control
with such 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 such Person, whether through
the ownership of voting securities or otherwise. No Lender or parent or
Subsidiary of any Lender shall be treated as an Affiliate of the Company
solely by virtue of its being a Lender or a parent or Subsidiary of a
Lender.
"Agreement" means this receivables credit agreement as from
time to time in effect.
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"Alternate Base Rate" or "ABR" means, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (A) the Prime Rate in effect on such day, (B) the Base CD Rate
in effect on such day plus 1% and (C) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof, the term "Base CD
Rate" means the sum of (A) the product of (1) the Three-Month Secondary CD
Rate multiplied by (2) Statutory Reserves and (B) the Assessment Rate. The
term "Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day) or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for three-
month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or,
if such day shall not be a Business Day, on the next preceding Business
Day) by the Administrative Agent from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it. The
term "Federal Funds Effective Rate" means, for any day, the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by the Federal funds broker, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Base
CD Rate or the Federal Funds Effective Rate or both for any reason,
including the inability or failure of the Administrative Agent to obtain
sufficient quotations in accordance with the terms thereof, the Alternate
Base Rate shall be determined without regard to clause (B) or (C), or both,
of the first sentence of this definition, as appropriate, until the
circumstances giving rise to such inability no longer exist. Any change in
the Alternate Base Rate due to a change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate shall be effective on
the effective date of such change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate, respectively.
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"Applicable Category" means, at any date of determination
thereof, the category in the table appearing in paragraph (d) of subsection
2.3.1 having the lowest spreads and which, as of the last day of the fiscal
quarter of the Company immediately preceding such date of determination, is
applicable to the Company based upon both Ratio 1 and Ratio 2 for the
period of four consecutive fiscal quarters of the Company ending on such
last day.
"Arrangers" has the meaning assigned to such term in the Senior
Credit Agreement as in effect on the date hereof.
"Assessment Rate" means for any date the annual rate most
recently estimated by Bankers as the then-current net annual assessment
rate that will be employed in determining amounts payable by Bankers to the
Federal Deposit Insurance Corporation (or any successor) for insurance by
such Corporation (or such successor) of time deposits made in Dollars at
Bankers' domestic offices.
"Asset Sale" has the meaning assigned to such term in the
Senior Credit as in effect on the date hereof.
"Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination thereof, the quotient
obtained by dividing (A) the sum of the products of (1) the number of years
from such date to the date or dates of each successive scheduled principal
payment (including, without limitation, any sinking fund requirements) of
such Indebtedness multiplied by (2) the amount of each such principal
payment by (B) the sum of all such principal payments.
"Bankers" means Bankers Trust Company, in its individual
capacity.
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor
statute.
"Base Annual Capex Amount" has the meaning assigned to that
term in subsection 6.14.3.
"Board" means the Board of Governors of the Federal Reserve
System of the United States.
"Borrowing" means the borrowing of Loans hereunder.
"Borrowing Base" means, as at any time, an amount equal to
(i) the aggregate amount of Eligible Receivables (as reflected in the most
recent Borrowing Base Certificate
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delivered to the Administrative Agent, pursuant to Section 5.12, prior to
such time), minus (ii) 25% of such aggregate amount, minus (iii) the
Additional Reserve, if any, as at such time. As used herein, "Additional
Reserve" means, as at any time, an amount that, (x) on the basis of any
increase (as compared to the historical levels as of the Closing Date)
(other than a de minimis increase) in the aggregate amounts or ratios of
defaulting or delinquent Receivables, dilutions or liabilities of the
Company to its customers that may be asserted against the Receivables or
any other change (other than a de minimis change) in the characteristics of
Receivables or Eligible Receivables or the speed of collections or similar
applicable circumstances deemed relevant by the Administrative Agent in its
reasonable judgment, the Administrative Agent has determined (after giving
effect to the deduction referred to in clause (ii) above, the deductions
referred to in the definition of "Eligible Receivable" and the amount then
on deposit, pursuant to Section 5.13, in the Cash Collateral Account) is
required to be deducted from the Borrowing Base as at such time in order to
insure that the collections received from time to time shall suffice for
the payment hereunder in a timely fashion of the principal of and interest
on the Loans and all other amounts then or within the following month due
hereunder.
"Borrowing Base Certificate" means the certificates of the
Company concerning the Company's Borrowing Base, which certificate shall be
substantially in the form of Exhibit XVI, with such changes and schedules
attached thereto as the Administrative Agent may from time to time
reasonably require.
"Business Day" means (A) for all purposes other than as covered
by clause (B) below, any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of New York or is a day on
which banking institutions located in such State are authorized or required
by law or other governmental action to close and (B) with respect to all
notices, determinations, fundings and payments in connection with LIBOR,
any day which is a Business Day described in clause (A) and which is also a
day for trading by and between banks in Dollar deposits in the applicable
London interbank market.
"Capex Carryover Amount" has the meaning assigned to that term
in subsection 6.14.5.
"Capital Expenditures" means, in respect of any Person,
(A) expenditures (whether paid in cash or accrued as a liability and
including, without limitation, interest which is required to be capitalized
under GAAP) by such Person which, in conformity with GAAP, are required to
be included in "additions
<PAGE>
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to property, plant or equipment" or similar items reflected in a statement
of changes in financial position of such Person and (B) to the extent not
included in clause (A) above, any Indebtedness (whether or not recourse to
such Person and whether or not assumed or guaranteed by such Person)
secured by any asset acquired by such Person pursuant to any expenditure of
the type described in clause (A) above, or owing by any entity acquired by
such Person pursuant to any expenditure of the type described in clause (A)
above (it being understood that each item covered in this clause (B) shall
be deemed incurred as of the date of the applicable acquisition), provided
that any Indebtedness referred to in this clause (B) owing by an entity
acquired by such Person that is not a Wholly Owned Subsidiary of such
Person shall only be included in an amount equal to the product of (1) such
Person's direct or indirect percentage of equity ownership in such entity
at the time such Indebtedness is incurred or deemed incurred and (2) the
amount of such Indebtedness.
"Capital Lease", as applied to any Person, means any lease of
any property (whether real, personal or mixed) by such Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of such Person.
"Cash" means money, currency or a credit balance in a Deposit
Account.
"Cash Collateral Account" means that certain cash collateral
account of the Company established and maintained pursuant to the Cash
Collateral Agreement.
"Cash Collateral Agreement" means the Cash Collateral Agreement
substantially in the form of Exhibit XVII annexed hereto, executed and
delivered by the Company, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance herewith or therewith.
"Cash Equivalents" means (A) marketable direct obligations
issued or unconditionally guaranteed by the United States Government or
issued by any agency thereof and backed by the full faith and credit of the
United States of America, in each case maturing within one year from the
date of acquisition thereof, (B) marketable direct obligations issued by
any state of the United States of America or any political subdivision of
any such state or any public instrumentality thereof maturing within one
year from the date of acquisition thereof and, at the time of acquisition,
having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., (C) commercial paper
maturing no more than one year from the date of creation thereof and, at
the time of acquisition, having the highest rating obtainable from either
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- 7 -
Standard & Poor's Corporation or Moody's Investors Service, Inc.,
(D) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any Lender or by any
commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia having combined capital and
surplus of not less than $250,000,000, (E) Eurodollar time deposits having
a maturity of less than one year purchased from any Lender directly
(whether such deposit is with such Lender or any other Lender hereunder)
and (F) repurchase agreements and reverse repurchase agreements with any
Lender or any primary dealer of United States government securities
relating to marketable direct obligations issued or unconditionally
guaranteed by the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof; provided
that the terms of such agreements comply with the guidelines set forth in
the Federal Financial Institutions Examination Council Supervisory
Policy--Repurchase Agreements of Depository Institutions With Securities
Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985 (the "Supervisory Policy") and, in the case of a
repurchase agreement with a primary dealer, the Company shall take
possession of the obligations subject to such arrangement.
"Cash Release Request" has the meaning assigned to that term in
Section 5.13 of this Agreement.
"CG&R" means Cahill Gordon & Reindel, as counsel for the
Lenders in connection with this Agreement and the transactions contemplated
hereby, and any successor counsel thereto.
A "Change in Control" shall be deemed to have occurred if
(A) any person or group (within the meaning of Rule 13d-5 of the Securities
and Exchange Act of 1934, as in effect on the date hereof) other than
(1) The Morgan Stanley Leveraged Equity Fund II, L.P. ("MSLEF II"), MS
Group, Fort Howard Equity Investors L.P., Fort Howard Equity Investors II,
L.P. and their respective general or limited partners and/or Affiliates or
(2) any employee benefit plan of the Company or of any of its Affiliates
shall become the beneficial owner of shares representing 25% or more of any
outstanding class of capital stock having ordinary voting power in the
election of directors of the Company or (B) there shall occur during any
period after the Closing Date a change in the Board of Directors of the
Company pursuant to which the individuals who constituted the Board of
Directors of the Company at the beginning of such period (together with any
other director whose election by the Board of Directors of the Company (or
whose nomination by the
<PAGE>
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Board of Directors for election by the stockholders of the Company) was
approved by a vote of at least a majority of the directors then in office
who either were directors at the beginning of such period or whose election
was previously so approved or by a duly authorized committee of the Board
of Directors (which committee was designated by at least a majority of
directors then in office who either were directors at the beginning of such
period or whose election was previously so approved) cease to constitute
75% of the directors of the Company at the end of such period.
"Closing Date" means the "Closing Date" as such term is defined
in the Senior Credit Agreement as in effect on the date hereof.
"Closing Date Excess Equity Proceeds Amount" means the amount
of net cash proceeds derived from the Common Stock Offering in excess of
the difference between (A) $300,000,000 and (B) the amount of Transaction
Costs reasonably estimated by the Company to be attributable to the
issuance of common stock in the Common Stock Offering assuming it provides
gross proceeds to the Company equal to $300,000,000.
"Collateral" means, as of any date of determination, the
Receivables and all other property encumbered by the Collateral Documents.
"Collateral Agent" means the Administrative Agent or such other
Person that is the collateral agent pursuant to the Collateral Documents.
"Collateral Documents" means the Pledge Agreements and all
other instruments or documents delivered by the Company in order to grant
Liens on any Collateral, as amended, supplemented or otherwise modified
from time to time in accordance herewith and therewith.
"Collections" means all Cash, funds, checks, notes, instruments
and any other form of remittance tendered by account debtors in payment of
Receivables.
"Commitment" means, with respect to each Lender, the commitment
of such Lender to make the Loans hereunder in a maximum aggregate amount
set forth opposite such Lender's name in Schedule B annexed hereto under
the heading "Commitments" as such maximum amount may be reduced pursuant to
subsection 9.1.3 by such Lender entering into a Registered Transfer
Supplement.
"Commitment Fee Letters" means collectively, the fee letter
agreement dated November 2, 1992 among the Company and the Arrangers and
the three supplementary fee letter agreements
<PAGE>
- 9 -
of the Company dated November 2, 1994, in each case as such agreements are
in effect on the Closing Date and as thereafter amended, supplemented or
otherwise modified from time to time.
"Commodities Agreement" means any forward contract, option,
futures contract, futures option, or similar agreement or arrangement
entered into by the Company designed to protect the Company or any of its
Subsidiaries from fluctuations in the price of commodities.
"Common Stock" means the common stock of the Company, par value
$.01 per share.
"Common Stock Offering" means the initial public offering by
the Company on the Closing Date of shares of newly issued Common Stock, on
the terms and subject to the conditions described in the Prospectus
(including, without limitation, any shares sold pursuant to any over-
allotment option granted in connection therewith).
"Company" has the meaning assigned to that term in the
introduction to this Agreement.
"Compliance Certificate" means a certificate substantially in
the form annexed hereto as Exhibit IV delivered to the Lenders by the
Company pursuant to clause (B) of subparagraph (iv) of Section 5.1.
"Consolidated Domestic Capital Expenditures" means, for any
period, the sum of (A) the aggregate of all Capital Expenditures by the
Company and its Domestic Subsidiaries during such period, plus (B) to the
extent not covered by clause (A) hereof, the aggregate of all expenditures
by the Company and its Domestic Subsidiaries to acquire by purchase or
otherwise the business, property or fixed assets of, or stock or other
evidence of beneficial ownership of, any Person, including, without
limitation, the amount of any Indebtedness of any such acquired Person,
whether or not such Indebtedness is assumed or guaranteed by the Company or
any Subsidiary of the Company (other than any such expenditures of the type
permitted under clause (ix) or clause (x) of Section 6.3), it being
understood that each item covered by this clause (B) shall be deemed
incurred as of the date of the applicable acquisition; provided that any
Indebtedness referred to in this clause (B) of any acquired Person that is
not a Wholly Owned Subsidiary of the Company shall only be included in an
amount equal to the product of (1) the Company's direct or indirect
percentage of equity ownership in such acquired Person at the time such
Indebtedness is incurred or deemed incurred and (2) the amount of such
Indebtedness.
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"Consolidated EBITDA" means, without duplication, for any
period, the total of the amounts for such period of (A) Consolidated Net
Income, plus (B) provision for taxes based on income, plus (C) total
interest expense (including that attributable to Capital Leases), plus (D)
depreciation expense, plus (E) amortization expense, plus (F) other
non-cash items reducing or deducted in calculating Consolidated Net Income,
minus (G) other non-cash items increasing Consolidated Net Income, minus
(H) charges against the Special Reserve, all as determined on a
consolidated basis for the Company and its Subsidiaries for such period
taken as a single accounting period determined (other than in the case of
clause H) in conformity with GAAP.
"Consolidated Interest Expense" means, for any period, without
duplication, (A) total interest expense for such period (including that
attributable to Capital Leases) of the Company and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of the
Company and its Subsidiaries including, without limitation, all
commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing (and excluding
capitalized interest, to the extent such capitalized interest constitutes a
Capital Expenditure or a Consolidated Domestic Capital Expenditure), and
(B) net costs under Interest Rate Agreements for such period, but
excluding, however, in the case of clause (A), interest expense not payable
in cash (including amortization of discount), any amounts referred to in
Section 2.4 payable to the Administrative Agent and the Lenders on or
before the Closing Date and Transaction Costs relating to the
Recapitalization, all as determined on a consolidated basis for the Company
and its Subsidiaries in conformity with GAAP.
"Consolidated Net Income" for any period, means the net income
(or loss) of the Company and its Subsidiaries (whether or not consolidated
with the Company pursuant to GAAP for financial reporting purposes) on a
consolidated basis for such period taken as a single accounting period
determined in conformity with GAAP; provided that there shall be excluded
(A) the income (or loss) of any Person (other than a Subsidiary of the
Company) in which any other Person (other than the Company or any of its
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any of its
Subsidiaries by such Person during such period, (B) the income (or loss) of
any Person accrued prior to the date it becomes a Subsidiary of the Company
or is merged into or consolidated with any of the Company's Subsidiaries or
that Person's assets are acquired by the Company or any of its
Subsidiaries, (C) the income of any Subsidiary of the Company to the extent
that the
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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
(D) any after-tax cash gains or losses attributable to Asset Sales.
"Consolidated Rental Payments" means, for any period, the
aggregate amount of all amounts paid or payable or accrued or accruable
during such period under all Capital Leases and Operating Leases of the
Company and its Subsidiaries (net of sublease income), all as determined on
a consolidated basis for the Company and its Subsidiaries in conformity
with GAAP.
"Contingent Obligation", as applied to any Person, means any
direct or indirect liability, contingent or otherwise, of that Person
(A) with respect to any indebtedness, lease, dividend, letter of credit or
other obligation of another if the primary purpose or intent thereof by the
Person incurring the Contingent Obligation is to provide assurance to the
obligee of such obligation of another that such obligation of another will
be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such obligation will be protected (in
whole or in part) against loss in respect thereof, (B) under any letter of
credit issued for the account of that Person or for which that Person is
otherwise liable for reimbursement thereof, or (C) under Commodities
Agreements, Currency Agreements or Interest Rate Agreements. Contingent
Obligations shall include, without limitation, (A) the direct or indirect
guarantee, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale
with recourse by such Person of the obligation of another, and (B) any
liability of such Person for the obligations of another through any
agreement (contingent or otherwise) (1) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide
funds for the payment or discharge of such obligation (whether in the form
of loans, advances, stock purchases, capital contributions or otherwise),
(2) to maintain the solvency or any balance sheet item, level of income or
financial condition of another, or (3) to make take-or-pay or similar
payments if required regardless of non-performance by any other party or
parties to an agreement, if in the case of any such agreement the primary
purpose or intent thereof is as described in the preceding sentence. The
amount of any Contingent Obligation shall be equal to in the case of a
Contingent Obligation described in clause (A) in the first sentence of this
definition, the amount of the obligation so guaranteed or otherwise
supported, in the case of a Contingent Obligation described in clause (B)
in the first sentence of this definition, the amount available to be drawn
<PAGE>
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under the relevant letter of credit and in the case of a Contingent
Obligation described in clause (C) in the first sentence of this
definition, the relevant Termination Value.
"Contractual Obligation", as applied to any Person, means any
provision of any security issued by that Person or of any material
indenture, mortgage, deed of trust, contract, undertaking, agreement or
other instrument to which that Person is a party or by which it or any of
its properties is bound or to which it or any of its properties is subject.
"Controlled Foreign Corporation" means any direct or indirect
Subsidiary of the Company which is a controlled foreign corporation, as
defined in section 957(a) (or successor provision) of the Internal Revenue
Code.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement entered
into by the Company designed to protect the Company or any of its
Subsidiaries against fluctuations in currency values.
"Deficiency Amount" has the meaning assigned to that term in
Section 5.13.
"Deficiency Notice" has the meaning assigned to that term in
Section 5.13.
"Deposit Account" means a demand, time, savings, passbook or
like account with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a negotiable
certificate of deposit.
"Discretionary Excess Cash Flow Deduction Amount" has the
meaning assigned to such term in the Senior Credit Agreement as in effect
on the date hereof.
"Discretionary Excess Cash Flow Balance" has the meaning
assigned to such term in the Senior Credit Agreement as in effect on the
date hereof.
"Discretionary Equity Proceeds Balance" has the meaning
assigned to such term in the Senior Credit Agreement as in effect on the
date hereof.
"Discretionary Voluntary Prepayment" has the meaning assigned
to such term in the Senior Credit Agreement as in effect on the date
hereof.
"Dollars" or the sign "$" means the lawful money of the United
States of America.
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"Domestic Capex Maximum" has the meaning assigned to that term
in subsection 6.14.4.
"Domestic Subsidiary" means, at any date of determination, any
Subsidiary of the Company other than a Foreign Subsidiary.
"8-1/4% Unsecured Notes" means the Company's 8-1/4% Senior
Notes due February 1, 2002, issued and outstanding pursuant to a certain
indenture, dated as of February 1, 1994 between the Company and Norwest
Bank Wisconsin, N.A., as Trustee, as in effect on the Closing Date and as
thereafter amended, supplemented or otherwise modified from time to time in
accordance herewith or therewith.
"Eligible Receivables" means each Receivable of the Company
except a Receivable:
(i) to which the Company does not have sole legal and
beneficial ownership;
(ii) which arises out of a sale made by the Company to a
Subsidiary;
(iii) (a) which is unpaid more than 90 days from the date of
invoice or (b) which has been written off the books of the Company or
has been otherwise designated by the Company as uncollectible;
(iv) which is from an account debtor or an Affiliate of such
account debtor that has a Receivable excluded under clause (iii)
above and fifty percent (50%) or more of all Receivables from such
account debtor and such of its Affiliates are ineligible, under
clause (iii);
(v) as to which the account debtor for such Receivable is a
creditor of the Company, has or has asserted a right of setoff, has
disputed its liability or made any claim with respect to the
Receivable or any other Receivable which has not been resolved, (in
which case such Receivable shall be deemed not to be an Eligible
Receivable but only to the extent of the amount owed by the Company
to the account debtor, the amount of such actual or asserted right of
setoff, or the amount of such dispute or claim, as the case may be);
(vi) as to which the account debtor is (or its assets are) the
subject of an Insolvency Event;
(vii) which is not payable in Dollars or as to which the
account debtor for the Receivable is either not
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organized under the laws of the United States of America or any State
thereof or is located outside or has its principal place of business
or substantially all of its assets outside the continental United
States, except to the extent such Receivable is supported by an
irrevocable letter of credit reasonably satisfactory to the
Administrative Agent (as to form, substance and issuer) and in the
possession of the Administrative Agent;
(viii) as to which the sale to the account debtor is on a bill-
and-hold, guaranteed sale, sale-and-return, ship-and-return, sale on
approval or consignment or other similar basis or made pursuant to
any other written agreement providing for repurchase or return of any
merchandise which has been claimed to be defective or otherwise
unsatisfactory, other than sales made in the ordinary course of the
Company's business containing customary terms for the return of
defective or non-conforming goods;
(ix) the account debtor is the United States of America or any
department, agency or instrumentality thereof, unless the Company
duly assigns its rights to payment of such Receivable to the
Administrative Agent pursuant to the Assignment of Claims Act of
1940, as amended (31 U.S.C. {{ 3727 et seq.), which assignment and
related documents and filings shall be in form and substance
reasonably satisfactory to the Administrative Agent;
(x) which does not comply with all requirements of law,
including, without limitation, the Federal Consumer Credit Protection
Act, the Federal Truth in Lending Act and Regulation Z of the Board
of Governors of the Federal Reserve System; or
(xi) (a) as to which either the perfection, enforceability or
validity of the Administrative Agent's security interest or the
Lenders' right or ability to receive direct payments is governed by
any federal or state statutory requirement other than those of
(x) the statute referred to in clause (ix) above or (y) the UCC, or
(b) which is not subject to a valid and perfected first priority Lien
in favor of the Administrative Agent for the benefit of the Lenders,
subject to no other Liens other than the Liens (if any) permitted by
the Receivables Pledge Agreement.
"Environmental Laws" means federal, state, local and foreign
law or regulations, codes, orders, decrees, judgments, permits,
authorizations, agreements, or injunctions issued,
<PAGE>
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promulgated, approved or entered thereunder relating to pollution or
protection of the environment, including, without limitation, laws relating
to occupational safety and health and other laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes.
"Equity Offering" means any issuance or sale by the Company or
any Subsidiary of the Company whether pursuant to a registered public
offering, private placement or otherwise of any shares of capital stock or
other equity securities of the Company or any Subsidiary of the Company, or
any obligations convertible into or exchangeable for, or giving any Person
a right, option or warrant to acquire, such securities or such convertible
or exchangeable obligations, other than issuances or sales of Common Stock
pursuant to the Common Stock Offering and other than issuances and sales of
shares of capital stock or other equity securities of a Subsidiary of the
Company to the Company or a Subsidiary of the Company.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time and any successor statute.
"ERISA Affiliate", as applied to any Person, means any trade or
business (whether or not incorporated) which is under common control with
that Person within the meaning of Section 4001(b) of ERISA and the
regulations promulgated thereunder or that would be treated as a single
employer with that Person (A) under Section 414(b) or (c) of the Internal
Revenue Code or (B) solely for purposes of any section or sections of the
Internal Revenue Code or ERISA to which such section or sections apply,
under Section 414(m) or (o) of the Internal Revenue Code.
"Event of Default" means each of the events set forth in
ARTICLE VII.
"Excess Cash Flow" has the meaning assigned to such term in the
Senior Credit Agreement as in effect on the date hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statute.
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"Existing Credit Facilities" means the 1988 Credit Agreement
and the 1992 Credit Agreement, together with, in each case, all notes,
mortgages, security instruments and other ancillary or related
documentation.
"Existing Indebtedness" means Indebtedness of the Company and
its Subsidiaries listed in Schedule C annexed hereto.
"Existing Mill Expansion Equipment" has the meaning assigned to
such term in the Senior Credit Agreement as in effect on the date hereof.
"Existing Subordinated Debt" means the 12-5/8% Subordinated
Debentures and the 14-1/8% Discount Debentures, together with, in each
case, all obligations of the Company set forth in the indentures relating
thereto.
"Expansion Lease" has the meaning assigned to such term in the
Senior Credit Agreement as in effect on the date hereof.
"Expansion Project" has the meaning assigned to such term in
the Senior Credit Agreement as in effect on the date hereof.
"Fair Value" means, with respect to any asset or property
(including intangibles or instruments), the fair market value thereof as
determined by the Board of Directors of the Company or a committee thereof
(or, if authorized to do so by the Board of Directors of the Company or a
committee thereof, by the Chief Financial Officer or the Chief Accounting
Officer of the Company) in each case pursuant to standards, assumptions and
procedures set forth in Exhibit XVIII.
"First Tier Foreign Subsidiary" means, at any date of
determination, a Foreign Subsidiary of the Company (A)(i) which is
organized under the laws of a jurisdiction other than the United States or
any State thereof and (ii) as to which the Company and/or one or more
Subsidiaries organized under the laws of the United States of America or
any State thereof hold directly shares of stock or other equity interests
having more than 50% of the total voting power of shares of the capital
stock or other equity interests therein (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or
trustees thereof or (B) which is organized under the laws of the United
States of America or any State therein and which does not have any
Subsidiaries that are Foreign Subsidiaries.
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"Foreign Subsidiary" means each of the following: (A) each
Subsidiary or Joint Venture of the Company identified as such on Schedule A
annexed hereto, (B) each Subsidiary or Joint Venture of the Company which
is organized under the laws of a jurisdiction other than the United States
of America or any State thereof and (C) each Subsidiary or Joint Venture of
the Company which is organized under the laws of the United States of
America or any State thereof more than 80% of the sales, earnings or assets
(determined on a consolidated basis) of which are located or derived from
operations in territories of the United States of America and jurisdictions
outside the United States of America.
"Fort Howard Holding" means Fort Howard Holding, Inc., a
Delaware corporation and a Wholly Owned Subsidiary of the Company.
"Fort Sterling" means Fort Sterling Limited, an English limited
liability company and a Foreign Subsidiary of the Company.
"14-1/8% Discount Debentures" means the Company's 14-1/8%
Junior Subordinated Discount Debentures due November 1, 2004, issued and
outstanding pursuant to a certain indenture, dated as of November 1, 1988
between the Company and Society National Bank as in effect on the Closing
Date and as thereafter amended, supplemented or otherwise modified from
time to time in accordance herewith or therewith.
"Funding Date" means a Business Day selected by the Company and
identified in a Notice of Borrowing delivered in accordance with
subsection 2.1.2 for the funding by the Lenders of the Loans, which
Business Day shall not be later than 45 days after the Closing Date.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession, which are applicable to the circumstances as
of the date of determination; provided that compliance by the Company with
the financial covenants set forth in Section 6.6 shall be calculated in
accordance with GAAP as in effect on the Closing Date.
"General Account Assets" means the assets allocated to the
general account of an insurance company subject to state regulation.
<PAGE>
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"Governmental Authority" means any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Green Bay Dry Form Machine" means the third air-laid (dry
form) paper machine installed at the Company's Green Bay, Wisconsin Mill,
together with related ancillary improvements or equipment.
"Green Bay Sludge Boiler" means the industrial boiler installed
in the vicinity or as a part of the Company's Green Bay, Wisconsin Mill
following the date of this Agreement which is designed to burn, among other
things, sludge generated by the Company's wastepaper recycling operations.
"Greenfield Expansion Assets" has the meaning assigned to such
term in the Senior Credit Agreement as in effect on the date hereof.
"Guarantor Subsidiary" has the meaning assigned to such term in
the Senior Credit Agreement as in effect on the date hereof.
"Guarantor Subsidiary Guarantee" has the meaning assigned to
such term in the Senior Credit Agreement as in effect on the date hereof.
"Indebtedness", as applied to any Person, means (A) all
indebtedness for borrowed money, (B) that portion of obligations with
respect to Capital Leases which is properly classified as a liability on a
balance sheet in conformity with GAAP, (C) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money, (D) any obligation owed for all or any part
of the deferred purchase price of property or services which purchase price
is (1) 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 in respect thereof, or (2) evidenced by a note or similar written
instrument and (E) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to
the credit of that Person.
"Indemnitees" has the meaning assigned to that term in Section
9.3.
"Information Package" means, collectively, the Memorandum dated
January 1995 delivered by the Administrative Agent to the Lenders, the
Registration Statement and any
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Supplementary Letter delivered by the Company to the Administrative Agent,
in each case as it may be supplemented to the date of the signing of this
Agreement.
"Initial Major Expansion Project" means the first Expansion
Project to be commenced by the Company or any of its Subsidiaries after the
Closing Date that involves or will involve Capital Expenditures by the
Company and its Subsidiaries in respect thereof in an aggregate amount
estimated by the Company in its reasonable judgment to be $100,000,000 or
more to complete and put in service.
"Insolvency Event" means, with respect to any Person, the
occurrence of any of the following: (a) a voluntary or involuntary petition
for bankruptcy or other relief involving that Person, its assets or its
liabilities under the Bankruptcy Code or any similar statute, (b) an
assignment of its assets for the benefit of creditors, (c) its failure,
suspension of business operations, or insolvency, (d) appointment of a
receiver or trustee for it or a substantial portion of its assets, or (e)
general failure to pay its debts as they become due.
"Intercompany Indebtedness" means any Indebtedness of the
Company or any Subsidiary of the Company which, in the case of the Company,
is owing to any Subsidiary or which, in the case of any such Subsidiary, is
owing to the Company or any other Subsidiary of the Company.
"Interest Coverage Ratio" means, for any period, the ratio of
Consolidated EBITDA for such period to Consolidated Interest Expense for
such period.
"Interest Payment Date" means, with respect to a Loan, if it is
an Adjusted LIBOR Loan, the last day of each Interest Period applicable to
such Loan; provided that in the case of each Interest Period of six or more
months, "Interest Payment Date" shall also include each Interest Period
Anniversary Date for such Interest Period.
"Interest Period" means any interest period applicable to a
Loan as determined pursuant to subsection 2.3.2.
"Interest Period Anniversary Date" means, for each Interest
Period which is six or more months, each three-month anniversary of the
commencement of such Interest Period.
"Interest Rate Agreement" means any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement or arrangement
<PAGE>
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entered into by the Company designed to protect the Company or any of its
Subsidiaries against fluctuations in interest rates.
"Interest Rate Determination Date" means, for each Interest
Period, the second Business Day prior to the first day of the related
Interest Period for an Adjusted LIBOR Loan.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time hereafter and any successor statute.
"Investment", as applied to any Person (the "Investor"), means
any direct or indirect purchase or other acquisition by the Investor of, or
a beneficial interest in, stock or other Securities of any other Person
other than (A) in the case of each Investor that is a Foreign Subsidiary, a
direct or indirect Subsidiary of such Foreign Subsidiary and (B) in the
case of each Investor that is the Company or a Domestic Subsidiary, a
Subsidiary that is not a Foreign Subsidiary, or any direct or indirect
loan, advance (other than advances to employees for moving and travel
expenses, drawing accounts and similar expenditures in the ordinary course
of business) or capital contribution by the Investor to any other Person
other than (A) in the case of each Investor that is a Foreign Subsidiary, a
direct or indirect Subsidiary of such Foreign Subsidiary and (B) in the
case of each Investor that is the Company or a Domestic Subsidiary, a
Subsidiary that is not a Foreign Subsidiary, including all indebtedness and
accounts receivable owing to the Investor from such other Person which are
not current assets or did not arise from sales to such other Person in the
ordinary course of the Investor's business (other than Royalty or
Management Fees). The amount of any Investment shall be the original cost
of such Investment plus the cost of all additions thereto, without any
adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment. A Contingent Obligation of
the Company or any of its Subsidiaries in respect of the obligations of a
Foreign Subsidiary shall constitute an Investment in such Foreign
Subsidiary to the extent of such Contingent Obligation. The amount of such
Investment shall be equal to the amount of the Contingent Obligation as
determined by the last sentence of the definition of Contingent Obligation.
Any renewals, extensions or replacements of an existing Contingent
Obligation or other Indebtedness which constitutes an Investment hereunder
shall not constitute a new Investment at the time of such renewal,
extension or replacement except to the extent such renewal, extension or
replacement increases the amount of such Contingent Obligation and then
only to the extent of such increase.
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"Investment Grade Ratings" has the meaning assigned to that
term in subsection 2.3.1.
"Investor" has the meaning assigned to that term in the
definition of Investment.
"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.
"Lender" has the meaning assigned to that term in the
introduction to this Agreement and includes Bankers, BOA and Chemical Bank,
in their individual capacities.
"Letter of Credit" has the meaning assigned to such term in the
Senior Credit Agreement as in effect on the date hereof.
"Leverage Ratio" means, for any period, the ratio of the
principal amount of Senior Secured Indebtedness outstanding at the last day
of such period to Consolidated EBITDA for such period.
"Leveraged Swap" means any Commodities Agreement, Currency
Agreement or Interest Rate Agreement pursuant to which any party shall be
entitled to receive from the counterparty thereto, in respect of each
notional Dollar or other applicable unit that is the subject thereof, any
payment or credit in excess of the amount necessary to compensate such
party for the actual and direct cost or deemed cost to such party of any
fluctuation in interest rates or currency exchange rates in respect of such
Dollar or other unit of currency or market costs or prices in respect of
such unit.
"LIBOR" means, in respect of any Adjusted LIBOR Borrowing for
any Interest Period, the rate per annum at which dollar deposits
approximately equal in principal amount to the Administrative Agent's
portion of such Adjusted LIBOR Borrowing and for a maturity comparable to
such Interest Period are offered to the Administrative Agent in immediately
available funds in the London interbank market at approximately 11:00 a.m.
(London time) on the Interest Rate Determination Date for such Interest
Period.
"LIBOR Spread" means the percent per annum from time to time in
effect pursuant to paragraph (d) of subsection 2.3.1.
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"Lien" means any lien, mortgage, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement or any lease in the nature thereof).
"Loan" or "Loans" means the loans made by the Lenders to the
Company pursuant to Section 2.1.1. Each Loan shall be either an Adjusted
LIBOR Loan or an ABR Loan.
"Loan Documents" means this Agreement, the Notes and the
Collateral Documents.
"Management Agreements" means (A) the Management Equity
Participation Agreements between the Company and certain officers and
directors and holders of stock (or options on stock), (B) the Fort Howard
Corporation Management Equity Plan (the "Plan") effective as of April 29,
1991, and the Agreements (as defined in the Plan) related thereto, (C) the
Fort Howard Corporation 1995 Stock Incentive Plan (the "1995 Plan")
effective as of January 15, 1995, and the Award Agreements (as defined in
the 1995 Plan) related thereto, and (D) any equity-based plan (a "Broad-
Based Plan") adopted by the Company for its employees generally (provided
that any such Broad-Based Plan may not cause the Company to exceed (i) the
limitation on Investments set forth in subparagraph (xiii) of Section 6.3
or (ii) the limitation on repurchases or redemptions of Common Stock set
forth in subclause (D)(2) of Section 6.5), as such Management Equity
Participation Agreements, the Plan, the Agreements, the 1995 Plan and the
Award Agreements and any Broad-Based Plan are in effect on the date of this
Agreement (or the date of adoption in the case of any Broad-Based Plan) and
as they may have been and hereafter may be amended, supplemented or
otherwise modified from time to time in accordance herewith and therewith.
"Margin Stock" has the meaning assigned to that term in
Regulation U of the Board of Governors of the Federal Reserve System of the
United States as in effect from time to time.
"Material Subsidiary" means each Subsidiary of the Company or
its successors now existing or hereafter acquired or formed by the Company
or such successors which (A) for the most recent fiscal year of the Company
or such successors accounted for more than 10% of the consolidated revenues
of the Company or such successors, or (B) as at the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Company or such successors as shown on the consolidated financial
statements of the Company or such successors, as the case may be, for such
fiscal year.
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"Maturity Date" means the seventh anniversary of the Closing
Date.
"Moody's" means Moody's Investors Service, Inc., together with
any successor thereto that issues ratings of corporate securities.
"MS Group" means Morgan Stanley Group Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is maintained for employees of the
Company or any ERISA Affiliate of the Company.
"9% Senior Subordinated Notes" means the Company's 9% Senior
Subordinated Notes due February 1, 2006, issued and outstanding pursuant to
a certain indenture, as amended, dated as of February 1, 1994 between the
Company and The Bank of New York, as Trustee, as in effect on the Closing
Date and as thereafter amended, supplemented or otherwise modified from
time to time in accordance herewith and therewith.
"9-1/4% Unsecured Notes" means the Company's 9-1/4% Senior
Notes due March 15, 2001, issued and outstanding pursuant to a certain
indenture, dated as of March 15, 1993 between the Company and Norwest Bank
Wisconsin, N.A., as Trustee, as in effect on the Closing Date and as
thereafter amended, supplemented or otherwise modified from time to time in
accordance herewith or therewith.
"1988 Credit Agreement" means that certain Amended and Restated
Credit Agreement, dated as of October 24, 1988, among FH Acquisition Corp.
and the lenders party thereto and Bankers Trust Company, Bank of America
National Trust and Savings Association, The Bank of Nova Scotia, Chemical
Bank, The Industrial Bank of Japan, Limited, New York Branch and Wells
Fargo, N.A., as lead managers and Bankers Trust Company, as agent, as
amended to the Closing Date.
"1988 Revenue Bond Indenture" means the indenture pursuant to
which the 1988 Revenue Bonds were issued.
"1988 Revenue Bonds" means the Development Authority of
Effingham County Pollution Control Revenue Bonds (Fort Howard Corporation
Project) Series 1988, issued by the Development Authority of Effingham
County to refund the 1985 Revenue Bonds.
"1992 Credit Agreement" means that certain Credit Agreement,
dated as of March 22, 1993, among Fort Howard Corporation, the lenders
party thereto and Bankers Trust Company, as agent, as amended to the
Closing Date.
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"Non-U.S. Person" has the meaning assigned to that term in
paragraph (e) of subsection 2.7.7.
"Notes" means one or more of the promissory notes of the
Company issued in registered form in respect of the Loans
pursuant to subsection 2.1.4 or issued in registered form as replacement
notes in connection with an assignment made pursuant to this Agreement and,
in each case, substantially in the form of Exhibit III annexed hereto, as
the same may be modified, endorsed or amended from time to time.
"Notice of Borrowing" means a notice substantially in the form
of Exhibit I annexed hereto with respect to the proposed Borrowing.
"Notice of Conversion/Continuation" means a notice
substantially in the form of Exhibit II annexed hereto with respect to a
proposed conversion or continuation.
"Obligations" means all obligations of every nature of the
Company from time to time owed to the Administrative Agent or the Lenders
or any of them under the Loan Documents.
"Officers' Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its Chairman of the
Board (if an officer) or its President or one of its Vice Presidents and by
its Chief Financial Officer or its Treasurer; provided that every Officers'
Certificate with respect to the compliance with a condition precedent to
the making of the Loans hereunder shall include (A) a statement that the
officer or officers making or giving such Officers' Certificate have read
such condition and any definitions or other provisions contained in this
Agreement relating thereto, (B) a statement that, in the opinion of the
signer or signers, he or they have made or have caused to be made such
examination or investigation as is necessary to enable him or them to
express an informed opinion as to whether or not such condition has been
complied with, and (C) a statement as to whether, in the opinion of the
signer or signers, such condition has been complied with.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any property (whether real, personal or mixed) under
which that Person is a lessee and which is not a Capital Lease.
"Other Taxes" has the meaning assigned to that term in
paragraph (b) of subsection 2.7.7.
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"Participants" has the meaning assigned to that term in
subsection 9.1.2.
"Pension Plan" means any employee plan which is subject to the
provisions of Title IV of ERISA and which is maintained for employees of
the Company or any ERISA Affiliate of the Company, other than a
Multiemployer Plan.
"Permitted Encumbrances" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not at the time required by
Section 5.3;
(ii) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other liens imposed by law
incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall
have been made therefor;
(iii) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of
social security, or to secure the performance of tenders, statutory
obligations, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(iv) Any attachment or judgment Lien not in excess of
$20,000,000 (exclusive of any amount adequately covered by insurance
as to which the insurance company has acknowledged coverage) and any
other attachment or judgment lien unless the judgment it secures
shall, within 60 days after the entry thereof, not have been
discharged or execution thereof stayed pending appeal, or shall not
have been discharged within 60 days after the expiration of any such
stay;
(v) Leases or subleases granted to others not interfering in
any material respect with the business of the Company or any of its
Subsidiaries;
(vi) Easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material
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respect with the ordinary conduct of the business of the Company or
any of its Subsidiaries;
(vii) Any interest or title of a lessor under any lease
permitted by Section 6.9;
(viii) Liens arising from UCC financing statements regarding
leases permitted by this Agreement;
(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) Liens securing surety bonds in an amount not to exceed
individually or in the aggregate $5,000,000 at any time outstanding;
and
(xi) Liens securing appeal bonds, which Liens do not cover
assets having a value in excess of $20,000,000 individually or in the
aggregate at any time and which assets are valued at the greater of
(A) fair market value and (B) book value.
"Permitted Expansion Construction Financing" has the meaning
assigned to such term in the Senior Credit Agreement as in effect on the
date hereof.
"Permitted Expansion Financing" has the meaning assigned to
such term in the Senior Credit Agreement as in effect on the date hereof.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land
trusts, business trusts or other organizations, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
"Plan" shall mean an employee benefit plan (as defined in
Section 3(3) of ERISA) which is subject to Section 406 of ERISA and a plan
(as defined in Section 4975 of the Internal Revenue Code) which is subject
to Section 4975 of the Internal Revenue Code.
"Pledge Agreements" means the Receivables Pledge Agreement and
the Cash Collateral Agreement.
"Potential Event of Default" means a condition or event which,
after notice or lapse of time or both, would
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constitute an Event of Default if that condition or event were not cured or
waived within any applicable grace or cure period.
"Preexisting Assumed Lien" means any Lien securing Indebtedness
(A) of any Person that becomes a Foreign Subsidiary (or a Subsidiary of
such Person) at the time such Person becomes a Foreign Subsidiary, which
Indebtedness was not incurred in connection with the acquisition of such
Person or an interest therein by the Company or any Subsidiary of the
Company and which Indebtedness and Lien are not prohibited under Section
6.1 or Section 6.2 hereof, or (B) incurred by the Company or a Subsidiary
of the Company specifically to finance the acquisition of assets (which
acquisition is not prohibited hereunder) and which Indebtedness and Lien
are (1) as of the date of such acquisition, held by the seller of such
assets, (2) not prohibited under the provisions of Section 6.1 or 6.2 of
this Agreement and (3) evidenced by an instrument or instruments which (i)
neither prohibit or restrict the granting of a junior Lien on the
encumbered assets in favor of the Lenders nor limit any rights or remedies
of the Lenders in respect of any such junior Lien and (ii) contain a
warranty by the applicable seller that, as of the date of such acquisition,
such seller has no present intention or plan to transfer for value or
pledge such Indebtedness and Lien to any other Person.
"Prime Rate" means the rate which Bankers announces from time
to time as its prime lending rate, as in effect from time to time. The
Prime Rate is a reference rate and does not necessarily represent the
lowest or best rate actually charged to any customer. Bankers may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.
"Prior Liens" means, in respect of the Collateral described in
any Collateral Document, the Liens described in the schedules annexed to
such Collateral Document (if any) and any other Liens which, pursuant to
the provisions of such Collateral Document, are or may be superior to the
Lien of such Collateral Document.
"Projections" has the meaning assigned to such term in
subsection 3.1.11.
"Proportionate Share" of a Lender means a fraction, expressed
as a decimal, obtained by dividing its Commitment by the Total Loan
Commitment.
"Prospectus" means the prospectus of the Company dated February
8, 1995, relating to the Common Stock Offering, as amended and supplemented
on or prior to the date of the signing of this Agreement.
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"Purchasing Lenders" has the meaning assigned to that term in
subsection 9.1.3.
"Qualified Currency Agreement" has the meaning assigned to such
term in the Senior Credit Agreement as in effect on the date hereof.
"Qualified Interest Rate Agreement" has the meaning assigned to
such term in the Senior Credit Agreement as in effect on the date hereof.
"Ratio 1" means, for each period of four consecutive fiscal
quarters of the Company (treated as a single accounting period), the
Interest Coverage Ratio for such period.
"Ratio 2" means, for each period of four consecutive fiscal
quarters of the Company (treated as a single accounting period), the
Leverage Ratio, as of the last day of such period.
"Recapitalization" means, collectively, (A) the Common Stock
Offering, (B) the repayment in full of all loans outstanding, and other
amounts due, under the Existing Credit Facilities and the Senior Secured
Notes, (C) the redemption and retirement of the Existing Subordinated Debt,
(D) the execution and delivery of the Senior Credit Agreement and any
additional documentation required pursuant to the Senior Credit Agreement
and the consummation of the transactions contemplated thereunder and (E)
the execution and delivery of this Agreement and the Loan Documents and the
consummation of the transactions contemplated hereunder and thereunder.
"Receivables" means all of the Company's rights to payment for
goods sold or leased or services performed by the Company for or to any
Person (other than a Foreign Subsidiary of the Company that is a Controlled
Foreign Corporation), whether now in existence or arising from time to time
hereafter, including, without limitation, rights evidenced by an account,
note, contract, security agreement, chattel paper, or other evidence of
indebtedness or security, together with (1) all security pledged, assigned,
hypothecated or granted to or held by the Company to secure the foregoing,
(2) general intangibles arising out of the Company's rights in any goods,
the sale of which gave rise thereto, (3) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (4) all powers of
attorney for the execution of any evidence of indebtedness or security or
other writing in connection therewith, and (5) all evidences of the filing
of financing statements and other statements and the registration of other
instruments in connection therewith and amendments thereto, notices to
other creditors or secured parties, and certificates from filing or other
registration officers.
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"Receivables Pledge Agreement" means the Company Receivables
Pledge Agreement substantially in the form of Exhibit IX annexed hereto
executed and delivered by the Company, as such agreement may be amended,
supplemented or otherwise modified from time to time in accordance herewith
and therewith.
"Receivables Transaction" has the meaning assigned to that term
in the Senior Credit Agreement as in effect on the date hereof.
"Refinancing Foreign Debt" means any Indebtedness of a Foreign
Subsidiary of the Company, incurred in accordance with the provisions of
subparagraph (iv) of Section 6.1, all the net cash proceeds of which are
used to refinance the Indebtedness identified in Schedule C as "Foreign
Indebtedness" or any previously incurred Refinancing Foreign Debt of such
Subsidiary.
"Refinancing Senior Unsecured Debt" or "Refinancing Senior
Unsecured Indebtedness" means any unsecured Indebtedness of the Company,
incurred in accordance with the provisions of subparagraph (ii) of
Section 6.1, all of the net cash proceeds of which are used to refinance
Senior Unsecured Notes or any previously incurred Refinancing Senior
Unsecured Debt.
"Register" has the meaning assigned to that term in subsection
9.1.5.
"Registered Transfer Supplement" has the meaning assigned to
that term in subsection 9.1.3.
"Registration Statement" means the Registration Statement No.
33-56573, filed by the Company on February 8, 1995 with the Securities and
Exchange Commission in connection with the Common Stock Offering, as it may
be amended or supplemented on or prior to the date of the signing of this
Agreement.
"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System of the United States as in effect from time to
time.
"Release" has the meaning assigned to that term in Sec-
tion 5.10.
"Release Condition" has the meaning assigned to that term in
Section 5.10.
"Release Notice" has the meaning assigned to that term in Sec-
tion 5.10.
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"Release Transaction" has the meaning assigned to that term in
Section 5.10.
"Requisite Lenders" means, as of any date of determination, one
or more Lenders having an aggregate Credit Exposure Percentage as of such
date greater than 50%. As used herein, the "Credit Exposure Percentage" of
one or more Lenders as of any date is a fraction, expressed as a
percentage, of which (A) the numerator is the Commitment of such Lender as
of such date and (B) the denominator is the Total Loan Commitment as of
such date.
"Restricted Junior Payment" means (A) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of the Company, now or hereafter outstanding, except a dividend
payable solely in shares of that class of stock to the holders of that
class, (B) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any shares
of any class of stock of the Company now or hereafter outstanding,
(C) whether in cash or additional securities, any payment or prepayment of
principal of, premium, if any, or interest on, or any redemption, purchase,
retirement, defeasance, sinking fund or similar payment with respect to,
any Subordinated Indebtedness and (D) any payment made to retire, or to
obtain the surrender of, any outstanding warrants, options or other rights
to acquire shares of any class of stock of the Company (other than Common
Stock of the Company or options or rights to acquire Common Stock of the
Company) now or hereafter outstanding.
"Revolving Loan Commitment" shall have the meaning assigned to
such term in the Senior Credit Agreement as in effect on the date hereof.
"Royalty or Management Fees" means those amounts owed or owing
from time to time by a Foreign Subsidiary of the Company to the Company or
any of its Domestic Subsidiaries pursuant to agreements which provide for
the provision of management or technical services or advice or the
licensing of patents, trademarks, trade secrets, know-how or proprietary
information; provided that such amounts for any period in respect of the
services or advice so provided or such licenses, as the case may be shall
not exceed the fees that would be charged by an unaffiliated third party
for such services, advice or licenses.
"Sale/Leaseback Transaction" means an arrangement with any
bank, insurance company or other lender or investor or to which any such
lender or investor is a party, providing for the leasing by the Company or
a Subsidiary of the Company of
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any property, whether now owned or hereafter acquired, which has been or is
to be sold or transferred by the Company or any Subsidiary of the Company
to such lender or investor.
"Savannah Boiler" means the next industrial boiler installed at
the Company's Effingham County, Georgia Mill following the date of this
Agreement.
"Savannah Project" means the acquisition and construction of
the next tissue paper manufacturing machine to be constructed or acquired
after the Closing Date at the Company's Effingham County, Georgia Mill,
together with related manufacturing, converting and ancillary equipment,
improvements and facilities.
"Scheduled Term Loans Principal Payment" has the meaning
assigned to such term in the Senior Credit Agreement as in effect on the
date hereof.
"Second Expansion Project" has the meaning assigned to that
term in subsection 6.14.4.
"Securities" means any stock, shares, voting trust
certificates, bonds, debentures, options, warrants, notes, or other
evidences of indebtedness, secured or unsecured, convertible, subordinated
or otherwise, or in general any instruments commonly known as "securities"
or any certificates of interest, shares or participations in temporary or
interim certificates for the purchase or acquisition of, or any right to
subscribe to, purchase or acquire, any of the foregoing.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and any successor statute.
"Senior Credit Agreement" means that certain Credit Agreement,
dated as of the date hereof, among the Company, the lenders identified
therein and Bankers, BOA and Chemical Bank, as arrangers and Bankers as
administrative agent.
"Senior Lenders" means the lenders from time to time party to
the Senior Credit Agreement.
"Senior Loans" means the loans made by the lenders to the
Company pursuant to the Senior Credit Agreement.
"Senior Note Purchase Agreement" means that certain Note
Purchase Agreement, dated as of September 11, 1991, as amended, by and
among the Company and the other Persons listed on the signature pages
thereto, relating to the Senior Secured Notes.
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"Senior Secured Indebtedness" means the following obligations
of the Company and/or any of its Subsidiaries: (A) Indebtedness of the
type described in clause (B) of the definition of Indebtedness, (B) the
Indebtedness described in subparagraph (vii) and subparagraph (x) of
Section 6.1, (C) any other Indebtedness of the Company or any Subsidiary of
the Company that is not Subordinated Indebtedness and is secured by any
Lien on any property of the Company or any Subsidiary of the Company and
(D) the full amount of the obligations of the Company or any Subsidiary of
the Company under any letter of credit issued for the account of the
Company or any Subsidiary of the Company that are secured by a Lien on any
property of the Company or any Subsidiary of the Company. In calculating
the amount of Senior Secured Indebtedness, there shall be excluded in the
case of any revolving loan facility or letter of credit commitment issued
in favor of the Company or any Subsidiary of the Company, the then
unutilized portion of such facility or commitment and, except as specified
in clause (D) of the preceding sentence, any Contingent Obligation.
"Senior Secured Notes" means the Series A Senior Secured
Floating Rate Notes due 1997, the Series B Senior Secured Floating Rate
Notes due 1998, the Series C-1 Senior Secured Floating Rate Notes due 1999,
the Series C-2 Senior Secured Floating Rate Notes due 1999 and the Series D
Senior Secured Floating Rate Notes due 2000, each as issued, and as amended
from time to time, pursuant to the Senior Note Purchase Agreement.
"Senior Unsecured Notes" means the 9-1/4% Unsecured Notes and
the 8-1/4% Unsecured Notes.
"Sensitive Information" has the meaning assigned to that term
in Section 5.5.
"SIL Company" means SIL Company, a California corporation that
is wholly owned by Fort Howard Holdings Inc. and which owns indirectly 100%
of the outstanding equity securities of Fort Sterling.
"S&P" means Standard & Poor's Corporation, together with any
successor that issues ratings of corporate securities.
"Special Reserve" means the special reserve in the amount of
$20,000,000 established as of December 31, 1994 by the Company in respect
of certain environmental matters.
"Status Certificate" has the meaning assigned to that term in
paragraph (e) of subsection 2.7.7.
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"Stockholders Agreement" means one or more Stockholders
Agreements substantially in the form delivered to the Lenders (draft of
2/15/95), as the same may be amended, supplemented or otherwise modified
from time to time in accordance herewith or therewith.
"Subordinated Indebtedness" means the Indebtedness of the
Company subordinated in right of payment to the Obligations, including,
without limitation, the Subordinated Notes and the Existing Subordinated
Debt.
"Subordinated Notes" means the 9% Senior Subordinated Notes and
the 10% Subordinated Notes.
"Subsidiary" of any Person means any corporation, association
or other Person of which more than 50% of the total voting power of shares
of stock or other equity interests therein entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly
or indirectly, by such Person or one or more of the other Subsidiaries of
that Person or a combination thereof. Unless otherwise indicated,
"Subsidiary" means a Subsidiary of the Company.
"Taxes" has the meaning assigned to that term in paragraph (a)
of subsection 2.7.7.
"10% Subordinated Notes" means the Company's 10% Subordinated
Notes due March 15, 2003, issued pursuant to a certain indenture dated as
of March 15, 1993 between the Company and United States Trust Company of
New York, as Trustee, as such notes and indenture shall be in effect on the
Closing Date and as thereafter amended, supplemented or otherwise modified
from time to time in accordance herewith or therewith.
"Termination Event" means (A) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
"Reportable Event" not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation or any successor thereof under such
regulations), or (B) the withdrawal of the Company or any of its ERISA
Affiliates from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (C)
the filing of a notice of intent to terminate a Pension Plan or the
treatment of a Pension Plan amendment as a termination under Section 4041
of ERISA, or (D) the filing by the Pension Benefit Guaranty Corporation (or
any successor thereof) of a notice of its intent to terminate a Pension
Plan, or (E) the receipt by the Company or any ERISA Affiliate of
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notice of the termination or reorganization of any Multiemployer Plan or
(F) the occurrence of any other event or condition that might constitute
grounds under ERISA for the termination of, or the appointment of a trustee
to administer, any Pension Plan; provided that, for the purposes of
Section 4.11 only, the termination of any Pension Plan or termination or
reorganization of any Multiemployer Plan and any action taken with respect
to any such termination or reorganization shall not be a Termination Event
if the Company and its ERISA Affiliates shall not incur net liabilities
aggregating more than $25,000,000 (such liabilities to include, without
limitation, any liability to the Pension Benefit Guaranty Corporation (or
any successor thereof), or to any other party under ERISA or the Internal
Revenue Code) resulting from all such terminations or reorganizations.
"Termination Value" of an Interest Rate Agreement or Currency
Agreement at any time means the amount that would be payable by the Company
to the counterparty thereto if such agreement was terminated at such time
because of default of the Company thereunder.
"Total Loan Commitment" and "Total Loan Commitments" have the
meanings assigned to those terms in Section 2.2.
"Tranche B Term Loans" has the meaning assigned to such term in
the Senior Credit Agreement as in effect on the date hereof.
"Transaction Costs" means the fees, costs and expenses payable
by the Company pursuant hereto and other fees, costs and expenses payable
by the Company or a Subsidiary thereof in connection with the
Recapitalization (other than interest expense).
"Transferee" has the meaning assigned to that term in
subsection 9.1.4.
"12-5/8% Subordinated Debentures" means the Company's 12-5/8%
Subordinated Debentures due November 1, 2000, issued and outstanding
pursuant to a certain indenture, dated as of November 1, 1988 between the
Company and United States Trust Company of New York, as Trustee, as in
effect on the Closing Date and as thereafter amended, supplemented or
otherwise modified from time to time in accordance herewith or therewith.
"UCC" means the Uniform Commercial Code, as in effect in the
applicable jurisdiction.
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"Unsecured Expansion Financings" has the meaning assigned to
such term in the Senior Credit Agreement as in effect on the date hereof.
"Wholly Owned Subsidiary" of any Person means any Subsidiary
all of the shares of capital stock of which (except directors' qualifying
shares) are at the time directly or indirectly owned by such Person.
Section 1.2 Accounting Terms. For the purposes of this
Agreement, all accounting terms not otherwise defined herein shall have the
meanings assigned to them in conformity with GAAP.
Section 1.3 Other Definitional Provisions; Anniversaries.
References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. For purposes of this Agreement, a monthly anniversary of the
Closing Date shall occur on the same day of the applicable month as the day
of the month on which the Closing Date occurred; provided that if the
applicable month has no such day (i.e., 29, 30 or 31), the monthly
anniversary shall be deemed to occur on the last day of the applicable
month.
Section 1.4 Adjustment for Special Reserve. For purposes of
calculating the Leverage Ratio in respect of periods which include fiscal
quarters ending on or prior to December 31, 1994, Consolidated EBITDA shall
be determined without taking into account the establishment of the Special
Reserve.
Section 1.5 Currency Equivalent Generally. For all purposes
of this Agreement, (A) the equivalent in Dollars of any amount in any other
currency shall be determined at the rate of exchange quoted by the
Administrative Agent in New York City at 9:00 A.M. (New York City time) on
the date of determination to prime banks in New York City for the spot
purchase in the New York foreign exchange market of such amount of such
other currency with Dollars and (B) the equivalent in any currency (other
than Dollars) of any amount in Dollars shall be determined at the rate of
exchange quoted by the Administrative Agent in New York City at 9:00 A.M.
(New York City time) on the date of determination to prime banks in New
York City for the spot purchase in the New York foreign exchange market of
such amount of Dollars with such other currency. In determining compliance
with the covenants and other terms of this Agreement that require amounts
of another currency to be converted into Dollars or amounts of Dollars to be
converted into another currency, as the case may be, such amounts shall be
converted pursuant to the first sentence of this Section 1.5 on the date that
(A) Indebtedness is incurred, (B) an Investment is made, (C) a transfer of
assets occurs or (D) any other relevant transaction occurs, as the case may
be.
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ARTICLE II
COMMITMENTS AND LOANS; NOTES
Section 2.1 Loans and Notes.
2.1.1. Loan Commitments. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties
of the Company set forth herein and in each of the other Loan Documents, on
the Funding Date, each Lender having a Commitment hereby severally agrees
to lend the Company an aggregate amount not exceeding its Commitment. The
aggregate amount of the Commitments is $60,000,000. Each Lender's
Commitment shall expire on the Funding Date if the Loans are borrowed on
the Funding Date but, in any event, not later than 5:00 P.M. (New York
time) on the date 45 days after the Closing Date. The Loans under this
Agreement shall be made by the Lenders simultaneously and proportionately
to their Commitments, it being understood that no Lender shall be
responsible for any default by any other Lender in such other Lender's
obligation to make the Loans hereunder nor shall the Commitment of any
Lender be increased or decreased as a result of the default by any other
Lender in such other Lender's obligation to make the Loans hereunder. The
Loans made on the Funding Date shall be made in an aggregate amount of
$60,000,000.
2.1.2. Notice of Borrowing. The Company shall deliver to the
Administrative Agent a Notice of Borrowing substantially in the form of
Exhibit I annexed hereto in respect of the Borrowing to be made on the
Funding Date. Such Notice of Borrowing shall be irrevocable and shall
specify (A) the date on which the Loans are to be made (which shall be the
same Business Day for all Loans made hereunder) and (B) whether such Loans
will be based on Adjusted LIBOR or ABR. In the event that such Borrowing
shall consist, in whole or in part, of Adjusted LIBOR Loans, such Notice of
Borrowing shall be received by the Administrative Agent no later than 2:00
p.m. (New York time), at least three Business Days in advance of the
Funding Date. In the event that such Borrowing shall consist solely of ABR
Loans, such Notice of Borrowing shall be received by the Administrative
Agent no later than 11:00 a.m. (New York time), at least one Business Day in
advance of the Funding Date.
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2.1.3. Disbursement of Funds. (a) Promptly after receipt of
the Notice of Borrowing pursuant to subsection 2.l.2, the Administrative
Agent shall notify each Lender of the proposed Borrowing. Arrangements may
be made satisfactory to the Company, the Administrative Agent and each
Lender whereby an amount equal to the aggregate amount of the Loans to be
borrowed on the Funding Date may be placed in escrow to facilitate the
making of the Loans on the Funding Date; provided that in any event each
Lender shall have made arrangements satisfactory to the Company, the
Administrative Agent and such Lender whereby the funds for the Loans made
on the Funding Date shall be made available by the Lenders to the
Administrative Agent, not later than 1:00 P.M. (New York time) on the
Funding Date. Upon satisfaction or waiver of the conditions precedent
specified in Section 3.2, the Administrative Agent shall make the proceeds
of the Loans available to the Company on the Funding Date by causing an
amount of same day funds equal to the proceeds of all such Loans received
by the Administrative Agent at its office located at One Bankers Trust
Plaza, New York, New York to be credited to the account of the Company at
such office of the Administrative Agent. The parties hereto acknowledge
and agree that the Loans will be borrowed in New York, New York.
(b) Unless the Administrative Agent shall have been notified
by any Lender prior to the Funding Date that such Lender does not intend to
make available to the Administrative Agent the amount of funds necessary to
satisfy such Lender's obligations under subsection 2.1.1 on the Funding
Date, the Administrative Agent may assume that such Lender has made such
amount available to the Administrative Agent on the Funding Date and the
Administrative Agent in its sole discretion may, but shall not be obligated
to, make available to the Company a corresponding amount on the Funding
Date. If such corresponding amount is not in fact made available to the
Administrative Agent by such Lender, the Administrative Agent shall be
entitled to recover such corresponding amount on demand from such Lender
together with interest thereon, for each day from the date of borrowing of
the Loans until the date such amount is paid to the Administrative Agent,
at the customary rate set by the Administrative Agent for the correction of
errors among banks for three Business Days and thereafter at ABR. If such
Lender does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall
promptly notify the Company and the Company shall immediately pay such
corresponding amount to the Administrative Agent. Nothing in this
subsection 2.l.3 shall be deemed to relieve any Lender
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from its obligation to fulfill its Commitment hereunder or to prejudice any
rights which the Company may have against any Lender as a result of any
default by such Lender hereunder.
2.1.4. Notes. As of the Funding Date, the Company will have
executed and delivered to each Lender, as applicable (or to the
Administrative Agent for that Lender), a Note substantially in the form of
Exhibit III annexed hereto, to evidence such Lender's Loans, in the
principal amount of such Lender's Commitment, with other appropriate
insertions.
2.1.5. Maturity Date. Any prepayment of the Loans may not be
reborrowed. The Loans and all other amounts owed hereunder with respect to
the Loans shall be paid in full no later than the Maturity Date.
Section 2.2 Total Loan Commitment; Limitations on Outstanding
Loan Amounts. The aggregate amount of the Commitments of all the Lenders
hereunder as in effect at any time is herein called the "Total Loan
Commitment" at such time. The Total Loan Commitment as of the Closing Date
is $60,000,000. Anything contained in this Agreement to the contrary
notwithstanding, in no event shall the aggregate principal amount of the
Loans made by a Lender exceed such Lender's Proportionate Share of the
Total Loan Commitment.
Section 2.3 Interest on the Loans.
2.3.1. Rate of Interest. (a) The Loans shall bear interest
on the unpaid principal amount thereof from the date made through maturity
(whether by acceleration or otherwise) at a rate determined by reference to
ABR or Adjusted LIBOR. The applicable basis for determining the rate of
interest with respect to the Loans shall be selected by the Company at the
time the Notice of Borrowing is given pursuant to subsection 2.1.2. If on
any day a Loan is outstanding in respect of which notice has not been
delivered to the Administrative Agent in accordance with the terms of this
Agreement specifying the basis for determining the rate of interest, then
for that day such Loan shall bear interest determined by reference to ABR.
(b) If a Loan is an ABR Loan, such Loan shall bear interest
(computed on the basis of the actual number of days elapsed over a year of
365 or 366 days, as the case may be, when ABR is determined by reference to
the Prime Rate and over a year of 360 days at all other times) at a rate
per annum equal to ABR (as ABR changes from time to time) plus the ABR
Spread in effect at such time with respect to such Loan.
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(c) If a Loan is an Adjusted LIBOR Loan, such Loan shall bear
interest (computed on the basis of the actual number of days elapsed over a
year of 360 days) at a rate per annum equal to Adjusted LIBOR for the
Interest Period in effect for such Loan plus the LIBOR Spread in effect at
such time with respect to such Loan.
(d) The ABR Spread and LIBOR Spread per annum in respect of
the Loans shall initially be as specified in "Category 1" in the table set
forth below and shall be subject to adjustment from time to time after the
Funding Date as provided in this paragraph. If, as of the last day of any
fiscal quarter of the Company, the results of Ratio 1 and Ratio 2, as set
forth in a Compliance Certificate delivered pursuant to subparagraph (iv)
of Section 5.1, are such as to cause to be applicable any Applicable
Category other than the category in the table below which was applicable on
the date of delivery of such Compliance Certificate, the ABR Spread and the
LIBOR Spread shall automatically be adjusted (effective as of the times set
forth in the next succeeding sentence) to equal the amounts set forth as
ABR Spread and LIBOR Spread, respectively, in such new Applicable Category
and the spreads set forth in such new Applicable Category shall continue to
be the ABR Spread and the LIBOR Spread until such time as there shall be
delivered a Compliance Certificate indicating results of Ratio 1 and
Ratio 2 which cause to be applicable a different Applicable Category. Each
adjustment of the ABR Spread and the LIBOR Spread pursuant to this
paragraph (d) shall take effect (A) in the case of the ABR Spread, with
respect to all ABR Loans outstanding on and after the date that is five
Business Days following the date of delivery to the Administrative Agent of
a Compliance Certificate pursuant to subparagraph (iv) of Section 5.1
relating to the immediately preceding fiscal quarter and (B) in the case of
the LIBOR Spread, with respect to all Interest Periods commencing on and
after the date that is five Business Days following the date of delivery to
the Administrative Agent of such Compliance Certificate.
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Interest Rate Step-Downs
Category 1 ABR Spread LIBOR Spread
When none of the Categories
below is applicable 1.50% 2.50%
Category 2
Ratio 1: 2.00 to 1 or higher 1.25% 2.25%
Ratio 2: 3.00 to 1 or lower
Category 3
Ratio 1: 2.25 to 1 or higher 1.00% 2.00%
Ratio 2: 2.75 to 1 or lower
Category 4
Ratio 1: 2.50 to 1 or higher 0.75% 1.75%
Ratio 2: 2.50 to 1 or lower
Category 5
Ratio 1: 2.75 to 1 or higher 0.50% 1.50%
Ratio 2: 2.25 to 1 or lower
Category 6
Ratio 1: 3.00 to 1 or higher 0.25% 1.25%
Ratio 2: 2.00 to 1 or lower
Category 7
Ratio 1: 3.25 to 1 or higher 0.00% 1.00%
Ratio 2: 1.50 to 1 or lower
Notwithstanding the foregoing provisions of this paragraph (d), (i) there
shall not be any adjustment to the ABR Spread or the LIBOR Spread, as
provided above, until the first anniversary of the Closing Date (except if
an Event of Default shall have occurred and be continuing) and (ii) at any
time during which the Company has failed to deliver a Compliance
Certificate described in subparagraph (iv) of Section 5.1 with respect to a
fiscal quarter in accordance with the provisions thereof, or at any time
that an Event of Default shall have occurred and shall be continuing, as of
the date such Compliance Certificate is due or as of the date such Event of
Default shall have occurred, as the case may be, the ABR Spread shall be
reset, if necessary, to be 1-1/2% and the LIBOR Spread shall be reset, if
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necessary, to be 2-1/2% until such time as the Company shall deliver such
certificate in accordance with the provisions of subparagraph (iv) of
Section 5.1 or such Event of Default shall be cured or waived or shall
otherwise no longer be continuing.
(e) Notwithstanding the foregoing and except where an Event of
Default shall have occurred and is continuing, if any senior unsecured debt
obligations of the Company receive a rating from S&P of at least BBB-, or
from Moody's of at least Baa3, from the date that is the fifth Business Day
of the fiscal quarter of the Company following the fiscal quarter
containing the first date that either such rating is announced and for so
long as such rating shall remain in effect the LIBOR Spread and the ABR
Spread, respectively, with respect to the Loans shall be 0.75% and 0.00%
and if any senior unsecured debt obligations of the Company receive ratings
from both S&P and Moody's of at least BBB- and Baa3, respectively (such
ratings, the "Investment Grade Ratings"), from the date that is the fifth
Business Day of the fiscal quarter of the Company following the fiscal
quarter containing the first date that both the Investment Grade Ratings
shall be effective and for so long as both such ratings shall remain in
effect the LIBOR Spread and the ABR Spread, respectively, shall be 0.625%
and 0.00%.
(f) The applicable ABR Spread or LIBOR Spread for each
Interest Period or day within an Interest Period, as the case may be, shall
be determined by the Administrative Agent, and such determination shall be
presumptively correct absent manifest error.
2.3.2. Interest Periods. In connection with each Adjusted
LIBOR Loan, the Company shall elect an interest period (each an "Interest
Period") to be applicable to such Loan, which Interest Period shall be
either a one, two, three or six month period or, if permitted under sub-
paragraph (vii) of this subsection 2.3.2, a twelve-month period; provided
that:
(i) subject to subparagraph (v) below, the Interest Period
for an Adjusted LIBOR Loan shall commence on the date of such Loan
and each Interest Period occurring thereafter in respect of such
Adjusted LIBOR Loan shall commence on the day on which the next
preceding Interest Period applicable thereto expires;
(ii) if an Interest Period would otherwise expire on a day
which is not a Business Day but is a day of the month after which no
further Business Day occurs in such month, such Interest Period shall
expire on the next preceding Business Day;
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(iii) if an Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided that if such Business Day
occurs in a different month, such Interest Period shall expire on the
Business Day next preceding such day;
(iv) no Interest Period shall extend beyond the Maturity Date;
(v) the initial Interest Period for a Loan which is converted
pursuant to subsection 2.7.4 shall commence on the date of such
conversion and shall expire on the date on which the Interest Periods
for the Loans of the other the Lenders which were not converted
expire;
(vi) there shall be no more than 6 Interest Periods relating
to Loans outstanding at any time (it being understood that Interest
Periods for Adjusted LIBOR Loans which are scheduled to end on the
same date shall constitute one Interest Period for purposes of this
clause (vi)); and
(vii) no Loan may have an Interest Period of twelve months
unless the Administrative Agent, after consultation with the Lenders,
has determined in good faith based on prevailing conditions in the
London interbank market on any date of determination that U.S. dollar
deposits are generally offered by the Lenders to first class banks in
the London interbank market for a comparable maturity.
2.3.3. Interest Payments. Subject to subsection 2.3.5,
interest shall be payable on the Loans as follows:
(i) interest on each ABR Loan shall be payable in arrears on
and to each September 30, December 30, March 30 and June 30 of each
year, commencing on the first of such dates to occur after the
Funding Date, upon any prepayment of any such Loan (to the extent
accrued on the principal amount being prepaid) and at maturity of
such ABR Loan; and
(ii) interest on each Adjusted LIBOR Loan shall be payable in
arrears on and to each Interest Payment Date applicable to that Loan,
upon any prepayment of that Loan (to the extent accrued on the
principal amount being prepaid) and at maturity of such Adjusted
LIBOR Loan.
2.3.4. Conversion or Continuation. (a) Subject to the
provisions of Section 2.7, the Company shall have the option (A) to convert
at any time all or any part of an
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outstanding ABR Loan equal to $10,000,000 principal amount and integral
multiples of $1,000,000 in excess of that amount to an Adjusted LIBOR Loan;
provided that, after giving effect to each such conversion, there shall not
exist any Adjusted LIBOR Loan with a particular Interest Period that has a
principal amount less than $25,000,000 (it being understood that Interest
Periods for Adjusted LIBOR Loans which are scheduled to end on the same
date shall constitute one Interest Period for this purpose) or (B) upon the
expiration of any Interest Period applicable to an Adjusted LIBOR Loan,
(1) to continue all or any portion of such Loan equal to $25,000,000
principal amount and integral multiples of $1,000,000 in excess of that
amount as an Adjusted LIBOR Loan and the succeeding Interest Period(s) of
such continued Loan shall commence on the last day of the Interest Period
of the Loan to be continued or (2) to convert such Adjusted LIBOR Loan to
an ABR Loan; provided that no outstanding Loan may be continued as, or be
converted into, an Adjusted LIBOR Loan when any Event of Default or
Potential Event of Default has occurred and is continuing.
(b) The Company shall deliver a Notice of Conversion/
Continuation substantially in the form of Exhibit II annexed hereto to the
Administrative Agent no later than 1:00 P.M. (New York time) at least three
Business Days in advance of the proposed conversion/continuation date. A
Notice of Conversion/Continuation shall specify (A) the proposed
conversion/continuation date (which shall be a Business Day), (B) the
amount of the Loan to be converted/continued, (C) the nature of the
proposed conversion/continuation and (D) the requested Interest Period. In
lieu of delivering the above-described Notice of Conversion/Continuation,
the Company may give the Administrative Agent telephonic notice by the
required time of any proposed conversion/continuation under this subsection
2.3.4; provided that such notice shall be promptly confirmed in writing by
delivery of a Notice of Conversion/Continuation to the Administrative Agent
on or before the proposed conversion/continuation date. If the Company has
failed timely to deliver a Notice of Conversion/Continuation or give such
telephonic notice with respect to an Adjusted LIBOR Loan, the Company shall
be deemed to have delivered to the Administrative Agent a Notice of
Conversion/Continuation to convert such Adjusted LIBOR Loan into an ABR
Loan.
(c) Neither the Administrative Agent nor any Lender shall
incur liability to the Company in acting upon any telephonic notice
referred to above which the Administrative Agent believes in good faith to
have been given by a duly authorized officer or other person authorized to
act on behalf of the Company or for otherwise acting in good faith under
this subsection 2.3.4 and upon conversion/continuation by the
Administrative Agent in accordance with this Agreement pursuant
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to any telephonic notice, the Company shall have continued or converted, as
the case may be, Loans hereunder.
(d) Except as provided in subsection 2.7.4, a Notice of
Conversion/Continuation for conversion to, or continuation of, an Adjusted
LIBOR Loan (or telephonic notice in lieu thereof) shall be irrevocable on
and after the related Interest Rate Determination Date, and the Company
shall be bound to convert or continue in accordance therewith.
2.3.5. Post-Maturity Interest. To the extent permitted by
applicable law, any interest payment on the Loans not paid when due,
whether at stated maturity, by notice of prepayment, by acceleration or
otherwise, shall thereafter bear interest payable upon demand at a rate
which is 2.00% per annum in excess of the rate of interest otherwise
payable under this Agreement for ABR Loans.
2.3.6. Computation of Interest. Interest on the Loans shall
be computed on the basis of a 360-day year (except for interest payable in
respect of an ABR Loan based on the Prime Rate, which shall be computed on
the basis of a 365/66 day year) and the actual number of days elapsed in
the period during which it accrues. In computing interest on any Loan, the
date of the making of the Loan or the first day of an Interest Period, as
the case may be, shall be included and the date of payment or, in the case
of an Adjusted LIBOR Loan, the Interest Payment Date, as the case may be,
shall be excluded; provided that if a Loan is repaid on the same day on
which it is made, one day's interest shall be paid on such Loan.
Section 2.4 Commissions.
2.4.1. Commitment Commissions. The Company agrees to pay to
the Administrative Agent for distribution to each Lender commitment
commissions with respect to the Total Loan Commitment for the period from
and including the Closing Date to and excluding the Funding Date, at an
annual rate equal to 0.50%, such annual rate shall be applied on a daily
basis to $60,000,000 from the Closing Date to the Funding Date. Such
commitment commissions shall be payable in arrears on September 30,
December 30, March 30 and June 30 of each year, commencing on the first
such date to occur after the Closing Date, and the date such commitments
expire or terminate, calculated, in all cases, on the basis of a 360 day
year and the actual number of days elapsed.
2.4.2. Bankers and Lenders' Commissions. The Company agrees
to pay to Bankers and the other Lenders the commissions and other amounts
at such times or upon the happening of such events as are set forth in the
Commitment Fee
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Letters. Nothing herein set forth shall limit the rights of Bankers or the
other Lenders to receive the fees and other amounts payable under the
Commitment Fee Letter.
2.4.3. No Refund of Fees. Once paid, all fees and commissions
payable pursuant to this Section 2.4 shall not be refundable under any
circumstances.
Section 2.5 Prepayments and Payments.
2.5.1. Voluntary Prepayments. The Company may, upon not less
than two Business Days' prior written or telephonic notice confirmed in
writing to the Administrative Agent (which notice the Administrative Agent
will promptly transmit by telegram, telex or telephone to each Lender), at
any time and from time to time, prepay the Loans, in whole or in part at
any time, without penalty or premium, in an aggregate minimum amount of
$5,000,000 and integral multiples of $1,000,000 in excess of that amount
or, if less, the outstanding principal amount thereof. All voluntary
prepayments of the Loans shall be applied in the amounts and manner
applicable to mandatory prepayments as set forth in subsection 2.5.3.
Notice of prepayment having been given as aforesaid, the principal amount
of the Loans specified in such notice shall become due and payable on the
prepayment date. Amounts of the Loans that are so prepaid may not be
reborrowed.
2.5.2. Mandatory Prepayments. The Company shall, upon the
occurrences set forth below, make prepayments of the Loans in the amounts
and manner set forth below.
(a) Prepayments from Sales of Collateral. Upon any sale,
transfer or other disposition of any Collateral, in accordance with
the provisions of Section 5.10, the Company shall prepay the Loans in
an amount equal to the proceeds received by the Company in respect of
such sale, transfer or other disposition net of costs of sale and
taxes paid or payable by the Company as a result thereof.
(b) Prepayments from Proceeds of Receivables Transactions. On
the first date on which the Company or any Subsidiary of the Company
receives proceeds of a Receivables Transaction, the Company shall
prepay the Loans in full.
2.5.3. Company's Mandatory Prepayment Obligation; Application
of Prepayments. All prepayments shall include payment of accrued interest
on the principal amount so prepaid and shall be applied to payment of
accrued and unpaid interest on the principal amount being prepaid before
application to principal. Any mandatory prepayment shall be applied first
to
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ABR Loans to the full extent thereof before application to Adjusted LIBOR
Loans as determined by the Administrative Agent; provided that in lieu of
application of any such prepayment to Adjusted LIBOR Loans prior to the
expiration of the Interest Period with respect thereto, the Company may
execute an Escrow Letter substantially in the form of Exhibit XI annexed
hereto with respect to the principal and interest due in respect of such
prepayment and deposit with the Administrative Agent funds equal to such
amount for application to the Loans in accordance with the terms of the
Escrow Letter.
2.5.4. Manner and Time of Payment. All payments of principal,
interest and fees hereunder and under the Notes by the Company shall be
made without defense, setoff or counterclaim and in same day funds and
delivered to the Administrative Agent not later than 12:00 Noon (New York
time) on the date due at its office located at One Bankers Trust Plaza, New
York, New York for the account of the applicable Lenders; funds received by
the Administrative Agent after that time shall be deemed to have been paid
by the Company on the next succeeding Business Day. The Company hereby
authorizes the Administrative Agent to charge its account with Bankers in
order to cause timely payment to be made to the Administrative Agent of all
principal, interest and fees due hereunder (subject to sufficient funds
being available in its account for such purpose).
2.5.5. Apportionment of Payments. Aggregate principal and
interest payments in respect of the Loans shall be apportioned according to
the applicable Lenders' respective Commitments. The Administrative Agent
shall promptly distribute to each Lender at its primary address set forth
below its name on the appropriate signature page hereof, or at such other
address as any Lender may request, its share of all such payments received
by the Administrative Agent, if any, payable to such Lender when received
by the Administrative Agent.
2.5.6. Payments on Non-Business Days. Whenever any payment to
be made hereunder or under the Notes shall be stated to be due on a day
which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or under the Notes or of
the commissions or fees hereunder, as the case may be; provided that in the
event that the day on which payment relating to an Adjusted LIBOR Loan is
due is not a Business Day but is a day of the month after which no further
Business Day occurs in that month, then the due date thereof shall be the
next preceding Business Day.
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2.5.7. Payment Accounts; Notation of Payment. (a) Each
Lender shall maintain in accordance with its usual practice an account or
accounts evidencing the indebtedness to such Lender resulting from the
Loans, from time to time, including the amounts of principal and interest
payable and paid such Lender from time to time under this Agreement.
(b) The Administrative Agent shall maintain accounts in which
it will record (A) the amount of the Loans made hereunder, whether the
Loans consist of ABR Loans or Adjusted LIBOR Loans, and the Interest Period
applicable thereto, (B) the amount of any principal or interest due and
payable or to become due and payable from the Company to each Lender
hereunder and (C) the amount of any sum received by the Administrative
Agent hereunder from the Company and each Lender's share thereof.
(c) The entries made in the accounts maintained pursuant to
paragraphs (a) and (b) of this subsection 2.5.7 shall, to the extent
permitted by applicable law, be prima facie evidence of the existence and
amounts of the obligations therein recorded; provided that the failure of
any Lender or the Administrative Agent to maintain such accounts or any
error therein shall not in any manner affect the obligations of the Company
to repay the Loans in accordance with their terms.
(d) Each Lender agrees that before disposing of any Note held
by it, or any part thereof (other than by granting participations therein),
such Lender will make a notation thereon of all Loans and principal
payments previously made thereon and of the date to which interest thereon
has been paid; provided that the failure to make (or any error in the
making of) a notation of any Loan made under any such Note shall not limit
or otherwise affect the obligation of the Company hereunder or under such
Note with respect to the Loan and payments of principal or interest on any
such Note.
Section 2.6 Use of Proceeds.
2.6.1. The Loans. The proceeds of the Loans made by the
Lenders to the Company on the Funding Date shall be applied, as soon as
reasonably practicable, to (A) redeem in full, in accordance with its
terms, 100% of the outstanding principal amount of the Existing
Subordinated Debt and pay accrued interest and premium, if any, with
respect thereto and (B) pay the fees and expenses payable in connection
with the redemption pursuant to clause (A) of this sentence above.
2.6.2. Margin Regulations. No portion of the proceeds of the
Loans shall be used by the Company in any
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manner which might cause the borrowing or the application of such proceeds
to violate Regulation G, Regulation U, Regulation T, or Regulation X of the
Board of Governors of the Federal Reserve System or any other regulation of
the Board or to violate the Exchange Act, in each case as in effect on the
date of such borrowing and such use of proceeds.
Section 2.7 Special Provisions Governing Adjusted LIBOR
Loans. Notwithstanding other provisions of this Agreement, the following
provisions shall govern with respect to Adjusted LIBOR Loans as to the
matters covered:
2.7.1. Determination of Interest Rate. As soon as practicable
after 11:00 a.m. (New York time) on an Interest Rate Determination Date,
the Administrative Agent shall determine (which determination shall, absent
manifest error, be final, conclusive and binding upon all parties) the
interest rate which shall apply to the Adjusted LIBOR Loans for which an
interest rate is then being determined for the applicable Interest Period
and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to the Company and to each Lender.
2.7.2. Increased Costs. Without duplication of payments under
subsection 2.7.7, if, by reason of (A) after the date of this Agreement,
the introduction of or any change in or in the interpretation of any law or
regulation, or (B) the compliance with any guideline or request after the
date of execution of this Agreement from any central bank or other
governmental authority or quasi-governmental authority exercising control
over banks or financial institutions generally (whether or not having the
force of law):
(i) any Lender (or its applicable lending office) shall be
subject to any tax, duty or other charge with respect to its Adjusted
LIBOR Loans or its obligation to make Adjusted LIBOR Loans, or shall
change the basis of taxation of payments to any Lender of the
principal of or interest on its Adjusted LIBOR Loans or its
obligation to make Adjusted LIBOR Loans (except for changes in the
rate of tax on the overall net income of such Lender or its
applicable lending office imposed by the jurisdiction in which such
Lender's principal executive office or applicable lending office is
located); or
(ii) any reserve (including, without limitation, any imposed
by the Board of Governors of the Federal Reserve System to the extent
not already contemplated in the definition of Adjusted LIBOR),
special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender's
applicable
<PAGE>
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lending office shall be imposed or deemed applicable or any other
condition affecting its Adjusted LIBOR Loans or its obligation to
make Adjusted LIBOR Loans shall be imposed on any Lender or its
applicable lending office or the London interbank market;
and as a result thereof there shall be any increase in the cost to such
Lender of agreeing to make or making, funding or maintaining Adjusted LIBOR
Loans (except to the extent already included in the determination of the
applicable Adjusted LIBOR), or there shall be a reduction in the amount
received or receivable by such Lender or its applicable lending office,
then the Company shall from time to time, upon written notice from and
demand by such Lender (with a copy of such notice and demand to the
Administrative Agent), pay to the Administrative Agent for the account of
such Lender, within five Business Days after the date specified in such
notice and demand, additional amounts sufficient to indemnify such Lender
against such increased cost or such reduction; provided that the Company
shall have no obligation to any Lender under this subsection 2.7.2 if
(A) such Lender shall not have delivered such written notice to the Company
within six months following the later of (1) the date of the occurrence of
the event which forms the basis for such notice and (2) the date such
Lender shall have become aware of such event or (B) the obligation to pay
increased costs or indemnify against such reduction on account of taxes,
duties or other charges would not have arisen but for (1) the failure of
such Lender to provide any applicable forms or other documents requested by
the Company which such Lender was otherwise required to provide under this
Agreement, that would establish the entitlement of such Lender to a reduced
rate of, or an exemption from, any tax, levy, charge, withholding or
similar item with respect to its Adjusted LIBOR Loans or (2) any
representation and warranty made by such Lender in connection with its
Adjusted Libor Loans regarding an exemption (partial or complete) from
taxes, levies, charges or withholdings proving to have been incorrect,
false or misleading in any material respect when so made. A certificate as
to the amount of such increased cost, submitted to the Company and the
Administrative Agent by such Lender, shall, except for manifest error, be
final, conclusive and binding for all purposes.
2.7.3. Required Termination and Prepayment. In the event that
on any date any Lender shall have reasonably determined (which
determination shall be final and conclusive and binding upon all parties)
that the making or continuation of its Adjusted LIBOR Loans has become
unlawful by compliance by such Lender in good faith with any law,
governmental rule, regulation or order (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful),
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then, and in any such event, such Lender shall be an Affected Lender and it
shall promptly give notice (by telephone confirmed in writing) to the
Company and the Administrative Agent (which notice the Administrative Agent
shall promptly transmit to each Lender) of that determination. Subject to
the prior withdrawal of a Notice of Conversion/Continuation or prepayment
of the Adjusted LIBOR Loans of an Affected Lender as contemplated by
subsection 2.7.5, the obligation of an Affected Lender to make or maintain
its Adjusted LIBOR Loans during any such period shall be terminated at the
earlier of the termination of the Interest Period then in effect or when
required by law and the Company shall no later than the termination of the
Interest Period in effect at the time any such determination pursuant to
this subsection 2.7.3 is made or earlier, when required by law, repay its
Adjusted LIBOR Loans of such Affected Lender, together with all interest
accrued thereon and such Adjusted LIBOR Loans shall be reborrowed as an ABR
Loan.
2.7.4. Options of Company. Without prejudice to the Company's
rights set forth in Section 2.9 and without limiting any accrued
obligations of the Company under subsection 2.7.2, if the Company is
required to pay an Affected Lender additional moneys under
subsection 2.7.2, the Company may in lieu of the prepayment of Loans of an
Affected Lender as required under subsection 2.7.3, exercise any one of the
following options:
(i) Upon written notice to the Administrative Agent and each
Lender, the Company may terminate the obligations of the Lenders to
make or maintain Loans as, and to convert Loans into, an Adjusted
LIBOR Loan and in such event, the Company shall, prior to the time
any payment pursuant to subsection 2.7.3 is required to be made or,
if the provisions of subsection 2.7.2 are applicable, at the end of
the then current Interest Period, convert all of the Adjusted LIBOR
Loans into ABR Loans in the manner contemplated by subsection 2.3.4
but without satisfying the advance notice requirements therein; or
(ii) The Company may give notice (by telephone confirmed in
writing) to the Affected Lender and the Administrative Agent (who
shall promptly give similar notice to each Lender) and require the
Affected Lender to make the Adjusted LIBOR Loan then being requested
as an ABR Loan or to continue to maintain its outstanding ABR Loan
then the subject of a Notice of Conversion/Continuation as an ABR
Loan or to convert its Adjusted LIBOR Loans then outstanding that are
so affected into ABR Loans at the end of the then current Interest
Period (or at such earlier time as prepayment is otherwise required
to be made pursuant to subsection 2.7.3) in the manner
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contemplated by subsection 2.3.4 but without satisfying the advance
notice requirements therein, such notice to pertain only to the Loans
of the Affected Lender and to have no effect on the obligations of
the other Lenders to make or maintain Adjusted LIBOR Loans or to
convert ABR Loans into Adjusted LIBOR Loans.
2.7.5. Compensation. The Company shall compensate each
Lender, upon written request by such Lender (which request shall set forth
in reasonable detail the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including, without limitation,
any interest paid by such Lender to lenders of funds borrowed by it to make
or carry its Adjusted LIBOR Loans and any loss sustained by such Lender in
connection with the re-employment of such funds), which such Lender may
sustain with respect to the Company's Adjusted LIBOR Loans: (A) if for any
reason (other than a default or error by such Lender) the Borrowing of any
Adjusted LIBOR Loan does not occur on a date specified therefor in the
Notice of Borrowing or a Notice of Conversion/Continuation or a telephonic
request for borrowing or conversion/continuation or a successive Interest
Period does not commence after notice therefor is given pursuant to
subsection 2.3.4, (B) if any payment or prepayment of any of such Lender's
Adjusted LIBOR Loans occurs on a date which is not the last day of the
Interest Period applicable to that Loan, (C) if any prepayment of any such
Lender's Adjusted LIBOR Loans is not made on any date specified in a notice
of prepayment given by the Company or (D) as a consequence of any other
default by the Company to repay such Lender's Adjusted LIBOR Loans when
required by the terms of this Agreement; provided that the Company shall
have no obligation to any Lender under this subsection 2.7.5 if such Lender
shall not have delivered such written notice to the Company within six
months following the later of (1) the date of the occurrence of the event
which forms the basis for such notice and (2) the date such Lender shall
have become aware of such event.
2.7.6. Quotation of LIBOR. Anything herein to the contrary
notwithstanding, if on any Interest Rate Determination Date LIBOR is not
available for any reason, the Administrative Agent shall give the Company
and each Lender prompt notice thereof and the Loans requested shall be made
as ABR Loans.
2.7.7. Taxes.
(a) No Withholding. Except as otherwise provided herein, any
and all payments by the Company, under the Loan Documents shall be made
free and clear of and without deduction for any and all current or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with
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respect thereto, excluding taxes imposed on or measured by the overall net
income and franchise or similar taxes of the Administrative Agent, or any
Lender (or any Purchasing Lender) imposed by the United States or any
jurisdiction under the laws of which the Administrative Agent or any such
Lender (or Purchasing Lender) is organized or has its principal office or
lending office or any political subdivision in which the applicable
Administrative Agent, Lender or Purchasing Lender is engaged in business or
any taxing authority thereof or therein (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities,
"Taxes"). If any Taxes are required to be deducted from or in respect of
any sum payable hereunder to any Lender (or any Purchasing Lender) or the
Administrative Agent, then, subject to paragraph (e) of this subsection
2.7.7, (A) the sum payable shall be increased by the amount necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this subsection 2.7.7) such Lender (or
Purchasing Lender) or the Administrative Agent (as the case may be) shall
receive an amount equal to the sum it would have received had no such
deductions been made, (B) the Company shall make such deductions and (C)
the Company shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with applicable
law; provided that no Purchasing Lender shall be entitled to receive any
greater payment under this paragraph (a) or paragraph (c) of
subsection 2.7.7 than such transferring Lender would have been entitled to
receive with respect to the rights assigned, participated or otherwise
transferred unless in the case of a Purchasing Lender (1) such assignment
or transfer shall have been made at a time when the circumstances
(including changes in applicable law) giving rise to such greater payment
did not exist or had not yet occurred or (2) such assignment or transfer
shall have been at the request of or approved by the Company.
(b) Documentary and Similar Taxes. Except as otherwise
provided in this clause (b), the Company agrees to pay any current or
future stamp, intangible or documentary taxes or any other excise or
property taxes, charges or similar levies that arise from any payment made
hereunder or from the execution, delivery or registration of, or otherwise
with respect to, this Agreement, any Registered Transfer Supplement entered
into at the request of the Company or any other Loan Document, but
excluding any current or future stamp, intangible or documentary taxes or
any other excise or property taxes, charges or similar levies that arise as
a result of sales, assignments or other transfers of rights hereunder to
any Transferee pursuant to Section 9.1 (including participations) (all such
non-excluded taxes, charges and levies are hereinafter referred to as,
collectively, "Other Taxes").
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(c) Indemnity. Except as otherwise provided in this
subsection 2.7.7, the Company will indemnify each Lender (or Purchasing
Lender) and the Administrative Agent for the full amount of Taxes and Other
Taxes (including any Taxes or Other Taxes on amounts payable under this
subsection 2.7.7) paid by such Lender (or Purchasing Lender) or the
Administrative Agent, as the case may be, and any liability (including
penalties, interest and reasonable expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted by the relevant taxing authority or other Governmental
Authority. Such indemnification shall be made within 30 days after the
date any Lender (or Purchasing Lender) or the Administrative Agent, as the
case may be, makes written demand therefor. With respect to any Taxes
which are paid by the Company in accordance with this subsection 2.7.7,
each Lender (or Purchasing Lender) or Administrative Agent receiving the
benefits of such payment of Taxes hereby agrees to pay the Company any
amount refunded to such party which it determines in its sole discretion to
be a refund in respect of such Taxes; provided that the Company, upon the
request of such Lender (or Purchasing Lender) or the Administrative Agent,
agrees to return such refund (plus penalties, interest or other charges) to
such Lender (or Purchasing Lender) or the Administrative Agent in the event
the relevant taxing authority or other Governmental Authority determines
that such Lender (or Purchasing Lender) or the Administrative Agent was not
entitled to receive such refund.
(d) Receipts. Within 30 days after the date of any payment of
Taxes or Other Taxes withheld by the Company in respect of any payment to
any Lender (or Purchasing Lender) or the Administrative Agent, the Company
will furnish to the Administrative Agent, at its address referred to in
Section 9.9, the original or a certified copy of a receipt (if available)
evidencing payment thereof or other evidence reasonably satisfactory to
such Lender (or Transferee) or the Administrative Agent, as the case may
be.
(e) Non-U.S. Lenders. Each of the Administrative Agent and
any Lender (or Purchasing Lender) that is not incorporated or otherwise
formed under the laws of the United States of America or a state thereof (a
"Non-U.S. Person") agrees that it shall, on or prior to the Closing Date,
or, if later, the date it becomes a Lender (or Purchasing Lender) or the
Administrative Agent hereunder, deliver to the Company and the
Administrative Agent (A) two duly completed copies of United States
Internal Revenue Service Forms 1001 or 4224, or (B) in the case of Lenders
(or Purchasing Lenders) exempt from United States Federal withholding tax
pursuant to Section 871(h) or 881(c) of the Internal Revenue Code, two
United States Internal Revenue Service Forms W-8 and a certificate,
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substantially in the form of Exhibit XV annexed hereto (such certificate, a
"Status Certificate"), representing that such Non-U.S. Person is not a bank
described in Section 881(c) of the Internal Revenue Code, or any successor
applicable form of any thereof, certifying in each case that such Lender
(or Purchasing Lender) or the Administrative Agent is entitled to receive
payments hereunder payable to it without deduction or withholding of any
United States Federal income taxes, or subject to a reduced rate thereof.
Each of the Administrative Agent or any Lender (or Purchasing Lender) that
delivers to the Company and the Administrative Agent any such form or
certification further undertakes to deliver to the Company and the
Administrative Agent further copies of any such form or certification or
other manner of certification reasonably satisfactory to the Company on or
before the date that any such form or certification expires or becomes
obsolete or of the occurrence of any event requiring a change in the most
recent form or certification previously delivered by it to the Company or
the Administrative Agent, and such extensions or renewals thereof as may
reasonably be requested by the Company or the Administrative Agent,
certifying that the Administrative Agent or such Lender (or Purchasing
Lender), as the case may be, is entitled to receive payments hereunder
without deduction or withholding of any United States Federal income taxes,
or subject to a reduced rate thereof. If at any time on or after the date
of this Agreement there has occurred, on or prior to the date on which any
delivery of any such form or certification would otherwise be required, any
change in law, rule, regulation, treaty, convention or directive, or any
change in the interpretation or application of any thereof, that renders
all such forms or certification previously delivered inapplicable or which
would prevent the Administrative Agent or such Lender (or Purchasing
Lender), as the case may be, from duly completing and delivering any such
form or certificate with respect to it, the Administrative Agent or such
Lender (or Purchasing Lender), as the case may be, shall advise the Company
that under applicable law it shall be subject to withholding of United
States Federal income tax at the full statutory rate, a reduced rate of
withholding or without deduction or withholding. A Non-U.S. Person shall
be required to furnish any such form or certification only if it is
entitled to claim an exemption from or a reduced rate of withholding. Each
of the Administrative Agent and any Lender that is a U.S. or Non-U.S.
Person and that is a party hereto as of the Closing Date hereby represents
and warrants that, as of the Closing Date, payments made to it hereunder
are exempt from withholding of United States Federal income taxes
(A) because the Administrative Agent or such Lender is organized or
otherwise formed under the laws of the United States or any state thereof;
(B) because such payments are effectively connected with a United States
trade or business conducted by
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such Non-U.S. Person; (C) pursuant to the terms of an income tax treaty
between the United States and such Non-U.S. Person's country of residence;
or (D) because such payments are portfolio interest exempt pursuant to
Section 871(h) or 881(c) of the Internal Revenue Code. Notwithstanding any
provision of paragraph (a), (b) or (c) of this subsection 2.7.7 to the
contrary, the Company shall not have any obligation to pay any Taxes or
Other Taxes or to indemnify any Lender (or Purchasing Lender) or the
Administrative Agent for such Taxes or Other Taxes pursuant to this
subsection 2.7.7 to the extent that such Taxes or Other Taxes result from
(A) the failure of any Lender (or Purchasing Lender) or the Administrative
Agent to comply with its obligations pursuant to this paragraph (e) or
(B) any representation or warranty made in this paragraph (e), or made on
any form or certification (or successor applicable form or certification)
delivered pursuant to this paragraph (e) by the Lender (or Purchasing
Lender) or the Administrative Agent incurring such Taxes or Other Taxes
proving to have been incorrect, false or misleading in any material respect
when so made or deemed to be made. Unless the Company and the
Administrative Agent have received forms or other documents reasonably
satisfactory to them indicating that payments hereunder are not subject to
United States withholding tax, the Company or the Administrative Agent will
withhold at the applicable statutory or treaty rate.
2.7.8. Booking of Adjusted LIBOR Loans. Any Lender may make,
carry or transfer Adjusted LIBOR Loans at, to, or for the account of, any
of its branch offices or the office of an Affiliate of such Lender.
Notwithstanding the foregoing, each Lender shall, to the extent requested
to do so by the Company, use commercially reasonable efforts consistent
with its internal policies and customary business practices to exercise the
right set forth in the preceding sentence so as to avoid or minimize Taxes
or Other Taxes in respect of Adjusted LIBOR Loans to the extent the
exercise of such right would not otherwise adversely affect such Lender.
2.7.9. Assumptions Concerning Funding of Adjusted LIBOR Loans.
Calculation of all amounts payable to a Lender under this Section 2.7 shall
be made as though such Lender had actually funded its relevant Adjusted
LIBOR Loan through the purchase of a Eurodollar deposit bearing interest at
LIBOR applicable to such Adjusted LIBOR Loan in an amount equal to the
amount of the Adjusted LIBOR Loan and having a maturity comparable to the
relevant Interest Period and through the transfer of such Eurodollar
deposit from an offshore office of such Lender to a domestic office of such
Lender in the United States of America; provided that each Lender may fund
each of its Adjusted LIBOR Loans in any manner it sees fit and the
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foregoing assumption shall be utilized only for the calculation of amounts
payable under this Section 2.7.
2.7.10. Adjusted LIBOR Loans After an Event of Default.
Unless the Lenders shall otherwise agree, after the occurrence of and
during the continuance of a Potential Event of Default or Event of Default,
the Company may not elect to have Loans be made or maintained as, or
converted to, an Adjusted LIBOR Loan after the expiration of any Interest
Period then in effect for such Loan.
2.7.11. Affected Lender's Obligation to Mitigate. Each Lender
agrees that, as promptly as practicable after it becomes aware of the
occurrence of an event or the existence of a condition that would cause it
to be an Affected Lender under subsection 2.7.2 or 2.7.3 or to be entitled
to payments pursuant to paragraphs (a), (b) or (c) of subsection 2.7.7, it
will so advise the Company and, if requested to do so by the Company, it
will, to the extent not inconsistent with such Lender's internal policies
and customary business practices, use commercially reasonable efforts to
make, fund or maintain the affected Adjusted LIBOR Loans of such Lender
through another lending office of such Lender if as a result thereof the
additional moneys which would otherwise be required to be paid in respect
of such Loans pursuant to subsection 2.7.2 or such paragraphs of subsection
2.7.7 would be materially reduced or the illegality or other adverse
circumstances which would otherwise require prepayment of such Loans
pursuant to subsection 2.7.3 would cease to exist, and if, as determined by
such Lender, in its sole discretion, the making, funding or maintaining of
such Loans through such other lending office would not otherwise adversely
affect such Loans or the Lender. The Company hereby agrees to pay all
reasonable expenses incurred by any Lender in utilizing another lending
office of such Lender pursuant to this subsection 2.7.11.
Section 2.8 Capital Requirements. If, while any of the
Commitments or the Loans are outstanding, any Lender determines that the
adoption after the date of this Agreement of any applicable law, rule or
regulation regarding capital adequacy or capital maintenance or any change
therein, or any change after the date of this Agreement in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender with any request or
directive after the date of this Agreement regarding capital adequacy or
capital maintenance (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect
of reducing the rate of return on such Lender's capital as a consequence of
its Commitment or Loans to a level below that
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which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's policies with respect
to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time, within 15 days after written demand by such Lender,
the Company shall pay to such Lender such additional amount or amounts as
will compensate it for such reduction; provided that the Company shall have
no obligation to any Lender under this Section 2.8 if such Lender shall not
have delivered such written demand to the Company within six months
following the later of (1) the date of the occurrence of the event which
forms the basis for such demand and (2) the date such Lender shall have
become aware of such event.
Section 2.9 Replacement Rights of Company. In the event that
any Lender shall have delivered a notice or certificate or written demand
pursuant to subsection 2.7.2, subsection 2.7.3, or Section 2.8, or the
Company shall be required to make additional payments to or on behalf of or
to otherwise indemnify any Lender or Purchasing Lender, for its own account
or for the account of any Participant, under paragraph (a), (b) or (c) of
subsection 2.7.7, so long as no Event of Default shall have occurred and be
continuing, the Company shall have the right, but not the obligation, at
its own expense (including with respect to the processing and recordation
fee referred to in subsection 9.1.3), upon notice to such Lender and the
Administrative Agent, to replace such Lender with an assignee (in
accordance with and subject to the restrictions contained in subsection
9.1.3) approved by the Administrative Agent (which approval shall not be
unreasonably withheld), and such Lender hereby agrees to transfer and
assign without recourse (in accordance with and subject to the restrictions
contained in subsection 9.1.3) all its interests, rights and obligations
under this Agreement to such assignee; provided that no Lender shall be
obligated to make any such assignment unless (A) such assignment shall not
conflict with any law or any rule, regulation or order of any Governmental
Authority, (B) such assignee shall pay to the affected Lender in
immediately available funds on the date of such assignment the principal of
the Loan made by such Lender hereunder and (C) the Company shall pay to the
Affected Lender in immediately available funds on the date of such
assignment the interest accrued to the date of payment on the Loan made by
such Lender hereunder and all other amounts accrued for such Lender's
account or owed to it hereunder.
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ARTICLE III
CONDITIONS TO LOANS
The obligations of the Lenders to make the Loans hereunder are
subject to the satisfaction of all of the following conditions:
Section 3.1 Conditions to Effectiveness of Agreement. The
effectiveness of this Agreement is subject to prior or concurrent
satisfaction of the following conditions on the Closing Date:
3.1.1. The Company shall have delivered, or caused to be
delivered, to the Administrative Agent for the Lenders with sufficient
copies, where appropriate, for each Lender and CG&R:
(i) Certified copies of the Certificate of Incorporation of
the Company, together with a good standing certificate from the
Secretary of State of its jurisdiction of incorporation, each to be
dated a recent date prior to the Closing Date;
(ii) Copies of the By-laws of the Company, certified as of the
Closing Date by its corporate secretary or an assistant secretary;
(iii) Resolutions of the Board of Directors of the Company
approving and authorizing such documents and actions as are
contemplated hereby in form and substance satisfactory to the
Administrative Agent and the Requisite Lenders, certified by its
corporate secretary or an assistant secretary as being in full force
and effect without modification or amendment;
(iv) Signature and incumbency certificates of officers of the
Company executing instruments, documents or agreements required to be
executed in connection with this Agreement; and
(v) Executed copies of each of the Collateral Documents.
3.1.2. The Company shall have taken or caused to be taken such
actions in such a manner so that, effective immediately upon the funding of
the Loans, the Collateral Agent, on behalf of the Lenders, will have a
valid and perfected Lien on the entire Collateral, which Lien shall be a
first priority Lien subject only to Prior Liens. Such actions
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shall include, without limitation: (A) the delivery of the Pledge
Agreements and (B) the delivery pursuant to the applicable Pledge Agreement
of UCC financing statements (which shall name the Administrative Agent as
secured party, in form and substance satisfactory to the Administrative
Agent) granting a security interest in all Collateral or evidence
satisfactory to the Administrative Agent of filing of UCC financing
statements in each office where filing is necessary or appropriate.
3.1.3. The Company shall have (substantially in the form of
Exhibit VIII) caused to be delivered to each Lender an Officer's
Certificate and an opinion satisfactory in all respects to the Requisite
Lenders from an independent valuation firm satisfactory to the Requisite
Lenders, in each case to the effect that, after giving effect to the
Recapitalization, the Company will not be insolvent, will not be rendered
insolvent by the indebtedness incurred in connection therewith, will not be
left with unreasonably small capital with which to engage in its business
and will not have incurred debts beyond its ability to pay such debts as
they mature.
3.1.4. The Administrative Agent and CG&R shall have received
copies of one or more favorable written opinions of Shearman & Sterling,
counsel for the Company, substantially in the form of Exhibit V annexed
hereto, dated as of the Closing Date, and pertaining to such other matters
as the Administrative Agent may reasonably request.
3.1.5. The Administrative Agent and CG&R shall have received
copies of one or more favorable written opinions of (A) James W. Nellen,
II, Esq., Vice President and General Counsel for the Company, substantially
in the form of Exhibit VI annexed hereto and (B) counsel in each
jurisdiction where there exists any accounts receivable to be subjected to
the Lien of a Collateral Document with respect to the perfection of the
security interests contemplated by the Collateral Documents and certain
related matters, in each case in substantially the form of Exhibit VII
annexed hereto.
3.1.6. The Company shall have (A) consummated the Common Stock
Offering, in accordance with applicable law and on terms satisfactory in
all respects to the Requisite Lenders, and received not less than
$300,000,000 in aggregate gross cash proceeds from the Common Stock
Offering, (B) paid any and all amounts owing in respect of the Senior
Secured Notes and the Existing Credit Facilities and terminated all
commitments under the Existing Credit Facilities, (C) paid any and all
amounts owing on or prior to the Closing Date pursuant to the Commitment
Fee Letter and (D) paid all Transaction Costs in respect of the
Recapitalization that are due as of the Closing
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Date or made arrangements to do so acceptable to the Requisite Lenders.
3.1.7. The Company shall have entered into the Senior Credit
Agreement, on terms satisfactory in all respects to the Requisite Lenders
and shall have borrowed thereunder the loans contemplated to be borrowed on
the Closing Date.
3.1.8. There shall be no governmental or judicial action,
actual or threatened, that is likely to restrain, prevent or impose
burdensome conditions on the transactions contemplated hereby.
3.1.9. The Lenders shall have received satisfactory pro forma
consolidated balance sheets of the Company and its Subsidiaries after
giving effect to the Recapitalization and the Requisite Lenders shall be
reasonably satisfied that such balance sheets are not inconsistent in any
material respect with the Projections.
3.1.10. Except as has been disclosed in the Information
Package, there shall not have occurred any material adverse change with
respect to the condition (financial or otherwise), operations, business,
assets, liabilities or prospects of the Company and its Subsidiaries, taken
as a whole, since September 30, 1994.
3.1.11. As of the Closing Date, (A) all information and data
(other than the Projections) concerning the Company and its Subsidiaries or
the transactions contemplated hereby that are contained in the Information
Package will not (to the best of the Company's knowledge with respect to
information made available by any of the Company's authorized
representatives), taken as a whole, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements contained therein, in light of the circumstances under which
such statements are made, not misleading and (B) all financial projections
concerning the Company and its Subsidiaries (collectively, the
"Projections") that have been prepared by the Company or any of the
Company's authorized representatives and made available to the Lenders have
been prepared in good faith and are based upon reasonable assumptions (it
being understood that nothing contained herein shall constitute a
representation that the results forecasted in any Projections will in fact
be achieved).
3.1.12. (A) The Company shall have delivered a Borrowing Base
Certificate to the Agent (with sufficient copies for each of the Lenders
and the Administrative Agent) duly completed. Such Borrowing Base
Certificate shall be made as of
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the last day of the month immediately preceding the Closing Date; provided
that if the Closing Date is within ten (10) days of such month end, such
Borrowing Base Certificate shall be made as of the second preceding month
end. Such Borrowing Base Certificate shall also contain (1) a detailed
schedule showing the aging of Receivables as of the date of the Borrowing
Base Certificate and (2) a summary schedule showing the aging of
Receivables as of the Friday of the week immediately preceding the Closing
Date, in each case, in a form reasonably satisfactory to the Administrative
Agent.
(B) As of the date of the Borrowing Base Certificate referred
to in clause (A), and after giving effect to the transactions to occur on
the Closing Date, the Administrative Agent shall be satisfied, in its sole
discretion, that the Company would have the availability to incur Loans
under this Agreement in the aggregate amount of $60,000,000.
The execution and delivery of this Agreement on the Closing
Date shall constitute a representation and warranty to the Administrative
Agent and each of the Lenders that all of the applicable conditions
specified above exist as of that time, except for such conditions that have
been duly waived in writing hereunder by the beneficiaries thereof.
Section 3.2 Conditions to the Loans. The obligations of the
Lenders to make the Loans on the Funding Date for the purposes contemplated
in subsection 2.6.1 are subject to the prior or concurrent satisfaction or
waiver of the following further conditions precedent (in addition to
satisfaction of the conditions set forth in Section 3.1 unless such
conditions have been waived in accordance with Section 9.6):
3.2.1. The Administrative Agent shall have received, in
accordance with the provisions of subsection 2.1.2, before the Funding
Date, an originally executed Notice of Borrowing signed by the chief
executive officer, the chief financial officer or the treasurer of the
Company requesting the Loans or by any executive officer of the Company
designated by any of the above-described officers on behalf of the Company
in writing delivered to the Administrative Agent.
3.2.2. As of the Funding Date:
(i) The Company shall have made all necessary arrangements,
given all necessary notices and taken all other necessary action to
redeem all the outstanding Existing Subordinated Debt and pay all
other amounts and Transaction Costs owing in connection with such
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redemption, in accordance with the terms of the indentures governing
the Existing Subordinated Debt.
(ii) There shall not have occurred and be continuing any Event
of Default or Potential Event of Default pursuant to Section 7.1,
7.6, 7.7, 7.9, 7.12 or 7.13.
3.2.3. The Company shall have delivered a Borrowing Base
Certificate to the Administrative Agent (with sufficient copies for each of
the Lenders) duly completed. Such Borrowing Base Certificate shall be made
as of the last day of the month immediately preceding the Funding Date;
provided that if the Funding Date is within ten (10) days of such month
end, the Borrowing Base Certificate shall be made as of the second
preceding month end. The Borrowing Base Certificate shall also contain
(1) a detailed schedule showing the aging of Receivables as of the date of
the Borrowing Base Certificate and (2) a summary schedule showing the aging
of Receivables as of the Friday of the week immediately preceding the
Funding Date, in each case, in a form reasonably satisfactory to the
Administrative Agent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement and
to make the Loans, the Company represents and warrants to each Lender as
follows:
Section 4.1 Organization, Powers, Good Standing,
Business and Subsidiaries.__________
4.1.1. Organization and Powers. The Company is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation (which jurisdiction as of the date of this
Agreement is set forth on Schedule A annexed hereto). The Company has all
requisite corporate power and authority to own and operate its properties,
to carry on its business as now conducted and proposed to be conducted, to
enter into each Loan Document and to carry out the transactions
contemplated hereby and thereby, and in the case of the Company, to issue
the Notes and the Common Stock.
4.1.2. Good Standing. The Company is in good standing
wherever necessary to carry on its present business and operations, except
in jurisdictions in which the failure to be in good standing has not had
and will not have a material
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adverse effect on the conduct of the business of the Company and its
Subsidiaries, taken as a whole.
4.1.3. Conduct of Business. On the date of this Agreement,
the Company and its Subsidiaries are engaged only in the businesses
described in the Prospectus.
4.1.4. Subsidiaries. All of the Subsidiaries (other than
inactive Subsidiaries or Foreign Subsidiaries having no significant assets
or activities) of the Company and its Subsidiaries, as of the date of this
Agreement, are identified in Schedule A annexed hereto. The capital stock
of each of the Subsidiaries identified in Schedule A is duly authorized,
validly issued, fully paid and nonassessable. The capital stock of each
Person identified on Schedule A is not Margin Stock. Each of the
Subsidiaries of the Company is validly existing and in good standing under
the laws of its respective jurisdiction of incorporation and has full
corporate power and authority to own its assets and properties and to
operate its business as presently owned and conducted except where failure
to be in good standing or a lack of corporate power and authority has not
had and will not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole. Schedule A correctly sets forth as of the
date of this Agreement the ownership interest of the Company and each of
its Subsidiaries in their respective Subsidiaries identified therein.
Section 4.2 Authorization of Borrowing, etc.
4.2.1. Authorization of Borrowing. The execution, delivery
and performance of the Loan Documents and the issuance, delivery and
payment of the Notes and the grant and continuation of the security
interests in the Collateral pursuant to the Collateral Documents have been
duly authorized by all necessary corporate action by the Company.
4.2.2. No Conflict. The execution, delivery and performance
by the Company of each Loan Document and the issuance, delivery and
performance of the Notes, the consummation of the Common Stock Offering and
the issuance of Common Stock and the other transactions comprising the
Recapitalization and the grant and continuation of the security interests
in the Collateral pursuant to the Collateral Documents do not and will not
(A) violate (1) any provision of law applicable to the Company, (2) the
Certificates of Incorporation or Bylaws of the Company, or (3) any order,
judgment or decree of any court or other agency of government binding on
the Company, (B) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any Contractual
Obligation of the Company,
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(C) result in or require the creation or imposition of any Lien upon any of
its properties or assets (other than Liens in favor of the Lenders) or
(D) require any approval of stockholders or any approval or consent of any
Person under any Contractual Obligation of the Company, except for such
violations, conflicts, breaches, Liens and defaults which would not have,
and such approvals the absence of which would not have, a material adverse
effect on the Company and its Subsidiaries, taken as a whole.
4.2.3. Governmental Consents. The execution, delivery and
performance by the Company of the Loan Documents to which it is a party and
application of the proceeds of the Loans, the issuance, delivery and
performance of the Notes, the consummation of the Common Stock Offering,
the issuance of Common Stock, and the grant and continuation of the
security interests in the Collateral pursuant to the Collateral Documents
do not and will not require any registration with, authorization, order,
consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body except
such registration, consent, approval or notice as has been made, obtained
or given and is in full force and effect and except for the filings to
perfect security interests granted pursuant to Collateral Documents, and
other filings, authorizations, notices, orders, consents and approvals the
absence of which would not have a material adverse effect on the Company
and its Subsidiaries, taken as a whole or on the legality, validity or
enforceability of any Loan Document.
4.2.4. Binding Obligation. This Agreement is, and the other
Loan Documents and the Notes, when executed and delivered will be, the
legally valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability.
4.2.5. Valid Issuance of Common Stock. The Common Stock
issued in the Common Stock Offering has been duly and validly issued, fully
paid and nonassessable. Such Common Stock has been registered or qualified
under applicable federal and state securities laws.
Section 4.3 Financial Condition. The Company has delivered to
the Lenders true and complete copies of the Company's financial statements
for the fiscal year of the Company ending December 31, 1994. Except as set
forth in the Information Package, all such financial statements and all
financial statements set forth in the Prospectus fairly present
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the consolidated financial position of the Company and its Subsidiaries as
at the respective dates thereof and the consolidated results of operations
and cash flows of the Company and its Subsidiaries for each of the periods
covered thereby, subject to changes resulting from audit and normal year-
end adjustments. Neither the Company nor any of its Subsidiaries has as of
the Closing Date any material Contingent Obligation, material contingent
liability or material liability for taxes, long-term lease or unusual
forward or long-term commitment which is not reflected in the foregoing
financial statements, or the notes thereto.
Section 4.4 No Adverse Material Change; No Stock Payments.
Except as has been disclosed in the Information Package, since December 31,
1994, there has been no change in the business, operations, properties,
assets or condition (financial or otherwise) of the Company and its
Subsidiaries, which has been, either in any case or in the aggregate,
materially adverse to the business, operations, property, assets or
conditions (financial or otherwise) of the Company and its Subsidiaries,
taken as a whole.
Section 4.5 Title to Properties; Liens. The Company has good,
sufficient and legal title to and beneficial ownership of all its
properties and assets (other than the Collateral) reflected in the most
recent consolidated balance sheet referred to in Section 4.3 or in the most
recent financial statements delivered pursuant to Section 5.1 of this
Agreement, except for assets acquired or disposed of in the ordinary course
of business since the date of such consolidated balance sheet and except
for sales and other dispositions permitted hereunder and except for such
defects that in the aggregate do not materially adversely affect the
business, operations, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole. Except
for the Liens created by the Collateral Documents and other Liens permitted
by this Agreement, all such properties and assets are free and clear of
Liens. The Company has title to all the Collateral and title to each item
of Collateral is subject to no Liens other than Liens which would be
permitted pursuant to any Collateral Documents; provided that no such Lien
(other than Prior Liens) shall be superior to the Lien of such applicable
Collateral Document. The Company holds all material licenses, certificates
of occupancy or operation and similar material certificates and clearances
of municipal and other authorities necessary to own and operate its
properties in the manner and for the purposes currently operated by the
Company.
Section 4.6 Litigation; Adverse Facts. Except as has been
disclosed in the Information Package, there is no
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action, suit, proceeding, governmental investigation of which the Company
has knowledge or arbitration (whether or not purportedly on behalf of the
Company or any Subsidiary thereof) at law or in equity or before or by any
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, pending or,
to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries or any property of the Company or any
Subsidiary thereof which would reasonably be expected to result in any
material adverse change in the business, operations, properties, assets or
condition (financial or otherwise) of the Company and its Subsidiaries,
taken as a whole, or that would impair the ability of the Company to
perform any of the Obligations.
Section 4.7 Payment of Taxes. Except to the extent permitted
by Section 5.3, all material tax returns and reports of the Company and
each Subsidiary thereof required to be filed by any of them have been
filed, and all taxes, assessments, fees and other governmental charges upon
such Persons and upon their respective properties, assets, income and
franchises which are due and payable have been paid. The Company does not
know of any proposed tax assessment against any such Person that would be
material to the condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, which is not being actively contested in
good faith by such Person to the extent affected thereby in good faith and
by appropriate proceedings; provided that such reserves or other
appropriate provisions, if any, as shall be required in conformity with
GAAP shall have been made or provided therefor.
Section 4.8 Performance of Agreements. Neither the Company
nor any of its Subsidiaries is in default in the performance, observance or
fulfillment of any of the material obligations, covenants or conditions
contained in any Contractual Obligation of any such Person, and no
condition exists which, with the giving of notice or the lapse of time or
both, would constitute such a default, except where the consequences,
direct or indirect, of such default or defaults, if any, would not have a
material adverse effect on the business, properties, assets, operations or
condition (financial or otherwise) of the Company and its Subsidiaries,
taken as a whole. Schedules C and F correctly identify all credit
facilities of the Company and its Subsidiaries as of December 31, 1994 in
excess of $1,000,000.
Section 4.9 Governmental Regulation. Neither the Company nor
any of its Subsidiaries (A) is subject to regulation under the Public
Utility Holding Company Act of 1935 or to any federal or state statute or
regulation limiting its ability to incur Indebtedness for money borrowed as
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contemplated hereby or by any other Loan Document or (B) is an "investment
company" as defined in, or subject to regulation under, the Investment
Company Act of 1940, as amended.
Section 4.10 Securities Activities. Neither the Company nor
any of its Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of
purchasing or carrying any Margin Stock.
Section 4.11 Employee Benefit Plans.
4.11.1. The Company and each of its ERISA Affiliates are and
each Pension Plan is in compliance in all material respects with all
applicable provisions of ERISA and the Internal Revenue Code and the
regulations and published interpretations thereunder with respect to all
Pension Plans and Multiemployer Plans.
4.11.2. Except for (A) the standard termination in accordance
with Section 4041(b) of ERISA of the Lily-Tulip, Inc. Salary Retirement
Plan and (B) the occurrence of the Reportable Event described in Regulation
29 C.F.R. Section 2615.23(a)(1)(ii) with respect to the Fort Howard Cup
Corporation Bargaining Unit Pension Plan upon the transfer of all the
issued and outstanding shares of capital stock of Sweetheart Cup Company,
Inc., no Termination Event has occurred or is reasonably expected to occur
with respect to any Pension Plan and no Termination Event that is described
in clause (E) of the definition of "Termination Event" has occurred.
4.11.3. The sum of the amount of unfunded benefit liabilities
under all Pension Plans (excluding each Pension Plan with an amount of
unfunded benefit liabilities of zero or less) is not more than $35,000,000.
4.11.4. Neither the Company nor any of its ERISA Affiliates
has incurred or reasonably expects to incur any withdrawal liability under
Title IV of ERISA to any Multiemployer Plan individually or in the
aggregate in excess of $25,000,000.
4.11.5. Neither the Company nor any of its ERISA Affiliates
has incurred any accumulated funding deficiency (whether or not waived)
with respect to any Pension Plan individually or in the aggregate in excess
of $15,000,000.
4.11.6. Neither the Company nor any of its ERISA Affiliates
has or reasonably expects to become subject to a lien in favor of any
Pension Plan under Section 302(f) of ERISA individually or in the aggregate
in excess of $15,000,000.
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As used in this Section 4.11, the term "amount of unfunded
benefit liabilities" has the meaning specified in Section 4001(a)(18) of
ERISA, and the term "accumulated funding deficiency" has the meaning
specified in Section 302 of ERISA and Section 412 of the Internal Revenue
Code.
Section 4.12 Certain Fees. Other than as disclosed in the
Information Package by the Company, no broker's or finder's fee or
commission will be payable with respect to the offer, issue and sale, of
the Notes and the Company hereby indemnifies the Lenders against and agrees
that it will hold the Lenders harmless from any claim, demand or liability
for broker's or finder's fees alleged to have been incurred in connection
with any such offer, issue and sale or any of the other transactions
contemplated hereby and any expenses, including reasonable legal fees,
arising in connection with any such claim, demand or liability. Except as
so disclosed, no other similar fees or commissions will be payable by the
Company or any of its Subsidiaries for any other services rendered to the
Company or any of its Subsidiaries ancillary to the transactions
contemplated hereby.
Section 4.13 Disclosure. Except as disclosed in the
Information Package, taken as a whole, the representations and warranties
of the Company contained in this Agreement and any other document,
certificate or written statement furnished to the Lenders by or on behalf
of the Company or any Subsidiary of the Company for use in connection with
the transactions contemplated by this Agreement (including, without
limitation, the Information Package but excluding the Projections (as to
which the Company makes the representations and warranties set forth
below)) do not contain any untrue statement of a material fact or omit to
state a material fact (known to any such person in the case of any document
not furnished by it) necessary in order to make the statements contained
herein or therein not misleading. Any reaffirmation of the foregoing
sentence is subject to any change in the facts and conditions on which such
representations and warranties are based, which changes are required,
contemplated or permitted under this Agreement and subject to further
disclosure contemplated by Section 5.1; provided that in all cases, taken
as a whole, representations and warranties of the Company contained in this
Agreement and any other document, certificate or written statement
furnished to the Lenders by or on behalf of the Company or any Subsidiary
of the Company for use in connection with the transactions contemplated by
this Agreement did not contain at the time made any untrue statement of a
material fact or omit at the time made to state a material fact (known to
the Company or any Subsidiary of the Company in the case of any document
not furnished by it) necessary in order to make the statements contained
herein or therein not misleading. The Projections
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are based upon good faith estimates and assumptions believed by the Company
and its Subsidiaries to be reasonable at the time made, it being recognized
by the Lenders that projections as to future events are not to be viewed as
facts and that actual results during the period or periods covered by the
Projections may differ from the projected results. Except as disclosed in
the Information Package, there is no fact known to the Company (other than
matters of a general economic nature) which materially and adversely
affects the business, operations, property, assets or condition (financial
or otherwise) of the Company and its Subsidiaries, taken as a whole, which
has not been disclosed herein or in such other documents, certificates and
statements furnished to the Lenders for use in connection with the
transactions contemplated hereby.
Section 4.14 Patents, Trademarks, etc. The Company and its
Subsidiaries own, or are licensed to use, all patents, trademarks, trade
names, copyrights, technology, know-how and processes, service marks and
rights with respect to the foregoing used in or necessary for the conduct
of their respective businesses as currently conducted which are material to
the condition (financial or otherwise), business or operations of the
Company and its Subsidiaries, taken as a whole. To the Company's
knowledge, the use of such patents, trademarks, trade names, copyrights,
technology, know-how, processes and rights with respect to the foregoing by
the Company, its Subsidiaries and their respective Subsidiaries does not
infringe on the rights of any Person, subject to such claims and
infringements as do not, in the aggregate, give rise to any liability on
the part of the Company, its Subsidiaries and their respective Subsidiaries
which is material to the Company and its Subsidiaries, taken as a whole.
The consummation of the transactions contemplated by this Agreement does
not require any consent to be obtained with respect to such patents,
trademarks, trade names, copyrights, technology, know-how or processes, or
the license to use any of such patents, trademarks, trade names,
copyrights, technology, know-how, processes or rights with respect thereto,
which if not obtained will in any material manner or to any material extent
impair the ownership of (or the license to use, as the case may be) any of
such patents, trademarks, trade names, copyrights, technology, know-how or
processes by the Company and its Subsidiaries to an extent which in the
aggregate would have a material adverse effect on the condition (financial
or otherwise), business or operations of the Company and its Subsidiaries,
taken as a whole. To the best knowledge of the Company, the rights of the
Company, its Subsidiaries and their respective Subsidiaries so to sell,
franchise or license under such brand names then being used may be
transferred in connection with any sale of assets or stock of the related
business by the Company, its Subsidiaries or any of their
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respective Subsidiaries with only such exceptions as are not material to
the Company and its Subsidiaries, taken as a whole.
Section 4.15 Environmental Protection.
4.15.1. The Company, its Subsidiaries and their respective
Subsidiaries have either (A) obtained all material permits, licenses and
other authorizations which are required with respect to the operation of
its business under any Environmental Law or (B) submitted a timely
application in respect of such permits, licenses or other authorizations
(the submission of which, by itself or in conjunction with other
appropriate action by the Company, its Subsidiaries or any of their
respective Subsidiaries, is sufficient under applicable law to allow the
Company, its Subsidiaries and their respective Subsidiaries to continue its
business or operations pending a determination with respect to such
application) and received at least oral confirmation from the relevant
government authority that such permits, licenses or other authorizations
will be issued or reserved, as appropriate under current operating
conditions.
4.15.2. The Company, its Subsidiaries and their respective
Subsidiaries are in material compliance with all terms and conditions of
the required material permits, licenses and authorizations, and are also in
material compliance with all other material limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules
and timetables contained in any applicable Environmental Laws.
4.15.3. Except as disclosed in the Information Package, there
is no material civil, criminal or administrative action, suit, demand,
claim, hearing, notice of violation, investigation, proceeding, notice of
demand letter pending or, to the knowledge of the Company, threatened
against the Company, its Subsidiaries or any of their respective
Subsidiaries under the Environmental Laws.
4.15.4. Except as disclosed in the Information Package, there
are no material past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans which may materially
interfere with or prevent material compliance with the Environmental Laws,
or which may give rise to any material common law or legal liability,
including, without limitation, liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
or similar state, local or foreign laws, or otherwise form the basis of any
material claim, action, demand, suit, proceeding, hearing or notice of
violation, study or investigation, based on or related to the manufacture,
processing, distribution, use, treatment, storage,
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disposal, transport or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant,
chemical or industrial, toxic or hazardous substance or waste which would
have a material adverse effect on the business, operations, condition
(financial or otherwise) of the Company and its Subsidiaries taken as a
whole.
Section 4.16 Security Interests. On and as of the Closing
Date, each of the Collateral Documents creates, as security for the
obligations purported to be secured thereby, a valid and enforceable
perfected security interest in and Lien on all of the Collateral, which
Lien shall be a first priority Lien subject only to Prior Liens. No
filings or recordings are required in order to perfect the Liens created
under the Collateral Documents except for filings or recordings which on or
before the date of execution and delivery of such Collateral Document will
have been made.
Section 4.17 Solvency.
4.17.1. Immediately after the consummation of the transactions
to occur on the Closing Date and the Funding Date and immediately following
the making of the Loans and after giving effect to the application of the
proceeds of the Loans, (A) the fair value of the assets of the Company and
its Subsidiaries on a consolidated basis, at a fair valuation, will exceed
the debts and liabilities, subordinated, contingent or otherwise, of the
Company and its Subsidiaries on a consolidated basis, (B) the fair saleable
value of the property of the Company and its Subsidiaries on a consolidated
basis will be greater than the amount that will be required to pay the
probable liability of the Company and its Subsidiaries on a consolidated
basis on their debts and other liabilities, subordinated, contingent or
otherwise, as such debts and other liabilities become absolute and matured,
(C) the Company and its Subsidiaries on a consolidated basis will be able
to pay their debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured, and (D) the
Company and its Subsidiaries on a consolidated basis will not have
unreasonably small capital with which to conduct the businesses in which
they are engaged as such businesses are now conducted and are proposed to
be conducted following the Closing Date and the Funding Date.
4.17.2. The Company does not intend to, or to permit any of
its Subsidiaries to, and does not believe that it or any of its
Subsidiaries will, incur debts beyond the Company's or such Subsidiary's
ability to pay such debts as they mature, taking into account the timing of
and amounts of cash to be received by the Company or such Subsidiary and
the timing of
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the amounts of cash to be payable on or in respect of the Company's
Indebtedness or the Indebtedness of such Subsidiary.
ARTICLE V
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, so long as any of the
Commitments hereunder shall be in effect and until payment in full of the
Loans and the Notes, unless the Requisite Lenders shall otherwise agree in
writing, the Company shall perform all covenants in this ARTICLE V:
Section 5.1 Financial Statements and Other Reports. The
Company will maintain, and cause each of its Subsidiaries to maintain, a
system of accounting established and administered in accordance with sound
business practices to permit preparation of consolidated financial
statements in conformity with GAAP. The Company will deliver to the
Lenders:
(i) As soon as practicable and in any event within 30 days
after the end of each month ending after the Closing Date in each of
the Company's fiscal years, other than months which are the last
month in a fiscal quarter, (A) the consolidated balance sheet of the
Company and its consolidated Subsidiaries, as at the end of such
month, and (B) the related consolidated statements of earnings and
retained earnings and cash flow statements of the Company and its
consolidated Subsidiaries for such month and for the period from the
beginning of the then current fiscal year to the end of such month;
(ii) As soon as practicable and in any event within 45 days
after the end of each fiscal quarter ending during or after 1995,
other than quarters which are the last quarter in a fiscal year,
(A) the consolidated balance sheet of the Company and its
consolidated Subsidiaries, as at the end of such period and (B) the
related consolidated statements of earnings and retained earnings and
cash flow statements of the Company and its consolidated Subsidiaries
for such fiscal quarter and for the period from the beginning of the
then current fiscal year to the end of such fiscal quarter, all
prepared in accordance with Rule 10-01 of Regulation S-X of the
General Rules and Regulations Under the Securities Act of 1933, or
any successor rule that sets forth the manner in which interim
financial statements shall be prepared, it being understood that the
foregoing shall include (1) a statement of profit and loss to the
gross margin,
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including specified cost components and (2) statements of capital
expenditures setting forth in comparative form, the corresponding
periods of the previous fiscal year, the corresponding figures from
the consolidated plan for the then current fiscal year delivered
pursuant to subparagraph (xii) of this Section 5.1, all in reasonable
detail and certified by the chief financial officer of the Company
that, in the case of such consolidated financial statements, they
fairly present the financial condition of the Company and its
consolidated Subsidiaries as at the dates indicated and the results
of their operations and cash flows for the periods indicated, subject
to changes resulting from audit and normal year-end adjustment and,
insofar as relates to divisions, based on the Company's normal
accounting procedures applied on a consistent basis;
(iii) As soon as practicable and in any event within 90 days
after the end of each fiscal year of the Company (commencing with
fiscal year 1995) (A) (1) the consolidated balance sheet of the
Company and its consolidated Subsidiaries as at the end of such year
and (2) the related consolidated statements of earnings and retained
earnings and cash flow statements of the Company and its consolidated
Subsidiaries for such fiscal year, it being understood that the
foregoing shall include (x) a statement of profit and loss to the
gross margin, including specified cost components and (y) statements
of capital expenditures setting forth in comparative form the
corresponding figures for the previous year, the corresponding
figures from the consolidated plan for the current fiscal year
delivered pursuant to subparagraph (xii) of this Section 5.1, all in
reasonable detail, and (B) in the case of such consolidated financial
statements, accompanied by a report thereon of Arthur Andersen & Co.
or such other independent certified public accountants of recognized
national standing selected by the Company which report shall be
unqualified as to going concern and scope of audit and shall state
that such consolidated financial statements present fairly the
financial position of the Company and its consolidated Subsidiaries
as at the dates indicated and the results of their operations and
cash flows for the periods indicated in conformity with GAAP applied
on a basis consistent with prior years (except for such changes as
are concurred in by such accountants) and that the examination by
such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted
auditing standards;
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(iv) Together with each delivery of financial statements of
the Company and its Subsidiaries pursuant to subparagraphs (ii) and
(iii) of this Section 5.1, (A) an Officers' Certificate of the
Company (substantially in the form of Exhibit XIII) stating that the
signers have reviewed or caused to be reviewed under their
supervision the terms of this Agreement, the Notes and the other Loan
Documents and have made, or caused to be made under their
supervision, a review in reasonable detail of the transactions and
condition of the Company and its Subsidiaries during the accounting
period covered by such financial statements and that such review has
not disclosed the existence during or at the end of such accounting
period, and that the signers do not have knowledge of the existence
as at the date of the Officers' Certificate, of any condition or
event which constitutes an Event of Default or Potential Event of
Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action
the Company has taken, is taking and proposes to take with respect
thereto and (B) a Compliance Certificate substantially in the form of
Exhibit IV annexed hereto demonstrating in reasonable detail
compliance (as determined in accordance with GAAP) during and at the
end of such accounting periods with the restrictions contained in
Sections 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.9, 6.10 and 6.14 and a
computation as of the last day of the applicable fiscal quarter of
the Company of Ratio 1, Ratio 2 and the Applicable Category in
respect of the period succeeding such quarter and the then unutilized
amounts of the Discretionary Excess Cash Flow Balance and the
Discretionary Equity Proceeds Balance in respect of the most recently
ended fiscal year and, in addition, a written statement of the chief
accounting officer or chief financial officer of the Company
describing in reasonable detail the differences between the financial
information contained in such financial statements and the
information contained in the Compliance Certificate relating to the
Company's compliance with Sections 6.6, 6.9 and 6.14;
(v) Together with each delivery of consolidated financial
statements of the Company and its consolidated Subsidiaries pursuant
to subparagraph (iii) of this Section 5.1, a written statement by the
independent public accountants giving the report thereon (A) stating
that their audit examination has included a review of the terms of
this Agreement and the other Loan Documents as they relate to
accounting matters, (B) stating whether, in connection with their
audit examination, any condition or event which constitutes an Event
of Default or Potential Event of Default has come to their attention,
and if such
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a condition or event has come to their attention, specifying the
nature and period of existence thereof; provided that such
accountants shall not be liable to any Lender by reason of any
failure to obtain knowledge of any such Event of Default or Potential
Event of Default that would not be disclosed in the ordinary course
of their audit examination and (C) stating that based on their audit
examination nothing has come to their attention which causes them to
believe that the information contained in either or both of the
certificates delivered therewith pursuant to subparagraph (iv) of
this Section 5.1 is not correct or that the matters set forth in the
Compliance Certificate delivered therewith pursuant to clause (B) of
such subparagraph (iv) of this Section 5.1 for the applicable fiscal
year are not stated in accordance with the terms of this Agreement;
(vi) Promptly upon receipt thereof, copies of all reports
submitted to the Company or any Subsidiary thereof by independent
public accountants in connection with each annual, interim or special
audit of the financial statements of the Company or any Subsidiary
thereof made by such accountants, including, without limitation, any
comment letter submitted by such accountants to management in
connection with their annual audit;
(vii) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or
made available generally by the Company or by any Subsidiary thereof
to its respective security holders (other than the Company or any
Subsidiary thereof), of all regular and periodic reports and all
registration statements and prospectuses, if any, filed by the
Company or any Subsidiary thereof with any securities exchange or
with the Securities and Exchange Commission and of all press releases
and other statements made available generally by the Company or any
such Subsidiary to the public concerning material developments in the
business of the Company or any Subsidiary thereof;
(viii) Promptly upon any officer of the Company obtaining
knowledge (A) of any condition or event which constitutes an Event of
Default or Potential Event of Default, or becoming aware that any
Lender has given any notice or taken any other action with respect to
a claimed Event of Default or Potential Event of Default under this
Agreement, (B) that any Person has given any notice to the Company or
any Subsidiary of the Company or taken any other action with respect
to a claimed default or event or condition of the type referred to in
Section 7.2, (C) of any condition or event which would be required to
be
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disclosed in a current report filed by the Company with the
Securities and Exchange Commission on Form 8-K (Items 1, 2 and 4 of
such Form as in effect on the date hereof) if the Company were
required to file such reports under the Exchange Act or (D) of a
material adverse change in the business, operations, properties,
assets or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, an Officers' Certificate specifying
the nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person
and the nature of such claimed default, Event of Default, Potential
Event of Default, event or condition, and what action the Company has
taken, is taking and proposes to take with respect thereto;
(ix) Promptly upon any officer of the Company obtaining
knowledge of (A) the institution of, or non-frivolous threat of, any
action, suit, proceeding, governmental investigation or arbitration
against or affecting the Company or any of its Subsidiaries or any
property of the Company or any of its Subsidiaries not previously
disclosed by the Company to the Lenders, or (B) any material
development in any such action, suit, proceeding, governmental
investigation or arbitration, which, in either case, if adversely
determined, would materially and adversely affect the business,
operations, properties, assets or condition (financial or otherwise)
of the Company and its Subsidiaries, taken as a whole, the Company
shall promptly give notice thereof to the Lenders and provide such
other information as may be reasonably available to it (without
waiver of any applicable evidentiary privilege) to enable the Lenders
and CG&R to evaluate such matters;
(x) Promptly upon any officer of the Company becoming aware
of the occurrence of any (A) Termination Event, (B) "prohibited
transaction", within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code, or (C) filing by the Company or
any of its ERISA Affiliates of an application for a waiver of an
accumulated funding deficiency, in connection with any Pension Plan
or any trust created thereunder, a written notice specifying the
nature thereof, what action the Company or its ERISA Affiliates have
taken, are taking or propose to take with respect thereto, and, when
known, any action taken or threatened by the Internal Revenue
Service, Department of Labor or the Pension Benefit Guaranty
Corporation with respect thereto;
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(xi) With reasonable promptness, copies of (A) all notices
received by the Company or any of its ERISA Affiliates of the Pension
Benefit Guaranty Corporation's intent to terminate any Pension Plan
or to have a trustee appointed to administer any Pension Plan, (B)
each Schedule B (Actuarial Information) to the annual report (Form
5500 Series) filed by the Company or any of its ERISA Affiliates with
the Internal Revenue Service with respect to each Pension Plan and
(C) all notices received by the Company or any of its ERISA
Affiliates from a Multiemployer Plan sponsor concerning the
imposition or amount of withdrawal liability pursuant to Section 4202
of ERISA;
(xii) As soon as practicable and in any event by the sixtieth
day of each fiscal year of the Company, a consolidated plan, prepared
in accordance with the Company's normal accounting procedures applied
on a consistent basis, for such fiscal year of the Company,
including, without limitation, (A) a forecasted consolidated balance
sheet and a consolidated statement of changes in financial position
of the Company for such fiscal year, including a forecasted statement
of profit and loss to the gross margin and forecasted statements of
working capital and capital expenditures and (B) the amount of total
forecasted capital expenditures and forecasted consolidated selling,
general and administrative expenses for such fiscal year;
(xiii) As soon as practicable and in any event by the last day
of each fiscal year of the Company, a report in form and substance
reasonably satisfactory to the Administrative Agent and the Requisite
Lenders outlining all material insurance coverage maintained as of
the date of such report by the Company and its Subsidiaries and all
material insurance coverage planned to be maintained by such Persons
in the subsequent fiscal year;
(xiv) Together with each delivery of financial statements of
the Company and its Subsidiaries pursuant to subparagraph (ii) of
this Section 5.1, an Officers' Certificate of the Company
(substantially in the form of Exhibit XIV) stating that the signers
made, or caused to be made under their supervision, a review of the
terms of, and the records relating to, all of the Intercompany
Indebtedness of the Company and its Subsidiaries and stating the
amount of all outstanding Intercompany Indebtedness, including all
Intercompany Indebtedness of all Subsidiaries to other Subsidiaries
and the Company and all Intercompany Indebtedness of all consolidated
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Subsidiaries to other Consolidated Subsidiaries and the Company as of
the date of such financial statements; and
(xv) With reasonable promptness, such other information and
data (other than Sensitive Information), with respect to the Company
or any of its Subsidiaries as from time to time may be reasonably
requested by the Administrative Agent or any Lender.
Notwithstanding anything to the contrary set forth above, the Company's
failure to comply with subparagraphs (viii) and (ix) of this Section 5.1
(other than clause (A) of subparagraph (viii) of this Section 5.1, except
to the extent that materiality is relevant to the existence or
non-existence of an Event of Default or a Potential Event of Default) based
on a good-faith determination by an officer of the Company that such
condition, event or development is not material shall not be the basis for
an Event of Default.
Section 5.2 Corporate Existence, etc. The Company will at
all times preserve and keep in full force and effect its corporate
existence and rights and franchises material to its business and those of
each of its Subsidiaries; provided that the corporate existence of any such
Subsidiary may be terminated if such termination is in the best interest of
its parent and would not have a material adverse effect on the ability of
the Company to perform its obligations under the Loan Documents; and
provided, further, that neither the Company nor any of its Subsidiaries
shall be required to preserve any right or franchise if the Board of
Directors of the Company or such Subsidiary shall have determined that the
preservation thereof is no longer desirable in the conduct of the business
of the Company or such Subsidiary, as the case may be.
Section 5.3 Payment of Taxes and Claims; Tax
Consolidation.__________________
5.3.1. The Company will, and will cause each of its
Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon them or any of their properties or assets or in respect of any
of their franchises, business, income or property before any material
penalty accrues thereon, and all claims (including, without limitation,
claims for labor, services, materials and supplies) for sums which have
become due and payable and which by law have or may become a material Lien
upon any of their material properties or assets, prior to the time when any
material penalty or fine shall be incurred with respect thereto; provided
that no such charge or claim need be paid if being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted and
if such reserve or other appropriate provision,
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if any, as shall be required in conformity with GAAP shall have been made
therefor.
5.3.2. The Company will not, and will not permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income
tax return with any Person (other than any of their respective Subsidiaries
or such other Person as may be reasonably acceptable to the Requisite
Lenders).
Section 5.4 Maintenance of Properties; Insurance. The Company
will maintain or cause to be maintained in good repair, working order and
condition (ordinary wear and tear excepted) all material properties used in
the business of the Company and its Subsidiaries and from time to time will
make or cause to be made all appropriate repairs, renewals and replacements
thereof and will maintain and renew as necessary all material licenses,
permits and other material clearances necessary to use and occupy the
material properties of the Company and its Subsidiaries. The Company will
maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its properties and business and the
properties and business of its Subsidiaries against loss or damage of the
kinds customarily insured against by corporations of established reputation
engaged in the same or similar businesses and similarly situated, of such
types and in such amounts as are customarily carried under similar
circumstances by such other corporations to the extent that such types and
such amounts of insurance are available at commercially reasonable rates.
The Company will furnish to each Lender, upon reasonable request,
information as to the insurance carried, and will not cancel any such
insurance without the consent of the Requisite Lenders.
Section 5.5 Inspection. The Company shall maintain books and
records pertaining to the Collateral in such detail, form and scope as is
consistent with good business practice and agrees that such books and
records will reflect the Collateral Agent's and the Lenders' interest in
the Receivables of the Company. The Company shall permit any authorized
representatives designated by any Lender to visit and inspect any of the
properties of the Company, all upon reasonable notice and at such
reasonable times during normal business hours and as often as may be
reasonably requested, for the purpose, subject to Section 9.17, of (i)
inspecting and/or copying (at the Company's expense) any and all records
pertaining to the Collateral, (ii) discussing the Company's and its
Subsidiaries' affairs, finances and accounts with its and their officers
and independent public accountants and (iii) verifying Eligible
Receivables; provided that in light of (A) the highly proprietary nature of
the following information, (B) its historically demonstrated and ongoing
value and
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importance in the Company's operating performance and (C) the substantial
risk to the value of the Company's business if such information were not
maintained on a strictly confidential basis, in no event shall the Company
be required to disclose to any Person any information with regard to the
Company's dry form technology or de-inking technology, any formulas,
recipes, process flow diagrams, equipment specifications, equipment
purchase costs or manufacturing and process costs related thereto (the
"Sensitive Information").
Section 5.6 No Further Negative Pledges. Except as provided
in this Section 5.6, neither the Company nor any of its Subsidiaries shall
enter into any agreement prohibiting the creation or assumption of any Lien
upon its properties or assets, whether now owned or hereafter acquired.
The foregoing provisions of this Section 5.6 shall not be deemed violated
by the following: (A) any Contractual Obligation restricting Liens on
assets owned by a Foreign Subsidiary or on the shares of stock of any
Foreign Subsidiary (other than Collateral as defined in the Senior Credit
Agreement and other than the shares of stock of Sterling International
(U.K.) Limited and Sterling International Limited) or on the shares of
stock of SIL Company (other than Collateral as defined in the Senior Credit
Agreement), (B) the provisions of (1) Section 3.08 of the indenture
governing the 9 1/4% Unsecured Notes, as in effect on the Closing Date, (2)
Section 3.08 of the indenture governing the 8 1/4% Unsecured Notes, as in
effect on the Closing Date, or (3) any similar provision of any instrument
comprising the Refinancing Senior Unsecured Debt that is no less favorable
to the Company and the Lenders than the provisions of each such
Section 3.08 referred to above, (C) the provisions of Section 3.08 of the
indenture governing the 9% Senior Subordinated Notes, as in effect on the
Closing Date, or the provisions of Section 3.08 of the indenture governing
the 10% Subordinated Notes, as in effect on the Closing Date, (D) the
provisions of any Capital Leases that restrict the imposition of Liens on
the assets specifically demised pursuant thereto, (E) the provisions of
Section 5.6 of the Senior Credit Agreement as in effect on the date hereof,
and (F) the provisions of any other instrument governing Indebtedness of
the Company or any Domestic Subsidiary of the Company permitted under
Section 6.1, which Indebtedness is secured by a Lien permitted under
Section 6.2, to the extent such provisions operate to restrict the ability
of the Company or any of its Subsidiaries to grant Liens on the specific
assets securing such Indebtedness.
Section 5.7 Compliance with Laws, etc. The Company and its
Subsidiaries shall comply with the requirements of all applicable laws,
including Environmental Laws, rules, regulations and orders of any
Governmental Authority,
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noncompliance with which would materially adversely affect the business,
properties, assets, operations or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole.
Section 5.8 Lender Meeting. The Company will participate in a
meeting of Lenders once during each fiscal year to be held at a location
and a time selected by the Company.
Section 5.9 Security Interests.
5.9.1. The Company shall perform any and all acts and execute
any and all documents (including, without limitation, the execution,
amendment or supplementation of any financing statement, continuation
statement or other statement) for filing under the provisions of the UCC
and the rules and regulations thereunder, or any other statute, rule or
regulation of any applicable federal, state or local jurisdiction, which
are necessary or advisable, from time to time, in order to grant, continue
and maintain in favor of the Collateral Agent for the benefit of the
Lenders a valid and perfected Lien on the Collateral, which Lien is a first
priority Lien subject only to Prior Liens.
5.9.2. The Company shall deliver or cause to be delivered to
the Administrative Agent from time to time such other documentation,
consents, authorizations, approvals and orders in form and substance
satisfactory to the Collateral Agent as the Collateral Agent shall deem
reasonably necessary or advisable to perfect or maintain the Liens for the
benefit of the Lenders, including assets which are required to or do become
Collateral after the Closing Date.
Section 5.10 Certain Dispositions of Collateral. The Company
shall not sell, lease, assign, transfer or otherwise dispose of any
interest in any Collateral or transfer or contribute any such Collateral to
a Foreign Subsidiary pursuant to clause (x) of Section 6.3 (each, a
"Release Transaction") except in compliance with this Section 5.10,
Section 6.7 and the Collateral Documents. Upon such compliance, the
Company shall be entitled to receive from the Collateral Agent an
instrument (each, a "Release") releasing the Lien of any applicable
Collateral Document with respect to such Collateral. The Company shall
exercise its rights under this Section 5.10 by delivery to the Collateral
Agent of a notice (each, a "Release Notice"), which shall refer to this
subsection, describe with particularity the items of property proposed to
be covered by the Release and be accompanied by a counterpart of the
Release fully executed and acknowledged by all parties thereto other than
the Collateral Agent and in form
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for execution by the Collateral Agent, and an Officers' Certificate
certifying as to the satisfaction of the Release Conditions. The
Collateral Agent shall execute and deliver to the Company such counterpart
within 10 days after receipt by the Collateral Agent of a Release Notice
and the satisfaction of the Release Conditions. The Collateral Agent's
obligation to deliver any Release and the Company's rights to transfer any
Collateral to a Foreign Subsidiary pursuant to the provisions of
subparagraph (x) of Section 6.3 or to enter into any sale, lease,
assignment, transfer or other disposition of any Collateral pursuant to the
provisions of this Section shall be subject to the following conditions
(collectively, "Release Conditions"):
(i) no Event of Default or Potential Event of Default shall
have occurred and be continuing as of the proposed effective date of
such Release;
(ii) Any Receivables sold, transferred or otherwise disposed
of by the Company shall be sold, transferred or otherwise disposed of
to a Person other than an Affiliate of the Company for face value
without any discount or allowance;
(iii) such sale, transfer or other disposition shall not result
in the incurrence by the Company of any Indebtedness not otherwise
permitted by Section 6.1; and
(iv) all proceeds of such sale, transfer or other disposition
shall be applied to prepay the Loans in accordance with subsection
2.5.2(a).
In connection with any Release Transaction, the Company shall (A) execute,
deliver, file and obtain such instruments as the Administrative Agent or
the Requisite Lenders may reasonably require, including, without
limitation, amendments to the Collateral Documents and this Agreement and
(B) deliver to the Administrative Agent such evidence of the satisfaction
of the Release Conditions as the Administrative Agent or the Requisite
Lenders may reasonably require. The Company shall reimburse the
Administrative Agent and Lenders upon demand for all costs or expenses
incurred by each thereof in connection with any action contemplated by this
Section 5.10.
Section 5.11 Recapitalization. The Company shall take all
reasonable actions to cause to be consummated as soon as practicable
following the Closing Date the redemption and retirement of the Existing
Subordinated Debt and the other transactions and payments required to
complete the Recapitalization.
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Section 5.12 Collateral Reporting. The Company shall timely
deliver to each of the Administrative Agent and each of the Lenders weekly,
before 12:00 noon on Friday of each week, a duly completed Borrowing Base
Certificate, which shall: (i) identify the balance of the Company's
Eligible Receivables as of Friday of the immediately preceding week;
(ii) be prepared by or under the supervision of such Borrower's chief
executive officer or chief financial officer or treasurer and certified by
such officer subject only to adjustment upon completion of the normal year-
end audit; and (iii) have attached thereto such additional schedules and
other information as the Administrative Agent may, from time to time,
reasonably request.
Section 5.13 Cash Collateral. If, at any time, the aggregate
principal amount of Loans outstanding shall exceed the Borrowing Base (as
determined by the Administrative Agent based upon the Dollar amount of
Eligible Receivables as reflected in the most recent Borrowing Base
Certificate delivered by the Company to the Administrative Agent), the
Administrative Agent may, within five (5) Business Days of its receipt of
such Borrowing Base Certificate, deliver to the Company a notice (each, a
"Deficiency Notice") indicating the amount by which the principal amount of
Loans then outstanding exceeds the Borrowing Base (such amount, the
"Deficiency Amount"). The Company shall, within two (2) Business Days of
its receipt of any Deficiency Notice, cause Cash or Cash Equivalents in an
amount at least equal to the Deficiency Amount to be deposited into the
Cash Collateral Account. If any subsequent Borrowing Base Certificate
delivered to the Administrative Agent and the Lenders indicates that (i)
the aggregate principal amount of Loans outstanding does not exceed the
Borrowing Base or (ii) the aggregate principal amount of Loans outstanding
exceeds the Borrowing Base by an amount which is less than the amount of
Cash and Cash Equivalents then on deposit in the Cash Collateral Account,
the Company may deliver to the Administrative Agent a written request for
the release of such excess funds (each, a "Cash Release Request"), which
request shall indicate the amount of cash to be released, the basis for the
Company's determination that such release is appropriate and a direction as
to the manner of payment of such funds. Upon its receipt of any Cash
Release Request, the Administrative Agent shall confirm the amount of funds
to be released and, upon such confirmation, shall promptly return such
funds as directed in the Cash Release Notice.
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ARTICLE VI
NEGATIVE COVENANTS
The Company covenants and agrees that, so long as any of the
Commitments shall be in effect and until payment in full of the Loans and
all of the Notes, unless the Requisite Lenders shall otherwise give prior
written consent, the Company will perform all covenants in this ARTICLE VI.
Section 6.1 Indebtedness. The Company and its Subsidiaries
shall not directly or indirectly create, incur, assume, guaranty, or
otherwise become or remain directly or indirectly liable with respect to,
any Indebtedness, except:
(i) The Company and its Subsidiaries may become and remain
liable with respect to the Obligations;
(ii) The Company may become and remain liable with respect to
the Indebtedness evidenced by the Refinancing Senior Unsecured Debt;
provided that the principal amount of such Indebtedness shall not
exceed, in the case of a refinancing of either the 9-1/4% Unsecured
Notes, the 8-1/4% Unsecured Notes or any Refinancing Senior Unsecured
Debt, the then outstanding principal amount thereof; and provided,
further, that such Indebtedness (A) provides for interest at rates
which do not exceed the market rates for similar types of
Indebtedness prevailing at the time such Indebtedness is incurred,
(B) has a final scheduled maturity date that is subsequent to the
date on which the final Scheduled Term Loans Principal Payment in
respect of Tranche B Term Loans is due under the Senior Credit
Agreement, (C) has an Average Life to Stated Maturity greater than
the remaining Average Life to Stated Maturity of the Tranche B Term
Loans on the date such Indebtedness is incurred, (D) contains no
representation and warranty, covenant or event of default that (1) is
in addition to the representations and warranties, covenants and
events of default that are currently set forth in the instruments (as
in effect on the Closing Date) evidencing or governing the 9-1/4%
Unsecured Notes or the 8-1/4% Unsecured Notes, as the case may be, or
(2) is more burdensome (to the Company) than the most burdensome (to
the Company) corresponding representation and warranty, covenant or
event of default set forth in the instruments (as in effect on the
Closing Date) evidencing or governing the 9-l/4% Unsecured Notes or
the 8-l/4% Unsecured Notes, as the case may be and (E) if the
Refinancing Senior Unsecured Debt is Subordinated Indebtedness,
contains subordination provisions no less favorable to the Lenders
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than the least favorable subordination provisions (to the Lenders) in
the Existing Subordinated Debt;
(iii) The Company and its Subsidiaries may remain and may
become and remain liable with respect to Intercompany Indebtedness;
provided that (A) all such Intercompany Indebtedness shall be
evidenced by promissory notes, which may be master promissory notes
governing all advances made by the maker of such note to the payee of
such note and (B) any Intercompany Indebtedness owed by the Company
to any Subsidiary shall be subordinated pursuant to the terms of the
promissory note or notes evidencing such Intercompany Indebtedness in
right of payment, from and after such time as the Loans shall have
become due and payable (whether at date of maturity, by acceleration
or otherwise), to the payment in full of the Obligations; and
provided, further, that the aggregate amount of Intercompany
Indebtedness of all Foreign Subsidiaries owing to the Company and the
Subsidiaries of the Company (other than any Foreign Subsidiaries)
shall not exceed the amounts permitted pursuant to the provisions of
Section 6.3 (other than Intercompany Indebtedness owing as a result
of or incurred to finance payment of Royalty or Management Fees that
are payable by Foreign Subsidiaries to the Company and the
Subsidiaries of the Company);
(iv) The Company and its Subsidiaries may remain liable with
respect to Existing Indebtedness which is described in Schedule C
annexed hereto and may become and remain liable in respect of the
Refinancing Foreign Debt;
(v) The Company and its Subsidiaries (other than any Foreign
Subsidiary) may become and remain liable (A) with respect to
Indebtedness in respect of Capital Leases if such Capital Leases
would be permitted by Section 6.9 and (B) with respect to other
Indebtedness secured by Liens permitted by Section 6.2;
(vi) The Company and its Subsidiaries (other than any Foreign
Subsidiary) may become and remain liable with respect to Contingent
Obligations permitted by Section 6.4 and, upon any obligations
actually arising pursuant thereto, with respect to the Indebtedness
corresponding to the Contingent Obligations so extinguished;
(vii) The Company and its Subsidiaries (other than any Foreign
Subsidiary) may become and remain liable with respect to Indebtedness
incurred in connection with Sale/Leaseback Transactions permitted by
Section 6.10;
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(viii) The Company may become and remain liable with respect to
Indebtedness of the Company incurred pursuant to the Management
Agreements;
(ix) Any Foreign Subsidiary of the Company may become and
remain liable with respect to Indebtedness for money borrowed to the
extent that the Dollar equivalent of the aggregate Indebtedness of
such Foreign Subsidiary outstanding pursuant to this
subparagraph (ix) does not exceed, at any time, an amount equal to
150% of the aggregate amount of (A)(i) each investment made by the
Company (whether in the form of equity contributions, Intercompany
Indebtedness, contribution of a Contingent Obligation or otherwise)
and the amount of each equity investment of all other investors in
such Foreign Subsidiary since the Closing Date (all such investments
being valued as at the time of investment) and (ii) the Fair Value
(as of the Closing Date) of all equity Investments in such Foreign
Subsidiary made by all such other investors prior to the Closing Date
reduced by (B) the excess, if any, of (1) the aggregate Fair Value of
all assets (determined, in each case, as at the time of transfer
thereof) transferred by such Foreign Subsidiary (whether by dividend,
loan, contribution or otherwise) since the Closing Date (other than
interest on Intercompany Indebtedness in amounts and at rates not in
excess of those payable in transactions between unaffiliated parties
and payments of, or payments of principal of indebtedness related to,
Royalty or Management Fees) to any investor in such Foreign
Subsidiary over (2) the net income of such Foreign Subsidiary since
the later of the Closing Date and the first date of such Investment
by the Company or any Subsidiary of the Company; provided that,
except as otherwise permitted in Section 6.4, neither the Company nor
any of its Domestic Subsidiaries shall have personal liability for
repayment of such Indebtedness;
(x) The Company or any Domestic Subsidiary of the Company may
become and remain liable with respect to Indebtedness for money
borrowed constituting Permitted Expansion Construction Financing to
the extent that the aggregate Indebtedness outstanding pursuant to
this subparagraph (x) does not exceed the aggregate amounts permitted
under subsection 6.1(x) of the Senior Credit Agreement;
(xi) The Company may become and remain liable with respect to
Indebtedness constituting Permitted Expansion Financings;
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(xii) The Company may become and remain liable with respect to
Indebtedness in an aggregate principal amount not to exceed
$1,440,000,000 under the Senior Credit Agreement; and
(xiii) In addition to the Indebtedness permitted by
subparagraphs (i) through (xii) of this Section 6.1, the Company and
its Subsidiaries may become and remain liable with respect to
Indebtedness not exceeding $25,000,000 in the aggregate at any time
outstanding.
Section 6.2 Liens. The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume
or suffer or permit to exist any Lien upon or with respect to any property
of the Company that is or should (pursuant to the terms hereof) be subject
to the Lien of any Collateral Document except (i) Liens in favor of the
Collateral Agent for the benefit of the lenders under the Senior Credit
Agreement granted to secure the Company's obligations thereunder, which
Liens on the Collateral shall be subject and subordinate to the Liens
granted to the Collateral Agent for the benefit of the Lenders hereunder,
and (ii) Liens which would be permitted pursuant to any applicable
Collateral Documents; provided that no such Liens (other than Prior Liens)
shall be superior to the Lien of such applicable Collateral Document. With
respect to assets other than Collateral, the Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or permit to exist any Lien on or with respect to such property or
asset, whether now owned or hereafter acquired, or any income or profits
therefrom, except:
(i) Permitted Encumbrances;
(ii) Liens described in Schedule D annexed hereto;
(iii) Liens affecting assets, comprised of Existing Mill
Expansion Equipment or Greenfield Expansion Assets, securing
reimbursement obligations of the Company and its Subsidiaries with
respect to letters of credit permitted by subparagraph (vi) of
Section 6.4, in each case which Liens do not encumber Collateral
pledged pursuant to any Collateral Document and which are granted
pursuant to documents relating to such letters of credit;
(iv) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business
(other than any Lien imposed by ERISA) and which are either within
the general parameters customary in the industry (as concurred in by
the Administrative Agent) or are otherwise approved by the
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Requisite Lenders securing obligations under Commodities Agreements
entered into by the Company or any of its Subsidiaries;
(v) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty
requirements of the Company or any of its Subsidiaries incurred in
the ordinary course of business or as a result of this Agreement or
the incurrence, guaranteeing or granting of security interests in
respect of Obligations incurred pursuant to this Agreement or the
other Loan Documents;
(vi) Liens securing Indebtedness permitted under subparagraph
(v) (clause A) or (vii) of Section 6.1, incurred in connection with
Capital Leases or Sale/Leaseback Transactions permitted by Section
6.9 or 6.10 so long as such Liens do not extend to assets other than
the assets subject to such Capital Lease or Sale/Leaseback
Transaction and do not secure any Indebtedness other than
Indebtedness directly incurred to finance such Capital Lease or
Sale/Leaseback Transaction;
(vii) Liens securing Indebtedness of (or of the Wholly-Owned
Subsidiaries of) a Foreign Subsidiary of the Company permitted under
Section 6.1 so long as such Liens do not extend to assets other than
assets owned by such Foreign Subsidiary or its Wholly Owned
Subsidiaries and do not secure any Indebtedness other than
Indebtedness of (or of the Wholly Owned Subsidiaries of) such Foreign
Subsidiary; provided that no such Liens (other than Liens
constituting Preexisting Assumed Liens) may encumber any common stock
or other equity interest in any First Tier Foreign Subsidiary;
(viii) Liens granted in favor of a Lender under the Senior
Credit Agreement to secure the obligations of the Company pursuant to
any Qualified Interest Rate Agreement or Qualified Currency
Agreement;
(ix) Liens securing Indebtedness constituting Permitted
Expansion Construction Financing and incurred in accordance with the
provisions of subparagraph (x) of Section 6.1; provided that no such
Lien may extend to any assets of the Company other than the assets
contemplated in the definition of Permitted Expansion Construction
Financing;
(x) Liens affecting assets, comprised of Existing Mill
Expansion Equipment or Greenfield Expansion Assets, securing
Indebtedness constituting Permitted Expansion
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Financings (other than any such Indebtedness constituting Unsecured
Expansion Financings);
(xi) Liens on assets of the Company and its Subsidiaries
required pursuant to the Senior Credit Agreement as in effect on the
date hereof to be granted by the Company and its Subsidiaries to
secure Indebtedness under the Senior Credit Agreement; and
(xii) In addition to Liens permitted by subparagraphs (i)
through (xi) above, the Company and its Subsidiaries may at any time
have Liens securing the payment of Indebtedness with respect to
property or assets with an aggregate Fair Value of not more than
$25,000,000 (as measured from the Closing Date).
Nothing in this Section 6.2 shall prohibit (A) the sale, assignment,
transfer, conveyance or other disposition of any Margin Stock owned by the
Company or any of its Subsidiaries at its fair value or (B) the creation,
incurrence, assumption or existence of any Lien on or with respect to any
Margin Stock.
Section 6.3 Investments; Joint Ventures. The Company will
not, and will not permit any of its Subsidiaries to, directly or
indirectly, make or own any Investment in any Person or enter into any
Joint Venture, except:
(i) The Company and its Subsidiaries may make and own
Investments in Cash and Cash Equivalents;
(ii) The Company may acquire and own Common Stock to the
extent permitted under Section 6.5;
(iii) The Company and its Subsidiaries may continue to own
Investments in existence on the date hereof, and which are
specifically described in Schedule E annexed hereto;
(iv) The Company and its Subsidiaries may make intercompany
loans to the Company or any Domestic Subsidiary of the Company to the
extent permitted under Section 6.1;
(v) The Company and its Subsidiaries may continue to own
Investments in respect of Joint Ventures in existence on the date
hereof, and which are specifically described in Schedule E annexed
hereto;
(vi) The Company and its Subsidiaries may make and own
Investments in Joint Ventures operating in the United States after
the date hereof; provided that the aggregate
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amount of such Investments made after the date hereof shall not
exceed $25,000,000;
(vii) The Company or any Subsidiary of the Company may make and
own Investments received in connection with the bankruptcy or
reorganization of any of its suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, its
customers and suppliers arising in the ordinary course of business;
(viii) The Company or any Subsidiary of the Company may make and
own Investments arising in connection with Commodities Agreements
entered into in the ordinary course of its business;
(ix) The Company and its Domestic Subsidiaries may make and
own Investments in Foreign Subsidiaries; provided that the aggregate
amount of the Fair Values of all assets (including, but not limited
to, cash, cash equivalents, capital and other assets) transferred by
the Company and its Domestic Subsidiaries (such Fair Value to be
measured in each case as of the actual date of transfer) to, and the
maximum amount of all Contingent Obligations incurred for the benefit
of, one or more Foreign Subsidiaries by way of capital contribution,
loan, guarantee or otherwise shall not exceed at any time (A) the
aggregate Fair Value of all assets (including, but not limited to,
cash, cash equivalents, capital and other assets) transferred after
the Closing Date by all Foreign Subsidiaries in the aggregate to the
Company and its Domestic Subsidiaries (such Fair Value to be measured
in each case as of the actual date of transfer) by way of capital
contribution, loan, dividend, distribution or otherwise and all
reductions in Investments constituting Contingent Obligations
(effected as a result of the retirement after the Closing Date by the
applicable Foreign Subsidiary of Indebtedness guaranteed by the
Company or any Domestic Subsidiary of the Company), plus
(B) (i) during the period commencing on the Closing Date and ending
on June 30, 1996, $40,000,000, and (ii) during all periods after
June 30, 1996, $40,000,000 until such time as the Company shall have
achieved an Interest Coverage Ratio of 1.9 or more, after which time
such amount shall be increased to $100,000,000, plus (C) the
aggregate of all amounts of the unutilized Discretionary Equity
Proceeds Balance and the unutilized Discretionary Excess Cash Flow
Balance which the Company has from time to time elected to apply to
the making of Investments pursuant to this subparagraph (ix)
(provided that the total of all amounts of the unutilized
Discretionary Equity Proceeds Balance which the Company may elect to
apply pursuant to this clause (C) shall not
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exceed, at any time, an amount equal to 50% of the sum of the Closing
Date Excess Equity Proceeds Amount and the aggregate amount, as of
such time, of all net cash proceeds received by the Company or any of
its Subsidiaries after the Closing Date from all Equity Offerings
after the Closing Date (exclusive of any shares sold pursuant to an
overallotment option in respect of the Common Stock Offering) plus
(D) the aggregate amount of Royalty and Management Fees on a
consolidated basis previously paid after the Closing Date by Foreign
Subsidiaries to the Company and its Subsidiaries; and provided,
further, that nothing set forth in this subparagraph (ix) shall be
construed to permit the transfer to any Foreign Subsidiary of any
asset which constitutes Collateral or which constitutes Collateral
(as such term is defined in the Senior Credit Agreement as in effect
on the date hereof);
(x) The Company and its Domestic Subsidiaries may make and
own Investments in any Foreign Subsidiary consisting of the transfer
of tangible assets to such Foreign Subsidiary; provided that (A) the
aggregate book value of all such tangible assets so transferred after
the Closing Date pursuant to this subparagraph (x) (determined, in
each case, as of the date of transfer) after the Closing Date shall
not exceed $10,000,000 and (B) the aggregate Fair Value (as so
determined) of all such tangible assets so transferred after the
Closing Date pursuant to this subparagraph (x) shall not exceed
$25,000,000;
(xi) The Company and its Subsidiaries may make and own
Investments in equity securities (other than equity securities of the
Company or any of its Subsidiaries) listed on the New York Stock
Exchange ("NYSE"); provided that the aggregate value, as determined
by the closing price on the NYSE for such equity securities on the
Business Day prior to making the Investment, of such equity
securities shall not at any time exceed $2,000,000;
(xii) The Company or any Subsidiary may continue to own
Investments in, and may make and own Investments in, Consolidated
Domestic Capital Expenditures permitted to be made or owned by the
Company or such Subsidiary under Section 6.14 and may make
Investments as a direct consequence of the discharge of Contingent
Obligations permitted under Section 6.4;
(xiii) The Company may make Investments constituting recourse
and non-recourse loans to management and other employees of the
Company to purchase Common Stock and to
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pay taxes in respect of such purchases as permitted by the Management
Agreements in an aggregate principal amount not to exceed $10,000,000
(plus accrued and unpaid interest thereon) at any time outstanding;
and
(xiv) In addition to Investments permitted by subparagraphs (i)
through (xiii) of this Section 6.3, the Company and its Subsidiaries
may after the Closing Date make and own Investments (other than
Investments in Foreign Subsidiaries or other Persons, properties or
operations that are not organized or located in the United States of
America (exclusive of its territories and possessions)) (A) with an
aggregate Fair Value (determined, in each case, at the time such
Investment is made) of not more than $25,000,000 outstanding at any
time, and (B) (without limiting the rights of the Company under
clause (A) hereof) in an aggregate amount (determined, in each case,
at the time such Investment is made) outstanding at any time not
exceeding the aggregate of all amounts of the unutilized
Discretionary Equity Proceeds Balance and the unutilized
Discretionary Excess Cash Flow Balance which the Company has from
time to time elected to apply to the making of Investments pursuant
to this subparagraph (xv); provided that, except as set forth in
subparagraph (xi) of this Section 6.3, neither the Company nor any of
its Subsidiaries may make or own Investments in any Margin Stock
other than Common Stock.
Section 6.4 Contingent Obligations. The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, create
or become or be liable with respect to any Contingent Obligation except:
(i) Guarantees resulting from endorsement of negotiable
instruments for collection in the ordinary course of business;
(ii) Obligations under the Guarantor Subsidiary Guarantees as
in effect on the date hereof;
(iii) Guarantees of Interest Rate Agreements and Currency
Agreements entered into by the Company which are permitted by
subparagraphs (iv) and (v) of this Section 6.4;
(iv) Interest Rate Agreements and Currency Agreements (other
than Leveraged Swaps) entered into by the Company and any Lender;
(v) Commodities Agreements and Currency Agreements (other
than Leveraged Swaps) entered into by the Company
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or any Subsidiary of the Company and any financial institution in the
ordinary course of business;
(vi) Contingent reimbursement obligations not exceeding
$10,000,000 in the aggregate outstanding at one time under letters of
credit (including any such letters of credit in existence as of the
date hereof) other than Letters of Credit;
(vii) Contingent Obligations in existence on the date hereof
described in Schedule G and extensions and renewals thereof so long
as the amount of any such Contingent Obligations so extended or
renewed is not increased thereby from the amount thereof at the time
extended or renewed;
(viii) Contingent Obligations in respect of any obligation
(other than any obligation with respect to Indebtedness) of (A) the
Company or one of its Domestic Subsidiaries and (B) Foreign
Subsidiaries to the extent, in the case of clause (A) and (B), such
Contingent Obligation is an Investment permitted under Section 6.3;
(ix) Contingent Obligations represented by performance bonds
and similar obligations relating to the sale of the Company's or its
Subsidiaries' products incurred in the ordinary course of business
(exclusive of obligations for payment of borrowed money) not to
exceed $10,000,000 at any time;
(x) Contingent Obligations represented by surety bonds and
similar obligations incurred in the ordinary course of business
(exclusive of obligations for payment of borrowed money) not to
exceed $15,000,000 at any time;
(xi) Contingent Obligations pursuant to the Management
Agreements;
(xii) Contingent Obligations in respect of Indebtedness of (A)
the Company or a Domestic Subsidiary of the Company and (B) Foreign
Subsidiaries to the extent such Contingent Obligations are
Investments permitted under Section 6.3;
(xiii) Contingent reimbursement obligations not exceeding
$50,000,000 in the aggregate outstanding at any time under Letters of
Credit; and
(xiv) In addition to the Contingent Obligations permitted by
subparagraphs (i) through (xiii) of this Section 6.4, the Company and
its Subsidiaries may become
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and remain liable with respect to other Contingent Obligations except
Contingent Obligations which constitute Investments in Foreign
Subsidiaries pursuant to Section 6.3 or which are for the benefit of
any Foreign Subsidiary of the Company; provided that the maximum
aggregate liability of the Company and its Subsidiaries in respect
of all Contingent Obligations incurred pursuant to this subparagraph
(xiv) shall not at any time exceed $25,000,000.
Section 6.5 Restricted Junior Payments. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly,
declare, order, pay, make or set apart any sum for any Restricted Junior
Payment except that (A) during each of the first two twelve-month periods
starting on the Closing Date, the Company may declare and pay cash
dividends to holders of its Common Stock in an amount up to $3,000,000 for
each such period, (B) during any twelve-month period commencing on or after
the second anniversary of the Closing Date, the Company may declare and pay
cash dividends to holders of its Common Stock in an annual amount not to
exceed 6% of the sum of (1) $300,000,000 less the amount of all Transaction
Costs reasonably determined by the Company to be attributable to the first
$300,000,000 of gross proceeds of the Common Stock Offering and (2) the
aggregate net cash proceeds of all issuances of Common Stock of the Company
occurring after the Closing Date (excluding the Common Stock Offering and
any Common Stock sold pursuant to an overallotment option in connection
with the Common Stock Offering); provided that no dividend in excess of
$3,000,000 that is proposed to be declared or paid pursuant to this clause
(B) may be declared or paid unless at the date of declaration and the date
of payment thereof the unutilized portion of the Revolving Loan Commitment
under the Senior Credit Agreement shall equal or exceed $100,000,000,
(C) the Company may, commencing on March 31, 1996 and on each March 31
thereafter, declare and pay cash dividends to holders of its Common Stock
in an amount not to exceed the then unutilized portion of the Discretionary
Excess Cash Flow Balance, (D) the Company may (1) repurchase or redeem the
Senior Unsecured Notes, in each case on the terms provided in the
indentures governing the Senior Unsecured Notes (each as in effect on the
date hereof), with the proceeds of Refinancing Senior Unsecured
Indebtedness incurred in compliance with the provisions of Section 6.1,
(2) repurchase or redeem its Common Stock pursuant to the Management
Agreements and the Stockholders Agreements (each as in effect on the date
hereof or, in the case of a Broad-Based Plan, the date of adoption thereof)
to the extent that the aggregate amount of such repurchases and redemptions
does not exceed $35,000,000 in the aggregate (as measured from the Closing
Date) and (3) make purchases of Common Stock owned by MS Group for
immediate
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resale to Persons other than the Company or a Subsidiary of the Company,
(E) the Company may issue Indebtedness permitted under subparagraph (viii)
of Section 6.1, (F) the Company may make Investments under subparagraph
(xiii) of Section 6.3, (G) the Company may make, from time to time,
Restricted Junior Payments of the character contemplated in clauses (A) and
(D)(1) above and, following the retirement of all the Senior Unsecured
Notes or the refinancing of all the Senior Unsecured Notes with Refinancing
Senior Unsecured Debt having a final maturity later than the final maturity
of the Tranche B Term Loans, the Company may repurchase or redeem
Subordinated Indebtedness in an aggregate amount not exceeding, at any
time, the aggregate of all amounts of the unutilized Discretionary Equity
Proceeds Balance which the Company has from time to time elected to apply
to the making of Restricted Junior Payments pursuant to this clause (G);
provided that if and for so long as the Company shall have achieved the
Investment Grade Ratings in respect of the senior unsecured debt
obligations of the Company, the Company shall not be required, as a
condition to any exercise of its rights under this clause (G) with respect
to redemptions and repurchases of Subordinated Indebtedness, to first
refinance, repurchase or retire all Senior Unsecured Notes and all
Refinancing Senior Unsecured Notes, (H) the Company may, from time to time,
make Restricted Junior Payments of the character contemplated in
clauses (A) and (D)(1) above, and the Company may repurchase or redeem
Subordinated Indebtedness in an aggregate amount not exceeding at any time,
the aggregate of all amounts of the unutilized Discretionary Excess Cash
Flow Balance which the Company has from time to time elected to apply to
the making of Restricted Junior Payments pursuant to this clause (H) and
(I) the Company may redeem the 12 5/8% Subordinated Debentures and the
14 1/8% Discount Debentures as contemplated by the Recapitalization.
Notwithstanding the foregoing, the Company may not declare or pay any
dividends or redeem or repurchase any Securities or issue any Indebtedness
or make any Investments referred to above (1) except to the extent
permitted by applicable law or (2) if, at the time of such declaration or
payment or redemption, repurchase, issuance or investment and immediately
after giving effect thereto, no Potential Event of Default or Event of
Default shall have occurred and be continuing.
Section 6.6 Financial Covenants.
6.6.1. Interest Coverage Ratio. The Company will not permit
the Interest Coverage Ratio to be less than (A) for the first and second
full fiscal quarters (taken as one accounting period) beginning after the
Closing Date, 1.25, (B) for the first, second, and third full fiscal
quarters (taken as one accounting period) beginning after the Closing Date,
1.25, and (C) for any period of four consecutive full fiscal quarters
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(in each case taken as one accounting period) beginning after the Closing
Date and ended during a period set forth below, the ratio set forth
opposite such period:
Period Ratio
12/31/95 - 12/30/96 1.40x
12/31/96 - 12/30/97 1.50x
12/31/97 - 12/30/98 1.60x
12/31/98 - 12/30/99 1.75x
12/31/99 - 12/30/00 1.85x
12/31/00 and thereafter 2.00x
6.6.2. Maximum Leverage Ratio. The Company will not permit
the Leverage Ratio as of the end of any fiscal quarter set forth during any
period below to be more than the ratio set forth opposite such period:
Period Ratio
9/30/95 - 12/30/95 4.25x
12/31/95 - 3/30/96 4.00x
3/31/96 - 6/29/96 3.85x
6/30/96 - 7/29/96 3.70x
9/30/96 - 12/30/96 3.55x
12/31/96 - 3/30/97 3.45x
3/31/97 - 6/29/97 3.30x
6/30/97 - 9/29/97 3.20x
9/30/97 - 12/30/97 3.10x
12/31/97 - 12/30/98 3.00x
12/31/98 - 12/31/99 2.75x
12/31/99 - 12/30/00 2.50x
12/31/00 and thereafter 2.00x
Section 6.7 Restriction on Fundamental Changes. Subject to
Section 5.2, neither the Company nor any of its Subsidiaries will enter
into any transaction of merger or consolidate, or liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution), or convey,
sell, lease, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any part of its business, property or fixed
assets, whether now owned or hereafter acquired, or acquire by purchase or
otherwise all or substantially all the business, property or fixed assets
of, or stock or other evidence of beneficial ownership of, any Person,
except:
6.7.1. Any Subsidiary of the Company may be merged or
consolidated with or into the Company or any Wholly Owned Subsidiary of the
Company (other than a Foreign Subsidiary), or be liquidated, wound up or
dissolved, or all or substantially
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all of its business, property or assets may be conveyed, sold, leased,
transferred or otherwise disposed of, in one transaction or a series of
transactions, to the Company or any Wholly Owned Subsidiary of the Company
(other than a Foreign Subsidiary); provided that (A) any Foreign Subsidiary
of the Company (other than a Foreign Subsidiary that is a Material
Subsidiary) may be merged or consolidated with or into any other Foreign
Subsidiary, or be liquidated, wound up or dissolved, or (B) all or
substantially all of the business, property or assets of any Foreign
Subsidiary (other than a Foreign Subsidiary that is a Material Subsidiary)
may be conveyed, sold, leased, or transferred or otherwise disposed of, in
one transaction or a series of transactions to another Foreign Subsidiary
(other than to a Foreign Subsidiary that is also a Material Subsidiary) or
(C) any of the foregoing transactions may occur between two Foreign
Subsidiaries that are Material Subsidiaries; and provided, further, that,
in the case of such a merger or consolidation of a Subsidiary and the
Company, the Company shall be the continuing or surviving corporation, or,
in the case of a merger or consolidation of a Subsidiary and a Wholly Owned
Subsidiary, the Wholly Owned Subsidiary shall be the continuing or
surviving corporation, or, in the case of a merger or consolidation of two
Wholly Owned Subsidiaries, either of such Subsidiaries shall be the
surviving or continuing corporation;
6.7.2. The Company or any of its Subsidiaries may convey,
sell, transfer or otherwise dispose of any Margin Stock, whether now owned
or hereafter acquired; provided that such disposition is for Fair Value;
6.7.3. The Company and its Subsidiaries may sell or dispose of
in the ordinary course of business (A) property which is obsolete or no
longer useful in any of its businesses or is of de minimis value (as
determined, in the case of any such property the Fair Value of which is in
excess of $10,000,000, in good faith by the Board of Directors of the
Company or any Subsidiary selling such property, as the case may be),
(B) Cash and Cash Equivalents, (C) other Investments described in
subparagraphs (vii) and (x) of Section 6.3; provided that any such sale or
other disposition is made for at least the Fair Value of such assets and
(D) Receivables subject to the requirements of Sections 5.10 and 6.11;
6.7.4. Subject to Sections 5.2 and 6.7 and 5.10 in respect of
sales of Collateral, so long as no Event of Default has occurred and is
continuing or shall be caused thereby, the Company and its Subsidiaries may
sell or otherwise dispose of any of their respective assets outside the
ordinary course of business; provided that (A) any such sale or other
disposition is made for at least the Fair Value of such assets, (B) any
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sale or other disposition of more than $250,000,000 in Fair Value of stock
or other assets in any one transaction or a related series of transactions
shall be subject to the prior written consent of Requisite Lenders unless
such sale or other disposition is of Margin Stock, and (C) in the case of
any Collateral shall be subject to the requirements of Sections 5.10 and
6.11;
6.7.5. The Company and its Subsidiaries may sell, resell or
otherwise dispose of real or personal property held for sale or resale in
the ordinary course of business; and
6.7.6. The Company and its Subsidiaries may make Investments
otherwise permitted pursuant to Section 6.3 and Capital Expenditures
otherwise permitted pursuant to Section 6.14.
Section 6.8 ERISA. The Company will not, and will not permit
any of its ERISA Affiliates to:
6.8.1. engage in any transaction in connection with which the
Company or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Internal Revenue Code in either case in an aggregate
amount in excess of $1,000,000;
6.8.2. fail to make full payment when due of all amounts
which, under the provisions of any Pension Plan, or under ERISA or the
Internal Revenue Code, the Company or any of its ERISA Affiliates is
required to pay as contributions thereto; or permit to exist any
accumulated funding deficiencies for which a waiver from the Internal
Revenue Service has not been obtained with respect to all Pension Plans in
an aggregate amount greater than $5,000,000;
6.8.3. permit the sum of the amount of unfunded benefit
liabilities under all Pension Plans (excluding each Pension Plan with an
amount of unfunded benefit liabilities of zero or less) to exceed
$25,000,000; or
6.8.4. fail to make any payments in an amount individually or
in the aggregate greater than $1,000,000 to any Multiemployer Plan that the
Company or any of its ERISA Affiliates may be required to make under such
Multiemployer Plan, any agreement relating to such Multiemployer Plan, or
any law pertaining thereto.
As used in this Section 6.8, the term "accumulated funding
deficiency" has the meaning specified in Section 302 of ERISA and Section
412 of the Internal Revenue Code, and the
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term "amount of unfunded benefit liabilities" has the meaning specified in
Section 4001(a)(18) of ERISA.
Section 6.9 Restriction on Leases. The Company will not, and
will not permit any of its Subsidiaries to, become or remain liable in any
way, whether directly or by assignment or as a guarantor or other surety,
for the obligations as or of the lessee under any lease (other than
intercompany leases between and among the Company and its Domestic
Subsidiaries), whether an Operating Lease or a Capital Lease, unless,
immediately after giving effect to the incurrence of liability with respect
to such lease, the Consolidated Rental Payments at the time in effect
during the then current fiscal year of the Company shall not exceed the
applicable amount set forth below:
Fiscal Year Amount
1995 $ 50,000,000
1996 $ 55,000,000
1997 $ 60,000,000
1998 $ 65,000,000
1999 $ 70,000,000
2000 $ 75,000,000
2001 $ 80,000,000
2002 $ 85,000,000
Notwithstanding the foregoing, if the Company or any of its Subsidiaries
shall have sold any Subsidiary or any line of business to any Person (other
than the Company or any Subsidiary), each of the above amounts with respect
to any period from or after the date of such sale shall be reduced by an
amount equal to the reasonable good faith estimates by the Company (using
such methods as the Administrative Agent may reasonably approve) of
Consolidated Rental Payments of such Subsidiary or such line of business
for such periods.
Section 6.10 Sales and Leasebacks. The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, become
or remain liable as lessee or as guarantor or other surety with respect to
any lease, whether an Operating Lease or a Capital Lease, of any property
(whether real or personal or mixed), whether now owned or hereafter
acquired in a Sale/Leaseback Transaction; provided that the Company or any
of its Subsidiaries may enter into Sale/Leaseback Transactions otherwise
prohibited under this Section 6.10 if (A) the assets to be subject to such
Sale/Leaseback Transaction are acquired, constructed or placed in service
after the Closing Date, and (B) the provisions of Section 6.9 would not be
breached thereby.
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Section 6.11 Sale or Discount of Receivables
The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, sell with or without recourse, or
discount or otherwise sell for less than the face value thereof, notes or
accounts receivable except notes issued in favor of the Company or any of
its Subsidiaries in connection with sales or other dispositions of assets
(other than inventory) so long as the Company or such Subsidiary, as the
case may be, receives the Fair Value of such notes and such notes are sold
without recourse.
Section 6.12 Transactions with Shareholders and Affiliates.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(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 equity securities of the Company 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 from Persons who are not such a holder or Affiliate;
provided that the foregoing restriction shall not apply to (A) any
transaction between the Company and any of its Wholly Owned Subsidiaries or
between any of its Wholly Owned Subsidiaries, (B) customary fees paid to
members of the Board of Directors of the Company and its Subsidiaries,
(C) the payment of fees to MS Group or its Affiliates from time to time for
financial, consulting and underwriting services, such fees not to exceed
the then usual and customary fees of MS Group or its Affiliates for similar
services, (D) transactions contemplated by the Management Agreements and
the Stockholders Agreement and (E) transactions permitted by Section 6.5.
Section 6.13 Disposal of Subsidiary Stock. Except as
permitted by Section 5.6, 6.2 or 6.7 and, except with respect to Margin
Stock, the Company will not:
6.13.1. directly or indirectly sell, assign, pledge or
otherwise encumber or dispose of any shares of capital stock or other
equity securities of (or warrants, rights or options to acquire shares or
other equity securities of) any of its Subsidiaries, except to qualify
directors if required by applicable law; or
6.13.2. permit any of its Subsidiaries directly or indirectly
to sell, assign, pledge or otherwise encumber or dispose of any shares of
capital stock or other equity securities or convertible debt securities of
(or warrants, rights or options to acquire shares or other equity
securities
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or convertible debt securities of) such Subsidiary, except to the Company,
another Wholly Owned Subsidiary of the Company or to qualify directors if
required by applicable law.
Nothing in this Section 6.13 shall prohibit the sale,
assignment, transfer, conveyance or other disposition of any Margin Stock
owned by the Company or any of its Subsidiaries or the creation,
incurrence, assumption or existence of any Lien on or with respect to any
Margin Stock.
Section 6.14 Limitation on Capital Expenditures.
6.14.1. The Company will not, and will not permit any of its
Subsidiaries to, incur Capital Expenditures, except as specifically
permitted in the following subsections of this Section 6.14.
6.14.2. Any one or more of the Foreign Subsidiaries of the
Company may incur Capital Expenditures in such amounts and for such
purposes as shall be determined by the Company or any such Foreign
Subsidiary in its discretion; provided, however, that the Company and its
Subsidiaries shall comply and have complied in all respects with the
provisions of subsections (ix) and (x) of Section 6.3 in respect thereof to
the extent applicable to such Capital Expenditures.
6.14.3. During each fiscal year of the Company ending on or
after December 31, 1995, the Company and its Domestic Subsidiaries may
incur on or after January 1, 1995, in respect of (A) the Green Bay Sludge
Boiler, (B) the Savannah Boiler and (C) other matters not constituting
Expansion Projects, Consolidated Domestic Capital Expenditures in an
aggregate amount not in excess of $75,000,000 (the "Base Annual Capex
Amount").
6.14.4. Without limiting the rights of the Company and its
Domestic Subsidiaries to incur Consolidated Domestic Capital Expenditures
in accordance with subsection 6.14.3 above, the Company and its Domestic
Subsidiaries may incur Consolidated Domestic Capital Expenditures in
respect of Expansion Projects (other than the Green Bay Sludge Boiler and
the Savannah Boiler) on the following terms and subject to each of the
following conditions:
(i) the aggregate amount (the "Domestic Capex Maximum") of
Consolidated Domestic Capital Expenditures in the aggregate which may
be incurred in respect of all such Expansion Projects shall not at
any time exceed the sum of (a) $250,000,000 plus (b) the total amount
of net cash proceeds received by the Company or any of its
Subsidiaries after the Closing Date and prior to such time
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in respect of Permitted Expansion Financings (other than any
Permitted Expansion Financings relating solely to the Green Bay
Sludge Boiler or the Savannah Boiler);
(ii) except for Capital Expenditures incurred in connection
with the Initial Major Expansion Project or the Green Bay Dry Form
Machine, neither the Company nor any of its Domestic Subsidiaries
shall be permitted to incur, or become bound by any Contractual
Obligation to incur, Consolidated Domestic Capital Expenditures in
respect of any single such Expansion Project (the first of such
Expansion Projects, the "Second Expansion Project") in excess of
$30,000,000, unless the Company shall have, in respect of any period
of four full consecutive fiscal quarters of the Company commencing
after the Closing Date and ending with the quarter immediately
preceding the quarter in which such amount in excess of $30,000,000
is first committed to be spent by the Company, achieved an Interest
Coverage Ratio of 1.9 or greater (it being understood that, if the
Second Interest Coverage Ratio shall have been so achieved, the
Company shall not be required to maintain such Interest Coverage
Ratio as a condition to incurring further expenditures in respect of
the Second Expansion Project); and
(iii) except for Capital Expenditures incurred in connection
with the Initial Major Expansion Project or the Second Expansion
Project (to the extent permitted under clause (ii) above), neither
the Company nor any of its Domestic Subsidiaries shall be permitted
to incur, or become bound by any Contractual Obligation to incur,
Consolidated Domestic Capital Expenditures in respect of any single
Expansion Project in excess of $30,000,000 unless the Company shall
have, in respect of any period of four consecutive fiscal quarters of
the Company commencing on or after the Closing Date and ending after
the quarter immediately preceding the quarter in which such amount in
excess of $30,000,000 is first spent or committed to be spent by the
Company in respect of such Expansion Project, achieved an Interest
Coverage Ratio of 2.15 or greater (it being understood that, if such
Interest Coverage Ratio shall have been so achieved, the Company
shall not be required to maintain such Interest Coverage Ratio as a
condition to incurring further expenditures in respect of such
Expansion Project).
6.14.5. The Company may elect by written notice to the Lenders
to apply to the making of Consolidated Domestic Capital Expenditures, in
addition to the Base Annual Capex Amount and the Domestic Capex Maximum
permitted under subsection 6.14.3 and 6.14.4, as applicable, (A) portions
of
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the then unutilized Discretionary Equity Proceeds Balance and the then
unutilized Discretionary Excess Cash Flow Balance and (B) 100% of the
unused amount (the "Capex Carryover Amount") of Consolidated Domestic
Capital Expenditures, if any, in respect of prior fiscal years (beginning
with fiscal year 1995) permitted under subsection 6.14.3.
6.14.6. For purposes of this Section 6.14 only, "Capital
Expenditures" shall exclude expenditures of insurance proceeds received
upon destruction of property to the extent such proceeds are used to effect
restoration, replacement or repair of such property.
Section 6.15 Conduct of Business. The Company will not, and
will not permit any of its Subsidiaries to, engage in any business other
than (A) the business it and its Subsidiaries are engaged in on the date
hereof as described in the Prospectus and similar or related businesses,
(B) such other businesses as are engaged in by it and its Subsidiaries on
the date hereof as shall not be of a nature which are material to it and
its Subsidiaries and (C) such other lines of business as may be consented
to by the Requisite Lenders (such consent not to be unreasonably withheld).
Section 6.16 Amendments or Waivers of Certain
Documents; Prepayments of Indebtedness.
6.16.1. Neither the Company nor any of its Subsidiaries will
agree to any (A) amendment to provisions of the Management Agreements
imposing any additional obligation on the Company with respect to the
acquisition by the Company or any of its Subsidiaries of any capital stock
of the Company to the extent the aggregate amount of all such additional
obligations would cause the Company to exceed the limitation on repurchases
or redemptions of its Common Stock set forth in subclause (D)(2) of Section
6.5 (it being understood that any and all such additional obligations will
be taken into account in determining whether such limitation has been
exceeded), or (B) amendment to provisions of the Stockholders' Agreement
which is materially adverse to the interests of the Lenders.
6.16.2. Neither the Company nor any of its Subsidiaries will
(A) amend or otherwise change the terms of the Subordinated Notes or the
indentures relating thereto, the Existing Subordinated Debt or the
indentures relating thereto, the Senior Unsecured Notes or the indentures
related thereto, any Refinancing Senior Unsecured Debt, any Permitted
Expansion Financing, any Expansion Lease, the Senior Credit Agreement and
the documentation executed in connection therewith, the documents
evidencing the 1988 Revenue Bonds or the 1988 Revenue Bond Indenture, if
the effect of such amendment or change is to
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increase the interest rate on such Indebtedness or the rental amounts due
thereunder, as the case may be, change the dates upon which payments of
rent, principal or interest are due thereon, change any event of default or
condition to an event of default with respect to such Indebtedness or
Expansion Lease, grant any security interest in favor of such Indebtedness,
change the redemption provisions thereof, change the subordination
provisions thereof, cause such Indebtedness or Expansion Lease to be
guaranteed by any Subsidiary of the Company or which, together with all
other amendments or changes made, increase materially the obligations of
the obligor or confer additional rights on the holder of such Indebtedness
or Expansion Lease which would be adverse to the Company or the Lenders or
(B) except as otherwise expressly permitted in this Agreement, defease, or
make any payments the effect of which is to defease, any such Indebtedness
in whole or in part (whether pursuant to the defeasance provisions of such
Indebtedness or otherwise).
6.16.3. Except for the making of Restricted Junior Payments
expressly permitted under Section 6.5, the Company will not make any
payment or prepayment of principal of, or interest on, or premium (if any)
on, any of the Subordinated Notes except, in each case, for (A) regularly
scheduled payments of principal, if any, and interest in accordance with
the terms of the instruments evidencing or governing such Indebtedness, (B)
payment of principal on the scheduled final maturity date of such
Indebtedness in accordance with the terms of the governing instruments with
respect thereto and (C) any mandatory payment or prepayment required to be
made as a result of acceleration pursuant to the terms of the instruments
governing such Indebtedness as in effect on the date hereof.
6.16.4. Neither the Company nor any of its Subsidiaries will
make any payment or prepayment of principal of, or interest on, or premium
(if any) on, the Senior Unsecured Notes or the Refinancing Senior Unsecured
Debt, except, in each case, for (A) a refinancing of the Senior Unsecured
Notes with the proceeds of Refinancing Senior Unsecured Debt permitted
under Section 6.5, (B) regularly scheduled payments of interest in
accordance with the terms of the applicable Senior Unsecured Notes
Indenture or the instruments governing the Refinancing Senior Unsecured
Debt, as the case may be, (C) payment of principal on the scheduled final
maturity date of the Senior Unsecured Notes or the Refinancing Senior
Unsecured Debt, in each case, in accordance with the terms of the
applicable loan agreement, indenture or other governing instruments and
(D) any mandatory payment or prepayment required to be made as a result of
acceleration pursuant to the terms of the applicable Senior Unsecured Notes
Indenture or the instruments governing the Refinancing Senior
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Unsecured Debt, as the case may be, in each case as in effect on the date
hereof.
6.16.5. Neither the Company nor any of its Subsidiaries will
voluntarily terminate any Expansion Lease or otherwise optionally make,
either directly or indirectly, any payment to acquire or otherwise
reacquire any assets leased by the Company under any Expansion Lease or any
interest therein (including, without limitation, any beneficial interest
therein) or any Indebtedness secured thereby, or make any optional
prepayment of any rental obligation under any Expansion Lease to any other
party to any Expansion Lease.
6.16.6. Neither the Company nor any of its Subsidiaries will
make any payment or prepayment of principal of, or interest on, or premium
(if any) on, any Indebtedness constituting Permitted Expansion Financing
except for (A) regularly scheduled payments of principal, if any, and
interest in accordance with the terms of the instruments governing such
Indebtedness, (B) payment of principal on the scheduled final maturity date
of such Indebtedness in accordance with the terms of the instruments
governing such Indebtedness and (C) any mandatory payment or prepayment
required to be made as a result of acceleration or otherwise pursuant to
the terms of the instruments governing such Indebtedness.
6.16.7. Neither the Company nor any of its Subsidiaries will
make any payment or prepayment of principal of, or interest on, or premium
(if any) on the Senior Loans, except, in each case, for (A) mandatory
prepayments required pursuant to Section 2.7.2 of the Senior Credit
Agreement as in effect on the date hereof, (B) regularly scheduled payments
of interest in accordance with the terms of the Senior Credit Agreement as
in effect on the date hereof and (C) any mandatory payment or prepayment
required to be made as a result of acceleration or otherwise pursuant to
the terms of the Senior Credit Agreement as in effect on the date hereof.
Section 6.17 Payment of Cash Interest on Subordinated Debt.
Except with the consent of the Requisite Lenders, the Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, pay any
interest in cash on Subordinated Debt where the Company has the option to
pay such interest in securities or to accrue the interest payable with
respect to such Subordinated Debt.
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ARTICLE VII
EVENTS OF DEFAULT
If any of the following conditions or events ("Events of
Default") shall occur and be continuing:
Section 7.1 Failure To Make Payments When Due. Failure to pay
the Loans when due, whether at stated maturity, by acceleration, by notice
of prepayment or otherwise or failure to pay for 5 days after the day when
due any interest on the Loans or any other amount due under this Agreement;
or
Section 7.2 Default in Other Agreements. Failure of the
Company or any of its Subsidiaries to pay when due (A) any principal or
interest on any Indebtedness (other than Indebtedness referred to in
Section 7.1) 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 or (B) any Contingent Obligation in an individual amount of
$15,000,000 or more or Contingent Obligations with an aggregate amount of
$30,000,000 or more, in each case at the stated maturity thereof or beyond
the end of any period after which the obligee thereunder is permitted to
accelerate payment thereunder, or breach or default of the Company or any
of its Subsidiaries with respect to any other material term of any loan
agreement, mortgage, indenture or other agreement relating to any
Indebtedness 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 or any Contingent Obligation in an individual amount of $15,000,000 or
more or Contingent Obligations with an aggregate amount of $30,000,000 or
more; if the effect of such failure, default or breach is to cause, or to
permit the holder or holders of that Indebtedness or Contingent Obligation
(or a trustee on behalf of such holder or holders) then to cause, that
Indebtedness or Contingent Obligation to become or be declared due prior to
its stated maturity (or the stated maturity of any underlying obligation,
as the case may be); or
Section 7.3 Breach of Certain Covenants. Failure of the
Company to perform or comply with any term or condition contained in
Section 2.6, 5.2 or 5.6, ARTICLE VI or Section 9.6 of this Agreement; or
Section 7.4 Breach of Warranty. Any representation or
warranty made by the Company in any Loan Document or in any statement or
certificate at any time given by such Person in writing pursuant hereto or
thereto or in connection herewith or
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therewith shall be false in any material respect on the date as of which
made; or
Section 7.5 Other Defaults Under Agreement or Loan Documents.
The Company shall default in the performance of or compliance with any term
contained in this Agreement or other Loan Documents other than those
referred to above in Sections 7.1, 7.3 or 7.4 and such default shall not
have been remedied or waived within 30 days after receipt of notice from
the Administrative Agent or any Lender of such default; or
Section 7.6 Involuntary Bankruptcy; Appointment of
Receiver, etc.________________________
7.6.1. A court having jurisdiction in the premises shall enter
a decree or order for relief in respect of the Company, or any of its
Subsidiaries which, as of the date of entry of such decree or order, would
constitute a Material Subsidiary (whether or not, as of such date, such
Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary
under any other applicable provision of this Agreement) in an involuntary
case under the Bankruptcy Code or any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, which decree or order is not
stayed; or any other similar relief shall be granted under any applicable
federal or state law; or
7.6.2. An involuntary case is commenced against the Company or
any of its Subsidiaries which, as of the date of such commencement, would
constitute a Material Subsidiary (whether or not, as of such date, such
Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary
under any other applicable provision of this Agreement) under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises
for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over the Company or any of
such Subsidiaries, or over all or a substantial part of the property of the
Company or any of such Subsidiaries, shall have been entered; or an interim
receiver, trustee or other custodian of the Company or any of such
Subsidiaries for all or a substantial part of the property of the Company
or any of such Subsidiaries is involuntarily appointed; or a warrant of
attachment, execution or similar process is issued against any substantial
part of the property of the Company or any of such Subsidiaries, and the
continuance of any such events in this subsection 7.6.2 for 60 days unless
dismissed, bonded or discharged; or
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Section 7.7 Voluntary Bankruptcy; Appointment of Receiver,
etc. The Company or any of its Subsidiaries which, as of the date of entry
of such decree or order, would constitute a Material Subsidiary (whether or
not, as of such date, such Subsidiary is or has been deemed to be, or not
to be, a Material Subsidiary under any other applicable provision of this
Agreement) shall have a decree or an order for relief entered with respect
to it or commence a voluntary case under the Bankruptcy Code or any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of a decree or an order for relief in
an involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of
or taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; the making by the Company or any of such
Subsidiaries of any general assignment for the benefit of creditors; or the
inability or failure of the Company or any of such Subsidiaries generally
to pay its debts as such debts become due; or the Board of Directors of the
Company or any of such Subsidiaries (or any committee thereof) adopts any
resolution or otherwise authorizes action to approve any of the foregoing;
or
Section 7.8 Judgments and Attachments. Any money judgment,
writ or warrant of attachment, or similar process involving (A) in any
individual case an amount in excess of $10,000,000 or (B) in the aggregate
at any time an amount in excess of $20,000,000 (in either case not
adequately covered by insurance as to which the insurance company has
acknowledged coverage) shall be entered or filed against the Company or any
of its Subsidiaries which, as of the date of such entry or filing, would
constitute a Material Subsidiary (whether or not, as of such date, such
Subsidiary is or has been deemed to be, or not to be, a Material Subsidiary
under any other applicable provision of this Agreement) or any of their
respective assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of 30 days or in any event later than five days prior
to the date of any proposed sale thereunder; or
Section 7.9 Dissolution. Any order, judgment or decree shall
be entered against the Company or any of its Subsidiaries which, as of the
date of such entry, would constitute a Material Subsidiary (whether or not,
as of such date, such Subsidiary is or has been deemed to be, or not to be,
a Material Subsidiary under any other applicable provision of this
Agreement) decreeing the dissolution or split up of the Company or such
Subsidiary and such order shall remain undischarged or unstayed for a
period in excess of 30 days; or
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Section 7.10 Unfunded ERISA Liabilities.
7.10.1. Any Pension Plan maintained by the Company or any of
its ERISA Affiliates shall be terminated within the meaning of Title IV of
ERISA; or
7.10.2. A trustee shall be appointed by an appropriate United
States district court to administer any Pension Plan; or
7.10.3. The Pension Benefit Guaranty Corporation (or any
successor thereto) shall institute proceedings to terminate any Pension
Plan or to appoint a trustee to administer any Pension Plan; or
7.10.4. The Company or any of its respective ERISA Affiliates
shall withdraw (under Section 4063 of ERISA) from a Pension Plan; or
7.10.5. The Termination Event that is described in clause (E)
of the definition of "Termination Event" shall have occurred and be
continuing;
if as of the date thereof or any subsequent date, the sum of each of the
Company's and its ERISA Affiliates' various liabilities (such liabilities
to include, without limitation, any liability to the Pension Benefit
Guaranty Corporation (or any successor thereto) or to any other party under
ERISA or the Internal Revenue Code and to be calculated after giving effect
to the tax consequences thereof) resulting from all such events listed in
subsections 7.10.1 through 7.10.5 above exceeds $25,000,000; or
Section 7.11 Withdrawal Liability Under Multiemployer Plan.
The Company or any of its ERISA Affiliates as employer under a
Multiemployer Plan shall have made a complete or partial withdrawal from
such Multiemployer Plan and the plan sponsor of such Multiemployer Plan
shall have notified such withdrawing employer that such employer has
incurred a withdrawal liability requiring annual payments in an amount
individually or in the aggregate exceeding $1,500,000 in any one year;
unless (A) prior to the time any payment of such withdrawal liability is
due in accordance with Section 4219(c)(2) of ERISA, the plan sponsor agrees
in writing that the correct amount of the annual payment is less than
$1,500,000, or (B) prior to the time any payment of such withdrawal
liability is due in accordance with Section 4219(c)(2) of ERISA, a court of
competent jurisdiction has enjoined and continues to enjoin the collection
of such payment, or (C) Section 4219 of ERISA has been amended to provide
that notification that such withdrawing employer has
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incurred a withdrawal liability would not, in the ordinary course or with
the lapse of time, require the payment; provided that, in the event of such
an amendment, an Event of Default shall be deemed to occur when any payment
of such withdrawal liability becomes due or would, in the ordinary course
or with the lapse of time, become due; or
Section 7.12 Failure of Security. Any Collateral Document
shall, at any time, cease to be in full force and effect or shall be
declared null and void, or the legality, validity or enforceability thereof
shall be contested by the Company or the Administrative Agent, as agent for
the Lenders, shall not have or shall cease to have valid and perfected (to
the extent required by the Collateral Documents) Lien in the Collateral
with a face value of more than $2,000,000 in the aggregate of the priority
contemplated by the applicable Collateral Document in each case for any
reason other than the failure of the Administrative Agent to take any
action within its control, or the Company shall fail to perform or observe
in any material respect any Collateral Document; or
Section 7.13 Change in Control. If there shall occur any
Change in Control;
THEN (A) upon the occurrence of and during the continuance of
any Event of Default described in the foregoing Section 7.6 or 7.7 (other
than the last clause of Section 7.7), each of (i) the unpaid principal
amount of and accrued interest on the Loans, and (ii) all other amounts
comprising the Obligations shall automatically become immediately due and
payable, without presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by the Company and (B) upon
the occurrence of and during the continuance of any other Event of Default,
the Requisite Lenders may, by written notice to the Company, declare the
Loans to be, and the same shall forthwith become, due and payable, together
with accrued interest thereon. Whether or not the Loans or other
Obligations shall have been accelerated or become due as set forth above,
upon the occurrence and during the continuance of any Event of Default, the
Administrative Agent or any Lender may exercise any remedy available under
the Loan Documents or applicable law in respect thereof (including, without
limitation, foreclosure of the Liens in respect of the Collateral). If at
any time within 60 days after acceleration of the maturity of any Loan, the
Company shall pay all arrears of interest and all payments on account of
the principal which shall have become due otherwise than by acceleration
(with interest on principal and, to the extent permitted by law, on overdue
interest, at the rates specified in this Agreement or the Notes) and all
Events of Default and Potential Events of Default (other than non-payment
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of principal of and accrued interest on the Loans and the Notes, and
payments of amounts referred to in subclause (2) above, in each case due
and payable solely by virtue of acceleration) shall be remedied or waived
pursuant to Section 9.6, then the Requisite Lenders by written notice to
the Company may rescind and annul the acceleration and its consequences,
but such action shall not affect any subsequent Event of Default or
Potential Event of Default or impair any right consequent thereon.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Section 8.1 Appointment. Bankers is hereby appointed the
Administrative Agent hereunder by each Lender, and each Lender hereby
authorizes the Administrative Agent to act hereunder and under the other
instruments and agreements referred to herein as its agent hereunder and
thereunder. Bankers is hereby authorized, as the Administrative Agent to
execute consents to service of process and such other documents on behalf
of Lenders, as may be required by law or as may be necessary or desirable.
Bankers agrees to act as such upon the express conditions contained in this
ARTICLE VIII and in the Collateral Documents. The provisions of this
ARTICLE VIII, except as provided in subsections 8.6.2 and 8.6.3 and
Section 8.7 where the consent of the Company is required, are solely for
the benefit of the Administrative Agent, and the Company shall not have any
rights as a third party beneficiary of any of the provisions hereof except
for those contained in subsections 8.6.2 and 8.6.3 and Section 8.7 where
the consent of the Company is required. In performing its functions and
duties under this Agreement, the Administrative Agent shall act solely as
agent of the Lenders and does not assume and shall not be deemed to have
assumed any obligation towards or relationship of agency or trust with or
for the Company.
Section 8.2 Powers; General Immunity.
8.2.1. Duties Specified. Each Lender irrevocably authorizes
the Administrative Agent to take such action on such Lender's behalf and to
exercise such powers hereunder and under the other instruments and
agreements referred to herein as are specifically delegated to the
Administrative Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto. The Administrative Agent
shall have only those duties and responsibilities which are expressly
specified in this Agreement and the Collateral Documents and it may perform
such duties by or through its agents or employees. The
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duties of the Administrative Agent shall be mechanical and administrative
in nature; and the Administrative Agent shall not have by reason of this
Agreement a fiduciary relationship in respect of any Lender. Nothing in
this Agreement, expressed or implied, is intended to or shall be so
construed as to impose upon the Administrative Agent any obligations in
respect of this Agreement or the other instruments and agreements referred
to herein except as expressly set forth herein or therein.
8.2.2. No Responsibility for Certain Matters. The
Administrative Agent shall not be responsible to any Lender for the
execution, effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency of this Agreement, the Collateral Documents
or the Notes issued hereunder, or for the perfection or priority of any
Lien created or purported to be created by any Loan Document or for any
representations, warranties, recitals or statements made herein or therein
or made in any written or oral statement or in any financial or other
statements, instruments, reports, certificates or any other documents in
connection herewith or therewith furnished or made by the Administrative
Agent to Lenders or by or on behalf of the Company or any of its
Subsidiaries to the Administrative Agent or any Lender, or be required to
ascertain or inquire as to the performance or observance of any of the
terms, conditions, provisions, covenants or agreements contained herein or
therein or as to the use of the proceeds of the Loans or of the existence
or possible existence of any Event of Default or Potential Event of
Default.
8.2.3. Exculpatory Provisions. Neither the Administrative
Agent nor any of its officers, directors, employees or agents shall be
liable to the Lenders for any action taken or omitted hereunder or in
connection herewith (including, without limitation, any act or omission
under the Collateral Documents) unless caused by its or their gross
negligence or willful misconduct. If the Administrative Agent shall
request instructions from the Lenders with respect to any act or action
(including the failure to take an action) in connection with this Agreement
or the other instruments and agreements referred to herein, the
Administrative Agent shall be entitled to refrain from such act or taking
such action unless and until the Administrative Agent shall have received
instructions from the Requisite Lenders. Without prejudice to the
generality of the foregoing, (A) the Administrative Agent shall be entitled
to rely, and shall be fully protected in relying, upon any communication,
instrument or document believed by it to be genuine and correct and to have
been signed or sent by the proper person or persons, and shall be entitled
to rely and shall be protected in relying on opinions
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and judgments of attorneys (who may be attorneys for the Company),
accountants, experts and other professional advisors selected by it and
(B) no Lender shall have any right of action whatsoever against the
Administrative Agent as a result of the Administrative Agent acting or
(where so instructed) refraining from acting under this Agreement or the
other instruments and agreements referred to herein in accordance with the
instructions of the Requisite Lenders. The Administrative Agent shall be
entitled to refrain from exercising any power, discretion or authority
vested in it under this Agreement or the other instruments and agreements
referred to herein unless and until it has obtained the instructions of the
Requisite Lenders.
8.2.4. Administrative Agent Entitled to Act as Lender. The
agency hereby created shall in no way impair or affect any of the rights
and powers of, or impose any duties or obligations upon, the Administrative
Agent in its individual capacity as a Lender hereunder. With respect to
its participation in the Loans, the Administrative Agent shall have the
same rights and powers hereunder as any other Lender and may exercise the
same as though it were not performing the duties and functions delegated to
it hereunder, and the term "Lender" or "Lenders" or any similar term shall,
unless the context clearly otherwise indicates, include the Administrative
Agent in its individual capacity. The Administrative Agent and its
Affiliates may accept deposits from, lend money to and generally engage in
any kind of banking, trust, financial advisory or other business with the
Company or any Subsidiary or Affiliate of the Company as if it were not
performing the duties specified herein, and may accept fees and other
consideration from the Company or any such Subsidiary or Affiliate for
services in connection with this Agreement and otherwise without having to
account for the same to the Lenders.
Section 8.3 Representations and Warranties; No Responsibility
for Appraisal of Creditworthiness. Each Lender represents and warrants
that it has made its own independent investigation of the financial
condition and affairs of the Company and its Subsidiaries in connection
with the making of the Loans and other disbursements on the Closing Date
and thereafter and has made and shall continue to make its own appraisal of
the creditworthiness of each of them. The Administrative Agent shall not
have any duty or responsibility either initially or on a continuing basis
to make any such investigation or any such appraisal on behalf of the
Lenders or to provide any Lender with any credit or other information with
respect thereto whether coming into its possession before the making of the
Loans and other disbursements on the Closing Date and thereafter or any
time or times thereafter, and the
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Administrative Agent shall have no responsibility with respect to the
accuracy of or the completeness of the information provided to Lenders.
Section 8.4 Right to Indemnity. Each Lender severally agrees
to indemnify the Administrative Agent, on its demand and as incurred
proportionately to its Commitment, to the extent the Administrative Agent
shall not have been reimbursed by the Company, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including, without limitation, counsel fees and
disbursements) or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by or asserted against the Administrative Agent in
performing its duties hereunder or in any way relating to or arising out of
this Agreement or any other Loan Document; provided that no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements that
result from the Administrative Agent's gross negligence or willful
misconduct. If any indemnity furnished to the Administrative Agent for any
purpose shall, in the opinion of the Administrative Agent be insufficient
or become impaired, the Administrative Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against
until such additional indemnity is furnished.
Section 8.5 Registered Holder of Note Treated as Owner. The
Administrative Agent may deem and treat the registered holder of any Note
as the owner thereof for all purposes hereof unless and until a written
notice of the assignment or transfer thereof shall have been registered
with the Administrative Agent. Any request, authority or consent of any
person or entity who at the time of making such request or giving such
authority or consent, is the holder of any Note shall be conclusive and
binding on any subsequent holder, transferee or assignee of that Note or of
any Note or Notes issued in exchange therefor.
Section 8.6 Resignation by Administrative Agent.
8.6.1. The Administrative Agent may resign from the
performance of all its functions and duties hereunder at any time by giving
15 Business Days' prior written notice to the Company and the Lenders.
Such resignation shall take effect upon the acceptance by a successor
Administrative Agent of appointment pursuant to subsections 8.6.2 and 8.6.3
below or as otherwise provided below.
8.6.2. Upon any such notice of resignation, the Requisite
Lenders shall appoint a successor Administrative
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Agent acceptable to the Company in its reasonable discretion and which
shall be an incorporated bank or trust company.
8.6.3. If a successor Administrative Agent shall not have been
so appointed within such 15 Business Day period, the resigning
Administrative Agent with the consent of the Company, shall then appoint a
successor Administrative Agent who shall serve as the Administrative Agent
until such time, if any, as the Requisite Lenders appoint a successor
Administrative Agent as provided above.
8.6.4. If no successor Administrative Agent has been appointed
pursuant to subsection 8.6.2 or 8.6.3 by the 20th Business Day after the
date such notice of resignation was given by the resigning Administrative
Agent, the Administrative Agent's resignation shall become effective and
Requisite Lenders shall thereafter perform all the duties of the
Administrative Agent hereunder until such time, if any, as the Requisite
Lenders appoint a successor Administrative Agent as provided above.
Section 8.7 Collateral Documents. Each Lender hereby
authorizes the Administrative Agent to act as Collateral Agent on behalf of
and for the benefit of such Lender. Each Lender hereby authorizes the
Collateral Agent to enter into the Collateral Documents and to take all
action contemplated by the Collateral Documents; provided that the
Collateral Agent shall not enter into or consent to any amendment,
modification, termination or waiver of any provision contained in the
Collateral Documents without the prior consent of the Requisite Lenders.
Each Lender agrees that no Lender shall have any right individually to
realize upon the security granted by any Collateral Document, it being
understood and agreed that such rights and remedies may be exercised by the
Collateral Agent for the benefit of the Lenders upon the terms of the
Collateral Documents. The Collateral Agent may assign its rights and
obligations as the collateral agent under any of the Collateral Documents
to any direct or indirect Subsidiary of the Collateral Agent or to any
trustee, with (in the case of any such assignment occurring prior to the
occurrence and continuance of an Event of Default) the consent of the
Company (which consent will not be unreasonably withheld or delayed), which
assignee, in each such case, shall be entitled to all the rights of the
Collateral Agent under the applicable Collateral Document and all right
hereunder of the Collateral Agent with respect to the applicable Collateral
Document.
Section 8.8 Successor Administrative Agent. Upon the
acceptance of any appointment as the Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become
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vested with all the rights, powers, privileges and duties of the retiring
or removed Administrative Agent, and the retiring or removed Administrative
Agent shall be discharged from its duties and obligations as the
Administrative Agent under this Agreement. After any retiring or removed
Administrative Agent's resignation or removal hereunder as the
Administrative Agent the provisions of this ARTICLE VIII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
the Administrative Agent under this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Successors and Assigns; Participations.
9.1.1. This Agreement shall be binding upon and inure to the
benefit of the Company, the Lenders, the Administrative Agent and all
future registered holders of the Notes and their respective successors and
registered assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each Lender.
9.1.2. Any Lender may at any time sell to one or more banks or
other entities ("Participants") participating interests in its Commitment
or any other right of such Lender hereunder or thereunder. In the event of
any such sale by a Lender of participating interests to a Participant, such
Lender's obligations under this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such
Lender shall remain the registered holder of any such Note for all purposes
under this Agreement, and the Company and the Administrative Agent shall
continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement. The Company
agrees that if amounts outstanding under this Agreement or the Notes are
due and unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall,
to the extent permitted by applicable law, be deemed to have the right of
setoff in respect of its participating interest in amounts owing under this
Agreement and any Note to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement or any Note; provided that such right of setoff shall be subject
to the obligation of such Participant to share with the Lenders, and the
Lenders agree to share with such Participant, as provided in Sections 9.4
and 9.5 hereof. The Company also agrees that each
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Participant shall be entitled to the benefits, subject to any limitations
set forth therein, of Sections 2.7 and 2.8 hereof with respect to its
participation in the Adjusted LIBOR Loans and ABR Loans outstanding from
time to time; provided that no Participant shall be entitled to receive any
greater payment under any of such Sections than the relevant Lender would
have been entitled to receive with respect to the Loans, unless such
participation is made with the Company's prior written consent. Each
Lender agrees that any agreement between such Lender and any such
Participant in respect of such participating interest shall refer to this
Agreement and shall not restrict such Lender's right to agree to any
amendment, supplement or modification to this Agreement or any of the Loan
Documents except (A) to extend the final maturity of any Loan or Note, or
any installment thereof, or reduce the rate or extend the time of payment
of interest or fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the amount of the Participant's
participation over the amount thereof then in effect (it being understood
that waivers or modifications of conditions precedent, covenants, Events of
Default or of a mandatory reduction in Total Loan Commitments shall not
constitute a change in the terms of such participation, and that an
increase in any Commitment or Loan shall be permitted without the consent
of any Participant if such Participant's participation is not increased as
a result thereof), or (B) to consent to the assignment or transfer by the
Company of any of its rights and obligations under this Agreement. Each
Lender agrees to use commercially reasonable efforts to include and require
in each participation agreement delivered by it pursuant to this subsection
9.1.2 to a Participant that is not a commercial bank a specific
acknowledgment by such Participant (and by each other Person that may
obtain, directly or indirectly from such Participant, an interest in any
one or more Commitments and Loans) of the representations, warranties,
covenants and agreements deemed to be made by such Participant pursuant to
the provisions of Section 9.23; provided that no Lender shall have any
liability hereunder in respect of any act or omission of, or state of facts
or circumstances relating to, any Person to whom the holder of any such
participating interest may grant or sell sub-participating interests.
9.1.3. (a) Any Lender may, (A) without the consent of any
Person, at any time, assign to any Lender or any Affiliate thereof and
(B) with the prior written consent of the Company (which consent shall not
be unreasonably withheld or delayed) to one or more additional banks or
financial institutions (all such Affiliates, Lenders and additional banks
or financial institutions being "Purchasing Lenders"), all or any part of
its Commitment pursuant to a Registered Transfer
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Supplement, substantially in the form of Exhibit X annexed hereto (any such
Registered Transfer Supplement, a "Registered Transfer Supplement"),
executed by such Purchasing Lender, such transferor Lender and the
Administrative Agent and in compliance with subsection 9.1.5; provided that
(1) each such assignment pursuant to clause (A) above shall be limited to
an amount equal to the lesser of (x) such Lender's Commitment then in
effect and (y) a minimum amount of $5,000,000 and integral multiples of
$1,000,000 above such amount, (2) such transferor Lender and Purchasing
Lender deliver to the Administrative Agent the tax documentation required
by paragraph (e) of subsection 2.7.7, if applicable, and a processing and
recordation fee of $2,500, (3) no such consent of the Company will be
required if a Potential Event of Default or an Event of Default shall have
occurred and be continuing and (4) the Company shall be entitled to
withhold its consent to any such proposed assignment for any reason or no
reason if (x) immediately after giving effect thereto, the Purchasing
Lender would be an Affected Lender or the Company would be required to make
payments pursuant to or on behalf of such Purchasing Lender pursuant to
subsection 2.7.7 and (y) the transferor Lender was not an Affected Lender
as to which the Company has declined or failed to exercise its rights
pursuant to Section 2.9 and was not, at the time of such assignment,
entitled to receive any payments pursuant to paragraph (a), (b) or (c) of
subsection 2.7.7. Subject to compliance with the foregoing sentence, upon
(A) such execution of such Registered Transfer Supplement, (B) delivery of
an executed copy thereof to the Company, (C) payment by such Purchasing
Lender to such transferor Lender of an amount equal to the purchase price
agreed between such transferor Lender and such Purchasing Lender, (D) the
receipt of a processing and recording fee of $2,500 by the Administrative
Agent and (E) recordation of assignment in the Register pursuant to
subsection 9.1.5, such Purchasing Lender shall for all purposes be a Lender
party to this Agreement and shall have all the rights (including, without
limitation, the benefits of Section 2.8) and obligations of a Lender under
this Agreement to the same extent as if it were an original party hereto
with the Commitment set forth in such Registered Transfer Supplement, and
no further consent or action by the Company, the Lenders or the
Administrative Agent shall be required. Such Registered Transfer
Supplement shall be deemed to amend this Agreement to the extent, and only
to the extent, necessary to reflect the addition of such Purchasing Lender
and the resulting adjustment of the Commitments arising from the purchase
by such Purchasing Lender of all or a portion of the rights and obligations
of such transferor Lender under this Agreement, the Commitments and the
Notes. Upon the consummation of any transfer to a Purchasing Lender
pursuant to this subsection 9.1.3, the transferor Lender, the
Administrative Agent and the Company
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shall make appropriate arrangements as required under subsection 9.1.5 so
that a replacement Note is issued to such transferor Lender and a new Note
or, as appropriate, a replacement Note, issued to such Purchasing Lender,
in each case in principal amounts reflecting their Commitments or, as
appropriate, their outstanding Loans, as adjusted pursuant to such
Registered Transfer Supplement.
(b) In addition to the assignments permitted under paragraph
(a) of subsection 9.1.3 above, any Lender may at any time assign all or any
portion of its rights under this Agreement to a Federal Reserve Bank
without the prior written consent of the Company, the Administrative Agent
or Bankers; provided that no such assignment shall release a Lender from
any of its obligations hereunder or substitute any such Federal Reserve
Bank for such Lender as a party or entitle such Federal Reserve Bank to
require such Lender to take or omit to take any action hereunder.
9.1.4. The Company authorizes each Lender to disclose to any
Participant or Purchasing Lender (each, a "Transferee") and any prospective
Transferee any and all financial information in such Lender's possession
concerning the Company and any Subsidiary of the Company which has been
delivered to such Lender by or on behalf of the Company pursuant to this
Agreement or any other Loan Document or which has been delivered to such
Lender by the Company in connection with such Lender's credit evaluation of
the Company and its Subsidiaries prior to entering into this Agreement;
provided that if such information is confidential information as
contemplated by Section 9.17 hereof, such Lender may so disclose such
information only if such Transferee or prospective Transferee previously
agrees to be bound by the terms of Section 9.17.
9.1.5. (a) The Company and other Loan Parties hereby
designate the Administrative Agent to serve as the Company's agent, solely
for purposes of this subsection 9.1.5, to maintain a register (the
"Register") on which the Administrative Agent will record the Commitments
from time to time of each Lender, the Loans made by each Lender and each
repayment in respect of the principal amount of the Loans of each Lender
and to retain a copy of each Registered Transfer Supplement delivered to
the Administrative Agent pursuant to this subsection. Failure to make any
such recordation, or any error in such recordation shall not affect the
Company's obligations in respect of such Loans. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Company, the other Loan Parties, the Administrative Agent and the Lenders
shall treat each Person in whose name a Loan and the Note evidencing the
same is registered as the
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owner thereof for all purposes of this Agreement, notwithstanding notice or
any provision herein to the contrary. With respect to any Lender, the
assignment or other transfer of the Commitment of such Lender and the
rights to the principal of, and interest on, any Loan made and Note issued
pursuant to this Agreement shall not be effective until such assignment or
other transfer is recorded on the Register and, except to the extent
provided in this subsection 9.1.5, otherwise complies with subsec-
tion 9.1.3, and prior to such recordation all amounts owing to the
transferor Lender with respect to such Commitments, Loans and Notes shall
remain owing to the transferor Lender. The registration of assignment or
other transfer of all or part of any Commitment, Loans and Notes for a
Lender shall be recorded by the Administrative Agent on the Register only
upon the acceptance by Agent of a properly executed and delivered
Registered Transfer Supplement substantially in the form of Exhibit X
annexed hereto. Coincident with the delivery of such Registered Transfer
Supplement to the Administrative Agent for acceptance and registration of
assignment or sale of all or part of a Loan, or as soon thereafter as
practicable, the assigning or transferor Lender shall surrender the Note
evidencing such Loan, and thereupon one or more new Notes in the same
aggregate principal amount shall be issued to the assigning or transferor
Lender and/or the new Lender. The Company agrees to indemnify the
Administrative Agent from and against any and all losses, claims, damages
and liabilities or whatsoever nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing its duties
under this subsection 9.1.5 (other than losses, claims, damages and
liabilities arising from acts or omissions that represent gross negligence
or willful misconduct on the part of the Administrative Agent). The
Register shall be available at the offices where kept by the Administrative
Agent for inspection by the Company and any Lender at any reasonable time
upon reasonable prior notice to the Administrative Agent.
(b) The Company may not replace any Lender pursuant to Section
2.9 or Section 9.22, unless, with respect to any Notes held by such Lender,
the requirements of subsection 9.1.5(a) have been satisfied.
Section 9.2 Expenses. Whether or not the transactions
contemplated hereby shall be consummated, the Company agrees to promptly
pay (A) all the actual and reasonable costs and expenses of preparation of
the Loan Documents and all the costs of furnishing all opinions by counsel
for the Company and the other Loan Parties (including, without limitation,
any opinions requested by Requisite Lenders as provided in ARTICLE III hereof
as to any legal matters arising hereunder),
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(B) the reasonable fees, expenses and disbursements of CG&R in connection
with the negotiation, preparation, execution and administration of the Loan
Documents and the Loans hereunder, and any amendments and waivers hereto or
thereto, (C) all the actual costs and expenses of creating, perfecting,
continuing and maintaining Liens in favor of Lenders pursuant to any Loan
Document, including filing and recording fees and expenses, fees and
expenses of counsel for providing such opinions as Requisite Lenders may
reasonably request as provided therein and reasonable fees and expenses of
CG&R, and (D) after the occurrence of an Event of Default, all costs and
expenses (including, without limitation, reasonable attorneys fees,
including allocated costs of internal counsel, and, with the prior written
consent of the Company (which consent shall not be unreasonably withheld or
delayed), costs of settlement) incurred by the Lenders and/or the
Administrative Agent in enforcing any Obligations of or in collecting any
payments due from the Company hereunder or under the Notes or any of the
other Loan Documents by reason of such Event of Default or in connection
with any refinancing or restructuring of the credit arrangements provided
under this Agreement, including, without limitation, in the nature of a
"work-out" or of any insolvency or bankruptcy proceedings.
Section 9.3 Indemnity. In addition to the payment of expenses
pursuant to Section 9.2, whether or not the transactions contemplated
hereby shall be consummated, the Company agrees to indemnify, pay and hold
the Administrative Agent, and each Person who is or was a Lender and any
holder of any of the Notes, and the officers, directors, employees, agents,
and affiliates of such Person and such holders (collectively called the
"Indemnitees"), upon their demand and as incurred, harmless from and
against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto), which may be imposed on, incurred by,
or asserted against such Indemnitee, in any manner relating to or arising
out of this Agreement, the other Loan Documents, the Lenders' agreement to
make the Loans or other disbursements on the Closing Date or thereafter or
the use or intended use of the proceeds of the Loan or disbursements
hereunder (the "indemnified liabilities"); provided that the Company shall
have no obligation to an Indemnitee hereunder with respect to indemnified
liabilities that result from the gross negligence or willful misconduct of
that Indemnitee or from claims, litigation, investigations or proceedings
made or initiated by,
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as the case may be, one Indemnitee against any other Indemnitee. To the
extent that the undertaking to indemnify, pay and hold harmless set forth
in the preceding sentence may be unenforceable because it is violative of
any law or public policy, the Company shall contribute the maximum portion
which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all indemnified liabilities incurred by the
Indemnitees or any of them except to the extent set forth in the proviso to
the next preceding sentence.
Section 9.4 Set Off. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any
such rights, upon the occurrence of any Event of Default, each Lender is
hereby authorized by the Company at any time or from time to time, without
notice to the Company, or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, without limitation, Indebtedness
evidenced by certificates of deposit, whether matured or unmatured but not
including trust accounts) and any other Indebtedness at any time held or
owing by that Lender to or for the credit or the account of the Company
against and on account of the obligations and liabilities of the Company to
such Lender or that subsequent holder under this Agreement and the Notes,
including, without limitation, all claims of any nature or description
arising out of or connected with this Agreement or the Notes, irrespective
of whether or not (A) such Lender shall have made any demand hereunder or
(B) such Lender shall have declared the principal or the interest on the
Loan and Notes, and other amounts due hereunder to be due and payable as
permitted by ARTICLE VII and although said obligations and liabilities, or
any of them, may be contingent or unmatured.
Section 9.5 Ratable Sharing.
9.5.1. Each Lender and each subsequent holder by acceptance of
a Note agree among themselves that (A) with respect to all amounts received
by them which are applicable to the payment of principal of or interest on
the Notes and commitment commissions with respect to the Commitments,
equitable adjustment will be made so that, in effect, all such amounts will
be shared among the Lenders proportionately to their respective interests
in the Notes and the Loans as the same may appear, whether received by
voluntary payment, by the exercise of the right of set-off or banker's
lien, by counterclaim or cross action or by the enforcement of any or all
of the Notes, (B) if any of them shall exercise any right of counterclaim,
set-off, banker's lien or similar right with respect to amounts owed by the
Company hereunder or under the Notes relating to the Loans, such Lender or
holder, as the case
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may be, shall apportion the amount recovered as a result of the exercise of
such right pro rata in accordance with all amounts outstanding at such time
owed by the Company in respect of the Loans, and (C) if any of them shall
thereby through the exercise of any right of counterclaim, set-off,
banker's lien or otherwise or as adequate protection of a deposit treated
as cash collateral under the Bankruptcy Code, receive payment or reduction
of a proportion of the aggregate amount of principal and interest due with
respect to the Notes held by the Lender relating to the Loans or any
participation therein or any amount payable hereunder, as the case may be,
which is greater than the proportion received by any other holder of the
Notes in respect to such aggregate amount of principal and interest due
with respect to such Notes held by it, such Lender or such holder of such
Notes receiving such proportionately greater payments shall (1) notify each
other applicable Lender and the Administrative Agent of such receipt and
(2) purchase participations (which it shall be deemed to have done
simultaneously upon the receipt of such payment) in the Notes relating to
the Loans held by the other holders so that all such recoveries of
principal and interest with respect to such Notes shall be proportionate to
their respective interests in the Loans; provided that, if all or part of
such proportionately greater payment received by such purchasing holder is
thereafter recovered from such holder, those purchases shall be rescinded
and the purchase prices paid for such participations shall be returned to
that holder to the extent of such recovery, but without interest. The
Company expressly consents to the foregoing arrangement and agrees that any
holder of a participation in any such Note, so purchased and any other
subsequent holder of a participation in any Note otherwise acquired may to
the extent permitted by applicable law, exercise any and all rights of
banker's lien, set-off or counterclaim with respect to any and all monies
owing by the Company to such holder as fully as if that holder were a
holder of such a Note in the amount of the participation held by such
holder. Any amounts required to be shared or used to purchase
participations pursuant to this subsection 9.5.1 shall be applied to all
Lenders ratably in respect of all such amounts then due and payable to each
such lender.
Section 9.6 Amendments and Waivers. Neither this Agreement
nor any other Loan Document nor any terms hereof or thereof may be changed,
waived, discharged or terminated unless such change, waiver, discharge or
termination is in writing signed by the Company and the Requisite Lenders;
provided that no such change, waiver, discharge or termination shall,
without the consent of each Lender affected thereby, (A) extend the
Maturity Date (it being understood that any waiver of the application of
any prepayment of or collateralization for or the method of application of
any prepayment to the amortization
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of the Loan or other Obligations shall not constitute any such extension),
or reduce the rate or extend the time of payment of interest, commissions
or fees (other than as a result of waiving the applicability of any
post-default increase in interest rates) or reduce the principal amount
thereof, or increase the Commitment of any Lender over the amount thereof
then in effect (it being understood that a waiver of any Potential Event of
Default or Event of Default or of a mandatory reduction in the Total Loan
Commitment or a waiver of the type contemplated in the second next
preceding parenthetical shall not constitute a change in the terms of any
Commitment of any Lender), (B) release or permit the release of all or
substantially all of the Collateral (except as expressly provided in the
Loan Documents), (C) amend, modify or waive any provision of this Section,
(D) reduce the percentage specified in, or otherwise modify, the definition
of Requisite Lenders, Commitment or (E) consent to the assignment or
transfer by the Company of any of its rights and obligations under this
Agreement; and provided, further, that no such change, waiver, discharge or
termination shall amend, modify or waive any of the terms contained in
subsection 2.1.5 or Section 2.5 without the consent of the Required Lenders
(to the extent that, in any such case, such amendment, modification or
waiver would reduce, or change the time of payment of, any amounts received
by Lenders). Any amendment, modification, termination or waiver of any of
the provisions contained in ARTICLE III shall be effective only if
evidenced by a writing signed by or on behalf of the Administrative Agent
and the Requisite Lenders. No amendment, modification, termination or
waiver of any provision of ARTICLE VIII hereof shall be effective without
the written concurrence of the Administrative Agent. The Administrative
Agent may, but shall have no obligation to, with the concurrence of any
Lender, execute amendments, modifications, waivers or consents on behalf of
such Lender. Any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given. No notice to
or demand on the Company in any case shall entitle the Company to any
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with
this Section 9.6 shall be binding upon each holder of the Notes at the time
outstanding, each future holder of the Notes, and, if signed by the
Company, on the Company.
Section 9.7 Independence of Covenants. All covenants
hereunder shall be given independent effect so that if a particular action
or condition is prohibited by any of such covenants, the fact that it would
be permitted by an exception to, or be otherwise outside the limitation of,
another covenant shall not avoid the occurrence of an Event of
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Default or Potential Event of Default if such action is taken or condition
exists.
Section 9.8 Change in Accounting Principles; Fiscal Year or
Tax Laws. If (A) any change in the accounting principles under GAAP used
in preparation of the financial statements referred to in Section 4.3
hereafter occasioned by the promulgation of rules, regulations,
pronouncements and opinions by or required by the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants
(or successors thereto or agencies with similar functions) result in a
change in the method of calculation of financial covenants, standards or
terms found in ARTICLES I, V and VI hereof, or (B) there is a material
change in federal tax laws which materially affects the Company's ability
to comply with the financial covenants, standards or terms found in
ARTICLE I, V or VI hereof, the parties hereto agree to enter into
negotiations in order to amend such provisions so as to equitably reflect
such changes with the desired result that the criteria for evaluating the
Company's financial condition shall be the same after such changes as if
such changes had not been made; provided that, unless and until an
agreement is reached following such negotiations, such provisions shall
remain unchanged and in full force and effect.
Section 9.9 Notices. Unless otherwise provided herein, any
notice or other communication herein required or permitted to be given
shall be in writing and may be personally served, telecopied, telexed or
sent by United States mail and shall be deemed to have been given (A) when
delivered in person or a legible copy is received by telecopy or telex or
(B) four Business Days after deposit in the United States mail, registered
or certified, with postage prepaid and properly addressed; provided that
notices to the Administrative Agent shall not be effective until received
by the Administrative Agent. For the purposes hereof, the address of each
of the parties hereto (until notice of a change thereof is delivered as
provided in this Section 9.9) shall be set forth under such party's name on
the signature pages hereto.
Section 9.10 Survival of Warranties and Certain Agreements.
Notwithstanding anything in this Agreement or implied by law to the
contrary and without limiting any survival provision set forth in any
Collateral Document, the agreements of the Company set forth in subsections
2.7.2, 2.7.5, 2.7.7 and 2.7.9 and Sections 9.2 and 9.3 and the agreements
of Lenders set forth in subsections 2.7.7, 2.7.8, 2.7.11, 8.2.3 and 9.1.2
(last sentence only) and Sections 8.4, 9.4 and 9.5 shall survive the
payment of the Loans and the Notes and the termination of this Agreement.
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Section 9.11 Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay on the part of any Lender or any holder of
any Note in the exercise of any power, right or privilege under any Loan
Document shall impair such power, right or privilege or be construed to be
a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege. All
rights and remedies existing under any Loan Document are cumulative to and
not exclusive of, any rights or remedies otherwise available.
Section 9.12 Severability. In case any provision in or
obligation under this Agreement or the Notes shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not, to the extent
permitted by law, in any way be affected or impaired thereby.
Section 9.13 Obligations Several; Independent Nature of the
Lenders' Rights. The obligation of each Lender hereunder is several, and
no Lender shall be responsible for the obligation or commitment of any
other Lender hereunder. Nothing contained in this Agreement and no action
taken by Lenders pursuant hereto shall be deemed to constitute Lenders to
be a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be
a separate and independent debt, and each Lender shall be entitled to
protect and enforce its rights arising out of this Agreement and it shall
not be necessary for any other Lender to be joined as an additional party
in any proceeding for such purpose. Notwithstanding the foregoing, each
Lender agrees that no Lender shall have any right individually to realize
upon the security granted by the Collateral Documents, it being understood
and agreed that such rights and remedies may only be exercised by the
Administrative Agent for the benefit of the Lenders.
Section 9.14 Headings. Section and subsection headings in
this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose or be
given any substantive effect.
Section 9.15 Applicable Law. THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
Section 9.16 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY
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WITH RESPECT TO THIS AGREEMENT OR ANY NOTE MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY ACCEPTS (TO THE
MAXIMUM EXTENT PERMITTED BY LAW) FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF
THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT SUBJECT TO RIGHT OF
APPEAL. THE COMPANY DESIGNATES AND APPOINTS THE PRENTICE HALL CORPORATION
SYSTEM, ONE GULF & WESTERN PLAZA, NEW YORK, NEW YORK 10023-7773 AND SUCH
OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY THE COMPANY IRREVOCABLY
AGREEING IN WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF,
SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH
SERVICE BEING HEREBY ACKNOWLEDGED BY THE COMPANY TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL
BE MAILED BY REGISTERED MAIL TO THE COMPANY AT ITS ADDRESS PROVIDED IN THE
APPLICABLE SIGNATURE PAGE HERETO, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY
OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY THE COMPANY REFUSES TO
ACCEPT SERVICE, THE COMPANY HEREBY AGREES THAT SERVICE UPON IT BY MAIL
SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF ANY LENDER TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS
OF ANY OTHER JURISDICTION.
Section 9.17 Confidentiality. Subject to Section 9.1, the
Lenders shall hold all non-public information obtained pursuant to the
requirements of this Agreement which has been identified as such by the
Company in accordance with their customary procedures for handling
confidential information of this nature and in accordance with safe and
sound banking practices and in any event, subject to Section 9.1, may make
disclosure reasonably required by any bona fide prospective or current
transferee or Participant in connection with any Note or participation
therein or in any Obligation or as required or requested by any
governmental agency or representative thereof or pursuant to legal process;
provided that, unless specifically prohibited by applicable law or court
order, each Lender shall notify the Company of any request by any
governmental agency or representative thereof (other than any such request
in connection with an examination of the financial condition of such Lender
by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information so that either or both
of them may seek an appropriate protective order; and provided, further,
that in no event shall any Lender be obligated or required to return any
materials furnished by the Company or any of its Subsidiaries.
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Section 9.18 Counterparts; Effectiveness. This Agreement and
any amendments, waivers, consents or supplements may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed
an original, but all such counterparts together shall constitute but one
and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto, and
written or telephonic notification of such execution and authorization of
delivery thereof has been received by the Company and the Administrative
Agent and all applicable conditions to such effectiveness have been
satisfied.
Section 9.19 Determinations Pursuant to Collateral Documents.
In each circumstance where, under any provision of a Collateral Document,
the Collateral Agent shall have the right to grant or withhold any consent,
exercise any remedy, make any determination or direct any action under such
Collateral Document, the Collateral Agent shall act in respect of such
consent, exercise of remedies, determination or action, as the case may be,
only with the consent of or at the direction of the Requisite Lenders;
provided that no consent of any party shall be required with respect to any
consent, determination or other matter that is, in the reasonable judgment
of the Collateral Agent, ministerial or administrative in nature. In each
circumstance where any consent of or direction from the Requisite Lenders
is required, the Collateral Agent shall send to the Lenders a notice
setting forth a description in reasonable detail of the matter as to which
consent or direction is requested and the Collateral Agent's proposed
course of action with respect thereto. In the event the Collateral Agent
shall not have received a response from any Lender within ten Business Days
after the giving of such notice, such Lender shall be deemed to have agreed
to the course of action proposed by the Collateral Agent.
Section 9.20 Certain Obligations of Company. Nothing in this
Agreement shall be construed to limit any obligation of the Company set
forth in any Collateral Document.
Section 9.21 Waiver of Jury Trial. Each of the Company and
the Lenders hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or related to any of the Loan Documents or the
actions of the Administrative Agent and any Lender in the negotiation,
administration, performance or enforcement hereof and thereof.
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Section 9.22 Lenders' ERISA Matters.
9.22.1. Lenders' Representations and Warranties. Except as
otherwise provided in subsection 9.22.2, each Lender and each Transferee,
solely with respect to itself, severally represents and warrants that one
or more of the following is true with respect to all of the funds used to
make or purchase any interest in any Loan (or one or more of the following
is true with respect to each portion of the funds used to make or purchase
such interest in such Loan if such funds are from more than one source):
(i) no part of the funds to be used by it constitutes under
the Internal Revenue Code or ERISA the assets of any Plan; or
(ii) (A) the funds to be used by it constitute, under the
Internal Revenue Code or ERISA, the assets of an insurance company
pooled separate account, as such term is used in Prohibited
Transaction Class Exemption 90-1 issued by the U.S. Department of
Labor, or a "collective investment fund," as defined in Section IV of
Prohibited Transaction Class Exemption 91-38 issued by the U.S.
Department of Labor, in which a Plan has an interest, and (B) such
Loan or interest therein is, and the subsequent holding of the Note
or any agreement related thereto shall at all times thereafter be,
entitled to full relief under Prohibited Transaction Class Exemption
90-1 or 91-38, as applicable; or
(iii) (A) the funds to be used by it for any Loan or interest
therein which constitute, under the Internal Revenue Code or ERISA,
the assets of any Plan are invested in an investment fund which is
managed by a "Qualified Professional Asset Manager" as such term is
defined in Prohibited Transaction Class Exemption 84-14 issued by the
U.S. Department of Labor, and (B) such Loan or interest therein is
and the subsequent holding of the Note or any agreement related
thereto shall at all times thereafter be, exempt under Prohibited
Transaction Class Exemption 84-14 to the fullest extent provided
therein.
9.22.2. General Account Assets. A Lender or Transferee which
is an insurance company subject to state regulation that is making or
purchasing an interest in a Loan with General Account Assets represents
with respect to the portion of its assets constituting General Account
Assets, in lieu of making a representation under subsection 9.22.1 with
respect thereto, that one of the following is true:
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(i) no part of the General Account Assets used to make or
purchase such interest in a Loan will be from assets allocated to a
segment of its general account in which one or more Plans has any
interest, other than an interest which will not result in the Note
relating thereto being deemed to be the assets of any such Plan; or
(ii) such Lender or Transferee is an "insurance company" and
such General Account Assets are assets of an "insurance company
general account" as defined in Section V of Proposed Class Exemption
for Certain Transactions Involving Insurance Company General Accounts
issued by the U.S. Department of Labor, 59 Federal Register 43134,
August 22, 1994 (Application No. D-9662) ("Proposed Prohibited
Transaction Exemption D-9662") and such Loan or interest therein is,
and shall at all times thereafter satisfy the requirements to be and
shall be exempt under the Proposed Prohibited Transaction Exemption
D-9662 to the fullest extent provided therein (assuming for this
purpose that the Proposed Prohibited Transaction Exemption D-9662 was
granted as a final prohibited transaction exemption by the U.S.
Department of Labor on the date and in the form it was proposed).
9.22.3. Representations of Transferees. Each Person that
becomes a Transferee hereunder shall be deemed to make, effective upon the
acceptance of any assignment of an interest hereunder or the entering into
of any participation agreement contemplated in subsection 9.1.2, the
representations and warranties set forth in subsection 9.22.1 or, with
respect to General Account Assets used to acquire its interest or
participation, subsection 9.22.2. Such deemed representation shall be
effective against, and binding on, such Transferee to the same extent as if
such Transferee had executed an original counterpart of this Agreement.
9.22.4. Additional ERISA Representations. Each Lender that
now or hereafter makes or maintains any Loan with any assets of any Plan
(i) represents and warrants that it has evaluated for itself the merits of
making or maintaining such Loan; has not solicited and has not received
from the Company, MS Group or any of their Affiliates, any evaluation or
other investment advice on any basis in respect of the advisability of
making or maintaining such Loan; and is not relying and has not relied on
the Company, MS Group or any of their Affiliates for any investment advice
with respect to making or maintaining such Loan in any manner that would
cause the Company, MS Group or any of their Affiliates to become a "party
in interest" (within the meaning of ERISA) or a "disqualified person"
(within the meaning of the Internal Revenue Code) in connection with making
or maintaining such Loan and (ii) acknowledges and
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confirms that none of the Company, MS Group or any of their Affiliates is
acting as a "fiduciary" (within the meaning of ERISA, the Internal Revenue
Code or any other applicable law or any rulings or regulations thereunder)
for such Lender in connection with making or maintaining such Loan.
<PAGE>
- 131 -
WITNESS the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
BORROWER:
FORT HOWARD CORPORATION
By: ___________________________
Title: ________________________
Notice Address:
Attention:
Exhibit 10.1
EXECUTION COPY
STOCKHOLDERS AGREEMENT dated as of March 1, 1995, among FORT
HOWARD CORPORATION, a Delaware corporation (the "Company"), and the
-------
other parties to the Stockholders and Registration Rights Agreement,
dated as of August 1, 1988, as amended.
WHEREAS, FH Holdings Corp., formerly a Delaware corporation
("FH Holdings Corp."), and certain of the parties hereto entered into
-----------------
a Stockholders and Registration Rights Agreement, dated as of
August 1, 1988 (the "1988 Agreement"), which Agreement has heretofore
--------------
been amended or otherwise modified pursuant to instruments dated as of
September 21, 1988, November 1, 1989 and July 31, 1990 and was amended
and restated in its entirety pursuant to an instrument dated as of
December 7, 1990 (such Agreement, as so amended and modified, the
"1990 Stockholders Agreement"); and
---------------------------
WHEREAS, the Company and the other parties hereto desire to
make certain amendments to the 1990 Stockholders Agreement and to
otherwise restate the provisions thereof;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the 1990 Stockholders Agreement is hereby
amended and restated in its entirety as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1. Definitions.
-----------
"Additional Sellers" shall have the meaning set forth in
------------------
Section 4.1(a) hereof.
"Affiliate" shall have the meaning given to such term in
---------
Rule 12b-2 promulgated under the Exchange Act.
"Bankers Trust" means Bankers Trust New York Corporation, a
-------------
New York corporation.
<PAGE>
2
"Bankers Trust Stock Purchase Agreement" means the Stock
--------------------------------------
Purchase Agreement dated as of August 1, 1988 between FH Holdings
Corp. and Bankers Trust, as amended from time to time.
"beneficial owner" shall have the meaning given to such term
----------------
in Rule 13d-3 promulgated under the Exchange Act.
"Board of Directors" means the Board of Directors of the
------------------
Company.
"Business Day" means any day except a Saturday, Sunday or
------------
other day on which commercial banks in the City of New York are
authorized or obligated by law to be closed.
"Cash Equivalents" means (i) marketable direct obligations
----------------
issued or unconditionally guaranteed by the United States federal
government or issued by any agency thereof and backed by the full
faith and credit of the United States of America, in each case
maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date
of acquisition thereof and, at the time of acquisition, having the
highest rating obtainable from either Standard & Poor's Ratings Group
or Moody's Investors Service, Inc.; or (iii) commercial paper maturing
no more than one year from the date of creation thereof and, at the
time of acquisition, having the highest rating obtainable from either
Standard & Poor's Ratings Group or Moody's Investors Service, Inc.
"Commission" means the Securities and Exchange Commission
----------
and any successor commission or agency having similar powers.
"Common Stock" means common stock of the Company, par value
------------
$.01 per share.
"control" shall have the meaning given to such term in Rule
-------
12b-2 promulgated under the Exchange Act.
"Direct Investors" means FPGT, Leeway and Bankers Trust.
----------------
"Duly Endorsed" means duly endorsed in blank by the person
-------------
or persons in whose name a stock certificate is registered or
accompanied by a duly executed stock assignment separate from the
certificate with the signature(s) thereon guaranteed by a commercial
bank or trust company or a member of a national securities exchange or
of the NASD.
<PAGE>
3
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
"FPGT" means First Plaza Group Trust, as trustee for certain
----
pension funds.
"First Registration Period" means the period commencing on
-------------------------
the effective date of this amendment and restatement and terminating
one year thereafter.
"Fort Howard Equity Investors II" means Fort Howard Equity
-------------------------------
Investors II, L.P., a Delaware limited partnership.
"Fully Diluted" means, with respect to Shares, all
-------------
outstanding Shares and Shares issuable in respect of Share
Equivalents.
"Holder" means each person (other than the Company or any of
------
its subsidiaries) that, as a result of such Person's ownership of
Shares or Share Equivalents, is or shall have become a party to this
Agreement, whether in connection with the execution and delivery of
the 1988 Agreement, the 1990 Agreement or any Purchase Agreement,
pursuant to Section 7.10 hereof or otherwise; provided, however, that
for purposes of this Agreement, the term "Holder" shall not include
any person who owns solely Share Equivalents (and has never owned
Shares) on or prior to the effective date of this amendment and
restatement; and provided further, that for purposes of Sections 2.1,
2.4 and 2.5 of Article II hereof, the term "Holder" shall not include
any Management Investor other than Paul J. Schierl.
"June 27, 1990 Letter Agreements" means those certain letter
-------------------------------
agreements dated June 27, 1990 between the Company and certain
Management Investors.
"Leeway" means Leeway & Co., as nominee for State Street
------
Bank & Trust Co., as trustee for a master pension trust.
"MEPA" means the Amended and Restated Management Equity
----
Participation Agreement dated as of August 8, 1988, by and among
FH Holdings Corp. and the other parties signatory thereto, as amended
from time to time, and giving effect to the June 27, 1990 Letter
Agreements.
"MEP" means the Fort Howard Corporation Management Equity
---
Plan, as amended from time to time.
<PAGE>
4
"Management Investor" means a party identified as a
-------------------
Management Investor on a signature page to the MEPA or a person deemed
to be a "Management Investor" pursuant to the terms of the June 27,
1990 Letter Agreements, or a person who purchased shares of Common
Stock pursuant to the MEP prior to the effective date of this
amendment and restatement.
"Minimum Registration Amount" means that number of
---------------------------
Registrable Securities outstanding at the following designated times
which represent the following percentages of Fully Diluted Shares:
(i) prior to the end of the First Registration Period, the Registrable
Securities then outstanding representing not less than 15% of the
Fully Diluted Shares; and (ii) following the end of the First
Registration Period, the Registrable Securities then outstanding
representing not less than 8% of the Fully Diluted Shares.
"Minimum Registration Request Percentage" means Registrable
---------------------------------------
Securities outstanding at the following designated times representing
the following percentages of Fully Diluted Shares: (i) at any time
during the First Registration Period, the Registrable Securities then
outstanding representing at least 51% of the Fully Diluted Shares or
the Registrable Securities then outstanding representing at least 5%
of the Fully Diluted Shares held by Management Investors and (ii) at
any time following the First Registration Period, the Registrable
Securities then outstanding representing at least 8% of the Fully
Diluted Shares or the Registrable Securities then outstanding
representing at least 5% of the Fully Diluted Shares held by
Management Investors.
"Morgan Stanley" means Morgan Stanley Group Inc., a Delaware
--------------
corporation, and its Affiliates, but shall not include MSLEF.
"Morgan Stanley & Co." means Morgan Stanley & Co.
--------------------
Incorporated, a Delaware corporation.
"Morgan Stanley Group" means Morgan Stanley Group Inc., a
--------------------
Delaware corporation.
"MS/Fund Investors" means MSLEF and Morgan Stanley Group.
-----------------
"MSLEF" means The Morgan Stanley Leveraged Equity Fund II,
-----
L.P., a Delaware limited partnership.
"NASD" means the National Association of Securities Dealers,
----
Inc.
"Newco" shall have the meaning set forth in Section 6.2 hereof.
-----
<PAGE>
5
"1995 Initial Public Offering" means the underwritten public
----------------------------
offering of Common Stock pursuant to a registration statement on Form
S-1 filed with the Commission on November 23, 1994, as amended.
"1991 Subscription Agreement" means the Subscription
---------------------------
Agreement dated as of March 12, 1991, between the Company and Fort
Howard Equity Investors II.
"1990 Agreement" means the Agreement dated as of July 31,
--------------
1990, between the Company and Paul J. Schierl and Carol A. Schierl, as
amended from time to time.
"1990 Subscription Agreement" means the Subscription
---------------------------
Agreement dated as of December 7, 1990, among the Company and FPGT and
Leeway, as amended from time to time.
"Permitted Transferees" has the meaning ascribed to it in
---------------------
the 1990 Agreement.
"person" means an individual, partnership, corporation,
------
limited liability partnership, limited liability company, business
trust, joint stock company, trust, unincorporated association, joint
venture, or other entity of whatever nature.
"Public Offering" means an underwritten public offering of
---------------
equity securities of the Company pursuant to an effective registration
statement under the Securities Act, other than a registration
statement on Form S-8.
"Purchase Agreements" means, collectively, the MEPA, the
-------------------
Agreements as defined in the MEP, the Securities Purchase Agreement,
the Bankers Trust Stock Purchase Agreement, the June 27, 1990 Letter
Agreements, the 1990 Agreement, the 1990 Subscription Agreement, the
1991 Subscription Agreement and all other agreements providing for the
purchase of Shares heretofore entered into or which otherwise have
been or hereafter will be designated by the Company as "Purchase
Agreements".
"Readily Marketable Securities" means those securities that
-----------------------------
are (i) (A) debt or equity securities of or other interests in any
person that are traded on a national securities exchange, reported on
by the National Association of Securities Dealers Automated Quotation
System or otherwise actively traded over-the-counter or (B) debt
securities of an issuer that has debt or equity securities that are so
traded or so reported on and which a nationally recognized securities
firm has agreed to make a market in, and (ii) which are not subject to
restrictions on transfer as a result of any applicable contractual
provisions or the provisions of the Securities Act or, if subject to
such restrictions under the Securities Act, are also subject to
registration rights reasonably acceptable to the Holders of a majority
of the Shares that are not held by the Controlling Stockholders (as
determined pursuant to Section 2.5(a)).
<PAGE>
6
"Registrable Securities" means Shares and Share Equivalents
----------------------
acquired pursuant to the Purchase Agreements or granted to Management
Investors by the Company or acquired upon the exercise of Registrable
Securities; provided, however, that securities shall cease to be
Registrable Securities if and when (i) a registration statement with
respect to the disposition of such securities shall have become
effective under the Securities Act and such securities shall have been
disposed of pursuant to such effective registration statement, (ii)
such securities shall have been sold under circumstances in which all
of the applicable conditions of Rule 144 (or any similar provisions
then in force) under the Securities Act are met, (iii) such securities
shall have been otherwise transferred, if new certificates or other
evidences of ownership for such securities not bearing a legend
restricting further transfer and not subject to any stop transfer
order or other restrictions on transfer shall have been delivered by
the Company and subsequent disposition of such securities shall not
require registration or qualification of such securities under the
Securities Act, or (iv) such securities shall have ceased to be
outstanding.
"Registration Expenses" means (i) all registration and
---------------------
filing fees, (ii) fees and expenses of compliance with state
securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of
the Registrable Securities), (iii) printing expenses, (iv) internal
expenses (including, without limitation, all salaries and expenses of
officers and employees performing legal or accounting duties),
(v) fees and disbursements of counsel for the Company and customary
fees and expenses for independent certified public accountants
retained by the Company (including the expenses of any comfort letters
or costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters requested pursuant
to Section 4.4(h) hereof), (vii) fees and expenses of any special
experts retained by the Company in connection with such registration,
(viii) reasonable fees and expenses of one counsel (who shall be
reasonably acceptable to the Company) for the Holders, (ix) fees and
expenses of listing the Registrable Securities on a securities
exchange, (x) rating agency fees and (xi) fees and disbursements of
underwriters customarily paid by issuers or sellers of securities; but
shall not include any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities, any out-of-pocket
expenses of the Holders (or the agents who manage their accounts) or
any fees and expenses of underwriter's counsel.
"Securities Act" means the Securities Act of 1933, as
--------------
amended.
"Securities Purchase Agreement" means the Securities
-----------------------------
Purchase Agreement dated as of August 1, 1988 among FH Holdings Corp.,
FPGT, Leeway and the other parties signatory thereto, as amended from
time to time.
"Share Equivalents" means securities of any kind issued by
-----------------
the Company prior to the effective date of this amendment and
restatement, convertible into or exchangeable for Shares or options,
warrants or other rights to purchase or subscribe for shares of Common
<PAGE>
7
Stock or securities convertible into or exchangeable for shares of
Common Stock, issued by the Company prior to the effective date of
this amendment and restatement and owned by a Holder.
"Shares" means any share of Common Stock acquired prior to
------
the effective date of this amendment and restatement.
"Third Party" means a prospective purchaser of Shares in an
-----------
arm's-length transaction from a Holder where such purchaser is not an
Affiliate of such Holder.
ARTICLE II
RESTRICTIONS ON TRANSFER
------------------------
SECTION 2.1. General Restrictions. Each Holder may,
--------------------
directly or indirectly, offer, sell, assign, transfer, grant a
participation in, pledge or otherwise dispose of any Shares (or
solicit any offers to buy or otherwise acquire, or take a pledge of
any Shares), provided that such offer, sale, assignment, transfer,
grant, pledge or other disposition is in compliance with the
Securities Act, the Purchase Agreement to which such Holder is a party
and the restrictions contained in this Agreement.
SECTION 2.2. Legends.
-------
(a) Each certificate evidencing outstanding Shares that is
issued to any Management Investor, other than Paul J. Schierl, shall
bear a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY APPLICABLE STATE SECURITIES LAWS. THIS SECURITY
MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN COMPLIANCE
WITH THE REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAWS."
(b) Each certificate evidencing outstanding Shares that is
issued to (i) any Holder other than any Holder who is a Management
Investor and (ii) Paul J. Schierl, shall bear a legend in
substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY APPLICABLE STATE SECURITIES LAWS. THIS
<PAGE>
8
SECURITY MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN
COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS. THIS SECURITY IS ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH
IN THE [PURCHASE AGREEMENT], DATED AS OF [DATE], AND THE
STOCKHOLDERS AGREEMENT DATED AS OF MARCH 1, 1995, AS
AMENDED, COPIES OF EACH OF WHICH MAY BE OBTAINED FROM FORT
HOWARD CORPORATION."
(c) In the event that any Shares or Share Equivalents shall
cease to be Registrable Securities, the Company shall, upon the
written request of the Holder thereof, issue to such Holder a new
certificate evidencing such Shares or Share Equivalents without the
legend required by Section 2.2(a) or the first and second sentences of
the legend required by Section 2.2(b) hereof endorsed thereon;
provided, however, that, under the circumstances described in clause
(ii) or clause (iii) of the definition of Registrable Securities, such
request is accompanied by an opinion of counsel, reasonably acceptable
to the Company, that the Shares or Share Equivalents are no longer
Registrable Securities. In the event that any Shares or Share
Equivalents shall cease to be subject to the restrictions on transfer
set forth in this Agreement and the Purchase Agreements, the Company
shall, upon the written request of the Holder thereof, issue to such
Holder a new certificate evidencing such Shares or Share Equivalents
without the third sentence of the legend required by Section 2.2(b)
hereof endorsed thereon; provided, however, that such Holder, upon the
reasonable request of the Company or its transfer agent, provides an
opinion of counsel, reasonably acceptable to the Company, that the
Shares or Share Equivalents are no longer subject to the restrictions
on transfer set forth in this Agreement and the Purchase Agreements.
SECTION 2.3. [INTENTIONALLY OMITTED]
SECTION 2.4. Rights of Inclusion.
-------------------
(a) (i) Subject to Section 2.5(c) hereof, no Holder or
Holders shall, individually or collectively, in any one transaction or
any series of similar transactions, directly or indirectly, sell or
otherwise dispose of a majority of the outstanding Shares then subject
to this Section 2.4 to any Third Party unless the terms and conditions
of such sale or other disposition to such Third Party shall include an
offer to each of the other Holders and their respective Permitted
Transferees, if any (the "Section 2.4 Transfer Offerees"), to include,
-----------------------------
at the option of each Section 2.4 Transfer Offeree, in the sale or
other disposition to the Third Party, such number of Shares owned by
each such Section 2.4 Transfer Offeree as determined in accordance
with this Section 2.4(a). If any Holder or Holders receive from a
Third Party a bona fide offer or offers to purchase or otherwise
acquire (a "Section 2.4 Transfer Offer") that number of Shares (the
--------------------------
"Section 2.4 Transfer Stock") representing an
--------------------------
<PAGE>
9
amount greater than a majority of the outstanding Shares subject to
this Section 2.4, such Holders (collectively, the "Section 2.4
-----------
Offering Holder") shall then cause the Section 2.4 Transfer Offer to
- ---------------
be reduced to writing and shall provide written notice (the "Section
-------
2.4 Transfer Notice") of such Section 2.4 Transfer Offer to each of
- -------------------
the Section 2.4 Transfer Offerees in the manner set forth in this
Section 2.4 hereof. The Section 2.4 Transfer Notice shall contain a
true and correct copy of the Section 2.4 Transfer Offer. In addition,
the Section 2.4 Transfer Notice shall identify the Third Party, the
Section 2.4 Transfer Stock, the price contained in the Section 2.4
Transfer Offer, all the other terms and conditions of the Section 2.4
Transfer Offer and, in the case of a Transfer Offer in which the
consideration payable for Shares consists in part or in whole of
consideration other than cash, such information relating to such
consideration as the Company may reasonably determine. The Section
2.4 Transfer Offerees shall have the right and option, within 30 days
after the date the Section 2.4 Transfer Notice is given to such
Section 2.4 Transfer Offerees (the "Section 2.4 Notice Period"), to
-------------------------
accept the Section 2.4 Transfer Offer for up to such number of Shares
as is determined in accordance with the provisions of this Section
2.4(a). Each Section 2.4 Transfer Offeree which desires to exercise
such option shall provide the Section 2.4 Offering Holder with written
notice (specifying the number of shares of the Section 2.4 Transfer
Stock as to which such Section 2.4 Transfer Offeree is accepting the
offer) and delivering to the Section 2.4 Offering Holder the
certificate or certificates representing the Shares to be sold or
otherwise disposed of pursuant to such offer by such Section 2.4
Transfer Offeree, together with a limited power-of-attorney
authorizing the Section 2.4 Offering Holder to sell or otherwise
dispose of such Shares pursuant to the terms of the Section 2.4
Transfer Offer. Delivery of such certificate or certificates
representing the Shares to be sold and the limited power-of-attorney
authorizing the Section 2.4 Offering Holder to sell or otherwise
dispose of such Shares shall constitute an irrevocable acceptance of
the Section 2.4 Transfer Offer by the Section 2.4 Transfer Offeree.
(ii) Each Section 2.4 Transfer Offeree shall have the right
to sell pursuant to the Section 2.4 Transfer Offer Shares equal to the
product of (A) the total number of Shares then beneficially owned by
such Section 2.4 Transfer Offeree, and (B) a fraction, the numerator
of which shall be the total number of Shares proposed to be sold by
such Section 2.4 Offering Holder, and the denominator of which shall
be the total number of Shares beneficially owned by such Section 2.4
Offering Holder (the "Section 2.4 Transfer Offeree Shares").
-----------------------------------
(iii) Promptly after the consummation of the sale or
other disposition of the Shares of the Section 2.4 Offering Holder and
the Section 2.4 Transfer Offerees to the Third Party pursuant to the
Section 2.4 Transfer Offer, the Section 2.4 Offering Holder shall
notify the Section 2.4 Transfer Offerees thereof, shall remit to each
of the Section 2.4 Transfer Offerees the total sales price of the
Shares of such Section 2.4 Transfer Offeree sold or otherwise disposed
of pursuant thereto, and shall furnish such other evidence of the
<PAGE>
10
completion and time of completion of such sale or other disposition
and the terms thereof as may be reasonably requested by the Section
2.4 Transfer Offerees.
(iv) If at the termination of the Notice Period any Section
2.4 Transfer Offeree shall not have accepted the offer contained in
the Section 2.4 Transfer Notice, such Section 2.4 Transfer Offeree
will be deemed to have waived any of and all of its rights under this
Section 2.4 with respect to the sale or other disposition of its
Section 2.4 Transfer Offeree Shares to such Third Party. The Section
2.4 Offering Holder shall have 60 days in which to sell the Section
2.4 Transfer Stock and the Section 2.4 Transfer Offeree Shares, not
otherwise excluded pursuant to the previous sentence, to the Third
Party, at a price not higher than that contained in the Section 2.4
Transfer Notice and on terms not more favorable to the Section 2.4
Offering Holder than were contained in the Section 2.4 Transfer
Notice. Promptly after any sale pursuant to this Section 2.4, the
Offering Holder shall notify the Company of the consummation thereof
and shall furnish such evidence of the completion thereof (including
time of completion) of such sale and of the terms thereof as the
Company may request. If, at the end of such 60-day period, the
Section 2.4 Offering Holder has not completed the sale of all the
Section 2.4 Transfer Stock and Section 2.4 Transfer Offeree Shares,
not otherwise excluded pursuant to this Section 2.4(a)(iv), the
Section 2.4 Offering Holder shall return to such Section 2.4 Transfer
Offerees all certificates representing the Shares which such Section
2.4 Transfer Offerees delivered for sale or other disposition
pursuant to this Section 2.4(a), and all the restrictions on sale or
other disposition contained in this Agreement with respect to Shares
owned by the Section 2.4 Offering Holder shall again be in effect.
(v) Notwithstanding anything contained in this Section
2.4(a), there shall be no liability on the part of the Section 2.4
Offering Holder to any Section 2.4 Transfer Offeree in the event that
the sale of Shares pursuant to Section 2.4(a)(iv) is not consummated
for whatever reason. Whether to effect a sale of Shares pursuant to
this Section 2.4(a) by the Section 2.4 Offering Holder is in the sole
and absolute discretion of such Section 2.4 Offering Holder.
(b) The provisions of Section 2.4(a) hereof shall not be
applicable to any transfer of Shares (i) from any Holder effected in a
transaction through a broker-dealer over the facilities of the Nasdaq
National Market System or any exchange on which the Common Stock is
listed or (ii) made pursuant to a Public Offering.
SECTION 2.5. Rights to Compel Sale.
---------------------
(a) If any Holder or Holders that collectively own a
majority of the outstanding Shares then subject to this Section 2.5
(collectively, the "Controlling Stockholders") propose to sell to a
------------------------
Third Party for cash, Cash Equivalents or Readily Marketable
Securities all Shares held by them and their respective Permitted
Transferees, if
<PAGE>
11
any, to a Third Party (the "Section 2.5 Transfer Offer"), then (in
--------------------------
addition to the right of the remaining Holders and their respective
Permitted Transferees, if any, to participate in such sale pursuant to
Section 2.4 hereof) the Controlling Stockholders may, at their option,
but subject to Section 2.5(d) hereof, require each and every one of
the remaining Holders and their respective Permitted Transferees, if
any (the "Remaining Holders"), to sell all Shares held by such
-----------------
Remaining Holders to the Third Party, for the same consideration per
Share and otherwise on the same terms and conditions upon which the
Controlling Stockholders sell their Shares.
(b) (i) The Controlling Stockholders shall cause the
Section 2.5 Transfer Offer to be reduced to writing and shall provide
a written notice (the "Section 2.5 Transfer Notice") of such Section
---------------------------
2.5 Transfer Offer to the Company and the Company shall provide
written notice of such Section 2.5 Transfer Offer to the Remaining
Holders. The Section 2.5 Transfer Notice shall contain written notice
of the exercise of the Controlling Stockholders' rights pursuant to
Section 2.5(a) hereof, setting forth the consideration per Share to be
paid by the Third Party and the other terms and conditions of the
Section 2.5 Transfer Offer. Within 20 days following the date of the
Section 2.5 Transfer Notice, each of the Remaining Holders shall
deliver to a representative of the Controlling Stockholders designated
in the Section 2.5 Transfer Notice certificates representing the
Shares held by such Remaining Holder, Duly Endorsed, together with all
other documents required to be executed in connection with such
Section 2.5 Transfer Offer or, if such delivery is not permitted by
applicable law, an unconditional agreement to deliver such Shares
pursuant to this Section 2.5(b) at the closing for such Section 2.5
Transfer Offer against delivery to such Remaining Holder of the
consideration therefor. In the event that a Remaining Holder should
fail to deliver such certificates to the Controlling Stockholders, the
Company shall cause the books and records of the Company to show that
such Shares are bound by the provisions of this Section 2.5(b) and
that such Shares shall be transferred only to the Third Party upon
surrender for transfer by the Remaining Holder thereof.
(ii) If, within 120 days after the Controlling Stockholders
give the Transfer Notice, they have not completed the sale of all the
Transfer Stock, the Controlling Stockholders shall return to each of
the Remaining Holders all certificates representing Shares that such
Remaining Holder delivered for sale pursuant hereto, and all the
restrictions on sale or other disposition contained in the Agreement
with respect to Shares owned by the Controlling Stockholders shall
again be in effect.
(iii) Promptly after the consummation of the sale of
Shares of the Controlling Stockholders and Remaining Holders pursuant
to this Section 2.5, the Controlling Stockholders shall give notice
thereof to the Remaining Holders, shall remit to each of the Remaining
Holders the total sales price of the Shares of such Remaining Holders
sold pursuant thereto, and shall furnish such other evidence of the
completion and time of
<PAGE>
12
completion of such sale or other disposition and the terms thereof as
may be reasonably requested by such Remaining Holders.
(c) In the event that any Remaining Holder shall be
required to sell Shares pursuant to the provisions of Section 2.5
hereof, then the provisions of Section 2.4 hereof shall not be
applicable to such Remaining Holder.
(d) Notwithstanding the foregoing provisions of this
Section 2.5, no Remaining Holder which is a trust under an employee
benefit plan subject to ERISA (an "ERISA Holder") shall be obligated
------------
to sell any Shares pursuant to this Section 2.5 if such Remaining
Holder determines in good faith, upon advice of counsel, that there is
a material risk that such sale would constitute a prohibited or a
party-in-interest transaction or would otherwise contravene ERISA and
gives the Controlling Stockholders notice thereof within 20 days after
receiving a Section 2.5 Transfer Notice. Notwithstanding the
foregoing provisions of this Section 2.5(d), such ERISA Holder shall,
if requested by the Controlling Stockholders, use reasonable
commercial efforts to obtain an appropriate exemption from any such
ERISA restriction or to participate in restructuring such proposed
transaction in such a manner that such ERISA Holder can determine that
no such material risk exists, and the Controlling Stockholder, such
ERISA Holder and the Company shall cooperate with each other in such
regard; provided, however, that neither of them shall be required to
take any action which it determines in good faith to be contrary to
its best interests.
SECTION 2.6. Improper Transfer. Any attempt to sell,
-----------------
assign, transfer, grant a participation in, pledge or otherwise
dispose of any Shares not in compliance with this Agreement shall be
null and void and neither the Company nor any transfer agent shall
give any effect in the Company's stock records to such attempted sale,
assignment, transfer, grant of a participation in, pledge or other
disposition.
ARTICLE III
CERTAIN AGREEMENTS REGARDING THE BOARD OF DIRECTORS
---------------------------------------------------
SECTION 3.1. Nomination of Directors and Certain Other
-----------------------------------------
Management Rights. So long as MSLEF or Fort Howard Equity Investors
- -----------------
II shall own shares of Common Stock of the Company, MSLEF and Fort
Howard Equity Investors II, as the case may be, each shall have the
following rights with respect to the Company: (i) the right to have a
designee nominated for election to the Board of Directors at any
annual meeting of the Company's shareholders, provided that MSLEF 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; (ii) in the event of a vacancy on the Board of
Directors created by the resignation, removal or death of a director
nominated by MSLEF or Fort Howard
<PAGE>
13
Equity Investors II, as the case may be, the right to have a designee
nominated for election to fill such vacancy; (iii) the right to
routinely consult with the management of the Company on matters
relating to the Company; (iv) the right to inspect the books and
records of the Company; (v) if MSLEF and Fort Howard Equity Investors
II each do not have a designee elected as a member of the Board of
Directors of the Company or each do not elect to have a designee
nominated, the right to have a representative of MSLEF and Fort Howard
Equity Investors II attend the meetings of the Board of Directors and
to participate in discussions (but not vote) at such meetings; and
(vi) the right to inspect the properties and operations of the
Company; provided, however, that any such nominee of MSLEF or Fort
Howard Equity Investors II, as the case may be, shall be reasonably
acceptable to the Board of Directors of the Company. To the extent
the Company's proxy statement for any annual meeting includes a
recommendation regarding the election of any other nominees to the
Company's Board of Directors, the Company agrees to include a
recommendation that the shareholders also vote in favor of the
foregoing nominees. The rights provided to MSLEF and Fort Howard
Equity Investors II in this Section 3.1 are intended to enable MSLEF
and Fort Howard Equity Investors II or any partner of MSLEF and Fort
Howard Equity Investors II to be operated as a "venture capital
operating company" within the meaning of the regulations of the
Department of Labor set forth in 29 CFR Section 2510.3-101(d), and
this Section 3.1 shall be interpreted accordingly.
ARTICLE IV
REGISTRATION RIGHTS
-------------------
SECTION 4.1. Registration on Request of Holders.
----------------------------------
(a) Subject to the Company's Right of First Refusal as
provided in Section 5.1(a) hereof, upon the written request of Holders
of the Minimum Registration Request Percentage of the Registrable
Securities outstanding (the "Selling Investors"), requesting that the
-----------------
Company effect the registration under the Securities Act of not less
than the Minimum Registration Amount of Registrable Securities, and
specifying the intended method of disposition thereof, the Company
will promptly give written notice of such requested registration to
all other Holders of Registrable Securities, and thereupon will use
its best efforts to effect, as expeditiously as possible, the
registration under the Securities Act of:
(i) the Registrable Securities which the Company has been
so requested to register by the Selling Investors of at least the
Minimum Registration Amount, then held by the Selling Investors
and their respective Permitted Transferees, if any; and
(ii) all other Registrable Securities which the Company has
been requested to register by any other Holder thereof by written
request received by the Company
<PAGE>
14
within five Business Days after the giving of such written notice
by the Company (which request shall specify the intended method
of disposition of such Registrable Securities),
all to the extent necessary to permit the disposition (in accordance
with the intended methods thereof as aforesaid) of the Registrable
Securities so to be registered; provided, however, that
(A) the Company shall not be obligated to file a
registration statement relating to a registration request under
this Section 4.1(a) within a period of six months after the
effective date of any other registration statement of the Company
other than any registration statement relating to Shares issuable
upon exercise of employee stock options or in connection with any
employee benefit or similar plan of the Company or in connection
with an acquisition by the Company of another company,
(B) with respect to any registration statement filed, or to
be filed, pursuant to this Section 4.1, if the Company shall
furnish to the Selling Investors a certified resolution of the
Board of Directors stating that in the Board of Directors' good
faith judgment it would (because of the existence of, or in
anticipation of, any acquisition or financing activity, or the
unavailability for reasons beyond the Company's control of any
required financial statements, or any other event or condition of
similar significance to the Company) be significantly
disadvantageous (a "Disadvantageous Condition") to the Company or
-------------------------
its stockholders for such a registration statement to be
maintained effective, or to be filed and become effective, and
setting forth the general reasons for such judgment, the Company
shall be entitled to cause such registration statement to be
withdrawn and the effectiveness of such registration statement
terminated, or, in the event no registration statement has yet
been filed, shall be entitled not to file any such registration
statement, until such Disadvantageous Condition no longer exists
(notice of which the Company shall promptly deliver to the
Selling Investors and any other holders selling securities
pursuant to an effective registration statement) and upon receipt
of any such notice of a Disadvantageous Condition such Selling
Investors and any other holders selling securities pursuant to an
effective registration statement (the "Additional Sellers") will
------------------
forthwith discontinue use of the prospectus contained in such
registration statement and, if so directed by the Company, each
such Holder will deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the
prospectus then covering such Registrable Securities current at
the time of receipt of such notice and, in the event no
registration statement has yet been filed, all drafts of the
prospectus covering such Registrable Securities, and
<PAGE>
15
(C) subject to Section 4.1(f) hereof, the Company shall not
be obligated to pay any Registration Expenses in connection with
more than four registrations requested in the aggregate pursuant
to this Section 4.1.
Unless the Holders of Registrable Securities (representing a majority
of the Fully Diluted Shares) then held by the Selling Investors and
the Additional Sellers and their Permitted Transferees, if any, shall
otherwise consent in writing, no other person (including the Company),
other than another Holder of Registrable Securities, shall be
permitted to offer any securities under any registration pursuant to
this Section 4.1. Promptly after the expiration of the five Business
Day period referred to in Section 4.1(a)(ii) hereof, the Company will
notify all the Holders to be included in the registration of the other
Holders and the number of shares of Registrable Securities requested
to be included therein. A majority of the Selling Investors
requesting a registration under this Section 4.1(a) may, at any time
prior to the effective date of the registration statement relating to
such registration, revoke such request, without liability (except as
set forth in Section 4.1(c) hereof) to any of the other Selling
Investors or to any other holders of Registrable Securities requested
to be registered pursuant to Section 4.1(a)(ii) hereof, by providing a
written notice to the Company revoking such request. In the event
that the Company shall give any notice of the withdrawal of a
registration statement contemplated by clause (B) above, the Company
shall at such time as it in good faith deems appropriate file a new
registration statement covering the Registrable Securities that were
covered by such withdrawn registration statement, and such
registration statement shall be maintained effective for such time as
may be necessary so that the period of effectiveness of such new
registration statement, when aggregated with the period during which
such initial registration statement was effective, shall be such time
as may be otherwise required by this Agreement. There is no
limitation on the number of times that the Company may withdraw a
registration statement pursuant to this Section 4.1(a).
Notwithstanding anything contained in this Agreement to the contrary,
nothing herein shall be construed as requiring the Company to register
any of its securities other than Shares.
(b) Registration Statement Form. If, pursuant to a
---------------------------
registration request under this Section 4.1, (i) the Company proposes
to effect registration by filing a registration statement on Form S-3
(or any successor or similar short-form registration statement),
(ii) such registration is in connection with a Public Offering and
(iii) the managing underwriter shall advise the Company in writing
that, in its opinion, the use of another form of registration
statement is of material importance to the success of such proposed
offering, then such registration shall be effected on such other form.
(c) Expenses. The Company will pay all Registration
--------
Expenses in connection with four registrations which are requested and
become effective pursuant to this Section 4.1. The Company shall not
be liable for Registration Expenses in connection with a registration
that shall not have become effective due to a revocation by the
Selling Investors requesting such registration under this Section 4.1.
In such event, the obligation to pay the
<PAGE>
16
Registration Expenses in connection with such revoked registration
shall be due and payable by the Selling Investors who initially
requested and revoked such registration and the obligation of the
Company to pay all Registration Expenses in connection with four
registrations shall not be affected by such revoked registration.
However, each Holder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to a
registration requested pursuant to this Section 4.1.
(d) Effective Registration Statement. A registration
--------------------------------
requested pursuant to this Section 4.1 shall not be deemed to have
been effected unless the registration statement relating thereto (i)
has become effective under the Securities Act and any of the
Registrable Securities of the Selling Investors and their Permitted
Transferees, if any, included in such registration have actually been
sold thereunder, and (ii) has remained effective for a period of at
least 90 days (or such shorter period in which all Registrable
Securities of the Selling Investors and the Additional Sellers and
their respective Permitted Transferees, if any, included in such
registration have actually been sold thereunder); provided, however,
that if any effective registration statement requested pursuant to
this Section 4.1 is discontinued in connection with a Disadvantageous
Condition, such registration statement shall be at the sole expense of
the Company and shall not be included as one of the four registrations
which may be requested pursuant to Section 4.1 hereof; and provided
further, that if after any registration statement requested pursuant
to this Section 4.1 becomes effective (i) such registration statement
is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court
solely due to the actions or omissions to act of the Company and (ii)
less than 75% of the Registrable Securities included in such
registration have been sold thereunder, such registration statement
shall be at the sole expense of the Company and shall not be included
as one of the four registrations which may be requested pursuant to
Section 4.1 hereof.
(e) Selection of Underwriters. If any requested
-------------------------
registration pursuant to this Section 4.1 is in the form of a Public
Offering, the Company will select Morgan Stanley & Co. as the manager
or, if Morgan Stanley & Co. so desires, as the co-manager, that will
administer the offering, provided that Morgan Stanley & Co. shall
perform such services as underwriter at the then customary market
rates for similar underwriting services. If Morgan Stanley & Co.
declines to act as manager or co-manager of the offering, the Holders
of a majority of the Registrable Securities then held by the Selling
Investors and their Permitted Transferees, if any, which are to be
registered pursuant to this Section 4.1 shall have the right to select
the manager or co-managers that will administer the offering.
(f) Pro Rata Participation in Requested Registrations. If
-------------------------------------------------
a requested registration pursuant to this Section 4.1 involves a
Public Offering and the managing underwriter shall advise the Company
that, in its view, the number of equity securities requested to be
included in such registration (including securities which the Company
<PAGE>
17
requests to be included which are not Registrable Securities) exceeds
the largest number of securities which can be sold without having an
adverse effect on such offering, including the price at which such
securities can be sold (the "Maximum Offering Size"), the Company will
---------------------
include in such registration, in the priority listed below, up to the
Maximum Offering Size:
(i) Demand Registrants' Securities. First, Registrable
------------------------------
Securities requested to be included in such registration pursuant
to Section 4.1(a)(i) and Section 4.1(a)(ii) hereof be allocated
(if necessary for the offering not to exceed the Maximum Offering
Size) pro rata among the Holders requesting registration pursuant
to Section 4.1(a)(i) and Section 4.1(a)(ii) hereof on the basis
of the relative number of Fully Diluted Shares represented by the
Registrable Securities each such Holder has requested to be
included in such registration).
(ii) The Issuer's Securities. Second, the equity securities
-----------------------
proposed to be sold by the Company but only to the extent such
allocation would not result in the offering exceeding the Maximum
Offering Size.
(iii) Other Holders' Securities. Third, the equity
-------------------------
securities proposed to be sold by any other person to the extent
that the Holders of a majority of the Registrable Securities then
held by the Selling Investors and their Permitted Transferees, if
any, have consented, pursuant to Section 4.1(a) hereof, to the
inclusion in such registration of such securities of such other
persons, shall be allocated (if necessary for the offering not to
exceed the Maximum Offering Size) pro rata among all such other
persons on the basis of the relative number of securities each
such person has requested to be included in such registration or
on such other basis as may be consented to by the Company and the
Selling Investors.
(g) If Registrable Securities representing at least 50% of
the number of Fully Diluted Shares requested to be registered by the
Selling Investors and their Permitted Transferees, if any, are not
included in such registration, then the Selling Investors and their
Permitted Transferees, if any, may request that the Company effect an
additional registration under the Securities Act of all or part of the
Selling Investors' and such Permitted Transferees', if any,
Registrable Securities in accordance with the provisions of this
Section 4.1, and the Company shall pay the Registration Expenses in
connection with such additional registration (in addition to the four
registrations referred to in Section 4.1(a) hereof).
SECTION 4.2. Incidental Registration.
-----------------------
(a) If the Company at any time proposes to register any of
its equity securities (the "Priority Securities") under the Securities
-------------------
Act (other than a registration (i) on Form S-8 or S-4 or any successor
or similar forms, (ii) relating to Shares issuable upon exercise of
employee stock options or in connection with any employee benefit or similar
<PAGE>
18
plan of the Company, (iii) in connection with a direct or indirect
acquisition by the Company of another company, (iv) pursuant to a
registration under Section 4.1 hereof, (v) of preferred securities or
convertible or exchangeable debt or equity securities, or (vi)
relating to any Shares purchased by certain parties in connection with
various put options and call options granted under the MEPA to the
Electing Parties (as defined therein)), whether or not for sale for
its own account, in a manner which would permit registration of
Registrable Securities for sale to the public under the Securities
Act, it will each such time, subject to the provisions of Section
4.2(b) hereof, give prompt written notice to all Holders of record of
Registrable Securities of its intention to do so and of such Holders'
rights under this Section 4.2, at least 30 days prior to the
anticipated filing date of the registration statement relating to such
registration; provided that, if such registration involves a Public
Offering, no such notice shall be required if the managing underwriter
of the proposed offering advises that the number of Priority
Securities equals or exceeds the Maximum Offering Size. Any such
notice shall offer all such Holders the opportunity to include in such
registration statement such number of Registrable Securities as each
such Holder may request. Upon the written request of any such Holder
made within 20 days after the receipt of notice from the Company
(which request shall specify the number of Registrable Securities
intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use its best efforts to effect
the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the
Holders thereof, to the extent requisite to permit the disposition (in
accordance with such intended methods thereof) of the Registrable
Securities so to be registered; provided that (i) if such registration
involves a Public Offering, all Holders of Registrable Securities
requesting to be included in the Company's registration must sell
their Registrable Securities to the underwriters selected by the
Company on the same terms and conditions as apply to the Company; and
(ii) if, at any time after giving written notice of its intention to
register any securities pursuant to this Section 4.2(a) and prior to
the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not
to register such securities, the Company shall give written notice to
all Holders of Registrable Securities and, thereupon, shall be
relieved of its obligation to register any Registrable Securities in
connection with such registration (without prejudice, however, to
rights of Holders under Section 4.1 hereof). If a registration
pursuant to this Section 4.2(a) involves a Public Offering, any Holder
of Registrable Securities requesting to be included in such
registration may elect, in writing not less than five Business Days
prior to the effective date of the registration statement filed in
connection with such registration, not to register such securities in
connection with such registration. No registration effected under
this Section 4.2 shall relieve the Company of its obligations to
effect registrations upon request under Section 4.1 hereof. The
Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this
Section 4.2, and each Holder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to a
registration statement effected pursuant to this Section 4.2.
<PAGE>
19
(b) Priority in Incidental Registrations. If a
------------------------------------
registration pursuant to this Section 4.2 involves a Public Offering
and the managing underwriter advises the Company that, in its view,
the number of equity securities (including all Registrable Securities)
which the Company, the Holders and any other persons intend to include
in such registration exceeds the Maximum Offering Size, the Company
will include in such registration, in the following priority, up to
the Maximum Offering Size:
(i) first, all the Priority Securities (including any to be
sold for the Company's own account or for other holders of
Priority Securities), with such priorities among them as the
Company may determine;
(ii) second, all Registrable Securities requested to be
included in such registration by the Holders pursuant to Section
4.2(a) hereof (allocated, if necessary for the offering not to
exceed the Maximum Offering Size, pro rata among the Holders
requesting registration of such Registrable Securities pursuant
to Section 4.2(a) hereof on the basis of the relative number of
Fully Diluted Shares represented by the Registrable Securities
each such Holder has requested to be included in such
registration); and
(iii) third, the equity securities requested to be sold
for the account of any other persons (allocated, if necessary for
the offering not to exceed the Maximum Offering Size, pro rata
among the persons requesting registration of such equity
securities on the basis of the relative number of Fully Diluted
Shares represented by the equity securities each such person has
requested to be included in such registration).
SECTION 4.3. Holdback Agreements.
-------------------
(a) Except as otherwise provided in Sections 4.3(c) and
4.3(d) hereof, if any registration of Registrable Securities shall be
in connection with a Public Offering, each Holder of Registrable
Securities and their Permitted Transferees, if any, agrees not to
effect any public sale or distribution, including any sale pursuant to
Rule 144, or any successor provision, under the Securities Act, of any
Registrable Securities, and not to effect any such public sale or
distribution of any other equity security of the Company or of any
security convertible into or exchangeable or exercisable for any
equity security of the Company (in each case, other than as part of
such Public Offering) during the 7 days prior to, and during the
120-day period which begins on the effective date of such registration
statement (except as part of such registration) provided that each
Holder of Registrable Securities and their Permitted Transferees, if
any, has received written notice of such registration at least two
Business Days prior to the anticipated beginning of the 7-day period
referred to above; provided, however, that this Section 4.3(a) shall
apply only to transactions in Common Stock that is not held by third-
party investment advisers who have discretionary power to invest the
<PAGE>
20
assets of any Holder in publicly-traded securities. The 120-day
period referred to in this Section 4.3(a) may be extended to 180 days
upon the underwriters' reasonable request.
(b) If any registration of Registrable Securities shall be
in connection with a Public Offering, the Company agrees not to effect
any public sale or distribution of any of its equity securities or of
any security convertible into or exchangeable or exercisable for any
equity security of the Company (other than any such sale or
distribution of such securities in connection with any merger or
consolidation by the Company or any subsidiary of the Company or the
acquisition by the Company or a subsidiary of the Company of the
capital stock or substantially all the assets of any other person or
in connection with an employee stock ownership or other benefit plan)
during the 7 days prior to, and during the 120-day period which begins
on, the effective date of such registration statement (except as part
of such registration).
(c) If a registration pursuant to Section 4.2 involves a
Public Offering of Priority Securities and except as otherwise
provided in Section 4.3(d) hereof, each Holder and their Permitted
Transferees, if any, agrees (notwithstanding the fact that none of
such Holder's or Permitted Transferee's Registrable Securities are to
be included as part of such offering) that, without the prior written
consent of Morgan Stanley & Co. (or in the case of Morgan Stanley and
its Affiliates and MSLEF, without the prior written consent of the co-
managers of such offering), it will not, during the 7 days prior to,
and during the 180-day period which begins on the effective date of
the registration statement relating to such offering, (i) offer,
pledge, sell, contract to sell, sell an option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or
(ii) enter into any swap or similar agreement that transfers, in whole
or in part, the economic risk of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities, in
cash or otherwise; provided, however, that this Section 4.3(c) shall
not apply to transactions in Common Stock other than the Shares
that is held by a third-party investment adviser who has discretionary
power to invest the assets of any Holder in publicly-traded securities;
and provided further, that any Holder who is a natural person and is not
a Management Investor may, notwithstanding anything to the contrary
contained in this Section 4.3(c) or Section 4.3(d), transfer shares of
Common Stock which are not Shares by gift, will, bequest or devise.
(d) Each Holder who is not a Management Investor agrees, in
connection with the 1995 Initial Public Offering and notwithstanding
the fact that none of such Holder's Registrable Securities are to be
included as part of such offering, that, without the prior written
consent of Morgan Stanley & Co. (or in the case of Morgan Stanley and
its Affiliates and MSLEF, without the prior written consent of the co-
managers of such offering), it will not, during the 7 days prior to,
and during the one-year period which begins on, the effective
<PAGE>
21
date of the registration statement relating to such offering,
(i) offer, pledge, sell, contract to sell, sell an option or contract
to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common
Stock, or (ii) enter into any swap or similar agreement that
transfers, in whole or in part, the economic risk of ownership of the
Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise; provided, however, that this Section
4.3(d) shall not apply to transactions in Common Stock other than the
Shares that is held by a third-party investment adviser who has
discretionary power to invest the assets of any Holder in publicly-traded
securities; and provided further, that any Holder who is a natural person
and is not a Management Investor may, notwithstanding anything to the contrary
contained in Section 4.3(c) or this Section 4.3(d), transfer shares of
Common Stock which are not Shares by gift, will, bequest or devise.
(e) The managers of the 1995 Initial Public Offering and of any
other Public Offering to which this Section 4.3 applies are expressly made
third party beneficiaries of the agreements contained in Sections 4.3(a),
4.3(c) and 4.3(d) hereof.
SECTION 4.4. Registration Procedures. Whenever Holders
-----------------------
request that any Registrable Securities be registered pursuant to
Section 4.1 or 4.2 hereof, the Company will, subject to the provisions
of such Sections, use its best efforts to effect the registration and
the sale of such Registrable Securities in accordance with the
intended method of disposition thereof as quickly as practicable, and
in connection with any such request:
(a) The Company will as expeditiously as possible prepare
and file with the Commission a registration statement on any form
for which the Company then qualifies or which counsel for the
Company shall deem appropriate and which form shall be available
for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution
thereof, and use its best efforts to cause such filed
registration statement to become and remain effective for a
period of not less than 180 days.
(b) The Company will, if so requested, prior to filing a
registration statement or prospectus or any amendment or
supplement thereto, furnish to each Holder and each underwriter,
if any, of the Registrable Securities covered by such
registration statement copies of such registration statement as
proposed to be filed, and thereafter the Company will furnish to
such Holder and underwriter, if any, such number of copies of
such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto and
documents incorporated by reference therein), the prospectus
included in such registration statement (including each
preliminary prospectus) and such other documents as such Holder
or underwriter may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder.
<PAGE>
22
(c) After the filing of the registration statement, the
Company will promptly notify each Holder of Registrable
Securities covered by such registration statement of any stop
order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop
order or to remove it if entered.
(d) The Company will use its best efforts to (i) register
or qualify the Registrable Securities under such other state
securities or blue sky laws of such jurisdictions in the United
States as any Holder of Registrable Securities covered by such
registration statement reasonably (in light of such Holder's
intended plan of distribution) requests and (ii) cause such
Registrable Securities to be registered with or approved by such
other governmental agencies or authorities as may be necessary by
virtue of the business and operations of the Company and do any
and all other acts and things that may be reasonably necessary or
advisable to enable such Holder to consummate the disposition of
the Registrable Securities owned by such Holder; provided that
the Company will not be required to (A) qualify generally to do
business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (d), (B) subject
itself to taxation in any such jurisdiction or (C) consent to
general service of process in any such jurisdiction.
(e) The Company will immediately notify each Holder of
Registrable Securities covered by such registration statement, at
any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus will not contain an
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading and promptly make available to
each such Holder any such supplement or amendment.
(f) The Company will enter into customary agreements
(including an underwriting agreement in customary form) and take
such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Registrable
Securities.
(g) The Company will make available for inspection by any
Holder of Registrable Securities covered by such registration
statement, any underwriter participating in any disposition
pursuant to such registration statement and any attorney,
accountant or other professional retained by any such Holder or
underwriter (collectively, the "Inspectors") all financial and
----------
other records, pertinent corporate documents and properties of
the Company (collectively, the "Records") as shall be reasonably
-------
necessary to enable them to exercise their due diligence
responsibility, and
<PAGE>
23
cause the Company's officers, directors and employees to supply
all information reasonably requested by any Inspectors in
connection with such registration statement. Records which the
Company determines, in good faith, to be confidential and which
it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or
omission in such registration statement or (ii) the release of
such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction. Each Holder agrees that
information obtained by it as a result of such inspections shall
be deemed confidential and shall not be used by it as the basis
for any market transactions in the securities of the Company or
its Affiliates unless and until such is made generally available
to the public. Each Holder further agrees that it will, upon
learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the
Company, at its expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential.
(h) The Company will furnish to each Holder of Registrable
Securities covered by such registration statement and to each
underwriter, if any, a signed counterpart, addressed to such
Holder or underwriter, of (i) an opinion or opinions of counsel
to the Company and (ii) a comfort letter or comfort letters from
the Company's independent public accountants, each in customary
form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as a majority of
the Holders of the Registrable Securities included in such
registration statement or the managing underwriter therefor
reasonably requests.
(i) The Company will otherwise use its best efforts to
comply with all applicable rules and regulations of the
Commission, and make available to its securityholders, as soon as
reasonably practicable, an earnings statement covering a period
of 12 months, beginning within three months after the effective
date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities
Act.
(j) The Company will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange
on which similar securities issued by the Company are then
listed.
The Company may require each Holder of Registrable
Securities included in such registration statement to promptly furnish
in writing to the Company such information regarding the distribution
of the Registrable Securities as the Company may from time to time
reasonably request and such other information as may be legally
required in connection with such registration.
<PAGE>
24
Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
4.4(e) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering
such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section
4.4(e) hereof, and, if so directed by the Company, such Holder will
deliver to the Company all copies, other than permanent file copies
then in such Holder's possession, of the most recent prospectus
covering such Registrable Securities at the time of receipt of such
notice. In the event that the Company shall give such notice, the
Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred
to in Section 4.4(a) hereof) by the number of days during the period
from and including the date of the giving of notice pursuant to
Section 4.4(e) hereof to the date when the Company shall make
available to the Holders a prospectus supplemented or amended to
conform with the requirements of Section 4.4(e) hereof.
SECTION 4.5. Indemnification by the Company. The Company
------------------------------
agrees to indemnify and hold harmless each Holder of Registrable
Securities covered by a registration statement, its officers,
directors and agents, and each person, if any, who controls such
Holder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable
Securities (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based
upon information furnished in writing to the Company by such Holder or
on such Holder's behalf expressly for use therein; provided, however,
that with respect to any untrue statement or omission or alleged
untrue statement or omission made in any preliminary prospectus, or in
any prospectus, as the case may be, the indemnity agreement contained
in this paragraph shall not apply to the extent that any such loss,
claim, damage, liability or expense results from the fact that a
current copy of the prospectus (or, in the case of a prospectus, the
prospectus as amended or supplemented) was not sent or given to the
person asserting any such loss, claim, damage, liability or expense at
or prior to the written confirmation of the sale of the Registrable
Securities concerned to such person if it is determined that the
Company has provided such prospectus and it was the responsibility of
such Holder to provide such person with a current copy of the
prospectus (or such amended or supplemented prospectus, as the case
may be) and such current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) would have cured the
defect giving rise to such loss, claim, damage, liability or expense.
The Company also agrees to indemnify any underwriters of the
Registrable Securities, their officers and directors and each person who
<PAGE>
25
controls such underwriters on substantially the same basis as that of
the indemnification of the Holders provided in this Section 4.5.
SECTION 4.6. Indemnification by Holders of Registrable
-----------------------------------------
Securities and Underwriters. Each Holder of Registrable Securities
- ---------------------------
included in any registration statement agrees, severally but not
jointly, to indemnify and hold harmless the Company, its officers,
directors and agents and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Holder, but only (i) with respect
to information furnished in writing by such Holder or on such Holder's
behalf expressly for use in any registration statement or prospectus
relating to the Registrable Securities, or any amendment or supplement
thereto, or any preliminary prospectus or (ii) to the extent that any
loss, claim, damage, liability or expense described in Section 4.5
results from the fact that a current copy of the prospectus (or, in
the case of a prospectus, the prospectus as amended or supplemented)
was not sent or given to the person asserting any such loss, claim,
damage, liability or expense at or prior to the written confirmation
of the sale of the Registrable Securities concerned to such person if
it is determined that it was the responsibility of such Holder to
provide such person with a current copy of the prospectus (or such
amended or supplemented prospectus, as the case may be) and such
current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. Each such
Holder also agrees to indemnify and hold harmless underwriters of the
Registrable Securities, their officers and directors and each person
who controls such underwriters on substantially the same basis as that
of the indemnification of the Company provided in this Section 4.6.
As a condition to including Registrable Securities in any registration
statement filed in accordance with Article IV hereof, the Company may
require that it shall have received an undertaking reasonably
satisfactory to it from any underwriter to indemnify and hold it
harmless to the extent customarily provided by underwriters with
respect to similar securities.
SECTION 4.7. Conduct of Indemnification Proceedings. In
--------------------------------------
case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may
be sought pursuant to Section 4.1 or 4.2, such person (an "Indemnified
-----------
Party") shall promptly notify the person against whom such indemnity
- -----
may be sought (the "Indemnifying Party") in writing and the
------------------
Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all fees and expenses; provided
that the failure of any Indemnified Party so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of its
obligations hereunder except to the extent that the Indemnifying Party
is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying
<PAGE>
26
Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) in the reasonable judgment of such
Indemnified Party, representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel)
at any time for all such Indemnified Parties, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by the Indemnified Parties. The Indemnifying
Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such
consent, or if there be a final judgment for the plaintiff, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. No Indemnifying
Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability arising out of
such proceeding.
SECTION 4.8. Contribution. If the indemnification provided
------------
for in this Article 4 is unavailable to the Indemnified Parties in
respect of any losses, claims, damages or liabilities referred to
herein, then each such Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims, damages
or liabilities (i) as between the Company and the Holders of
Registrable Securities covered by a registration statement on the one
hand and the underwriters on the other, in such proportion as is
appropriate to reflect the relative benefits received by the Company
and such Holders on the one hand and the underwriters on the other
from the offering of the Registrable Securities, or, if such allocation
is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the
relative fault of the Company and such Holders on the one hand and of
the underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations
and (ii) as between the Company on the one hand and each Holder of
Registrable Securities covered by a registration statement on the
other, in such proportion as is appropriate to reflect the relative
fault of the Company and of each such Holder in connection with such
statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Company and
such Holders on the one hand and the underwriters on the other shall
be deemed to be in the same proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company and the Holders bear to
the total underwriting discounts and commissions received by the
underwriters, in each case as set forth in the table on the cover page
of the prospectus. The relative fault of the Company and the Holders on
<PAGE>
27
the one hand and of the underwriters on the other shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company and the Holders or by the underwriters. The relative
fault of the Company on the one hand and of each Holder on the other
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Holders agree that it would not be just
and equitable if contribution pursuant to this Section 4.8 were
determined by pro rata allocation (even if the underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid
or payable by an Indemnified Party as a result of the losses, claims,
damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
4.8, no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission,
and no Holder shall be required to contribute any amount in excess of
the amount by which the total price at which the Registrable
Securities of such Holder were offered to the public exceeds the
amount of any damages which such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each Holder's obligation to contribute
pursuant to this Section 4.8 is several in the proportion that the
proceeds of the offering received by such Holder bears to the total
proceeds of the offering received by all the Holders and not joint.
SECTION 4.9. Participation in Public Offering. No person
--------------------------------
may participate in any Public Offering hereunder unless such person
(a) agrees to sell such person's securities on the basis provided in
any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of
such underwriting arrangements and these registration rights.
<PAGE>
28
SECTION 4.10. Other Indemnification. Indemnification
---------------------
similar to that specified herein (with appropriate modifications)
shall be given by the Company and each Holder of Registrable
Securities with respect to any required registration or other
qualification of securities under any federal or state law or
regulation or governmental authority other than the Securities Act.
ARTICLE V
RIGHT OF FIRST REFUSAL
----------------------
SECTION 5.1. Right of First Refusal.
----------------------
(a) (i) Upon receipt of a registration request made by the
Selling Investors pursuant to Section 4.1(a) hereof, the Company (or
any person the Company may designate, a "Section 5.1 Designee") shall
--------------------
have the right (a "Right of First Refusal") to purchase, pursuant to
----------------------
the procedures set forth in this Section 5.1, all the Shares (the
"First Refusal Shares") in respect of which the Company has received
--------------------
such registration request. Subject to Section 5.1(a)(ii), the Company
or the Section 5.1 Designee shall have the right to purchase the First
Refusal Shares at a price per share equal to the Fair Market Value of
the Company's common stock by giving notice in writing to such effect
to the Selling Investors (the "Purchase Notice") within 10 days of the
---------------
Company's receipt of such registration request. For purposes of this
Section 5.1, "Fair Market Value" means the average daily closing price
-----------------
of the Company's publicly traded shares on the Nasdaq National Market
or such other securities exchange on which the shares may be traded
(as reported in The Wall Street Journal) for the 45 trading days
immediately preceding the Company's delivery of the Purchase Notice.
If the Company or the Section 5.1 Designee elects not to purchase the
First Refusal Shares or fails to deliver the Purchase Notice by 5:00
p.m. (New York City time) on the tenth day after the Company's receipt
of such registration request, the Selling Investors shall be entitled
to the demand registration rights provided in Section 4.1. If the
tenth day after the Company's receipt of such registration request is
not a Business Day, the Company or the Section 5.1 Designee shall be
entitled to deliver the Purchase Notice by 5:00 p.m. (New York City
time) on the next succeeding Business Day.
(ii) A majority of the Selling Investors requesting the
registration in respect of which the Company delivered the Purchase
Notice may withdraw such registration request by giving notice in
writing to such effect to the Company (the "Withdrawal Notice") at any
-----------------
time prior to the date which is five days after the date of delivery
of the Purchase Notice.
(b) If the Company or the Section 5.1 Designee shall have
delivered the Purchase Notice (and no Withdrawal Notice shall have
been delivered), the closing of the purchase of the First Refusal
Shares pursuant to this Section 5.1 shall take place in New
<PAGE>
29
York City on the date specified in the Purchase Notice which date
shall neither be earlier than 5 days nor later than 20 days after the
date of delivery of the Purchase Notice. Promptly upon receipt of the
Purchase Notice, if no Withdrawal Notice shall have been delivered,
each Selling Investor of First Refusal Shares shall deliver to the
Company the certificates for such Shares, in form for transfer, Duly
Endorsed, against payment therefor. The Company or the Section 5.1
Designee, as the case may be, shall make payment on the closing date
by delivering to each Selling Investor a certified check or wire
transfer in immediately available funds for the purchase price of such
Selling Investor's First Refusal Shares, against delivery of the
certificates for such Shares, in form for transfer, Duly Endorsed. If
the Company or the Section 5.1 Designee, as the case may be, shall
fail to purchase the First Refusal Shares in accordance with this
Section 5.1(b), the Selling Investors shall be entitled to the demand
registration rights provided in Section 4.1.
(c) Notwithstanding the foregoing provisions of this
Section 5.1, no Selling Investor which is an ERISA Holder shall be
obligated to sell any First Refusal Shares pursuant to this Section
5.1 if such Selling Investor determines in good faith, upon advice of
counsel, that there is a material risk that such sale would constitute
a prohibited or a party-in-interest transaction or would otherwise
contravene ERISA and gives the Company notice thereof within 20 days
after receiving a Purchase Notice. Notwithstanding the foregoing
provisions of this Section 5.1(c), such ERISA Holder shall, if
requested by the Company, use reasonable commercial efforts (which
shall be, without limitation, reasonable as to time and expense) to
obtain an appropriate exemption from any such ERISA restriction or to
participate in restructuring such proposed transaction in such a
manner that such ERISA Holder can determine that no such material risk
exists, and the Company and such ERISA Holder shall cooperate with
each other in such regard; provided that neither of them shall be
required to take any action which it determines in good faith to be
contrary to its best interests. If within 20 days of the Company's
receipt of such ERISA Holder's notice, such ERISA Holder shall furnish
to the Company a statement in writing that (i) after discussions with
the Department of Labor, it is determined that there is a risk that
such sale would constitute a prohibited or party-in-interest
transaction or would otherwise contravene ERISA and (ii) because of
the time and expense involved in obtaining an exemption from such
ERISA restriction such sale is commercially unreasonable or contrary
to such ERISA Holder's best interests, then such ERISA Holder shall be
entitled to the demand registration rights provided in Section 4.1
hereof; provided that any exercise of such registration rights shall
be subject to the provisions of Section 4.1, including the Minimum
Registration Amount.
<PAGE>
30
ARTICLE VI
ADDITIONAL RIGHTS AND OBLIGATIONS OF HOLDERS
--------------------------------------------
SECTION 6.1. Certain Matters. For purposes hereof, with
---------------
respect to Shares, and options to purchase Shares, of the Company held
by Paul J. Schierl, (a) Mr. Schierl shall be deemed a "Holder", (b)
all references to the "MEPA" and the "Purchase Agreements" shall be
deemed to include the 1990 Agreement, and (c) all references to
"Management Investors" shall be deemed to include Mr. Schierl except
where otherwise indicated, and except that for purposes of clauses
(ii) and (iii) of Section 7.12 hereof, Mr. Schierl shall be deemed to
be a "Direct Investor" and not a "Management Investor."
SECTION 6.2. Reorganization. In the event the Board of
--------------
Directors determines that it is in the best interest of the
stockholders of the Company to establish Newco (as defined below)
then, in the event that any capital stock, other securities or other
interests are issued in respect of, in exchange for, or in
substitution of, any Shares held by Holders by reason of any
reorganization, recapitalization, reclassification, merger or
consolidation involving the Company in which a newly formed
corporation or partnership ("Newco") becomes the parent or holding
-----
company for or the successor to the Company, each Holder hereby agrees
to (i) in the event stockholder approval is required to effect such
reorganization, vote all Shares beneficially owned by it in favor of
such reorganization, and (ii) exchange, or cause the exchange, of
Shares held by it into the applicable securities of Newco, such
exchange to be made on a ratable basis among the Holders. Any
references in this Agreement to "Shares" shall include any successor
securities of Newco into which Shares may be exchanged in accordance
with this Section 6.2 and any references to "stockholders of the
Company" shall include the holders of such successor securities of
Newco. All references to the Company in this Agreement shall include
Newco.
SECTION 6.3. Pro Rata Purchase. Notwithstanding anything
-----------------
in this Agreement to the contrary, nothing herein shall prohibit the
Company from offering to purchase Shares from a Holder, and
consummating the purchase thereof, provided that any such offer (other
than with respect to Shares held by current or former employees of the
Company or any of its subsidiaries pursuant to any agreement between
the Company and any such employee) is made pro rata to each Holder.
<PAGE>
31
ARTICLE VII
MISCELLANEOUS
-------------
SECTION 7.1. Headings. The headings in this Agreement are
--------
for convenience of reference only and shall not control or affect the
meaning or construction of any provisions hereof.
SECTION 7.2. No Inconsistent Agreements. The Company will
--------------------------
not hereafter enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement. The Company has not
previously entered into any agreement with respect to any of its debt
or equity securities granting any registration rights to any person.
SECTION 7.3. Remedies. The Company acknowledges and agrees
--------
that in the event of any breach of this Agreement by it, the Holders
would be irreparably harmed and could not be made whole by monetary
damages. The Company accordingly agrees (i) to waive the defense in
any action for specific performance that a remedy at law would be
adequate, and (ii) that the Holders, in addition to any other remedy
to which they may be entitled at law or in equity, shall be entitled
to compel specific performance of this Agreement in any action
instituted in the United States District Court for the Southern
District of New York, or, in the event such Court would not have
jurisdiction for such action, in any court of the United States or any
state thereof having subject matter jurisdiction for such action. The
Company consents to personal jurisdiction in any such action brought
in the United States District Court for the Southern District of New
York, or any such other court and to service of process upon it in the
manner set forth in Section 7.6 hereof.
SECTION 7.4. Frustration of Purpose. No Holder may do
----------------------
directly or indirectly, including, without limitation, through the
sale of capital stock of its subsidiary or otherwise, that which is
not permitted by the Agreement. The Board of Directors, in its sole
discretion, shall have the right to make any determination pursuant to
this Section 7.4, which determination shall be final and binding upon
all the parties hereto, including, but not limited to, determinations
with respect to certain sales of Shares pursuant to the rights of
first refusal contained in Section 5.1 hereof and certain rights to
compel the sale of Shares contained in Section 2.5 hereof.
SECTION 7.5. Entire Agreement. This Agreement, together
----------------
with the Purchase Agreements referred to herein, constitute the entire
agreement and understanding of the parties hereto in respect of the
subject matter contained herein and therein, and there are no
restrictions, promises, representations, warranties, covenants, or
undertakings with respect to the subject matter hereof, other than
those expressly set forth or referred to herein or
<PAGE>
32
therein. This Agreement and the Purchase Agreements supersede all
prior agreements and understandings between the parties hereto with
respect to the subject matter hereof.
SECTION 7.6. Notices. Any notice, request, instruction or
-------
other document to be given hereunder by any party hereto to another
party hereto shall be in writing, shall be delivered personally or
sent by certified or registered mail, postage prepaid, return receipt
requested, or by overnight delivery service, to the address of the
party theretofore furnished to the Company or to such other address as
the party to whom notice is to be given may provide in a written
notice to the Company, a copy of which written notice shall be on file
with the Secretary. Notice shall be effective when sent by registered
or certified mail, return receipt requested, postage prepaid to the
party, and when received if delivered personally or otherwise by the
party to whom it is directed.
SECTION 7.7. Applicable Law. The laws of the State of
--------------
Delaware shall govern the interpretation, validity and performance of
the terms of this Agreement, regardless of the law that might be
applied under applicable principles of conflicts of laws.
SECTION 7.8. Severability. The invalidity or
------------
unenforceability of any provisions of this Agreement in any
jurisdiction shall not affect the validity, legality or enforceability
of the remainder of this Agreement in such jurisdiction or the
validity, legality or enforceability of this Agreement, including any
such provision, in any other jurisdiction, it being intended that all
rights and obligations of the parties hereunder shall be enforceable
to the fullest extent permitted by law.
SECTION 7.9. Termination. This Agreement shall terminate
-----------
and be of no further force or effect upon the earlier of: (i) such
time as both MSLEF and Fort Howard Equity Investors II cease to own
any of the then outstanding Shares or (ii) the tenth anniversary of
this amendment and restatement.
SECTION 7.10. Additional Holders. Each employee of the
------------------
Company or any direct or indirect subsidiary of the Company who
becomes a holder of Shares or Share Equivalents after August 8, 1988
shall, at the option of the Company, become a party to this Agreement
and be bound by its terms and be able to enforce his rights as a
Management Investor and as a Holder hereunder. Each other person
which enters into a Purchase Agreement on or after August 8, 1988 and
becomes a holder of Shares or Share Equivalents shall, at the option
of the Company, become a party to this Agreement and be bound by its
terms and be able to enforce its rights as a Holder hereunder. If the
Company so determines, such employee or such other person shall enter
into a supplementary agreement with the Company to such effect. Each
such supplementary agreement shall become effective upon its execution
by the Company and the new holder of Shares or Share Equivalents, and
it shall not require the signatures or the consent of any other
Holder. The supplementary agreement between the Company and any new
holder of Shares or Share
<PAGE>
33
Equivalents may modify some of the terms of this Agreement as they
affect the rights and obligations of the new holder of Shares or Share
Equivalents; provided that the modified terms shall not be materially
adverse to any of the other Management Investors, Direct Investors or
MS/Fund Investors.
SECTION 7.11. Other Agreements. Nothing contained in this
----------------
Agreement shall be deemed to be a waiver of, or release from, any
obligations any party hereto may have under, or any restrictions on
the transfer of Shares, Share Equivalents or other securities of the
Company or any direct or indirect subsidiary of the Company imposed
by, any other agreement including, but not limited to, the Purchase
Agreements.
SECTION 7.12. Successors, Assigns, Transferees. The
--------------------------------
provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors
and permitted assigns. Notwithstanding the foregoing, neither this
Agreement nor any right, remedy, obligation or liability arising
hereunder or by reason hereof shall be assignable by the Company or
any Holder, except as permitted by Section 2.4 or Section 5.1 hereof,
without the prior written consent of (i) the Holders of a majority of
the Shares then held by MSLEF and Morgan Stanley Group, (ii) the
Holders of a majority of the Shares then held by the Direct Investors
and the Permitted Transferees, (iii) the Holders of a majority of the
Shares then held by the Management Investors and (iv) the Company;
provided, however, that (A) the Company may assign any of its rights
and remedies hereunder to any Affiliate of the Company, and such
Affiliate may assume any of its obligations and liabilities, without
obtaining the prior written consent of the Holders specified in
clauses (i), (ii) and (iii) of this Section 7.12; and (B) if the
provisions of this Agreement are no longer applicable to one or more
of the Holders specified in clauses (i), (ii) and (iii) of this
Section 7.12, then the consent of such Holder or Holders shall not be
required under this Section 7.12.
SECTION 7.13. Defaults. A default by any party to this
--------
Agreement in such party's compliance with any of the conditions or
covenants hereof or performance of any of the obligations of such
party hereunder shall not constitute a default by any other party.
SECTION 7.14. Amendments; Waivers. This Agreement may not
-------------------
be amended, modified or supplemented and no waivers of or consents to
departures from the provisions hereof may be given unless consented to
in writing by the Company and the Holders specified in clauses (i)
through (iii) inclusive of Section 7.12 hereof; provided, however,
that any amendment to Article II hereof shall only require the written
consent of a majority of the Holders subject to Article II.
SECTION 7.15. Counterparts. This Agreement may be executed
------------
in two or more counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same Agreement.
<PAGE>
34
SECTION 7.16. Attorneys' Fees. In any action or proceeding
---------------
brought to enforce any provision of this Agreement, or where any
provision hereof is validly asserted as a defense, the successful
party shall be entitled to recover reasonable attorneys' fees in
addition to any other available remedy.
SECTION 7.17. Recapitalization, etc. In the event that any
---------------------
capital stock or other securities are issued in respect of, in
exchange for, or in substitution of, any Shares by reason of any
reorganization, recapitalization, reclassification, merger,
consolidation, spin-off, partial or complete liquidation, stock
dividend, split-up, sale of assets, distribution to stockholders or
combination of the Shares or any other change not contemplated or
provided for in Section 6.2 in the capital structure of the Company,
appropriate adjustments shall be made with respect to Article II
hereof so as to fairly and equitably preserve, as far as practicable,
the original rights and obligations of the parties hereto under this
Agreement.
SECTION 7.18. Effectiveness. This amendment and
-------------
restatement of the 1990 Agreement shall become effective upon the
execution and delivery hereof, pursuant to Section 7.14, by the
Company and the Holders specified in clauses (i) through (iii)
inclusive of Section 7.12 hereof, and thereupon, subject to Section
7.12, shall be binding on, and inure to the benefit of, each holder of
record of Shares or Share Equivalents as of the date hereof that is a
party to the 1990 Stockholders Agreement as of the date hereof, a
schedule of which is maintained in the records of the Company, and
their respective heirs, successors and permitted assigns, whether or
not such holders, other than the signatories to this amendment and
restatement, shall execute this amendment and restatement.
<PAGE>
35
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
FORT HOWARD CORPORATION
By:_____________________________
Name:
Title:
MORGAN STANLEY GROUP INC.
By:_____________________________
Name:
Title:
THE MORGAN STANLEY LEVERAGED
EQUITY FUND II, L.P.
By: MORGAN STANLEY LEVERAGED
EQUITY FUND II, INC.,
General Partner
By:_____________________________
Name:
Title:
FORT HOWARD EQUITY INVESTORS,
L.P., a Delaware limited partnership
By: MORGAN STANLEY EQUITY
INVESTORS INC., General Partner
By:_____________________________
Name:
Title:
<PAGE>
36
FORT HOWARD EQUITY INVESTORS
II, L.P.
By: MORGAN STANLEY EQUITY
INVESTORS INC., General Partner
By:_____________________________
Name:
Title:
MELLON BANK, N.A., TRUSTEE for First
Plaza Group Trust (as directed by
General Motors Investment
Management Corporation)
By:_____________________________
Name:
Title:
LEEWAY & CO.
By: STATE STREET BANK & TRUST
CO., a partner
By:_____________________________
Name:
Title:
DONALD H. DEMEUSE
------------------------------------
<PAGE>
37
KATHLEEN J. HEMPEL
------------------------------------
MICHAEL T. RIORDAN
------------------------------------
JAMES W. NELLEN II
------------------------------------
Exhibit 10.7(F)
Fort Howard Corporation
1919 South Broadway
Green Bay, Wisconsin 54304
March 1, 1995
Amended and Restated Management Equity
--------------------------------------
Participation Agreement
-----------------------
Dear Sirs:
Reference is made to the Amended and Restated Management
Equity Participation Agreement, dated as of August 8, 1988, by and
among FH Holdings Corp., a Delaware corporation, and the other parties
signatory thereto, as amended and supplemented from time to time,
including the letter agreements dated June 27, 1990, between Fort
Howard Corporation, a Delaware corporation (the "Company"), and the
-------
other parties signatory thereto (collectively, the "MEPA").
----
The provisions of the MEPA, insofar as such provisions
relate to the shares of Voting Common Stock, par value $.01 per share,
of the Company sold to Management Investors (as defined in the MEPA)
pursuant to the provisions of the MEPA, and options to purchase shares
of such Voting Common Stock granted to Management Investors pursuant
to the provisions of the MEPA, are hereby amended, effective as of
March 1, 1995 (the "1995 MEPA Amendment"), as follows:
-------------------
1. Section 1.1 is amended by deleting the definition of
"Fair Market Value" and by substituting the following therefor:
""Fair Market Value" means, on any given date, the
-----------------
closing price of the shares of Common Stock, as reported on
the NASDAQ/National Market System for such date or such
national securities exchange as may be designated by the
Committee (as defined in the Fort Howard Corporation
Management Equity Plan) or, if Common Stock was not traded
on such date, on the next preceding day on which Common
Stock was traded."
2. The definition of "Options" set forth in Section 1.1 is
amended by deleting the last sentence thereof and by adding the
following sentence to the end thereof:
<PAGE>
2
"The exercise price of a Vested Option may be paid in the
form of cash or, in the sole discretion of the Committee, in
shares of Common Stock already owned by the Management
Investor (valued at their fair market value as determined by
the Committee in its sole discretion), in other property
acceptable to the Committee or in any combination of cash,
shares of Common Stock or such other property. The exercise
price may also, in the Committee's sole discretion, be paid
in the form of shares of Common Stock withheld by the
Company from the shares that would otherwise have been
received by a Management Investor upon exercise of the
Vested Option (which shares shall be valued by the Committee
at their fair market value, net of the applicable exercise
price, as determined by the Committee in its sole
discretion). In its discretion, the Committee may also
permit a Management Investor to exercise a Vested Option
through a "cashless exercise" procedure involving a broker
or dealer approved by the Committee, provided that the
--------
Management Investor has delivered an irrevocable notice of
exercise (the "Notice") to the broker or dealer and such
------
broker or dealer agrees: (A) to sell immediately the number
of shares of Common Stock specified in the Notice to be
acquired upon exercise of the Vested Option in the ordinary
course of its business, (B) to pay promptly to the Company
the aggregate exercise price (plus the amount necessary to
satisfy any applicable tax liability) and (C) to pay to the
Management Investor the balance of the proceeds of the sale
of such shares over the amount determined under clause (B)
of this sentence, less applicable commissions and fees;
provided, however, that the Committee may modify the
-------- -------
provisions of this sentence to the extent necessary to
conform the exercise of the Vested Option to Regulation T of
the Exchange Act."
3. Section 1.1 is amended by deleting the definition of
"Stockholders Agreement" and by substituting the following
therefor:
""Stockholders Agreement" shall mean the Stockholders
----------------------
Agreement dated as of March 1, 1995, among the Company and
the other parties thereto, as amended from time to time."
4. Section 1.1 is amended by deleting (i) the definition
of "Transfer Restriction Period" and (ii) all definitions that
are used solely in Sections 8.1, 8.2, 8.3, 8.4, 8.5 and 8.6 (as
in effect prior to the amendments set forth herein).
5. Section 1.1 is amended by deleting the definition of
"Vested Options" and by substituting the following therefor:
""Vested Options" shall mean all Options granted to an
--------------
individual and which are outstanding on the effective date
of the 1995 MEPA Amendment, which Options shall vest and
become exercisable on such date; provided, however, that
-------- -------
Vested Options shall not be exercisable unless the Common
Stock subject to such Vested Options has been registered
under the Securities Act and qualified under applicable
state "blue sky" laws in connection with the offer and sale
thereof, or the Company has determined that an exemption
from
<PAGE>
3
registration under the Securities Act and from qualification
under such state "blue sky" laws is available."
6. Section 5.1 is amended by deleting the words "and VIII"
and "except in the case of sales pursuant to Sections 2.4, 2.5 and
Articles IV and V of the Stockholders Agreement".
7. Section 7.1 is amended in its entirety to read as
follows:
"General Restrictions on Transfer. Each Management
--------------------------------
Investor agrees that he will not Sell (as defined below) any
Common Stock or any interest therein (i) for the period
ending 180 days after the effective date of the Registration
Statement filed with the Commission on November 23, 1994, as
amended, or (ii) following the expiration of such 180-day
period, except in compliance with the Securities Act and any
applicable state securities laws. Subject to Section 7.5
hereof, no Option (whether or not a Vested Option) or any
right or interest therein may be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of
(collectively, "Sell"). A Vested Option can only be
----
exercised in accordance with the terms of this Agreement.
No transfer of Common Stock in violation of this Agreement
shall be made or recorded on the books of the Company and
any such transfer shall be void and of no effect."
8. The legend set forth in Section 7.2 is amended in its
entirety to read as follows:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY APPLICABLE
STATE SECURITIES LAWS. THIS SECURITY MAY BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN COMPLIANCE WITH
THE REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."
9. The first sentence of Section 7.4 is amended by
deleting the words "pursuant to Section 7.5(a) hereof (other than
paragraph (a) thereof)" and inserting the words "(other than a
transfer of Vested Options pursuant to Section 7.5 hereof)" after
the words "Common Stock or any interest therein".
10. Section 7.5 is amended in its entirety to read as
follows:
"SECTION 7.5. Certain Permitted Transfers. Each
---------------------------
Management Investor shall have the right to Sell Vested
Options to a Permitted Transferee (as defined below). For
purposes of this Agreement, the term "Permitted Transferee"
--------------------
means a Person to whom a transfer is made by will or the
laws of descent and distribution upon the death of any
Management Investor; provided that no transfer pursuant to
--------
this Section 7.5 shall be given effect on the books
<PAGE>
4
of the Company unless and until the transferee shall agree
in writing, in form and substance satisfactory to the
Company, to become, and becomes, bound by all the terms of
this Agreement and, at the option of the Company, the
Stockholders Agreement. Anything to the contrary contained
herein notwithstanding, no transfer from a Management
Investor or any Permitted Transferee shall be made or
recorded on the stock transfer records of the Company if, as
a result thereof, the Company would be required to register
any Common Stock under the Securities Act, the Exchange Act,
or any applicable state securities or "blue sky" laws or
would become subject to or would be in violation of the
Investment Company Act."
11. Article VIII is amended by deleting Sections 8.1, 8.2,
8.3, 8.4, 8.5 and 8.6 thereof and by renumbering Sections 8.7,
8.8, 8.9 and 8.10 (as applicable) as Sections 8.1, 8.2, 8.3 and
8.4, respectively.
12. The first sentence of Section 9.2 is amended by
deleting the portion of such sentence that follows the words "in
the event of such breach he shall" and by substituting the
following therefor:
", in the case of any Vested Options exercised within six
months of (or subsequent to) such termination of employment,
promptly pay to the Company an amount in cash equal to the
difference between the Fair Market Value of a share of
Common Stock on the date of exercise of such Vested Options
and the exercise price of such Vested Options multiplied by
the number of shares of Common Stock subject to such Vested
Options."
<PAGE>
5
13. The second sentence of Section 9.2 is amended by
deleting the words "clause (i) or (ii) of" and ", as applicable".
FORT HOWARD CORPORATION
By:
-----------------------
Name:
Title:
Agreed:
- --------------------
Donald H. DeMeuse
- --------------------
Kathleen J. Hempel
Exhibit 10.11(A)
March 1, 1995
Fort Howard Corporation
Management Equity Plan
----------------------
The Management Investors Committee of the Fort Howard
Corporation Management Equity Plan (the "Plan") hereby amends,
----
effective as of March 1, 1995 (the "1995 MEP Amendment"), the
------------------
provisions of the Plan as follows:
1. Section 1.2 is amended by deleting the definition of
"Fair Market Value" and by substituting the following therefor:
""Fair Market Value" means, on any given date, the
-----------------
closing price of the shares of Common Stock, as reported on
the NASDAQ/National Market System for such date or such
national securities exchange as may be designated by the
Committee or, if Common Stock was not traded on such date,
on the next preceding day on which Common Stock was traded."
2. Section 1.2 is amended by deleting the definition of
"Stockholders Agreement" and by substituting the following
therefor:
""Stockholders Agreement" means the Stockholders
----------------------
Agreement dated as of March 1, 1995, among the Company and
the other parties thereto, as amended from time to time."
3. Section 1.2 is amended by deleting (i) the definition
of "Transfer Restriction Period" and (ii) all definitions that
are used solely in Sections 6.1, 6.2, 6.3, 6.4, 6.5 and 6.6 (as
in effect prior to the amendments set forth herein).
4. The first sentence of Section 2.3 is amended in its
entirety to read as follows:
"The maximum aggregate number of shares of Common Stock that
may be issued in connection with Options granted under the
Plan (excluding the December 1988 Options, but after taking
into account the 6.5-for-one stock split that is anticipated
to occur and described in the Registration Statement filed
with the Commission on November 23, 1994, as amended (the
"Registration Statement")) shall be 696,150, subject to
----------------------
adjustment as set forth in Section 8.3."
<PAGE>
2
5. Section 3.1 is amended to add the following sentence to
the end thereof:
"The Exercise Price may also, in the Committee's sole
discretion, be paid in the form of shares of Common Stock
withheld by the Company from the shares that would otherwise
have been received by a Management Investor upon exercise of
the Vested Option (which shares shall be valued by the
Committee at their fair market value, net of the applicable
Exercise Price, as determined by the Committee in its sole
discretion). In its discretion, the Committee may also
permit a Management Investor to exercise a Vested Option
through a "cashless exercise" procedure involving a broker
or dealer approved by the Committee, provided that the
--------
Management Investor has delivered an irrevocable notice of
exercise (the "Notice") to the broker or dealer and such
------
broker or dealer agrees: (A) to sell immediately the number
of shares of Common Stock specified in the Notice to be
acquired upon exercise of the Vested Option in the ordinary
course of its business, (B) to pay promptly to the Company
the aggregate Exercise Price (plus the amount necessary to
satisfy any applicable tax liability) and (C) to pay to the
Management Investor the balance of the proceeds of the sale
of such shares over the amount determined under clause (B)
of this sentence, less applicable commissions and fees;
provided, however, that the Committee may modify the
-------- -------
provisions of this sentence to the extent necessary to
conform the exercise of the Vested Option to Regulation T of
the Exchange Act."
6. The first sentence of Section 3.3 is amended in its
entirety to read as follows:
"All Options granted under the Plan shall vest and become
exercisable ("Vested Options") as of the effective date of
--------------
the 1995 MEP Amendment."
7. Section 5.1 is amended in its entirety to read as
follows:
"Stockholders Agreement. Each Management Investor who
----------------------
purchases a share of Common Stock pursuant to the Plan prior
to the effective date of the 1995 MEP Amendment shall, on or
prior to the first issuance of Common Stock to such
Management Investor, agree to become a "Holder" for the
purposes of the Stockholders Agreement and to be bound by
all the terms of the Stockholders Agreement applicable to
such a Holder, and to be entitled to the benefits of a
Holder thereof. Notwithstanding any conflicting provision
in the applicable Agreement, no Management Investor, other
than the Management Investors described in the preceding
sentence, shall be deemed to be a Holder for the purposes of
the Stockholders Agreement with respect to any shares of
Common Stock acquired upon exercise of Vested Options."
<PAGE>
3
8. Section 5.2 is amended in its entirety to read as
follows:
"General Restrictions on Transfer. A Management
--------------------------------
Investor may not Sell (as defined below) any Common Stock
or any interest therein (i) for the period ending 180 days
after the effective date of the Registration Statement or
(ii) following the expiration of such 180-day period, except
in compliance with the Securities Act and any applicable
state securities laws. Subject to Section 5.6 hereof, no
Option (whether or not a Vested Option) or any right or
interest therein may be sold, transferred, assigned, pledged
or otherwise encumbered or disposed of (collectively,
"Sell"). A Vested Option can only be exercised in
----
accordance with the terms of the Plan and the applicable
Agreement. No transfer of Common Stock in violation of the
Plan shall be made or recorded on the books of the Company
and any such transfer shall be void and of no effect."
9. The legend set forth in Section 5.3 is amended in its
entirety to read as follows:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY APPLICABLE
STATE SECURITIES LAWS. THIS SECURITY MAY BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN COMPLIANCE WITH
THE REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."
10. The first sentence of Section 5.5 is amended by
deleting the words "pursuant to Section 5.6 hereof (other than
paragraph (a) thereof)" and inserting the words "(other than a
transfer of Vested Options pursuant to Section 5.6 hereof)" after
the words "Common Stock or any interest therein".
11. Section 5.6 is amended in its entirety to read as
follows:
"SECTION 5.5. Certain Permitted Transfers. Each
---------------------------
Management Investor shall have the right to Sell Vested
Options to a Permitted Transferee (as defined below). For
purposes of the Plan, the term "Permitted Transferee" means
--------------------
a Person to whom a transfer is made by will or the laws of
descent and distribution upon the death of any Management
Investor; provided that no transfer pursuant to this Section
--------
5.5 shall be given effect on the books of the Company unless
and until the transferee shall agree in writing, in form and
substance satisfactory to the Company, to become, and
becomes, bound by all the terms of the Plan, the applicable
Agreement and, at the option of the Company, the
Stockholders Agreement. Anything to the contrary contained
herein notwithstanding, no transfer from a Management
Investor or any Permitted Transferee shall be made or
recorded on the stock transfer records of the Company if, as
a result thereof, the Company would be required to register
any Common Stock under the Securities Act, the Exchange Act,
or
<PAGE>
4
any applicable state securities or "blue sky" laws or would
become subject to or would be in violation of the Investment
Company Act."
12. Article VI is amended by deleting Sections 6.1, 6.2,
6.3, 6.4, 6.5 and 6.6 thereof and by renumbering Sections 6.7 and
6.8 as Sections 6.1 and 6.2, respectively.
13. The first sentence of Section 7.2 is amended by (x)
deleting the words "A Management Investor shall agree" and by
substituting therefor "Notwithstanding any conflicting provision
in the applicable Agreement, each Management Investor shall be
deemed to have agreed" and (y) deleting the portion of such
sentence that follows the words "in the event of such breach,"
and by substituting the following therefor:
"in the case of any Vested Options exercised within six
months of (or subsequent to) such termination of employment,
promptly pay to the Company an amount in cash equal to the
difference between the Fair Market Value of a share of
Common Stock on the date of exercise of such Vested Options
and the Exercise Price of such Vested Options multiplied by
the number of shares of Common Stock subject to such Vested
Options."
14. The second sentence of Section 7.2 is amended by (x)
deleting the words "A Management Investor shall also agree" and
by substituting therefor "Notwithstanding any conflicting
provision in the applicable Agreement, each Management Investor
shall be deemed to have agreed" and (y) deleting the words
"clause (i) or (ii) of" and ", as applicable".
Each of the foregoing amendments to the Plan shall, where
applicable, be deemed to be an amendment to the corresponding
provision set forth in each applicable Agreement (as defined in the
Plan), and in the event of any conflict or inconsistency between the
Plan, as amended, and any such Agreement, as deemed to be amended, the
Plan shall govern.
-------------------------------------------
Donald H. DeMeuse
-------------------------------------------
Kathleen J. Hempel
EXHIBIT 12.2
FORT HOWARD CORPORATION
COMPUTATION OF PRO FORMA DEFICIENCY OF EARNINGS
AVAILABLE TO COVER FIXED CHARGES
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
THE COMPANY
PRO FORMA
-----------------
<S> <C>
Earnings:
Loss before taxes........................................................ $ (10,254)
Interest expense......................................................... 286,939
One-fourth of operating lease rental expense............................. 1,881
-----------------
$ 278,566
-----------------
-----------------
Fixed Charges:
Interest expense......................................................... $ 286,939
Capitalized interest..................................................... 4,230
One-fourth of operating lease rental expense............................. 1,881
-----------------
$ 293,050
-----------------
-----------------
Pro forma deficiency of earnings available to cover fixed charges(1)....... $ (14,484)
-----------------
-----------------
</TABLE>
- ------------
(1) For purposes of these computations, earnings consist of consolidated 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.
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
Registration Statement.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 1, 1995
