AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 1995
REGISTRATION NO. 33-56573
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1 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: / /
-------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF NUMBER OF SHARES OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) SHARE(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
Share............................ 25,300,000 Shares $16.00 $404,800,000 $139,587
</TABLE>
(1) Includes 3,300,000 shares subject to the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of determining the registration fee.
(3) The Company paid $118,966 of the Registration Fee with its initial filing on
November 23, 1994.
-------------------
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 February 8, 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 PAGE
---- ----
<S> <C> <C> <C>
Prospectus Summary.................... 4 Ownership of Common Stock............. 67
Certain Risk Factors.................. 10 Certain Transactions.................. 68
Use of Proceeds....................... 16 Description of Certain Indebtedness... 71
Dividend Policy....................... 17 Description of Capital Stock.......... 82
Dilution.............................. 17 Shares Eligible for Future Sale....... 85
Capitalization........................ 18 Certain United States Federal Tax
Selected Historical Consolidated Considerations for Non-U.S. Holders
Financial Data...................... 19 of Common Stock..................... 86
Pro Forma Financial Data.............. 22 Underwriters.......................... 89
Management's Discussion and Analysis Legal Matters......................... 92
of Consolidated Financial Condition Experts............................... 92
and Results of Operations........... 27 Additional Information................ 93
Business.............................. 36 Index to Financial Statements......... F-1
Management............................ 55 </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 60,101,239 shares(a)
Offering.....................................
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."
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 $840 million term loan (the "1995 Term
Loan A") and a $300 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):
Sources of Funds: AMOUNT
Proceeds of the Offering.......................................... $ 330.0
1995 Term Loan A.................................................. 840.0
1995 Term Loan B.................................................. 300.0
1995 Revolving Credit Facility.................................... 120.9
1995 Receivables Facility......................................... 60.0
--------
Total Sources of Funds............................................ $1,650.9
--------
--------
Uses of Funds:
14 1/8% Debenture Redemption...................................... $ 566.9
Senior Secured Note Redemption.................................... 300.0
1988 Revolving Credit Facility Prepayment......................... 240.0
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............................................... $1,650.9
--------
--------
- ------------
(a) Includes underwriters' commissions and other transaction fees and
expenses of the Recapitalization payable or reimbursable by the Company.
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)................................. $ (0.18) $ (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, $10.0 million, $3.2 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, $62 million in 1996, $121 million in 1997, $143 million in 1998 and $157
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 (who
beneficially own an aggregate of 38,101,239 shares of Common Stock) are subject
to an agreement, with certain 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 of 180 days after the date of the
Underwriting Agreement without the prior written consent of the representatives
of the U.S. Underwriters. In addition, 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 (who beneficially own an
aggregate of 23,666,174 shares of Common Stock) have separately agreed with the
Underwriters to extend the 180-day lock-up period with respect to the shares of
Common Stock they own to a period of one year from the date of the Underwriting
Agreement, subject in each case, to earlier release upon receipt of the written
consent of the representatives of the U.S. Underwriters. 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 $240.0 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):
Sources of Funds: AMOUNT
Proceeds of the Offering.......................................... $ 330.0
1995 Term Loan A.................................................. 840.0
1995 Term Loan B.................................................. 300.0
1995 Revolving Credit Facility.................................... 120.9
1995 Receivables Facility......................................... 60.0
--------
Total Sources of Funds............................................ $1,650.9
--------
--------
Uses of Funds:
14 1/8% Debenture Redemption...................................... $ 566.9
Senior Secured Note Redemption.................................... 300.0
1988 Revolving Credit Facility Prepayment(a)...................... 240.0
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............................................... $1,650.9
--------
--------
- ------------
(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.
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:
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
-------
-------
- ------------
(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.................................................. -- 840.0
1995 Term Loan B.................................................. -- 300.0
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 $120.9 million.
(d) The put right will terminate prior to or upon consummation of the Offering. 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
---------- ---------------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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 $(42,329)(b) $(8,680)(b) 286,692
Other expense, net..................... 118 -- -- 118
---------- -------- ------------- ----------
Income (loss) before taxes............. (61,016) 42,329 8,680 (10,007)
Income taxes (credit).................. (18,891) 16,508(c) 3,385(c) 1,002
---------- -------- ------------- ----------
Net income (loss) before extraordinary
item.................................. (42,125) 25,821 5,295 (11,009)
Extraordinary item..................... (28,170) -- 28,170(d) --
---------- -------- ------------- ----------
Net income (loss)...................... $ (70,295) $ 25,821 $33,465 $ (11,009)(a)
---------- -------- ------------- ----------
---------- -------- ------------- ----------
Earnings (loss) per share(e)........... $ (1.85) $ (0.18)(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,
$10.0 million, $3.2 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)..................... $ 73,500
1995 Term Loan B(1)(2)..................... 27,750
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)..... 6,999 284
Elimination of historical interest expense
including amortization of debt issuance
costs(5)................................... (159,696) (17,046)
----------------- ------------
$ (42,329) $ (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
-----------------
[S] [C]
(IN THOUSANDS)
1995 Term Loan A................... $ 2,100
1995 Term Loan B................... 750
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................................ -- 840,000(b) 840,000
1995 Term Loan B................................ -- 300,000(b) 300,000
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 791,362 shares of Common Stock with put right to Common
Stock as the put terminates with respect to such shares prior to or at the
time of the Offering.
(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, $62 million in 1996, $121 million in 1997,
$143 million in 1998 and $157 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 $179.1 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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<PAGE>
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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<PAGE>
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>
<S> <C>
(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 January 1995, the average market prices for
Northern Bleached Softwood Kraft pulp and Coated Book wastepaper increased to
$750 per metric ton and $202 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.
40
<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 Associates 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
44
<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.") and Chairman
of Morgan Stanley Capital Partners III,
Inc. ("MSCP III"). Director of A/S
Bulkhandling, Container Corporation of
America, Hamilton Services Limited,
Jefferson Smurfit Corporation, Jefferson
Smurfit Corporation (U.S.), PSF Finance
Holdings, Inc., Stanklav Holdings, Inc.,
Waterford Wedgwood plc (Deputy Chairman)
and Waterford Wedgwood U.K. 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., Consolidated
Hydro, Inc., Emmis Broadcasting
Corporation, Integrity Life Insurance
Company, Kohl's Corporation, Kohl's
Department Stores, Inc., National
Integrity Life Insurance Company,
PageMart, Inc., Southern Pacific Rail
Corporation, Sullivan Communications,
Inc. and Sullivan Graphics, Inc.
</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
63
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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 exercises prices of $15.38 and $18.46 per share, respectively. All
such options will become fully vested prior to 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.
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<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 acquired shares of Common Stock and was granted options to
acquire additional shares of Common Stock pursuant to the Management Equity
Participation Agreement. Under the terms of an agreement entered into with the
Company at the time of his resignation in July 1990, he retained his entire
interest in the Company's Common Stock and all options to acquire additional
shares thereof granted to him pursuant to the Management Equity Participation
Agreement were vested. In addition, all the shares of the Company's Common Stock
then owned by him became putable to the Company, and he retained certain other
put rights previously granted to him with respect to such options and the shares
issuable upon the exercise thereof. Such put rights will expire upon
consummation of the Offering except in certain limited circumstances.
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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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>
<S> <C>
* 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)
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<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<S> <C>
(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 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, no holder of Common
Stock who is a party or becomes a party to the Stockholders Agreement (a
"Holder") (other than Holders who are employees of the Company) may sell or
otherwise encumber Common Stock beneficially owned by such Holder unless such
transfer is to: (i) certain permitted transferees (related persons or affiliated
entities) of such Holder; (ii) the Company, or in certain cases, its designees;
(iii) any person, subject to certain rights of first refusal by the other
Holders and the Company, if (a) immediately after such sale the transferee and
its affiliates do not in the aggregate beneficially own more than 15% of the
Common Stock then outstanding, (b) a legal opinion that such sale does not
require the Common Stock to be registered under the Securities Act is received
and (c) such transferee is not determined by the Board of Directors of the
Company to be an "Adverse Person" (as defined in the Stockholders Agreement);
(iv) any person pursuant to a public offering; (v) any person pursuant to Rule
144 of the Securities Act or (vi) any person pursuant to an effective
Registration Statement on Form S-8. Notwithstanding the above, however, Morgan
Stanley Group and MSLEF II have the right to transfer all or any portion of the
Common Stock beneficially owned by them (i) at any time in connection with the
refinancing of the Company's outstanding indebtedness or (ii) at any time in
connection with one transaction or a series of transactions in which Morgan
Stanley Group and/or MSLEF II intends to sell such number of shares of Common
Stock then constituting a majority of the outstanding shares of Common Stock
subject to the Stockholders Agreement.
In the event that one or more Holders (each a "Controlling Shareholder")
sells 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.
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<PAGE>
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.
The Stockholders Agreement also provides that, in connection with any
underwritten offering of Common Stock by the Company, the Holders will not,
subject to certain 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 of 180 days after the date from the commencement of
the offering without the prior written consent of the representatives of the
underwriters thereof. 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.
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<PAGE>
OTHER TRANSACTIONS
The Company has entered into an agreement with MS&Co for financial advisory
services in consideration for which the Company pays MS&Co an annual fee of $1
million. MS&Co is also entitled to reimbursement for all reasonable expenses
incurred in performance of the foregoing services. The Company paid MS&Co
approximately $1.0 million, $1.0 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 $840 million), the 1995 Term Loan B (in an amount of $300
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 $120.9 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 $179.1 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:
1995 TERM 1995 TERM
INSTALLMENT LOAN A LOAN B
- ------------------------------------------------------ --------- ---------
(IN MILLIONS)
1st.................................................. $ 0.0 $ 0.000
2nd.................................................. $ 0.0 $ 0.000
3rd.................................................. $ 45.0 $ 1.875
4th.................................................. $ 45.0 $ 1.875
5th.................................................. $ 57.5 $ 1.875
6th.................................................. $ 57.5 $ 1.875
7th.................................................. $ 70.0 $ 1.875
8th.................................................. $ 70.0 $ 1.875
9th.................................................. $ 70.0 $ 1.875
10th.................................................. $ 70.0 $ 1.875
11th.................................................. $ 82.5 $ 1.500
12th.................................................. $ 82.5 $ 1.500
13th.................................................. $ 95.0 $ 41.000
14th.................................................. $ 95.0 $ 41.000
15th.................................................. $ 0.0 $ 100.000
16th.................................................. $ 0.0 $ 100.000
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
(to the extent not paid, directly or indirectly, with the proceeds of other
loans made under the New Bank Credit Agreement); (ii) 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 and voluntary and mandatory payments or prepayments of
the principal of permitted indebtedness other than the New Term Loans, (d)
payments in respect of Consolidated Capital Expenditures, (e) certain permitted
payments in respect of equity and (f) certain investments made by the Company
and its subsidiaries in joint ventures and (iii) $10 million.
"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 expenses (income),
losses (gains) or other charges (credits) that, pursuant to GAAP, were deducted
(added) in determining such consolidated net income.
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<PAGE>
"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 (including, without limitation, all
receivables subsidiaries (whether or not consolidated with the Company for
financial reporting purposes)) at such time.
"Consolidated Current Liabilities" means, at any time, the consolidated
current liabilities of the Company and its subsidiaries (including, without
limitation, all receivables subsidiaries (whether or not consolidated with the
Company for financial reporting purposes)) 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 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, 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, 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 in 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 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
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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. 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.
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 full consecutive 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
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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, all as determined on a consolidated basis
for the Company and its subsidiaries for such period taken as a single
accounting period determined 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 cap 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 fiscal quarters, of not more than the
ratio shown below during the indicated period ending December 30:
1995-- 4.25 to 1.00
1996-- 4.00 to 1.00
1997-- 3.50 to 1.00
1998-- 3.00 to 1.00
1999-- 2.75 to 1.00
2000-- 2.50 to 1.00
Thereafter-- 2.00 to 1.00
"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
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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.
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 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 of 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 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 value greater 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 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 a change in the Board of
Directors of the Company pursuant to which the individuals who constitute the
Board of Directors of the Company at the beginning of such period (together with
any other director whose election 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) 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
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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 "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.
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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.
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.
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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 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
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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.
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.
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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 (who
beneficially own 38,101,239 shares of Common Stock) are subject to an agreement,
with certain 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 of 180 days after the date of the Underwriting
Agreement, without the prior written consent of the representatives of the U.S.
Underwriters. In addition, Morgan Stanley Group, MSLEF II, Fort Howard Equity
Investors and Fort Howard Equity Investors II (who beneficially own an aggregate
of 23,666,174 shares of Common Stock) have separately agreed with the
Underwriters to extend the 180-day lock-up period with respect to the shares of
Common Stock they own to a period of one year from the date of the Underwriting
Agreement, subject in each case, to earlier release upon receipt of the written
consent of the representatives of the U.S. 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. 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:
NAME NUMBER OF SHARES
- ----------------------------------------------------------- ----------------
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
----------------
----------------
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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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
of 180 days after the date of the Underwriting Agreement, 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, shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days after the
date of the Underwriting Agreement without the prior written consent of the U.S.
Representatives. In addition, Morgan Stanley Group, MSLEF II, Fort Howard Equity
Investors and Fort Howard Equity Investors II (who beneficially own an aggregate
of 23,666,174 shares of Common Stock) have separately agreed with the
Underwriters to extend the 180-day lock-up period with respect to the shares of
Common Stock they own to a period of one year from the date of the Underwriting
Agreement, subject in each case, to earlier release upon receipt of the written
consent of the representatives of the U.S. Underwriters.
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:
DECEMBER 31,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
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
-------- --------
-------- --------
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:
DECEMBER 31,
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
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
---------- ----------
---------- ----------
Included in the property, plant and equipment totals above are assets under
capital leases, as follows:
DECEMBER 31,
------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
Buildings......................................... $ 4,012 $ 3,989
Machinery and equipment........................... 186,281 185,624
---------- ----------
Total assets under capital leases............. $ 190,293 $ 189,613
---------- ----------
---------- ----------
4. GOODWILL
Changes in the Company's goodwill are summarized as follows:
YEAR ENDED DECEMBER 31,
-------------------------
1993 1992
----------- ----------
(IN THOUSANDS)
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
----------- ----------
----------- ----------
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:
DECEMBER 31,
------------------
1994 1993
------- -------
(IN THOUSANDS)
Deferred loan costs, net of accumulated amortization.... $76,640 $71,459
Prepayments and other................................... 3,692 2,384
------- -------
$80,332 $73,843
------- -------
------- -------
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:
DECEMBER 31,
------------------
1994 1993
------- -------
(IN THOUSANDS)
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
------- -------
------- -------
7. INCOME TAXES
The income tax provision (credit) includes the following components:
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
--------- -------- --------
(IN THOUSANDS)
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)
--------- -------- --------
--------- -------- --------
The effective tax rate varied from the U.S. federal tax rate as a result of
the following:
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
----- ----- -----
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)%
----- ----- -----
----- ----- -----
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:
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
-------- ----------- --------
(IN THOUSANDS)
Domestic................................. $(62,711) $(2,048,746) $(85,597)
Foreign.................................. 1,695 (7,686) 15,797
-------- ----------- --------
$(61,016) $(2,056,432) $(69,800)
-------- ----------- --------
-------- ----------- --------
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
F-13
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
8. LONG-TERM DEBT--(CONTINUED)
trading activity in such securities. The fair values of other capital lease
obligations were estimated based on interest rates implicit in the valuation of
the 1991 Series Pass Through Certificates. The fair value of debt of foreign
subsidiaries is deemed to approximate its carrying amount.
The 14 1/8% Debentures 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
F-14
<PAGE>
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
8. LONG-TERM DEBT--(CONTINUED)
existing and 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:
YEAR ENDING DECEMBER 31, AMOUNT
- -------------------------------------------------------------- --------------
(IN THOUSANDS)
1995.......................................................... $ 116,203
1996.......................................................... 331,307
1997.......................................................... 207,793
1998.......................................................... 87,804
1999.......................................................... 81,551
2000 and thereafter........................................... 2,481,189
--------------
$3,305,847
--------------
--------------
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:
YEAR ENDING DECEMBER 31, AMOUNT
- -------------------------------------------------------------- --------------
(IN THOUSANDS)
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
--------------
--------------
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:
YEAR ENDED DECEMBER 31,
--------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
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
------ ------ ------
------ ------ ------
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:
DECEMBER 31,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
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
-------- --------
-------- --------
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
------ ----------- --------
(IN MILLIONS)
<S> <C> <C> <C>
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:
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
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
------- ------- -------
------- ------- -------
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:
EXERCISE
NUMBER OF PRICE
OPTIONS PER OPTION
--------- ---------------
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
---------
---------
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 February 8, 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.
2
<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:
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
----------
----------
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
- ---------- ---------------------------------------------------------------------------------
<S> <C>
*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
- ---------- ---------------------------------------------------------------------------------
<S> <C>
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 , 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.
*5.1 --Opinion of Shearman & Sterling.
*10.1 --Form of Amended and Restated Stockholders Agreement dated as of ,
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
- ---------- ---------------------------------------------------------------------------------
<S> <C>
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 , 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
- ---------- ---------------------------------------------------------------------------------
<S> <C>
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 , 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.
*27 --Financial Data Schedule.
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.
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 8th day of February, 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 February 8, 1995
.................................. and Chief Executive Officer
Donald H. DeMeuse (principal executive officer)
* Director, Vice Chairman and Chief February 8, 1995
.................................. Financial Officer (principal
Kathleen J. Hempel financial officer)
* Director, President and Chief February 8, 1995
.................................. Operating Officer
Michael T. Riordan
* Director February 8, 1995
..................................
Donald Patrick Brennan
* Director February 8, 1995
..................................
Frank V. Sica
* Director February 8, 1995
..................................
Robert H. Niehaus
/s/ CHARLES L. SZEWS Vice President and Controller February 8, 1995
.................................. (principal accounting officer)
Charles L. Szews
* /s/ JAMES W. NELLEN II Attorney-in-Fact February 8, 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
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C> <C>
*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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C> <C>
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 , 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.
*5.1 --Opinion of Shearman & Sterling.
*10.1 --Form of Amended and Restated Stockholders Agreement dated as of
, 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C> <C>
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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C> <C>
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 , 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).
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 , 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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NUMBER
- ---------- --------------------------------------------------------------------- -----------
<S> <C> <C>
*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.
*27 --Financial Data Schedule.
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.
Exhibit 1.1
_______________ Shares
FORT HOWARD CORPORATION
COMMON STOCK, PAR VALUE $.01 PER SHARE
UNDERWRITING AGREEMENT
__________, 1995
<PAGE>
_____________, 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 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.
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
2
<PAGE>
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
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
3
<PAGE>
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
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
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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,
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,
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<PAGE>
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 third parties). 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 of 180 days from the
date hereof 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
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.
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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.
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 ending 180 days
after the date of the Prospectus, (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
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<PAGE>
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
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 ____________,
1995, or at such other time on the same or such other date,
not later than _________, 1995, as shall be designated in
writing by you. The time and date of such payment are
hereinafter referred to as the Closing Date.
8
<PAGE>
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.
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.
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<PAGE>
(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), (h), (i), (j) and (k) 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:
(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
10
<PAGE>
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
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
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<PAGE>
(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.
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
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<PAGE>
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.
(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;
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<PAGE>
(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,"
"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;
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<PAGE>
(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 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 or omits 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.
(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 corporation duly
incorporated and in good standing under the laws of the
United Kingdom and has the corporate power and
authority to carry on its business as presently
conducted as described in the Prospectus.
(g) 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" (excluding the
15
<PAGE>
statements under the subheading "Stockholders
Agreement") 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 and Pannone &
Partners described in paragraphs (e) and (f) above shall be
rendered to you at the request of the Company and shall so
state therein.
(h) 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.
(i) 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 of 180 days from the date hereof are in full
force and effect on the Closing Date.
(j) The Shares have been approved for quotation
on the Nasdaq National Market, subject only to official
notice of issuance.
(k) 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.
(l) 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
16
<PAGE>
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
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
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<PAGE>
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.
(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
18
<PAGE>
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
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 expenses incurred by
the Company in connection with a "road show"
presentation to potential investors and (x) 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) Upon the written request of the U.S.
Representatives, the Company will use its best efforts
to enforce the provisions of Section 4.3(c) of the
Stockholders Agreement.
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) 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
19
<PAGE>
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 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.
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
20
<PAGE>
respect of which indemnity may be sought pursuant to any of
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
21
<PAGE>
consent, but if settled with such consent or if there be a
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
22
<PAGE>
received by the Underwriters, in each case as set forth in
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
23
<PAGE>
person controlling any Underwriter or by or on behalf of the
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
24
<PAGE>
respective names in Schedule I or Schedule II bears to the
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.
25
<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, ____________, 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 ____________________________
26
<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
===============
27
<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 CO-MANAGERS]
_______________
Total International Firm Shares ...... 4,400,000
===============
28
Exhibit 3.1
DRAFT
2/2/95
RESTATED
CERTIFICATE OF INCORPORATION
OF
FORT HOWARD CORPORATION
FORT HOWARD CORPORATION, a Delaware corporation, hereby
certifies as follows:
1. The name of the Corporation is Fort Howard
Corporation (the "Corporation"). The date of filing of its
original Certificate of Incorporation with the Secretary of State
of the State of Delaware was October 18, 1967. The original name
of the Corporation was Fort Howard Paper Company.
2. This Restated Certificate of Incorporation amends
and restates the provisions of the Certificate of Incorporation
of the Corporation and was duly adopted in accordance with the
provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware (the "DGCL").
3. The text of the Certificate of Incorporation is
hereby amended and restated in its entirety to read as follows:
"ARTICLE I
Name
----
SECTION 1.1. Name. The name of the Corporation is
----
FORT HOWARD CORPORATION.
<PAGE>
2
ARTICLE II
Registered Office and Registered Agent
--------------------------------------
SECTION 2.1. Office and Agent. The address of the
----------------
registered office of the Corporation in the State of Delaware is
32 Lookerman Square Suite L-100, in the City of Dover, County of
Kent, Delaware 19904. The name of the registered agent of the
Corporation at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE III
Corporate Purposes
------------------
SECTION 3.1. Purpose. The purpose of the Corporation
-------
is to engage in any lawful act or activity for which corporations
may be organized under the DGCL.
ARTICLE IV
Capitalization
--------------
SECTION 4.1. Authorized Capital. Shares. The total
------------------ ------
number of shares of all classes of capital stock that the
Corporation shall have authority to issue is 150,000,000 million
shares, of which (i) 100,000,000 million shares shall be common
stock, par value $.01 per share ("Common Stock"), and
(ii) 50,000,000 million shares shall be preferred stock, par
value $.01 per share ("Preferred Stock").
SECTION 4.2. Common Stock. (a) Voting Rights. Each
------------ -------------
holder of Common Stock shall have one vote on each matter
submitted to a vote at a meeting of stockholders for each share
of Common Stock held of record by such holder as of the record
date for such meeting.
(b) Dividends and Distributions. Subject to any
---------------------------
rights of holders of any class or series of Preferred Stock,
when, as and if dividends or distributions are declared on
outstanding shares of Common Stock, whether payable in cash, in
property or in securities of the Corporation, each holder of
outstanding shares of Common Stock shall be entitled to share
ratably in such dividends and distributions in proportion to the
number of shares of Common Stock held by such holder.
(c) Liquidation. Subject to any rights of holders of
-----------
any class or series of Preferred Stock, upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary
or involuntary, each holder of outstanding shares of Common Stock
shall be
<PAGE>
3
entitled to share ratably in the assets of the Corporation to be
distributed among the holders of shares of Common Stock in
proportion to the number of shares of Common Stock held by such
holder.
(d) No Preemptive Rights. The holders of shares of
--------------------
Common Stock shall have no preemptive or preferential rights of
subscription to any shares of any class of capital stock of the
Corporation or any securities convertible into or exchangeable
for shares of any class of capital stock of the Corporation.
SECTION 4.3. Preferred Stock. Shares of Preferred
---------------
Stock of the Corporation may be issued from time to time in one
or more classes or series, each of which class or series shall
have such distinctive designation or title as shall be fixed by
the affirmative vote of a majority of the whole Board of
Directors of the Corporation (the "Board of Directors") prior to
the issuance of any shares thereof. Each such class or series of
Preferred Stock shall have such voting powers, full or limited,
or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights and
qualifications, limitations or restrictions, including the
dividend rate, redemption price and liquidation preference, and
may be convertible into, or exchangeable for, at the option of
either the holder or the Corporation or upon the happening of a
specified event, shares of any other class or classes or any
other series of the same or any other class or classes of capital
stock, or any debt securities, of the Corporation at such price
or prices or at such rate or rates of exchange and with such
adjustments as shall be stated and expressed in this Restated
Certificate of Incorporation or in any amendment hereto or in
such resolution or resolutions providing for the issuance of such
class or series of Preferred Stock as may be adopted from time to
time by the affirmative vote of a majority of the whole Board of
Directors prior to the issuance of any shares thereof pursuant to
the authority hereby expressly vested in it, all in accordance
with the DGCL. The authority of the Board of Directors with
respect to each series shall also include, but not be limited to,
the determination of restrictions, if any, on the issue or
reissue of any additional shares of Preferred Stock.
ARTICLE V
Compromise or Arrangement
-------------------------
SECTION 5.1. Compromise or Arrangement. Whenever a
-------------------------
compromise or arrangement is proposed between the Corporation and
its creditors or any class of them and/or between the Corporation
and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application
in a summary way of the Corporation or of any creditor or
stockholder thereof or on the application of any receiver or
receivers appointed for the Corporation under the provisions of
Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers
<PAGE>
4
appointed for the Corporation under the provisions of Section 279
of the DGCL, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders,
of the Corporation, as the case may be, to be summoned in such a
manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders,
of the Corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization, if
sanctioned by the court to which the said application has been
made, shall be binding on all the creditors or the members of the
class of creditors, and/or on all the stockholders or the members
of the class of stockholders, of the Corporation, as the case may
be, and also on the Corporation.
ARTICLE VI
Indemnification
---------------
SECTION 6.1. Indemnification. (a) General. The
--------------- -------
Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or
was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, to the
full extent authorized or permitted by law, as now or hereafter
in effect, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) Derivative Actions. The Corporation shall
------------------
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the full extent authorized
or permitted by law, as now or hereafter in effect, against
expenses
<PAGE>
5
(including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation; provided, however, that no indemnification shall be
made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the
State of Delaware or 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, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) Successful Defense. To the extent that a
------------------
director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subsections (a) and (b) above,
or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
(d) Proceedings Initiated by any Person.
-----------------------------------
Notwithstanding anything to the contrary contained in subsections
(a) or (b) above, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligated to
indemnify any person in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part
thereof) was authorized in advance, or unanimously consented to,
by the Board of Directors.
(e) Procedure. Any indemnification under subsections
---------
(a) and (b) above (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in subsections
(a) and (b) above. Such determination shall be made (i) by a
majority vote of the directors who are not parties to such
action, suit or proceeding even though less than a quorum, or
(ii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or
(iii) by the stockholders.
(f) Advancement of Expenses. Expenses (including
-----------------------
attorneys' fees) incurred by an officer or director in defending
any civil, criminal, administrative or investigative action, suit
or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation pursuant to
this Article VI or as otherwise authorized by law. Such expenses
(including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate.
<PAGE>
6
(g) Rights Not Exclusive. The indemnification and
--------------------
advancement of expenses provided by, or granted pursuant to, the
other subsections of this Article VI shall not be deemed
exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under
any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such
office.
(h) Insurance. The Corporation may purchase and
---------
maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability
under the provisions of the DGCL.
(i) Definition of "Corporation". For purposes of this
---------------------------
Article VI, references to "the Corporation" shall include, in
addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who
is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise, shall stand in the same position under the
provisions of this Article VI with respect to the resulting or
surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(j) Certain Other Definitions. For purposes of this
-------------------------
Article VI, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or
involves service by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best
interests of the Corporation", as referred to in this Article VI.
(k) Continuation of Rights. The indemnification and
----------------------
advancement of expenses provided by, or granted pursuant to, this
Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a
person.
<PAGE>
7
(l) Repeal or Modification. Any repeal or
----------------------
modification of this Article VI by the stockholders of the
Corporation shall not adversely affect any rights to
indemnification and to advancement of expenses that any person
may have at the time of such repeal or modification with respect
to any acts or omissions occurring prior to such repeal or
modification.
ARTICLE VII
Liability of a Director
-----------------------
SECTION 7.1. Director Liability. (a) A director of
------------------
the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal
benefit.
(b) If the DGCL is amended hereafter to authorize the
further elimination or limitation of the liability of directors,
then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent authorized by the
DGCL, as so amended, without further action by either the Board
of Directors or the stockholders of the Corporation.
(c) Any repeal or modification of this Article VII
shall not adversely affect any right or protection of a director
of the Corporation existing hereunder with respect to any act or
omission occurring prior to or at the time of such repeal or
modification.
ARTICLE VIII
Management of the Affairs of the Corporation
--------------------------------------------
SECTION 8.1. Management of the Affairs of the
--------------------------------
Corporation. (a) The business and affairs of the Corporation
-----------
shall be managed by the Board of Directors, which may exercise
all the powers of the Corporation and do all such lawful acts and
things that are not conferred upon or reserved to the
stockholders by law, by this Restated Certificate of
Incorporation or by the restated by-laws of the Corporation (the
"By-Laws").
(b) Election of directors of the Corporation need not
be by written ballot, unless required by the By-Laws.
<PAGE>
8
(c) The following provisions are inserted for the
limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The By-Laws, or any of them, may be altered,
amended or repealed, or new by-laws may be made, but only to
the extent any such alteration, amendment, repeal or new
by-law is not inconsistent with any provision of this
Restated Certificate of Incorporation, either by a majority
of the whole Board of Directors or by the stockholders of
the Corporation upon the affirmative vote of the holders of
at least a 80% of the outstanding capital stock entitled to
vote thereon.
(2) The Board of Directors of the Corporation shall
consist of not less than three (3) and not more than fifteen
(15) directors, the exact number of directors to be
determined as set forth in, or in the manner provided in,
the By-Laws. The directors shall be divided into three
classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the
entire Board of Directors. The term of the initial Class I
directors shall terminate on the date of the 1996 annual
meeting of stockholders; the term of the initial Class II
directors shall terminate on the date of the 1997 annual
meeting of stockholders; and the term of the initial Class
III directors shall terminate on the date of the 1998 annual
meeting of stockholders. At each annual meeting of
stockholders, beginning with the 1996 annual meeting of
stockholders, successors to the class of directors whose
term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes
so as to maintain the number of directors in each class as
nearly equal as possible, but in no case will a decrease in
the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual
meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement,
disqualification or removal from office. The term of a
director elected by stockholders to fill a newly created
directorship or other vacancy shall expire at the same time
as the terms of the other directors of the class for which
the new directorship is created or in which the vacancy
occurred. Any vacancy on the Board of Directors that
results from an increase in the number of directors and any
other vacancy occurring on the Board of Directors, howsoever
resulting, may be filled only by a majority of the directors
then in office, even if less than a quorum, or by a sole
remaining director. Any director so elected by the Board of
Directors to fill a vacancy shall hold office for a term
that shall coincide with the term of the class to which such
director shall have been elected.
Notwithstanding the foregoing, whenever the holders of
any one or more classes or series of Preferred Stock issued
by the Corporation shall have the right, voting separately
by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of
office, filling of vacancies and other features of
<PAGE>
9
such directorships shall be governed by the terms of this
Restated Certificate of Incorporation or the resolution or
resolutions adopted by the Board of Directors pursuant to
Section 4.3 hereof applicable thereto, and such directors so
elected shall not be divided into classes pursuant to this
Section 8.1(c) unless expressly provided by such terms.
(3) Only persons who are nominated in accordance with
the following procedures shall be eligible for election as
directors of the Corporation, except as may be otherwise
provided in this Restated Certificate of Incorporation with
respect to the right of holders of Preferred Stock of the
Corporation to nominate and elect a specified number of
directors in certain circumstances. Nomination of persons
for election to the Board of Directors may be made at any
annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors,
(a) by or at the direction of the Board of Directors (or any
duly authorized committee thereof) or (b) by any stockholder
of the Corporation (i) who is a stockholder of record on the
date of the giving of the notice provided for in this
Section 8.1(c)(3) and on the record date for the
determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set
forth in this Section 8.1(c)(3). In addition to any other
applicable requirements, for a nomination to be made by a
stockholder, such stockholder must have given timely notice
thereof in proper written form to the Secretary of the
Corporation.
To be timely, a stockholder's notice to the Secretary
must be delivered to or mailed and received at the principal
executive offices of the Corporation (a) in the case of an
annual meeting, not less than 60 days nor more than 90 days
prior to the anniversary date of the immediately preceding
annual meeting of stockholders; 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 stockholder in order to be timely must be so
received not later than the close of business on the tenth
day following the day on which such notice of the date of
the annual meeting is mailed or such public disclosure of
the date of the annual meeting is made, whichever first
occurs, or (b) in the case of a special meeting of
stockholders called for the purpose of electing directors,
not later than the close of business on the tenth day
following the day on which notice of the date of the special
meeting is mailed or public disclosure of the date of the
special meeting is made, whichever first occurs.
To be in proper written form, a stockholder's notice to
the Secretary must set forth (a) as to each person whom the
stockholder proposes to nominate for election as a director,
(i) the name, age, business address and residence address of
the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares
of capital stock of the Corporation which are owned
beneficially or of record by the person and (iv) any other
information relating to the person that would be required to
be disclosed in a proxy statement or other filings required
to be
<PAGE>
10
made in connection with solicitations of proxies for
election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder;
and (b) as to the stockholder giving the notice, (i) the
name and record address of such stockholder, (ii) the class
or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by
such stockholder, together with evidence reasonably
satisfactory to the Secretary of such beneficial ownership,
(iii) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any
other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder,
(iv) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the
persons named in its notice and (v) any other information
relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to
be made in connection with solicitations of proxies for
election of directors pursuant to Section 14 of the Exchange
Act and the rules and regulations promulgated thereunder.
Such notice must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as
a director if elected.
No person shall be eligible for election as a director
of the Corporation unless nominated in accordance with the
procedures set forth in this Section 8.1(c)(3). If the
chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the
chairman of the meeting shall declare to the meeting that
the nomination was defective and such defective nomination
shall be disregarded.
(4) Subject to the rights, if any, of the holders of
shares of Preferred Stock then outstanding, any or all of
the directors of the Corporation may be removed from office
at any time by the stockholders of the Corporation, but only
for cause and only by the affirmative vote of the holders of
a majority of the outstanding shares of the Corporation then
entitled to vote generally in the election of directors,
considered for purposes of this paragraph as one class.
(5) Any action required or permitted to be taken at
any annual or special meeting of stockholders may be taken
only upon the vote of the stockholders at an annual or
special meeting duly announced and called, as provided in
the By-Laws, and may not be taken by a written consent of
the stockholders pursuant to the DGCL.
(6) Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any
time by a majority of the members of the Board of Directors
or the Chief Executive Officer of the Corporation. Special
meetings of the stockholders of the Corporation may not be
called by any other person or persons.
<PAGE>
11
ARTICLE IX
Amendments
----------
SECTION 9.1. Amendments. Notwithstanding anything
----------
contained in this Restated Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 80% of
the outstanding shares of capital stock of the Corporation
entitled to vote thereon shall be required to amend, repeal, or
adopt any provision inconsistent with, Section 4.3 of Article IV,
Section 8.1(c) of Article VIII or this Article IX of this
Restated Certificate of Incorporation.
ARTICLE X
Private Property
----------------
SECTION 10.1. Private Property. The private property
----------------
of the stockholders of the Corporation shall not be subject to
the payment of corporate debts to any extent whatsoever."
This Restated Certificate of Incorporation shall become
effective at 9:30 a.m. (E.S.T.), ______ __, 1995.
<PAGE>
12
IN WITNESS WHEREOF, FORT HOWARD CORPORATION has caused
this certificate to be signed by_________, its _________ and
attested by_________, its _________, this __day of _________
1995.
FORT HOWARD CORPORATION
By:
-----
Name:
Title:
ATTEST:
-------------------------
Name:
Title:
Exhibit 3.2
DRAFT
2/2/95
RESTATED
BY-LAWS
OF
FORT HOWARD CORPORATION
ARTICLE I
OFFICES
SECTION 1. Registered Office in Delaware. The address
-----------------------------
of the registered office of Fort Howard Corporation (hereinafter
called the "Corporation") in the State of Delaware shall be 32
Lookerman Square Suite L-100, in the City of Dover, County of
Kent, Delaware 19901, and the registered agent in charge thereof
shall be The Prentice-Hall Corporation System, Inc.
SECTION 2. Other Offices. The Corporation may have an
-------------
office or offices at any other place or places within or without
the State of Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of
--------------
stockholders for the election of directors and for the
transaction of such other business as may properly come before
the meeting shall be held at such place within or without the
State of Delaware, and at such date and hour, as shall be
designated by the Board of Directors of the Corporation (the
"Board") and set forth in the notice or in a duly executed waiver
of notice thereof.
SECTION 2. Special Meetings. A special meeting of the
----------------
stockholders for any purpose or purposes may be called at any
time by a majority of the members of the Board or the Chief
Executive Officer of the Corporation. A special meeting of
stockholders of the Corporation may not be called by any other
person or persons. Any such meeting shall be held at such place
within or without the State of Delaware, and at such date and
hour, as shall be designated in the notice or in a duly executed
waiver of notice of such meeting.
<PAGE>
2
Only such business as is stated in the written notice
of a special meeting may be acted upon thereat.
SECTION 3. Notice of Meetings. Except as otherwise
------------------
provided by law, written notice of each annual or special meeting
of stockholders stating the place, date and hour of the meeting,
and, in the case of a special meeting, the purpose or purposes
for which the meeting is held, shall be given personally or by
first class mail to each stockholder entitled to vote at such
meeting, not less than 10 nor more than 60 calendar days before
the date of the meeting. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at such stockholder's
address as it appears on the records of the Corporation. If,
prior to the time of mailing, the Secretary shall have received
from any stockholder entitled to vote a written request that
notices intended for such stockholder are to be mailed to an
address other than the address that appears on the records of the
Corporation, notices intended for such stockholder shall be
mailed to the address designated in such request.
Notice of a special meeting may be given by the person
or persons calling the meeting, or, upon the written request of
such person or persons, by the Secretary of the Corporation on
behalf of such person or persons. If the person or persons
calling a special meeting of stockholders give notice thereof,
such person or persons shall forward a copy thereof to the
Secretary. Every request to the Secretary for the giving of
notice of a special meeting of stockholders shall state the
purpose or purposes of such meeting.
SECTION 4. Waiver of Notice. Notice of any annual or
----------------
special meeting of stockholders need not be given to any
stockholder entitled to vote at such meeting who files a written
waiver of notice with the Secretary, duly executed by the person
entitled to notice, whether before or after the meeting. Neither
the business to be transacted at, nor the purpose of, any meeting
of stockholders need be specified in any written waiver of
notice. Attendance of a stockholder at a meeting, in person or
by proxy, shall constitute a waiver of notice of such meeting,
except as provided by law.
SECTION 5. Adjournments. When a meeting is adjourned
------------
to another date, hour or place, notice need not be given of the
adjourned meeting if the date, hour and place thereof are
announced at the meeting at which the adjournment is taken. If
the adjournment is for more than 30 calendar days, or if after
the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
At the adjourned meeting any business may be transacted which
might have been transacted at the original meeting.
When any meeting is convened the presiding officer, if
directed by the Board, may adjourn the meeting if (a) no quorum
is present for the transaction of business, or (b) the Board
determines that adjournment is necessary or appropriate to enable
the stockholders
<PAGE>
3
(i) to consider fully information which the Board determines has
not been made sufficiently or timely available to stockholders or
(ii) otherwise to exercise effectively their voting rights.
SECTION 6. Quorum. Except as otherwise provided by
------
law or the Restated Certificate of Incorporation of the
Corporation (the "Restated Certificate of Incorporation"),
whenever a class of stock of the Corporation is entitled to vote
as a separate class, or whenever classes of stock of the
Corporation are entitled to vote together as a single class, on
any matter brought before any meeting of the stockholders,
whether annual or special, holders of shares entitled to cast a
majority of the votes entitled to be cast by all the holders of
the shares of stock of such class voting as a separate class, or
classes voting together as a single class, as the case may be,
outstanding and entitled to vote thereat, present in person or by
proxy, shall constitute a quorum at any such meeting of the
stockholders. If, however, such quorum shall not be present or
represented at any such meeting of the stockholders, the
stockholders entitled to vote thereat may adjourn the meeting
from time to time in accordance with Section 5 of this Article II
until a quorum shall be present or represented.
SECTION 7. Voting. Unless otherwise provided in the
------
Restated Certificate of Incorporation, each stockholder
represented at a meeting of stockholders shall be entitled to
cast one vote for each share of capital stock entitled to vote
thereat held by such stockholder. Except as otherwise provided
by law or the Restated Certificate of Incorporation or these
Restated By-Laws, when a quorum is present with respect to any
matter brought before any meeting of the stockholders, the vote
of the holders of shares entitled to cast a majority of the votes
entitled to be cast by all the holders of the shares constituting
such quorum shall decide any such matter. Votes need not be by
written ballot, unless the Board, in its discretion, or the
officer of the Corporation presiding at a meeting of
stockholders, in his discretion, requires any vote or votes cast
at such meeting to be cast by written ballot.
SECTION 8. Proxies. Each stockholder entitled to vote
-------
at a meeting of stockholders may authorize another person or
persons to act for such stockholder by proxy. Such proxy shall
be filed with the Secretary before such meeting of stockholders
at such time as the Board may require. No proxy shall be voted
or acted upon after three years from its date, unless the proxy
provides for a longer period.
SECTION 9. Advance Notice of Business to Be Transacted
-------------------------------------------
at Annual Meetings. To be properly brought before the annual
------------------
meeting of stockholders, business must be either (a) specified in
the notice of meeting (or any supplement thereto) given by or at
the direction of the Board (or any duly authorized committee
thereof), (b) otherwise properly brought before the meeting by or
at the direction of the Board (or any duly authorized committee
thereof) or (c) otherwise properly brought before the meeting by
any stockholder of the Corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in
this Section 9 and on the record date for the determination of
stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in
<PAGE>
4
this Section 9. In addition to any other applicable
requirements, including but not limited to the requirements of
Rule 14a-8 promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), for business to be properly brought before an
annual meeting by a stockholder, such stockholder must have given
timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary
must be delivered to or mailed and received at the principal
executive offices of the Corporation, not less than 60 days nor
more than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; 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 stockholder in order to be timely
must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of
the annual meeting is mailed or such public disclosure of the
date of the annual meeting is made, whichever first occurs.
To be in proper written form, a stockholder's notice to
the Secretary must set forth as to each matter such stockholder
proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the
meeting and the reasons for conducting such business at the
meeting, (b) the name and record address of such stockholder, (c)
the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such
stockholder, together with evidence reasonably satisfactory to
the Secretary of such beneficial ownership, (d) a description of
all arrangements or understandings between such stockholder and
any other person or persons (including their names) in
connection with the proposal of such business by such stockholder
and any material interest of such stockholder in such business
and (e) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such
business before the meeting.
Notwithstanding anything in these Restated By-laws to
the contrary, no business shall be conducted at the annual
meeting of stockholders except business brought before such
meeting in accordance with the procedures set forth in this
Section 9; provided, however, that, once business has been
properly brought before such meeting in accordance with such
procedures, nothing in this Section 9 shall be deemed to preclude
discussion by any stockholder of any such business. If the
chairman of such meeting determines that business was not
properly brought before the meeting in accordance with the
foregoing procedures, the chairman shall declare to the meeting
that the business was not properly brought before the meeting and
such business shall not be transacted.
<PAGE>
5
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The property, business and
--------------
affairs of the Corporation shall be managed by the Board, which
may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law or by the Restated
Certificate of Incorporation directed or required to be exercised
or done by the stockholders.
SECTION 2. Number and Term of Holding Office. Subject
---------------------------------
to the rights, if any, of holders of preferred stock of the
Corporation, the number of directors which shall constitute the
whole Board shall consist of not less than three (3) nor more
than fifteen (15) members, the exact number of which shall be
fixed by the Board from time to time. The Board shall, by
resolution passed by a majority of the Board, designate the
directors to serve as initial Class I, Class II and Class III
directors upon filing of the Restated Certificate of
Incorporation with the Secretary of State of the State of
Delaware. Except as provided in Section 5 of this Article III,
directors shall be elected by a plurality of the votes cast at
annual meetings of stockholders, and each director so elected
shall hold office as provided by Article VIII of the Restated
Certificate of Incorporation. None of the directors need be
stockholders of the Corporation.
SECTION 3. Nomination of Directors and Advance Notice
------------------------------------------
Thereof. Only persons who are nominated in accordance with the
-------
following procedures shall be eligible for election as directors
of the Corporation, except as may be otherwise provided in the
Restated Certificate of Incorporation with respect to the right
of holders of preferred stock of the Corporation to nominate and
elect a specified number of directors in certain circumstances.
Nominations of persons for election to the Board may be made at
any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by
or at the direction of the Board (or any duly authorized
committee thereof) or (b) by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of
the notice provided for in this Section 3 and on the record date
for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set
forth in this Section 3. In addition to any other applicable
requirements, for a nomination to be made by a stockholder, such
stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary
must be delivered to or mailed and received at the principal
executive offices of the Corporation (a) in the case of an annual
meeting, not less than 60 days nor more than 90 days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders; 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 stockholder
in order to be timely must be so received not later than the
close of business on the tenth day following the day on which
such notice
<PAGE>
6
of the date of the annual meeting is mailed or such public
disclosure of the date of the annual meeting is made, whichever
first occurs, or (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not
later than the close of business on the tenth day following the
day on which notice of the date of the special meeting is mailed
or public disclosure of the date of the special meeting is made,
whichever first occurs.
To be in proper written form, a stockholder's notice to
the Secretary must set forth (a) as to each person whom the
stockholder proposes to nominate for election as a director, (i)
the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital
stock of the Corporation which are owned beneficially or of
record by the person and (iv) any other information relating to
the person that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the
notice, (i) the name and record address of such stockholder, (ii)
the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such
stockholder, together with evidence reasonably satisfactory to
the Secretary of such beneficial ownership, (iii) a description
of all arrangements or understandings between such stockholder
and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are
to be made by such stockholder, (iv) a representation that such
stockholder intends to appear in person or by proxy at the
meeting to nominate the persons named in its notice and (v) any
other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies
for election of directors pursuant to Section l4 of the Exchange
Act and the rules and regulations promulgated thereunder. Such
notice must be accompanied by a written consent of each proposed
nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director
of the Corporation unless nominated in accordance with the
procedures set forth in this Section 3. If the chairman of the
meeting determines that a nomination was not made in accordance
with the foregoing procedures, the chairman of the meeting shall
declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
SECTION 4. Resignation. Any director may resign at
-----------
any time by giving written notice to the Board, the Chief
Executive Officer or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or,
if the time when it shall become effective shall not be specified
therein, then it shall take effect when accepted by action of the
Board. Except as aforesaid, acceptance of such resignation shall
not be necessary to make it effective.
<PAGE>
7
SECTION 5. Vacancies. Subject to the rights of the
---------
holders of any series of Preferred Stock or any other class of
capital stock of the Corporation (other than the Common Stock)
then outstanding, any vacancy in the Board, arising from death,
resignation, removal, an increase in the number of directors or
any other cause, may be filled either by a majority vote of the
remaining directors, although less than a quorum, or by the sole
remaining director. Any director elected to fill a vacancy shall
hold office for a term that shall coincide with the term of the
class to which such director shall have been elected.
SECTION 6. Meetings. (a) Annual Meetings. As soon
-------- ---------------
as practicable after each annual election of directors, the Board
shall meet for the purpose of organization and the transaction of
other business, unless it shall have transacted all such business
by written consent pursuant to Section 7 of this Article III.
(b) Other Meetings. Other meetings of the Board shall
--------------
be held at such times as the Board shall from time to time
determine or upon call by the Chief Executive Officer of the
Corporation or any two directors.
(c) Notice of Meetings. Regular meetings of the Board
------------------
may be held without notice. The Secretary of the Corporation
shall give notice to each director of each special meeting,
including the time and place of such special meeting. Notice of
each such meeting shall be given to each director either by mail,
at least two days before the day on which such meeting is to be
held, or by telephone, telegram, facsimile, telex or cable not
later than the day before the day on which such meeting is to be
held or on such shorter notice as the person or persons calling
such meeting may deem necessary or appropriate in the
circumstances. Notice of any meeting shall not be required to be
given to any director who shall attend such meeting. A waiver of
notice by the person entitled thereto, whether before or after
the time of any such meeting, shall be deemed equivalent to
adequate notice.
(d) Place of Meetings. The Board may hold its
-----------------
meetings at such place or places within or without the State of
Delaware as the Board may from time to time by resolution
determine or as shall be designated in the respective notices or
waivers of notice thereof.
(e) Quorum and Manner of Acting. Except as otherwise
---------------------------
provided by law, the Restated Certificate of Incorporation or
these Restated By-Laws, a majority of the total number of
directors then in office shall be necessary at any meeting of the
Board in order to constitute a quorum for the transaction of
business at such meeting, and the affirmative vote of a majority
of those directors present at any such meeting at which a quorum
is present shall be necessary for the passage of any resolution
or act of the Board. In the absence of a quorum for any such
meeting, a majority of the directors present thereat may adjourn
such meeting from time to time until a quorum shall be present
thereat. Notice of any adjourned meeting need not be given.
<PAGE>
8
(f) Organization and Order of Business. The Chief
----------------------------------
Executive Officer shall act as chairman of each meeting of the
Board and preside thereat, or, in the absence of the Chief
Executive Officer at any meeting of the Board, the Vice Chairman
shall act as chairman of such meeting and preside thereat, or, in
the absence of both the Chief Executive Officer and the Vice
Chairman at any meeting of the Board, any other director chosen
by a majority of the directors present thereat shall act as
chairman of the meeting and preside thereat. The Secretary of
the Corporation or, in the case of his absence, any person whom
the chairman of the meeting shall appoint, shall act as secretary
of such meeting and keep the minutes thereof.
SECTION 7. Action by Consent. Any action required or
-----------------
permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting if a written
consent thereto is signed by all members of the Board or such
committee, as the case may be, and such written consent or
consents are filed with the minutes of the proceedings of the
Board or such committee.
SECTION 8. Meetings by Conference Telephone, etc. Any
-------------------------------------
one or more members of the Board, or of any committee thereof,
may participate in a meeting of the Board, or of such committee,
by means of conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by
such means shall constitute presence in person at such meeting.
SECTION 9. Compensation. Each director, in
------------
consideration of his serving as such, shall be entitled to
receive from the Corporation such amount per annum, if any, or
such fees, if any, for attendance at meetings of the Board or of
any committee thereof, or both, as the Board shall from time to
time determine. The Board may likewise provide that the
Corporation shall reimburse each director or member of a
committee for any expenses incurred by him on account of his
attendance at any such meeting. Nothing contained in this
Section 9 shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
COMMITTEES
The Board, by resolution passed by a majority of the
whole Board, may designate members of the Board to constitute one
or more committees which shall in each case consist of such
number of directors, not fewer than two, and, to the extent
permitted by law and provided in the resolution establishing such
committee, shall have and exercise all the powers and authority
of the Board in the management of the business and affairs of the
Corporation. The Board may designate one or more directors as
alternate members of any
<PAGE>
9
committee, who may replace any absent or disqualified members at
any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence
of a designation by the Board of an alternate member to replace
the absent or disqualified member, the member or members thereof
present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of
any absent or disqualified member. A majority of all the members
of any such committee may fix its rules of procedure, determine
its action and fix the time and place, whether within or without
the State of Delaware, of its meetings and specify what notice
thereof, if any, shall be given, unless the Board shall otherwise
by resolution provide. The Board shall have power to change the
members of any such committee at any time, to fill vacancies
therein and to discharge any such committee, either with or
without cause, at any time. Any committee, to the extent allowed
by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and
authority of the Board in the management of the business and
affairs of the Corporation. Each committee shall keep regular
minutes and report to the Board when required.
ARTICLE V
OFFICERS
SECTION 1. Executive Officers. The officers of the
------------------
Corporation shall be a Chairman of the Board, a Chief Executive
Officer, a Vice Chairman, a President and Chief Operating
Officer, one or more Executive Vice Presidents and one or more
Vice Presidents, a Treasurer, a Chief Financial Officer, a
Secretary and a Controller. Each such officer shall be elected
or appointed by the Board at its annual meeting and shall hold
office for such term as may be determined by the Board. Each
such officer shall hold office until the next succeeding annual
meeting of the Board and until his successor is elected or until
his earlier death or resignation or removal in the manner
hereinafter provided. Any two or more offices may be held by the
same person.
The Board or the Chief Executive Officer may elect or
appoint such other officers of the Corporation (including one or
more Assistant Vice Presidents, Assistant Treasurers and
Assistant Secretaries) as it or he deems necessary who shall have
such authority and shall perform such duties as the Board or he
may prescribe. If additional officers are elected or appointed,
each of them shall hold office until his successor is elected or
appointed or until his earlier death or resignation or removal in
the manner hereinafter provided.
SECTION 2. Authority and Duties. All officers, as
--------------------
between themselves and the Corporation, shall have such authority
and perform such duties in the management of the
<PAGE>
10
Corporation as may be provided in these Restated By-Laws or, to
the extent not so provided, by resolution of the Board.
SECTION 3. Resignation and Removal. (a) Any officer
-----------------------
may resign at any time by giving written notice to the Board, the
Chief Executive Officer or the Secretary of the Corporation, and
such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be
specified therein, when accepted by action of the Board. Except
as aforesaid, the acceptance of such resignation shall not be
necessary to make it effective.
(b) All officers and agents elected or appointed by
the Board shall be subject to removal at any time by the Board
and all officers and agents appointed by the Chief Executive
Officer shall be subject to removal at any time by the Chief
Executive Officer, in each case, with or without cause.
SECTION 4. Vacancies. Any vacancy in any office may
---------
be filled for the unexpired portion of the term in the same
manner as provided for election and appointment to such office.
SECTION 5. Chairman of the Board. Subject to the
---------------------
provisions of Section 7 hereof, the Chief Executive Officer shall
be the Chairman of the Board of the Corporation. The Chairman of
the Board shall preside at all meetings of the Board and at all
meetings of the stockholders and shall have and exercise such
further powers and duties as may from time to time be conferred
upon or assigned to him by the Board.
SECTION 6. Chief Executive Officer. The Chief
-----------------------
Executive Officer of the Corporation, subject to the direction of
the Board, shall have general charge of the business and affairs
of the Corporation, shall have the direction of all other
officers, agents and employees of the Corporation and may assign
such duties to the other officers of the Corporation as he deems
appropriate.
SECTION 7. Vice Chairman. The Vice Chairman, subject
-------------
to the direction of the Chairman of the Board, shall assist the
Chairman of the Board in carrying out the orders and resolutions
of the Board and shall perform such other duties as the Chairman
of the Board or the Board shall from time to time assign. At the
request of the Chairman of the Board, or in the case of the
absence or inability to act of the Chairman of the Board, the
Vice Chairman, until otherwise determined, and subject to any
limitations imposed by the Board, shall assume the duties of the
Chairman of the Board, and when so acting, but subject to the
foregoing, shall have all of the power and be subject to all the
restrictions upon the Chairman of the Board.
SECTION 8. President and Chief Operating Officer.
-------------------------------------
The President and Chief Operating Officer of the Corporation,
subject to the direction of the Chief Executive
<PAGE>
11
Officer, shall have charge of the day-to-day operations of the
Corporation, shall assist the Chief Executive Officer in carrying
out the orders and resolutions of the Board and shall perform
such other duties as the Chief Executive Officer or the Board of
Directors shall from time to time assign. At the request of the
Chief Executive Officer, or in case of the absence or inability
to act of the Chief Executive Officer, the President and Chief
Operating Officer, until otherwise determined, and subject to any
limitations imposed by the Board, shall assume the duties of the
Chief Executive Officer and, when so acting, but subject to the
foregoing, shall have all of the powers of, and be subject to all
the restrictions upon, the Chief Executive Officer.
SECTION 9. Executive Vice Presidents and Vice
----------------------------------
Presidents. Each Executive Vice President and Vice President of
----------
the Corporation shall have such powers and perform such duties as
the Chief Executive Officer or the Board may from time to time
prescribe and shall perform such other duties as may be
prescribed by these By-laws.
SECTION 10. Chief Financial Officer. The Chief
-----------------------
Financial Officer shall, subject to the direction of the Chief
Executive Officer, have overall charge of all of the financial
affairs of the Corporation.
SECTION 11. Treasurer. The Treasurer of the
---------
Corporation shall have charge and custody of and be responsible
for all funds and securities of the Corporation.
SECTION 12. Secretary. The Secretary of the
---------
Corporation shall keep the records of all meetings of the
stockholders and the Board. He shall affix the seal of the
Corporation to all deeds, contracts, bonds or other instruments
requiring the corporate seal when the same shall have been signed
on behalf of the Corporation by a duly authorized officer and
shall be the custodian of all contracts, deeds, documents and all
other indicia of title to properties owned by the Corporation and
of its other corporate records.
SECTION 13. Controller. The Controller of the
----------
Corporation shall have charge and custody of and be responsible
for the Corporation's books of account.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. Execution of Documents. Any officer,
----------------------
employee or agent of the Corporation designated by the Board (or
any duly authorized committee of the Board to the extent
permitted by law) shall have power to execute and deliver deeds,
contracts, mortgages, bonds, debentures, checks, drafts and other
orders for the payment of money and other documents for and in
the name of the Corporation, and the Board (or such a committee)
may authorize any such officer, employee or agent to delegate
such power
<PAGE>
12
(including authority to redelegate) by written instrument to
other officers, employees or agents of the Corporation.
SECTION 2. Deposits. All funds of the Corporation not
--------
otherwise employed shall be deposited from time to time to the
credit of the Corporation or otherwise as the Board or the Chief
Executive Officer or any other officer of the Corporation to whom
power in that respect shall have been delegated by the Board
shall select.
SECTION 3. Proxies in Respect of Stock or Other
------------------------------------
Securities of Other Corporations. The Board or the Chief
--------------------------------
Executive Officer shall designate the officers of the Corporation
who shall have authority from time to time to appoint an agent or
agents of the Corporation to exercise in the name and on behalf
of the Corporation the powers and rights that the Corporation may
have as the holder of stock or other securities in any other
corporation, and to vote or consent in respect of such stock or
securities. Such designated officers may instruct the person or
persons so appointed as to the manner of exercising such powers
and rights, and such designated officers may execute or cause to
be executed in the name and on behalf of the Corporation and
under its corporate seal, or otherwise, such written proxies,
powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise
such powers and rights.
ARTICLE VII
SHARES AND TRANSFER OF SHARES
SECTION 1. Certificates of Stock. Every owner of
---------------------
shares of stock of the Corporation shall be entitled to have a
certificate evidencing the number of shares of stock of the
Corporation owned by him or it and designating the class of stock
to which such shares belong, which shall otherwise be in such
form as the Board shall prescribe. Each such certificate shall
bear the signature (or a facsimile thereof) of the Chief
Executive Officer or the Vice Chairman or the President or an
Executive Vice President or a Vice President and the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation.
SECTION 2. Record. A record shall be kept of the name
------
of the person, firm or corporation owning the stock represented
by each certificate evidencing stock of the Corporation issued,
the number of shares represented by each such certificate, and
the date thereof, and, in the case of cancellation, the date of
cancellation. Except as otherwise expressly required by law, the
person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as
regards the Corporation.
<PAGE>
13
SECTION 3. Transfer of Stock. (a) The transfer of
-----------------
shares of stock and the certificates evidencing such shares of
stock of the Corporation shall be governed by Article 8 of
Subtitle I of Title 6 of the Delaware Code (the Uniform
Commercial Code), as amended from time to time.
(b) Registration of transfers of shares of stock of
the Corporation shall be made only on the books of the
Corporation upon request of the registered holder thereof, or of
his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and
upon the surrender of the certificate or certificates evidencing
such shares properly endorsed or accompanied by a stock power
duly executed.
SECTION 4. Addresses of Stockholders. Each
-------------------------
stockholder shall designate to the Secretary of the Corporation
an address at which notices of meetings and all other corporate
notices may be served or mailed to him, and, if any stockholder
shall fail to so designate such an address, corporate notices may
be served upon him by mail directed to him at his post office
address, if any, as the same appears on the share record books of
the Corporation or at his last known post office address.
SECTION 5. Lost, Destroyed or Mutilated Certificates.
-----------------------------------------
A holder of any shares of stock of the Corporation shall promptly
notify the Corporation of any loss, destruction or mutilation of
any certificate or certificates evidencing all or any such shares
of stock. The Board may, in its discretion, cause the
Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been
mutilated, lost, stolen or destroyed, upon the surrender of the
mutilated certificate or, in the case of loss, theft or
destruction of the certificate, upon satisfactory proof of such
loss, theft or destruction, and the Board may, in its discretion,
require the owner of the lost, stolen or destroyed certificate or
his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made
against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of such new certificate.
SECTION 6. Facsimile Signatures. Any or all of the
--------------------
signatures on a certificate evidencing shares of stock of the
Corporation may be facsimiles.
SECTION 7. Regulations. The Board may make such rules
-----------
and regulations as it may deem expedient, not inconsistent with
the Restated Certificate of Incorporation or these Restated
By-Laws, concerning the issue, transfer and registration of
certificates evidencing stock of the Corporation. It may
appoint, or authorize any principal officer or officers to
appoint, one or more transfer agents and one or more registrars,
and may require all certificates of stock to bear the signature
or signatures (or a facsimile or facsimiles thereof) of any of
them. The Board may at any time terminate the employment of any
transfer agent or any registrar of transfers. In case any
officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall
cease to be such officer, transfer agent or registrar, whether
because of death, resignation, removal or
<PAGE>
14
otherwise, before such certificate or certificates shall have
been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who
signed or whose facsimile signature has been placed upon such
certificate or certificates had not ceased to be such officer,
transfer agent or registrar.
SECTION 8. Record Date. In order that the Corporation
-----------
may determine the stockholders entitled to notice of, or to vote
at, any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix, in
advance, a record date, which shall not be more than sixty nor
less than ten days before the date of such meeting, nor more than
sixty days prior to any other such action. A determination of
stockholders entitled to notice of, or to vote at, any meeting of
stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for
the adjourned meeting.
SECTION 9. Registered Stockholders. The Corporation
-----------------------
shall be entitled to recognize the exclusive right of a person
registered on its records as the owner of shares of stock to
receive dividends and to vote as such owner, shall be entitled to
hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound
to recognize any equitable or other claim to or interest in such
share or shares of stock on the part of any other person, whether
or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
SECTION 10. Stockholder Agreements. Shares of stock
----------------------
of the Corporation may be subject to one or more agreements
abridging, limiting or restricting the rights of any one or more
stockholders to sell, assign, transfer, mortgage, pledge or
hypothecate any or all of the stock of the Corporation held by
them, or providing for preemptive rights, or may be subject to
one or more agreements providing a purchase option with respect
to any shares of stock of the Corporation. If such agreements
exist, all certificates evidencing shares of stock subject to
such abridgements, limitations, restrictions or options shall
have reference thereto endorsed on such certificate and such
stock shall not thereafter be transferred on the books of the
Corporation except in accordance with the terms and conditions of
such agreement or agreements. Copies of such agreement or
agreements shall be maintained at the offices of the Corporation.
ARTICLE VIII
BOOKS AND RECORDS
<PAGE>
15
The books and records of the Corporation may be kept at
such place or places within or without the State of Delaware as
the Board may from time to time determine.
ARTICLE IX
SEAL
The Board shall provide a corporate seal which shall
bear the full name of the Corporation.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and
shall be subject to change from time to time, by the Board.
<PAGE>
16
ARTICLE XI
INDEMNIFICATION
SECTION 1. General. The Corporation shall indemnify
-------
any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the full extent authorized
or permitted by law, as now or hereafter in effect, against
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was
unlawful.
SECTION 2. Derivative Actions. The Corporation
------------------
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, to the full extent
authorized or permitted by law, as now or hereafter in effect,
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; provided, however, that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or 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, such person is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
<PAGE>
17
SECTION 3. Successful Defense. To the extent that
------------------
a director, officer, employee or agent of the Corporation has
been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in sections 1 and 2 above,
or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
SECTION 4. Proceedings Initiated by any Person.
-----------------------------------
Notwithstanding anything to the contrary contained in sections 1
or 2 above, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligated to
indemnify any person in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part
thereof) was authorized in advance, or unanimously consented to,
by the Board of Directors.
SECTION 5. Procedure. Any indemnification under
---------
sections 1 and 2 above (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in sections 1
and 2 above. Such determination shall be made (i) by a majority
vote of the directors who are not parties to such action, suit or
proceeding even though less than a quorum, or (ii) if there are
no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (iii) by the stockholders.
SECTION 6. Advancement of Expenses. Expenses
-----------------------
(including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the
Corporation pursuant to this Article XI or as otherwise
authorized by law. Such expenses (including attorneys' fees)
incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems
appropriate.
SECTION 7. Rights Not Exclusive. The
--------------------
indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article XI
shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
SECTION 8. Insurance. The Corporation may purchase
---------
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such
<PAGE>
18
capacity, or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against
such liability under the provisions of the DGCL.
SECTION 9. Definition of "Corporation". For
---------------------------
purposes of this Article XI, references to "the Corporation"
shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Article
XI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its
separate existence had continued.
SECTION 10. Certain Other Definitions. For
-------------------------
purposes of this Article XI, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes
duties on, or involves service by, such director, officer,
employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation", as referred to
in this Article XI.
SECTION 11. Continuation of Rights. The
----------------------
indemnification and advancement of expenses provided by, or
granted pursuant to, this Article XI shall, unless otherwise
provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators
of such a person.
SECTION 12. Repeal or Modification. Any repeal
----------------------
or modification of this Article XI by the stockholders of the
Corporation shall not adversely affect any rights to
indemnification and to advancement of expenses that any person
may have at the time of such repeal or modification with respect
to any acts or omissions occurring prior to such repeal or
modification.
<PAGE>
19
ARTICLE XII
AMENDMENTS
These Restated By-Laws, or any of them, may be altered,
amended or repealed, or new by-laws may be made, but only to the
extent any such alteration, amendment, repeal or new by-law is
not inconsistent with any provision of the Restated Certificate
of Incorporation, either by a majority of the whole Board or by
the stockholders of the Corporation upon the affirmative vote of
the holders of 80% of the outstanding shares of capital stock of
the Corporation entitled to vote thereon.
Exhibit 4.0
NUMBER SHARES
COMMON COMMON
Incorporated under the laws of the State of Delaware
FORT HOWARD CORPORATION
This certifies that CUSIP 347461 10 5
See Reverse for Certain Definitions
is the owner of
FULL-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
Fort Howard Corporation, transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares requested
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and all amendments thereto,
copies of which are kept on file with the Transfer Agent, to all of which the
holder by acceptance hereof assents. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Countersigned andd Registered:
Chemical Bank, Transfer Agent and Registrar
By:
Authorized Officer
Witness the facsimile signatures of its duly authorized officers.
/s/ James W. Nellen II /s/ Donald H. DeMeuse
---------------------- -------------------------------
DATED: Vice-President and Chairman and Chief Executive
Secretary Officer
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- .........Custodian.......
(Cust) (Minor)
under Uniform Gifts to Minors Act _________
State
Additional abbreviations may also be used though not in
the above list.
For value received, ________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, ________________
_____________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
Exhibit 4.6
$1,440,000,000
CREDIT AGREEMENT
Dated as of
_______ __, 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
<PAGE>
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 ASSETS
I CERTAIN FOREIGN ASSETS
J LEASEHOLD MORTGAGEE PROVISIONS
K REAL PROPERTIES
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(i) FORM OF OPINION OF GODFREY & KAHN, SPECIAL
WISCONSIN COUNSEL TO FORT HOWARD
IX-B(ii) FORM OF OPINION OF LIEBMANN, CONWAY, OLEJNICZAK &
JERRY, SPECIAL WISCONSIN COUNSEL FOR FORT HOWARD
IX-C FORMS OF OPINION OF LOCAL COUNSEL TO FORT HOWARD
(REAL PROPERTY)
IX-D FORMS OF OPINION OF LOCAL COUNSEL TO FORT HOWARD
(PERSONAL 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
-i-
<PAGE>
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 AMENDED AND RESTATED COLLATERAL TRUST
AGREEMENT
-ii-
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of _______ __, 1995, by and among FORT
HOWARD CORPORATION, a Delaware corporation (the "Company"), THE PARTIES
IDENTIFIED 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
pledge of certain Inventory and a junior pledge of certain Receivables in each
case owned by the Company and certain of its Subsidiaries, (ii) a pledge of
certain Intellectual Property owned by the Company, (iii) a pledge of 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
<PAGE>
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parties hereto intend that the obligations of the Company pursuant thereto 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:
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.
<PAGE>
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"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 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.
<PAGE>
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"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 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).
"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,
<PAGE>
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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.
"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
<PAGE>
-6-
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.
"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
<PAGE>
-7-
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 Receivables pursuant to a Receivables Transaction meeting the
requirements of
<PAGE>
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subsection 6.11.2, (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 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 months 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.
<PAGE>
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"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 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
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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 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
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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 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 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.
<PAGE>
-12-
"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.
"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, 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 of this Agreement), as amended,
supplemented or otherwise modified from time to time.
<PAGE>
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"Collateral Trust Agreement" means the Third Amended and Restated
Collateral Trust Agreement, substantially in the form annexed as Exhibit XXIX
between the Company and the Collateral Trustee, which amends and restates that
certain Second Amended and Restated Collateral Trust Agreement dated March 22,
1993 between the Company and Bankers, as collateral trustee, as amended,
supplemented or otherwise modified from time to time.
"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
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 2.11.1.
"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
<PAGE>
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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.
"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 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 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
<PAGE>
-15-
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 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, all as determined on a consolidated basis for the Company and its
Subsidiaries for such period taken as a single accounting period determined 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 (including, without limitation, any
Receivables Subsidiary) 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
<PAGE>
-16-
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, and (C) 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.
"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
<PAGE>
-17-
(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,
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
<PAGE>
-18-
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
<PAGE>
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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.
"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 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, (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.
"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 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
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, (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
<PAGE>
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(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 (G) of Section
6.5 or clause (H) of Section 6.5.
"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 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.
"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 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
<PAGE>
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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.
"Excess Cash Flow" means [to come].
<PAGE>
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"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.
"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
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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.
"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.
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"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.
"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 determined or promulgated
by the Board of Directors of the Company and approved (which approval shall not
unreasonably be withheld) by the Administrative Agent.
"First Tier Foreign Subsidiary" means a Foreign Subsidiary of the
Company which is organized under the laws of a jurisdiction other than the
United States or any State thereof, a majority of the capital stock or other
equity interests of which (other than any such stock or interests held by
Persons other than the Company or a Subsidiary of the Company) is held directly
by the Company and/or a Domestic Subisidary of the Company.
"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 has no sales assets or earnings in the United
States and (C) each Subsidiary or Joint Venture of the Company 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, Inc." means Fort Howard Holding, Inc., a
Delaware corporation and a Wholly Owned Subsidiary of the Company.
<PAGE>
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"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.
"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.
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"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
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, as well as
related ancillary improvements or equipment].
"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
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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 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
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(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.
"Intellectual Property" has the meaning assigned to that term in the
Intellectual Property Pledge Agreement.
"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.
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"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 Subsidiary (which is not a Foreign Subsidiary or a Receivables 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 Subsidiary (which is not a Foreign Subsidiary or a
Receivables Subsidiary), including all indebtedness and accounts receivable
owing to the Investor from that other Person which are not current assets or did
not arise from sales to that 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 or a Receivables Subsidiary shall
constitute an Investment in such Foreign
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Subsidiary or such Receivables Subsidiary, as the case may be, 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 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,
<PAGE>
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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.
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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 one or more of the Revolving Loans, the
Swing Line Loans or the Term Loans or any combination thereof.
"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 a Foreign Subsidiary of the
Company other than a First Tier Foreign Subsidiary or a Foreign Subsidiary which
is the direct or indirect parent of a First Tier Foreign Subsidiary.
"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
_________, 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,] 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.
"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
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
<PAGE>
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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 (i) assets acquired or constructed as part of any
Greenfield Expansion Project or (ii) any Existing Mill Expansion Transaction and
(B) the equity interests or other securities owned by the Company or any
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 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 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 Subsidiary); provided
that the term "Material Asset" shall not include acquisitions of inventory 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.
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"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.
"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.
"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
<PAGE>
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Sale) and taxes paid or payable by the Company or any of its Subsidiaries as a
result thereof or directly and solely as a result of distributions by the
Company or any of its Subsidiaries of such payments.
"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.
"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.
"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.
"1995 A/R Bridge" means the $60,000,000 receivables facility
provided pursuant to that certain [Receivables Bridge Facility] dated February
__, 1995 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
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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
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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 2.9.7.
"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);
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(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;
(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 Savannah Project or any Greenfield
Expansion Project which (A) is secured only by the applicable
assets constituting the Savannah 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
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applicable assets constituting all or a substantial part of the Savannah 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 Savannah Project, meets
the requirements of paragraphs (c) and (d) of subsection 5.12.1 (assuming such
subsections were applicable to the Savannah 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.
"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
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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 among the Company, as lessee, Bell Atlantic TriCon Leasing
Corporation, as owner participant, the initial
<PAGE>
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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
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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.
"Prospectus" means the prospectus of the Company dated ,
199[ ], 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, the Interest Coverage Ratio for such period.
"Ratio 2" means, for each period of four consecutive fiscal quarters
of the Company, 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
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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.
"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) the United States federal government and its units and
instrumentalities or (B) any other governmental unit if the effective pledge of
the Receivable payable by such other governmental unit referred to in this
clause (B) requires advance notice to or consent of such governmental unit),
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 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 trade receivables securitization
program to be instituted and conducted by the Company after the Closing Date in
accordance with the provisions of Section 6.11.
"Receivables Program Documents" means the documents necessary to
give effect to the Receivables Program, as such documents may be amended,
modified or supplemented from time to time.
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"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 Requisite Lenders and which
(A) is a Wholly Owned Subsidiary, (B) contains provisions in its charter or
other governing documents which are substantially the same in effect as those
set forth in Exhibit XIV-B, (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.
"Receivables Transaction" means any transaction (other than the 1995
A/R Bridge) meeting the requirements of Section 6.11, including, without
limitation, any contribution of Receivables to a Receivables Subsidiary.
"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 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
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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-_____, filed by the Company on November __, 1994 with the Securities and
Exchange Commission in connection with the Common Stock Offering, as it may be
amended or supplemental 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.
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"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 Fraction as of such
date greater than 50%. As used herein, the "A Credit Exposure Fraction" of one
or more Lenders as of any date is a fraction 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 Fraction as of such
date greater than 50%. As used herein, the "B Credit Exposure Fraction" of one
or more Lenders as of any date is a fraction, 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 Fraction as of such date
greater than 50%. As used herein, the "Credit Exposure Fraction" of one or more
Lenders as of any date is a fraction 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
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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 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 in
a maximum aggregate amount not to exceed at any time the amount set forth
opposite such Lender's name in Schedule B annexed hereto under the heading
"Revolving Loan Commitment", as such maximum aggregate amount may be reduced
from time to time pursuant to this Agreement [and as such maximum amount is
amended pursuant to subsection 9.1.3 by such Lender entering into a Registered
Transfer Supplement].
"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 shall not exceed [the Fair Value of such services, advice or
licenses] [the fair market value of similar services, advice or licenses as
provided by a third party].
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"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.
"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):
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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
"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 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
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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.
"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
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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.
"Severed Parcel" has the meaning assigned to that term in subsection
5.14.1.
"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 established by the
Company in respect of certain environmental matters, as permitted under
Amendment No. 10 to the 1988 Credit Agreement, dated as of October 14, 1994,
which reserve is in the original amount of $50,000,000.
"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
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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 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 and
Registration Rights Agreements, in the form delivered to the lenders pursuant to
the 1988 Credit Agreement, as the same may be amended, supplemented or otherwise
modified from time to time.
"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.
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"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.
"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.
"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.
"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.
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"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 Multi-
employer 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.
"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.
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"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
commitment of such Lender to make Tranche A Term Loans hereunder pursuant to
subsection 2.1.1 in a maximum aggregate amount equal to the amount set forth
opposite such Lender's name in Schedule B annexed hereto under the heading
"Tranche A Commitment", as such maximum amount may expire pursuant to subsection
2.1.1 [and as such maximum amount is amended pursuant to subsection 9.1.3 by
such Lender entering into a Registered Transfer Supplement].
"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.
"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.
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"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
commitment of such Lender to make Tranche B Term Loans hereunder pursuant to
subsection 2.1.1 in a maximum aggregate amount equal to the amount set forth
opposite such Lender's name in Schedule B annexed hereto under the heading
"Tranche B Commitment", as such maximum amount may expire pursuant to Subsection
2.1.1.
"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.
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"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.
"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
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subordination provisions (to the Lenders) in the Existing Subordinated Debt.
"Wholly-Owned Subsidiary" 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 the Company.
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, for periods which would include fiscal quarters
ending on or prior to December 31, 1994, Consolidated EBITDA shall be determined
for such periods without taking into account the establishment of the Special
Reserve.]
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
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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 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
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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 Terms 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 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
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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 amount of such Lender's Tranche A Commitment and/or
Tranche B Commitment, as the case may be, with other appropriate insertions.
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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 five 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
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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 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.
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2.2.2. Notice of 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 1:00 p.m. (in the time zone of the
jurisdiction of the Fronting Bank) on such business day. Promptly after receipt
of a notice of 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
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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.
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 comply on their face with the requirements of such
Letter of Credit.
(b) In the event of any request for drawing under any Letter of
Credit by the beneficiary thereof, the Fronting Bank shall notify the Company
and the Administrative Agent on or before 9:00 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 9:00 a.m. (New York time) on the
Business Day on which such Fronting Bank intends to honor such drawing, the
Company shall reimburse such
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Fronting Bank on the Business Day immediately following the day on which it
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.
<PAGE>
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(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 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
<PAGE>
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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 weighted average 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 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 commission 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
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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.
(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);
(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
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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. If by reason of (A) 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 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 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
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(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 therein, 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 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
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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, 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.
<PAGE>
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(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 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
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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
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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
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.
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(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.
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
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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 effect for such Borrowing plus the LIBOR Spread in effect at such time with
respect to such Loans.
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(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.
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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
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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 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
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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;
(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); 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:
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(i) interest on each ABR Loan shall be payable in
arrears on and to each September 30, December 31, March 31
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 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
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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
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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 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 average 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 31, March 31 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.
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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 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
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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% 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.
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(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 the Defaulting Lender
Deduction Amounts of each Lender that is a Defaulting
Lender.
(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 each date on which the Company or any
Subsidiary of the Company (other than a Receivables
Subsidiary) receives any 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, the net proceeds of which are used to pay
amounts owing pursuant to the 1995 A/R Bridge, except to
the extent that the net proceeds of such Receivables
Transaction shall exceed the lesser of (A) the then
outstanding principal amount of the 1995 A/R Bridge and
(B) $60,000,000.
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(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 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
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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
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
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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, 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
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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 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
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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 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
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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 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
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reduced at any time to an amount less than the Total Utilization of Revolving
Loan Commitments; provided that the Company shall in any event have the right to
terminate either such Commitment without complying with the minimum amounts set
forth in this sentence.
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 (i) to refinance
Indebtedness constituting Permitted Expansion Construction Financing, (ii) for
the purposes applicable to the proceeds of Term Loans, as specified in the
second sentence of subsection 2.8.1, (iii) for working capital and (iv) for
other general corporate purposes (including, without limitation, all purposes
for which the Discretionary Excess Equity Proceeds Balance and the Discretionary
Excess Cash Flow Balance).
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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
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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 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 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 made by such Lender in connection with its
Adjusted Libor Loans regarding an exemption (partial or complete) from taxes,
levies, charges or
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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 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:
(a) 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
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Adjusted LIBOR Loans into ABR Loans in the manner
contemplated by subsection 2.5.4 but without satisfying
the advance notice requirements therein; or
(b) 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
have no obligation to any Lender under this subsection 2.9.5 if such Lender
shall not have
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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 Transferee) imposed by the United States or any jurisdiction
under the laws of which the Administrative Agent, the Fronting Bank or any such
Lender (or Transferee) 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 Transferee 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 Transferee), 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 Transferee), 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 Transferee of any 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 Lender or
Replacement Lender would have been entitled to receive with respect to the
rights assigned, participated or otherwise transferred
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unless in the case of a Transferee that is a Purchasing Lender or in the case of
a Replacement Lender (1) such assignment, participation 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 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)
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 clause (c),
the Company will indemnify each Lender (or Transferee), 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 Transferee), 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 Transferee), 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 Transferee) 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
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Transferee), the Administrative Agent or such Fronting Bank, agrees to return
such refund (plus penalties, interest or other charges) to such Lender (or
Transferee), the Administrative Agent or such Fronting Bank in the event the
relevant taxing authority or other Governmental Authority determines that such
Lender (or Transferee), 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 Transferee), 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 Transferee) 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 Transferee), 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
Transferees) 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, 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 for purposes of Section
881(c) of the Internal Revenue Code, or any successor applicable form of any
thereof, certifying in each case that such Lender (or Transferee), 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 Transferee) 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
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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 Transferee), 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 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 inapplicable or which would prevent the Administrative Agent,
Fronting Bank or such Lender (or Transferee), 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 Transferee), 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 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) 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) above to the contrary, the Company shall
not have any obligation to pay any Taxes or Other Taxes or to indemnify any
Lender (or Transferee), 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 from (A) the failure of any Lender (or Transferee),
the Administrative Agent or the Fronting Bank to comply with its obligations
pursuant to this paragraph (e) or (B) any representation or
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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.
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
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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 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
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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 otherwise indemnify any Lender 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 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
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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 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
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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.
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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:
Section 3.1 Conditions to Loans Made on the Closing Date. The
effectiveness of this Agreement and 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.
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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;
(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
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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;
(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
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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
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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;
(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
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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-C 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 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-D 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 in form and
substance satisfactory to Requisite Lenders 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
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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 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
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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;
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(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;
(v) The making of the Loans and disbursements
requested on such Funding Date shall not violate Regula-
tion 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
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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 (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 the 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.
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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.
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
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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.
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
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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.
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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.
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] [[ ]-month period] ending ____________, 199[ ].
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 September 30, 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
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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 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 are entitled,
in respect of the Collateral Documents, to exercise all the rights and receive
all the benefits therein contemplated 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
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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 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.
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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.
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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 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) 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
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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 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
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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 common law or legal liability, including, without limitation,
liability under the Comprehensive Environmental
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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,
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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 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.
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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;
(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
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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;
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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 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
Amount and the Discretionary Equity Proceeds Amount 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
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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 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
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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;
(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
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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
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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
(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,
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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 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
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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 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 (other than capital
stock or other equity interests in a First Tier Foreign Subsidiary) owned by a
Foreign Subsidiary, (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, or (E)
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
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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 date of such agreement, the interest cost to the
Company of the rate applicable to 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
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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 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 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 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 not acquired in connection with or as part of an
Expansion Project or (B) the capital stock or other equity interests in
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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 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
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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 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 cause
a pledge of shares possessing 66 2/3% or more of the voting power of all classes
of capital stock entitled to vote of any First Tier Foreign Subsidiary that
constitutes a Controlled Foreign Corporation (the stock of which would otherwise
be required to be pledged to the Lenders pursuant to subsection 5.11.1 or
5.11.2) or (if such First Tier Foreign Subsidiary shall be a Material
Subsidiary) the granting by such a First Tier Foreign Subsidiary of a Guarantor
Subsidiary Guarantee to trigger an increase 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 shall not be required to cause such First
Tier Foreign Subsidiary to execute and deliver such Guarantor Subsidiary
Guarantee and 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 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 of a First Tier Foreign
Subsidiary in addition to those
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contemplated to be pledged pursuant to paragraph (a) of this subsection 5.11.3
or (if such First Tier Foreign Subsidiary shall be a Material Subsidiary) the
granting by such a First Tier Foreign Subsidiary of a Guarantor Subsidiary
Guarantee without triggering an increase of 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 First Tier Foreign Subsidiary shall be a Material
Subsidiary, to cause such First Tier Foreign Subsidiary to execute and deliver
to the Administrative Agent a Guarantor Subsidiary Guarantee.
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 incur any liabilities of any kind other than the
granting of a non-recourse pledge of any such equity interests in Lower Tier
Foreign Subsidiaries to one or more Lenders to secure Indebtedness incurred by
such Lower Tier Foreign Subsidiaries in compliance with the provisions of
Section 6.1. The provisions of this subsection 5.11.4 shall not be applicable
to Sterling International Limited; provided that Sterling International Limited
shall not incur any obligations after the date hereof other than [to come].
[Neither Sterling International (UK) Limited nor Sterling International
Preference Limited shall enter into any new line of business or incur any new
obligations in respect of its existing business after the date hereof. The
Company shall not create, or permit the creation of, any new Subsidairies to own
or hold any Investment, direct or indirect, in Fort Sterling.]
[It is assumed that there will be (i) stock pledges of 100% of the
stock of Fort Howard Holding, Inc. and SIL Company and 65% of the voting stock
of Sterling International Limited and (ii) guarantees by Fort Howard Holding,
Inc. and SIL Company.]
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5.11.5. 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.
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 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
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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;
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(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 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 J 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;
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(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;
(ii) the conditions set forth under subpara-
graphs (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.
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(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 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
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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 at 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 sell, lease, assign, transfer or otherwise dispose of any interest in any
Real Property or any
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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 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
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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 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
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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 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
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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, upon the
foreclosure of any Mill that benefits from a permit or license required for the
operation thereof, use its 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.
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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 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
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
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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; 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 Inter-
company 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 the inability of a Foreign Subsidiary to pay
currently 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;
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(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 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) to any Person other than a Wholly
Owned Subsidiary of such Foreign Subsidiary over (2) the
portion of the net income of such Foreign Subsidiary
attributable to the equity ownership therein of the
Company or a Subsidiary of the Company 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 all such Indebtedness shall be recourse only to such
Foreign Subsidiary and its Wholly Owned Subsidiaries and
its or their respective assets;
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(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) One or more Receivables Subsidiaries may become
and remain liable for Indebtedness in an aggregate amount
not exceeding $__________ in connection with one or more
Receivables Transactions; provided that such Indebtedness
shall not (A) include any obligations other than
obligations directly related to the Receivables Program,
(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 and the
stock of such Receivables Subsidiary) or (C) mature or
require any amortization payments any earlier than the
fifth anniversary of the date of incurrence thereof;
(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 of the
shares of stock of Fort Sterling or any shares of stock of any Subsidiary of
Fort Howard Holding, Inc. that, at the time of creation of such Lien, owns,
directly or indirectly, any shares of stock of Fort Sterling, except, in the
case of clause (A), for Liens which would be permitted
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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 assets other than (1) Collateral, or (2)
any shares of stock of Fort Sterling or any shares of stock of any Subsidiary of
Fort Howard Holding, Inc. which owns, directly or indirectly, any shares of
stock of Fort Sterling, 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 (including any
document or instrument in respect of goods or accounts receivable), other than
Margin Stock and Common Stock, of the Company or any of its Subsidiaries,
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 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;
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(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 other Indebtedness; 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
property contributed to it in one or more Receivables
Transactions; provided that no such Lien may extend to any
assets of the Company or any Subsidiary of the Company;
(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);
_______________
* The Collateral Trust Agreement will limit the amount of
these Liens to $200,000,000.
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(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).
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;
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(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;
(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
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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 the Subsidiaries of the
Company]; 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 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
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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 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) in
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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 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;
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(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;
(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.
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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) 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 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
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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, and to give effect to, 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:
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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
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 - 12/31/99 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. The Company and any Receivables Subsidiary 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
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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
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;
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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, and, in the case of
any property the Fair Value of which is in excess of $10,000,000, (B) Cash and
Cash Equivalents and (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;
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.
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
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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:
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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, (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/Lease-back 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
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Subsidiaries in connection with an Asset Sale so long as the Company or such
Subsidiary, as the case may be, receives fair value for such notes, as
determined in good faith by the Board of Directors of the Company, and such
notes are sold without recourse.
6.11.2. Notwithstanding the foregoing, the Company shall be
entitled to enter into and perform the 1995 A/R Bridge and Receivables
Transactions pursuant to a Receivables Program to be established and
administered in accordance with, and to have the characteristics set forth in,
the term sheet annexed hereto as Exhibit XXVII.
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 6.2 or Section 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
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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.
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 its Subsidiaries
to, incur Capital Expenditures and Consolidated Domestic Capital Expenditures in
any fiscal year of the Company in excess of the amounts 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 such Foreign Subsidiary or Foreign Subsidiaries in
its or their discretion; provided that the Company and its Subsidiaries shall
have complied in all respects with the provisions of subsections (x) and (xi) of
Section 6.3.
6.14.3. During each fiscal year of the Company, the Company and its
Domestic Subsidiaries may incur in respect of 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 on the following terms and subject to the following conditions:
(i) the amount (the "Domestic Capex Maximum") of
Consolidated Domestic Capital Expenditures in the
aggregate which may be incurred in respect of all
Expansion Projects shall not at any time exceed the sum of
(a)
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$250,000,000 plus (b) the total amount of net cash
proceeds received by the Company after the Closing Date
and prior to such time in respect of Permitted Expansion
Financings;
(ii) 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 (excluding the Savannah Project and the
Green Bay Dry Former) 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 such Expansion Project); and
(iii) 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 Expansion
Project (in addition to the Expansion Project referred to
in clause (ii) above but excluding the Savannah Project
and the Green Bay Dry Form Machine) 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
committed to be spent by the Company, 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. At the option of the Company, 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
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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, "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, any Indebtedness in connection with any Receivables
Transaction, the documents evidencing the
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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 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
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agreement, indenture or other governing instruments and (D) any 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 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) payments of principal which would
not violate the provisions of Section 6.1 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
with the net cash proceeds of the sale of A/R Eligible Receivables, (B)
regularly scheduled payments of interest in accordance with
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the terms of the 1995 A/R Bridge and (C) any payment or prepayment required to
be made as a result of acceleration 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:
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
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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 (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
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(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
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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
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
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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 Multi-employer 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
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
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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 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
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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
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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 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
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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 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
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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 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
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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
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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 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.
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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. 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
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 Participant
shall be entitled to the benefits of Sections 2.2, 2.9 and 2.10 and, subject to
any limitations set forth therein with respect to Transferees, subsection 2.9.7
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 (A) with the Company's prior written
consent or (B) at a time when the circumstances giving rise to such greater
payment did not exist. Each Lender agrees that it shall not sell any
participation in respect of the obligations evidenced by this Agreement except
pursuant to an agreement substantially in the form of Exhibit ____.
9.1.3. Any Lender may, without the consent of any Person, at any
time assign to any Lender or any Affiliate thereof or to any Federal Reserve
Bank, and, with the prior written consent of the Company (which consent shall
not be
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unreasonably withheld or delayed) to one or more additional banks or financial
institutions ("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 (A) each such assignment shall be limited to an amount
equal to the lesser of (1) such Lender's Credit Exposure Amount then in effect
and (2) a minimum amount of $5,000,000 and integral multiples of $1,000,000
above such amount, (B) 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, and a processing and recordation fee of $2,500,
(C) in the case of assignments of Revolving Loan Commitments or Revolving Loans,
such transferor Lender obtains, additionally, the consent of each Lender then
constituting a Fronting Bank, (D) 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 (E) the Company shall be entitled to withhold its
consent to any such proposed assignment for any reason or no reason if (1)
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 2.9.7 and (2) 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,
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
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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 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 Transfer Supplement.
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
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such recordation shall not affect the Company's oblligations 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 subsection 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 or breaches of this Agreement by 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
9.22, unless, with respect to any Notes held by such Lender, the requirements of
subsection 9.1.5(a) have been satisfied.
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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
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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 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.
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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
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
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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 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
<PAGE>
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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
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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 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,
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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 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.
<PAGE>
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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 (1983 REVISION), INTERNATIONAL
CHAMBER OF COMMERCE, PUBLICATION NO. 400 (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. 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.
<PAGE>
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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
<PAGE>
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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, such Lender shall be deemed to have agreed to the course of action
proposed by the Collateral Trustee.
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
<PAGE>
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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 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
<PAGE>
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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
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
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(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 any payments pursuant to a
participating interest in the Loans, 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.
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 5.1
February 8, 1995
Fort Howard Corporation
1919 South Broadway
Green Bay, WI 54304
Ladies and Gentlemen:
We have acted as counsel for Fort Howard Corporation, a
Delaware corporation (the "Company"), in connection with the
filing by the Company with the Securities and Exchange Commission
of a Registration Statement on Form S-1 (No. 33-56573) (the
"Registration Statement") covering the registration under the
Securities Act of 1933, as amended (the "Act"), of 25,300,000
shares (the "Shares") of the Company's common stock, par value
$.01 per share. The Shares are to be sold by the Company
pursuant to the terms of an underwriting agreement (the
"Underwriting Agreement") between the Company and the
underwriters named therein.
We have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents and
corporate and public records as we have deemed necessary as a
basis for the opinion hereinafter expressed. In our examination,
we have assumed the genuineness of all signatures, the
authenticity of all documents presented to us as originals and
the conformity to the originals of all documents presented to us
as copies. In rendering our opinion, we have relied as to
factual matters upon certificates of officers of the Company and
certificates of public officials.
Our opinion expressed herein is limited to the Federal
law of the United States, the law of the State of New York and
the General Corporation Law of the State of Delaware.
Based on the foregoing and having regard for such legal
considerations as we deem relevant, we are of the opinion that,
when issued and delivered in accordance with the terms of the
Underwriting Agreement, the Shares will be legally issued, fully
paid and non-assessable.
<PAGE>
Fort Howard Corporation 2 February 8, 1995
We hereby consent to the use of this opinion as Exhibit
5.1 to the Registration Statement and to the use of our name
under the caption "Legal Matters" contained in the prospectus
which is included in the Registration Statement. In giving this
consent, we do not thereby concede that we come within the
category of persons whose consent is required by the Act or the
General Rules and Regulations promulgated thereunder.
Very truly yours,
SHEARMAN & STERLING
Exhibit 10.1
DRAFT
2/7/95
STOCKHOLDERS AGREEMENT dated as of ___________, 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
----
Agreements") 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 amended and
modified, the "1990 Stockholders Agreement"); and
---------------------------
WHEREAS, in order to continue to provide for the control of the
affairs of the Company and its subsidiaries in a manner consistent with the best
interests of the Company and its subsidiaries, the Company and 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.
"Adverse Person" means, as determined in the sole discretion of the
--------------
Board of Directors in its good faith judgment, any transferee (i) that intends
to take action or enter into a transaction to provide short-term financial gain
to itself under circumstances not in the long-term interests of the Company or
its stockholders (other than such transferee), (ii) that intends to cause, or is
reasonably likely to cause, a material adverse impact on the business or
prospects of the Company or (iii) that is a competitor of the Company or any of
its direct or indirect subsidiaries.
<PAGE>
2
"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.
"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 Corporation 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 Corporation 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.
----------------
<PAGE>
3
"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.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Executive Officer" shall have the meaning given to such term in
-----------------
Rule 405 promulgated under the Securities Act.
"FPGT" means First Plaza Group Trust, as trustee for certain pension
----
funds.
"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, 1990 Agreement
or any Purchase Agreement, pursuant to Section 7.9 or Section 7.11 or otherwise;
provided, however, that for purposes of Sections 2.1, 2.3, 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 and
------
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.
<PAGE>
4
"MEP" means the Fort Howard Corporation Management Equity Plan as
---
amended from time to time.
"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
________, 1995.
"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
Second Registration Period, the Registrable Securities then outstanding
representing not less than 15% of the Fully Diluted Shares; and (ii) following
the end of the Second Registration Period, the Registrable Securities then
outstanding representing not less than 10% 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 Second
Registration Period, the Registrable Securities then outstanding representing at
least 25% 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 termination of the
Second Registration Period, the Registrable Securities then outstanding
representing at least 10% 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 the Company's common stock pursuant to a Registration Statement on Form S-1
filed with the Securities and Exchange 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.
"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 the date hereof, among the Company and FPGT and Leeway, as amended from
time to time.
"Permitted Transferee" means:
--------------------
(i) in the case of Paul J. Schierl, as such term is defined in the
1990 Agreement;
(ii) in the case of any Direct Investor, a person that is an Affiliate
of such Direct Investor, it being understood that for purposes of this
provision in the case of any Direct Investor or Permitted Transferee
thereof which is a trust established under an employee benefit plan subject
to ERISA, any other trust established directly or indirectly under such
plan or any other such plan having the same sponsor (an "Affiliated
----------
Employee Benefit Trust") shall be deemed an Affiliate of such Direct
----------------------
Investor or Permitted Transferee thereof;
(iii) in the case of MSLEF, (A) any general or limited partner of
MSLEF (a "MSLEF Partner"), and any corporation, partnership, Affiliated
-------------
Employee Benefit Trust or other entity which is an Affiliate of any MSLEF
Partner (collectively, the "MSLEF Affiliates"), (B) any managing director,
----------------
general partner, director, limited partner, officer or employee of MSLEF or
a MSLEF Affiliate (collectively, "MSLEF Associates"), (C) the heirs,
----------------
executors, administrators, testamentary trustees, legatees or beneficiaries
of any MSLEF Associate, and (D) a trust, the beneficiaries of which, or a
corporation or partnership, the stockholders or general or limited partners
of which, include only MSLEF, MSLEF Affiliates, MSLEF Associates, their
spouses or their lineal descendants;
(iv) in the case of Morgan Stanley Group, (A) any corporation,
partnership or other entity which is an Affiliate of Morgan Stanley Group
(collectively, the "MSG Affiliates"), (B) any managing director, general
--------------
partner, director, limited partner, officer or employee of Morgan Stanley
Group or an MSG Affiliate (collectively, the "MSG Associates"), (C) the
--------------
heirs, executors, administrators, testamentary trustees,
<PAGE>
6
legatees or beneficiaries of any MSG Associates, and (D) a trust, the
beneficiaries of which, or a corporation or partnership, the stockholders
or general or limited partners of which include only Morgan Stanley Group,
MSG Affiliates, MSG Associates, their spouses or their lineal descendants;
and
(v) in the case of any other person, as such term is defined in such
person's Purchase Agreement;
provided, however, that any such person has agreed in writing, in accordance
with Section 7.9 hereof and with any analogous provision of the Purchase
Agreements by which the transferor of such shares shall be bound, to be bound
and have become bound by the terms and conditions of this Agreement and any such
Purchase Agreement to the same extent and in the same manner as the Holder
transferring Shares to him; and, provided further, that the transfer to any such
person is in compliance with federal and all applicable state and foreign
securities laws. The term "Permitted Transferees" shall mean any combination of
such Permitted Transferees.
"person" means an individual, partnership, corporation, 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.
"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 Controlling Stockholders (as determined pursuant to Section 2.5(a)).
<PAGE>
7
"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 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.
"Second Registration Period" means the period commencing on August 2,
--------------------------
1993, and terminating on August 2, 1996.
"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.
<PAGE>
8
"Share Equivalents" means securities of any kind issued by the Company
-----------------
prior to the date hereof, convertible into or exchangeable for Shares or
options, warrants or other rights to purchase or subscribe for Shares or
securities convertible into or exchangeable for Shares.
"Shares" means any share of Common Stock acquired prior to the date
------
hereof.
"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 agrees that it will
--------------------
not, 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), except in
compliance with the Securities Act, the Purchase Agreement to which such Holder
is a party and 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 SECURITY MAY BE OFFERED, SOLD OR
TRANSFERRED ONLY
<PAGE>
9
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 [DATE],
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
sentence of the legend required by Section 2.2(b) hereof endorsed thereon. 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 second sentence of the legend required by Section 2.2(b)
hereof endorsed thereon.
SECTION 2.3. Certain Sales of Shares by Holders.
----------------------------------
(a) Each Holder agrees that it will not, except as required by law
and except as otherwise hereinafter provided, directly or indirectly, make any
sale or create, incur or assume any encumbrance with respect to any Shares or
Share Equivalents held by such Holder other than (x) cash sales subject to
Section 2.3(b) hereof and (y) sales subject to Section 2.4 or 2.5 hereof. Each
such sale shall be pursuant to the procedures, and subject to the limitations,
set forth in this Article II and in the applicable Purchase Agreement.
Notwithstanding the foregoing, nothing in this Article II shall limit the right
of a Holder to, directly or indirectly, dispose of any Shares or Share
Equivalents held by such Holder to (i) any of its Permitted Transferees, (ii)
the Company or, pursuant to Article V hereof or Article VIII of the MEPA, the
Company's designee, (iii) subject to Section 2.3(b) hereof, any person for cash
if (A) such person becomes a Holder pursuant to Section 7.9 hereof, (B)
immediately after such sale, the transferee and its Affiliates do not in the
aggregate beneficially own Shares representing more than 15% of the then
outstanding Shares, unless the prohibition against such sale to such transferee
and its Affiliates is waived by a majority of the members of the Board of
Directors, and (C) the transferee and its Affiliates shall not be an Adverse
Person, (iv) any person pursuant to a Public Offering in connection with the
exercise of registration rights set forth in Article IV hereof, (v) any person
pursuant to a sale under Rule 144 under the Securities Act occurring after 15%
or more of the outstanding Shares have been sold pursuant to one or more Public
Offerings, but only to the extent the amount of Shares or Share Equivalents sold
in such sale under Rule 144 does not exceed the volume limitations set forth in
Rule 144(e)(i) in effect on the date hereof (whether or not
<PAGE>
10
applicable under the requirements of such Rule) or (vi) pursuant to an effective
Registration Statement on Form S-8. In addition, nothing in this Agreement or
the Purchase Agreements shall limit the right of either Morgan Stanley or MSLEF
to, directly or indirectly, make any disposition permitted under the Securities
Act of all or a portion of the Shares beneficially owned by either of them to
any transferee, whether or not otherwise permitted by this Agreement, (A) at any
time in connection with the refinancing of the Company's outstanding debt, or
(B) subject to Section 2.4 and Section 2.5 hereof, at any time in connection
with one transaction or a series of transactions in which Morgan Stanley and/or
MSLEF intends to sell such number of Shares then constituting a majority of the
outstanding Shares subject to this Agreement at that time.
(b) (i) Obligation to Make Pre-emptive Offer. Subject to Section
------------------------------------
2.4(c) and Section 2.5(c) hereof, in the event that any Holder (an "Offering
--------
Holder") receives or otherwise negotiates a bona fide offer (a "Transfer Offer")
- ------ --------------
to purchase for cash any or all of the Shares (the "Transfer Stock") then owned
--------------
by such Offering Holder from any Third Party or other Holder (the "Offeror")
-------
which such Offering Holder wishes to accept, such Offering Holder shall cause
the Transfer Offer to be reduced to writing and shall provide a written notice
(a "Transfer Notice") of such Transfer Offer to the Company and the Company
---------------
shall provide written notice of such Transfer Offer to the other Holders (the
"Holder Offerees" and, together with the Company, the "Transfer Offerees"). The
--------------- -----------------
Transfer Notice shall also contain an irrevocable offer (a "Pre-emptive Offer")
-----------------
to sell the Transfer Stock to the Transfer Offerees for all cash at a price
equal to the price and upon substantially the same terms as the terms contained
in such Transfer Offer and shall be accompanied by a true and correct copy of
such Transfer Offer (which shall identify the Offeror, the Transfer Stock, the
price contained in such Transfer Offer and all the other terms and conditions of
such Transfer Offer). The Transfer Offerees shall have the irrevocable right
and option, within 30 days after the date the Transfer Notice is given to such
Transfer Offerees (the "Initial Notice Period"), to accept the Pre-emptive Offer
---------------------
(subject to the priorities and pro rata adjustments set forth below) as to any
shares of the Transfer Stock. Each Transfer Offeree which desires to exercise
such option with respect to a Pre-emptive Offer shall provide the Offering
Holder with written notice (specifying the number of shares of the Transfer
Stock which such Transfer Offeree is requesting to purchase pursuant to such
Pre-emptive Offer), with a copy to the Company within the Initial Notice Period.
(ii) Allocation of Shares. The allocation of Transfer Stock to
--------------------
Transfer Offerees pursuant to a Pre-emptive Offer shall be made as follows:
(A) Undersubscribed Offer. If the total number of shares of
---------------------
Transfer Stock requested for purchase by all Transfer Offerees is less than
the total number of shares of Transfer Stock (an "Undersubscribed Offer"),
---------------------
each Transfer Offeree shall be entitled to receive that number of shares of
Transfer Stock such Transfer Offeree accepted for purchase.
<PAGE>
11
(B) Fully Subscribed Offer -- Equal Allocation. If every
------------------------------------------
Transfer Offeree requests to purchase a number of shares of Transfer Stock
equal to or greater than such Transfer Offeree's "Pro-Rata Amount" (as
---------------
hereinafter defined), then each Transfer Offeree shall be entitled to
receive such Transfer Offeree's Pro-Rata Amount.
(C) Fully Subscribed Offer -- Unequal Allocation. If such
--------------------------------------------
Pre-emptive Offer is not an Undersubscribed Offer and any Transfer Offeree
requests to purchase a number of shares equal to or less than their
respective Pro-Rata Amounts, each Transfer Offeree shall (x) first, be
entitled to receive the number of shares of Transfer Stock requested for
purchase by such Transfer Offeree or, if less, the number of shares of
Transfer Stock equal to such Transfer Offeree's Pro-Rata Amount, and (y)
second, with respect to any Transfer Offeree requesting Excess Shares (as
hereinafter defined), receive that number of additional shares equal to the
lesser of the number of Excess Shares such Transfer Offeree requested and
such Transfer Offeree's allocable share of the Excess Shares determined by
comparing respective Pro-Rata Amounts for each Transfer Offeree who
requested Excess Shares, applied on an iterative basis to the extent that
any such Transfer Offeree's request shall be satisfied in full without all
Excess Shares being allocated.
(iii) Second Notice Period in Case of Undersubscribed Offer. If
-----------------------------------------------------
any Pre-emptive Offer is an Undersubscribed Offer, the Offering Holder shall
after the close of the Initial Notice Period so notify the Transfer Offerees,
specifying the details of the initial subscription, and each Transfer Offeree
shall have the irrevocable right and option, within 15 days after delivery of
such notice (the "Second Notice Period") to accept for purchase those shares of
--------------------
Transfer Stock (the "Remaining Transfer Stock") not previously accepted during
------------------------
the Initial Notice Period. Shares of Remaining Transfer Stock shall be
allocated to Transfer Offerees requesting to purchase Remaining Transfer Stock
in the same manner as shares of Transfer Stock are required to be allocated to
Transfer Offerees as provided in Section 2.3(b)(ii) above. In the event that
all shares of Transfer Stock are not accepted for purchase pursuant to this
Section 2.3(b), the Company shall have the right, by notice given to the
Offering Holder within five days of receipt from the Offering Holder of notice
of the results of the foregoing offers to Holder Offerees, to purchase or cause
its designee to purchase such remaining shares of Transfer Stock.
(iv) Closing. The closing of the purchases of the Transfer Stock by
-------
the Transfer Offerees who have exercised the option pursuant to this Section
2.3(b) shall take place at the principal office of the Company on the third
Business Day after the expiration of the Initial Notice Period or the Second
Notice Period, as the case may be. At such closing, such Transfer Offerees
shall deliver a certified check or checks in the appropriate amount to the
Offering Holder against delivery of certificates representing the Transfer Stock
so purchased, Duly Endorsed.
<PAGE>
12
(v) Default. If any shares of the Transfer Stock allocated to a
-------
Holder Offeree are not purchased by such Holder Offeree (collectively, the
"Transfer Default Stock"), such shares of Transfer Default Stock may be
----------------------
purchased by the other Holder Offerees purchasing Transfer Stock (the "Default
-------
Offerees"), allocated among such Default Offerees (with rounding to avoid
- --------
fractional Shares) in proportion to the number of Shares of Transfer Stock
otherwise being purchased by those of such Default Offerees who agree to
purchase Transfer Default Stock; provided, however, that, if the Default
Offerees do not purchase all the Transfer Default Stock, the Company or its
designee may purchase the remaining Transfer Default Stock. The Company shall
establish reasonable time periods and procedures in connection with any such
offering to Default Offerees.
(vi) Right of Offering Holder to Sell After Pre-Emptive Offer.
--------------------------------------------------------
Notwithstanding the acceptance by any Transfer Offeree to commit to purchase a
portion of the Transfer Stock or the Remaining Transfer Stock pursuant to
Section 2.3(b)(i) or Section 2.3(b)(iii) hereof, if at the end of the Second
Notice Period the Transfer Offerees (including, without limitation, the Company)
shall have collectively accepted the Pre-Emptive Offer as to less than all of
the Transfer Stock covered thereby (the "Partial Purchase Commitment"), the
---------------------------
Offering Holder shall immediately notify the Company and the Transfer Offerees
as to whether or not it shall accept such Partial Purchase Commitment. If such
Partial Purchase Commitment is accepted, the closing for such purchase of a
portion of such Transfer Stock shall take place pursuant to Section 2.3(b)(iii)
hereof. The Offering Holder shall have the right within the time hereinafter
specified to sell any Transfer Stock not included in the Partial Purchase
Commitment to the Offeror at a price not less than that contained in the
Transfer Notice. If the Offering Holder determines not to sell any Transfer
Stock pursuant to the Partial Purchase Commitment, or if the Company notifies
the Offering Holder that no Transfer Offeree has accepted any portion of the
Pre-emptive Offer, the Offering Holder shall have 30 days from such date (the
"Offeror Sales Period"), in which to sell all, but not less than all, of the
--------------------
Transfer Stock to the Offeror at a price not less than that contained in the
Transfer Notice and on terms not more favorable to the Offeror than were
contained in the Transfer Notice. No sale may be made to any Offeror unless
such Offeror agrees in writing, in form and substance acceptable to the Company,
to be bound by the provisions of this Agreement and the relevant provisions of
the Purchase Agreements. Promptly after any sale pursuant to this Section
2.3(b), the Offering Holder shall notify the Company of the consummation thereof
and shall furnish such evidence of the completion (including time of completion)
of such sale and of the terms thereof as the Company may request. If, at the
termination of the Offeror Sales Period, the Offering Holder has not completed
the sale of all the Transfer Stock, such Holder shall no longer be permitted to
sell such shares pursuant to this Section 2.3(b) without again fully complying
with the provisions of this Section 2.3(b) and all the restrictions on sale,
transfer or assignment contained in this Agreement shall again be in effect with
respect to all such person's Shares, including the Transfer Stock.
<PAGE>
13
(vii) Certain Defined Terms. For purposes of this Section 2.3,
---------------------
the following terms shall have the meanings indicated below:
"Excess Shares" means, with respect to any Transfer Offeree, a
-------------
number of Shares in excess of such Transfer Offeree's Pro-Rata Amount.
"Pro Rata Amount" means, with respect to any Transfer Offeree,
---------------
such Transferee's pro-rata share of the number of shares of Transfer Stock
(such proration being based on the respective numbers of Shares held by
each of the Transferee Offerees).
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 subject to this Agreement 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 (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 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
<PAGE>
14
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, times (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
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 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
<PAGE>
15
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 to any Permitted Transferee,
provided that such Permitted Transferee agrees in writing, pursuant to Section
7.9 hereof, to be bound by the terms and conditions of this Agreement to the
same extent and in the same manner as the Holder transferring such Shares or
(ii) made pursuant to a Public Offering.
(c) The provisions of Section 2.3(b) hereof shall not be applicable
to any transfer of Shares made pursuant to the provisions of Section 2.4 hereof.
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 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 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 (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.
<PAGE>
16
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 completion of such sale or other
disposition and the terms thereof as may be reasonably requested by such
Remaining Holders.
(c) The provisions of Section 2.3(b) hereof shall not be applicable
to any transfer of Shares made pursuant to the provisions of Section 2.5 hereof.
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
<PAGE>
17
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 FH Equity Investors II shall own shares of Common
- ------
Stock of the Company, MSLEF and FH 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 FH 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 Equity Investors II, 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 FH 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 FH 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. 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
FH Equity Investors II in this Section 3.1 are intended to enable MSLEF and FH
Equity Investors II or any partner of MSLEF and FH Equity Investors II to be
operated as a "venture capital operating company" within the meaning of the
regulations of the Department
<PAGE>
18
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 Permitted
Transferees; 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 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
<PAGE>
19
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
(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, the Additional Sellers
and their Permitted Transferees 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 Article IV. 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
<PAGE>
20
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 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 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, the Additional Sellers, and their respective Permitted Transferees
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
<PAGE>
21
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 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 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
<PAGE>
22
Registrable Securities then held by the Selling Investors and their
Permitted Transferees 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 are not included in such registration, then the
Selling Investors and their Permitted Transferees 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' 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 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, or (v)
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
<PAGE>
23
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.
(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
<PAGE>
24
(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) If any registration of Registrable Securities shall be in
connection with a Public Offering, each Holder of Registrable Securities 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 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. 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, each Holder agrees (not withstanding 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 II, without the
prior written consent of the co-managers of such offering), it will not, during
the period ending 180 days after the date of the 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
<PAGE>
25
Stock or any securities convertible into or exchangeable 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.
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 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.
(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 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
<PAGE>
26
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 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
<PAGE>
27
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.
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
<PAGE>
28
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 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
<PAGE>
29
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 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
<PAGE>
30
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 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.
<PAGE>
31
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.
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.
<PAGE>
32
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, 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 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
<PAGE>
33
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.
ARTICLE VI
ADDITIONAL RIGHTS AND OBLIGATIONS OF HOLDERS
--------------------------------------------
SECTION 6.1. Certain Matters. After July 31, 1990, 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 7.13 hereof,
Mr. Schierl shall be deemed to be a "Direct Investor" and not a "Management
Investor."
<PAGE>
34
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.
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
<PAGE>
35
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 Sections 2.3 and 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 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, in
the case of a Permitted Transferee, to the address set forth in the written
agreement executed pursuant to Section 7.9 hereof, 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.
<PAGE>
36
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. Agreement to be Bound. Except for persons who purchase
---------------------
as contemplated by Sections 2.3(a)(iv) and (v) hereof and by the last sentence
of Section 2.3(a) hereof, prior to the termination of this Agreement pursuant to
Section 7.10 hereof, no Shares or Share Equivalents (the "Restricted Shares")
-----------------
may be sold, transferred or otherwise disposed of pursuant to Section 2.3(a)
hereof to any Permitted Transferee, Third Party or other transferee (the
"Restricted Holders") or subsequently transferred to any Restricted Holder
------------------
unless such Restricted Holder, prior to such sale, transfer or other
disposition, agrees in writing, in form and substance satisfactory to the
Company, to be bound by the terms of this Agreement to the same extent and in
the same manner as the transferor of such Restricted Shares, a copy of which
writing shall be maintained on file with the Secretary of the Company and shall
include the address of such Restricted Holder to which notices hereunder shall
be sent. Each such supplementary agreement shall become effective upon its
execution by the Company and the Restricted Holder of Restricted Shares, and it
shall not require the signatures or the consent of any other Holder.
SECTION 7.10. 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 Agreement.
SECTION 7.11. 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 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
<PAGE>
37
terms shall not be materially adverse to any of the other Management Investors,
Direct Investors or MS/Fund Investors.
SECTION 7.12. 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 7.13. 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 2.3,
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, Morgan Stanley Group and
their Permitted Transferees, (ii) the Holders of a majority of the Shares then
held by the Direct Investors and their respective Permitted Transferees, (iii)
the Holders of a majority of the Shares then held by the Management Investors
and their respective Permitted Transferees 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 7.13; (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 7.13, then
the consent of such Holder or Holders shall not be required under this Section
7.13; and (C) a Holder may assign his rights and remedies with respect to Shares
or Share Equivalents transferred to a Restricted Holder, and such Restricted
Holder may assume such Holder's obligations and liabilities with respect to
Shares or Share Equivalents, in accordance with Section 2.3(a) or Section 7.9
hereof, concurrently with such transfer, without obtaining the prior written
consent of the Company or the Holders specified in clauses (i), (ii) and (iii)
of this Section 7.13.
SECTION 7.14. 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 7.15. 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 7.13 hereof; provided, however, that (a) any amendment to the definition
of Permitted Transferee set forth in Section 1.1 hereof with respect to either
Morgan Stanley Group or MSLEF shall only require
<PAGE>
38
the written consent of the Direct Investors and their respective Permitted
Transferees that hold Shares subject to this Agreement and (b) any amendment to
Article II hereof shall only require the written consent of the Holders subject
to Article II.
SECTION 7.16. 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.
SECTION 7.17. 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 7.18. 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 7.19. Effectiveness. This amendment and restatement of the
-------------
1990 Agreement shall become effective upon the execution and delivery hereof,
pursuant to Section 7.15, by the Company and the Holders specified in clauses
(i) through (iii) inclusive of Section 7.13 hereof, and thereupon, subject to
Section 7.13, 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>
39
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., as 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>
40
FORT HOWARD EQUITY INVESTORS II, L.P.
By: MORGAN STANLEY EQUITY
INVESTORS INC.
By:
-----------------------------------------------
Name:
Title:
MELLON BANK, N.A., TRUSTEE for First Plaza Group
Trust (as directed by General Motors Pension
Investment Committee)
By:
-----------------------------------------------
Name:
Title:
LEEWAY & CO.
By: STATE STREET BANK & TRUST CO.,
a partner
By:
-----------------------------------------------
Name: Donald H. DeMeuse
By:
-----------------------------------------------
Name: Kathleen J. Hempel
By:
-----------------------------------------------
Name: Michael Riordan
By:
-----------------------------------------------
Name: James W. Nellen II
Exhibit 10.2
FORT HOWARD CORPORATION
MANAGEMENT INCENTIVE PLAN
As Amended and Restated December 19, 1994
------------------------------------------
Section 1. Purposes
--------
The purposes of the Fort Howard Corporation Management
Incentive Plan (the "Plan") are (i) to provide greater motivation
for executives to attain and maintain the highest standards of
performance, (ii) to attract and retain executives of outstanding
competence, and (iii) to direct the energies of executives toward
the achievement of specific business goals established for Fort
Howard Corporation (the "Company").
Section 2. Term of Plan
------------
Awards under the Plan may be made in respect of years
during the period beginning January 1, 1995, and ending December
31, 2004.
Section 3. Administration and Interpretation
---------------------------------
(a) The Plan shall be administered by a committee (the
"Committee") of at least two directors authorized by the Board of
Directors of the Company (the "Board") to do so. The Committee
shall have the power to interpret the Plan and, subject to its
provisions, shall have the power to prescribe, amend and rescind
rules and to make all other determinations necessary or desirable
for the Plan's administration. A majority of the members of the
Committee shall constitute a quorum, and all determinations of
the Committee shall be made by a majority of its members. Any
determination of the Committee under the Plan may be made without
notice or meeting of the Committee, by a writing signed by all of
the Committee members.
(b) All action taken by the Committee in the
administration and interpretation of the Plan shall be final and
binding on all concerned.
Section 4. Participation
-------------
(a) Employees participating in the Plan during any
year ("Participants") shall be selected by the Committee from
among the full-time salaried employees of the Company or its
Subsidiaries who in the judgment of the Chief Executive Officer
of the Company serve in key executive, administrative,
professional, or technical capacities; provided that
--------
participation by an employee of a Subsidiary shall be subject to
approval of the Plan by such
<PAGE>
2
Subsidiary's Board of Directors, which approval shall constitute
the Subsidiary's agreement to pay, at the direction of the
Committee, awards directly to its employees or to reimburse the
Company for the cost of such participation in accordance with
rules adopted by the Committee.
(b) If a Participant ceases to be employed by the
Company and/or its Subsidiaries prior to the end of a year for
any reason other than disability as determined by the Company,
retirement at or after age 55, or death, his participation in the
Plan for such year will terminate forthwith and he will not be
entitled to any award for such year. If, prior to the end of a
year, a Participant's employment ceases because of disability as
determined by the Company, retirement at or after age 55, or
death, or if the effective date of participation by a
Participant for any year shall be after January 1 of the Plan
year, the Participant will be entitled to receive only that
proportion of the amount, if any, that he otherwise would have
received under the Plan for the full calendar year which the
number of calendar days of his participation in the Plan during
said year bears to the total number of calendar days in each
year. Notwithstanding the foregoing, if (i) a Participant's
employment with the Company and/or its Subsidiaries is terminated
without Cause (as defined below) within two years following a
Change in Control (as defined below), the Company shall pay to
the Participant as soon as possible following such termination
the maximum award amount for which such Participant was eligible
with respect to the fiscal year of termination, prorated to the
date of termination. For purposes of the preceding sentence, the
following definitions shall apply:
"Cause" shall have the meaning specified in the
employment agreement between the Participant and the Company
or, if no such employment agreement exists, shall mean
termination of the Participant's employment upon (A) the
willful and continued failure by the Participant to
substantially perform his or her duties with the Company in
his or her established position on a full-time basis (other
than any such failure resulting from his or her disability
(as determined by the Company) after a written demand for
substantial performance is delivered to the Participant by
the Board, which demand specifically identifies the manner
in which the Board believes that the Participant has not
substantially performed his or her duties; (B) the willful
engaging by the Participant in conduct which is
significantly injurious to the Company, monetarily or
otherwise, after written demand for cessation of such
conduct is delivered to the Participant by the Board, which
demand specifically identifies the manner in which the Board
believes that the Participant has engaged in such conduct
and the injury to the Company; (C) the Participant's
conviction of a crime involving moral turpitude; or (D) the
Participant's abuse of illegal drugs or other controlled
substances or the Participant's habitual intoxication. For
purposes of the preceding sentence, no act, or failure to
act, on the Participant's part shall be deemed "willful"
unless knowingly done, or omitted to be done, by the
Participant not
<PAGE>
3
in good faith and without reasonable belief that the
Participant's action or omission was in the best interest of
the Company.
"A Change in Control" of the Company shall be deemed to
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
Inc., a Delaware corporation, The Morgan Stanley Leveraged
Equity Fund II, L.P., a Delaware limited partnership ("MSLEF
II"), Fort Howard Equity Investors, L.P., a Delaware limited
partnership ("FH I"), Fort Howard Equity Investors II, L.P.,
a Delaware limited partnership ("FH II"), or any of their
respective Affiliates or (z) any general or limited partner
of MSLEF II, FH I or FH II), alone or together with its
Affiliates and Associates (collectively, an "Acquiring
Person"), shall become the Beneficial Owner of twenty
percent (20%) or more of the then outstanding shares of the
Company's 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 the
Company's common stock at a price and upon such terms and
conditions as a majority of the Continuing Directors
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 and any new director (other than
a director who is a representative or nominee of an
Acquiring Person) whose election by the Board 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 the beginning of the
period or whose election or nomination for election was
previously so approved (collectively, the "Continuing
Directors"), cease for any reason to constitute a majority
of the Board. For purposes of the definition of "Change in
Control", (i) "Affiliate" and "Associate" have the
respective meanings ascribed to such terms in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); (ii) "Beneficial Owner" has
the meaning ascribed to such term in Rule 13d-3 promulgated
under the Exchange Act; (iii) "Combined Voting Power" means
the combined voting power of the Company's then outstanding
voting securities; and (iv) "Person" means any person,
entity or "group" within the meaning of Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act.
(c) The term "Subsidiary" shall mean any corporation
at least 50% of whose issued and outstanding voting stock is
owned, directly or indirectly by the Company.
<PAGE>
4
Section 5. Incentive Compensation Measures
-------------------------------
The Committee may authorize awards to eligible
executives pursuant to either of the following methods:
(a) For each Plan year the Committee may establish one
or more specified percentages of base salary ("Target
Percentages"), to be used to calculate awards under the Plan if
the Company's actual financial performance (in terms of net
earnings, operating earnings or 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 such other
appropriate measures of performance, including individual
measures of performance, in such manner as the Committee deems
appropriate) for the year equals one or more performance goals
specified by the Committee. The Committee also may establish a
range of adjustments to the Target Percentages, to be used if the
Company's actual financial performance differs from the
performance goals in specified amounts. Actual financial
performance shall be measured by reference to the Company's
financial records and the consolidated financial statements of
the Company. In determining performance, the Committee in its
discretion may direct the adjustments to the performance goals or
actual financial performance as reported be made to reflect
extraordinary organizational, operational or other changes that
have occurred during such year, such as (without limitation)
acquisitions, dispositions, expansions, contractions, material
non-recurring items of income or loss or events that might create
unwarranted hardships or windfalls to Participants. The
Committee may also provide that the Chief Executive Officer shall
have discretion to increase or decrease the award otherwise
payable to a Participant (other than the Chief Executive
Officer), based upon their individual performance during the
year.
(b) A discretionary bonus in an amount as the
Committee in its discretion may determine.
Section 6. Awards
------
(a) On or before March 10 of the year subsequent to
any Plan year, the Committee shall determine awards to
Participants for such Plan year by comparing actual financial
performance to the performance goals and the range of percentages
adopted by the Committee for such year. If the Committee has not
adopted specified goals for the Plan year, the Committee shall
meet by March 10 of the year subsequent to the Plan year to
determine if discretionary bonuses shall be awarded to
Participants. Each award under the Plan shall be paid in cash
promptly after the amount of the award has been determined.
<PAGE>
5
(b) No award under this Plan shall be considered as
compensation in calculating any insurance, profit-sharing,
retirement, or other benefit for which the recipient is eligible
unless any such insurance, profit-sharing, retirement or other
benefit is granted under a plan which expressly provided that
incentive compensation shall be considered as compensation under
such plan.
(c) There is no requirement that the maximum amount
available for awards in any year be awarded, nor that an award
will be granted to any particular Participant for any year. Any
portion of any amount available for making awards for any year
which shall not have been awarded, shall not carry over or
increase the maximum amount of awards payable in any subsequent
year.
Section 7. Death of Participant
--------------------
If a Participant dies before or after termination of
employment, any unpaid installments of an award shall be paid to
his legal representatives, either in the installments as
originally provided or otherwise as the Committee may determine
in each individual case, or, where the Committee has authorized
the designation of beneficiaries, to such beneficiaries as may
have been designated by the Participant.
Section 8. Non-Assignability and Contingent Nature of Rights
-------------------------------------------------
No Participant, no person claiming through him, nor any
other person shall have any right or interest in the Plan or its
continuance, or in the payment of any award under the Plan,
unless and until all the provisions of the Plan, the rules
adopted thereunder, and restrictions and limitations on the award
itself have been fully complied with. No rights under the Plan,
contingent or otherwise, shall be transferable, assignable or
subject to any pledge or encumbrance of any nature.
Section 9. Termination and Amendment
-------------------------
The Board may terminate the Plan, in whole or in part,
at any time, or may, from time to time, amend the Plan in such
respects as the Board may deem advisable, provided that no such
--------
termination or amendment shall impair any rights which have
accrued under the Plan.
Section 10. Governing Law
-------------
This Plan shall be governed by and construed in
accordance with the laws of the State of Wisconsin.
<PAGE>
6
Section 11. No Contract of Employment
-------------------------
Nothing contained herein shall be construed as a
contract of employment between the Company and any Participant,
or as giving a right to any person to continue in the employment
of the Company or as limiting the right of the Company to
discharge any Participant at any time, with or without Cause.
Exhibit 10.6(A)
January 1, 1995
Mr. Donald H. DeMeuse
Fort Howard Corporation
1919 South Broadway
Green Bay, WI 54304
Dear Mr. DeMeuse:
Reference is made to that certain Letter Agreement dated October 15, 1993 (the
"Letter Agreement") between Donald H. DeMeuse ("you" or the "Executive") and
Fort Howard Corporation, a Delaware corporation (the "Company").
1. Amendments
----------
(a) Section 1 of the Letter Agreement is hereby amended in full to
read as follows:
"This Agreement shall commence as of October 15, 1993 and shall
continue in effect until December 31, 1997; provided, however, that
-------- -------
the term of this Agreement shall automatically be extended without
further action by either party for additional one year periods unless,
not later than six months prior to the end of the then effective term,
either the Company or the Executive shall have given written notice
that such party does not intend to extend this Agreement. The
duration of the initial term and any subsequent extension is
hereinafter referred to as the "Term."
(b) The proviso in the first sentence of Section 3(i) is hereby
amended in full to read as follows:
"; provided, however, that your base salary at no time be less than
-------- -------
your base salary as of January 1, 1995."
(c) Except as amended hereby, the Letter Agreement remains in full
force and effect and is hereby ratified in all respects.
2. Governing Law. This Amendment shall be governed by the laws of the State
-------------
of New York.
<PAGE>
Mr. Donald H. DeMeuse
Page 2
January 1, 1995
If this Amendment sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this Amendment which will
then constitute our agreement on this subject.
Sincerely,
FORT HOWARD CORPORATION
By: /s/ James W. Nellen II
----------------------
Name: James W. Nellen II
Title: Vice President
Agreed to this 22nd day
----
of December, 1994.
-------- -
/s/ Donald H. DeMeuse
- ---------------------
Donald H. DeMeuse
<PAGE>
January 1, 1995
Mr. Michael T. Riordan
Fort Howard Corporation
1919 South Broadway
Green Bay, WI 54304
Dear Mr. Riordan:
Reference is made to that certain Letter Agreement dated October 15, 1993 (the
"Letter Agreement") between Michael T. Riordan ("you" or the "Executive") and
Fort Howard Corporation, a Delaware corporation (the "Company").
1. Amendments
----------
(a) Section 1 of the Letter Agreement is hereby amended in full to
read as follows:
"This Agreement shall commence as of October 15, 1993 and shall
continue in effect until December 31, 1997; provided, however, that
-------- -------
the term of this Agreement shall automatically be extended without
further action by either party for additional one year periods unless,
not later than six months prior to the end of the then effective term,
either the Company or the Executive shall have given written notice
that such party does not intend to extend this Agreement. The
duration of the initial term and any subsequent extension is
hereinafter referred to as the "Term."
(b) The proviso in the first sentence of Section 3(i) is hereby
amended in full to read as follows:
"; provided, however, that your base salary at no time be less than
-------- -------
your base salary as of January 1, 1995."
(c) Except as amended hereby, the Letter Agreement remains in full
force and effect and is hereby ratified in all respects.
2. Governing Law. This Amendment shall be governed by the laws of the State
-------------
of New York.
<PAGE>
Mr. Michael T. Riordan
Page 2
January 1, 1995
If this Amendment sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this Amendment which will
then constitute our agreement on this subject.
Sincerely,
FORT HOWARD CORPORATION
By: /s/ Donald H. DeMeuse
--------------------------
Name: Donald H. DeMeuse
Title: Chief Executive Officer
Agreed to this 30th day
----
of December, 1994.
-------- -
/s/ Michael T. Riordan
- -------------------------
Michael T. Riordan
<PAGE>
January 1, 1995
Ms. Kathleen J. Hempel
Fort Howard Corporation
1919 South Broadway
Green Bay, WI 54304
Dear Ms. Hempel:
Reference is made to that certain Letter Agreement dated October 15, 1993 (the
"Letter Agreement") between Kathleen J. Hempel ("you" or the "Executive") and
Fort Howard Corporation, a Delaware corporation (the "Company").
1. Amendments
----------
(a) Section 1 of the Letter Agreement is hereby amended in full to
read as follows:
"This Agreement shall commence as of October 15, 1993 and shall
continue in effect until December 31, 1997; provided, however, that
-------- -------
the term of this Agreement shall automatically be extended without
further action by either party for additional one year periods unless,
not later than six months prior to the end of the then effective term,
either the Company or the Executive shall have given written notice
that such party does not intend to extend this Agreement. The
duration of the initial term and any subsequent extension is
hereinafter referred to as the "Term."
(b) The proviso in the first sentence of Section 3(i) is hereby
amended in full to read as follows:
"; provided, however, that your base salary at no time be less than
-------- -------
your base salary as of January 1, 1995."
(c) Except as amended hereby, the Letter Agreement remains in full
force and effect and is hereby ratified in all respects.
2. Governing Law. This Amendment shall be governed by the laws of the State
-------------
of New York.
<PAGE>
Ms. Kathleen J. Hempel
Page 2
January 1, 1995
If this Amendment sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this Amendment which will
then constitute our agreement on this subject.
Sincerely,
FORT HOWARD CORPORATION
By: /s/ Donald H. DeMeuse
--------------------------
Name: Donald H. DeMeuse
Title: Chairman and
Chief Executive Officer
Agreed to this 29th day
----
of December, 1994.
-------- -
/s/ Kathleen J. Hempel
- -------------------------
Kathleen J. Hempel
Exhibit 10.7(F)
Fort Howard Corporation
1919 South Broadway
Green Bay, Wisconsin 54304
January __, 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 ______ __, 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 Amended
----------------------
and Restated Stockholders Agreement dated as of _____
__, 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
<PAGE>
3
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
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 date of
the final prospectus relating to the Registration
Statement filed with the Commission on November 23,
1994 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") except by will or
----
the laws of descent and distribution. 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 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
inserting the words "of Vested Options" before the word
"pursuant" in the third line thereof and inserting the word
"or" after the parenthetical in the fourth line thereof.
The second sentence of Section 7.4 is amended by inserting
"Vested Options or" before the words "Common Stock" in
clause (i) thereof.
10. The first sentence of Section 7.5 is amended by
deleting the words "Common Stock and".
<PAGE>
4
11. The first sentence of the paragraph following
Section 7.5(c) is amended by deleting the words "any shares
of Common Stock" and by substituting "Vested Options"
therefor.
12. 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.
13. 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."
14. 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)
January __, 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 _____ __, 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 Amended and
----------------------
Restated Stockholders Agreement dated as of _____ __,
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 (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 date of the final prospectus
relating to 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") except by will or
the laws of descent and distribution. 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 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
inserting the words "of Vested Options" before the word
"pursuant" in the third line thereof and inserting the word
"or" after the parenthetical in the fourth line thereof.
The second sentence of Section 5.5 is amended by inserting
"Vested Options or" before the words "Common Stock" in
clause (i) thereof.
11. The first sentence of Section 5.6 is amended by
deleting the words "Common Stock and".
12. The first sentence of the paragraph following
Section 5.6(c) is amended by deleting the words "any shares
of Common Stock" and by substituting "Vested Options"
therefor.
13. 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.
<PAGE>
4
14. 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."
15. 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 10.13(A)
January 1, 1995
Mr. John F. Rowley
Fort Howard Corporation
1919 South Broadway
Green Bay, WI 54304
Dear Mr. Rowley:
Reference is made to that certain Letter Agreement dated December 10, 1993 (the
"Letter Agreement") between John F. Rowley ("you" or the "Executive") and
Fort Howard Corporation, a Delaware corporation (the "Company").
1. Amendments
----------
(a) Section 1 of the Letter Agreement is hereby amended in full to
read as follows:
"This Agreement shall commence as of December 10, 1993 and shall
continue in effect until December 31, 1997; provided, however, that
-------- -------
the term of this Agreement shall automatically be extended without
further action by either party for additional one year periods unless,
not later than six months prior to the end of the then effective term,
either the Company or the Executive shall have given written notice
that such party does not intend to extend this Agreement. The
duration of the initial term and any subsequent extension is
hereinafter referred to as the "Term."
(b) The proviso in the first sentence of Section 3(i) is hereby
amended in full to read as follows:
"; provided, however, that your base salary at no time be less than
-------- -------
your base salary as of January 1, 1995."
(c) Except as amended hereby, the Letter Agreement remains in full
force and effect and is hereby ratified in all respects.
2. Governing Law. This Amendment shall be governed by the laws of the State
-------------
of New York.
<PAGE>
Mr. John F. Rowley
Page 2
January 1, 1995
If this Amendment sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this Amendment which will
then constitute our agreement on this subject.
Sincerely,
FORT HOWARD CORPORATION
By: /s/ Donald H. DeMeuse
-------------------------------
Name: Donald H. DeMeuse
Title: Chairman and
Chief Executive Officer
Agreed to this 3rd day
---
of January, 1995.
------- -
/s/ John F. Rowley
- --------------------
John F. Rowley
<PAGE>
January 1, 1995
Mr. Andrew W. Donnelly
Fort Howard Corporation
1919 South Broadway
Green Bay, WI 54304
Dear Mr. Donnelly:
Reference is made to that certain Letter Agreement dated December 10, 1993 (the
"Letter Agreement") between Andrew W. Donnelly ("you" or the "Executive") and
Fort Howard Corporation, a Delaware corporation (the "Company").
1. Amendments
----------
(a) Section 1 of the Letter Agreement is hereby amended in full to
read as follows:
"This Agreement shall commence as of December 10, 1993 and shall
continue in effect until December 31, 1997; provided, however, that
-------- -------
the term of this Agreement shall automatically be extended without
further action by either party for additional one year periods unless,
not later than six months prior to the end of the then effective term,
either the Company or the Executive shall have given written notice
that such party does not intend to extend this Agreement. The
duration of the initial term and any subsequent extension is
hereinafter referred to as the "Term."
(b) The proviso in the first sentence of Section 3(i) is hereby
amended in full to read as follows:
"; provided, however, that your base salary at no time be less than
-------- -------
your base salary as of January 1, 1995."
(c) Except as amended hereby, the Letter Agreement remains in full
force and effect and is hereby ratified in all respects.
2. Governing Law. This Amendment shall be governed by the laws of the State
-------------
of New York.
<PAGE>
Mr. Andrew W. Donnelly
Page 2
January 1, 1995
If this Amendment sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this Amendment which will
then constitute our agreement on this subject.
Sincerely,
FORT HOWARD CORPORATION
By: /s/ Donald H. DeMeuse
-------------------------------
Name: Donald H. DeMeuse
Title: Chairman and
Chief Executive Officer
Agreed to this 4th day
---
of January, 1995.
------- -
/s/ Andrew W. Donnelly
- -------------------------
Andrew W. Donnelly
Exhibit 10.14
FORT HOWARD CORPORATION
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose. The purpose of Fort Howard Corporation Deferred
-------
Compensation Plan for Non-Employee Directors (the "Plan") is to
provide the Company's Non-Employee Directors (as defined below)
an opportunity to defer payment of all or part of their Eligible
Compensation (as defined below) in accordance with the terms and
conditions set forth herein.
2. Definitions.
-----------
(a) "Affiliate" shall have the meaning ascribed to
such term in Rule 12b-2 promulgated under the Exchange Act.
(b) "Annual Fees" means the cash portion of (i) any
annual fee payable to a Non-Employee Director for service on the
Board, (ii) any other fee determined on an annual basis and
payable for service on, or for acting as chairperson of, any
committee of the Board and (iii) any similar annual fee payable
in respect of service on the board of directors of any Subsidiary
or any committee of any such board of directors; provided that
--------
the Annual Fee shall not include fees for attendance at meetings
of the Board, any committee thereof or any board of directors of
any Subsidiary or any committee thereof.
(c) "Beneficiary" or "Beneficiaries" means a person or
other entity designated by a Participant on a Beneficiary
Designation Form to receive the payment of the Deferred Benefit
in the event of the Participant's death.
(d) "Beneficiary Designation Form" means the form
approved by the Board to be used by Participants to name their
respective Beneficiaries, as attached hereto as Exhibit B.
(e) "Board" means the Board of Directors of the
Company.
(f) "Committee" means the committee of the Board
described in Section 3.
(g) "Credit Date" has the meaning specified in Section
6(a)(ii).
(h) "Deferral Election" means the election of a
Participant, made in accordance with Section 5, to defer all or a
portion of his Eligible Compensation for a Deferral Year.
<PAGE>
2
(i) "Deferral Election Form" means the form approved
by the Board pursuant to which a Participant makes a Deferral
Election and Distribution Election, as attached as Exhibit A.
(j) "Deferral Year" means, in relation to a particular
Non-Employee Director, any calendar year, starting with calendar
year 1995, in which the Non-Employee Director is eligible to
participate in the Plan; provided, however, if an individual
-------- -------
becomes a Non-Employee Director after the commencement of a
Deferral Year, the Deferral Year for such individual shall be the
remainder of such Deferral Year.
(k) "Deferred Benefit" means the amount in any
Deferral Year in respect of which a Participant has made a
Deferral Election and that will be paid on a deferred basis under
the Plan to the Participant.
(l) "Deferred Compensation Account" means the
bookkeeping record established for each Participant. A Deferred
Compensation Account is established only for purposes of
measuring a Deferred Benefit and not to segregate assets or to
identify assets that may be used to pay a Deferred Benefit.
(m) "Director Fees" means the aggregate of a
Participant's Annual Fees and Meeting Fees.
(n) "Distribution Election" means the election of a
Participant, made in accordance with Section 5, to establish the
duration of deferral of a Deferred Benefit.
(o) "Election Date" means December 31 of the year
preceding the beginning of the relevant Deferral Year, provided,
--------
however, that if an individual becomes a Non-Employee Director
-------
for the first time during a Deferral Year, that Non-Employee
Director's Election Date for such Deferral Year shall be the date
thirty (30) days from the date he becomes a Non-Employee
Director.
(p) "Eligible Compensation" means a Participant's
Director Fees for the relevant Deferral Year.
(q) "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
(r) "Meeting Fees" means (i) any meeting fee payable
in respect of attendance at or participation in meetings of the
Board or any committee of the Board or any meeting of the
stockholders of the Company and (ii) any similar meeting fee
payable in respect of service on the board of directors of any
Subsidiary or any committee of any such
<PAGE>
3
board of directors.
(s) "Non-Employee Director" means a duly-elected
member of the Board who is not an employee of the Company or any
Subsidiary.
(t) "Participant" means a Non-Employee Director who
participates in the Plan pursuant to Section 4.
(u) "Subsidiary" means any corporation 50 percent or
more of the voting stock of which is owned directly or indirectly
by the Company.
3. Administration.
--------------
(a) The Plan shall be administered by the Committee,
which shall be comprised of one or more members of the Board who
will be appointed from time to time by the Board. Each member of
the Committee shall be a director of the Company who is not a
Non-Employee Director. Members of the Committee shall serve at
the pleasure of the Board and the Board may from time to time
remove members from, or add members to, the Committee. All
determinations of the Committee at a meeting shall be made by a
majority of the members in attendance. Any decision or
determination reduced to writing and signed by all the members
shall be fully as effective as if it had been made by a majority
vote at a meeting duly called and held. No member of the
Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect
to the Plan, and all members of the Committee shall be
indemnified by the Company to the fullest extent permitted by the
by-laws of the Company or applicable Delaware law with respect to
any such action, determination or interpretation.
(b) The Committee shall administer the Plan, make
(subject to Section 9) any amendment or modification to the Plan
and interpret, construe and implement the provisions of the Plan.
The Committee shall have the authority to adopt rules and
regulations for administering the Plan which shall not be
inconsistent with the terms of the Plan. Decisions of the
Committee shall be binding on the Company, on all Non-Employee
Directors and all other persons having any interest therein.
4. Eligibility.
-----------
(a) Non-Employee Directors. Any Non-Employee Director
----------------------
may participate in the Plan.
(b) Becoming a Participant. A Non-Employee Director
----------------------
becomes a Participant for any Deferral Year by filing a Deferral
Election Form pursuant to Section 5 of the Plan.
<PAGE>
4
5. Deferral and Distribution Elections.
-----------------------------------
(a) General Provisions. A Participant may elect to
------------------
defer all or a specified percentage (in multiples of 10 percent)
of his Eligible Compensation for a Deferral Year, in the manner
provided in this Section 5. A Participant's Deferred Benefit is
at all times nonforfeitable.
(b) Deferral Election Forms. Before the Election Date
-----------------------
applicable to a Deferral Year, each Non-Employee Director will be
provided with a Deferral Election Form and a Beneficiary
Designation Form. In order for a Non-Employee Director to
participate in the Plan for a given Deferral Year, a Deferral
Election Form, completed and signed by him, must be delivered to
the Secretary of the Company on or prior to the applicable
Election Date. A Non-Employee Director electing to participate
in the Plan for a given Deferral Year shall indicate on his
Deferral Election Form:
(i) the percentage of Eligible Compensation for the
applicable Deferral Year to be deferred (in multiples of 10
percent); and
(ii) if appropriate, the Participant's election either to
have distribution of his Deferred Benefit for that Deferral
Year commence following termination of service as a Non-
Employee Director or to have such distribution commence as
of a date specified by him on such Form, provided, however,
-------- -------
that any such election shall be subject to the terms and
conditions of Section 6(d).
(c) Effect of No Deferral Election. A Non-Employee
------------------------------
Director who does not submit a completed and signed Deferral
Election Form to the Secretary of the Company before the relevant
Election Date is not a Participant for the Deferral Year and may
not defer his Eligible Compensation for the Deferral Year.
(d) Revocation of Deferral and Distribution Elections.
-------------------------------------------------
A Participant may revoke a Deferral Election or change a
Distribution Election applicable to a Deferral Year. To be
effective, the revocation/change must be in writing and signed by
the Participant, must express the Participant's intention to
revoke his Deferral Election/change his Distribution Election
applicable to that Deferral Year, and must be delivered to the
Secretary of the Company before the close of business on the
Election Date applicable to such Deferral Year. Any purported
revocation that does not comply with this Section 5(d) will not
be given effect. A Participant may not revoke a Deferral
Election or change a Distribution Election for the applicable
Deferral Year after the relevant Election Date.
<PAGE>
5
6. Deferred Benefits and Distributions.
-----------------------------------
(a) Deferred Compensation Accounts.
------------------------------
(i) Establishment of Accounts. A Participant's deferrals
-------------------------
will be credited to a Deferred Compensation Account set up
by the Company for that Participant. Each Deferred
Compensation Account will be credited with earnings as
provided in Section 6(b).
(ii) Credits to Accounts. As of (x) the last business day
--------------------
of each calendar quarter (the "Annual Fees Credit Date"), a
Non-Employee Director's Deferred Compensation Account will
be credited with 25% of Annual Fees deferred for the
Deferral Year in which such quarter occurs, and (y) as of
the last business day of each calendar quarter (the "Meeting
Fees Credit Date") a Non-Employee Director's Deferred
Compensation Account will be credited with 100% of deferred
Meeting Fees earned during such quarter (each of the Annual
Fees Credit Date and the Meeting Fees Credit Date being
hereinafter referred to as the "Applicable Credit Date").
(iii) Account Statements. The Company will furnish each
------------------
Participant with a statement setting forth the value of such
Participant's Deferred Compensation Account as of the end of
each calendar year and all credits to and payments from the
Deferred Compensation Account during such year. Such
statement will be furnished no later than 60 days after the
end of each calendar year.
(b) Earnings. Amounts credited to a Participant's
--------
Deferred Compensation Account will be credited with interest
equivalents as of the first business day of each calendar quarter
based upon the average daily balance in such Deferred
Compensation Account during the preceding quarter. Such interest
equivalents will be calculated using the 90-day United States
Treasury Bill rate, as reported by the Federal Reserve Bank and
published in The Wall Street Journal or a comparable publication,
as of the last business day of such preceding calendar quarter.
Interest equivalents shall be deemed to accrue on a day-to-day
basis.
(c) Manner of Payment of Deferred Benefit. All
-------------------------------------
payments of Deferred Benefits under the Plan will be in cash.
The Company shall pay each Deferred Benefit in a single lump sum
payment.
(d) Payment of Deferred Benefit. (i) Subject to
---------------------------
Section 7, each of a Participant's Deferred Benefits shall become
payable to the Participant after the date (the "Payment Date")
which is the earliest to occur of:
<PAGE>
6
(A) the date of termination of the Participant's
service as a Non-Employee Director;
(B) the date specified in the most recent Deferral
Election Form executed by the Participant in which a
Distribution Election was made; or
(C) the date of the Participant's death.
(ii) Deferred Benefits shall be paid as promptly as
practicable (but in no event more than 60 days) following the
Payment Date.
(iii) The amount of accrued interest payable shall be
calculated as of the Payment Date.
(iv) In the event of a Participant's death, the
Participant's entire Deferred Benefits will be distributed in a
lump sum to the Participant's Beneficiary or Beneficiaries (or,
in the absence of any Beneficiary, to the Participant's estate).
7. Financial Emergency Distributions. At its sole discretion
---------------------------------
and at the request of a Participant, the Board may accelerate and
pay all or part of a Participant's Deferred Benefits.
Accelerated distributions may be allowed only in the event of a
financial emergency beyond the Participant's control and only if
disallowance of a distribution would create a severe hardship for
the Participant. An accelerated distribution must be limited to
the amount determined by the Board as necessary to satisfy the
financial emergency. Any distribution under this Section shall
be in lieu of that portion of such Deferred Benefits that would
have been paid otherwise and shall reduce the Participant's
Deferred Compensation Account balance by the amount of the
distribution.
8. Designation of Beneficiary.
--------------------------
(a) Beneficiary Designations. Each Participant may
------------------------
designate a Beneficiary to receive any Deferred Benefit due under
the Plan upon the Participant's death by executing a Beneficiary
Designation Form. A Beneficiary designation is not binding on
the Company until the Secretary of the Company receives the
Beneficiary Designation Form. If no designation is made or no
designated Beneficiary is alive (or in the case of an entity
designated as a Beneficiary, in existence) at the time of the
Participant's death, payments due under the Plan will be made to
the Participant's estate.
(b) Change of Beneficiary Designation. A Participant
---------------------------------
may change an earlier Beneficiary designation by executing a
later Beneficiary Designation Form. The execution of a
Beneficiary Designation Form revokes and rescinds any prior
Beneficiary Designation
<PAGE>
7
Form.
9. Amendments. The Plan may be altered, amended, suspended or
----------
terminated at any time by the Board in its sole discretion.
10. Employer's Obligation. The Plan is unfunded. A
---------------------
Deferred Benefit represents at all times an unfunded and
unsecured contractual obligation of the Company. Each
Participant or Beneficiary will be an unsecured creditor of the
Company. Amounts payable under the Plan will be satisfied solely
out of the general assets of the Company subject to the claims of
the Company's creditors. No Participant, Beneficiary or any
other person shall have any interest in any fund or in any
specific asset of the Company by reason of any amount credited to
him hereunder, nor shall any Participant, Beneficiary or any
other person have any right to receive any distribution under the
Plan except as, and to the extent, expressly provided in the
Plan. The Company will not segregate any funds or assets for
Deferred Benefits or issue any notes or security for the payment
of any Deferred Benefits. Any reserve or other asset that the
Company may establish or acquire to assure itself of the funds to
provide benefits under the Plan shall not serve in any way as
security to any Participant, Beneficiary or other person for the
performance of the Company under the Plan.
11. No Control by Participant. A Participant shall have no
-------------------------
control over his Deferred Benefit except for designating the date
of initial distribution of benefits on his Deferral Election Form
(which designation shall be subject to the terms and conditions
of the Plan, including without limitation Section 6) and
designating his Beneficiary according to his Beneficiary
Designation Form.
12. Restrictions on Transfer. The Company shall pay all amounts
------------------------
payable under the Plan only to the Participant or Beneficiary
designated under the Plan to receive such amounts. Neither a
Participant nor his Beneficiary shall have any right to
anticipate, alienate, sell, transfer, assign, pledge, encumber or
change any benefits to which he may become entitled under the
Plan, and any attempt to do so shall be void. A Deferred Benefit
shall not be subject to attachment, execution by levy,
garnishment, or other legal or equitable process for a
Participant's or Beneficiary's debts or other obligations.
13. Election and Revocation Notices. Notices of election or
-------------------------------
revocation of election under the Plan must be in writing. A
notice of election or revocation of election will be deemed
delivered to the Secretary of the Company on the date it is
(i) delivered personally to the Secretary of the Company at 1919
South Broadway, Green Bay, Wisconsin, 54304; Attn: Secretary (or
at such other address as the Company may from time to time
designate as the address for the receipt of notices of election
or revocation of election under the Plan), (ii) mailed by
registered mail or certified mail to the Secretary of the Company
at such address or (iii) sent by facsimile transmission to the
Secretary of the Company at (414) 498
<PAGE>
8
3225 (or such other facsimile transmission number as the Company
may designate from time to time for the receipt of notices of
election or revocation of election under the Plan), we provided
--------
that an original signed election or revocation of election is
received by the Secretary of the Company no later than 10
business days after such transmission.
14. Waivers. The waiver of a breach of any provision in the
-------
Plan shall not operate as and may not be construed as a waiver of
any later breach.
15. Governing Law. The Plan shall be construed in accordance
-------------
with and governed by the laws of the State of Wisconsin.
16. Effective Date. The Plan shall be effective as of January
--------------
15, 1995 and Deferral Elections may be made beginning with
Eligible Compensation earned during the year beginning January
1, 1995.
17. Construction. The headings in the Plan have been inserted
------------
for convenience of reference only and are to be ignored in any
construction of the Plan's provisions. If a provision of the
Plan is not valid or enforceable, that fact shall in no way
affect the validity or enforceability of any other provision.
Use of one gender includes the other, and the singular and plural
include each other. The provisions of the Plan are binding on
the Company and its successors or assigns, and on the
Participants, their Beneficiaries, heirs, and personal
representatives.
18. No Right to Reelection. Nothing in the Plan shall be deemed
----------------------
to create any obligation on the part of the Board to nominate any
of its members for reelection by the Company's stockholders, nor
confer upon any Non-Employee Director the right to remain a
member of the Board for any period of time, or at any particular
rate of compensation.
<PAGE>
EXHIBIT A
FORT HOWARD CORPORATION
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
--------------------------
Deferral Election Form
----------------------
TO: Secretary,
Fort Howard Corporation
I acknowledge having received a copy of the Fort Howard
Corporation Deferred Compensation Plan for Non-Employee Directors
(the "Plan"; capitalized terms used herein have the meanings
specified in the Plan), as adopted by the Board effective January
1, 1995, and I am familiar with the terms of the Plan. I elect
to become a Participant for the Deferral Year specified below,
according to the Plan's terms and according to the elections
completed below.
A: Directors Fees Deferral
-----------------------
(check only one alternative)
1. Please defer % (in ten percent increments) of
--- ---
my Director Fees for the Deferral Year
commencing 19 as a Deferred Benefit according
--
to the terms of the Plan.
2. I do not wish to defer my Director Fees.
---
B: Commencement of Benefit Payments:
--------------------------------
I elect to have the Director Fees (and earnings thereon)
deferred pursuant to this Deferral Election Form distributed to
me as follows (check only one alternative):
1. As soon as practicable (but in no event more
---
than 60 days) following the termination of my
relationship with Fort Howard Corporation as a
Non-Employee Director;
OR
2. As soon as practicable (but in no event more
---
than 60 days) following , even
------------------
if my relationship with Fort Howard Corporation
as
<PAGE>
EXHIBIT A
a Non-Employee Director has not terminated.
I understand that, under the terms of the Plan,
distribution of amounts deferred under the Plan (and earnings
thereon) will occur no later than 60 days following termination
of my relationship with Fort Howard Corporation as a Non-Employee
Director, regardless of any date I may have indicated in item 2
above.
* * *
I understand and acknowledge that the elections made
----------------------------------------------------
pursuant to this Deferral Election Form, once made, may only be
---------------------------------------------------------------
revoked pursuant to the terms of the Plan.
------------------------------------------
---------------
Date
---------------------------
------------------
Signature
---------------------------
-----------------
Name (Please Print)
---------------------------
----------------
---------------------------
----------------
Mailing Address
<PAGE>
EXHIBIT B
FORT HOWARD CORPORATION
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
--------------------------
Beneficiary Designation Form
----------------------------
To: Secretary,
Fort Howard Corporation
I designate , who may be
---------------------------
contacted at the following address
--------------------------
, as my primary Beneficiary(ies) of any
------------------
benefits that become payable under the Fort Howard Corporation
Deferred Compensation Plan for Non-Employee Directors (the
"Plan") as a result of my death.
If a designated Beneficiary survives me but dies (or if
a trust, terminates) before all benefits have been paid to the
Beneficiary, I direct the remainder of the payments to be made as
the Beneficiary designates or, if the Beneficiary fails to
properly execute a Beneficiary designation, to the Beneficiary's
estate, or, if a trust, to the trustee to be distributed in
accordance with the terms of the trust.
This designation revokes and rescinds any prior
Beneficiary designation made by me.
If a Beneficiary is not named, or if there is no
Beneficiary otherwise in existence at the time of my death, I
understand that payments will be made according to Section 7(a)
of the Plan.
I understand that this Beneficiary designation applies
until revoked by my written request.
<PAGE>
I also understand that, in executing this Beneficiary
designation, I agree to be bound by the terms and conditions of
the Plan and agree that such terms and conditions are binding
upon my Beneficiary(ies), distributee(s), and personal
representative(s).
---------------------------
Signature
-------- -------------------
Date Name (Please Print)
---------------------------
---------------------------
Mailing Address
<PAGE>
FORT HOWARD CORPORATION
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
Effective January 15, 1995
Exhibit 10.15
FORT HOWARD CORPORATION
1995 STOCK INCENTIVE PLAN
1. Purpose. The purpose of the Fort Howard Corporation 1995 Stock
-------
Incentive Plan (the "Plan") is to provide an additional incentive to officers
and other eligible key employees of Fort Howard Corporation, a Delaware
corporation (the "Company") and its Subsidiaries (as hereinafter defined), upon
whom responsibilities for the successful operation, administration and
management of the Company rest and whose present or potential contributions are
important to the continued success of the Company, and to enable the Company to
attract and retain in its employ highly qualified persons for the successful
conduct of its business. It is intended that this purpose will be effected
through the granting of Stock Options, Stock Appreciation Rights, Restricted
Stock Awards, Performance Share Awards, Stock Equivalent Awards and Dividend
Equivalents, as provided herein (as each term is hereinafter defined).
2. Definitions. For purposes of the Plan, the following terms shall
-----------
be defined as follows:
"Affiliate" and "Associate" have the respective meanings ascribed
to such terms in Rule 12b-2 promulgated under the Exchange Act.
"Award" means an award to an Eligible Employee in the form of
Stock Options, Stock Appreciation Rights, Restricted Stock Awards,
Performance Share Awards, Stock Equivalent Awards or Dividend
Equivalents.
"Award Agreement" means an agreement granting an Award and
containing such terms and conditions as the Committee deems
appropriate and that are not inconsistent with the terms of the Plan.
<PAGE>
2
"Beneficial Owner" has the meaning ascribed to such term in Rule
13d-3 promulgated under the Exchange Act.
"Board" means the Board of Directors of the Company.
A "Change in Control" of the Company shall be deemed to 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 plan, (y) Morgan
Stanley Group Inc., a Delaware corporation, The Morgan Stanley
Leveraged Equity Fund II, L.P., a Delaware limited partnership ("MSLEF
II"), Fort Howard Equity Investors, L.P., a Delaware limited
partnership ("FH I"), Fort Howard Equity Investors II, L.P., a
Delaware limited partnership ("FH II"), or any of their respective
Affiliates or (z) any general or limited partner of MSLEF II, FH I or
FH II), alone or together with its Affiliates and Associates
(collectively, an "Acquiring Person"), shall become the Beneficial
Owner of twenty percent (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 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 and any new director
(other than a director who is a representative or nominee of an
Acquiring Person) whose election by the Board or nomination for
election by the Company's shareholders was approved
<PAGE>
3
by a vote of a least a majority of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved
(collectively, the "Continuing Directors"), cease for any reason to
constitute a majority of the Board.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Voting Power" means the combined voting power of the
Company's then outstanding voting securities.
"Committee" means the Committee appointed by the Board pursuant
to Section 3(a) hereof to administer the Plan.
"Common Stock" means the Common Stock, par value $.01 per share,
of the Company.
"Disability" means, with respect to any Participant, that, as a
result of incapacity due to physical or mental illness, such
Participant is, or is reasonably likely to become, unable to perform
his or her duties for more than six (6) consecutive months or six (6)
months in the aggregate during any twelve (12) month period.
"Dividend Equivalent" means an Award to receive cash payments
equivalent to cash dividends granted to an Eligible Employee pursuant
to Section 12 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
4
"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 ("NASDAQ") for such date or such national securities
exchange as may be designated by the Board or, if Common Stock was not
traded on such date, on the next preceding day on which Common Stock
was traded.
"Incentive Stock Option" means a Stock Option which is an
"incentive stock option" within the meaning of Section 422 of the Code
and designated by the Committee as an Incentive Stock Option in an
Award Agreement.
"Nonqualified Stock Option" means a Stock Option which is not an
Incentive Stock Option.
"Parent" means any corporation which is a "parent corporation"
within the meaning of Section 424(e) of the Code with respect to the
Company.
"Participant" means an Eligible Employee to whom an Award has
been granted under the Plan.
"Performance Share Award" means a conditional Award of shares of
Common Stock granted to an Eligible Employee pursuant to Section 10
hereof.
"Person" means any person, entity or "group" within the meaning
of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.
"Restricted Stock Award" means an Award of shares of Common Stock
granted to an Eligible Employee pursuant to Section 9 hereof.
<PAGE>
5
"Retirement" means retirement from active employment with the
Company and its Subsidiaries on or after the attainment of age 55, or
such other retirement date as may be approved by the Committee for
purposes of the Plan and specified in the applicable Award Agreement.
"Stock Appreciation Right" means an Award to receive all or some
portion of the appreciation on shares of Common Stock granted to an
Eligible Employee pursuant to Section 8 hereof.
"Stock Equivalent Award" means an Award of units relating to
shares of Common Stock granted to an Eligible Employee pursuant to
Section 11 hereof.
"Stock Option" means an Award to purchase shares of Common Stock
granted to an Eligible Employee pursuant to Section 7 hereof.
"Subsidiary" means any corporation which is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with
respect to the Company.
"Ten Percent Shareholder" means an Eligible Employee, who, at the
time an Incentive Stock Option is to be granted to him or her, owns
(within the meaning of Section 422(b)(6) of the Code) stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company, or of a Parent or a Subsidiary.
"Window Period" means the ten (10) business day period in each
fiscal quarter of the Company commencing on the third business day
following the
<PAGE>
6
release for publication of the Company's quarterly or annual sales and
earnings for the next preceding fiscal quarter or year, as the case
may be, and ending on the twelfth business day following such date of
release.
3. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the Committee, which shall be
comprised of no fewer than two members of the Board who shall be appointed from
time to time by the Board. Each member of the Committee shall be a member of
the Board who is "disinterested" within the meaning of Rule 16b-3 under the
Exchange Act. Members of the Committee shall serve at the pleasure of the Board
and the Board may from time to time remove members from, or add members to, the
Committee. All determinations of the Committee at a meeting shall be made by a
majority of the members in attendance. Any decision or determination reduced to
writing and signed by all the members shall be fully as effective as if it had
been made by a majority vote at a meeting duly called and held. No member of
the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan, and all members of
the Committee shall be indemnified by the Company to the fullest extent
permitted by the certificate of incorporation or by-laws of the Company or
applicable Delaware law with respect to any such action, determination or
interpretation.
(b) Within the limitations described herein, the Committee shall
administer the Plan, select the Eligible Employees to whom Awards will be
granted, determine the number and type of Awards to be granted to each such
Eligible Employee, determine the terms and conditions applicable to each Award
(which need not be identical), make any amendment or modification to any Award
Agreement consistent with the terms of the Plan, and interpret, construe and
implement the provisions of the Plan. The Committee shall have the authority to
adopt rules and regulations for administering the Plan which shall not be
<PAGE>
7
inconsistent with the terms of the Plan. Decisions of the Committee shall be
binding on the Company, on all Eligible Employees and Participants and all other
persons having any interest in the Plan. The Company shall effect the granting
of Awards under the Plan in accordance with the determinations made by the
Committee, which shall be evidenced by an Award Agreement.
(c) The Committee shall have the authority to adopt such rules and
regulations and to add such terms, conditions and sub-schemes to the Plan as it
deems necessary or desirable to permit or facilitate the granting of Awards
under the Plan to, or obtain favorable tax treatment for, Eligible Employees
resident for tax purposes in jurisdictions outside the United States, including,
without limitation, such rules, regulations, terms, conditions or sub-schemes as
may be necessary or desirable to obtain the approval of the Inland Revenue of
the United Kingdom in accordance with the United Kingdom Income and Corporation
Taxes Act 1988 for the grant of Awards to Eligible Employees who are residents
of the United Kingdom for tax purposes; provided, however, that any such rule,
-------- -------
regulation, term, condition or sub-scheme shall not be inconsistent with the
terms of the Plan.
4. Duration of Plan. The Plan shall remain in effect until
----------------
terminated by the Board of Directors and thereafter until all Awards granted
under the Plan are satisfied by the issuance of shares of Common Stock or the
payment of cash or are terminated under the terms of the Plan or under the Award
Agreement entered into in connection with the grant thereof. Notwithstanding
the foregoing, no Awards may be granted under the Plan after the tenth
anniversary of the Effective Date (as hereinafter defined).
5. Shares of Stock Subject to the Plan. Subject to adjustment as
-----------------------------------
provided in Section 15(b) hereof, the number of shares of Common Stock that may
be issued under the Plan pursuant to Awards shall not exceed, in the aggregate,
3,359,662 (after taking into account the 6.5-for-one stock split that is
anticipated to occur and described in the
<PAGE>
8
Registration Statement as filed with the Securities and Exchange Commission on
November 23, 1994). Such shares may consist in whole or in part, as the Board
shall from time to time determine, of authorized but unissued shares or treasury
shares. To the fullest extent permitted under Rule 16b-3 under the Exchange Act
and Section 422 of the Code, any shares subject to an Award which lapses,
expires or is otherwise terminated without the issuance of such shares, may
again be available for purposes of the Plan. The number of Dividend Equivalents
which may be granted under the Plan shall be determined by the Committee in its
discretion; provided, however, that in no event shall such number of Dividend
-------- -------
Equivalents correspond to a greater number of shares than the maximum number of
shares available for issuance under the Plan.
6. Eligible Employees. Awards may be granted by the Committee to
------------------
employees ("Eligible Employees"), whether salaried, commission or hourly, of the
Company or a Subsidiary who are officers or who are employed in an executive,
administrative, operational, sales or professional capacity by the Company or a
Subsidiary or any other key employees of the Company or a Subsidiary with
potential to contribute to the future success of the Company or its
Subsidiaries. Awards may be granted to a director of the Company, provided that
--------
the director is also a salaried, commission or hourly employee of the Company or
a Subsidiary. Awards shall not be affected by any change of duties or positions
so long as the holder continues to be an employee of the Company or of a
Subsidiary.
7. Stock Options. Stock Options granted under the Plan may be in
-------------
the form of Incentive Stock Options or Nonqualified Stock Options. Stock
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
<PAGE>
9
(a) Award Agreement. Stock Options shall be evidenced by an
---------------
Award Agreement in such form and containing such terms and conditions as the
Committee deems appropriate and which are not inconsistent with the terms of the
Plan.
(b) Terms of Stock Options Generally. Subject to the terms of
--------------------------------
the Plan and the applicable Award Agreement, each Stock Option shall
entitle the Participant to whom such Stock Option was granted to
purchase, upon payment of the relevant exercise price, the number of
shares of Common Stock specified in the Award Agreement. A Stock
Option may be granted alone or in addition to other Awards, or in
tandem with a Stock Appreciation Right.
(c) Exercise Price. The exercise price per share of Common
--------------
Stock purchasable under a Stock Option shall be determined by the
Committee at the time of grant and set forth in the Award Agreement;
provided, however, that the exercise price shall not be less than one
-------- -------
hundred percent (100%) of the Fair Market Value of a share of Common
Stock on the date of grant (110% in the case of an Incentive Stock
Option granted to a Ten Percent Shareholder).
(d) Option Term. The term of each Stock Option shall be fixed
-----------
by the Committee and set forth in the Award Agreement; provided,
--------
however, that a Stock Option shall not be exercisable after the
-------
expiration of ten (10) years after the date the Stock Option is
granted (five (5) years in the case of an Incentive Stock Option
granted to a Ten Percent Shareholder).
(e) Exercisability. A Stock Option shall be exercisable at such
--------------
time or times and subject to such terms and conditions as shall be
determined by the Committee; provided, however, that notwithstanding
-------- -------
any other provision of the
<PAGE>
10
Plan, no Stock Option shall be exercisable during the first six (6)
months after the date such Stock Option is granted. The Committee may
provide that Stock Options shall be exercisable in whole or in part
based upon length of service or attainment of specified performance
criteria. The Committee, in its sole discretion, may provide for the
acceleration of vesting of a Stock Option, in whole or in part, based
on such factors or criteria (including specified performance criteria)
as the Committee may determine.
(f) Method of Exercise. A Stock Option may be exercised, in
------------------
whole or in part, by giving written notice of exercise to the Company
specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the exercise price either by cash,
certified or bank check, note or other instrument acceptable to the
Committee. As determined by the Committee in its sole discretion,
payment of the exercise price may also be made in full or in part in
shares of Common Stock with a Fair Market Value (determined as of the
date of exercise of such Stock Option and, where such shares are
withheld (as described below), net of the applicable exercise price)
at least equal to such full or partial payment. Common Stock used to
pay the exercise price may be shares that are already owned by the
Participant, or the Company may withhold shares of Common Stock that
would otherwise have been received by the Participant upon exercise of
the Stock Option. In its discretion, the Committee may also permit a
Participant to exercise an Option through a "cashless exercise"
procedure involving a broker or dealer approved by the Committee,
provided that the Participant 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
Option in the ordinary course of its business, (B) to pay
<PAGE>
11
promptly to the Company the aggregate exercise price (plus the amount
necessary to satisfy any applicable tax liability) and (C) to pay to
the Participant 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 Option to Regulation T of the Exchange
Act. The manner in which the exercise price may be paid may be
subject to certain conditions specified by the Committee, including,
without limitation, conditions intended to avoid the imposition of
liability against the individual under Section 16 of the Exchange Act.
If requested by the Committee, the Participant shall deliver the Award
Agreement evidencing an exercised Stock Option to the Secretary of the
Company who shall endorse thereon a notation of such exercise and
return such Award Agreement to the Optionee. No fractional shares (or
cash in lieu thereof) shall be issued upon exercise of a Stock Option
and the number of shares that may be purchased upon exercise shall be
rounded to the nearest number of whole shares.
(g) Rights as Shareholder. A Participant shall have no rights
---------------------
as a shareholder with respect to any shares of Common Stock issuable
upon exercise of a Stock Option until a certificate or certificates
evidencing the shares of Common Stock shall have been issued to the
Participant and, subject to Sections 15(b) and 15(c), no adjustment
shall be made for dividends or distributions or other rights in
respect of any share for which the record date is prior to the date on
which the Participant shall become the holder of record thereof.
<PAGE>
12
(h) Special Rule for Incentive Stock Options. With respect to
----------------------------------------
Incentive Stock Options granted under the Plan, if the aggregate Fair
Market Value (determined as of the date the Incentive Stock Option is
granted) of the number of shares with respect to which Incentive Stock
Options are exercisable for the first time by a Participant during any
calendar year under all plans of the Company or a Parent or Subsidiary
exceeds One Hundred Thousand Dollars ($100,000) or such other limit as
may be required by the Code, such Incentive Stock Options shall be
treated, to the extent of such excess, as Nonqualified Stock Options.
8. Stock Appreciation Rights. Stock Appreciation Rights granted
-------------------------
under the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem appropriate:
(a) Award Agreement. Stock Appreciation Rights shall be
---------------
evidenced by an Award Agreement in such form and containing such terms
and conditions as the Committee deems appropriate and which are not
inconsistent with the terms of the Plan.
(b) Terms of Stock Appreciation Rights Generally. Subject to
--------------------------------------------
the terms of the Plan and the applicable Award Agreement, each Stock
Appreciation Right shall entitle the Participant to whom such Stock
Appreciation Right was granted to receive, upon exercise thereof, the
amount specified in Section 8(e). A Stock Appreciation Right may be
granted alone or in addition to other Awards, or in tandem with a
Stock Option. If granted in tandem with a Stock Option, a Stock
Appreciation Right shall cover the same
<PAGE>
13
number of shares of Common Stock covered by the Stock Option (or such
lesser number of shares as the Committee may determine).
(c) Exercise Price. The exercise price per share of Common
--------------
Stock subject to a Stock Appreciation Right shall be determined by the
Committee at the time of grant and set forth in the Award Agreement.
(d) Exercise. A Stock Appreciation Right may be exercised by a
--------
Participant in accordance with procedures established by the
Committee, except that in no event shall a Stock Appreciation Right be
exercisable within the first six (6) months after the date such Stock
Appreciation Right is granted, or in the case of a Stock Appreciation
Right granted in tandem with a Stock Option, within the first six (6)
months after the date of grant of the related Stock Option.
Notwithstanding any other provision in the Plan, Stock Appreciation
Rights shall, unless the Committee in its discretion determines
otherwise, be exercisable only during Window Periods. A Stock
Appreciation Right granted in tandem with a Stock Option shall be
exercisable only at such time or times and to the extent the related
Stock Option shall be exercisable, and shall have the same term and
exercise price as the related Stock Option. A Stock Appreciation
Right unrelated to a Stock Option shall contain such terms and
conditions as to exercisability (subject to the first sentence of this
Section 8(d)) and duration as the Committee shall determine, but in no
event shall any such Stock Appreciation Right have a term of greater
than ten (10) years. The Committee, in its sole discretion, may
provide for the acceleration of vesting of a Stock Appreciation Right,
in whole or in part, based on such factors or criteria (including
specified performance criteria) as the Committee may determine. Upon
exercise of a Stock Appreciation Right granted in tandem with a Stock
Option, the related Stock Option shall be cancelled
<PAGE>
14
automatically to the extent of the number of shares covered by such
exercise, and such shares shall no longer be available for grant under
the Plan. If the related Stock Option is exercised as to some or all
of the shares covered by the tandem grant, the related Stock
Appreciation Right shall be cancelled automatically to the extent of
the number of shares covered by the Stock Option exercise. A Stock
Appreciation Right granted in tandem with an Incentive Stock Option
may be exercised only when the Fair Market Value of the Common Stock
subject to the Incentive Stock Option exceeds the exercise price of
such Stock Option.
(e) Amount of Payment. In the event a Participant exercises a
-----------------
Stock Appreciation Right, such Participant shall be entitled to
receive an amount determined by multiplying (a) the difference between
the Fair Market Value of one share of Common Stock on the date of
exercise and the exercise price per share specified for the Stock
Appreciation Right by (b) the number of shares in respect of which the
Stock Appreciation Right shall have been exercised. Notwithstanding
the foregoing, the Committee may limit in any manner the amount
payable with respect to any Stock Appreciation Right by including such
a limit in the Award Agreement at the time the Stock Appreciation
Right is granted.
(f) Form of Payment. Payment upon exercise of a Stock
---------------
Appreciation Right shall be made in cash, in shares of Common Stock,
or some combination thereof, as the Committee shall determine in its
sole discretion.
(g) Rights as Shareholder. A Participant shall have no rights
---------------------
as a shareholder with respect to any Stock Appreciation Right unless
and until a
<PAGE>
15
certificate or certificates evidencing shares of Common Stock are
issued to the Participant as payment upon exercise of such Stock
Appreciation Right, and, subject to Sections 15(b) and (c), no
adjustment shall be made for dividends or distributions or other
rights in respect of any share for which the record date is prior to
the date on which the Participant shall become the holder of record
thereof.
(h) Limited Stock Appreciation Rights. The Committee may grant
---------------------------------
to an Eligible Employee a Stock Appreciation Right (a "Limited Stock
Appreciation Right") pursuant to which the Participant shall have the
right to surrender such Limited Stock Appreciation Right or any
portion thereof to the Company within thirty (30) days following a
Change in Control and to receive from the Company in exchange therefor
a cash payment in an amount equal to (a) the number of shares of
Common Stock under the Limited Stock Appreciation Right or portion
thereof which is being exercised, multiplied by (b) the excess of (i)
the greater of (A) the highest price per share of Common Stock paid in
connection with the Change in Control or (B) the highest Fair Market
Value per share of Common Stock in the 90 day period preceding such
Change in Control, over (ii) the Fair Market Value of a share of
Common Stock on the date the Limited Stock Appreciation Right was
granted as set forth in the Award Agreement. Limited Stock
Appreciation Rights granted under the Plan shall contain such
additional terms and conditions, not inconsistent with the Plan, as
the Committee deems appropriate.
9. Restricted Stock Awards. Restricted Stock Awards granted under
-----------------------
the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall deem appropriate:
<PAGE>
16
(a) Award Agreement. Restricted Stock Awards shall be evidenced
---------------
by an Award Agreement in such form and containing such restrictions,
terms and conditions as the Committee deems appropriate and which are
not inconsistent with the terms of the Plan, including, without
limitation, restrictions on the sale, assignment, transfer or other
disposition of such shares and provisions requiring that a Participant
forfeit such shares upon a termination of employment for specified
reasons within a specified period of time.
(b) Terms of Restricted Stock Awards Generally. Restricted
------------------------------------------
Stock Awards may be granted under the Plan in such form as the
Committee may from time to time approve. Restricted Stock Awards may
be granted for no consideration or such consideration as the Committee
deems appropriate. Restricted Stock Awards may be granted alone or in
addition to other Awards under the Plan. Subject to the terms of the
Plan, the Committee shall determine the number of shares of Common
Stock subject to each Restricted Stock Award granted to a Participant,
and the Committee may impose different terms and conditions on any
particular Restricted Stock Award granted to any Participant. Each
Participant receiving a Restricted Stock Award shall be issued a
certificate or certificates in respect of such shares of Common Stock
at the time of grant. Such certificate shall be registered in the
name of such Participant, and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such
Award. The Committee may require that the certificate or certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of
any Restricted Stock Award, the Participant shall have delivered a
stock power, endorsed in blank, relating to the Common Stock covered
by such Award.
<PAGE>
17
(c) Restriction Period. Restricted Stock Awards shall provide
------------------
that, in order for a Participant to vest in such Awards, such
Participant must remain in the employment of the Company or its
Subsidiaries, subject to such exceptions as the Committee may
determine in its sole discretion for specified reasons (provided,
--------
however, that no such exception shall be applicable within the first
-------
six (6) months of the date of grant), for a period of not less than
one year commencing on the date of the Award and ending on such later
date or dates as the Committee may designate at the time of the Award
and set forth in the Award Agreement (the "Restriction Period").
During the Restriction Period, a Participant may not sell, assign,
transfer, pledge, encumber or otherwise dispose of shares of Common
Stock received under a Restricted Stock Award. The Committee, in its
sole discretion, may provide for the lapse of restrictions in
installments during the Restriction Period and may waive or accelerate
such restrictions in whole or in part, based on such factors or
criteria, including specified performance criteria, as the Committee
may determine; provided, that in no event shall such lapsing, waiver
--------
or acceleration occur within the first six months of the date of
grant. Upon expiration of the applicable Restriction Period (or lapse
of restrictions during the Restriction Period), the Participant shall
be vested in the Restricted Stock Award, or applicable portion
thereof.
(d) Rights as Shareholder. Except as otherwise provided by the
---------------------
Committee in its sole discretion, a Participant shall have, with
respect to the shares of Common Stock received under a Restricted
Stock Award, all of the rights of a shareholder of the Company,
including the right to vote the shares and the right to receive any
cash dividends. Stock dividends issued with respect to shares covered
by a Restricted Stock Award shall be treated as additional shares
under the Restricted Stock Award and shall be subject to the
<PAGE>
18
same restrictions and other terms and conditions that apply to the
shares with respect to which such dividends are issued.
10. Performance Share Awards. Performance Share Awards granted under
------------------------
the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall deem appropriate:
(a) Award Agreement. Performance Share Awards shall be
---------------
evidenced by an Award Agreement in such form and containing such terms
and conditions as the Committee deems appropriate and which are not
inconsistent with the terms of the Plan. Each Award Agreement shall
set forth the number of shares of Common Stock to be received by a
Participant upon satisfaction of certain specified performance
criteria and subject to such other terms and conditions as the
Committee deems appropriate.
(b) Terms of Performance Share Awards Generally. Performance
-------------------------------------------
Share Awards may be granted under the Plan in such form as the
Committee may from time to time approve. Performance Share Awards may
be granted for no consideration or such consideration as the Committee
deems appropriate. Performance Share Awards may be granted alone or
in addition to other Awards under the Plan. Subject to the terms of
the Plan, the Committee shall determine the number of shares of Common
Stock subject to each Performance Share Award granted to a
Participant.
(c) Performance Goals. Performance Share Awards shall provide
-----------------
that, in order for a Participant to be entitled to receive shares of
Common Stock under such Award, the Company and/or the Participant must
achieve
<PAGE>
19
certain specified performance goals ("Performance Goals") over a
designated performance period ("Performance Period"). The Performance
Goals and Performance Period shall be established by the Committee in
its sole discretion. The Committee shall establish the Performance
Goals for each Performance Period before, or as soon as practicable
after, the commencement of the Performance Period. In setting
Performance Goals, the Committee may use such measures as net
earnings, operating earnings or income, absolute and/or relative
return on equity or assets, earnings per share, cash flow, pretax
profits, earnings growth, revenue growth, comparison to peer
companies, any combination of the foregoing, or such other measure or
measures of performance, including individual measures of performance,
in such manner as it deems appropriate. Prior to the end of a
Performance Period, with respect to any Participant the deductibility
of whose Performance Award will not, in the reasonable belief of the
Committee, be subject to Section 162(m) of the Code, the Committee
may, in its discretion, adjust the performance objectives to reflect a
Change in Capitalization (as hereinafter defined) or any other 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. With
respect to any Participant, the deductibility of whose Performance
Award may, in the reasonable belief of the Committee, be subject to
Section 162(m) of the Code, the Committee shall not be entitled to
exercise the discretion conferred upon it in the preceding sentence to
the extent the existence or exercise of such discretion would result
in a loss of tax deductibility under such Section 162(m) of the Code.
The extent to which a Participant is entitled to payment of a
Performance Share Award at the end of the Performance Period shall be
determined by the Committee, in its sole discretion, based on the
Committee's determination of whether the
<PAGE>
20
Performance Goals established by the Committee in the granting of such
Performance Share Award have been met.
(d) Payment of Awards. Payment in settlement of a Performance
-----------------
Share Award shall be made as soon as practicable following the
conclusion of the respective Performance Period, or at such other time
as the Committee shall determine, in shares of Common Stock.
(e) Rights as Shareholder. Except as otherwise provided by the
---------------------
Committee in the applicable Award Agreement, a Participant shall have
no rights as a shareholder with respect to a Performance Share Award
until a certificate or certificates evidencing the shares of Common
Stock shall have been issued to the Participant following the
conclusion of the Performance Period, and, subject to Sections 15(b)
and 15(c), no adjustment shall be made for dividends or distributions
or other rights in respect of any share for which the record date is
prior to the date on which the Participant shall become the holder of
record thereof.
11. Stock Equivalent Awards. Stock Equivalent Awards granted under
-----------------------
the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall deem appropriate:
(a) Award Agreement. Stock Equivalent Awards shall be evidenced
---------------
by an Award Agreement in such form and containing such terms and
conditions as the Committee deems appropriate and which are not
inconsistent with the terms of the Plan. The Award Agreement shall
set forth the number of units granted to a Participant, which units
shall be valued in whole or in
<PAGE>
21
part by reference to, or otherwise based on, shares of Common Stock
and subject to such other terms and conditions as the Committee deems
appropriate.
(b) Terms of Stock Equivalent Awards Generally. Stock
------------------------------------------
Equivalent Awards may be granted under the Plan in such form as the
Committee may from time to time approve. Stock Equivalent Awards may
be granted alone or in addition to other Awards under the Plan.
Subject to the terms of the Plan, the Committee shall determine the
number of units subject to each Stock Equivalent Award and the number
of Stock Equivalent Awards to be granted to a Participant. At the
discretion of the Committee, Stock Equivalent Awards may relate in
whole or in part to the attainment by the Company and/or the
Participant of certain specified performance criteria.
(c) Unit Value. The Committee in its sole discretion shall
----------
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 Common Stock and may
specify the date or dates over which the appreciation shall be
measured, in such manner as it deems appropriate.
(d) Payment of Awards. Payment in settlement of a Stock
-----------------
Equivalent Award shall be made as soon as practicable after the Award
is earned, or at such other time as the Committee shall determine, in
cash, in shares of Common Stock, or some combination thereof, as the
Committee shall determine.
<PAGE>
22
(e) Rights as Shareholder. A Participant shall have no rights
---------------------
as a shareholder with respect to any Stock Equivalent Award unless and
until a certificate or certificates evidencing shares of Common Stock
are issued to the Participant as payment in full or partial settlement
of a Stock Equivalent Award, and, subject to Sections 15(b) and (c),
no adjustment shall be made for dividends or distributions or other
rights in respect of any share for which the record date is prior to
the date on which the Participant shall become the holder of record
thereof.
12. Dividend Equivalents. Dividend Equivalents granted under the
--------------------
Plan shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the Plan, as the
Committee shall deem appropriate:
(a) Terms of Dividend Equivalents Generally. A Dividend
---------------------------------------
Equivalent is an Award which entitles a Participant 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.
(b) Dividend Equivalents in Conjunction with Awards. Grants of
-----------------------------------------------
Stock Options, Stock Appreciation Rights, Performance Share Awards and
Stock Equivalent Awards may, in the sole discretion of the Committee,
earn Dividend Equivalents. For shares of Common Stock covered by such
Awards outstanding on a dividend record date for Common Stock, a
Participant to whom a corresponding Dividend Equivalent shall have
been granted shall be credited with an amount in cash equal to the
amount of cash dividends that would have been paid had the related
shares under such Awards been issued and outstanding on such dividend
record date.
<PAGE>
23
(c) Award Agreement. Dividend Equivalents shall be evidenced by
---------------
an Award Agreement in such form and containing such terms and
conditions as the Committee deems appropriate and which are not
inconsistent with the terms of the Plan. In the case of Dividend
Equivalents granted in conjunction with any other Award under the
Plan, the Award Agreement for such other Award may set forth the terms
and conditions of the Dividend Equivalents with respect to such Award.
(d) Payment. The Committee shall 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.
13. Termination of Employment.
-------------------------
(a) Disability or Retirement. Except as may otherwise be provided by
------------------------
the Committee in its sole discretion at the time of grant or subsequent thereto,
if a Participant's employment with the Company and its Subsidiaries terminates
by reason of Disability or Retirement, (i) any Stock Option or Stock
Appreciation Right held by the Participant may thereafter be exercised, to the
extent it was exercisable on the date of termination, for a period (the
"Exercise Period") of one year from the date of such Disability or Retirement or
until the expiration of the stated term of the Stock Option or Stock
Appreciation Right, whichever period is shorter, and to the extent not
exercisable on the date of termination of employment, such Stock Option or Stock
Appreciation Right shall be forfeited; provided, however, that if a Participant
-------- -------
terminates employment by reason of Retirement and such Participant holds an
Incentive Stock Option or Stock Appreciation Right granted in tandem with an
Incentive Stock Option, the Exercise Period shall not exceed the shorter of
three months from the date of Retirement and the remainder of the stated term of
such Incentive
<PAGE>
24
Stock Option or Stock Appreciation Right; provided further, however, that if the
-------- ------- -------
Participant dies during the Exercise Period, any unexercised Stock Option or
Stock Appreciation Right held by such Participant may thereafter be exercised to
the extent it was exercisable on the date of Disability or Retirement, by the
legal representative or beneficiary of the Participant, for a period of one year
from the date of such death or until the expiration of the stated term of such
Stock Option or Stock Appreciation Right, whichever period is shorter (or, in
the case of an Incentive Stock Option or Stock Appreciation Right granted in
tandem with an Incentive Stock Option, for a period equal to the remainder of
the Exercise Period), and (ii) if such termination is prior to the end of the
applicable Restriction Period (with respect to a Restricted Stock Award) or
Performance Period (with respect to a Performance Share Award), the number of
shares of Common Stock subject to such Award which have not been earned as of
the date of Disability or Retirement shall be forfeited. Except as may
otherwise be determined by the Committee in its sole discretion, all Stock
Equivalent Awards and Dividend Equivalents which have not been earned or accrued
by such Participant as of the date of Disability or Retirement shall be
forfeited and the Participant shall not be entitled to any payment with respect
thereto. In determining whether to exercise its discretion under the first
sentence of this Section 13(a) with respect to an Incentive Stock Option or
Stock Appreciation Right granted in tandem with an Incentive Stock Option, the
Committee may consider the provisions of Section 422 of the Code.
(b) Death. Except as may otherwise be provided by the Committee in
-----
its sole discretion at the time of grant or subsequent thereto, if a
Participant's employment with the Company and its Subsidiaries terminates by
reason of death, (i) any Stock Option or Stock Appreciation Right held by the
Participant may thereafter be exercised, to the extent it was exercisable on the
date of death, by the legal representative or beneficiary of the Participant,
for a period of one year from the date of the Participant's death or until the
expiration of the stated term of such Stock Option or Stock Appreciation Right,
whichever period is shorter, and to the extent not exercisable on the date of
death, such Stock Option or
<PAGE>
25
Stock Appreciation Right shall be forfeited and (ii) if such termination is
prior to the end of the applicable Restriction Period (with respect to a
Restricted Stock Award) or Performance Period (with respect to a Performance
Share Award), the number of shares of Common Stock subject to such Award which
have not been earned as of the date of death shall be forfeited. Except as may
otherwise be determined by the Committee in its sole discretion, all Stock
Equivalent Awards and Dividend Equivalents which have not been earned or accrued
by such Participant as of the date of death shall be forfeited and the
Participant shall not be entitled to any payment with respect thereto.
(c) Other Terminations. Unless the Committee determines otherwise in
------------------
its sole discretion at the time of grant or subsequent thereto, if a
Participant's employment with the Company and its Subsidiaries terminates for
any reason other than death, Disability or Retirement, (i) any Stock Option or
Stock Appreciation Right held by the Participant may thereafter be exercised, to
the extent it was exercisable on the date of termination, for a period of sixty
(60) days from the date of such termination of employment or until the
expiration of the stated term of such Stock Option or Stock Appreciation Right,
whichever period is shorter, and to the extent not exercisable on the date of
termination of employment, such Stock Option or Stock Appreciation Right shall
be forfeited, and (ii) if such termination is prior to the end of the applicable
Restriction Period (with respect to a Restricted Stock Award) or Performance
Period (with respect to a Performance Share Award), the number of shares of
Common Stock subject to such Award which have not been earned as of the date of
such termination of employment shall be forfeited. Except as may otherwise be
determined by the Committee in its sole discretion, all Stock Equivalent Awards
and Dividend Equivalents which have not been earned or accrued by such
Participant as of the date of such termination of employment shall be forfeited
and the Participant shall not be entitled to any payment with respect thereto.
In determining whether to exercise its discretion under the first sentence of
this Section 13(c) with respect to an Incentive Stock Option or Stock
<PAGE>
26
Appreciation Right granted in tandem with an Incentive Stock Option, the
Committee may consider the provisions of Section 422 of the Code.
(d) Termination Within Six (6) Months of Grant. Notwithstanding the
------------------------------------------
provisions of Section 13(a), (b) or (c) above, in the event a Participant's
employment with the Company and its Subsidiaries terminates for any reason
within six (6) months of the date of grant of an Award, such Award shall be
forfeited as of the date of such termination and the Participant shall not be
entitled to any payment or to receive or retain any shares of Common Stock with
respect thereto.
14. Non-transferability of Awards. No Awards under the Plan or any
-----------------------------
rights or interests therein may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of except by will or the laws of descent and
distribution or, except in the case of an Incentive Stock Option or Stock
Appreciation Right granted in tandem with an Incentive Stock Option, pursuant to
a "qualified domestic relations order" as defined in the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, and the rules and
regulations thereunder; provided however, that with respect to any Award that is
-------- -------
not (i) an Incentive Stock Option or a Stock Appreciation Right granted in
tandem with an Incentive Stock Option or (ii) a "derivative security" within the
meaning of Rule 16b-3 under the Exchange Act, the foregoing restrictions shall
not apply to the extent determined by the Committee in its sole discretion at
the time of grant and set forth in the applicable Award Agreement; provided
--------
further, however, that if so determined by the Committee, a Participant may, in
- ------- -------
the manner established by the Committee, designate a beneficiary to exercise the
rights of the Participant with respect to any Award upon the death of the
Participant. During the lifetime of a Participant, Stock Options and Stock
Appreciation Rights shall be exercisable only by, and payments in settlement of
Awards shall be payable only to, the Participant. A Stock Appreciation Right
granted in tandem with an
<PAGE>
27
Incentive Stock Option shall be transferable only when the related Incentive
Stock Option is transferable, and under the same conditions.
15. Recapitalization or Reorganization.
----------------------------------
(a) The existence of the Plan, the Award Agreements and the Awards
granted hereunder shall not affect or restrict in any way the right or power of
the Company or the shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of stock or of options, warrants or rights to purchase stock or of
bonds, debentures, preferred or prior preference stocks whose rights are
superior to or affect the Common Stock or the rights thereof or which are
convertible into or exchangeable for Common Stock, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
(b) Notwithstanding any provision of the Plan or any Award Agreement,
in the event of any change in the outstanding Common Stock by reason of a stock
dividend, recapitalization, reorganization, merger, consolidation, stock split,
combination or exchange of shares (a "Change in Capitalization"), (i) such
proportionate adjustments as may be necessary (in the form determined by the
Committee in its sole discretion) to reflect such change shall be made to
prevent dilution or enlargement of the rights of Participants under the Plan
with respect to the aggregate number of shares of Common Stock for which Awards
in respect thereof may be granted under the Plan, the number of shares of Common
Stock covered by each outstanding Award, and the exercise or Award prices in
respect thereof and (ii) the Committee may make such other adjustments,
consistent with the foregoing, as it deems appropriate in its sole discretion.
<PAGE>
28
(c) Upon the occurrence of a merger of, or consolidation involving,
the Company in which the Common Stock is converted into securities of another
corporation or into cash, or any other transaction that results in the Common
Stock no longer being publicly traded, at the sole discretion of the Committee,
and on such terms and conditions as it deems appropriate, the Committee may
provide either by the terms of an Award granted under the Plan or by a
resolution adopted prior to the occurrence of such event that upon such event,
such Award shall be assumed by the successor corporation, or a Parent or
Subsidiary thereof, or shall be substituted for by a similar Award, covering the
stock of the successor corporation, or a Parent or Subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and exercise or
Award prices.
16. Change in Control. In the event of a Change in Control and
-----------------
except as the Committee (as constituted immediately prior to such Change in
Control) may otherwise determine in its sole discretion, (i) all Stock Options
or Stock Appreciation Rights then outstanding shall 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
shall lapse as of the date of the Change in Control, (iii) all Performance Share
Awards shall be deemed to have been fully earned as of the date of the Change in
Control and (iv) all Stock Equivalent Awards shall be deemed to be free of any
restrictions or conditions and fully earned as of the date of the Change in
Control. Notwithstanding the preceding sentence, any Award granted within six
(6) months of a Change in Control shall not be afforded any such acceleration as
to exercise, vesting and payment rights or lapsing as to conditions or
restrictions.
17. Amendment of the Plan. The Board may at any time and from time
---------------------
to time terminate, modify, or amend the Plan in any respect, except that no
termination, modification or amendment shall be effective without shareholder
approval if such approval is required to comply with Rule 16b-3 under the
Exchange Act or to comply with any other
<PAGE>
29
law, regulation or NASDAQ or stock exchange rule. No termination or amendment
of the Plan shall, without the consent of a Participant to whom any Awards shall
previously have been granted, adversely affect his or her rights under such
Awards.
18. Miscellaneous.
-------------
(a) Tax Withholding. (i) The Company and its Subsidiaries shall
---------------
have the right to deduct from any cash payment made under the Plan any federal,
state or local taxes of any kind required to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to deliver
shares of Common Stock pursuant to any Award under the Plan that the recipient
of such Award pay to the Company such amount as may be required by the Company
for the purpose of satisfying any liability for any such withholding taxes. Any
Award granted under the Plan may require the Company, or permit the recipient of
such Award to elect, in accordance with any applicable rules established by the
Committee, to withhold or to pay all or a part of the amount of such withholding
taxes in shares of Common Stock. Such election may be denied by the Committee
in its sole discretion, or may be made subject to certain conditions specified
by the Committee, including, without limitation, conditions intended to avoid
the imposition of liability against the individual under Section 16(b) of the
Exchange Act.
(ii) The applicable Award Agreement for an Incentive Stock Option
shall provide that if a Participant makes a disposition, within the meaning of
Section 424(c) of the Code and the regulations promulgated thereunder, of any
share of Common Stock issued to such Participant pursuant to the exercise of an
Incentive Stock Option within the two-year period commencing on the day after
the date of the grant or within the one-year period commencing on the day after
the date of transfer of such share of Common Stock to the Participant pursuant
to such exercise, the Participant shall, within ten (10) days of such
<PAGE>
30
disposition, notify the Company thereof, by delivery of written notice to the
Company at its principal executive office.
(b) Loans. On such terms and conditions as shall be approved by the
-----
Committee, the Company may directly or indirectly lend money to a Participant to
accomplish the purposes of the Plan, including to assist such Participant to
acquire or carry shares of Common Stock acquired upon the exercise of Stock
Options granted hereunder, and separately to lend money to any Participant to
pay taxes with respect to any of the transactions contemplated by the Plan.
(c) No Right to Grants or Employment. No Eligible Employee or
--------------------------------
Participant shall have any claim or right to receive grants of Awards under the
Plan. Nothing in the Plan or in any Award or Award Agreement shall confer upon
any employee of the Company or any Subsidiary any right to continued employment
with the Company or any Subsidiary, as the case may be, or interfere in any way
with the right of the Company or a Subsidiary to terminate the employment of any
of its employees at any time, with or without cause.
(d) Unfunded Plan. The Plan shall be unfunded and the Company shall
-------------
not be required to segregate any assets that may at any time be represented by
Awards under the Plan. Any liability of the Company to any person with respect
to any Award under the Plan shall be based solely upon any contractual
obligations that may be affected pursuant to the Plan. No such obligation of
the Company shall be deemed to be secured by any pledge of, or other encumbrance
on, any property of the Company.
(e) Other Employee Benefit Plans. Payments received by a Participant
----------------------------
under any Award made pursuant to the provisions of the Plan shall not be
included in, nor
<PAGE>
31
have any effect on, the determination of benefits under any other employee
benefit plan or similar arrangement provided by the Company.
(f) Engaging in Competition with the Company. (i) Except as
----------------------------------------
determined by the Committee in its sole discretion, the applicable Award
Agreement shall provide that, for a period of two years from the date of
termination of the employment of any Participant with the Company or any direct
or indirect Subsidiary of the Company, such Participant shall not become an
employee, owner (except for passive investments of not more than three percent
of the outstanding shares of, or any other equity interest in any company or
entity listed or traded on a national securities exchange or in an over-the-
counter securities market), officer, agent or director of any firm or Person
which either directly competes with a line or lines of business of the Company
or any Subsidiary accounting for ten percent (10%) or more of the Company's or
such Subsidiary's gross sales, revenues or earnings before taxes or derives ten
percent (10%) or more of such firm's or Person's gross sales, revenues or
earnings before taxes from a line or lines of business which directly competes
with the Company or any Subsidiary. In the event of a breach by a Participant
of the non-compete provisions set forth in the first sentence of this Section
18(f)(i) (or the provisions of Section 18(f)(ii) below), the Committee, in its
sole discretion, may require that the Participant promptly pay to the Company
(x), in the case of any Stock Options or Stock Appreciation Rights exercised
within six (6) months of (or subsequent to) such termination of employment, 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 Stock Options or Stock
Appreciation Rights and the exercise price of such Stock Options or Stock
Appreciation Rights multiplied by the number of shares of Common Stock subject
to such Stock Options or Stock Appreciation Rights and (y), in the case of any
other Award settled in shares of Common Stock within six (6) months of (or
subsequent to) such termination of employment, an amount in cash equal to the
Fair Market Value of a share of Common Stock on the date of settlement of such
Award multiplied by the number of shares of Common Stock subject to such Award.
The applicable
<PAGE>
32
Award Agreement shall further provide that if, in any judicial proceeding, a
court shall refuse to enforce all of the separate covenants deemed included in
the first sentence of this Section 18(f)(i), the Company and the Participant
intend that those of such covenants which, if eliminated, would permit the
remaining separate covenants to be enforced in such proceedings shall, for the
purpose of such proceedings, be deemed eliminated from such provisions.
(ii) A Participant shall also agree in the applicable Award
Agreement to observe the terms of any confidentiality, secrecy or other non-
competition agreement that he or she has previously entered into with the
Company (the terms of which shall be incorporated by reference into such Award
Agreement) and shall agree that, in the event of any breach of any such
agreement by such Participant, he or she shall be subject to the provisions of
the second sentence of Section 18(f)(i).
(g) Securities Law Restrictions. The Committee may require each
---------------------------
Eligible Employee purchasing or acquiring shares of Common Stock pursuant to a
Stock Option or other Award under the Plan to represent to and agree with the
Company in writing that such Eligible Employee is acquiring the shares for
investment and not with a view to the distribution thereof. All certificates
for shares of Common Stock delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, NASDAQ or any stock exchange upon which the Common Stock is
then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions. No shares of Common Stock
shall be issued hereunder unless the Company shall have determined that such
issuance is in compliance with, or pursuant to an exemption from, all applicable
federal and state securities laws.
<PAGE>
33
(h) Compliance with Rule 16b-3. (i) The Plan is intended to comply
--------------------------
with Rule 16b-3 under the Exchange Act or its successors under the Exchange Act
and the Committee shall interpret and administer the provisions of the Plan or
any Award Agreement in a manner consistent therewith. To the extent any
provision of the Plan or Award Agreement or any action by the Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee. Moreover, in the event the Plan or an Award
Agreement does not include a provision required by Rule 16(b)(3) to be stated
therein, such provision (other than one relating to eligibility requirements, or
the price and amount of awards) shall be deemed automatically to be incorporated
by reference into the Plan or such Award Agreement insofar as Participants
subject to Section 16 of the Exchange Act are concerned.
(ii) Notwithstanding anything contained in the Plan or any Award
Agreement to the contrary, if the consummation of any transaction under the Plan
would result in the possible imposition of liability on a Participant pursuant
to Section 16(b) of the Exchange Act, the Committee shall have the right, in its
sole discretion, but shall not be obligated, to defer such transaction to the
extent necessary to avoid such liability, but in no event for a period in excess
of 180 days.
(i) Deductibility Under Code Section 162(m). Awards granted under
---------------------------------------
the Plan to Eligible Employees which the Committee reasonably believes may be
subject to Section 162(m) of the Code shall not be exercisable, and payment
under the Plan in connection with such an Award shall not be made, unless and
until the Committee has determined in its sole discretion that such exercise or
payment would no longer be subject to Section 162(m) of the Code.
(j) Award Agreement. Each Eligible Employee receiving an Award under
---------------
the Plan shall enter into an Award Agreement in a form specified by the
Committee agreeing
<PAGE>
34
to the terms and conditions of the Award and such other matters as the Committee
shall, in its sole discretion, determine. In the event of any conflict or
inconsistency between the Plan and any such Award Agreement, the Plan shall
govern, and the Award Agreement shall be interpreted to minimize or eliminate
any such conflict or inconsistency.
(k) Costs of Plan. The costs and expenses of administering the Plan
-------------
shall be borne by the Company.
(l) Governing Law. Except as to matters of federal law, the Plan and
-------------
all actions taken thereunder shall be governed by and construed in accordance
with the laws of the State of Wisconsin without giving effect to conflicts of
law principles.
(m) Effective Date. The Plan shall be effective as of January 15,
--------------
1995 (the "Effective Date"), subject to approval of the Plan by a majority of
the Company's shareholders. Any Awards made under the Plan prior to such
approval shall be effective when made (unless otherwise specified by the
Committee at the time of grant), but shall be conditional on, and subject to,
such approval of the Plan by such shareholders.
Exhibit 10.16
FORT HOWARD CORPORATION
1995 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose. The purpose of the Fort Howard
-------
Corporation 1995 Stock Plan for Non-Employee Directors (the
"Plan") is to retain the services of qualified persons who are
----
not employees of Fort Howard Corporation (the "Company") to serve
-------
as members of the Board of Directors of the Company and to secure
for the Company the benefits of the incentives inherent in
increased stock ownership by paying such persons a portion of
their compensation for such service in stock of the Company.
2. Definitions. For the purposes of the Plan:
-----------
(a) "Annual Fee" means (i) any annual fee
otherwise payable to a Non-Employee Director for
service on the Board, (ii) any other fee determined on
an annual basis and otherwise payable for service on,
or for acting as chairperson of, any committee of the
Board and (iii) any similar annual fee otherwise
payable in respect of service on the board of directors
of any Subsidiary or any committee of any Subsidiary or
any committee of any such board of directors; provided
--------
that the Annual Fee shall not include fees for
attendance at meetings of the Board, any committee of
the Board or any board of directors of any Subsidiary
or any committee thereof; provided, further, that each
-------- -------
person who has served as a Non-Employee Director during
only a portion of a Fiscal Year shall receive an amount
determined by multiplying such annual fee by the Pro
Ration Fraction.
(b) "Board" means the Board of Directors of the
Company.
(c) "Committee" means the committee of the Board
described in Section 9.
(d) "Common Stock" means the Common Stock, par value
$.01 per share, of the Company, or such other class or kind
of shares or other securities as may be applicable under
Section 11.
(e) "Directors Shares" means shares of Common
Stock granted to a Non-Employee Director pursuant to
Section 5 for no consideration other than the provision
of services, which shares shall be subject to the terms
of the Plan.
<PAGE>
2
(f) "Exchange Act" means the Securities Exchange
Act of 1934, as amended, and the rules and regulations
thereunder.
(g) "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 Board or, if Common Stock was not
traded on such date, on the next preceding day on which
Common Stock was traded.
(h) "Fiscal Year" means a fiscal year of the
Company for purposes of external financial reporting.
(i) "Fiscal Year 1995" means the Fiscal Year
ending December 31, 1995.
(j) "Non-Employee Director" means a member of the
Board who is not an employee of the Company or any of
its Subsidiaries.
(k) "Pro Ration Fraction" means a fraction,
determined as of the last day of any Fiscal Year with
respect to any person, the numerator of which shall be
the number of whole calendar months during such Fiscal
Year as of the last day of which such person was a
member of the Board and served in the capacity of a
Non-Employee Director, and the denominator of which
shall be the number of calendar months in the Fiscal
Year for which such fraction is determined. The value
of the Pro Ration Fraction shall in all cases be less
than or equal to one.
(l) "Subsidiary" means any corporation 50 percent
or more of the voting stock of which is owned directly
or indirectly by the Company.
3. Shares of Stock Subject to the Plan. Subject to
-----------------------------------
adjustment as provided in Section 11 hereof, the number of shares
of Common Stock that may be issued under the Plan shall not
exceed, in the aggregate, 80,000 (after taking into account the
6.5-for-one stock split that is anticipated to occur and
described in the Registration Statement as filed with the
Securities and Exchange Commission on November 23, 1994). Such
shares may consist in whole or in part, as the Board shall from
time to time determine, of authorized but unissued shares or
treasury shares.
4. Participation. All Non-Employee Directors shall
-------------
participate in the Plan. Grants of Common Stock may be made
pursuant to the Plan only to Non-Employee Directors.
<PAGE>
3
5. Grants
------
(a) Amount of Grants. Beginning with Fiscal Year
----------------
1995 and continuing for all Fiscal Years until the Plan
expires pursuant to Section 8(b) or is earlier
terminated pursuant to Section 10, and subject to
Section 5(b), a grant of Directors Shares shall be made
to each person who served as a Non-Employee Director
during all or part of such Fiscal Year. The number of
Directors Shares granted to each Non-Employee Director
shall be determined by dividing (i) the amount equal to
50% of the value of the Annual Fee otherwise payable to
such Non-Employee Director for the relevant Fiscal Year
by (ii) the Fair Market Value of one share of Common
Stock as of the last day of the relevant Fiscal Year;
provided, however, that any fractional shares resulting
-------- -------
from such multiplication shall not be awarded, and the
Non-Employee Director shall instead be paid an amount
in cash equal to such fractional amount times the Fair
Market Value of one share of Common Stock as of the
last day of the relevant Fiscal Year.
(b) Grants Subject to Stockholder Approval of the
---------------------------------------------
Plan; Timing of Grants. The grants provided for in
----------------------
Section 5(a) shall be subject to the approval of the
Plan in accordance with Section 8(a) by the
stockholders of the Company. In the event that such
stockholder approval is obtained, grants for each
Fiscal Year shall be made as of the last day of each
such Fiscal Year.
(c) Terms. Grants of Directors Shares under this
-----
Section 5 shall be made automatically pursuant to the
terms of the Plan and, except for stockholder approval
of the Plan pursuant to Section 8(a), shall not require
the approval of any person. The Directors Shares
granted pursuant to this Section 5 shall be subject to
the terms of the Plan.
6. Terms and Conditions of Directors Share Grants
----------------------------------------------
(a) Share Certificates; Rights and Privileges.
-----------------------------------------
On or as soon as practicable following the date on
which Directors Shares are granted to a Non-Employee
Director, share certificates representing the
appropriate number of Directors Shares shall be
registered in the name of such Non-Employee Director
but shall be held by the Company in custody for the
account of such person. The Non-Employee Director
shall have all the rights and privileges of a
stockholder as to such shares, including the right to
receive dividends and the right to vote such shares,
subject to the restrictions set forth in Section 6(b).
The Directors Shares shall be immediately vested upon
grant, and shall not be forfeitable to the Company.
<PAGE>
4
(b) Restrictions. Directors Shares may not be
------------
sold, transferred, assigned, pledged or otherwise
encumbered or disposed of until the date which is six
months after the date of grant. Directors Shares may
also be subject to such additional restrictions on
transfer as the Committee may deem appropriate at the
time of grant.
7. Delivery of Shares. As soon as practicable
------------------
following the earlier to occur of:
(a) a Non-Employee Director's sale in accordance
with the plan and applicable federal securities law of
any Directors Shares as to which the restrictions
provided for in Section 6(b) have expired; and
(b) the later of (A) the third month anniversary
of the date on which the Non-Employee Director ceases
to be a member of the Board and (B) six months
following the last transaction to occur while the Non-
Employee Director is a member of the Board and by which
the Non-Employee Director acquires equity securities
(or related derivative securities) of the Company,
a share certificate (or certificates) shall be delivered to the
Non-Employee Director (or to such person's estate, as the case
may be) for, in the case of clause (a) above, the number of
Directors Shares sold and, in the case of clause (b) above, the
number of Directors Shares which have been granted to the Non-
Employee Director pursuant to the Plan and for which a
certificate has not previously been delivered.
8. Effective Date; Term.
--------------------
(a) Effective Date and First Grants. The Plan
-------------------------------
shall become effective as of January 15, 1995 only if
it is approved by the stockholders of the Company, and
no grants shall be made under the Plan until the date
of such approval.
(b) Expiration and Final Grants. Unless earlier
---------------------------
terminated in accordance with Section 10 below, the
Plan shall expire on January 1, 2005 (or, if the
Company shall have changed its Fiscal Year so that it
no longer ends on December 31, the Plan shall expire on
the first day of the first Fiscal Year to commence
after December 31, 2005), and grants of Directors
Shares made pursuant to Section 5 in connection with
the Fiscal Year ending December 31, 2005 (or, if the
Company shall have changed its Fiscal Year so that it
no longer ends on December 31, grants made in
connection with the Fiscal Year during which December
31, 2005 occurs) shall be the final grants to be made
under the Plan.
<PAGE>
5
9. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the
Committee, which shall be comprised of one or more
members of the Board who will be appointed from time to
time by the Board. Each member of the Committee shall
be a director of the Company who is not a Non-Employee
Director. Members of the Committee shall serve at the
pleasure of the Board and the Board may from time to
time remove members from, or add members to, the
Committee. All determinations of the Committee at a
meeting shall be made by a majority of the members in
attendance. Any decision or determination reduced to
writing and signed by all the members shall be fully as
effective as if it had been made by a majority vote at
a meeting duly called and held. No member of the
Committee shall be personally liable for any action,
determination or interpretation made in good faith with
respect to the Plan, and all members of the Committee
shall be indemnified by the Company to the fullest
extent permitted by the by-laws of the Company or
applicable Delaware law with respect to any such
action, determination or interpretation.
(b) The Committee shall administer the Plan, make
any amendment or modification, subject to Section 10,
to the terms of the Plan, and interpret, construe and
implement the provisions of the Plan. The Committee
shall have the authority to adopt rules and regulations
for administering the Plan which shall not be
inconsistent with the terms of the Plan, including,
without limitation, the ability to subject Directors
Shares to additional transfer restrictions. Decisions
of the Committee shall be binding on the Company, on
all Non-Employee Directors participating in the Plan
and all other persons having any interest therein.
10. Amendments and Termination.
--------------------------
The Board may at any time and from time to time
terminate, modify, or amend the Plan in any respect, except that
no termination, modification or amendment shall be effective
without shareholder approval if such approval is required to
comply with Rule 16b-3 under the Exchange Act, including, without
limitation, to maintain the continued qualification of the Plan
under Rule 16b-3(c)(2)(ii) under the Exchange Act or any
successor provision, or to comply with any other law, regulation
or stock exchange rule. In no event may the provisions of the
Plan respecting eligibility to participate or the timing or
amount of grants be amended more frequently than once every six
months, other than to comport with changes in the Internal
Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act of 1974, as amended, or any rules or regulations
thereunder. No termination or amendment of the Plan may, without
the consent of the Non-Employee
<PAGE>
6
Director, affect any such person's rights under the provisions of
the Plan with respect to awards of Directors Shares which were
made prior to such action.
11. Recapitalization or Reorganization.
----------------------------------
(a) The existence of the Plan shall not affect or
restrict in any way the right or power of the Board or
shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other
change in the Company's capital structure or its
business, any merger or consolidation of the Company,
any issue of stock or of options, warrants or rights to
purchase stock or of bonds, debentures, preferred or
prior preference stocks whose rights are superior to or
affect Common Stock or the rights thereof or which are
convertible into or exchangeable for Common Stock, or
the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) Notwithstanding any other provision of the
Plan, in the event of any change in the outstanding
Common Stock of the Company by reason of a stock
dividend, recapitalization, merger, consolidation,
stock split, combination or exchange of shares or other
form of reorganization, or any other change affecting
the Common Stock, such proportionate adjustments as may
be necessary (in the form determined by the Board in
its sole discretion) to reflect such change shall be
made to prevent dilution or enlargement of the rights
in the number and class of shares granted or authorized
to be granted hereunder. Any new or additional
Directors Shares shall be subject to all of the terms
and conditions of the Plan.
12. No Right to Reelection. Nothing in the Plan shall
----------------------
be deemed to create any obligation on the part of the Board to
nominate any of its members for reelection by the Company's
stockholders, nor confer upon any Non-Employee Director the right
to remain a member of the Board for any period of time, or at any
particular rate of compensation.
13. Governing Law. Except as to matters of federal
-------------
law, the Plan and all actions taken thereunder shall be governed
by and construed in accordance with the laws of the State of
Wisconsin without giving effect to conflicts of law principles.
14. Miscellaneous
-------------
(a) Tax Withholding. As a condition to the
---------------
making of any award of Directors Shares or to the
delivery of certificates, the Committee may require a
Non-Employee Director to pay to the Company such sum as
may be
<PAGE>
7
necessary to discharge any obligation of the Company
with respect to any taxes, assessments or other
governmental charge imposed on property or income
received by such Non-Employee Director pursuant to the
Plan. In accordance with rules and procedures
established by the Committee and in the discretion of
the Committee, such payment may be in the form of cash
or other property, or may be effected by the delivery
of a lesser number of shares. At the discretion of the
Committee, the Company may deduct or withhold from any
payment or distribution to a Non-Employee Director
whether or not pursuant to the Plan.
(b) Expenses. All expenses and costs in
--------
connection with the administration of the Plan or the
issuance of Directors Shares hereunder shall be borne
by the Company.
(c) Headings. The headings of sections herein
--------
are included solely for convenience of reference and
shall not affect the meaning of any of the provisions
of the Plan.
EXHIBIT 12.1
FORT HOWARD CORPORATION
COMPUTATION OF DEFICIENCY OF EARNINGS
AVAILABLE TO COVER FIXED CHARGES
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Earnings:
Loss before taxes........................................................ $ (61,016)
Interest expense......................................................... 337,701
One-fourth of operating lease rental expense............................. 1,881
-----------------
$ 278,566
-----------------
-----------------
Fixed Charges:
Interest expense......................................................... $ 337,701
Capitalized interest..................................................... 4,230
One-fourth of operating lease rental expense............................. 1,881
-----------------
$ 343,812
-----------------
-----------------
Deficiency of earnings available to cover fixed charges(1)................. $ 65,246
-----------------
-----------------
</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 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........................................................ $ (10,007)
Interest expense......................................................... 286,692
One-fourth of operating lease rental expense............................. 1,881
-----------------
$ 278,566
-----------------
-----------------
Fixed Charges:
Interest expense......................................................... $ 286,692
Capitalized interest..................................................... 4,230
One-fourth of operating lease rental expense............................. 1,881
-----------------
$ 292,803
-----------------
-----------------
Pro forma deficiency of earnings available to cover fixed charges(1)....... $ (14,237)
-----------------
-----------------
</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,
February 6, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORT
HOWARD CORPORATION'S UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000038195
<NAME> FORT HOWARD CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 422
<SECURITIES> 0
<RECEIVABLES> 124,739
<ALLOWANCES> 1,589
<INVENTORY> 130,843
<CURRENT-ASSETS> 279,615
<PP&E> 1,932,713
<DEPRECIATION> 611,762
<TOTAL-ASSETS> 1,680,898
<CURRENT-LIABILITIES> 377,131
<BONDS> 3,317,558
<COMMON> 600,471
0
0
<OTHER-SE> (2,748,918)
<TOTAL-LIABILITY-AND-EQUITY> 1,680,898
<SALES> 1,274,445
<TOTAL-REVENUES> 1,274,445
<CGS> 867,357
<TOTAL-COSTS> 867,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 337,701
<INCOME-PRETAX> (61,016)
<INCOME-TAX> (18,891)
<INCOME-CONTINUING> (42,125)
<DISCONTINUED> 0
<EXTRAORDINARY> (28,170)
<CHANGES> 0
<NET-INCOME> (70,295)
<EPS-PRIMARY> (1.85)
<EPS-DILUTED> (1.85)
</TABLE>
