SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-20473
FORT HOWARD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 39-1090992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1919 South Broadway, Green Bay, Wisconsin 54304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 414/435-8821
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of Common Stock held by nonaffiliates of the
Registrant, based on the closing price reported by the Nasdaq National Market
on January 15, 1997, was $1,666,288,665.
As of January 15, 1997, 74,510,652 shares of $.01 par value Common Stock were
outstanding.
The sections of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 13, 1997, captioned "Election of Directors," "Committees of the
Board of Directors; Meetings and Compensation of Directors," "Ownership of
Common Stock by Management," "Principal Stockholders," "Certain Transactions,"
"Compensation and Nominating Committee Report on Executive Officer
Compensation," "Performance Graph" and "Executive Compensation" are
incorporated by reference into this Form 10-K at Part III, Items 10, 11, 12
and 13.
PART I
ITEM 1. 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 facial tissue
manufactured from virtually 100% recycled fibers. The Company believes that
it has the leading market share of tissue products in the domestic commercial
market of approximately 25% and has focused approximately 60% of its domestic
capacity on this segment of the tissue market. In the domestic consumer
market, where the Company has an approximate 11% 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, 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 third largest market share primarily in the consumer segment
of the market.
DOMESTIC TISSUE OPERATIONS
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. Fort Howard
produces and sells its commercial products in all three quality segments:
Premium, Mid-range and Economy. Competition in this market is based upon
attaining a competitive level of product attributes at prices which provide a
good value to customers. Another competitive factor is the ability to provide
reliable and timely service.
Consumer Products. Fort Howard's consumer product growth strategy has
targeted the value brand and private label segments of the market. The
Company's value brands such as Mardi Gras, Soft'n Gentle, So-Dri and
Green Forest offer a high level of softness, absorbency and brightness at a
substantial price savings versus the premium brands. The appeal of Mardi Gras
napkins and paper towels is enhanced by their multi-color prints with changing
patterns and special seasonal designs.
Fort Howard is the leading tissue producer in the growing consumer
private label business with an estimated private label market share of
approximately 40% in 1996. 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. 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 sales of Fort
Howard's branded products with these same customers.
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Marketing
Commercial Market. Approximately 60% of the Company's products are sold
through paper, institutional food and janitorial distributors into the
commercial market. 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. The Company sells its commercial products under its own brand
names which include Preference Ultra, Preference, Envision and under the
Fort Howard name.
Fort Howard's commercial sales force of 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. In addition, the
Company's sales force includes a specialized sales team focused on selling
wiper products.
Consumer Market. Approximately 40% of the Company's products are sold
through independent brokers to major food store chains and wholesale grocers
or directly to mass merchandisers for at-home use. Most consumer products are
sold under Company-owned brand names, with over 40% being sold under private
labels. Principal brand names of consumer products include Mardi Gras, Soft'n
Gentle, So-Dri and Green Forest. Regional sales managers focus on maintaining
close relationships with brokers and retailers by emphasizing Fort Howard's
historic strengths--functional product attributes at a good value for the
consumer and enhanced margins for retailers. The Company's national accounts
sales force focuses on mass merchandisers and the drug store market. The
private label sales team markets directly to national accounts and through
food brokers to 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
The Company's international tissue operations principally consist of its
tissue business in the United Kingdom, Fort Sterling Limited ("Fort
Sterling"). The Company also entered into a joint venture to convert parent
rolls into finished products in the People's Republic of China in 1995 which
began operations during 1996. The Company also opened direct sales operations
in Mexico in 1995. For an analysis of net sales, operating income (loss) and
identifiable operating assets in the United States and internationally, see
Note 11 to the audited consolidated financial statements.
Products
Fort Sterling's primary thrust has been in the larger consumer segment of
the United Kingdom tissue market where approximately 85% of its converted
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product sales are targeted. In a market where private label represents about
one-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 1996 was sold under private
labels to large grocers and convenience stores. Fort Sterling's principal
brand is its Nouvelle line of tissue paper products. Overall, Fort Sterling's
consumer market share was approximately 16% in 1996.
Fort Sterling has approximately a 6% market share in the commercial
segment.
Marketing
Fort Sterling maintains a direct sales force serving large national
grocers, 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.
CAPITAL EXPENDITURES
The Company has invested heavily in its manufacturing operations.
Capital expenditures in the Company's tissue business were approximately
$603 million for the five year period ended December 31, 1996, $369 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 deinking
technologies and converting equipment are developed, the Company adds such
technology and equipment at each mill to maintain its low cost structure.
The Company announced plans during 1996 for a $160 million expansion
project that will add a new tissue paper machine and associated facilities at
one of its United States mills. Construction of this capacity expansion will
commence in 1997, with an anticipated completion date in 1999.
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. 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. Also 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 deinking and pulp processing plants.
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. Fort Howard uses 100%
wastepaper for all but a limited number of dry form and specialty products
representing approximately 2% of its volume. Currently, Fort Howard recycles
over 1.4 million tons of wastepaper annually into tissue products. Wastepaper
prices began to rise in late 1994, peaked in the third quarter of 1995 and
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fell throughout the remainder of 1995 and the first half of 1996. Prices were
stable in the second half of 1996. See "Management's Discussion and Analysis
of Consolidated Financial Condition and Results of Operations." The deinking
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 and petroleum coke 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, petroleum coke and, to a lesser extent, natural gas. These fuels are
burned to provide steam and electrical power to process wastepaper, operate
machinery and dry paper. Coal is received in Green Bay in self-unloading
vessels during the Great Lakes shipping season and at the Muskogee and
Savannah mills by rail. Petroleum coke is received in Green Bay and Savannah
by rail or truck. The Company maintains adequate inventories of these fuels
at each of its domestic mills. The Savannah mill can also generate electrical
power by burning natural gas or fuel oil in combustion turbines. The primary
sources of energy for the Company's United Kingdom tissue facilities are
purchased electrical power and natural gas.
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. 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. Customers generally
take into account price, quality, distribution and service as factors when
considering the purchase of products from the Company.
CUSTOMERS AND BACKLOG
The Company principally markets its products to customers in the
United States and the United Kingdom, and to a lesser extent, Mexico, Canada,
the Middle East, Europe and Asia. The business of the Company is not
dependent on a single customer.
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.
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RESEARCH AND DEVELOPMENT
The Company maintains laboratory facilities with a permanent staff of
engineers, scientists and technicians who are responsible for improving
existing products, developing new products and processes, product quality,
process control and providing technical assistance in adhering to regulatory
standards. Continued emphasis is being placed upon designing new products and
enhancing existing products, expanding the Company's capability to deink a
broader range of wastepaper grades, further automating manufacturing
operations and developing improved manufacturing and environmental processes.
PATENTS, LICENSES, TRADEMARKS AND TRADE NAMES
Although 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 deinking
technology which is not covered by patent. The Company's domestic tissue
products for at-home use are sold under the principal brand names Mardi Gras,
Soft'n Gentle, So-Dri and Green Forest. For the Company's domestic commercial
tissue business, principal brand names include Envision, Generation II and
Preference. Such brand names are trademarks of the Company that are
registered or otherwise protected under law. A portion of the Company's
tissue products are sold under private labels or brand names owned by
customers.
EMPLOYEES
At December 31, 1996, the Company's worldwide employment was
approximately 7,000, of which 6,000 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 a wide range of laws in the United States and
other countries that focus on 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. Such
further environmental regulation is likely to limit the operating flexibility
of the Company's manufacturing operations. 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.
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In 1996, the Company made capital expenditures of $3.1 million with
respect to pollution abatement and environmental compliance. The Company
expects to commit approximately $8.6 million of capital expenditures to
maintain compliance with environmental control standards and enhance pollution
control at its mills during 1997 and 1998. Because the impact of further
environmental regulation 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 United States Environmental Protection Agency (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."
Although the U.S. EPA had indicated that the components of the Cluster Rules
dealing with wastewater discharges were to be finalized in 1996, this did not
occur. 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 that are not material.
On March 8, 1996, U.S. EPA proposed components of the Cluster Rules that
address air emissions from deinking paper mills, such as the Company's mills.
U.S. EPA has not formally indicated when these emissions standards will be
finalized. If the final air emission standards applicable to deinking mills
are substantially the same as the proposed standards, the Company believes the
cost of complying with such final standards will not be material.
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 substances 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 an
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. Other than the United States
Department of Interior, Fish and Wildlife Service ("FWS") assessment of the
Fox River described in "Legal Proceedings," the Company is currently named as
a PRP at only one CERCLA-related site. The Company believes its liability, if
any, at such site is de minimis. 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.
The Company has $37 million of accrued liabilities as of December 31,
1996, for estimated or anticipated liabilities, including legal and consulting
costs, relating to environmental matters arising from its operations. The
Company expects these costs to be expended over an extended number of years.
Although the accrued liabilities reflect the Company's current estimate of the
cost of these environmental matters, there can be no assurance that the amount
accrued will be adequate.
ITEM 2. PROPERTIES
Fort Howard produces its domestic tissue products at three mills: its
original mill in Green Bay, Wisconsin; its Muskogee, Oklahoma mill constructed
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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 mills is a world-class, fully integrated tissue mill that can
deink and process fiber from low cost wastepaper to provide virtually all of
the mill's tissue fiber. Each mill is geographically located to minimize
distribution costs to its regional markets.
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 mill, 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 mills. The
Company's Muskogee, Oklahoma mill contains a 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 domestic mills also includes a coal-fired
cogeneration power plant capable of producing substantially all of the mill's
steam and electricity, a modern deinking 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 of the Company's domestic mills.
Fort Sterling currently operates three tissue paper machines and a
deinking and wastepaper processing plant at its Ramsbottom paper mill. The
Company cuts, folds, prints and packages paper into finished tissue products
at its Bolton and Wigan converting facilities. All of Fort Sterling's
locations are in Greater Manchester, England.
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 of 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 4 to the audited consolidated financial statements.
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. Converting facilities are
generally operated on a 24-hour per day, 5-day per week basis or a 7-day per
week schedule. Converting capacity could be expanded by adding converting
equipment.
ITEM 3. LEGAL PROCEEDINGS
In December 1994, the Company was notified by the United States
Department of Justice ("U.S. DOJ") of a civil antitrust investigation into
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possible agreements in restraint of trade in connection with sales of
commercial sanitary paper products. The Company responded during the first
and second quarters of 1995 to a Civil Investigative Demand issued by the U.S.
DOJ. On May 20, 1996, the Company received a subpoena to provide certain
documents to a federal grand jury in Cleveland that is investigating possible
antitrust violations in the sale of commercial sanitary paper products. The
Company has responded to the subpoena and is continuing to cooperate in the
investigation.
Since 1992, the Company has been participating in an effort sponsored by
the Wisconsin Department of Natural Resources ("WDNR") to study the nature and
extent of polychlorinated biphenyl ("PCB") and other sediment contamination of
the lower Fox River in northeast Wisconsin. The objective of this effort is
to identify cost effective primary restoration of certain sediment deposits.
On January 30, 1997, the Company and six other companies (the "Seven
Companies") entered into an agreement with WDNR and the Wisconsin Department
of Justice ("WDOJ") to investigate claims for natural resources damages,
including sediment restoration claims, asserted against the Seven Companies
relating to releases of PCBs and other hazardous substances to the lower Fox
River ("Agreement") and to pursue a negotiated settlement of those claims
under federal and state law. The Agreement also provides that the Seven
Companies will make available to the State of Wisconsin a total of $10
million, consisting of work and funds, to, among other purposes, initiate
demonstration projects to determine the efficacy of sediment restoration
approaches and to underwrite a state directed natural resources damage
assessment. The parties have agreed to a tolling agreement and to forbear
from commencing litigation during the term of the Agreement. Based upon
available information, the Company believes there are additional parties who
may be responsible for releasing PCBs to the Fox River.
The United States Department of Interior, Fish and Wildlife Service
("FWS"), a federal natural resource trustee, previously informed each of the
Seven Companies that they have been identified as potentially responsible
parties for purposes of claims for natural resources damages 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 begun an assessment to determine and
quantify the nature and extent of injury to any affected natural resources.
On February 3, 1997, the Seven Companies were notified by FWS of its intent to
file suit to recover natural resources damages pursuant to Federal law. Based
upon available information, the Company believes that there are additional
parties who may be identified as PRPs for alleged natural resource damages.
The Company has $37 million of accrued liabilities as of December 31,
1996, for estimated or anticipated liabilities, including legal and consulting
costs, relating to environmental matters arising from its operations. The
Company expects these costs to be expended over an extended number of years.
Although the accrued liabilities reflect the Company's current estimate of the
cost of these environmental matters, there can be no assurance that the amount
accrued will be adequate.
In 1992, the IRS disallowed income tax deductions for the 1988 tax year
which were claimed by the Company for fees and expenses, other than interest,
related to 1988 debt financing and refinancing transactions. The Company
deducted the balance of the disallowed fees and expenses related to the 1988
debt instruments during the tax years 1989 through 1995. In disallowing these
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deductions, the IRS relied on Internal Revenue Code ("Code") Section 162(k)
(which denies deductions for otherwise deductible amounts paid or incurred in
connection with stock redemptions). The Company contested the disallowance.
In August 1994, the United States 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. The decision in
this case was not entered while the Company and the IRS completed the
administrative settlement of other adjustments that were not tried before the
U.S. Tax Court. During that period, Code Section 162(k) was amended in August
1996 to provide that, retroactive to 1986, such Code Section was not
applicable to deductions for amounts properly allocable to indebtedness and
amortized over the term of such indebtedness.
On December 30, 1996, the U.S. Tax Court entered its decision allowing
the deductions claimed by the Company. As a result of that decision, the
Company has reversed in the fourth quarter of 1996 $36 million of income tax
expense previously accrued for the tax years 1988 through 1995, thereby
reducing its income tax expense by $36 million for 1996. Of the $36 million,
a receivable of $10 million, including interest, has been recorded for amounts
previously paid with respect to this matter.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during
the fourth quarter of 1996.
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ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information about each of the
current executive officers of the Company. All executive officers are elected
by, and serve at the discretion of, the Board of Directors. None of the
executive officers of the Company are related by blood, marriage or adoption
to any other executive officer or director of the Company.
Present Principal Occupation or
Name and Position Employment; Five-Year Employment
With the Company Age History and other Directorships
----------------- --- --------------------------------
Donald H. DeMeuse .............. 60 Chairman of the Board of Directors
Chairman of the Board since March 1992; Chief Executive
Officer from July 1990 to September
1996; President from July 1990 to
March 1992. Director of Associated
Bank Green Bay.
Michael T. Riordan ............. 46 Chief Executive Officer since October
President and Chief Executive 1996; President since March 1992;
Officer Chief Operating Officer from March
1992 to September 1996; Vice President
prior to that time. Director of The
Dial Corporation.
Kathleen J. Hempel ............. 46 Vice Chairman and Chief Financial
Vice Chairman and Officer since March 1992; Senior
Chief Financial Officer Executive Vice President and Chief
Financial Officer prior to that
time. Director of Whirlpool
Corporation.
John F. Rowley ................. 56 Executive Vice President for more than
Executive Vice President five years.
Daniel J. Platkowski ........... 45 Senior Vice President since December
Senior Vice President 1996; Vice President prior to that
time.
Timothy G. Reilly .............. 46 Senior Vice President since October
Senior Vice President 1996; Vice President prior to that
time.
James W. Nellen II ............. 49 Vice President and Secretary for more
Vice President and Secretary than five years.
ITEM 4b. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Except for the historical information contained in this Annual Report on
Form 10-K, certain matters discussed herein, including (without limitation) in
particular under Part I, Item 1, "Business -- Environmental Matters," Item 3,
"Legal Proceedings" and under Part II, Item 7, "Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations," are
forward looking statements that involve risks and uncertainties, including
(without limitation) the effect of economic and market conditions, such as
demand, industry operating capacity, product pricing and wastepaper supply and
pricing, costs related to environmental matters, and the impact of current or
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pending legislation and regulation. The forward looking statements and
statements based on the Company's beliefs contained in "Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations" represent the Company's attempt to measure activity in, and to
analyze the many factors affecting, the markets for its products and the
markets for the raw materials from which its products are made. There can be
no assurance that: (i) the Company has correctly measured or identified all
of the factors affecting these markets or the extent of their likely impact;
(ii) the publicly available information with respect to these factors on which
the Company's analysis is based is complete or accurate or (iii) the Company's
analysis is correct.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock began trading under the symbol FORT on the
Nasdaq National Market on March 10, 1995. Prior to that, there was no market
for the Company's Common Stock. The range of high and low trade prices of the
Company's Common Stock during each quarter for the two most recent fiscal
years is as follows:
Common Stock Trade Prices
-------------------------
High Low Close
---- --- -----
Quarter Ended
-------------
March 31, 1995.................... $12.875 $12.00 $12.625
June 30, 1995..................... 15.00 12.00 14.125
September 30, 1995................ 16.25 13.375 15.375
December 31, 1995................. 23.25 14.375 22.50
March 31, 1996.................... 25.50 19.00 22.50
June 30, 1996..................... 23.25 19.50 19.875
September 30, 1996................ 26.00 19.25 24.375
December 31, 1996................. 29.50 23.50 27.6875
The number of holders of record of the Company's Common Stock at
December 31, 1996, was approximately 935.
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 its
Common Stock in the foreseeable future. The Company's 1995 Bank Credit
Agreement and the Company's outstanding debt obligations limit, in each case
with certain exceptions, the ability of the Company to pay dividends on its
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.
- 12 -
ITEM 6. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
<TABLE>
Year Ended December 31,
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In millions, except ratios and per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales ............................... $ 1,581 $ 1,621 $ 1,274 $ 1,187 $ 1,151
Cost of sales ........................... 945 1,139 867 784 726
------- ------- ------- ------- -------
Gross income............................. 636 482 407 403 425
Selling, general, and
administrative (a)..................... 142 122 110 97 97
Amortization of goodwill (b). ........... -- -- -- 43 57
Goodwill write-off (b)................... -- -- -- 1,980 --
Environmental charge (c)................. 18 -- 20 -- --
------- ------- ------- ------- -------
Operating income (loss) (c).............. 476 360 277 (1,717) 271
Interest expense......................... 259 310 338 342 338
Other (income) expense, net ............. 2 (2) -- (3) 2
------- ------- ------- ------- -------
Income (loss) before taxes (c)........... 215 52 (61) (2,056) (69)
Income taxes (credit) (d)................ 44 18 (19) (16) --
------- ------- ------- ------- -------
Net income (loss) before extraordinary
items and adjustment for accounting
change (e)............................. 171 34 (42) (2,040) (69)
Extraordinary items - losses on debt
repurchases (net of income taxes)...... (8) (19) (28) (12) --
Adjustment for adoption of SFAS No. 106
(net of income taxes) (f).............. -- -- -- -- (11)
------- ------- ------- ------- -------
Net income (loss) (g).................... $ 163 $ 15 $ (70) $(2,052) $ (80)
======= ======= ======= ======= =======
Earnings (loss) per share before
extraordinary items (e)................ $ 2.44 $ 0.57 $ (1.11) $(53.54) $ (1.82)
Earnings (loss) per share (g)............ $ 2.32 $ 0.25 $ (1.85) $(53.85) $ (2.10)
OTHER DATA:
EBITDA (h)............................... $ 596 $ 459 $ 393 $ 387 $ 410
EBITDA as a percent of net sales (h)..... 37.7% 28.3% 30.8% 32.6% 35.6%
Depreciation of property, plant
and equipment ......................... $ 102 $ 99 $ 96 $ 88 $ 81
Non-cash interest expense................ 14 13 74 101 140
Capital expenditures..................... 73 47 84 166 233
Weighted average number of shares
of Common Stock outstanding
(in thousands) (g)..................... 70,088 58,228 38,103 38,107 38,107
BALANCE SHEET DATA (at end of period):
Total assets............................. $ 1,615 $ 1,652 $ 1,681 $ 1,650 $ 3,575
Working capital (deficit)................ (36) (35) (98) (92) (124)
Long-term debt (including current
portion) and Common Stock with
put right.............................. 2,463 2,966 3,318 3,234 3,104
Shareholders' deficit.................... (1,455) (1,838) (2,148) (2,081) (29)
</TABLE>
- 13 -
(a) 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.
(b) 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.
(c) During the fourth quarters of 1996 and 1994, the Company recorded
environmental charges totaling $18 million and $20 million, respectively.
Excluding the effects of the environmental charge, the Company's operating
income, and income (loss) before taxes in 1996 would have been $494 million
and $233 million, respectively, and in 1994 would have been $297 million and
($41) million, respectively.
(d) During the fourth quarter of 1996, the Company recorded a credit of
$36 million to income tax expense reversing income taxes previously accrued
for the tax years 1988 through 1995 for previously disallowed income tax
deductions for fees and expenses related to 1988 debt financing and
refinancing transactions.
(e) Excluding the environmental charges described in (c) above and the income
tax credit described in (d) above, net income (loss) before extraordinary
items and net income (loss) per share before extraordinary items in 1996 would
have been $145 million and $2.07 per share, respectively, and in 1994 would
have been ($28) million and ($0.73) per share, respectively.
(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 million.
(g) 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 material 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 1996 and
1994 environmental charges 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
1995 Bank Credit Agreement and other instruments governing the Company's
indebtedness are based on the Company's EBITDA, subject to certain
adjustments.
- 14 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(In millions, except percentages)
Net sales:
Domestic tissue......................... $ 1,338 $ 1,320 $ 1,060
International operations................ 177 164 131
Harmon.................................. 66 137 83
------- ------- -------
Consolidated............................ $ 1,581 $ 1,621 $ 1,274
======= ======= =======
Operating income:
Domestic tissue (a)..................... $ 448 $ 337 $ 264
International operations ............... 25 18 8
Harmon ................................. 3 5 5
------- ------- -------
Consolidated (a)........................ $ 476 $ 360 $ 277
======= ======= =======
Consolidated net income (loss)............ $ 163 $ 15 $ (70)
======= ======= =======
Operating income as a percent of net sales 30.1% 22.2% 21.7%
_____________________
(a) During the fourth quarter of 1996 and 1994, operating income for domestic
tissue operations was reduced by environmental charges of $18 million and
$20 million, respectively. See Note 10 to the Company's audited consolidated
financial statements.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net Sales. Net sales in the Company's domestic tissue operations
increased 1.4% for 1996 compared to 1995. The increase was due to a 1.4%
increase in converted products volume. Domestic sales volume in 1996 was
stronger in the consumer market than in the commercial market. Sales volume
of unconverted parent rolls decreased in 1996 compared to 1995 as the Company
focused on higher profit converted products. Domestic net selling prices were
slightly higher in 1996 compared to 1995. However, selling prices declined in
1996 from price levels at the beginning of the year principally as a result of
price decreases in the consumer market which took effect in April and June
1996. Net selling prices were stable during the second half of 1996.
Net sales of the Company's international operations increased 8.2% for
1996 compared to 1995 due to an increase in net selling prices and higher
volume of converted products at the Company's United Kingdom facilities.
Consolidated net sales for 1996 decreased 2.5% compared to 1995 because
of significantly lower selling prices in the Company's wastepaper brokerage
subsidiary, Harmon Assoc. Corp. ("Harmon"), where sales decreased 52.4% in
1996 compared to 1995.
- 15 -
Gross Income. For 1996, consolidated gross income increased 32.2%
principally due to lower raw material costs and, to a much lesser degree,
higher volume and selling prices for both domestic tissue and international
operations. Consolidated gross margins increased to 40.3% for 1996 from 29.7%
for 1995 as a result of significant raw material cost decreases that began in
late 1995 and continued through the first half of 1996. Raw material costs
stabilized in the second half of 1996. Wastepaper prices both domestically
and in the United Kingdom are expected to remain stable for the first quarter
of 1997; however, the direction of wastepaper price trends in succeeding
quarters is uncertain due to general economic factors, virgin market pulp
price trends and changes in demand for wastepaper by deinked market pulp mills
and in export markets that are difficult to estimate.
Consolidated gross margins were positively affected in 1996 by the
decreased proportion of net sales represented by the Company's wastepaper
brokerage subsidiary which typically has very low margins compared to domestic
tissue operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percent of net sales, increased to 9.0% for 1996
compared to 7.5% for 1995. The increase was principally due to the impact of
the Company's strong earnings performance on employee compensation plans,
higher selling expenses resulting from greater consumer product sales and
lower net sales by Harmon.
Environmental Charge. Based upon currently available information and
analysis, the Company recorded an $18 million charge in the fourth quarter of
1996 for estimated or anticipated liabilities, including legal and consulting
costs, relating to environmental matters arising from its operations. The
Company expects these costs to be incurred over an extended number of years.
See "Environmental Matters" and "Legal Proceedings" and Note 10 to the
Company's audited consolidated financial statements.
Operating Income. Operating income increased to $476 million in 1996
compared to $360 million in 1995. Operating income as a percent of net sales
increased to 30.1% in 1996 compared to 22.2% in 1995. (Excluding the
environmental charge from 1996 results, operating income would have increased
to $494 million in 1996 resulting in operating income as a percent of net
sales of 31.3%.) Domestic tissue operating income as a percent of net sales
increased to 33.5% in 1996 from 25.5% in 1995. The increases are due to
significantly lower raw material costs in 1996 and slightly higher net selling
prices and volume in both domestic tissue and international operations.
Income Taxes. The Company's 1996 income tax expense was reduced by
$36 million as a result of a fourth quarter 1996 decision by the United States
Tax Court allowing the Company to deduct certain fees and expenses related to
1988 debt financing and refinancing transactions which were claimed by the
Company for its tax years 1988 through 1995 and which had been previously
disallowed by the Internal Revenue Service. See "Legal Proceedings" and
Note 3 to the Company's audited consolidated financial statements.
Extraordinary Loss. The Company's net income in 1996 was decreased by an
extraordinary loss of $8 million (net of income taxes of $5 million)
representing the write-off of deferred loan costs associated with the
prepayment of a portion of the outstanding indebtedness under the 1995 Bank
Credit Agreement.
- 16 -
Net Income. The Company reported net income of $163 million for 1996
compared to net income of $15 million for 1995.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Net Sales. Consolidated net sales for 1995 increased 27.2% compared to
1994. Domestic tissue net sales for 1995 increased 24.6% compared to 1994 due
to net selling price increases of 22.4%, converted products volume increases
of 4.4% and reduced parent roll export volume. The significant increase in
domestic net selling prices in 1995 reflects commercial market price increase
announcements effective January 1995, April 1995, July 1995 and September 1995
and consumer market price increase announcements effective January 1995 and
July 1995, all in response to rising raw material costs and improving
operating rates in the tissue industry. Domestic volume of the Company's
commercial products was flat for the full year 1995 compared to 1994.
Significant volume growth in the first quarter of 1995 was offset by volume
declines in succeeding quarters. The Company's firm implementation of price
increases led to the commercial volume declines beginning in the second
quarter of 1995. Domestic consumer volume was significantly higher throughout
1995 compared to 1994 due to strong consumer market demand for the Company's
products.
Net sales of the Company's international operations increased 24.8% for
1995 compared to 1994 due to a significant increase in net selling prices,
slightly higher volume of converted products and the benefit from the change
in foreign exchange rates, while parent roll volume was reduced. Net sales of
the Company's wastepaper brokerage subsidiary, Harmon, increased 63.8% for
1995 due to higher selling prices and slightly higher volume.
Gross income. For 1995, consolidated gross income increased 18.3% due to
higher selling prices and to a much lesser degree, higher domestic volume,
partially offset by higher raw material costs. Consolidated gross margins
decreased to 29.7% for 1995 from 31.9% for 1994 and 34.0% for 1993 as a result
of significant raw material cost increases that began in mid-1994 and
continued until mid-1995. However, beginning in the second quarter of 1995,
as net selling price increases began to offset raw material cost increases,
consolidated gross margins began to recover and reached 34.0% in the fourth
quarter of 1995, the same rate achieved in full year 1993. Domestic tissue
gross margins in 1995 exhibited trends similar to consolidated gross margins.
Beginning in July 1994, domestic wastepaper prices rose sharply until
flattening in the second and third quarters of 1995. Average wastepaper
prices in the fourth quarter of 1995 were higher than average wastepaper
prices in the fourth quarter of 1994. However, wastepaper prices fell
significantly in the fourth quarter of 1995 from the third quarter of 1995 and
by December 1995 were significantly below wastepaper prices in December 1994.
Wastepaper price trends are expected to remain positive for the first quarter
of 1996, however, the direction of wastepaper price trends in succeeding
quarters is uncertain due to general economic factors, virgin market pulp
price trends and expected increases in demand for wastepaper arising from
scheduled start-ups of deinked market pulp mills and from export markets.
Costs of other raw materials also increased during 1995 compared to 1994 but
to a much lesser extent, while all other costs were flat or declined due to
efficiencies achieved from higher volumes.
Gross margins of international operations increased in 1995 compared to
1994 in spite of significantly higher wastepaper prices due to the benefits
- 17 -
achieved from product rationalization in 1994 and the success of 1995 price
increases. Wastepaper price trends in the United Kingdom were similar to
those in the United States in 1995.
Consolidated gross margins were negatively affected in 1995 by the
increased proportion of net sales represented by the Company's wastepaper
brokerage subsidiary which typically has very low margins compared to domestic
tissue operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percent of net sales, decreased to 7.5% for 1995
compared to 8.6% for 1994. The decrease occurred principally due to the
effects of significantly higher net sales.
Operating Income. Operating income increased to $360 million in 1995
compared to $277 million in 1994. Excluding the environmental charge from
1994 results, operating income would have been $297 million in 1994.
Operating income as a percent of net sales decreased to 22.2% in 1995 compared
to 23.3% in 1994, as adjusted for the environmental charge. Domestic tissue
operating income as a percent of net sales decreased to 25.5% in 1995 from
26.9% in 1994, also as adjusted for the environmental charge. The decreases
are due to significantly higher raw material costs in 1995 partially offset by
significantly higher net selling prices and higher domestic volume. Operating
income as a percent of net sales began to recover beginning in the second
quarter of 1995, similar to gross margin trends, such that consolidated and
domestic tissue operating income as a percent of net sales reached 25.5% and
27.9%, respectively, in the fourth quarter of 1995.
Extraordinary Loss. The Company's net income in 1995 was decreased by an
extraordinary loss of $19 million (net of income taxes of $12 million)
representing the redemption premiums and write-offs of deferred loan costs
associated with the prepayment or redemption of all the Company's indebtedness
outstanding under the 1988 Bank Credit Agreement, 1993 Term Loan, Senior
Secured Notes, 14 1/8% Debentures (at par) and 12 5/8% Debentures (at 102.5%
of the principal amount thereof).
Net Income. The Company reported net income of $15 million for 1995
compared to a net loss of $70 million for 1994.
FINANCIAL CONDITION
Year Ended December 31, 1996
During 1996, cash decreased $187,000. Capital additions of $73 million
and debt repayments of $504 million were funded principally by net proceeds of
$213 million from the sale of Common Stock and $365 million of cash from
operations provided by strong operating results.
Receivables decreased $35 million during 1996 due principally to lower
net selling prices in the domestic tissue and international operations in the
fourth quarter of 1996 compared to the fourth quarter of 1995. Inventories
decreased by $12 million principally due to decreased raw material costs in
the fourth quarter of 1996 compared to the fourth quarter of 1995. Accounts
payable increased $19 million principally due to increased liabilities
resulting from higher selling expenses due to the growth of the consumer
business and the introduction of premium products in the commercial market and
- 18 -
from higher capital spending in the fourth quarter of 1996. Other current
liabilities increased $25 million due to higher amounts to be paid under
employee compensation plans as a result of strong earnings results and higher
current expenses for legal and consulting costs associated with the fourth
quarter environmental charge. The liability for interest payable decreased
$4 million due to lower debt balances as a result of the 1996 public stock
offering (the "1996 Offering") and cash provided from operations. Principally
as a result of all these changes and the prepayment of a portion of the
indebtedness due within one year under the 1995 Bank Credit Agreement from the
net proceeds of the 1996 Offering and cash from operations, the net working
capital deficit was $36 million at December 31, 1996, as compared to a deficit
of $35 million at December 31, 1995.
Year Ended December 31, 1995
During 1995, cash increased $524,000. Capital additions of $47 million,
debt repayments of $1,811 million, including the prepayment or repurchase of
all of the 1988 Term Loan, the 1988 Revolving Credit Facility, the 1993 Term
Loan and the Senior Secured Notes, repayment of the 1995 Receivables Facility
and the redemption of all the outstanding 12 5/8% Debentures and 14 1/8%
Debentures, were funded principally by cash provided from operations of
$157 million (including proceeds of $63 million from the sale of certain
domestic tissue receivables), net proceeds of $284 million from the sale of
Common Stock and borrowings of $1,418 million (net of $50 million of debt
issuance costs) pursuant to the 1995 public stock offering (the "1995
Offering").
Receivables decreased $25 million during 1995 due principally to the sale
of certain domestic tissue receivables of $63 million, which was largely
offset by the effects of an increase in net sales and significantly higher net
selling prices in all the Company's businesses. Inventories increased by
$32 million principally due to an increase in inventory quantities. Parent
roll and wastepaper inventories were increased to reflect currently lower
priced wastepaper and to maximize the flexibility of existing productive
capacity. The liability for interest payable decreased $20 million due to the
early payment of interest in connection with the prepayment or redemption of a
substantial portion of the Company's indebtedness. Principally as a result of
all these changes and the $53 million reduction in the current portion of
long-term debt, the net working capital deficit decreased to $35 million at
December 31, 1995, from a deficit of $98 million at December 31, 1994.
Liquidity and Capital Resources
The Company's principal uses of cash generated from operations for the
next several years will be interest and principal payments on its indebtedness
and capital expenditures.
On May 15, 1996, the Company issued 10 million shares of Common Stock at
$20.25 per share in the 1996 Offering. Proceeds from the 1996 Offering, net
of underwriting commissions and other related expenses totaling $9 million,
were $194 million. On June 4, 1996, an additional 520,000 shares of Common
Stock were issued at $20.25 per share upon the exercise of a portion of the
underwriters' over-allotment option granted in connection with the 1996
Offering, resulting in additional new proceeds of $10 million after deducting
underwriting commissions. During 1996 the Company issued 419,074 shares of
Common Stock at a weighted average price of $15.42 per share as a result of
stock option exercises under the Company's employee stock option plans
resulting in net proceeds to the Company of $6 million.
- 19 -
Capital expenditures were $73 million, $47 million and $84 million in
1996, 1995 and 1994, respectively, including an aggregate of $59 million
during those periods for capacity expansions. In September 1996, the
Company's Board of Directors authorized the installation of a new tissue paper
machine and associated facilities at one of its United States mills. The
expansion is planned for completion in 1999 at an estimated cost of
$160 million. The 1995 Bank Credit Agreement imposes limits for domestic
capital expenditures, with certain exceptions, of $75 million per year. The
Company is also permitted to spend up to $250 million for domestic expansion
projects including, without restriction, an additional tissue paper machine at
one of its existing domestic mills. Other domestic expansion projects are
restricted unless certain conditions are met. In addition, the Company is
permitted to make capital expenditures for international expansion of up to
$100 million in the aggregate if certain conditions are met. Under the 1995
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. At December 31, 1996, the
capital expenditures carryover available to the Company totaled $38 million.
The Company does not believe such limitations will impair its plans for
capital expenditures. Capital expenditures are projected to approximate $90
to $110 million annually for the next several years, plus the domestic
expansion capital spending that is expected to be completed in 1999. The
portions of the above capital expenditures which are attributable to
environmental matters are described in "Environmental Matters."
The Company's 1995 Revolving Credit Facility, which may be used for
general corporate purposes, has a final maturity of March 16, 2002. At
December 31, 1996, the Company had $273 million in available capacity under
the 1995 Revolving Credit Facility.
The Company believes that cash provided from 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 to meet its debt service requirements for the foreseeable future.
Refer to Note 3 to the audited consolidated financial statements for a
description of certain matters related to income taxes. Also see "Legal
Proceedings."
Seasonality
Historically, a slightly higher amount of the Company's revenues and
operating income have been recognized during the second and third quarters.
The Company expects to fund seasonal working capital needs from the 1995
Revolving Credit Facility.
- 20 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Fort Howard Corporation is responsible for the
preparation, integrity and fair presentation of the following financial
statements. These financial statements have been prepared by management in
accordance with generally accepted accounting principles and where necessary
include amounts based on management's judgments and estimates. Management
also prepared the other information in this annual report and is responsible
for its integrity and consistency with the financial statements.
Fort Howard Corporation is committed to conducting its business with
integrity and in accordance with all applicable laws, rules and regulations.
This commitment is reflected in the Company's Code of Conduct. The Code of
Conduct is annually communicated to employees and compliance is monitored
regularly to provide reasonable assurance that the Company's business is being
conducted in accordance with the Code of Conduct.
The Company maintains a system of internal accounting controls designed
to provide reasonable assurance that the Company's assets are safeguarded and
that transactions are executed and recorded according to management's
authorizations in order to create financial records reliable for the
preparation of financial statements. Management continuously evaluates its
system of internal accounting controls in response to changes in business
conditions and operations, staff turnover and development of new technologies
and, as a result, enhances existing controls with the objective of maintaining
a strong internal control environment. In addition, the Company's internal
audit staff monitors the effectiveness of internal controls through
operational audits of this system, reporting their findings and
recommendations for improvement to management.
The financial statements of the Company have been audited by
Arthur Andersen LLP. The independent accountants were provided with
unrestricted access to all financial records and related data in order to
perform their tests and other procedures. Their opinion on the fairness of
the Company's financial statements appears on the next page.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the Company's management, internal auditors
and independent accountants to review the adequacy of significant internal
control systems, the nature, extent and results of internal and external
audits and reported financial results. The Audit Committee maintains direct
and independent access with the independent accountants.
In conclusion, management believes that as of December 31, 1996, the
Company's internal control systems over financial reporting are adequate and
operating effectively in all material respects.
/s/ Michael T. Riordan /s/ Kathleen J. Hempel
Michael T. Riordan, President and Kathleen J. Hempel, Vice Chairman
Chief Executive Officer and Chief Financial Officer
- 21 -
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, 1996, and 1995, and the related consolidated statements of income
and cash flows for the years ended December 31, 1996, 1995 and 1994. 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, 1996, and 1995,
and the consolidated results of their operations and their cash flows for the
years ended December 31, 1996, 1995 and 1994, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 1997.
- 22 -
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Net sales............................ $ 1,580,771 $ 1,620,903 $ 1,274,445
Cost of sales........................ 944,257 1,139,378 867,357
----------- ----------- -----------
Gross income......................... 636,514 481,525 407,088
Selling, general and administrative.. 142,143 121,406 110,285
Environmental charge................. 18,000 -- 20,000
----------- ----------- -----------
Operating income..................... 476,371 360,119 276,803
Interest expense..................... 258,948 309,915 337,701
Other (income) expense, net.......... 2,923 (1,662) 118
----------- ----------- -----------
Income (loss) before taxes........... 214,500 51,866 (61,016)
Income taxes (credit)................ 43,767 18,401 (18,891)
----------- ----------- -----------
Income (loss) before extraordinary
items.............................. 170,733 33,465 (42,125)
Extraordinary items--losses on
debt repurchases (net of income
taxes of $5,313 in 1996, $11,986
in 1995 and $14,731 in 1994)....... (8,136) (18,748) (28,170)
----------- ----------- -----------
Net income (loss).................... $ 162,597 $ 14,717 $ (70,295)
=========== =========== ===========
Earnings (loss) per share:
Net income (loss) before
extraordinary items.............. $ 2.44 $ 0.57 $ (1.11)
Extraordinary items................ (0.12) (0.32) (0.74)
----------- ----------- -----------
Net income (loss).................. $ 2.32 $ 0.25 $ (1.85)
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
- 23 -
FORT HOWARD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
-------------------
1996 1995
---- ----
Assets
Current assets:
Cash and cash equivalents.................. $ 759 $ 946
Receivables, less allowances of $3,343
in 1996 and $2,883 in 1995............... 63,194 97,707
Inventories................................ 151,248 163,076
Deferred income taxes...................... 60,000 29,000
Income taxes receivable.................... 10,121 700
----------- -----------
Total current assets..................... 285,322 291,429
Property, plant and equipment................ 2,057,446 1,971,641
Less: Accumulated depreciation............. 809,650 706,394
----------- -----------
Net property, plant and equipment........ 1,247,796 1,265,247
Other assets................................. 82,262 95,761
----------- -----------
Total assets........................... $ 1,615,380 $ 1,652,437
=========== ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable........................... $ 131,205 $ 112,384
Interest payable........................... 60,443 64,375
Income taxes payable....................... 7,700 1,339
Other current liabilities.................. 110,357 85,351
Current portion of long-term debt.......... 11,972 62,720
----------- -----------
Total current liabilities................ 321,677 326,169
Long-term debt............................... 2,451,373 2,903,299
Deferred and other long-term income taxes.... 247,464 225,043
Other liabilities............................ 49,703 36,355
Shareholders' deficit:
Common Stock............................... 744 634
Additional paid-in capital................. 1,108,976 895,652
Cumulative translation adjustment.......... 4,717 (2,844)
Retained deficit........................... (2,569,274) (2,731,871)
----------- -----------
Total shareholders' deficit.............. (1,454,837) (1,838,429)
----------- -----------
Total liabilities and shareholders'
deficit.............................. $ 1,615,380 $ 1,652,437
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
- 24 -
FORT HOWARD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
Cash provided from (used for) operations:
Net income (loss)....................... $ 162,597 $ 14,717 $ (70,295)
Depreciation............................ 101,647 98,882 95,727
Non-cash interest expense............... 13,909 12,925 74,238
Deferred income taxes (credit).......... 27,402 4,418 (33,832)
Environmental charge.................... 18,000 -- 20,000
Pre-tax loss on debt repurchases........ 13,448 30,734 42,901
Restricted cash......................... (14,916) -- --
(Increase) decrease in receivables...... 34,513 25,443 (17,316)
(Increase) decrease in inventories...... 11,828 (32,233) (12,574)
(Increase) decrease in income taxes
receivable............................ (9,421) 4,500 4,300
Increase (decrease) in accounts payable. 18,821 11,403 (684)
Increase (decrease) in interest payable. (3,932) (19,898) 29,419
Increase in income taxes payable........ 6,361 1,115 102
All other, net.......................... (14,928) 4,930 (6,799)
---------- ---------- ----------
Net cash provided from operations... 365,329 156,936 125,187
Cash used for investment activities:
Additions to property, plant and
equipment............................. (73,436) (47,296) (83,559)
Cash provided from (used for)
financing activities:
Proceeds from long-term borrowings...... -- 1,467,800 750,000
Repayment of long-term borrowings....... (504,025) (1,810,966) (759,202)
Debt issuance costs..................... (1,489) (50,054) (32,134)
Issuance (repurchase) of Common
Stock, net of offering costs.......... 213,434 284,104 (97)
---------- ---------- ----------
Net cash used for financing
activities........................ (292,080) (109,116) (41,433)
---------- ---------- ----------
Increase (decrease) in cash............... (187) 524 195
Cash, beginning of year................... 946 422 227
---------- ---------- ----------
Cash, end of year................... $ 759 $ 946 $ 422
========== ========== ==========
Supplemental Cash Flow Disclosures:
Interest paid........................... $ 248,919 $ 317,866 $ 237,650
Income taxes paid (refunded), net....... 49,555 (5,728) 2,483
The accompanying notes are an integral part of these consolidated financial
statements.
- 25 -
FORT HOWARD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
(A) OPERATIONS -- The Company operates in one industry segment as a
manufacturer, converter and marketer of a diversified line of single-use
tissue products for the commercial and consumer markets, primarily in the
United States and United Kingdom.
(B) PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Fort Howard Corporation and all domestic and foreign
subsidiaries and are prepared in conformity with U.S. generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. 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
currently 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.
(C) 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.
At December 31, 1996, the Company had $14,916,000 of cash restricted as
collateral under the terms of its 1995 Accounts Receivable Facility. This
restricted cash is recorded under "Other Assets" in the consolidated balance
sheet.
(D) INVENTORIES -- Inventories are carried at the lower of cost or
market. Cost is principally determined on a first-in, first-out basis, with a
lesser portion determined on an average cost by specific lot method. The
elements of costs include materials, labor and overhead.
(E) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment 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. In 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of" ("SFAS No. 121"). The Company's adoption of
SFAS No. 121 effective January 1, 1995, had no effect on the 1995 consolidated
financial statements.
Assets under capital leases principally arose in connection with sale and
leaseback transactions as described in Note 5 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.
- 26 -
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 1996, 1995 and 1994 were $1,487,000, $2,096,000 and $4,230,000,
respectively.
(F) REVENUE RECOGNITION -- Sales of the Company's tissue products are
recorded upon shipment of the products.
(G) 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 or restoration 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. The Company's accounting policies
related to environmental expenditures are in accordance with AICPA Statement
of Position 96-1.
(H) EMPLOYEE BENEFIT PLANS -- A substantial majority of the Company's
employees are covered under defined contribution plans. The Company makes
annual discretionary contributions 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 $16,307,000,
$13,231,000 and $12,716,000 for 1996, 1995 and 1994, 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 (see Note 6). These benefits are
subject to deductibles, copayment provisions, a lifetime maximum benefit and
other limitations. In addition, employees who retire after January 31, 1990
and meet certain age and years of service requirements 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. Employees of the Company's U.K. tissue operations are not entitled to
Company-provided postretirement benefit coverage.
(I) INTEREST RATE CAP AGREEMENTS -- The costs of interest rate cap
agreements are amortized over the respective lives of the agreements.
(J) INCOME TAXES -- Deferred income taxes are provided to recognize
temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse. The principal
difference relates to depreciation expense. Deferred income tax expense
represents the change in the deferred income tax asset and liability balances,
excluding the deferred tax benefit related to extraordinary losses.
(K) EARNINGS (LOSS) PER SHARE -- Earnings (loss) per share has been
computed on the basis of the average number of common shares outstanding
during the years, after giving retroactive effect to a 6.5-for-one stock split
on January 31, 1995. The average number of shares used in the computation was
70,088,196, 58,227,712 and 38,103,215 for 1996, 1995 and 1994, respectively.
- 27 -
The assumed exercise of all outstanding stock options has been excluded from
the computation of earnings (loss) per share in 1996, 1995 and 1994 because
the result was not material or was antidilutive.
2. BALANCE SHEET INFORMATION
December 31,
------------------
1996 1995
---- ----
(In thousands)
Inventories
Raw materials and supplies........................ $ 70,595 $ 80,134
Finished and partly-finished products............. 80,653 82,942
---------- ----------
$ 151,248 $ 163,076
========== ==========
Property, Plant and Equipment
Land.............................................. $ 45,736 $ 45,523
Buildings......................................... 329,923 326,207
Machinery and equipment........................... 1,637,892 1,586,627
Construction in progress.......................... 43,895 13,284
---------- ----------
$2,057,446 $1,971,641
========== ==========
Capital Lease Assets (Included in Property, Plant
and Equipment Totals Above)
Buildings......................................... $ 4,448 $ 4,008
Machinery and equipment........................... 187,733 187,007
---------- ----------
Total assets under capital leases............. $ 192,181 $ 191,015
========== ==========
- 28 -
December 31,
-------------------
1996 1995
---- ----
(In thousands)
Other Assets
Deferred loan costs, net of accumulated amortization.. $ 62,787 $ 89,180
Prepayments and other................................. 4,559 6,581
Restricted cash....................................... 14,916 --
-------- --------
$ 82,262 $ 95,761
======== ========
Other Current Liabilities
Salaries and wages.................................... $ 61,657 $ 51,797
Contributions to employee benefit plans............... 16,938 13,226
Taxes other than income taxes......................... 6,769 6,442
Other accrued expenses................................ 24,993 13,886
-------- --------
$110,357 $ 85,351
======== ========
3. INCOME TAXES
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(In thousands)
Income Tax Provision
Current
Federal.................................. $ 2,632 $ (304) $ 1,800
State.................................... 2,761 768 509
Foreign.................................. 5,659 1,533 (2,099)
-------- -------- --------
Total current........................ 11,052 1,997 210
Deferred
Federal.................................. 27,954 17,227 (18,826)
State.................................... 3,281 (2,739) (2,793)
Foreign.................................. 1,480 1,916 2,518
-------- -------- --------
Total deferred....................... 32,715 16,404 (19,101)
-------- -------- --------
$ 43,767 $ 18,401 $(18,891)
======== ======== ========
- 29 -
Year Ended December 31,
-----------------------------
1996 1995 1994
---- ---- ----
(In thousands)
Effective Tax Rate Reconciliation
U.S. federal tax rate...................... 35.0% 35.0% (34.0)%
State income taxes, net.................... 2.7 2.1 (4.1)
Long-term income taxes and interest........ (17.0) -- 3.3
Permanent differences related to accruals.. -- -- 3.3
Other, net................................. (0.3) (1.6) 0.5
--------- -------- --------
Effective tax rate......................... 20.4% 35.5% (31.0)%
========= ======== ========
Income (Loss) Before Income Taxes
Domestic................................... $ 195,284 $ 39,067 $(62,711)
Foreign.................................... 19,216 12,799 1,695
--------- -------- --------
$ 214,500 $ 51,866 $(61,016)
========= ======== ========
The net deferred income tax liability at December 31, 1996, includes
$252 million related to property, plant and equipment offset by federal and
state loss and tax credit carryforwards totaling $30 million and the tax
benefit of accruals which do not meet economic performance requirements for
income tax purposes totaling $35 million. The Company has not recorded a
valuation allowance with respect to any deferred income tax asset.
In 1992, the Internal Revenue Service (the "IRS") disallowed income tax
deductions for the 1988 tax year which were claimed by the Company for fees
and expenses, other than interest, related to 1988 debt financing and
refinancing transactions. The Company deducted the balance of the disallowed
fees and expenses related to the 1988 debt instruments during the tax years
1989 through 1995. 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 contested the
disallowance. In August 1994, the United States 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. The
decision in this case was not entered while the Company and the IRS completed
the administrative settlement of other adjustments that were not tried before
the United States Tax Court. During that period, Code Section 162(k) was
amended in August 1996 to provide that, retroactive to 1986, such Code Section
was not applicable to deductions for amounts properly allocable to
indebtedness and amortized over the term of such indebtedness.
On December 30, 1996, the United States Tax Court entered its decision
allowing the deductions claimed by the Company. As a result of that decision,
the Company has reversed in the fourth quarter of 1996 $36 million of income
taxes previously accrued for the tax years 1988 through 1995, thereby reducing
its income tax expense by $36 million for 1996. Of the $36 million, a
receivable of $10 million, including interest, has been recorded for amounts
previously paid with respect to this matter.
The Company will have approximately $27 million of net operating loss
- 30 -
carryforwards as of December 31, 1996, for federal income tax purposes which
expire as follows: $18 million in 2010 and $9 million in 2011.
4. LONG-TERM DEBT
Long-term debt and capital lease obligations, including amounts payable
within one year, are summarized as follows:
December 31,
----------------
1996 1995
---- ----
(In thousands)
1995 Term Loan A, due in varying semi-annual
repayments with a final maturity of
March 16, 2002 (a).................................. $ 624,000 $ 810,000
1995 Term Loan B, due in varying semi-annual
repayments with a final maturity of
December 31, 2002 (b)............................... 119,000 330,000
1995 Revolving Credit Facility, due
March 16, 2002 (a).................................. 27,300 79,400
Senior Unsecured Notes, 9 1/4%, due March 15, 2001.... 450,000 450,000
Senior Unsecured Notes, 8 1/4%, due February 1, 2002.. 100,000 100,000
Senior Subordinated Notes, 9%, due February 1, 2006... 618,097 650,000
Subordinated Notes, 10%, due March 15, 2003........... 298,500 300,000
Capital lease obligations, at interest rates
approximating 10.90%................................ 170,606 175,161
Pollution Control Revenue Refunding Bonds, 7.90%,
due October 1, 2005................................. 42,000 42,000
Debt of foreign subsidiaries, at rates ranging from
7.25% to 7.84%, due in varying annual installments
through March 2001.................................. 13,842 29,458
---------- ----------
2,463,345 2,966,019
Less: Current portion of long-term debt............... 11,972 62,720
---------- ----------
$2,451,373 $2,903,299
========== ==========
_____________________
(a) Interest on the 1995 Term Loan A and the 1995 Revolving Credit Facility
is payable at prime plus 0.75% or, subject to certain limitations, at a
reserve adjusted LIBOR rate plus 1.75% subject to downward adjustment if
certain financial criteria are met (at a weighted average rate of 7.55% at
December 31, 1996).
(b) Interest on the 1995 Term Loan B is payable at prime plus 1.50% or at a
reserve adjusted LIBOR rate plus 2.50% (at a weighted average rate of 8.08% at
December 31, 1996).
The Company incurred extraordinary losses of $8 million, $19 million, and
$28 million, net of income taxes of $5 million, $12 million and $15 million,
in 1996, 1995 and 1994, respectively, representing redemption premiums and
write-offs of deferred loan costs associated with refinancing transactions or
early repayment of debt in each of those years.
Among other restrictions, the 1995 Bank Credit 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
- 31 -
Stock, additional borrowings and acquisition of property, plant and equipment;
(2) require that certain financial ratios 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 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.
The Company is charged a 0.5% fee with respect to any unused balance
available under its $300 million 1995 Revolving Credit Facility, and a 2.00%
fee with respect to any letters of credit issued under the 1995 Revolving
Credit Facility. At December 31, 1996, $27 million of borrowings reduced
available capacity under the 1995 Revolving Credit Facility to $273 million.
The aggregate annual maturities of long-term debt and capital lease
obligations for the five years succeeding December 31, 1996, are as follows:
1997-$11,972,000; 1998-$121,726,000; 1999-$133,724,000; 2000-$150,433,000 and
2001-$637,325,000.
In September 1995, the Company entered into agreements expiring in
July 2000 (the "1995 Receivables Sales Agreements") whereby substantially all
the Company's domestic tissue receivables are sold. The Company has retained
substantially the same credit risk as if the receivables had not been sold.
The Company received $60 million from such initial sales which was applied to
the repayment of the 1995 Receivables Facility and may receive up to
$25 million of additional proceeds on a revolving basis. The Company retains
a residual interest in the receivables sold, thus receivables in the
accompanying consolidated balance sheet are only reduced by the net proceeds
from the sales which totaled $60 million and $63 million as of December 31,
1996 and 1995, respectively. Under the terms of the 1995 Receivables Sales
Agreements, the ongoing costs to the Company from this program are based on
LIBOR, plus 0.25% to 0.65%, on the net proceeds received.
At December 31, 1996, receivables totaling $57 million, inventories
totaling $151 million and property, plant and equipment with a net book value
of $1,238 million were pledged as collateral or held in trust under the terms
of the 1995 Bank Credit Agreement, the 1995 Receivables Sales Agreements, the
debt of foreign subsidiaries and under the indentures for sale and leaseback
transactions.
Fair Market Value Disclosures
The aggregate fair values of the Company's long-term debt and capital
lease obligations approximated $2,521 million and $2,975 million at
December 31, 1996, and 1995, respectively, compared to aggregate carrying
values of $2,463 million and $2,966 million at December 31, 1996 and 1995,
respectively. The fair values of the long-term debt and capital lease
obligations have been determined principally based on secondary market
transactions or trading activity in the securities.
Obligations under the 1995 Bank Credit Agreement and debt of foreign
subsidiaries bear interest at floating rates. The Company's policy is to
enter into interest rate cap 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 8% plus
the Company's borrowing margin until June 1, 1999. At current market rates at
- 32 -
December 31, 1996, the fair value of the Company's interest rate cap
agreements is $1 million compared to a carrying value of $8 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.
5. SALE AND LEASEBACK TRANSACTIONS
Certain buildings and machinery and equipment at the Company's tissue
mills were sold and leased back from various financial institutions. These
leases are treated as capital leases in the accompanying consolidated
financial statements. Future minimum lease payments at December 31, 1996, are
as follows:
Year Ending December 31, Amount
------------------------ ------
(In thousands)
1997................................... $ 23,648
1998................................... 23,438
1999................................... 23,279
2000................................... 22,765
2001................................... 22,636
2002 and thereafter.................... 310,440
--------
Total payments......................... 426,206
Less imputed interest at
rates approximating 10.9%............ 255,600
--------
Present value of capital
lease obligations.................... $170,606
========
6. EMPLOYEE POSTRETIREMENT BENEFIT PLANS
Effective January 1, 1995, the Company revised the eligibility
requirements for postretirement medical benefits resulting in a reduction in
the number of active employees eligible to receive these benefits. An
additional change was made to freeze the amount of the monthly postretirement
medical benefit at the 1995 amount. As a result of these changes, the
accumulated postretirement benefit obligation as of December 31, 1995 was
reduced by $10.6 million and the Company recognized a curtailment gain of
$3.4 million in 1995. The decrease in the obligation is being amortized over
12 years, the average remaining service period of active employees.
- 33 -
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
(In thousands)
Net Periodic Postretirement Benefit Cost
Service cost...................................... $ 83 $ 82 $1,138
Interest cost..................................... 823 871 1,719
Curtailment gain recognized....................... -- (3,389) --
Amortization of prior service cost (benefit)...... (671) (671) 85
------ ------- ------
Net periodic postretirement benefit cost (gain). $ 235 $(3,107) $2,942
====== ======= ======
December 31,
----------------
1996 1995
---- ----
(In thousands)
Unfunded Accumulated Postretirement Benefit Obligation
Accumulated postretirement benefit obligation:
Retirees............................................ $ 7,906 $ 8,127
Fully eligible active plan participants............. 1,302 1,305
Other active plan participants...................... 1,733 1,980
------- -------
10,941 11,412
Unrecognized prior service benefit.................... 6,713 7,385
Unrecognized actuarial losses......................... (4) (435)
------- -------
Accrued postretirement benefit cost................... $17,650 $18,362
======= =======
The medical trend rate assumed in the determination of the accumulated
postretirement benefit obligation at December 31, 1996, begins at 9.5% in
1997, decreases 1% per year to 6.5% in 2000 and remains at that level
thereafter. Increasing the assumed medical trend rates by one percentage
point in each year would have no material effect on the accumulated
postretirement benefit obligation as of December 31, 1996, or net periodic
postretirement benefit cost.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% compounded annually with respect to the 1996 and
1995 valuations.
7. SHAREHOLDERS' DEFICIT
The Company is authorized to issue up to 100,000,000 shares of $.01 par
value Common Stock. At December 31, 1996, 74,386,222 shares were issued and
74,380,921 shares were outstanding. At December 31, 1995, 63,377,326 shares
were issued and 63,370,794 shares were outstanding. The Company is authorized
to issue up to 50,000,000 shares of $.01 par value Preferred Stock, none of
which were issued or outstanding at December 31, 1996 or December 31, 1995.
On May 15, 1996, the Company issued 10 million shares of Common Stock at
$20.25 per share (the "1996 Offering"). Proceeds from the 1996 Offering, net
- 34 -
of underwriting commissions and other related expenses totaling $9 million,
were $194 million. On June 4, 1996, an additional 520,000 shares of Common
Stock were issued at $20.25 per share upon the exercise of a portion of the
underwriters' over-allotment option granted in connection with the 1996
Offering, resulting in additional new proceeds of $10 million after deducting
underwriting commissions. The proceeds of the sale of Common Stock was used
to prepay a portion of its indebtedness under the 1995 Bank Credit Agreement.
During 1996 the Company issued 419,074 shares of Common Stock at a
weighted average price of $15.42 per share as a result of stock option
exercises under the Company's employee stock option plans. The net proceeds
to the Company of $6 million from these stock option exercises were used to
prepay a portion of its indebtedness under the 1995 Bank Credit Agreement.
In March and April of 1995, the Company issued 25,269,555 shares of
Common Stock at $12.00 per share in the 1995 Offering. Proceeds from the 1995
Offering, net of underwriting commissions and other related expenses totaling
$19 million, were $284 million. The 1995 Offering was part of a
recapitalization plan implemented by the Company to prepay or redeem a
substantial portion of its indebtedness in order to reduce the level and
overall cost of its debt, extend certain debt maturities, increase
shareholders' equity and enhance its access to capital markets.
Changes in Shareholders' Deficit Accounts
Additional Cumulative
Common Paid-in Translation Retained
Stock Capital Adjustment Deficit
------ ---------- ----------- --------
(In millions)
Balance, December 31, 1993..... $0.4 $ 600.1 $(5.1) $(2,676.3)
Net loss....................... -- -- -- (70.3)
Foreign currency translation
adjustment................... -- -- 2.8 --
---- -------- ----- ---------
Balance, December 31, 1994..... 0.4 600.1 (2.3) (2,746.6)
Net income..................... -- -- -- 14.7
Common Stock offering.......... 0.2 283.9 -- --
Reclass of Common Stock with
put right.................... 0.0 11.7 -- --
Foreign currency translation
adjustment................... -- -- (0.5) --
---- -------- ----- ---------
Balance, December 31, 1995..... 0.6 895.7 (2.8) (2,731.9)
Net income..................... -- -- -- 162.6
Common Stock offering.......... 0.1 203.6 -- --
Exercise of stock options...... 0.0 6.4 -- --
Tax benefits from exercise
of stock options............. -- 1.9 -- --
Other transactions............. 0.0 1.4 -- --
Foreign currency translation
adjustment................... -- -- 7.5 --
---- -------- ----- ---------
Balance, December 31, 1996....... $0.7 $1,109.0 $ 4.7 $(2,569.3)
==== ======== ===== =========
- 35 -
8. STOCK OPTIONS
The Company has two stock option plans, 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 the 1995 Stock Plan for Non-Employee Directors under which a
total of 80,000 shares of Common Stock are reserved for grant to non-employee
directors, of which 2,854 shares have been granted at December 31, 1996. In
addition, stock options to purchase 3,317,834 shares were granted and remain
outstanding at December 31, 1996, under predecessor stock plans. The Company
accounts for these plans using the intrinsic value based method pursuant to
APB Opinion No. 25 and Statement of Financial Accounting Standards No. 123
("SFAS No. 123") under which compensation expense of $52,000 was recognized in
1996 and no compensation expense was recognized in 1995 and 1994. Had
compensation cost for these plans been determined pursuant to the fair value
method under SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts (in thousands,
except per share amounts):
1996 1995
----------------------- -----------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
Net Income................. $ 162,597 $ 161,260 $ 14,717 $ 14,127
Earnings Per Share......... $ 2.32 $ 2.30 $ 0.25 $ 0.24
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, and additional awards in future
years are anticipated, the effects of applying SFAS No. 123 in this pro forma
disclosure are not indicative of future amounts.
The fair value of the 1995 and 1996 option grants used to compute the
pro forma amounts above was estimated on the grant date using the Black-
Scholes option pricing model with the following assumptions used for grants in
1996 and 1995 respectively: risk free interest rates of 6.07% and 5.51%;
expected lives of 5 years and 5 years; and expected volatility of 19.26% and
24.32%. The dividend yield was assumed to be zero since the Company does not
anticipate paying dividends in the near term.
All options issued or 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 under the
1995 Stock Incentive Plan will be determined by the Compensation and
Nominating Committee of the Board of Directors. Pursuant to the 1995 Stock
Incentive Plan, 12,000 shares were granted as a Restricted Stock Award and
8,000 shares were granted as a Stock Equivalent Award in September 1996. In
December 1996, stock options to purchase 750,000 shares were also granted
pursuant to the 1995 Stock Incentive Plan.
- - 36 -
Changes in Stock Options Outstanding
Weighted Average
Exercise
Number Of Price
Options Per Option
--------- ----------------
Balance, December 31, 1993..................... 3,825,646 $16.22
Options Cancelled............................ (82,888) $16.06
--------- ------
Balance, December 31, 1994..................... 3,742,758 $16.22
Options Granted.............................. 743,000 $19.75
Options Cancelled............................ (2,600) $18.46
--------- ------
Balance, December 31, 1995..................... 4,483,158 $16.81
Options Granted.............................. 750,000 $27.75
Options Exercised............................ (419,074) $15.42
Options Cancelled............................ (29,750) $19.61
--------- ------
Balance, December 31, 1996..................... 4,784,334 $18.63
========= ======
Exercisable at December 31, 1996............... 3,557,134 $16.55
========= ======
Shares available for future grant at
December 31, 1996............................ 1,873,162
=========
3,317,834 of the 4,784,334 options outstanding at December 31, 1996 have
exercise prices of $15.38 or $18.46 with a weighted average exercise price of
$16.32 and a weighted average remaining contractual life of 2.6 years. All of
these options are exercisable. The remaining 1,466,500 options have exercise
prices of $19.75 or $27.75 with a weighted average exercise price of $23.84
and a weighted average remaining contractual life of 9.5 years. 239,300 of
these options are exercisable; their weighted average exercise price is
$19.75.
9. RELATED PARTY TRANSACTIONS
At December 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley Group")
and certain of its affiliates controlled 26% of the Company's Common Stock.
Morgan Stanley & Co. Incorporated ("MS&Co") has served as lead
underwriter with respect to the 1996 Offering, the 1995 Offering and periodic
public debt offerings and has received underwriting fees of $3 million in
1996, $7 million in 1995 and $20 million in 1994 in connection with such
public offerings. MS&Co is also a market maker with respect to the Company's
public debt securities. MS&Co also periodically provides financial advisory
services for the Company for which it receives customary fees. Pursuant to an
agreement terminated effective December 31, 1994, MS&Co provided financial
advisory services to the Company for which the Company paid MS&Co $1 million
in 1994. The Company is a party to several interest rate cap agreements (see
Note 4) including one such agreement with MS&Co which was purchased in 1994
for $2 million.
- 37 -
10. COMMITMENTS AND CONTINGENCIES
The Company is subject to a wide range of laws in the United States and
other countries that focus on 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. 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.
Since 1992, the Company has been participating in an effort sponsored by
the Wisconsin Department of Natural Resources ("WDNR") to study the nature and
extent of polychlorinated biphenyl ("PCB") and other sediment contamination of
the lower Fox River in northeast Wisconsin. The objective of this effort is
to identify cost effective primary restoration of certain sediment deposits.
On January 30, 1997, the Company and six other companies (the "Seven
Companies") entered into an agreement with WDNR and the Wisconsin Department
of Justice ("WDOJ") to investigate claims for natural resources damages,
including sediment restoration claims, asserted against the Seven Companies
relating to releases of PCBs and other hazardous substances to the lower Fox
River ("Agreement") and to pursue a negotiated settlement of those claims
under federal and state law. The Agreement also provides that the Seven
Companies will make available to the State of Wisconsin a total of $10
million, consisting of work and funds, to, among other purposes, initiate
demonstration projects to determine the efficacy of sediment restoration
approaches and to underwrite a state led natural resources damage assessment.
The parties have agreed to toll certain statute of limitations and forbear
from commencing litigation during the term of the Agreement. Based upon
available information, the Company believes there are additional parties who
may be responsible for releasing PCBs to the Fox River.
The United States Department of Interior, Fish and Wildlife Service
("FWS"), a federal natural resource trustee, previously informed each of the
Seven Companies that they have been identified as potentially responsible
parties for purposes of claims for natural resources damages 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 begun an assessment to determine and
quantify the nature and extent of injury to any affected natural resources.
On February 3, 1997, the Seven Companies were notified by FWS of its intent to
file suit to recover natural resources damages pursuant to Federal law. Based
upon available information, the Company believes that there are additional
parties who may be identified as PRPs for alleged natural resource damages.
The Company recorded an additional environmental charge of $18 million in
the fourth quarter of 1996 reflecting revised estimates of costs for
environmental matters related to its operations, including legal and
consulting costs. The amounts accrued represent estimated gross undiscounted
amounts that are based on both internal and external estimates of restoration
as well as assumptions as to participation by other companies. The Company
expects these costs to be expended over an extended number of years and as of
December 31, 1996, has accrued liabilities for environmental matters of
approximately $37 million. The ultimate cost to the Company for environmental
- 38 -
matters cannot be determined with certainty due to the unknown magnitude of
the contamination to be addressed, the varying cost of restoration methods
that could be employed, the evolving nature of restoration technologies and
government regulations and the inability to determine the Company's share of
multiparty obligations or the extent to which contributions will be available
from other parties. The accrued liabilities reflect the Company's current
estimate of the cost of these environmental matters. There can be no
assurance that the amount accrued will not increase or decrease. It is
reasonably possible that the Company's recorded estimate of these liabilities
may change.
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 results of
operations.
11. GEOGRAPHIC INFORMATION
United United
States Kingdom Consolidated
------ ------- ------------
(In thousands)
1996
Net sales........................ $ 1,404,935 $175,836 $ 1,580,771
Operating income................. 452,165 24,206 476,371
Identifiable operating assets.... 1,446,363 169,017 1,615,380
1995
Net sales........................ $ 1,457,136 $163,767 $ 1,620,903
Operating income................. 342,534 17,585 360,119
Identifiable operating assets.... 1,490,426 162,011 1,652,437
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
Intercompany sales and charges between geographic areas and export sales
are not material.
- 39 -
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
(In millions, except per share data)
1996
Net sales................ $ 386 $ 402 $ 408 $ 385 $1,581
Gross income............. 147 159 174 156 636
Operating income (a)..... 114 125 135 102 476
Net income before
extraordinary item (a). 27 36 43 65 171
Extraordinary item-loss
on debt repurchases.... -- (3) -- (5) (8)
Net income............... 27 33 43 60 163
Earnings per share:
Net income before
extraordinary item (a) $ 0.43 $ 0.53 $ 0.58 $ 0.87 $ 2.44
Extraordinary item-loss
on debt repurchases.. -- (0.05) -- (0.06) (0.12)
Net income per share... $ 0.43 $ 0.48 $ 0.58 $ 0.81 $ 2.32
Dividends per share...... -- -- -- -- --
_____________________
(a) During the fourth quarter of 1996, the Company recorded an environmental
charge totaling $18 million and a credit of $36 million to income tax expense
reversing income taxes previously accrued for the tax years 1988 through 1995
for previously disallowed income tax deductions for fees and expenses related
to 1988 debt financing and refinancing transactions. Excluding the effects of
the environmental charge and the income tax expense reversal, the Company's
operating income, net income before extraordinary item and net income before
extraordinary item per share would have been $120 million, $39 million and
$0.52, respectively, for the fourth quarter and $494 million, $145 million and
$2.07, respectively, for the year 1996.
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
(In millions, except per share data)
1995
Net sales................ $ 367 $ 412 $ 426 $ 416 $ 1,621
Gross income............. 100 115 126 141 482
Operating income......... 71 88 95 106 360
Net income (loss) before
extraordinary item..... (9) 7 15 21 34
Extraordinary item-loss
on debt repurchases.... (19) -- -- -- (19)
Net income (loss)........ (28) 7 15 21 15
Earnings (loss) per share:
Net income (loss) before
extraordinary item... (0.22) 0.12 0.23 0.33 0.57
Extraordinary item-loss
on debt repurchases.. (0.44) -- -- -- (0.32)
Net income (loss)
per share............ (0.66) 0.12 0.23 0.33 0.25
Dividends per share...... -- -- -- -- --
- 40 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
For information regarding executive officers see Part I, Item 4a.
For information regarding directors and compliance with Section 16(a) of
the Securities and Exchange Act of 1934, see the Proxy Statement for the
Annual Meeting of Shareholders to be held on May 13, 1997, under the captions
"Election of Directors" and "Executive Compensation--Section 16(a) Beneficial
Ownership Reporting Compliance" which are incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
See the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 13, 1997, under the captions "Committees of the Board of
Directors; Meetings and Compensation of Directors," "Compensation and
Nominating Committee Report on Executive Officer Compensation," "Performance
Graph" and "Executive Compensation" which are incorporated by reference
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 13, 1997, under the captions "Ownership of Common Stock by
Management," "Principal Stockholders" and "Executive Compensation--Management
Incentive Plan and 1995 Stock Incentive Plan," which are incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 13, 1997, under the caption "Certain Transactions," which is
incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. 1. Financial Statements of Fort Howard Corporation
Included in Part II, Item 8:
Report of Independent Public Accountants.
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994.
Consolidated Balance Sheets as of December 31, 1996, and 1995.
- 41 -
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Separate financial statements and supplemental schedules of the Company
and its consolidated subsidiaries are omitted since the Company is primarily
an operating corporation and its consolidated subsidiaries included in the
consolidated financial statements being filed do not have a minority equity
interest or indebtedness to any other person or to the Company in an amount
which exceeds five percent of the total assets as shown by the consolidated
financial statements as filed herein.
a. 2. Financial Statement Schedules
Report of Independent Public Accountants
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the audited
consolidated financial statements or notes thereto.
a. 3. Exhibits
Exhibit No. Description
----------- -----------
3.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1 as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
3.2 Amended and Restated By-Laws of the Company. (Incorporated by
reference to Exhibit 4.2 as filed with the Company's Form S-8
on February 3, 1997.)
4.1 Credit Agreement dated as of March 8, 1995, among the
Company, the lenders named therein, and Bankers' Trust Company,
Bank of America National Trust and Savings Association and
Chemical Bank as arrangers, and Bankers' Trust Company as
administrative agent. (Incorporated by reference to Exhibit 4.0
as filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.)
+4.1(A) Amendment No. 1 dated April 8, 1996, to Credit Agreement.
+4.1(B) Amendment No. 2 dated October 21, 1996, to Credit Agreement.
4.2 Form of 9 1/4% Senior Note Indenture dated as of March 15, 1993,
between the Company and Norwest Bank Wisconsin, N.A., Trustee.
(Incorporated by reference to Exhibit 4.1 as filed with the
Company's Amendment No. 2 to Form S-2 on March 4, 1993.)
4.3 Form of 10% Subordinated Note Indenture dated as of March 15,
1993, between the Company and the United States Trust Company of
New York, Trustee. (Incorporated by reference to Exhibit 4.2 as
filed with the Company's Amendment No. 2 to Form S-2 on March 4,
1993.)
- 42 -
4.4 Form of 9% Senior Subordinated Note Indenture dated as of
February 1, 1994, between the Company and The Bank of New York,
Trustee. (Incorporated by reference to Exhibit 4.2 as filed
with the Company's Form S-2 on December 17, 1993.)
Registrant agrees to provide copies of instruments defining the rights
of security holders, including indentures, upon request of the
Commission.
*10.1 Employment Agreement dated October 15, 1993, with the Company's
Chairman. (Incorporated by reference to Exhibit 10 as filed
with the Company Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.)
+*10.2 Employment Agreements dated December 13, 1996, with the
Company's Chief Executive Officer and Chief Financial Officer.
+*10.3 Employment Agreements dated December 13, 1996, with certain
executive officers of the Company.
*10.4 Amended and Restated Stockholders Agreement dated as of
March 1, 1995, among the Company, 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. (Incorporated by
reference to Exhibit 10.3(A) as filed with the Company's Annual
Report or Form 10-K for the year ended December 31, 1994.)
*10.5 Management Incentive Plan as amended and restated as of
December 19, 1994. (Incorporated by reference to Exhibit
No. 10.2 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)
+*10.5(A) Amendment No. 1 dated April 29, 1996, to Management Incentive
Plan.
*10.6 Supplemental Retirement Plan. (Incorporated by reference to
Exhibit No. 10.7 as filed with Amendment No. 2 to the Company's
Form S-1 on October 25, 1988.)
*10.6(A) Amendment No. 1 to the Supplemental Retirement Plan.
(Incorporated by reference to Exhibit 10.P as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988.)
*10.7 Form of Supplemental Retirement Agreement for the Company's
Chief Executive Officer as Amended. (Incorporated by reference
to Exhibit 10.M as filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1988.)
*10.8 Supplemental Retirement Agreements for certain directors and
officers. (Incorporated by reference to Exhibit 10.T as filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1989.)
*10.8(A) Form of Amendment No. 1 to Supplemental Retirement Agreements
for certain directors and officers. (Incorporated by reference
to Exhibit 10.U as filed with the Company's Form 10-K for the
year ended December 31, 1990.)
- 43 -
*10.8(B) Form of Amendment No. 2 to Supplemental Retirement Agreements
for certain directors and officers. (Incorporated by reference
to Exhibit 10 as filed with the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.)
*10.9 Amended and Restated Management Equity Participation Agreement
dated as of August 1, 1988. (Incorporated by reference to
Exhibit No. 10.9 as filed with the Company's Amendment No. 2 to
Form S-1 on October 25, 1988.)
*10.9(A) Letter Agreement dated June 27, 1990, which modifies Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.V as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(B) Letter Agreement dated July 31, 1990, among the Company and the
Principal Management Investors which amends Amended and Restated
Management Equity Participation Agreement. (Incorporated by
reference to Exhibit 10.W as filed with the Company's Form 10-K
for the year ended December 31, 1990.)
*10.9(C) Letter Agreement dated July 31, 1990, between the Company and
the Management Investor Committee which amends Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.X as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(D) Letter Agreement dated February 7, 1991, between the Company and
the Management Investors Committee which amends the Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(E) Form of Letter Agreement dated February 7, 1991, among the
Company, the Management Investors Committee and Management
Investors which cancels certain stock options, grants new stock
options and amends the Amended and Restated Management Equity
Participation Agreement. (Incorporated by reference to Exhibit
10.HH as filed with the Company's Form 10-K for the year ended
December 31, 1990.)
*10.9(F) Letter Agreement dated March 1, 1995, between the
Company and the Management Investors Committee which amends the
Amended and Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.8(F) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
*10.10 Management Equity Plan. (Incorporated by reference to
Exhibit 10.H as filed with the Company's Form 10-K for the year
ended December 31, 1991.)
*10.10(A) Amendment dated December 28, 1993, to Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(A) as filed with
the Company's Form 10-K for the year ended December 31, 1993.)
- 44 -
*10.10(B) Amendment dated March 1, 1995, to the Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(B) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
*10.11 Form of Management Equity Plan Agreement. (Incorporated by
reference to Exhibit 10.I as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.12 Participation Agreement dated as of October 20, 1989, among the
Company, Philip Morris Credit Corporation, the Loan Participants
listed therein, the Connecticut National Bank, Owner Trustee,
and Wilmington Trust Company, Indenture Trustee. (Incorporated
by reference to Exhibit 10.15 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)
10.13 Facility Lease Agreement dated as of October 20, 1989, between
the Connecticut National Bank in its capacity as Owner Trustee,
the Lessor and the Company as Lessee. (Incorporated by
reference to Exhibit 10.16 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)
10.14 Power Installation Lease Agreement dated as of October 20, 1989,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.HH as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.15 Equipment Lease Agreement dated as of October 20, 1989, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.II as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.16 Participation Agreement dated as of December 23, 1990, among the
Company, Bell Atlantic Tricon Leasing Corporation, Bankers Trust
Company, The Connecticut National Bank, Owner Trustee, and
Wilmington Trust Company, Indenture Trustee. (Incorporated by
reference to Exhibit 10.BB as filed with the Company's Form 10-K
for the year ended December 31, 1990.)
10.17 Amended and Restated Equipment Lease Agreement [1990] dated as
of December 19, 1991, between The Connecticut National Bank, not
in its individual capacity but solely as Owner Trustee under the
Trust Agreement, as Lessor, and the Company, as Lessee.
(Incorporated by reference to Exhibit 10.W as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.18 Facility Lease Agreement dated as of December 19, 1991, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.EE as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.19 Equipment Lease Agreement [1991] dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.FF as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
- 45 -
10.20 Power Plant Lease Agreement dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.21 Amended and Restated Participation Agreement dated as of
October 21, 1991, among the Company, Bell Atlantic Tricon
Leasing Corporation, Bankers Trust Company, The Connecticut
National Bank, Owner Trustee, and Wilmington Trust Company,
Indenture Trustee and the Form of the First Amendment thereto
dated as of December 13, 1991. (Incorporated by reference to
Exhibit 4.3 as filed with the Company's Amendment No. 3 to
Form S-3 on December 13, 1991.)
*10.22 Deferred Compensation Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit No. 10.14 as filed with
the Company's Amendment No. 1 to Form S-1 on February 8, 1995.)
*10.23 1995 Stock Incentive Plan. (Incorporated by reference to
Exhibit No. 10.15 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)
*10.23(A) Amendment No. 1 to 1995 Stock Incentive Plan. (Incorporated by
reference to Exhibit 4.4 as filed with the Company's Form S-8
on February 3, 1997.)
*10.24 Form of Nonqualified Stock Option Agreement dated December 6,
1995. (Incorporated by reference to Exhibit 10.22(A) as filed
with the Company's Form 10-K for the year ended December 31,
1995.)
*10.24(A) Stock Award Agreement dated September 10, 1996. (Incorporated
by reference to Exhibit 10 as filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.)
+*10.24(B) Form of Nonqualified Stock Option Agreement dated December 9,
1996.
*10.25 1995 Stock Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit No. 10.16 as filed with the Company's
Amendment No. 1 to Form S-1 on February 8, 1995.)
+*10.26 Agreement with Company's Chairman dated December 9, 1996,
regarding health insurance benefits.
+*10.27 Severance Agreement dated December 31, 1996, with a former
executive vice president of the Company.
+12.1 Statement of Deficiency of Earnings Available to Cover Fixed
Charges.
+12.2 Statement of Computation of Ratio of Earnings to Fixed Charges.
+21 Subsidiaries of Fort Howard Corporation.
+23 Consent of Arthur Andersen LLP (included in Part IV at page 49).
- 46 -
+24 Powers of Attorney (included as part of signature page).
+27 Financial Data Schedule for year ended December 31, 1996.
- --------------------
*Management contract or compensatory plan or arrangement.
+Filed herewith.
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
- 47 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FORT HOWARD CORPORATION
Green Bay, Wisconsin
February 4, 1997 By /s/ Michael T. Riordan
----------------------------------
Michael T. Riordan
President and Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of Fort Howard Corporation hereby
constitute and appoint Michael T. Riordan, Kathleen J. Hempel and James W.
Nellen II and each of them, with full power to act without the other and with
full power of substitution and resubstitution, our true and lawful attorneys-
in-fact with full power to execute in our name and behalf in the capacities
indicated below any and all amendments to this Annual Report on Form 10-K and
to file the same, with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission and hereby ratify and
confirm all that such attorneys-in-fact, or any of them, or their substitutes
shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on behalf of the registrant and in the
capacities on the dates indicated:
/s/ Donald H. DeMeuse Chairman of the Board February 4, 1997
Donald H. DeMeuse and Director
/s/ Michael T. Riordan President, Chief February 4, 1997
Michael T. Riordan Executive Officer
and Director
/s/ Kathleen J. Hempel Vice Chairman, Chief February 4, 1997
Kathleen J. Hempel Financial Officer and
Director
/s/ Donald Patrick Brennan
Donald Patrick Brennan Director February 3, 1997
/s/ James L. Burke
James L. Burke Director February 3, 1997
/s/ Dudley J. Godfrey
Dudley J. Godfrey Director February 3, 1997
/s/ David I. Margolis
David I. Margolis Director January 30, 1997
/s/ Robert H. Niehaus
Robert H. Niehaus Director January 30, 1997
/s/ Frank V. Sica
Frank V. Sica Director January 30, 1997
- 48 -
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
Form 10-K and have issued our report thereon dated January 31, 1997. 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.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 1997.
_______________________
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement Nos. 33-63099, 33-64841, 333-00019 and 333-01975
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 31, 1997.
- 49 -
Schedule II
FORT HOWARD CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
For the Years Ended
December 31,
------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS: 1996 1995 1994
---- ---- ----
Balance at beginning of year............. $2,883 $1,589 $2,366
Additions charged to earnings............ 540 1,209 (92)
Charges for purpose for which
reserve was created.................. (80) 85 (685)
------ ------ ------
Balance at end of year................... $3,343 $2,883 $1,589
====== ====== ======
- 50 -
INDEX TO EXHIBITS
Exhibit No.
- -----------
3.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1 as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
3.2 Amended and Restated By-Laws of the Company. (Incorporated by
reference to Exhibit 4.2 as filed with the Company's Form S-8
on February 3, 1997.)
4.1 Credit Agreement dated as of March 8, 1995, among the
Company, the lenders named therein, and Bankers' Trust Company,
Bank of America National Trust and Savings Association and
Chemical Bank as arrangers, and Bankers' Trust Company as
administrative agent. (Incorporated by reference to Exhibit 4.0
as filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.)
+4.1(A) Amendment No. 1 dated April 8, 1996, to Credit Agreement.
+4.1(B) Amendment No. 2 dated October 21, 1996, to Credit Agreement.
4.2 Form of 9 1/4% Senior Note Indenture dated as of March 15, 1993,
between the Company and Norwest Bank Wisconsin, N.A., Trustee.
(Incorporated by reference to Exhibit 4.1 as filed with the
Company's Amendment No. 2 to Form S-2 on March 4, 1993.)
4.3 Form of 10% Subordinated Note Indenture dated as of March 15,
1993, between the Company and the United States Trust Company of
New York, Trustee. (Incorporated by reference to Exhibit 4.2 as
filed with the Company's Amendment No. 2 to Form S-2 on March 4,
1993.)
4.4 Form of 9% Senior Subordinated Note Indenture dated as of
February 1, 1994, between the Company and The Bank of New York,
Trustee. (Incorporated by reference to Exhibit 4.2 as filed
with the Company's Form S-2 on December 17, 1993.)
Registrant agrees to provide copies of instruments defining the rights
of security holders, including indentures, upon request of the
Commission.
*10.1 Employment Agreement dated October 15, 1993, with the Company's
Chairman. (Incorporated by reference to Exhibit 10 as filed
with the Company Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993.)
+*10.2 Employment Agreements dated December 13, 1996, with the
Company's Chief Executive Officer and Chief Financial Officer.
+*10.3 Employment Agreements dated December 13, 1996, with certain
executive officers of the Company.
- 51 -
*10.4 Amended and Restated Stockholders Agreement dated as of
March 1, 1995, among the Company, 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. (Incorporated by
reference to Exhibit 10.3(A) as filed with the Company's Annual
Report or Form 10-K for the year ended December 31, 1994.)
*10.5 Management Incentive Plan as amended and restated as of
December 19, 1994. (Incorporated by reference to Exhibit
No. 10.2 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)
+*10.5(A) Amendment No. 1 dated April 29, 1996, to Management Incentive
Plan.
*10.6 Supplemental Retirement Plan. (Incorporated by reference to
Exhibit No. 10.7 as filed with Amendment No. 2 to the Company's
Form S-1 on October 25, 1988.)
*10.6(A) Amendment No. 1 to the Supplemental Retirement Plan.
(Incorporated by reference to Exhibit 10.P as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1988.)
*10.7 Form of Supplemental Retirement Agreement for the Company's
Chief Executive Officer as Amended. (Incorporated by reference
to Exhibit 10.M as filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1988.)
*10.8 Supplemental Retirement Agreements for certain directors and
officers. (Incorporated by reference to Exhibit 10.T as filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1989.)
*10.8(A) Form of Amendment No. 1 to Supplemental Retirement Agreements
for certain directors and officers. (Incorporated by reference
to Exhibit 10.U as filed with the Company's Form 10-K for the
year ended December 31, 1990.)
*10.8(B) Form of Amendment No. 2 to Supplemental Retirement Agreements
for certain directors and officers. (Incorporated by reference
to Exhibit 10 as filed with the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.)
*10.9 Amended and Restated Management Equity Participation Agreement
dated as of August 1, 1988. (Incorporated by reference to
Exhibit No. 10.9 as filed with the Company's Amendment No. 2 to
Form S-1 on October 25, 1988.)
*10.9(A) Letter Agreement dated June 27, 1990, which modifies Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.V as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(B) Letter Agreement dated July 31, 1990, among the Company and the
Principal Management Investors which amends Amended and Restated
Management Equity Participation Agreement. (Incorporated by
- 52 -
reference to Exhibit 10.W as filed with the Company's Form 10-K
for the year ended December 31, 1990.)
*10.9(C) Letter Agreement dated July 31, 1990, between the Company and
the Management Investor Committee which amends Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.X as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(D) Letter Agreement dated February 7, 1991, between the Company and
the Management Investors Committee which amends the Amended and
Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1990.)
*10.9(E) Form of Letter Agreement dated February 7, 1991, among the
Company, the Management Investors Committee and Management
Investors which cancels certain stock options, grants new stock
options and amends the Amended and Restated Management Equity
Participation Agreement. (Incorporated by reference to Exhibit
10.HH as filed with the Company's Form 10-K for the year ended
December 31, 1990.)
*10.9(F) Letter Agreement dated March 1, 1995, between the
Company and the Management Investors Committee which amends the
Amended and Restated Management Equity Participation Agreement.
(Incorporated by reference to Exhibit 10.8(F) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
*10.10 Management Equity Plan. (Incorporated by reference to
Exhibit 10.H as filed with the Company's Form 10-K for the year
ended December 31, 1991.)
*10.10(A) Amendment dated December 28, 1993, to Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(A) as filed with
the Company's Form 10-K for the year ended December 31, 1993.)
*10.10(B) Amendment dated March 1, 1995, to the Management Equity Plan.
(Incorporated by reference to Exhibit 10.9(B) as filed with the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.)
*10.11 Form of Management Equity Plan Agreement. (Incorporated by
reference to Exhibit 10.I as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.12 Participation Agreement dated as of October 20, 1989, among the
Company, Philip Morris Credit Corporation, the Loan Participants
listed therein, the Connecticut National Bank, Owner Trustee,
and Wilmington Trust Company, Indenture Trustee. (Incorporated
by reference to Exhibit 10.15 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)
10.13 Facility Lease Agreement dated as of October 20, 1989, between
the Connecticut National Bank in its capacity as Owner Trustee,
the Lessor and the Company as Lessee. (Incorporated by
reference to Exhibit 10.16 as filed with the Company's
Post-Effective Amendment No. 2 to Form S-1 on February 8, 1990.)
- 53 -
10.14 Power Installation Lease Agreement dated as of October 20, 1989,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.HH as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.15 Equipment Lease Agreement dated as of October 20, 1989, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.II as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.16 Participation Agreement dated as of December 23, 1990, among the
Company, Bell Atlantic Tricon Leasing Corporation, Bankers Trust
Company, The Connecticut National Bank, Owner Trustee, and
Wilmington Trust Company, Indenture Trustee. (Incorporated by
reference to Exhibit 10.BB as filed with the Company's Form 10-K
for the year ended December 31, 1990.)
10.17 Amended and Restated Equipment Lease Agreement [1990] dated as
of December 19, 1991, between The Connecticut National Bank, not
in its individual capacity but solely as Owner Trustee under the
Trust Agreement, as Lessor, and the Company, as Lessee.
(Incorporated by reference to Exhibit 10.W as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.18 Facility Lease Agreement dated as of December 19, 1991, between
The Connecticut National Bank, not in its individual capacity
but solely as Owner Trustee, and the Company. (Incorporated by
reference to Exhibit 10.EE as filed with the Company's Form 10-K
for the year ended December 31, 1991.)
10.19 Equipment Lease Agreement [1991] dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.FF as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.20 Power Plant Lease Agreement dated as of December 19, 1991,
between The Connecticut National Bank, not in its individual
capacity but solely as Owner Trustee, and the Company.
(Incorporated by reference to Exhibit 10.GG as filed with the
Company's Form 10-K for the year ended December 31, 1991.)
10.21 Amended and Restated Participation Agreement dated as of
October 21, 1991, among the Company, Bell Atlantic Tricon
Leasing Corporation, Bankers Trust Company, The Connecticut
National Bank, Owner Trustee, and Wilmington Trust Company,
Indenture Trustee and the Form of the First Amendment thereto
dated as of December 13, 1991. (Incorporated by reference to
Exhibit 4.3 as filed with the Company's Amendment No. 3 to
Form S-3 on December 13, 1991.)
*10.22 Deferred Compensation Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit No. 10.14 as filed with
the Company's Amendment No. 1 to Form S-1 on February 8, 1995.)
- 54 -
*10.23 1995 Stock Incentive Plan. (Incorporated by reference to
Exhibit No. 10.15 as filed with the Company's Amendment No. 1 to
Form S-1 on February 8, 1995.)
*10.23(A) Amendment No. 1 to 1995 Stock Incentive Plan. (Incorporated by
reference to Exhibit 4.4 as filed with the Company's Form S-8
on February 3, 1997.)
*10.24 Form of Nonqualified Stock Option Agreement dated December 6,
1995. (Incorporated by reference to Exhibit 10.22(A) as filed
with the Company's Form 10-K for the year ended December 31,
1995.)
*10.24(A) Stock Award Agreement dated September 10, 1996. (Incorporated
by reference to Exhibit 10 as filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.)
+*10.24(B) Form of Nonqualified Stock Option Agreement dated December 9,
1996.
*10.25 1995 Stock Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit No. 10.16 as filed with the Company's
Amendment No. 1 to Form S-1 on February 8, 1995.)
+*10.26 Agreement with Company's Chairman dated December 9, 1996,
regarding health insurance benefits.
+*10.27 Severance Agreement dated December 31, 1996, with a former
executive vice president of the Company.
+12.1 Statement of Deficiency of Earnings Available to Cover Fixed
Charges.
+12.2 Statement of Computation of Ratio of Earnings to Fixed Charges.
+21 Subsidiaries of Fort Howard Corporation.
+23 Consent of Arthur Andersen LLP (included in Part IV at page 49.
+24 Powers of Attorney (included as part of signature page).
+27 Financial Data Schedule for year ended December 31, 1996.
- --------------------
*Management contract or compensatory plan or arrangement.
+Filed herewith.
- 55 -
Exhibit 4.1(A)
--------------
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT No. 1, dated as of April 8, 1996 ("Amendment"), to the
Credit Agreement, dated as of March 8, 1995 (the "Credit Agreement"), by and
among FORT HOWARD CORPORATION, a Delaware corporation (the "Company"), each of
the parties identified as a Lender (collectively, the "Lenders"; each, a
"Lender") signatory thereto, BANKERS TRUST COMPANY, BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION and CHEMICAL BANK, as Arrangers (collectively,
the "Arrangers;" each, an "Arranger") and BANKERS TRUST COMPANY, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent").
R E C I T A L S:
A. The Company has requested that the Administrative Agent, the
Arrangers and the Lenders amend certain provisions of the Credit Agreement;
and
B. The Administrative Agent, the Arrangers and the Lenders have
considered and agreed to the Company's requests, upon the terms and conditions
set forth in this Amendment.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein that is defined in the Credit Agreement
(including those terms that are defined in the Credit Agreement after giving
effect to this Amendment) shall have the meaning assigned to such term in
the Credit Agreement.
SECTION 2. Consent to IRB Financing. The Lenders hereby consent
to, and agree to waive any provision of the Loan Documents which otherwise
might prohibit, the conveyance of a portion of the land comprising the
Company's Green Bay, Wisconsin Mill in connection with the consummation by the
Company of a transaction to finance the construction of the Green Bay Sludge
Boiler if such transaction complies in all material respects with the
requirements set forth in Exhibit A annexed hereto. The Lenders hereby
authorize the Arrangers to determine, in their reasonable judgment, whether or
not any particular transaction proposed by the Company satisfies the
requirements of the immediately preceding sentence and to deliver, on behalf
of the Lenders, an instrument confirming such satisfaction; provided, however,
that the Arrangers shall not have any liability for such determination unless
such determination shall have been made in bad faith or shall constitute gross
negligence. The Arrangers and the Lenders hereby authorize the Administrative
Agent to execute and deliver, on behalf of the Lenders, any and all
instruments necessary to effect any transaction determined by the Arrangers
to satisfy such requirements. The Company shall provide to the Administrative
Agent and the Arrangers any documents or information requested by the
Arrangers or the Administrative Agent to enable the Arrangers and the
Administrative Agent to make the determinations and perform the obligations
contemplated in this Section 2.
SECTION 3. Amendments to Article I of the Credit Agreement.
(a) Subsection 1.1 of the Credit Agreement is hereby amended by
adding thereto the following new definitions in the appropriate alphabetical
order:
"'Amendment Effective Date' means the date that all the
conditions set forth in Section 6 of Amendment No. 1 shall have been
satisfied."
"'Amendment No. 1' means Amendment No. 1 to Credit Agreement,
dated as of April 8, 1996, relating to this Agreement."
(b) Subsection 1.1 of the Credit Agreement is hereby further
amended as follows:
The definition of "ABR Spread" is hereby amended by (i)
inserting therein after the words "from time to time in effect", the
words, "in respect of Tranche A Loans and Revolving Loans", and (ii)
deleting therefrom the words "2% per annum" and inserting in lieu thereof
the words "the percent per annum from time to time in effect in respect
of Tranche B Loans pursuant to paragraph (d) of subsection 2.5.1."
The definition of "Commitment Percentage" is hereby deleted and
replaced with the following:
"'Commitment Percentage' means (1) .50%, when the LIBOR Spread
in respect of Tranche A Loans and Revolving Loans is 2.00% or greater,
(2) .375% when the LIBOR Spread in respect of Tranche A Loans and
Revolving Loans is 1.75%, 1.50% or 1.25%, (3) .25% when the LIBOR Spread
in respect of Tranche A Loans and Revolving Loans is 1.00% or .75% and
(4) .1875%, when the LIBOR Spread in respect of Tranche A Loans and
Revolving Loans is .625%."
The definition of "LIBOR Spread" is hereby amended by (i)
inserting therein after the words "from time to time in effect", the
words, "in respect of Tranche A Loans and Revolving Loans", and (ii)
deleting therefrom the words "3% per annum" and inserting in lieu thereof
the words "the percent per annum from time to time in effect in respect
of Tranche B Loans pursuant to paragraph (d) of subsection 2.5.1."
SECTION 4. Amendments to Article II to the Credit Agreement.
(a) Subsection 2.5.1(d) of the Credit Agreement is hereby amended
by deleting the table captioned "Interest Rate Step-Downs for Tranche A Loans
and Revolving Loans" and inserting in lieu thereof the following:
"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: 1.60 to 1 or higher 1.25% 2.25%
Ratio 2: 3.00 to 1 or lower
Category 3
Ratio 1: 1.75 to 1 or higher 1.00% 2.00%
Ratio 2: 2.75 to 1 or lower
Category 4
Ratio 1: 2.25 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
"Interest Rate Step-Downs
for Tranche B Loans
Category 1 ABR Spread LIBOR Spread
When none of the Categories
below is applicable 2.00% 3.00%
Category 2
Ratio 1: 1.60 to 1 or higher 1.75% 2.75%
Ratio 2: 3.00 to 1 or lower
Category 3
Ratio 1: 1.75 to 1 or higher 1.50% 2.50%
Ratio 2: 2.75 to 1 or lower
(b) A new Section 2.13 is hereby added to the Credit Agreement as
follows:
"2.13 Certain Computations. All interest, fees and other
amounts accruing under this Agreement on or prior to, or determined in
respect of any day accruing on or prior to the Amendment Effective Date
shall be computed and determined as provided in this Agreement before
giving effect to Amendment No. 1. Notwithstanding Section 2.5.1(d) of
this Agreement, the adjustment to each of the ABR Spread and the LIBOR
Spread, as provided in Amendment No. 1, shall be effective upon the
Amendment Effective Date and set based upon the most recent financial
statements delivered to the Administrative Agent after giving pro forma
effect to the pre-payment referenced in Section 6(b) of this Amendment."
SECTION 5. Representations And Warranties. The Company hereby
represents and warrants to the Administrative Agent, the Arrangers and the
Lenders that the representations, agreements and warranties of the Company set
forth in the Credit Agreement as amended, supplemented or modified by this
Amendment (except for the representations and warranties set forth in
subsection 4.1.3 of the Credit Agreement) are true and correct in all material
respects to the same extent as though made on and as of the date hereof,
except that such representations and warranties need not be true and correct
to the extent that changes in facts and conditions on which such
representations and warranties are based are required or permitted under the
Credit Agreement as so amended, supplemented or modified. The certifications
set forth in the form of Officers' Certificate of the Company described in
Section 6 of this Amendment are incorporated into this Amendment by this
reference as representations and warranties of the Company. In the event any
of the representations or warranties referred to in the two immediately
preceding sentences is untrue in any material respect or in the event the
Company shall breach any agreement on its part to be performed or observed
pursuant to this Amendment, the Administrative Agent, the Arrangers and the
Lenders shall have the rights and remedies contemplated in the Credit
Agreement to the same extent as if such representations and warranties or
agreements had been set forth therein.
SECTION 6. Conditions to Effectiveness of Amendment. Upon the
fulfillment of the following conditions the amendments contemplated by this
Amendment shall become effective:
(a) The Company shall have completed, no later than September 30,
1996, an offering of Common Stock and shall have received at least
$180,000,000 in cash proceeds (net of underwriting discounts and commissions,
other banking and investment fees, attorneys' and accountants' fees and other
customary fees and costs associated therewith) from the sale of such Common
Stock.
(b) The Tranche B Lenders shall have received a prepayment
pursuant to subsection 2.7.1 of the Credit Agreement in a principal amount not
less than $178,000,000.
(c) The Administrative Agent shall have received (i) duly executed
counterparts hereof that have been executed at the time and in the manner as
provided in subsection 9.6 of the Credit Agreement, it being understood that
delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be as effective as delivery of a manually executed
counterpart of this Amendment and (ii) the following documents with sufficient
copies, where appropriate, for each Lender and CG&R:
(x) an Officer's Certificate of the Company, in the form of exhibit
B annexed to this Amendment;
(y) an opinion of James W. Nellen, II, Vice President and General
Counsel to the Company, in form and substance reasonably satisfactory to
the Administrative Agent; and
(z) an opinion of Shearman & Sterling, counsel to the Company, in
form and substance reasonably satisfactory to the Administrative Agent as
to the enforceability of this Amendment and such other matters as the
Administrative Agent shall reasonably request.
The parties constituting the Lenders hereby authorize the
Administrative Agent to deliver to the Company an instrument acknowledging on
behalf of the Lenders the satisfaction of the conditions specified in this
Section 6.
SECTION 7. Fees. If the Amendment Effective Date shall occur, the
Company shall pay to each of the Lenders that has executed and delivered to
the Administrative Agent a signature page to this Amendment on or before April
10, 1996, a fee equal to .10% of the principal amount, if any, of such
Lender's Tranche A Commitment, Tranche B Commitment and Revolving Loan
Commitment in effect immediately prior to the effectiveness of this Amendment
but after giving effect to the reduction of Commitments as a result of the
prepayment contemplated in Section 6(b) of this Amendment. Such payment shall
be paid on the Amendment Effective Date.
SECTION 8. Miscellaneous.
(a) Except as expressly contemplated in this
Amendment, all terms, provisions, covenants, representations, warranties,
agreements and conditions of the Company contained in the Credit Agreement
shall remain in full force and effect and shall not otherwise be deemed to be
waived, modified or amended hereby.
(b) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
(c) This Amendment may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. The provisions of this
Amendment may be amended or waived by the same parties that would be required
to amend or waive such provisions if such provisions were set forth in the
Credit Agreement.
(d) This Amendment shall not constitute a consent to or waiver or
modification of any other provision, term or condition of the Credit
Agreement. All terms, provisions, covenants, representations, warranties,
agreements and conditions contained in the Credit Agreement, as amended
hereby, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
By: /s/ R. Michael Lempke
R. Michael Lempke
Vice President and Treasurer
1988 LENDERS, PURCHASERS AND 1992 LENDERS:
BANKERS TRUST COMPANY,
Individually and as 1988 Lead Manager, 1988
Agent and 1992 Agent
Exhibit 4.1(B)
--------------
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT NO. 2 TO CREDIT AGREEMENT, dated as of October 21, 1996,
relating to the Credit Agreement, dated as of March 8, 1995, as amended by
Amendment No. 1 to Credit Agreement, dated as of April 8, 1996 ("Amendment No.
1"; such Credit Agreement, as amended by Amendment No. 1 being the "Credit
Agreement"), by and among FORT HOWARD CORPORATION, a Delaware corporation (the
"Company"), as borrower, and each of the parties identified as a Lender
(collectively, the "Lenders"; each, a "Lender") signatory thereto, BANKERS
TRUST COMPANY, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and THE
CHASE MANHATTAN BANK (formerly known as "Chemical Bank"), as Arrangers
(collectively, the "Arrangers"; each, an "Arranger") and BANKERS TRUST
COMPANY, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
R E C I T A L S :
A. The Company has requested that the Arrangers and the Lenders
(1) consent to the purchase and retirement by the Company of certain
indebtedness of the Company; (2) waive the operation of Sections 6.5 and 6.16
of the Credit Agreement to the extent necessary to permit the Company to
effect such purchase and retirement; and (3) amend, consent to or waive
certain other provisions of the Credit Agreement, all in accordance with, and
subject to, the terms and conditions set forth below; and
B. The Administrative Agent, the Arrangers and the Lenders have
considered and agreed to the Company's request, and are executing and
delivering this agreement to evidence such amendment, consent and waiver.
A G R E E M E N T :
NOW, THEREFORE, in consideration of the foregoing and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically
defined herein, each term used herein that is defined in the Credit Agreement
shall have the meaning assigned to such term in the Credit Agreement.
SECTION 2. Consent to Acquisition of Indebtedness.
(a) The Lenders hereby consent to, and agree to waive any provision of
Section 6.5 or 6.16 of the Credit Agreement which (but for this Section 2)
might prohibit, restrict or condition (otherwise than pursuant to this
Agreement), the Company's purchasing of, at any time and from time to time, in
whole or in part, Subordinated Notes and Senior Unsecured Notes (the
Subordinated Notes and the Senior Unsecured Notes so purchased in accordance
with this Section 2(a) being, collectively, the "Amendment No. 2 Covered
Notes"), in such aggregate amounts, subject to such allocations (as between
the Subordinated Notes and the Senior Unsecured Notes to be so purchased and
as among the various outstanding issues of such Subordinated Notes and Senior
Unsecured Notes), for consideration originating from, or financed by, such
sources, and on such other terms and conditions, as the Company shall elect in
its sole discretion, but, in any event, subject to the following terms: (i)
any Indebtedness incurred to finance any such purchase shall not violate the
provisions of Section 6.1 of the Credit Agreement, (ii) all such purchases
shall be concluded not later than December 31, 1997, (iii) the total amount of
consideration (including any premium and all transaction costs , but
excluding, in any event, any and all accrued interest) paid by the Company in
respect of all such purchases shall not exceed, in the aggregate,
$100,000,000, (iv) at the time of each such purchase there shall not have
occurred and be continuing any Event of Default or Potential Event of Default
referred to in Section 7.1, 7.6, 7.7, 7.9, 7.13 or 7.14 of the Credit
Agreement, and (v) substantially contemporaneously with each such purchase,
the Company shall cause the acquired Securities to be surrendered to it or the
trustee in respect thereof and cancelled.
(b) The Lenders hereby agree that, anything in the Credit Agreement
to the contrary notwithstanding, the sum referred to in clause (B) of the
definition of "Excess Cash Flow" in respect of the 1996 and the 1997 fiscal
years of the Company shall not include (whether by virtue of subclause (B)(5)
or (B)(8) of such definition or otherwise) any amount paid by the Company to
acquire (including, without limitation, any premium or transaction costs but
excluding, in any event, any and all accrued interest) Amendment No. 2 Covered
Notes.
(c) The provisions of this Section 2 shall not be construed as
limiting any rights of the Company to purchase Subordinated Indebtedness of
the Company and/or Senior Unsecured Notes that existed under Section 6.5 or
6.16 of the Credit Agreement immediately preceding the execution of this
agreement, and any and all such rights shall continue in force following the
execution and delivery hereof and the acquisition of any debt Securities of
the Company contemplated in this Section 2.
SECTION 3. Consent to Green Bay Sludge Boiler Financing. (a) The
Lenders hereby consent to, and agree to waive any provision of Section 5.11,
5.12 or 5.17 of the Credit Agreement or any other provision of the Loan
Documents (other than Section 6.1 of the Credit Agreement) which (but for this
Section 3) might prohibit, restrict or condition (otherwise than pursuant to
this Agreement and Exhibit A to Amendment No. 1, as amended and supplemented
hereby), (i) the consummation by the Company of the GB Financing (as defined
in Exhibit A to Amendment No. 1) for the construction of the Green Bay Sludge
Boiler and (ii) in connection therewith, the conveyance of a portion of the
land comprising the Company's Green Bay, Wisconsin Mill, but only if such
transaction (including such conveyance) complies in all material respects with
the requirements set forth in Exhibit A to Amendment No. 1.
(b) The Lenders further hereby agree that, if the GB Financing
shall meet the requirements of paragraph (a) of this Section 3 and the Company
shall have delivered the Officer's Certificate and survey contemplated in
Exhibit A to Amendment No. 1: (i) the Green Bay Sludge Boiler shall
constitute "Existing Mill Expansion Equipment" (as defined in the Credit
Agreement and in the Mortgage for the Company's Green Bay, Wisconsin Mill,
after giving effect to Section 4 of this agreement); (ii) the construction of
the Green Bay Sludge Boiler shall constitute an Existing Mill Expansion
Transaction; and (iii) the GB financing shall constitute a Permitted Expansion
Financing.
(c) The Lenders hereby authorize the Arrangers (and, by executing a
counterpart of this Agreement, the Arrangers hereby agree) to determine, in
their reasonable judgment, whether or not any particular transaction proposed
by the Company satisfies the requirements of subsection 3(a) above and to
deliver, on behalf of the Lenders, an instrument confirming such satisfaction;
provided, however, that the Arrangers shall not have any liability for such
determination unless such determination shall have been made in bad faith or
shall constitute gross negligence. The Arrangers and the Lenders hereby
authorize the Administrative Agent and the Collateral Trustee (and, by
executing a counterpart of this Agreement, the Administrative Agent and the
Collateral Trustee hereby agree) to execute and deliver, on behalf of the
Lenders (and, in the case of the Collateral Trustee, the other beneficiaries
under the Collateral Trust Agreement) any and all instruments necessary to
effect any transaction so determined by the Arrangers to satisfy such
requirements and to prepare and record, where appropriate, written instruments
to give public notice of the amendments contemplated in Section 4 of this
agreement. The Company shall provide to the Administrative Agent, the
Arrangers and the Collateral Trustee any documents or information requested by
the Administrative Agent, the Arrangers and the Collateral Trustee to enable
the Administrative Agent, the Arrangers and the Collateral Trustee to make the
determinations and perform the obligations contemplated in this Section 3 with
respect to the satisfaction of such requirements.
(d) To the extent that this Section 3 is inconsistent with Section
2 of Amendment No. 1 or Exhibit A thereto, the provisions of this Section 3
shall govern.
SECTION 4. Amendment of Wisconsin and Oklahoma Mill Mortgages.
Each of the Mill Mortgages relating to the Company's Mills at Green Bay,
Wisconsin, and Muskogee, Oklahoma, is hereby amended to delete the reference
in clause (iv) of Section 4.1 thereof to the words "Expansion Equipment" and
insert in lieu thereof the words "Existing Mill Expansion Equipment". Upon
request of the Collateral Trustee, the Company shall execute, acknowledge,
deliver and cause to be recorded in the appropriate recording offices
amendments of each such Mill Mortgage to give public notice of the foregoing
provisions of this Section 4.
SECTION 5. Representations and Warranties. The Company hereby
represents and warrants to the Administrative Agent, the Arrangers and the
Lenders that, on and as of the date hereof (after giving effect to Sections 2,
3 and 4 of this agreement), the representations and warranties of the Company
set forth in the Credit Agreement (except for the representations and
warranties set forth in subsection 4.1.3 of the Credit Agreement) are true and
correct in all material respects to the same extent as though made on and as
of the date hereof, except that such representations and warranties need not
be true and correct to the extent that changes in facts and conditions on
which such representations and warranties are based are required or permitted
under the Credit Agreement and except to the extent that such representations
and warranties specifically relate to an earlier date, in which case such
representations and warranties were true and correct in all material respects
on and as of such earlier date. The certifications set forth in the form of
Officer's Certificate of the Company described in Section 6 of this agreement
are incorporated into this agreement by this reference as representations and
warranties of the Company. In the event any of the representations and
warranties referred to in the two immediately preceding sentences is untrue in
any material respect on and as of the respective dates specified therein or in
the event the Company shall breach any agreement on its part to be performed
or observed pursuant to this agreement, the Administrative Agent and the
Lenders shall have the rights and remedies contemplated in the Credit
Agreement to the same extent as if such representations and warranties or
agreements had been set forth therein.
SECTION 6. Conditions to Effectiveness. This agreement shall
become effective when the Administrative Agent shall have received (i) duly
executed counterparts hereof that have been executed at the time and in the
manner as provided in Section 9.6 of the Credit Agreement, it being understood
that delivery of an executed counterpart of a signature page to this agreement
by telecopier shall be as effective as delivery of a manually executed
counterpart of this agreement and (ii) the following documents with sufficient
copies, where appropriate, for each Lender and CG&R:
(w) a consent of Fort Howard Holding, Inc. and HAC Holding Corp. to
the execution and delivery of Amendment No. 1 and this Agreement, in the
form of Exhibit A annexed to this agreement;
(x) an Officer's Certificate of the Company, in the form of Exhibit
B annexed to this agreement;
(y) an opinion of James W. Nellen, II, Vice President and General
Counsel to the Company, in the form of Exhibit C annexed to this
agreement; and
(z) an opinion of Shearman & Sterling, counsel to the Company, in
the form of Exhibit D annexed to this agreement.
SECTION 7. Miscellaneous.
(a) Except as expressly contemplated in this agreement, all terms,
provisions, covenants, representations, warranties, agreements and conditions
of the Company contained in the Credit Agreement shall remain in full force
and effect and shall not otherwise be deemed to be waived, modified or amended
hereby.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
(c) This agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. The provisions of this
agreement may be amended or waived by the same parties that would be required
to amend or waive such provisions if such provisions were set forth in the
Credit Agreement.
(d) This agreement shall not constitute a consent to or waiver or
modification of any provision, term or condition of the Credit Agreement other
than the provisions expressly referred to above.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
By: /s/ R. Michael Lempke
R. Michael Lempke
Vice President and Treasurer
1988 LENDERS, PURCHASERS AND 1992 LENDERS:
BANKERS TRUST COMPANY,
Individually and as 1988 Lead Manager, 1988
Agent and 1992 Agent
Exhibit 10.2
------------
December 13, 1996
Mr. Michael T. Riordan
Fort Howard Corporation
1919 South Broadway
Green Bay, WI 54304
Dear Mr. Riordan:
WHEREAS, Fort Howard Corporation (the "Company") considers it
essential to its best interests and the best interests of its stockholders to
foster the continuous employment of its key management personnel and,
accordingly, the Company desires to continue to employ Michael T. Riordan
("you" or the "Executive"), upon the terms and conditions hereinafter set
forth;
WHEREAS, the Executive desires to continue to be employed by the
Company, upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants and
agreements hereunder set forth, the parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of
January 1, 1997 and shall continue in effect until December 31, 2001;
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."
2. TERMS OF EMPLOYMENT. During the Term, you agree to be a full-
time employee of the Company serving in the position of President and Chief
Executive Officer and to devote substantially all of your working time and
attention to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities associated with your position as
President and Chief Executive Officer of the Company, to use your best efforts
to perform faithfully and efficiently such responsibilities. In addition, you
agree to serve in such other capacities or offices to which you may be
assigned, appointed or elected from time to time by the Board of Directors of
the Company (the "Board"). Nothing herein shall prohibit you from devoting
your time to civic and community activities or managing personal investments,
as long as the foregoing do not interfere with the performance of your duties
hereunder.
3. COMPENSATION. (i) As compensation for your services under
this Agreement, you shall be entitled to receive a base salary plus an annual
incentive compensation bonus ("bonus"), each to be agreed upon from time to
time between you and the Company acting in good faith; PROVIDED, HOWEVER, that
your base salary shall at no time be less than your base salary as of the date
hereof. In addition, you shall be entitled to participate in any additional
1
bonus arrangement (an "additional bonus arrangement") which may be agreed upon
from time to time between you and the Company acting in good faith. The
Company shall have the right to reduce prospectively your base salary, bonus
and participation in any additional bonus arrangement, as in effect from time
to time, pursuant to an across-the-board compensation reduction or deferral
program similarly affecting all executive officers of the Company.
(ii) In addition to compensation provided for in Subsection (i) of
this Section 3, the Company agrees to continue in effect (A) any compensation
or benefit plan in which you participate as of the date hereof which is
material to your total compensation, or any substitute plan adopted in place
of any such plan, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan which shall include the bonus and any
additional bonus arrangement) has been made with respect to such plan;
PROVIDED, HOWEVER, that no substitute plan or equitable arrangement shall be
adopted with respect to the Fort Howard Profit Sharing Plan or the Fort Howard
Supplemental Retirement Plan except pursuant to a mutual agreement between you
and the Board, and (B) your ability to participate therein (or in such
substitute or alternative plan) on a basis not materially less favorable, both
in terms of the opportunities provided and the level of your participation
relative to other participants, than exists on the date hereof.
(iii) The Company shall reimburse you for all reasonable travel,
entertainment and other business expenses incurred by you in the performance
of your responsibilities under this Agreement promptly upon receipt of written
substantiation of such expenses. You shall also be paid all additional
amounts necessary to discharge all federal and state tax liabilities incurred
by you that are attributable to all deemed compensation arising as a
consequence of your personal use of property owned or leased by the Company,
including federal and state taxes assessed against such additional
compensation.
4. TERMINATION OF EMPLOYMENT. Your employment may be terminated
by either the Company or you by giving a Notice of Termination, as defined in
Subsection (iv) of this Section 4. If your employment should terminate during
the Term, your entitlement to benefits shall be determined in accordance with
Section 5 hereof.
(i) DISABILITY. If, as a result of your incapacity due to
physical or mental illness, you are, or are reasonably likely to become,
unable to perform your duties hereunder for more than six consecutive months
or six months in aggregate during any twelve-month period, your employment may
be terminated for "Disability."
(ii) CAUSE. Termination of your employment for "Cause" shall mean
termination upon (A) the willful and continued failure by you to substantially
perform your duties with the Company in your established position on a full-
time basis (other than any such failure resulting from your Disability and
other than any such actual or anticipated failure after the issuance of a
Notice of Termination by you for Good Reason as defined in Subsections 4(iv)
and 4(iii), respectively) after a written demand for substantial performance
is delivered to you by the Board, which demand specifically identifies the
manner in which the Board believes that you have not substantially performed
your duties, (B) the willful engaging by you in conduct which is significantly
injurious to the Company, monetarily or otherwise, after written demand for
cessation of such conduct is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have
engaged in such conduct and the injury to the Company, (C) your conviction of
2
a crime involving moral turpitude, (D) your abuse of illegal drugs or other
controlled substances or your habitual intoxication or (E) the breach of any
of your material obligations hereunder. For purposes of this Subsection, no
act, or failure to act, on your part shall be deemed "willful" unless
knowingly done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best interest of the
Company.
(iii) GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean the occurrence, without your express written consent, of any of the
following circumstances unless such circumstances are fully corrected prior to
the Date of Termination specified in the Notice of Termination, as such terms
are defined in Subsections (v) and (iv) of this Section 4, respectively, given
in respect thereof:
(A) the assignment to you of any duties inconsistent with your
status as an executive officer of the Company or your removal from any
office specified in Section 2 hereof;
(B) any reduction in your base salary as in effect from time to
time, except for across-the-board salary reductions similarly affecting
all executive officers;
(C) the failure by the Company to pay or provide to you within
seven (7) days of your written demand any amount of base salary or bonus
or any benefit which is due, owing and payable to you pursuant to the
terms of any applicable arrangement or policy or pursuant to the terms
hereof, except pursuant to an across-the-board compensation deferral
similarly affecting all executive officers, or to pay to you any portion
of an installment of deferred compensation due under any deferred
compensation program of the Company;
(D) except in the case of across-the-board reductions or
eliminations similarly affecting all executive officers or as otherwise
contemplated under Section 3 hereof, the failure by the Company to (I)
continue in effect any compensation plan in which you participate which
is material to your total compensation, including but not limited to the
Company's plans currently in effect or hereafter adopted, and any plans
adopted in substitution therefor, (II) continue to provide you with
benefits substantially similar, in aggregate, to the Company's life
insurance, medical, dental, health, accident or disability plans in which
you are participating at the date of this Agreement or (III) continue to
provide you with the number of paid vacation days to which you are
eligible on the basis of years of service with the Company in accordance
with the Company's normal vacation policy in effect at the date of this
Agreement;
(E) the relocation of the Company's principal executive office to
a location more than fifty miles distant from its current location, or
the Company's requiring you to perform services at a location that would
be a violation of the terms of Section 6 hereof;
(F) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 7 hereof; or
(G) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements
3
of Subsection (iv) of this Section 4, and for purposes of this Agreement,
no such purported termination shall be effective.
Your continued employment with the Company shall not constitute
consent to, or a waiver of rights with respect to, any circumstances
constituting Good Reason hereunder.
(iv) NOTICE OF TERMINATION. Any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 8 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) DATE OF TERMINATION, ETC. "Date of Termination" shall mean
(A) if your employment is terminated for Disability pursuant to Subsection (i)
of this Section 4, thirty (30) days after Notice of Termination is given
(PROVIDED that you shall not have returned to the full-time performance of
your duties during such thirty (30) day period), (B) if your employment is
terminated by reason of your death, the date of your death, and (C) if your
employment is terminated by the Company for Cause, by you for Good Reason or
by either party for any other reason (other than Disability or death), the
date specified in the Notice of Termination (which, in the case of a
termination by the Company for Cause shall not be less than fifteen (15) days,
and in the case of a termination by you for Good Reason, shall not be less
than thirty (30) nor more than sixty (60) days, respectively, from the date
such Notice of Termination is given).
5. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Upon
termination of your employment with the Company during the Term, you shall be
entitled to the following benefits:
(i) If your employment is terminated for Disability, you shall
receive until the third anniversary of the Date of Termination all
compensation payable to you under the Company's disability and medical
plans and programs, as in effect on the date of such termination plus an
additional payment from the Company (if necessary) such that the
aggregate amount received by you in the nature of salary continuation
from all sources equals your base salary at the date in effect on the
date of such termination. After the third anniversary of the Date of
Termination, your benefits shall be determined under the Company's
retirement, insurance and other compensation programs then in effect in
accordance with the terms of such programs, PROVIDED that such terms
shall not be less advantageous to you than the terms of such programs
in effect as of the date hereof. The obligations of the Company under
this Section 5(i) shall be terminated by your death after becoming
Disabled and prior to the third anniversary of the Date of Termination.
(ii) (A) If your employment shall be terminated (I) by the Company
for Cause, or (II) by you other than for Good Reason, the Company shall
pay you your full base salary through the Date of Termination, at the
rate in effect at the time Notice of Termination is given, plus all other
amounts to which you are entitled under any compensation or benefit plans
of the Company (excluding, in the case of termination by the Company for
Cause, any bonus and vacation pay and any entitlement under any
4
additional bonus arrangement otherwise payable to you pursuant to the
terms of the applicable plan or program of the Company, and in the case
of your voluntary termination other than for Good Reason, excluding any
bonus pay and any entitlement under any additional bonus arrangement) at
the time such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(B) If your employment shall be terminated by reason of your
death, the Company shall pay your estate your full base salary through
the Date of Termination and for a period of 12 whole calendar months
thereafter plus, if the Date of Termination shall not occur on the first
day of a calendar month, the balance of the month in which the Date of
Termination occurs, at the rate in effect at the time of your death, plus
any accrued bonus or entitlement under any additional bonus arrangement
prorated for the portion of the bonus measurement period occurring prior
to the date of your death, plus all other amounts to which you are
entitled under any compensation or benefit plans of the Company at the
date of your death, and the Company shall have no further obligation to
you, your beneficiaries or your estate under this Agreement.
(iii) If your employment shall be terminated (a) by the Company
other than for Cause or Disability or (b) by you for Good Reason, then
you shall be entitled to the benefits provided below:
(A) the Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given (or, if greater, at the rate in effect 30 days
prior to the time Notice of Termination is given), plus all other
amounts which you have accrued under any compensation or benefit
plans of the Company, including, without limitation, any bonus
pursuant to the Company's Management Incentive Plan and any
entitlement under any additional bonus arrangement accrued through
the Date of Termination for the portion of the applicable bonus
measurement period occurring prior to the Date of Termination, at
the time such payments are due, except as otherwise provided below;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay to you
your full base salary at the rate in effect immediately prior to the
time Notice of Termination is given (or, if greater, at the rate in
effect 30 days prior to the time Notice of Termination is given),
payable periodically in accordance with past payroll practices,
until the third anniversary of the Date of Termination;
(C) in lieu of any further bonus payments and any entitlements
under any additional bonus arrangement for periods subsequent to the
Date of Termination, the Company shall pay to you a bonus payable in
each January following the Date of Termination in respect of the
previous calendar year equal to the quotient obtained by aggregating
the bonuses received by you pursuant to the Company's Management
Incentive Plan and any additional bonus arrangement in respect of
the three calendar years ending prior to the Date of Termination
(the "Bonus Period") and dividing such sum by three, with each such
January bonus payment adjusted to reflect any changes in the
Consumer Price Index since the midpoint of the period commencing on
the first day of the Bonus Period and ending on the Date of
Termination. Such bonus shall be paid in respect of each calendar
5
year or portion thereof ending after the Date of Termination until
the third anniversary of the Date of Termination, and shall be
prorated for partial years, if any, including, without limitation,
the portion of the calendar year occurring after the Date of
Termination and the final calendar year in respect of which any such
January bonus is payable pursuant to this Section 5(iii)(C);
(D) until the third anniversary of the Date of Termination,
you will continue to participate in all other compensation and
benefit plans (including perquisites) in which you were
participating immediately prior to the time Notice of Termination is
given, or comparable plans substituted therefor, including, without
limitation, the Fort Howard Supplemental Retirement Plan and the
Supplemental Retirement Agreement between you and the Company;
PROVIDED, HOWEVER, that if you are ineligible (E.G., by operation of
law or the terms of the applicable plan) to continue to participate
in any such plan the Company shall provide you with a comparable
level of compensation or benefits;
(E) The Company shall pay to you all reasonable legal fees and
expenses incurred by you as a result of such termination (including
all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement), except any such
fees or expenses incurred by you in seeking to enforce a claim which
is determined by the arbitrator, pursuant to Section 11, to have
been frivolous in nature or not brought or pursued in good faith;
(F) In order to assist you in obtaining new employment, the
Company shall provide you with outplacement services, including
access to an office and secretarial assistance for a period not to
exceed 12 months and at a cost not to exceed $12,000; and
(G) If you should die after the termination of employment and
prior to the end of the period of payment provided for in paragraphs
(B), (C) and (D) hereof, the Company shall pay your estate any
amounts that are or become payable pursuant to any of such
paragraphs until the end of the Term.
(iv) You shall not be required to mitigate the amount of any payment
provided for in subsection (iii) of this Section 5 by seeking other
employment, and the amount of any payment provided for in this Section 5
shall not be reduced by any compensation earned by you as a result of
your employment by another employer; PROVIDED, HOWEVER, that any medical
or dental welfare benefit otherwise receivable by you pursuant to
Subsection 5(iii)(D) shall be reduced to the extent a comparable benefit
of the same type would normally be made available to you during the
applicable period of benefit continuation set forth in such Subsection,
and any such benefit actually received by you shall be reported to
the Company.
(v) In addition to all other amounts payable to you under this
Section 5, you shall be entitled to receive all benefits payable to you
under any plan or agreement of the Company relating to retirement
benefits, including, without limitation, the Supplemental Retirement Plan
and the Supplemental Retirement Agreement between you and the Company.
6
6. LOCATION. Your services shall be performed at the Company's
current headquarters location, or at such other place within a fifty-mile
radius of such current location as the Board may from time to time deem
appropriate. Notwithstanding the foregoing, you shall be required to travel
to the extent necessary to the performance of your responsibilities under this
Agreement. You shall use Company owned or leased aircraft for purposes of
such travel whenever practicable, and the Company recognizes that it may from
time to time be necessary, appropriate, desirable or convenient for you to be
accompanied in such travel by persons who are not employees of the Company,
including your spouse and other members of your family.
7. SUCCESSORS; BINDING AGREEMENT. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall entitle you to compensation from the Company in the same amount and on
the same terms as you would be entitled to hereunder if you were to terminate
your employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, the "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
8. NOTICES. For the purpose of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses set forth on the first page of this Agreement,
PROVIDED that all notices to the Company shall be directed to the attention of
the Board with copies to the Secretary of the Company, or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
9. NONCOMPETITION. (i) Until the Date of Termination, you agree
not to enter into competitive endeavors and not to undertake any commercial
activity which is contrary to the best interests of the Company or its
affiliates, including becoming an employee, owner (except for passive
investments of not more than one 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 (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any firm
or person which (i) directly competes with a line or lines of business of the
Company or any subsidiary of the Company accounting for ten percent (10%) or
more of the Company's or such subsidiary's gross sales, revenues or earnings
before taxes, (ii) 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 of the
Company or (iii) is a distributor of any of the products of the Company or any
subsidiary of the Company, where the distribution of such products accounts
for ten percent (10%) or more of such firm's or person's gross sales, revenues
or earnings before taxes. Notwithstanding any provision of this Agreement to
the contrary, you agree that your breach of the provisions of this
Section 9(i) shall permit the Company to terminate your employment for Cause.
7
(ii) After the Date of Termination and during any period that you
continue to be paid your salary (including any other payments in lieu of
salary) pursuant to Section 5 hereof, you agree not to become an employee,
owner (except for passive investments of not more than one 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 (i)
directly competes with a business of the Company or any subsidiary of the
Company producing any class of products accounting for ten percent (10%) or
more of the Company's or such subsidiary's gross sales, revenues or earnings
before taxes or (ii) is a distributor of any of the products of the Company or
any subsidiary of the Company, where the distribution of such products
accounts for ten percent (10%) or more of such firm's or person's gross sales,
revenues or earnings before taxes. During the period of payment provided in
Section 5 hereof, you will be available, consistent with other
responsibilities that you may then have, to answer questions and provide
advice to the Company. Notwithstanding anything in this Agreement to the
contrary, you agree that, from and after any breach by you of the provisions
of this Section 9(ii), the Company shall cease to have any obligations to make
payments to you under this Agreement.
(iii) You acknowledge and agree that damages for breach of the
covenant not to compete in this Section 9 will be difficult to determine and
will not afford a full and adequate remedy, and therefore agree that the
Company, in addition to any other remedies that may otherwise be available for
a breach of this Section 9 (including, without limitation, as set forth in
Section 9(ii) above, by seeking actual damages pursuant to Section 11 hereof
and pursuant to awards under the Company's 1995 Stock Incentive Plan), may
seek specific enforcement of the covenant not to compete in any court of
competent jurisdiction, including, without limitation, by the issuance of a
temporary or permanent injunction, without the necessity of a bond. You and
the Company agree that the provisions of this covenant not to compete are
reasonable. However, should any court or arbitrator determine that any
provision of this covenant not to compete is unreasonable, either in period of
time, geographical area, or otherwise, the parties agree that this covenant
not to compete should be interpreted and enforced to the maximum extent which
such court or arbitrator deems reasonable.
(iv) The provisions of this Section 9 shall supersede the covenants
restricting competition by the Executive set forth in (i) Article VII of the
Company's Management Equity Plan and any applicable agreement entered into
between the Company and the Executive pursuant thereto and (ii) Article IX of
the Amended and Restated Management Equity Participation Agreement, dated as
of August 8, 1988, between the Company and the other parties signatory
thereto, as amended and supplemented from time to time.
10. CONFIDENTIALITY. (i) You shall not knowingly disclose or
reveal to any unauthorized person, during or after the Term, any trade secret
or other confidential information relating to the Company or any of its
affiliates, or any of their respective businesses or principals, such as,
without limitation, dealers' or distributors' lists and manufacturing
processes, and you confirm that such information is the exclusive property of
the Company and its affiliates. You agree to hold as the Company's property
all memoranda, books, papers, letters and other data, and all copies thereof
or therefrom, in any way relating to the business of the Company and its
affiliates, whether made by you or otherwise coming into your possession and,
on termination of your employment, or on demand of the Company at any time, to
deliver the same to the Company.
8
(ii) Any ideas, processes, characters, productions, schemes,
titles, names, formats, adaptations, plots, slogans, catchwords, incidents,
treatment, and dialogue which you may conceive, create, organize, prepare or
produce during the period of your employment and which ideas, processes, etc.
relate to any of the businesses of the Company, shall be owned by the Company
and its affiliates whether or not you should in fact execute an assignment
thereof to the Company, but you agree to execute any assignment thereof or
other instrument or document which may be reasonably necessary to protect and
secure such rights to the Company.
(iii) You shall comply in all respects with the terms of the
Employees' Agreement with regard to Proprietary Information Including
Inventions, Patents, Copyrights, Trade Secrets and Confidential Information
between you and the Company.
(iv) Notwithstanding anything in this Agreement to the contrary,
you agree that from and after any breach by you of the provisions of this
Section 10 during any period of payment provided in Section 5 hereof, the
Company shall cease to have any obligations to make payments to you under this
Agreement.
11. ARBITRATION. (i) Except as contemplated by Section 9(iii) and
Section 11(iii) hereof, any dispute or controversy arising under or in
connection with this Agreement that cannot be mutually resolved by the parties
to this Agreement and their respective advisors and representatives shall be
settled exclusively by arbitration in New York, New York before one arbitrator
of exemplary qualifications and stature, who shall be selected jointly by an
individual to be designated by the Company and an individual to be selected by
you, or if such two individuals cannot agree on the selection of the
arbitrator, who shall be selected by the American Arbitration Association.
(ii) The parties agree to use their best efforts to cause (A) the
two applicable individuals set forth in the preceding Section 11(i), or, if
applicable, the American Arbitration Association, to appoint the arbitrator
within 30 days of the date that a party hereto, after the issuance of a Notice
of Termination hereunder, notifies the other party that a dispute or
controversy exists that necessitates the appointment of an arbitrator, and (B)
any arbitration hearing to be held within 30 days of the date of selection of
the arbitrator and, as a condition to his or her selection, such arbitrator
must consent to be available for a hearing at such time.
(iii) Judgment may be entered on the arbitrator's award in any court
having jurisdiction; PROVIDED, HOWEVER, that you shall be entitled to seek
specific performance of your right to be paid and to participate in benefit
programs until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The Company
and you hereby agree that the arbitrator shall be empowered to enter an
equitable decree mandating specific enforcement of the terms of this
Agreement.
(iv) The Company shall bear all expenses of the arbitrator incurred
in any arbitration hereunder. The Company shall also pay your reasonable
legal fees in connection with such arbitration as you incur them; PROVIDED
that in the event you seek arbitration and the arbitrator determines that your
claims are frivolous in nature or were not brought or pursued in good faith,
you will promptly return to the Company all amounts paid by the Company for
such fees.
9
12. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by you and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in
this Agreement. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York. Any
payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of
the Company under Section 5 and your obligations under Sections 9 and 10
hereof shall survive the expiration of the Term of this Agreement.
13. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. ENTIRE AGREEMENT. This Agreement and the other agreements
expressly referred to herein contain the entire agreement by the parties with
respect to the matters covered herein and supersede any prior agreement
(including, without limitation, any prior employment agreement), condition,
practice, custom, usage and obligation with respect to such matters insofar as
any such prior agreement, condition, practice, custom, usage or obligation
might have given rise to any enforceable right.
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
FORT HOWARD CORPORATION
By: /s/ Donald H. DeMeuse
-------------------------
Name: Donald H. DeMeuse
Title: Chairman of the Board
Agreed to this 17th day
----
of December, 1996
--------
By /s/ Michael T. Riordan
------------------------
Michael T. Riordan
December 13, 1996
Ms. Kathleen J. Hempel
Fort Howard Corporation
1919 South Broadway
Green Bay, WI 54304
Dear Ms. Hempel:
WHEREAS, Fort Howard Corporation (the "Company") considers it
essential to its best interests and the best interests of its stockholders to
foster the continuous employment of its key management personnel and,
accordingly, the Company desires to continue to employ Kathleen J. Hempel
("you" or the "Executive"), upon the terms and conditions hereinafter set
forth;
WHEREAS, the Executive desires to continue to be employed by the
Company, upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants and
agreements hereunder set forth, the parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of
January 1, 1997 and shall continue in effect until December 31, 1999;
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."
2. TERMS OF EMPLOYMENT. During the Term, you agree to be a full-
time employee of the Company serving in the position of Vice Chairman and
Chief Financial Officer and to devote substantially all of your working time
and attention to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities associated with your position as
Vice Chairman and Chief Financial Officer of the Company, to use your best
efforts to perform faithfully and efficiently such responsibilities. In
addition, you agree to serve in such other capacities or offices to which you
may be assigned, appointed or elected from time to time by the Board of
Directors of the Company (the "Board"). Nothing herein shall prohibit you
from devoting your time to civic and community activities or managing personal
investments, as long as the foregoing do not interfere with the performance of
your duties hereunder.
3. COMPENSATION. (i) As compensation for your services under
this Agreement, you shall be entitled to receive a base salary plus an annual
incentive compensation bonus ("bonus"), each to be agreed upon from time to
time between you and the Company acting in good faith; PROVIDED, HOWEVER, that
your base salary shall at no time be less than your base salary as of the date
hereof. In addition, you shall be entitled to participate in any additional
bonus arrangement (an "additional bonus arrangement") which may be agreed upon
2
from time to time between you and the Company acting in good faith. The
Company shall have the right to reduce prospectively your base salary, bonus
and participation in any additional bonus arrangement, as in effect from time
to time, pursuant to an across-the-board compensation reduction or deferral
program similarly affecting all executive officers of the Company.
(ii) In addition to compensation provided for in Subsection (i) of
this Section 3, the Company agrees to continue in effect (A) any compensation
or benefit plan in which you participate as of the date hereof which is
material to your total compensation, or any substitute plan adopted in place
of any such plan, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan which shall include the bonus and any
additional bonus arrangement) has been made with respect to such plan;
PROVIDED, HOWEVER, that no substitute plan or equitable arrangement shall be
adopted with respect to the Fort Howard Profit Sharing Plan or the Fort Howard
Supplemental Retirement Plan except pursuant to a mutual agreement between the
Chief Executive Officer of the Company and the Board, and (B) your ability to
participate therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the opportunities provided and the
level of your participation relative to other participants, than exists on the
date hereof.
(iii) The Company shall reimburse you for all reasonable travel,
entertainment and other business expenses incurred by you in the performance
of your responsibilities under this Agreement promptly upon receipt of written
substantiation of such expenses. You shall also be paid all additional
amounts necessary to discharge all federal and state tax liabilities incurred
by you that are attributable to all deemed compensation arising as a
consequence of your personal use of property owned or leased by the Company,
including federal and state taxes assessed against such additional
compensation.
4. TERMINATION OF EMPLOYMENT. Your employment may be terminated
by either the Company or you by giving a Notice of Termination, as defined in
Subsection (iv) of this Section 4. If your employment should terminate during
the Term, your entitlement to benefits shall be determined in accordance with
Section 5 hereof.
(i) DISABILITY. If, as a result of your incapacity due to
physical or mental illness, you are, or are reasonably likely to become,
unable to perform your duties hereunder for more than six consecutive months
or six months in aggregate during any twelve-month period, your employment may
be terminated for "Disability."
(ii) CAUSE. Termination of your employment for "Cause" shall mean
termination upon (A) the willful and continued failure by you to substantially
perform your duties with the Company in your established position on a full-
time basis (other than any such failure resulting from your Disability and
other than any such actual or anticipated failure after the issuance of a
Notice of Termination by you for Good Reason as defined in Subsections 4(iv)
and 4(iii), respectively) after a written demand for substantial performance
is delivered to you by the Board, which demand specifically identifies the
manner in which the Board believes that you have not substantially performed
your duties, (B) the willful engaging by you in conduct which is significantly
injurious to the Company, monetarily or otherwise, after written demand for
cessation of such conduct is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have
3
engaged in such conduct and the injury to the Company, (C) your conviction of
a crime involving moral turpitude, (D) your abuse of illegal drugs or other
controlled substances or your habitual intoxication or (E) the breach of any
of your material obligations hereunder. For purposes of this Subsection, no
act, or failure to act, on your part shall be deemed "willful" unless
knowingly done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best interest of the
Company.
(iii) GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean the occurrence, without your express written consent, of any of the
following circumstances unless such circumstances are fully corrected prior to
the Date of Termination specified in the Notice of Termination, as such terms
are defined in Subsections (v) and (iv) of this Section 4, respectively, given
in respect thereof:
(A) the assignment to you of any duties inconsistent with your
status as an executive officer of the Company or your removal from any
office specified in Section 2 hereof;
(B) any reduction in your base salary as in effect from time to
time, except for across-the-board salary reductions similarly affecting
all executive officers;
(C) the failure by the Company to pay or provide to you within
seven (7) days of your written demand any amount of base salary or bonus
or any benefit which is due, owing and payable to you pursuant to the
terms of any applicable arrangement or policy or pursuant to the terms
hereof, except pursuant to an across-the-board compensation deferral
similarly affecting all executive officers, or to pay to you any portion
of an installment of deferred compensation due under any deferred
compensation program of the Company;
(D) except in the case of across-the-board reductions or
eliminations similarly affecting all executive officers or as otherwise
contemplated under Section 3 hereof, the failure by the Company to
(I) continue in effect any compensation plan in which you participate
which is material to your total compensation, including but not limited
to the Company's plans currently in effect or hereafter adopted, and any
plans adopted in substitution therefor, (II) continue to provide you with
benefits substantially similar, in aggregate, to the Company's life
insurance, medical, dental, health, accident or disability plans in which
you are participating at the date of this Agreement or (III) continue to
provide you with the number of paid vacation days to which you are
eligible on the basis of years of service with the Company in accordance
with the Company's normal vacation policy in effect at the date of this
Agreement;
(E) the relocation of the Company's principal executive office to
a location more than fifty miles distant from its current location, or
the Company's requiring you to perform services at a location that would
be a violation of the terms of Section 6 hereof;
(F) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 7 hereof; or
4
(G) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements
of Subsection (iv) of this Section 4, and for purposes of this Agreement,
no such purported termination shall be effective.
Your continued employment with the Company shall not constitute
consent to, or a waiver of rights with respect to, any circumstances
constituting Good Reason hereunder.
(iv) NOTICE OF TERMINATION. Any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 8 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) DATE OF TERMINATION, ETC. "Date of Termination" shall mean
(A) if your employment is terminated for Disability pursuant to Subsection (i)
of this Section 4, thirty (30) days after Notice of Termination is given
(PROVIDED that you shall not have returned to the full-time performance of
your duties during such thirty (30) day period), (B) if your employment is
terminated by reason of your death, the date of your death, and (C) if your
employment is terminated by the Company for Cause, by you for Good Reason or
by either party for any other reason (other than Disability or death), the
date specified in the Notice of Termination (which, in the case of a
termination by the Company for Cause shall not be less than fifteen (15) days,
and in the case of a termination by you for Good Reason, shall not be less
than thirty (30) nor more than sixty (60) days, respectively, from the date
such Notice of Termination is given).
5. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Upon
termination of your employment with the Company during the Term, you shall be
entitled to the following benefits:
(i) If your employment is terminated for Disability, you shall
receive until the third anniversary of the Date of Termination all
compensation payable to you under the Company's disability and medical
plans and programs, as in effect on the date of such termination plus an
additional payment from the Company (if necessary) such that the
aggregate amount received by you in the nature of salary continuation
from all sources equals your base salary at the date in effect on the
date of such termination. After the third anniversary of the Date of
Termination, your benefits shall be determined under the Company's
retirement, insurance and other compensation programs then in effect in
accordance with the terms of such programs, PROVIDED that such terms
shall not be less advantageous to you than the terms of such programs in
effect as of the date hereof. The obligations of the Company under this
Section 5(i) shall be terminated by your death after becoming Disabled
and prior to the third anniversary of the Date of Termination.
(ii) (A) If your employment shall be terminated (I) by the
Company for Cause, or (II) by you other than for Good Reason, the Company
shall pay you your full base salary through the Date of Termination, at
the rate in effect at the time Notice of Termination is given, plus all
other amounts to which you are entitled under any compensation or benefit
5
plans of the Company (excluding, in the case of termination by the
Company for Cause, any bonus and vacation pay and any entitlement under
any additional bonus arrangement otherwise payable to you pursuant to the
terms of the applicable plan or program of the Company, and in the case
of your voluntary termination other than for Good Reason, excluding any
bonus pay and any entitlement under any additional bonus arrangement) at
the time such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(B) If your employment shall be terminated by reason of your
death, the Company shall pay your estate your full base salary through
the Date of Termination and for a period of 12 whole calendar months
thereafter plus, if the Date of Termination shall not occur on the first
day of a calendar month, the balance of the month in which the Date of
Termination occurs, at the rate in effect at the time of your death, plus
any accrued bonus or entitlement under any additional bonus arrangement
prorated for the portion of the bonus measurement period occurring prior
to the date of your death, plus all other amounts to which you are
entitled under any compensation or benefit plans of the Company at the
date of your death, and the Company shall have no further obligation to
you, your beneficiaries or your estate under this Agreement.
(iii) If your employment shall be terminated (a) by the Company
other than for Cause or Disability or (b) by you for Good Reason, then
you shall be entitled to the benefits provided below:
(A) the Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given (or, if greater, at the rate in effect 30 days prior
to the time Notice of Termination is given), plus all other amounts which
you have accrued under any compensation or benefit plans of the Company,
including, without limitation, any bonus pursuant to the Company's
Management Incentive Plan and any entitlement under any additional bonus
arrangement accrued through the Date of Termination for the portion of
the applicable bonus measurement period occurring prior to the Date of
Termination, at the time such payments are due, except as otherwise
provided below;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay to you your
full base salary at the rate in effect immediately prior to the time
Notice of Termination is given (or, if greater, at the rate in effect 30
days prior to the time Notice of Termination is given), payable
periodically in accordance with past payroll practices, until the third
anniversary of the Date of Termination;
(C) in lieu of any further bonus payments and any entitlements
under any additional bonus arrangement for periods subsequent to the Date
of Termination, the Company shall pay to you a bonus payable in each
January following the Date of Termination in respect of the previous
calendar year equal to the quotient obtained by aggregating the bonuses
received by you pursuant to the Company's Management Incentive Plan and
any additional bonus arrangement in respect of the three calendar years
ending prior to the Date of Termination (the "Bonus Period") and dividing
such sum by three, with each such January bonus payment adjusted to
reflect any changes in the Consumer Price Index since the midpoint of the
6
period commencing on the first day of the Bonus Period and ending on the
Date of Termination. Such bonus shall be paid in respect of each
calendar year or portion thereof ending after the Date of Termination
until the third anniversary of the Date of Termination, and shall be
prorated for partial years, if any, including, without limitation, the
portion of the calendar year occurring after the Date of Termination and
the final calendar year in respect of which any such January bonus is
payable pursuant to this Section 5(iii)(C);
(D) until the third anniversary of the Date of Termination, you
will continue to participate in all other compensation and benefit plans
(including perquisites) in which you were participating immediately prior
to the time Notice of Termination is given, or comparable plans
substituted therefor, including, without limitation, the Fort Howard
Supplemental Retirement Plan and the Supplemental Retirement Agreement
between you and the Company; PROVIDED, HOWEVER, that if you are
ineligible (E.G., by operation of law or the terms of the applicable
plan) to continue to participate in any such plan the Company shall
provide you with a comparable level of compensation or benefits;
(E) The Company shall pay to you all reasonable legal fees and
expenses incurred by you as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or benefit
provided by this Agreement), except any such fees or expenses incurred by
you in seeking to enforce a claim which is determined by the arbitrator,
pursuant to Section 11, to have been frivolous in nature or not brought
or pursued in good faith;
(F) In order to assist you in obtaining new employment, the
Company shall provide you with outplacement services, including access to
an office and secretarial assistance for a period not to exceed 12 months
and at a cost not to exceed $12,000; and
(G) If you should die after the termination of employment and
prior to the end of the period of payment provided for in paragraphs (B),
(C) and (D) hereof, the Company shall pay your estate any amounts that
are or become payable pursuant to any of such paragraphs until the end of
the Term.
(iv) You shall not be required to mitigate the amount of any
payment provided for in subsection (iii) of this Section 5 by seeking
other employment, and the amount of any payment provided for in this
Section 5 shall not be reduced by any compensation earned by you as a
result of your employment by another employer; PROVIDED, HOWEVER, that
any medical or dental welfare benefit otherwise receivable by you
pursuant to Subsection 5(iii)(D) shall be reduced to the extent a
comparable benefit of the same type would normally be made available to
you during the applicable period of benefit continuation set forth in
such Subsection, and any such benefit actually received by you shall be
reported to the Company.
(v) In addition to all other amounts payable to you under this
Section 5, you shall be entitled to receive all benefits payable to you
under any plan or agreement of the Company relating to retirement
benefits, including, without limitation, the Supplemental Retirement Plan
and the Supplemental Retirement Agreement between you and the Company.
7
6. LOCATION. Your services shall be performed at the Company's
current headquarters location, or at such other place within a fifty-mile
radius of such current location as the Board may from time to time deem
appropriate. Notwithstanding the foregoing, you shall be required to travel
to the extent necessary to the performance of your responsibilities under this
Agreement. You shall use Company owned or leased aircraft for purposes of
such travel whenever practicable, and the Company recognizes that it may from
time to time be necessary, appropriate, desirable or convenient for you to be
accompanied in such travel by persons who are not employees of the Company,
including your spouse and other members of your family.
7. SUCCESSORS; BINDING AGREEMENT. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall entitle you to compensation from the Company in the same amount and on
the same terms as you would be entitled to hereunder if you were to terminate
your employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, the "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
8. NOTICES. For the purpose of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses set forth on the first page of this Agreement,
PROVIDED that all notices to the Company shall be directed to the attention of
the Board with copies to the Secretary of the Company, or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
9. NONCOMPETITION. (i) Until the Date of Termination, you agree
not to enter into competitive endeavors and not to undertake any commercial
activity which is contrary to the best interests of the Company or its
affiliates, including becoming an employee, owner (except for passive
investments of not more than one 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 (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any firm
or person which (i) directly competes with a line or lines of business of the
Company or any subsidiary of the Company accounting for ten percent (10%) or
more of the Company's or such subsidiary's gross sales, revenues or earnings
before taxes, (ii) 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 of the
Company or (iii) is a distributor of any of the products of the Company or any
subsidiary of the Company, where the distribution of such products accounts
for ten percent (10%) or more of such firm's or person's gross sales, revenues
or earnings before taxes. Notwithstanding any provision of this Agreement to
8
the contrary, you agree that your breach of the provisions of this
Section 9(i) shall permit the Company to terminate your employment for Cause.
(ii) After the Date of Termination and during any period that you
continue to be paid your salary (including any other payments in lieu of
salary) pursuant to Section 5 hereof, you agree not to become an employee,
owner (except for passive investments of not more than one 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 (i)
directly competes with a business of the Company or any subsidiary of the
Company producing any class of products accounting for ten percent (10%) or
more of the Company's or such subsidiary's gross sales, revenues or earnings
before taxes or (ii) is a distributor of any of the products of the Company or
any subsidiary of the Company, where the distribution of such products
accounts for ten percent (10%) or more of such firm's or person's gross sales,
revenues or earnings before taxes. During the period of payment provided in
Section 5 hereof, you will be available, consistent with other
responsibilities that you may then have, to answer questions and provide
advice to the Company. Notwithstanding anything in this Agreement to the
contrary, you agree that, from and after any breach by you of the provisions
of this Section 9(ii), the Company shall cease to have any obligations to make
payments to you under this Agreement.
(iii) You acknowledge and agree that damages for breach of the
covenant not to compete in this Section 9 will be difficult to determine and
will not afford a full and adequate remedy, and therefore agree that the
Company, in addition to any other remedies that may otherwise be available for
a breach of this Section 9 (including, without limitation, as set forth in
Section 9(ii) above, by seeking actual damages pursuant to Section 11 hereof
and pursuant to awards under the Company's 1995 Stock Incentive Plan), may
seek specific enforcement of the covenant not to compete in any court of
competent jurisdiction, including, without limitation, by the issuance of a
temporary or permanent injunction, without the necessity of a bond. You and
the Company agree that the provisions of this covenant not to compete are
reasonable. However, should any court or arbitrator determine that any
provision of this covenant not to compete is unreasonable, either in period of
time, geographical area, or otherwise, the parties agree that this covenant
not to compete should be interpreted and enforced to the maximum extent which
such court or arbitrator deems reasonable.
(iv) The provisions of this Section 9 shall supersede the covenants
restricting competition by the Executive set forth in (i) Article VII of the
Company's Management Equity Plan and any applicable agreement entered into
between the Company and the Executive pursuant thereto and (ii) Article IX of
the Amended and Restated Management Equity Participation Agreement, dated as
of August 8, 1988, between the Company and the other parties signatory
thereto, as amended and supplemented from time to time.
10. CONFIDENTIALITY. (i) You shall not knowingly disclose or
reveal to any unauthorized person, during or after the Term, any trade secret
or other confidential information relating to the Company or any of its
affiliates, or any of their respective businesses or principals, such as,
without limitation, dealers' or distributors' lists and manufacturing
processes, and you confirm that such information is the exclusive property of
the Company and its affiliates. You agree to hold as the Company's property
9
all memoranda, books, papers, letters and other data, and all copies thereof
or therefrom, in any way relating to the business of the Company and its
affiliates, whether made by you or otherwise coming into your possession and,
on termination of your employment, or on demand of the Company at any time, to
deliver the same to the Company.
(ii) Any ideas, processes, characters, productions, schemes,
titles, names, formats, adaptations, plots, slogans, catchwords, incidents,
treatment, and dialogue which you may conceive, create, organize, prepare or
produce during the period of your employment and which ideas, processes, etc.
relate to any of the businesses of the Company, shall be owned by the Company
and its affiliates whether or not you should in fact execute an assignment
thereof to the Company, but you agree to execute any assignment thereof or
other instrument or document which may be reasonably necessary to protect and
secure such rights to the Company.
(iii) You shall comply in all respects with the terms of the
Employees' Agreement with regard to Proprietary Information Including
Inventions, Patents, Copyrights, Trade Secrets and Confidential Information
between you and the Company.
(iv) Notwithstanding anything in this Agreement to the contrary,
you agree that from and after any breach by you of the provisions of this
Section 10 during any period of payment provided in Section 5 hereof, the
Company shall cease to have any obligations to make payments to you under this
Agreement.
11. ARBITRATION. (i) Except as contemplated by Section 9(iii) and
Section 11(iii) hereof, any dispute or controversy arising under or in
connection with this Agreement that cannot be mutually resolved by the parties
to this Agreement and their respective advisors and representatives shall be
settled exclusively by arbitration in New York, New York before one arbitrator
of exemplary qualifications and stature, who shall be selected jointly by an
individual to be designated by the Company and an individual to be selected by
you, or if such two individuals cannot agree on the selection of the
arbitrator, who shall be selected by the American Arbitration Association.
(ii) The parties agree to use their best efforts to cause (A) the
two applicable individuals set forth in the preceding Section 11(i), or, if
applicable, the American Arbitration Association, to appoint the arbitrator
within 30 days of the date that a party hereto, after the issuance of a Notice
of Termination hereunder, notifies the other party that a dispute or
controversy exists that necessitates the appointment of an arbitrator, and (B)
any arbitration hearing to be held within 30 days of the date of selection of
the arbitrator and, as a condition to his or her selection, such arbitrator
must consent to be available for a hearing at such time.
(iii) Judgment may be entered on the arbitrator's award in any court
having jurisdiction; PROVIDED, HOWEVER, that you shall be entitled to seek
specific performance of your right to be paid and to participate in benefit
programs until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement. The Company
and you hereby agree that the arbitrator shall be empowered to enter an
equitable decree mandating specific enforcement of the terms of this
Agreement.
(iv) The Company shall bear all expenses of the arbitrator incurred
10
in any arbitration hereunder. The Company shall also pay your reasonable
legal fees in connection with such arbitration as you incur them; PROVIDED
that in the event you seek arbitration and the arbitrator determines that your
claims are frivolous in nature or were not brought or pursued in good faith,
you will promptly return to the Company all amounts paid by the Company for
such fees.
12. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by you and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in
this Agreement. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York. Any
payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of
the Company under Section 5 and your obligations under Sections 9 and 10
hereof shall survive the expiration of the Term of this Agreement.
13. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. ENTIRE AGREEMENT. This Agreement and the other agreements
expressly referred to herein contain the entire agreement by the parties with
respect to the matters covered herein and supersede any prior agreement
(including, without limitation, any prior employment agreement), condition,
practice, custom, usage and obligation with respect to such matters insofar as
any such prior agreement, condition, practice, custom, usage or obligation
might have given rise to any enforceable right.
11
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
FORT HOWARD CORPORATION
By /s/ Michael T. Riordan
-----------------------------
Name: Michael T. Riordan
Title: President and
Chief Executive Officer
Agreed to this 27th day
----
of December, 1996
--------
By /s/ Kathleen J. Hempel
-----------------------
Kathleen J. Hempel
Exhibit 10.3
------------
December 13, 1996
Mr. John F. Rowley
Fort Howard Corporation
1919 South Broadway
Green Bay, Wisconsin 54304
Dear Mr. Rowley:
WHEREAS, Fort Howard Corporation (the "Company") considers it
essential to its best interests and the best interests of its stockholders to
foster the continuous employment of its key management personnel and,
accordingly, the Company desires to continue to employ John F. Rowley ("you"
or the "Executive"), upon the terms and conditions hereinafter set forth;
WHEREAS, the Executive desires to continue to be employed by the
Company, upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the covenants and agreements
hereunder set forth, the parties hereto agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of
January 1, 1997 and shall continue in effect until December 31, 1999;
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."
2. TERMS OF EMPLOYMENT. During the Term, you agree to be a full-
time employee of the Company serving in the position of Executive Vice
President and to devote substantially all of your working time and attention
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities associated with your position as <Position> of
the Company, to use your best efforts to perform faithfully and efficiently
such responsibilities. In addition, you agree to serve in such other
capacities or offices to which you may be assigned, appointed or elected from
time to time by the Board of Directors of the Company (the "Board"). Nothing
herein shall prohibit you from devoting your time to civic and community
activities or managing personal investments, as long as the foregoing do not
interfere with the performance of your duties hereunder.
3. COMPENSATION. (i) As compensation for your services under
this Agreement, you shall be entitled to receive a base salary plus an annual
incentive compensation bonus ("bonus"), each to be agreed upon from time to
time between you and the Company acting in good faith; PROVIDED, HOWEVER, that
your base salary shall at no time be less than your base salary as of the date
hereof. The Company shall have the right to reduce prospectively your base
salary and bonus, as in effect from time to time, pursuant to an across-the-
board compensation reduction or deferral program similarly affecting all
2
executive officers of the Company.
(ii) In addition to compensation provided for in Subsection (i) of
this Section 3, the Company agrees to continue in effect (A) any compensation
or benefit plan in which you participate as of the date hereof which is
material to your total compensation, or any substitute plan adopted in place
of any such plan, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan which shall include the bonus) has been made
with respect to such plan; PROVIDED, HOWEVER, that no substitute plan or
equitable arrangement shall be adopted with respect to the Fort Howard Profit
Sharing Plan or the Fort Howard Supplemental Retirement Plan except pursuant
to a mutual agreement between the Chief Executive Officer of the Company and
the Board, and (B) your ability to participate therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in terms
of the opportunities provided and the level of your participation relative to
other participants, than exists on the date hereof.
4. TERMINATION OF EMPLOYMENT. Your employment may be terminated
by either the Company or you by giving a Notice of Termination, as defined in
Subsection (iv) of this Section 4. If your employment should terminate during
the Term, your entitlement to benefits shall be determined in accordance with
Section 5 hereof.
(i) DISABILITY. If, as a result of your incapacity due to
physical or mental illness, you are, or are reasonably likely to become,
unable to perform your duties hereunder for more than six consecutive months
or six months in aggregate during any twelve month period, your employment may
be terminated for "Disability."
(ii) CAUSE. Termination of your employment for "Cause" shall mean
termination upon (A) the willful and continued failure by you to substantially
perform your duties with the Company in your established position on a full-
time basis (other than any such failure resulting from your Disability and
other than any such actual or anticipated failure after the issuance of a
Notice of Termination by you for Good Reason as defined in Subsections 4(iv)
and 4(iii), respectively) after a written demand for substantial performance
is delivered to you by the Chief Executive Officer of the Company, which
demand specifically identifies the manner in which the Chief Executive Officer
of the Company believes that you have not substantially performed your duties,
(B) the willful engaging by you in conduct which is significantly injurious to
the Company, monetarily or otherwise, after written demand for cessation of
such conduct is delivered to you by the Chief Executive Officer of the
Company, which demand specifically identifies the manner in which the Chief
Executive Officer of the Company believes that you have engaged in such
conduct and the injury to the Company, (C) your conviction of a crime
involving moral turpitude, (D) your abuse of illegal drugs or other controlled
substances or your habitual intoxication or (E) the breach of any of your
material obligations hereunder. For purposes of this Subsection, no act, or
failure to act, on your part shall be deemed "willful" unless knowingly done,
or omitted to be done, by you not in good faith and without reasonable belief
that your action or omission was in the best interest of the Company.
(iii) GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean the occurrence, without your express written consent, of any of the
following circumstances unless such circumstances are fully corrected prior to
the Date of Termination specified in the Notice of Termination, as such terms
are defined in Subsections (v) and (iv) of this Section 4, respectively, given
in respect thereof:
(A) any reduction in your base salary as in effect from time to
time, except for across-the-board salary reductions similarly affecting
3
all executive officers;
(B) the failure by the Company to pay or provide to you within
seven (7) days of your written demand any amount of base salary or bonus
or any benefit which is due, owing and payable to you pursuant to the
terms of any applicable arrangement or policy or pursuant to the terms
hereof, except pursuant to an across-the-board compensation deferral
similarly affecting all executive officers, or to pay to you any portion
of an installment of deferred compensation due under any deferred
compensation program of the Company;
(C) except in the case of across-the-board reductions or
eliminations similarly affecting all executive officers or as otherwise
contemplated under Section 3 hereof, the failure by the Company to
(I) continue in effect any compensation plan in which you participate
which is material to your total compensation, including but not limited
to the Company's plans currently in effect or hereafter adopted, and any
plans adopted in substitution therefor, (II) continue to provide you with
benefits substantially similar, in aggregate, to the Company's life
insurance, medical, dental, health, accident or disability plans in which
you are participating at the date of this Agreement or (III) continue to
provide you with the number of paid vacation days to which you are
eligible on the basis of years of service with the Company in accordance
with the Company's normal vacation policy in effect at the date of this
Agreement;
(D) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 7 hereof; or
(E) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements
of Subsection (iv) of this Section 4, and for purposes of this Agreement,
no such purported termination shall be effective.
Your continued employment with the Company shall not constitute
consent to, or a waiver of rights with respect to, any circumstances
constituting Good Reason hereunder.
(iv) NOTICE OF TERMINATION. Any purported termination of your
employment by the Company or by you shall be communicated by written notice of
termination (a "Notice of Termination") to the other party hereto in
accordance with Section 8 hereof.
(v) DATE OF TERMINATION, ETC. "Date of Termination" shall mean
(A) if your employment is terminated for Disability pursuant to Subsection (i)
of this Section 4, thirty (30) days after Notice of Termination is given
(PROVIDED that you shall not have returned to the full-time performance of
your duties during such thirty (30) day period), (B) if your employment is
terminated by reason of your death, the date of your death, and (C) if your
employment is terminated by the Company for Cause, by you for Good Reason or
by either party for any other reason (other than Disability or death), the
date specified in the Notice of Termination (which, in the case of a
termination by the Company for Cause shall not be less than fifteen (15) days,
and in the case of a termination by you for Good Reason, shall not be less
than thirty (30) nor more than sixty (60) days, respectively, from the date
such Notice of Termination is given).
5. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Upon
termination of your employment with the Company during the Term, you shall be
entitled to the following benefits:
4
(i) If your employment is terminated for Disability, you shall
receive until the first anniversary of the Date of Termination all
compensation payable to you under the Company's disability and medical
plans and programs, as in effect on the date of such termination plus an
additional payment from the Company (if necessary) such that the
aggregate amount received by you in the nature of salary continuation
from all sources equals your base salary at the rate in effect on the
date of such termination. After the first anniversary of the Date of
Termination, your benefits shall be determined under the Company's
retirement, insurance and other compensation programs then in effect in
accordance with the terms of such programs, PROVIDED that such terms
shall not be less advantageous to you than the terms of such programs in
effect as of the date hereof.
(ii) (A) If your employment shall be terminated (I) by the
Company for Cause, or (II) by you other than for Good Reason, the Company
shall pay you your full base salary through the Date of Termination, at
the rate in effect at the time Notice of Termination is given, plus all
other amounts to which you are entitled under any compensation or benefit
plans of the Company (excluding, in the case of termination by the
Company for Cause, any bonus and vacation pay otherwise payable to you
pursuant to the terms of the applicable plan or program of the Company,
and in the case of your voluntary termination other than for Good Reason,
excluding any bonus pay) at the time such payments are due, and the
Company shall have no further obligations to you under this Agreement.
(B) If your employment shall be terminated by reason of your
death, the Company shall pay your estate your full base salary through
the Date of Termination and for a period of 6 whole calendar months
thereafter plus, if the Date of Termination shall not occur on the first
day of a calendar month, the balance of the month in which the Date of
Termination occurs, at the rate in effect at the time of your death, plus
any accrued bonus prorated for the portion of the bonus measurement
period occurring prior to the date of your death, plus all other amounts
to which you are entitled under any compensation or benefit plans of the
Company at the date of your death, and the Company shall have no further
obligation to you, your beneficiaries or your estate under this
Agreement.
(iii) If your employment shall be terminated (a) by the Company
other than for Cause or Disability or by you for Good Reason or (b) by
the Company other than for Cause or Disability or by you for Good Reason
within one year following the date on which a Change in Control (as
defined in Appendix A hereto) of the Company occurs (a "Change in Control
Termination"), then you shall be entitled to the benefits provided below:
(A) the Company shall pay you your full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given (or, if greater, at the rate in effect 30 days prior
to the time Notice of Termination is given), plus all other amounts to
which you are entitled under any compensation or benefit plans of the
Company, including, without limitation, any bonus arrangement accrued
through the Date of Termination for the portion of the applicable bonus
measurement period occurring prior to the Date of Termination, at the
time such payments are due, except as otherwise provided below;
(B) in lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay to you your
full base salary at the rate in effect immediately prior to the time
Notice of Termination is given (or, if greater, at the rate in effect 30
days prior to the time Notice of Termination is given), payable
periodically in accordance with past payroll practices, until the first
5
anniversary (second anniversary in the event of a Change in Control
Termination) of the Date of Termination;
(C) in lieu of any further bonus payments for periods subsequent
to the Date of Termination, the Company shall pay to you a bonus payable
in each January following the Date of Termination in respect of the
previous calendar year equal to the quotient obtained by aggregating the
bonuses received by you pursuant to the Company's Management Incentive
Plan in respect of the three calendar years ending prior to the Date of
Termination (the "Bonus Period") and dividing such sum by three, with
each such January bonus payment adjusted to reflect any changes in the
Consumer Price Index since the midpoint of the period commencing on the
first day of the Bonus Period and ending on the Date of Termination.
Such bonus shall be paid in respect of each calendar year or portion
thereof ending after the Date of Termination until the first anniversary
(second anniversary in the event of a Change in Control Termination) of
the Date of Termination, and shall be prorated for the portion of the
calendar year, if any, occurring after the Date of Termination and the
final calendar year in respect of which any such January bonus is payable
pursuant to this Section 5(iii)(C);
(D) until the first anniversary (second anniversary in the event
of a Change in Control Termination) of the Date of Termination, you will
continue to participate in all other compensation and benefit plans
(including perquisites) in which you were participating immediately prior
to the time Notice of Termination is given, or comparable plans
substituted therefor, including, without limitation, the Fort Howard
Supplemental Retirement Plan and the Supplemental Retirement Agreement
between you and the Company; PROVIDED, HOWEVER, that if you are
ineligible (e.g., by operation of law or the terms of the applicable
plan) to continue to participate in any such plan the Company shall
provide you with a comparable level of compensation or benefits;
(E) in order to assist you in obtaining new employment, the
Company shall provide you with outplacement services, including access to
an office and secretarial assistance for a period not to exceed 12 months
and at a cost not to exceed $12,000; and
(F) if you should die after the termination of employment and
prior to the end of the period of payment provided for in paragraphs (B),
(C) and (D) hereof, the Company shall pay your estate any amounts that
are or become payable pursuant to any of such paragraphs until the first
anniversary (second anniversary in the event of a Change in Control
Termination) of the Date of Termination.
(iv) You shall not be required to mitigate the amount of any
payment provided for in subsection (iii) of this Section 5 by seeking
other employment, and the amount of any payment provided for in this
Section 5 shall not be reduced by any compensation earned by you as the
result of your employment by another employer; PROVIDED, HOWEVER, that
any medical or dental welfare benefit otherwise receivable by you
pursuant to subsection 5(iii)(D) shall be reduced to the extent a
comparable benefit of the same type would normally be made available to
you during the applicable period of benefit continuation set forth in
such Subsection, and any such benefit actually received by you shall be
reported to the Company.
(v) In addition to all other amounts payable to you under this
Section 5, you shall be entitled to receive all benefits payable to you
under any plan or agreement of the Company relating to retirement
benefits, including, without limitation, the Supplemental Retirement Plan
6
and the Supplemental Retirement Agreement between you and the Company.
6. SUCCESSORS; BINDING AGREEMENT. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall entitle you to compensation from the Company in the same amount and on
the same terms as you would be entitled to hereunder if you were to terminate
your employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this Agreement, the "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
7. NOTICES. For the purpose of this Agreement, notices and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed
to the respective addresses set forth on the first page of this Agreement,
PROVIDED that all notices to the Company shall be directed to the attention of
the Board with copies to the secretary of the Company, or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be
effective only upon receipt.
8. NONCOMPETITION. (i) Until the Date of Termination, you agree
not to enter into competitive endeavors and not to undertake any commercial
activity which is contrary to the best interests of the Company or its
affiliates, including becoming an employee, owner (except for passive
investments of not more than one 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 (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any firm
or person which (i) directly competes with a line or lines of business of the
Company or any subsidiary of the Company accounting for ten percent (10%) or
more of the Company's or such subsidiary's gross sales, revenues or earnings
before taxes, (ii) 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 of the
Company or (iii) is a distributor of any of the products of the Company or any
subsidiary of the Company, where the distribution of such products accounts
for ten percent (10%) or more of such firm's or person's gross sales, revenues
or earnings before taxes. Notwithstanding any provision of this Agreement to
the contrary, you agree that your breach of the provisions of this
Section 8(i) shall permit the Company to terminate your employment for Cause.
(ii) Through the second anniversary of the Date of Termination, you
agree not to become an employee, owner (except for passive investments of not
more than one 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 (i) directly competes with a line or
lines of business of the Company or any subsidiary of the Company accounting
for ten percent (10%) or more of the Company's or such subsidiary's gross
sales, revenues or earnings before taxes, (ii) 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
7
any subsidiary of the Company or (iii) is a distributor of any of the products
of the Company or any subsidiary of the Company, where the distribution of
such products accounts for ten percent (10%) or more of such firm's or
person's gross sales, revenues or earnings before taxes. During the period
through the second anniversary of the Date of Termination, you will be
available, consistent with other responsibilities that you may then have, to
answer questions and provide advice to the Company. Notwithstanding anything
in this Agreement to the contrary, you agree that, from and after any breach
by you of the provisions of this Section 8(ii), the Company shall cease to
have any obligations to make payments to you under this Agreement.
(iii) You acknowledge and agree that damages for breach of the
covenant not to compete in this Section 8 will be difficult to determine and
will not afford a full and adequate remedy, and therefore agree that the
Company, in addition to any other remedies that may otherwise be available for
a breach of this Section 8 (including, without limitation, as set forth in
Section 8(ii) above, by seeking actual damages and pursuant to awards under
the Company's Management Equity Plan and 1995 Stock Incentive Plan and the
Amended and Restated Management Equity Participation Agreement, dated as of
August 8, 1988, between the Company and the other parties thereto, as amended
and supplemented from time to time), may seek specific enforcement of the
covenant not to compete in any court of competent jurisdiction, including,
without limitation, by the issuance of a temporary or permanent injunction,
without the necessity of a bond. You and the Company agree that the
provisions of this covenant not to compete are reasonable. However, should
any court or arbitrator determine that any provision of this covenant not to
compete is unreasonable, either in period of time, geographical area, or
otherwise, the parties agree that this covenant not to compete should be
interpreted and enforced to the maximum extent which such court or arbitrator
deems reasonable.
9. CONFIDENTIALITY. (i) You shall not knowingly disclose or
reveal to any unauthorized person, during or after the Term, any trade secret
or other confidential information relating to the Company or any of its
affiliates, or any of their respective businesses or principals, such as,
without limitation, dealers' or distributors' lists and manufacturing
processes, and you confirm that such information is the exclusive property of
the Company and its affiliates. You agree to hold as the Company's property
all memoranda, books, papers, letters and other data, and all copies thereof
or therefrom, in any way relating to the business of the Company and its
affiliates, whether made by you or otherwise coming into your possession and,
on termination of your employment, or on demand of the Company at any time, to
deliver the same to the Company.
(ii) Any ideas, processes, characters, productions, schemes,
titles, names, formats, adaptations, plots, slogans, catchwords, incidents,
treatment, and dialogue which you may conceive, create, organize, prepare or
produce during the period of your employment and which ideas, processes, etc.
relate to any of the businesses of the Company, shall be owned by the Company
and its affiliates whether or not you should in fact execute an assignment
thereof to the Company, but you agree to execute any assignment thereof or
other instrument or document which may be reasonably necessary to protect and
secure such rights to the Company.
(iii) You shall comply in all respects with the terms of the
Employees' Agreement with regard to Proprietary Information Including
Inventions, Patents, Copyrights, Trade Secrets and Confidential Information
between you and the Company.
(iv) Notwithstanding anything in this Agreement to the contrary,
you agree that from and after any breach by you of the provisions of this
Section 9 during any period of payment provided in Section 5 hereof, the
8
Company shall cease to have any obligations to make payments to you under this
Agreement.
10. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by you and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in
this Agreement. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York. Any
payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of
the Company under Section 5 and your obligations under Sections 8 and 9 hereof
shall survive the expiration of the Term of this Agreement.
11. VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. ENTIRE AGREEMENT. This Agreement and the other agreements
expressly referred to herein contain the entire agreement by the parties with
respect to the matters covered herein and supersede any prior agreement
(including, without limitation, any prior employment agreement), condition,
practice, custom, usage and obligation with respect to such matters insofar as
any such prior agreement, condition, practice, custom, usage or obligation
might have given rise to any enforceable right.
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
FORT HOWARD CORPORATION
By /s/ Michael T. Riordan
--------------------------
Name: Michael T. Riordan
Title: President and
Chief Executive Officer
Agreed to this 18th day
----
of December, 1996
--------
By /s/ John F. Rowley
---------------------
APPENDIX A
----------
"CHANGE IN CONTROL" OF THE COMPANY
A "Change in Control" of the Company shall be defined in accordance
with the definitions set forth below:
"Affiliate" and "Associate" have the respective meanings ascribed to
such terms in Rule 12b-2 promulgated under the Exchange Act.
"Beneficial Owner" has the meaning ascribed to such term in
Rule 13d-3 promulgated under the Exchange Act.
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 ("FHEI"), Fort Howard Equity Investors II, L.P., a Delaware
limited partnership ("FHEII"), or any of their respective Affiliates or
(z) any general or limited partner of MSLEF II, FHEI or FHEII), 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 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.
"Combined Voting Power" means the combined voting power of the
Company's then outstanding voting securities.
"Common Stock" means the Voting Common Stock, par value $.01
per share, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Person" means any person, entity or "group" within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.
SCHEDULE TO EXHIBIT 10.3
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the following
Employment Agreements have been omitted from Exhibit 10.3 because they are
substantially identical to the one included in all material respects except
for the parties thereto:
NAME POSITION
---- --------
Daniel J. Platkowski Senior Vice President
James W. Nellen II Vice President
Timothy G. Reilly Senior Vice President
Exhibit 10.5(A)
---------------
AMENDMENT NO. 1
TO THE FORT HOWARD CORPORATION
MANAGEMENT INCENTIVE PLAN
AS AMENDED AND RESTATED DECEMBER 19, 1994
Section 9 of the Management Incentive Plan is hereby amended effective as
of February 27, 1996, to read in its entirety as follows:
9. TERMINATION AND AMENDMENT
The Board, or if so designated by the Board, the Committee, 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
or the Committee as the case may be, may deem advisable, PROVIDED
that no such termination or amendment shall impair any rights which
have accrued under the Plan.
Executed at Green Bay, Wisconsin, this 29th day of April, 1996.
FORT HOWARD CORPORATION
By: /s/ James W. Nellen II
Title: Vice President
Exhibit 10.24(B)
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FORM OF NOTICE OF GRANT OF STOCK OPTIONS FORT HOWARD CORPORATION
AND OPTION AGREEMENT ID: 39-1090992
1919 S BROADWAY
P.O. BOX 19130
GREEN BAY, WI 54307-9130
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(Name) Option Number:
(Address) Plan: 1995
ID:
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Effective 12/9/96, you have been granted a(n) Non-Qualified Stock Option to
buy shares of FORT HOWARD CORPORATION (the Company) stock at
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$27.7500 per share.
The total option price of the shares granted is $ .
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Shares in each period will become fully vested on the date shown.
Shares Vest Type Full Vest Expiration
------ --------- --------- ----------
On Vest Date 12/9/97 12/9/06
On Vest Date 12/9/98 12/9/06
On Vest Date 12/9/99 12/9/06
On Vest Date 12/9/00 12/9/06
On Vest Date 12/9/01 12/9/06
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By your signature and the Company's signature below, you and the Company agree
that these options are granted and governed by the terms and conditions of the
Company's Stock Option Plan as amended and the Option Agreement, all of which
are attached and made a part of this document.
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/s/ 12/9/96
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FORT HOWARD CORPORATION Date
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Name Date
STOCK OPTION AGREEMENT dated as of December 9, 1996, (the "AWARD AGREEMENT")
between FORT HOWARD CORPORATION, a Delaware corporation (the "COMPANY"), and
the other party signatory hereto (the "PARTICIPANT").
WHEREAS, the Participant is currently an officer or key employee of
the Company or one of its Subsidiaries and, pursuant to the Company's 1995
Stock Incentive Plan (the "PLAN") and upon the terms and subject to the
conditions hereinafter set forth, the Company desires to provide the
Participant with an additional incentive to remain in its employ or the employ
of one of its Subsidiaries and to increase his or her interest in the success
of the Company by granting to the Participant Nonqualified Stock Options (the
"STOCK OPTIONS") to purchase shares of Common Stock, par value $.01 per share,
of the Company (the "COMMON STOCK");
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, the parties hereto agree as follows:
1. DEFINITIONS; INCORPORATION OF PLAN TERMS. Capitalized terms
used herein without definition shall have the meanings assigned to them in the
Plan, a copy of which is attached hereto. This Award Agreement and the Stock
Options shall be subject to the Plan, the terms of which are hereby
incorporated herein by reference, and in the event of any conflict or
inconsistency between the Plan and this Award Agreement, the Plan shall
govern. The date of grant with respect to the Stock Options (the "DATE OF
GRANT") shall be December 9, 1996.
2. CERTAIN RESTRICTIONS. None of the Stock Options 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 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. During the
Participant's lifetime, a Stock Option shall be exercisable only by the
Participant (or an "alternate payee" under 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).
Each transferee of a Stock Option by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order shall, as a
condition to the transfer thereof, execute an agreement pursuant to which it
shall become a party to this Award Agreement.
3. GRANT OF STOCK OPTIONS. Subject to the terms and conditions
contained herein and in the Plan, the Company hereby grants to the
Participant, effective as of the Date of Grant, the number of Stock Options
specified on the Notice of Grant of Stock Options to which this Award
Agreement is attached. Each such Stock Option shall entitle the Participant
to purchase, upon payment of the exercise price (the "EXERCISE PRICE")
specified on the Notice of Grant of Stock Options to which this Award
Agreement is attached, one share of Common Stock. The Stock Options shall be
exercisable as hereinafter provided.
4. TERMS AND CONDITIONS OF OPTIONS. The Stock Options evidenced
hereby are subject to the following terms and conditions:
2
(a) VESTING. Unless previously vested or forfeited in accordance
with the terms of the Plan or this Award Agreement, 20% of the Participant's
Stock Options shall vest and become exercisable as of each of the first five
anniversaries of the Date of Grant; PROVIDED, HOWEVER, that in the event of
the death or Disability of the Participant, or a termination of the
Participant's employment by the Company or any of its Subsidiaries without
Cause (as defined below), 100% of the Participant's Stock Options shall vest
and become exercisable as of the date of death, Disability or termination;
PROVIDED FURTHER, HOWEVER, that no Stock Option shall under any circumstances
be exercisable during the first six months after the Date of Grant. 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, all Stock Options then outstanding, whether or not vested,
(other than any Stock Option granted within six months of such Change in
Control) shall become fully exercisable as of the date of the Change in
Control. For purposes of this Award Agreement, "CAUSE" (i) has the meaning
specified in an employment agreement applicable to the Participant, or (ii) in
the event the Participant does not have an employment agreement that defines
"Cause", means the occurrence of any of the following circumstances:
(A) the wilful 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 Disability) after a written demand for substantial
performance is delivered to the Participant by the Company's Chief
Executive Officer, which demand specifically identifies the manner in
which the Chief Executive Officer believes that he or she has not
substantially performed such duties;
(B) the wilful engaging by the Participant in conduct which is
significantly injurious to the Company, monetarily or otherwise, after a
written demand for cessation of such conduct is delivered to the
Participant by the Company's Chief Executive Officer, which demand
specifically identifies the manner in which the Chief Executive Officer
believes that the Participant has engaged in such conduct and the injury
to the Company;
(C) the conviction of the Participant of a crime involving moral
turpitude; or
(D) the Participant's abuse of illegal drugs or other controlled
substances or habitual intoxication.
For purposes of the foregoing definition of "Cause", no act, or failure to
act, on the part of the Participant shall be deemed wilful unless knowingly
done, or omitted to be done, by the Participant not in good faith and without
reasonable belief that such action or omission was in the best interests of
the Company.
(b) OPTION PERIOD. The Stock Options shall not be exercisable
following the tenth anniversary of the Date of Grant, and shall be subject to
earlier termination as provided herein and in the Plan. Upon termination of
the Participant's employment with the Company or any of its Subsidiaries for
3
any reason, the Participant (or the Participant's legal representative or
beneficiary) may exercise any Stock Option to the extent it was exercisable on
the date of termination in accordance with, and subject to the terms and
conditions of, Section 13 of the Plan; PROVIDED, HOWEVER, that if such
termination of the Participant's employment is by reason of death, Disability
or Retirement, the Stock Options, to the extent exercisable on the date of
termination, shall remain exercisable for a period (the "EXERCISE PERIOD")
equal to the remainder of the stated term of such Stock Options, and if the
Participant dies during the Exercise Period, any unexercised Stock Option 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 the remainder of the Exercise Period; PROVIDED FURTHER,
HOWEVER, that if such termination of the Participant's employment is by the
Company or any of its Subsidiaries without Cause, the Stock Options, to the
extent exercisable on the date of termination, shall remain exercisable for a
period equal to the shorter of two years from the date of termination and the
remainder of the stated term of such Stock Options. Upon termination of the
Participant's employment with the Company or any of its Subsidiaries for any
reason, any Stock Options which have not theretofore vested (and which do not
vest by reason of such termination of employment) shall terminate and be
cancelled without any consideration being paid therefor. Notwithstanding the
foregoing, in the event that the Participant's employment with the Company or
any of its Subsidiaries terminates for any reason within six months of the
Date of Grant, the Participant's Stock Options shall terminate and be
cancelled as of the date of such termination without any consideration being
paid therefor.
(c) NOTICE OF EXERCISE. Subject to Sections 4(d) and 4(f) hereof,
the Participant may exercise any or all of the Participant's vested Stock
Options by giving written notice of exercise to the Secretary of the Company
(and, if such exercise is pursuant to a "cashless exercise" procedure adopted
pursuant to, and on the terms and conditions specified in, Section 7(f) of the
Plan, to the applicable broker or dealer) in accordance with Section 7(f) of
the Plan. The date of exercise of a Stock Option shall be the later of
(i) the date on which the Company (and such broker or dealer, if applicable)
receives such written notice or (ii) the date on which the conditions provided
in Sections 4(d) and 4(f) hereof are satisfied.
(d) PAYMENT. Prior to the issuance of a certificate pursuant to
Section 4(g) hereof evidencing the shares of Common Stock acquired pursuant to
the exercise of Stock Options, the Participant shall have paid to the Company
(i) the aggregate Exercise Price of all vested Stock Options which shall have
been exercised, in cash, certified or bank check, note or other instrument
acceptable to the Committee and (ii) such amount as may be necessary to
satisfy the tax withholding requirements described in Section 7(b) hereof.
Unless otherwise determined by the Committee in its sole discretion, payment
of the Exercise Price may also be made in full or in part by delivery of
shares of Common Stock (or a certification of ownership of such Common Stock
acceptable to the Company) with a Fair Market Value (determined as of the date
of exercise of such Stock Option) at least equal to such full or partial
payment; PROVIDED, HOWEVER, that unless otherwise determined by the Committee
in its sole discretion, the payment of the Exercise Price in shares of Common
Stock shall not be permitted if such payment or any rights in respect thereof
would result in adverse accounting consequences to the Company. Unless
otherwise determined by the Committee in its sole discretion, the Participant
4
may also exercise a Stock Option through a "cashless exercise" procedure
adopted pursuant to, and on the terms and conditions specified in,
Section 7(f) of the Plan.
(e) SHAREHOLDER RIGHTS. The Participant shall have no rights as a
shareholder with respect to any shares of Common Stock issuable upon the
exercise of a Stock Option until a certificate or certificates evidencing such
shares shall have been issued to the Participant, and, subject to
Sections 15(b) and 15(c) of the Plan, 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.
(f) LIMITATION ON EXERCISE. A Stock Option shall not be
exercisable unless and until (i) a registration statement under the Securities
Act of 1933, as amended, has been duly filed and declared effective pertaining
to the Common Stock subject to such Stock Option and such Common Stock shall
have been qualified under applicable state "blue sky" laws, or (ii) the
Committee in its sole discretion determines that such registration and
qualification are not required as a result of the availability of an exemption
from such registration and qualification. The exercise of a Stock Option or
the disposition of any shares of Common Stock issuable upon the exercise of a
Stock Option shall be subject to the Company's policies and procedures
relating to employee trading in the Company's securities.
(g) ISSUANCE OF CERTIFICATE. As soon as practicable following the
exercise of any Stock Options, a certificate evidencing the number of shares
of Common Stock issued in connection with such exercise shall be issued in the
name of the Participant.
5. REPRESENTATIONS AND WARRANTIES. The Participant is aware of
and familiar with the restrictions imposed on the transfer of any Stock
Options. The Participant represents that (i) this Award Agreement has been
duly executed and delivered by the Participant and constitutes a legal, valid
and binding agreement of the Participant, enforceable against the Participant
in accordance with its terms, except as limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally and by general principles of equity and (ii) the Participant
is acquiring shares of Common Stock hereunder for investment, solely for his
own account and not with a view to, or for resale with, the distribution or
other disposition thereof.
6. ENGAGING IN COMPETITION WITH THE COMPANY. (i) For a period of
two years from the date of termination of the employment of the Participant
with the Company or any direct or indirect Subsidiary of the Company, the
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
5
any Subsidiary. In addition to any other remedies that may otherwise be
available for a breach by the Participant of the non-compete provisions set
forth in the first sentence of this Section 6(i) (or the provisions of
Section 6(ii) below), the Committee, in its sole discretion, may require that
the Participant promptly pay to the Company, in the case of any Stock Options
exercised within six (6) months before or two (2) years after 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 and the Exercise Price of such Stock Options multiplied by the
number of shares of Common Stock subject to such Stock Options. 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 6(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) The Participant agrees 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 this Award Agreement) and agrees that, in the
event of any breach of any such agreement by the Participant, he or she shall
be subject to the provisions of the second sentence of Section 6(i) above.
7. MISCELLANEOUS.
(a) NO RIGHTS TO GRANTS OR CONTINUED EMPLOYMENT. The Participant
shall not have any claim or right to receive grants of Stock Options or other
Awards under the Plan. Nothing in the Plan or in any Award or in this Award
Agreement shall confer upon the Participant 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 the Participant at any time, with or without cause.
(b) TAX WITHHOLDING. It shall be a condition to the obligation of
the Company to deliver any certificates evidencing Common Stock pursuant to
the exercise of a Stock Option that the Participant pay to the Company such
amount as may be required by the Company for the purpose of satisfying any
federal, state, or local tax withholding requirements. Prior to the Company's
determination of such withholding liability, the Participant may make an
irrevocable election to satisfy, in whole or in part, such obligation to remit
taxes by (i) delivering shares of Common Stock (or a certification of
ownership of such Common Stock acceptable to the Company) with a Fair Market
Value (determined as of the date of exercise or such other appropriate date as
may be determined by the Company) at least equal to the tax due,
(ii) directing the Company to withhold shares of Common Stock that would
otherwise be received by the Participant, or (iii) utilizing a "cashless
exercise" procedure adopted pursuant to Section 7(f) of the Plan; PROVIDED,
HOWEVER, that unless otherwise determined by the Committee in its sole
discretion, payment of such taxes in shares of Common Stock shall not be
permitted if such payment or any rights in respect thereof would result in
adverse accounting consequences to the Company. Any 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,
6
conditions intended to avoid the imposition of liability against the
Participant under Section 16(b) of the Exchange Act.
(c) NO RESTRICTION ON RIGHT OF COMPANY TO EFFECT CORPORATE
CHANGES. Neither the Plan nor this Award Agreement shall affect or restrict
in any way the right or power of the Company or its shareholders to make or
authorize any adjustment, recapitalization, reorganization or other change in
the capital structure or business of the Company, or any merger or
consolidation of the Company, or 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 the assets or business 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.
(d) EXCHANGE ACT. Notwithstanding anything contained in the Plan
or this Award Agreement to the contrary, if the consummation of any
transaction under the Plan or this Award Agreement would result in the
possible imposition of liability on the 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.
8. SURVIVAL; ASSIGNMENT.
(a) All agreements, representations and warranties made herein and
in any certificates delivered pursuant hereto shall survive the issuance to
the Participant of the Stock Options and any shares of Common Stock and,
notwithstanding any investigation heretofore or hereafter made by the
Participant or the Company or on the Participant's or the Company's behalf,
shall continue in full force and effect. Except as expressly provided in the
Plan or this Award Agreement, the Participant may not assign any of his rights
hereunder. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the heirs and permitted
successors and assigns of such party; and all agreements herein by or on
behalf of the Company, or by or on behalf of the Participant, shall bind and
inure to the benefit of the heirs and permitted successors and assigns of such
parties hereto.
(b) The Company shall have the right to assign to any of its
affiliates any of its rights, or to delegate to any of its affiliates any of
its obligations, under this Award Agreement.
9. CERTAIN REMEDIES. Without intending to limit the remedies
available to the Company, the Participant agrees that damages at law will be
an insufficient remedy in the event the Participant violates the terms of this
Award Agreement. The Participant agrees that the Company may apply for and
have injunctive or other equitable relief in any court of competent
jurisdiction to restrain the breach or threatened breach of, or otherwise
specifically to enforce, any of the provisions hereof.
7
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Award Agreement shall be settled exclusively by
arbitration in a location mutually agreed to by the Company and the
Participant before one arbitrator of exemplary qualifications and stature who
shall be jointly selected by the Company and the Participant, or if the
Company and the Participant cannot agree on the selection of the arbitrator,
such arbitrator shall be selected by the American Arbitration Association.
The parties agree to use their best efforts to cause (i) the arbitrator to be
appointed within 30 days of the date that either party hereto notifies the
other party that a dispute or controversy exists that necessitates the
appointment of an arbitrator, and (ii) any arbitration hearing to be held
within 30 days of the date of selection of the arbitrator and, as a condition
to his or her selection, such arbitrator must consent to be available for a
hearing at such time. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. The parties hereto also agree that the
arbitrator shall be empowered to enter an equitable decree mandating specific
enforcement of the terms of this Award Agreement. The Company shall bear all
expenses of the arbitrator incurred in any arbitration hereunder, PROVIDED
that in the event that the Participant seeks arbitration and the arbitrator
determines that such claims are frivolous in nature or were not brought or
pursued in good faith, the Participant will promptly reimburse the Company for
all amounts paid by the Company for such expenses. Each party hereto will pay
its own legal fees in connection with any such arbitration.
11. NOTICES. All notices and other communications provided for
herein shall be in writing and shall be delivered by hand or sent by certified
or registered mail, return receipt requested, postage prepaid, addressed, if
to the Participant, to his attention at the mailing address set forth on the
Notice of Grant of Stock Options to which this Award Agreement is attached (or
to such other address as the Participant shall have specified to the Company
in writing) and, if to the Company, to it at 1919 South Broadway, Green Bay,
Wisconsin 54304, Attention: Secretary. All such notices shall be
conclusively deemed to be received and shall be effective, if sent by hand
delivery, upon receipt, or if sent by registered or certified mail, on the
fifth day after the day on which such notice is mailed.
12. WAIVER. The waiver by either party of compliance with any
provision of this Award Agreement by the other party shall not operate or be
construed as a waiver of any other provision of this Award Agreement, or of
any subsequent breach by such party of a provision of this Award Agreement.
13. ENTIRE AGREEMENT; GOVERNING LAW. The Notice of Grant of Stock
Options, this Award Agreement and the Plan set forth the entire agreement and
understanding between the parties hereto and supersede all prior agreements
and understandings relating to the subject matter hereof. This Award
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same agreement. The headings of sections and subsections herein
are included solely for convenience of reference and shall not affect the
meaning of any of the provisions of this Award Agreement. This Award
Agreement shall be governed by, and construed in accordance with, the laws of
the State of Wisconsin without giving effect to conflicts of law principles.
8
SCHEDULE TO EXHIBIT 10.24(B)
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the Stock Option
Agreements for the Chief Executive Officer and the Chief Financial Officer
have been omitted from Exhibit 10.24(B) because they are substantially
identical to the one included in all material respects except for the
following difference in paragraphs 4(a)(A) and 4(a)(B):
"Board" replaces "Chief Executive Officer"
Exhibit 10.26
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December 9, 1996
Mr. Donald H. DeMeuse
Re: Health Insurance
Dear Don:
This letter sets forth Fort Howard Corporation's (the "COMPANY") agreement to
continue, on the terms set forth below, your health insurance benefits
following your retirement from the Company.
Until the earlier of your sixty-fifth birthday (or if you die before your
sixty-fifth birthday, until your wife, Gail's ("MRS. DEMEUSE"), sixty-fifth
birthday) and the date on which you and Mrs. DeMeuse are no longer eligible to
participate in the Company's Employees' Beneficiary Association Plan (the
"ASSOCIATION PLAN"), the Company will continue your and Mrs. DeMeuse's medical
and dental coverage under the Association Plan, subject to the terms and
conditions set forth in the Association Plan as in effect on October 1, 1996,
except that the Company agrees that, for purposes of determining the benefits
to which you and Mrs. DeMeuse are entitled under the Association Plan, the
"lifetime maximum benefit" applicable to you and Mrs. DeMeuse under the
Association Plan will be deemed to be $1,000,000. In that regard, any
benefits provided to you and Mrs. DeMeuse in excess of the lifetime maximum
benefit permitted under the Association Plan will be provided on an after-tax
basis. The Company further agrees to reimburse you and Mrs. DeMeuse, on an
after-tax basis, for (i) your and Mrs. DeMeuse's share of the premiums payable
for such coverage and (ii) any other out-of-pocket costs incurred by you and
Mrs. DeMeuse in connection with such coverage (up to a maximum of $1,500 for
each of you and Mrs. DeMeuse for any calendar year). Effective as of the
earlier of your sixty-fifth birthday (or Mrs. DeMeuse's sixty-fifth birthday,
if you die before your sixty-fifth birthday) and the date on which you and
Mrs. DeMeuse are no longer eligible to participate in the Association Plan,
the Company will arrange for medical and dental coverage (the "ADDITIONAL
COVERAGE"), at the Company's expense, for you and Mrs. DeMeuse. The
Additional Coverage will be made available until your and Mrs. DeMeuse's
death, and will provide a level of benefits, on an after-tax basis,
substantially equivalent to that provided to you and Mrs. DeMeuse under the
Association Plan as in effect immediately prior to your or Mrs. DeMeuse's, as
the case may be, sixty-fifth birthday or, if earlier, the date on which you
and Mrs. DeMeuse are no longer eligible to participate in the Association
Plan.
Mr. Donald H. DeMeuse
December 9, 1996
Page 2
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Please acknowledge your agreement to the foregoing by signing the enclosed
copy of this letter and returning it to the undersigned.
Sincerely,
/s/ Michael T. Riordan
Michael T. Riordan
President and
Chief Executive Officer
Accepted and Agreed:
/s/ Donald H. DeMeuse
- --------------------------
Donald H. DeMeuse
December 9, 1996
Exhibit 10.27
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Fort Howard Corporation
1919 South Broadway
Green Bay, Wisconsin 54307-9130
December 31, 1996
Andrew W. Donnelly
Dear Andy:
This letter agreement (the "AGREEMENT") sets forth our mutual
agreement concerning your resignation as an executive officer and employee of
Fort Howard Corporation, a Delaware corporation (the "COMPANY").
1. RESIGNATION. (a) You hereby confirm that you have resigned,
effective as of October 18, 1996, from your position as Executive
Vice President of the Company and from all other officerships that you held as
of such date with the Company or any of its subsidiaries or affiliates, and
you hereby resign, effective as of December 31, 1996 (the "SEVERANCE EFFECTIVE
DATE"), as an employee of the Company and its subsidiaries and affiliates.
(b) The Company will continue to pay you your base salary at the
current rate of $330,000 per annum (the "BASE SALARY"), and you will continue
to participate in the employee benefit plans of the Company in which you are
currently participating, until the Severance Effective Date.
(c) You will have no authority to bind, or make any commitments or
otherwise act on behalf of, the Company or any of its subsidiaries or
affiliates in any manner whatsoever on or after October 18, 1996. You agree
not to take any action which would cause any third party to assume that you
have such authority.
(d) It is hereby expressly agreed that the termination of your
employment with the Company and its subsidiaries and affiliates will be
treated as a termination by the Company without "cause" for purposes of any
applicable plan, arrangement or agreement between you and the Company or its
subsidiaries or affiliates including, without limitation, the Stock Option
Agreement dated as of December 6, 1995 between the Company and you (the
"1995 OPTION AGREEMENT").
2. SEVERANCE BENEFITS. The Company will provide you with the
following severance payments and benefits:
(a) SALARY CONTINUATION. The Company will continue to pay you the
Base Salary over the period commencing on January 1, 1997 and ending on
October 18, 1998. Such amounts will be payable in accordance with the
Company's payroll practices.
(b) MIP BONUS. The Company will pay you a bonus in the amount of
$363,000 (the "1996 BONUS") pursuant to the terms of the Company's Management
Incentive Plan (the "MIP") for the year ending December 31, 1996. The 1996
Bonus will be paid to you at the time MIP bonuses for 1996 are generally paid
to participating employees.
2
(c) ADDITIONAL BONUS. The Company will pay you an additional
bonus in the amount of $321,178, which will be paid to you as promptly as
practicable after January 31, 1998.
(d) BENEFIT PLAN PARTICIPATION. (i) HEALTH INSURANCE. The
Company will continue your health and dental insurance coverage, and continue
to pay the employer portion of the applicable premiums, until the earlier of
October 18, 1998 and the date on which you are covered under another group
health plan. You agree to promptly notify the Company in writing in the event
that you obtain coverage under another group health plan.
(ii) LIFE INSURANCE. The Company will continue your group life
insurance coverage, and continue to pay the employer portion of the applicable
premiums, until October 18, 1998.
(e) RETIREMENT PLANS. For purposes of (i) the Company's Profit
Sharing Plan (the "PROFIT SHARING PLAN") and (ii) the Company's Supplemental
Retirement Plan and the Supplemental Retirement Agreement dated as of
January 1, 1989 between the Company and you, as amended (collectively, the
"SERP"), you will be eligible for a Company contribution for the year ending
December 31, 1996 pursuant to the terms of the Profit Sharing Plan and the
SERP. Such Company contribution will be calculated in accordance with the
terms of the Profit Sharing Plan and the SERP, and will be allocated to you at
the time contributions for 1996 are generally allocated to participating
employees. Your vested accrued benefits under the SERP will be distributed to
you in a lump sum as promptly as practicable after you reach age 62. In lieu
of any benefits for periods beginning after the Severance Effective Date under
the Profit Sharing Plan and the SERP, the Company will pay to you in cash as
promptly as practicable after March 31, 1998 an amount equal to the Company
contribution that would have been allocated to your accounts under the Profit
Sharing Plan and the SERP for the year ending December 31, 1997 had your
employment continued through the end of such year, assuming that your Base
Salary remained at $330,000 per annum.
(f) OUTPLACEMENT. In lieu of any provision of or payment for
outplacement, an office and secretarial assistance, the Company will pay to
you $50,000 in cash as promptly as practicable after January 31, 1997.
(g) NO OTHER COMPENSATION OR BENEFITS; DEATH. Except as otherwise
specifically provided herein, you will not be entitled to any compensation or
benefits or to participate in any past, present or future employee benefit
programs or arrangements of the Company or any of its subsidiaries or
affiliates after the Severance Effective Date, PROVIDED that you will be
entitled to receive your vested accrued benefits under the Profit Sharing Plan
and the SERP in accordance with the terms and conditions thereof. In the
event of your death prior to the end of the period of payment provided for in
this paragraph 2, the Company will pay to your estate or designated
beneficiary any amounts that are or become payable pursuant to this
paragraph 2.
3. FORT HOWARD STOCK. Your shares of Common Stock, par value
$.01 per share (the "COMMON STOCK"), of the Company (the "SHARES"), which
Shares were purchased by you pursuant to (i) 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
3
(collectively, the "MEPA") and (ii) the Management Equity Agreement dated as
of April 30, 1991 (the "1991 MANAGEMENT EQUITY AGREEMENT") will remain subject
to the terms and conditions of the MEPA or the 1991 Management Equity
Agreement, as the case may be, and the Stockholders Agreement dated as of
March 1, 1995 (the "STOCKHOLDERS AGREEMENT") among the Company and the other
parties signatory thereto.
4. FORT HOWARD STOCK OPTIONS. Your options (the "OPTIONS") to
purchase shares of Common Stock, which Options were granted to you pursuant to
(i) the MEPA, (ii) the 1991 Management Equity Agreement and (iii) the
1995 Option Agreement, will remain subject to, and will be exercisable in
accordance with, the terms and conditions of (A) the MEPA, the 1991 Management
Equity Agreement or the 1995 Option Agreement, as the case may be, and (B) to
the extent applicable, the Stockholders Agreement. For purposes of the
1995 Option Agreement, your employment shall be deemed to have terminated as
of the Severance Effective Date.
5. CONSULTING ENGAGEMENT. In consideration of the payments and
benefits provided to you hereunder, you agree to serve as a consultant to the
Company for the period (the "CONSULTING PERIOD") beginning on January 1, 1997
and ending on December 31, 1998. Your services hereunder during the
Consulting Period will consist of such consulting and advisory services, and
will be provided at such times, as may be reasonably requested (after taking
into account any obligations you may have to another employer) from time to
time by the Board of Directors or Chief Executive Officer of the Company;
PROVIDED, HOWEVER, that such services will not be required for more than 4
days during any one-month period. The Company will reimburse you for any
reasonable out-of-pocket expenses incurred by you in connection with the
performance of such consulting and advisory services, PROVIDED that such
expenses have been approved in writing in advance by the Chief Executive
Officer of the Company.
6. NONEMPLOYEE STATUS. You will not be treated as an employee of
the Company or any of its subsidiaries or affiliates at any time after the
Severance Effective Date (including, without limitation, during the Consulting
Period) for purposes of any past, present or future employee benefit plan,
program or arrangement of the Company or any of its subsidiaries or
affiliates.
7. ENGAGING IN COMPETITION WITH THE COMPANY. (a) Through
October 18, 1998, except as the Company may otherwise expressly agree in
writing, you will 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, consultant or director of any firm or person which
(i) directly competes with a line or lines of business of the Company or any
subsidiary of the Company located in North America or the United Kingdom and
which accounts for ten percent (10%) or more of the Company's or such
subsidiary's gross sales, revenues or earnings before taxes, (ii) 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 a line or lines of business of the Company or any subsidiary of the
Company located in North America or the United Kingdom or (iii) is a
distributor (other than a retailer) of any of the products of the Company or
any subsidiary of the Company, or any of the products of any other firm or
4
person which directly competes with a line or lines of business of the Company
or any subsidiary of the Company located in North America or the
United Kingdom. The Company agrees that it will, at your request, consult
with you from time to time concerning the application of the foregoing
restrictions. You and the Company agree that the scope of your noncompetition
covenant will be as set forth in this Section 7(a), notwithstanding any
noncompetition covenant contained in any other agreement between you and the
Company.
(b) CONFIDENTIALITY. You hereby agree to observe the terms of any
confidentiality or secrecy agreement that you have entered into with the
Company or any of its subsidiaries or affiliates prior to the date hereof
(including, without limitation, the Employees' Agreement with regard to
Proprietary Information including Inventions, Patents, Copyrights, Trade
Secrets and Confidential Information between you and the Company), the terms
of which are incorporated herein by reference as if such terms were set forth
herein in full.
(c) REMEDIES. You acknowledge and agree that a breach of any of
the covenants contained in this Section 7 may result in material and
irreparable injury to the Company or its subsidiaries or affiliates for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of such a breach or
threat thereof, in addition to any other remedies that may otherwise be
available for a breach of this Section 7 (including, without limitation, the
remedies described in the MEPA, the 1991 Management Equity Agreement and the
1995 Option Agreement), the Company will be entitled to seek a temporary
restraining order and/or a preliminary or permanent injunction (without the
necessity of a bond) restraining you from engaging in activities prohibited by
this Section 7 or such other relief as may be required to specifically enforce
any of the covenants in this Section 7. The parties agree that the
restrictions contained in this Section 7 are reasonable. However, if for any
reason it is determined that the restrictions under this Section 7 are not
reasonable or the consideration therefor is inadequate, such restrictions will
be interpreted or modified to include as much of the duration and scope
identified in this Section 7 as will render such restrictions valid and
enforceable.
8. COOPERATION. From and after the date hereof, you will (i)
cooperate in all reasonable respects (after taking into account any employment
obligations you may have) with the Company and its affiliates and their
respective directors, officers, attorneys and experts in connection with the
conduct of any action, proceeding, investigation or litigation involving the
Company or any of its affiliates, including any such action, proceeding,
investigation or litigation in which you are called to testify and (ii)
promptly respond to all reasonable requests by the Company and its affiliates
relating to information concerning actual or prospective customers of the
Company which may be in your possession. If you are called to testify in
connection with the ongoing antitrust investigation involving the Company in
Ohio, Florida and New York, you will be entitled to consult with counsel
designated by the Company at the Company's expense. The Company will
reimburse you for any reasonable out-of-pocket expenses incurred by you in
connection with your compliance with this Section 8, PROVIDED that such
expenses have been approved in writing in advance by the Chief Executive
Officer of the Company.
5
9. RETURN OF PROPERTY. On or prior to the date hereof, you will
surrender to the Company all property of the Company and its affiliates in
your possession and all property made available to you in connection with your
employment by the Company, including, without limitation, any and all records,
manuals, customer lists, notebooks, computers, computer programs and files,
papers, electronically stored information and documents kept or made by you in
connection with your employment.
10. NO PUBLIC COMMENT. You and the Company agree to refrain from
making, directly or indirectly, now or at any time in the future (i) any
derogatory comment concerning the other party or any of such other party's
subsidiaries or affiliates, current or former directors, officers or employees
or (ii) any other comment that could reasonably be expected to be detrimental
to the business or financial prospects of the other party or any of such other
party's subsidiaries or affiliates, to the news or other media, any employees
of such other party or any of its subsidiaries or affiliates, or any
individual or entity with whom such other party or any of its subsidiaries or
affiliates has or may reasonably expect to have a business relationship.
11. BREACH OF AGREEMENT. (a) In the event of any material breach
by you of any provision of Section 7, 8, 9 or 10 of this Agreement, which
breach, if susceptible to cure, is not cured by you in accordance with
Section 11(b) below, the Company will cease to have any obligation to make
payments or provide benefits to you under this Agreement.
(b) If the Company believes that you have materially breached any
provision of Section 7, 8, 9 or 10 of this Agreement, the Company will provide
you prompt written notice of such alleged breach, which notice will identify
which provision(s) allegedly has been violated and specify in reasonable
detail what action or inaction by you constitutes the grounds for such
allegation. You will be provided at least 20 days to cure any such alleged
breach (unless the breach is such that it cannot be cured). In the event that
any such breach is cured by you pursuant to this Section 11(b) to the
reasonable satisfaction of the Company, the Company's obligations under this
Agreement will continue in effect retroactive to the date of such breach.
12. RELEASE.
(a) GENERAL RELEASE. (i) In consideration of the payments and
benefits provided to you under this Agreement, you hereby release and forever
discharge the Company, its subsidiaries and affiliates and each of their
respective officers, employees, directors and agents from any and all claims,
actions and causes of action (collectively, "CLAIMS"), including, without
limitation, any Claims arising under any applicable federal, state, local or
foreign law, that you may have, or in the future may possess, arising out of
(x) your employment relationship with and service as an employee or officer of
the Company or any of its subsidiaries or affiliates, and the termination of
such relationship or service, or (y) any event, condition, circumstance or
obligation that occurred, existed or arose on or prior to the date hereof;
PROVIDED, HOWEVER, that the release set forth in this Section 12(a)(i) will
not apply to (A) the obligations of the Company under this Agreement and (B)
the obligations of the Company and its subsidiaries to continue to provide
officer indemnification. You further agree that the payments and benefits
described in this Agreement will be in full satisfaction of any and all claims
for payments or benefits, whether express or implied, that you may have
against the Company or any of its subsidiaries or affiliates arising out of
6
your employment relationship, your service as an employee or officer of the
Company or any of its subsidiaries or affiliates and the termination thereof.
(ii) The Company and its subsidiaries and affiliates hereby release
and forever discharge you, your estate and your legal representatives from any
and all Claims, including, without limitation, any Claims arising under any
applicable federal, state, local or foreign law, that it may have, or in the
future may possess, arising out of (x) your employment relationship with and
service, on or prior to the date hereof, as an employee or officer of the
Company or any of its subsidiaries or affiliates, and the termination of such
relationship or service, or (y) any event, condition, circumstance or
obligation that occurred, existed or arose on or prior to the date hereof;
PROVIDED, HOWEVER, that the release set forth in this Section 12(a)(ii) will
not apply to (A) your obligations under this Agreement and the plans and
agreements referred to herein, (B) any act or omission of yours which is in
violation of any applicable civil or criminal law or regulation and (C) any
materially false or misleading statement made by you to any customer,
distributor or supplier of the Company or any of its subsidiaries or
affiliates.
(b) SPECIFIC RELEASE OF ADEA CLAIMS. In consideration of the
payments and benefits provided to you under this Agreement, you hereby release
and forever discharge the Company, each of its subsidiaries and affiliates and
each of their respective officers, employees, directors and agents from any
and all claims, actions and causes of action that you may have as of the date
you sign this Agreement arising under the Federal Age Discrimination in
Employment Act of 1967, as amended, and the applicable rules and regulations
promulgated thereunder ("ADEA"). By signing this Agreement, you hereby
acknowledge and confirm the following: (i) you were advised by the Company in
connection with your termination to consult with an attorney of your choice
prior to signing this Agreement and to have such attorney explain to you the
terms of this Agreement, including, without limitation, the terms relating to
your release of claims arising under ADEA; (ii) you have been given a period
of not fewer than 21 days to consider the terms of this Agreement and to
consult with an attorney of your choosing with respect thereto; and (iii) you
are providing the release and discharge set forth in this Section 12(b) only
in exchange for consideration in addition to anything of value to which you
are already entitled.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement, the MEPA, the
1991 Management Equity Agreement (including the Company's Management Equity
Plan), the 1995 Option Agreement (including the Company's 1995 Stock Incentive
Plan) and the Stockholders Agreement set forth the entire agreement and
understanding of the parties hereto with respect to the matters covered hereby
and supersede and replace any express or implied prior agreement (including,
without limitation, the Employment Agreement dated December 10, 1993, as
amended effective January 1, 1995, between the Company and you) with respect
to the terms of your employment and the termination thereof which you may have
had with the Company or any of its subsidiaries or affiliates. This Agreement
may be amended only by a written document signed by the parties hereto.
(b) GOVERNING LAW. This Agreement will be governed by, and
construed in accordance with, the laws of the State of New York.
7
(c) NO MITIGATION. It is expressly agreed that you will not be
required to mitigate any payments or benefits due to you from the Company or
its affiliates under this Agreement or otherwise by seeking alternative
employment, nor will any payments from, or benefits provided by, the Company
or any of its affiliates be reduced by any amounts or benefits received in
connection with any such alternative employment (except as may be required
under this Agreement or the terms of the applicable benefit plan, arrangement
or agreement).
(d) WITHHOLDING TAXES. Any payments made or benefits provided to
you under this Agreement will be reduced by any applicable withholding taxes.
(e) NOTICES. Any notices required or made pursuant to this
Agreement will be in writing and will be deemed to have been given when
delivered or mailed by United States certified mail, return receipt requested,
postage prepaid, as follows:
if to Andrew W. Donnelly:
(address)
with a copy to:
Gerald C. Condon, Jr. & Associates
Riverwalk Plaza, Suite 301
200 Washington Street
Green Bay, WI 54301
if to the Company:
Fort Howard Corporation
1919 South Broadway
Green Bay, WI 54307-9130
Attention: James W. Nellen II
with a copy to:
Jeffrey P. Crandall
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
or to such other address as either party may furnish to the other in writing
in accordance with this Section 13(e). Notices of change of address will be
effective only upon receipt.
14. REVOCATION. This Agreement may be revoked by you within the
7-day period commencing on the date you sign this Agreement (the "REVOCATION
PERIOD"). In the event of any such revocation by you, all obligations of the
Company under this Agreement and will terminate and be of no further force and
effect as of the date of such revocation.
8
No such revocation by you will be effective unless it is in writing and signed
by you and received by the Company prior to the expiration of the Revocation
Period.
FORT HOWARD CORPORATION
By /s/ James W. Nellen II
-----------------------
Name: James W. Nellen II
Title: Vice President
Accepted and Agreed:
/s/ Andrew W. Donnelly
- -----------------------------
Andrew W. Donnelly
Dated: December 31, 1996
EXHIBIT 12.1
FORT HOWARD CORPORATION
DEFICIENCY OF EARNINGS AVAILABLE TO COVER FIXED CHARGES
(In thousands)
For the Years Ended
December 31,
------------------------------
1994 1993 1992
---- ---- ----
Earnings:
Loss before taxes.......... $(61,016) $(2,056,432) $ (69,800)
Interest expense........... 337,701 342,792 338,374
One-fourth of operating
lease rental expense..... 1,881 1,731 1,632
-------- ----------- ---------
$278,566 $(1,711,909) $ 270,206
======== =========== =========
Fixed Charges:
Interest expense....... $337,701 $ 342,792 $ 338,374
Capitalized interest....... 4,230 8,369 11,047
One-fourth of operating
lease rental expense..... 1,881 1,731 1,632
-------- ----------- ---------
$343,812 $ 352,892 $ 351,053
======== =========== =========
Deficiency of Earnings
Available to Cover
Fixed Charges (1).......... $(65,246) $(2,064,801) $ (80,847)
======== =========== =========
(1) For purposes of these computations, earnings consist of consolidated
loss before taxes plus fixed charges (excluding capitalized interest) of both
consolidated and unconsolidated subsidiaries. Fixed charges consist of
interest on indebtedness (including capitalized interest and amortization of
deferred loan costs) plus that portion (deemed to be one-fourth) of operating
lease rental expense representative of the interest factor.
EXHIBIT 12.2
FORT HOWARD CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
For the Years Ended
December 31,
------------------
1996 1995
---- ----
Earnings:
Income before taxes.............................. $214,500 $ 51,866
Interest expense................................. 258,948 309,915
One-fourth of operating lease rental expense..... 2,361 2,168
-------- --------
$475,809 $363,949
======== ========
Fixed Charges:
Interest expense................................. $258,948 $309,915
Capitalized interest............................. 1,487 2,096
One-fourth of operating lease rental expense..... 2,361 2,168
-------- --------
$262,796 $314,179
======== ========
Ratio of Earnings to Fixed Charges (1)............. 1.8 1.2
=== ===
(1) For purposes of these computations, earnings consist of consolidated
income before taxes plus fixed charges (excluding capitalized interest) of
both consolidated and unconsolidated subsidiaries. Fixed charges consist of
interest on indebtedness (including capitalized interest and amortization of
deferred loan costs) plus that portion (deemed to be one-fourth) of operating
lease rental expense representative of the interest factor.
EXHIBIT 21
SUBSIDIARIES OF FORT HOWARD CORPORATION
NAME OF SUBSIDIARY STATE OR COUNTRY OF INCORPORATION
- ------------------ ---------------------------------
FORT HOWARD EXPORT, LTD. U.S. VIRGIN ISLANDS
FORT STERLING LIMITED ENGLAND
HARMON ASSOC., CORP. NEW YORK
FORT HOWARD DE MEXICO S.A. DE C.V. MEXICO
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<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, 1996 AND 1995 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-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 759
<SECURITIES> 0
<RECEIVABLES> 66,537
<ALLOWANCES> 3,343
<INVENTORY> 151,248
<CURRENT-ASSETS> 285,322
<PP&E> 2,057,446
<DEPRECIATION> 809,650
<TOTAL-ASSETS> 1,615,380
<CURRENT-LIABILITIES> 321,677
<BONDS> 2,451,373
<COMMON> 744
0
0
<OTHER-SE> (1,455,581)
<TOTAL-LIABILITY-AND-EQUITY> 1,615,380
<SALES> 1,580,771
<TOTAL-REVENUES> 1,580,771
<CGS> 944,257
<TOTAL-COSTS> 944,257
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<INTEREST-EXPENSE> 258,948
<INCOME-PRETAX> 214,500
<INCOME-TAX> 43,767
<INCOME-CONTINUING> 170,733
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<EXTRAORDINARY> (8,136)
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<NET-INCOME> 162,597
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