SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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 1 - 3506
-------------------
GEORGIA-PACIFIC CORPORATION
(Exact Name of Registrant as Specified in its Charter)
GEORGIA 93-0432081
(State of Incorporation) (IRS Employer Id. Number)
133 PEACHTREE STREET, N.E., ATLANTA, GEORGIA 30303
(Address of Principal Executive Offices)
(404) 652 - 4000
(Telephone Number of Registrant)
-------------------
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 and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
As of the close of business on August 11, 1998, Georgia-Pacific Corporation had
93,271,228 shares of Georgia-Pacific Group Common Stock outstanding and
92,772,202 shares of The Timber Company Common Stock outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
-------------------------------------------
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Three months Six months
ended June 30, ended June 30,
-------------- --------------
(In millions, except per share amounts) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Net sales $3,305 $3,326 $6,526 $6,471
- -----------------------------------------------------------------------
Costs and expenses
Cost of sales, excluding depreciation
and cost of timber harvested
shown below 2,576 2,636 5,070 5,112
Selling, general and
administrative 265 283 536 574
Depreciation and cost of timber
harvested 236 237 461 467
Interest 111 119 225 241
Other income - - - (128)
- -----------------------------------------------------------------------
Total costs and expenses 3,188 3,275 6,292 6,266
- -----------------------------------------------------------------------
Income before income taxes
and extraordinary item 117 51 234 205
Provision for income taxes 49 24 98 88
- -----------------------------------------------------------------------
Income before extraordinary item 68 27 136 117
Extraordinary item - loss from early
retirement of debt, net of taxes (1) - (15) -
- -----------------------------------------------------------------------
Net income $ 67 $ 27 $ 121 $ 117
==========================================================================
Georgia-Pacific Corporation
Basic per common share:
Net income $ 0.30 $ 1.28
- -----------------------------------------------------------------------
Diluted per common share:
Net income $ 0.29 $ 1.28
==========================================================================
Average number of shares outstanding:
Basic 91.2 91.1
Diluted 91.6 91.5
==========================================================================
Georgia-Pacific Group
Basic and diluted per common share:
Income before extraordinary item $ 0.33 $ 0.50
Extraordinary item - loss from early
retirement of debt, net of taxes (0.01) (0.14)
- -----------------------------------------------------------------------
Net income $ 0.32 $ 0.36
==========================================================================
Average number of shares outstanding:
Basic 90.5 91.0
Diluted 92.2 92.3
==========================================================================
The Timber Company
Basic per common share:
Income before extraordinary item $ 0.41 $ 0.97
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.02)
- -----------------------------------------------------------------------
Net income $ 0.41 $ 0.95
- -----------------------------------------------------------------------
Diluted per common share:
Income before extraordinary item $ 0.41 $ 0.96
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.02)
- -----------------------------------------------------------------------
Net income $ 0.41 $ 0.94
==========================================================================
Average number of shares outstanding:
Basic 92.3 92.3
Diluted 93.2 93.2
==========================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Six months
ended June 30,
-------------------------
(In millions) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 121 $ 117
Adjustments to reconcile net income to cash
provided by operations:
Depreciation 371 392
Cost of timber harvested 90 75
Other income - (128)
Deferred income taxes 52 40
Amortization of goodwill 30 30
Stock compensation programs 14 (15)
Gain on sales of assets (23) (18)
Increase in receivables (57) (79)
Decrease in inventories 88 108
Change in other working capital (185) (124)
Increase (decrease) in taxes payable (8) 19
Change in other assets and other
long-term liabilities 8 (22)
- -------------------------------------------------------------------------
Cash provided by operations 501 395
- -------------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment investments (240) (270)
Timber and timberlands purchases (129) (71)
CeCorr acquisition (161) -
Decrease in cash restricted for capital expenditures 26 11
Proceeds from sales of assets 68 331
Other (1) (2)
- -------------------------------------------------------------------------
Cash used for investing activities (437) (1)
- -------------------------------------------------------------------------
Cash flows from financing activities
Repayments of long-term debt (803) (304)
Additions to long-term debt 564 -
Fees paid to issue debt (4) -
Decrease in bank overdrafts (3) (75)
Increase in commercial paper and
other short-term notes 428 57
Stock repurchases (163) -
Proceeds from option plan exercises 8 15
Cash dividends paid (92) (91)
- -------------------------------------------------------------------------
Cash used for financing activities (65) (398)
- -------------------------------------------------------------------------
Decrease in cash (1) (4)
Balance at beginning of period 8 10
- -------------------------------------------------------------------------
Balance at end of period $ 7 $ 6
========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Georgia-Pacific Corporation and Subsidiaries
June 30, December 31,
(In millions, except shares and per share amounts) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets
Cash $ 7 $ 8
Receivables, less allowances of $12 and $13,
respectively 1,406 1,371
Taxes receivable 69 61
Inventories 1,269 1,357
Deferred income tax assets 67 67
Other current assets 69 52
- -------------------------------------------------------------------------
Total current assets 2,887 2,916
- -------------------------------------------------------------------------
Timber and timberlands 1,227 1,193
- -------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment, at cost 14,162 14,134
Accumulated depreciation (8,024) (7,837)
- -------------------------------------------------------------------------
Property, plant and equipment, net 6,138 6,297
- -------------------------------------------------------------------------
Goodwill 1,569 1,599
- -------------------------------------------------------------------------
Other assets 1,178 945
- -------------------------------------------------------------------------
Total assets $ 12,999 $12,950
========================================================================
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Bank overdrafts, net $ 220 $ 223
Commercial paper and other short-term notes 1,329 901
Current portion of long-term debt 52 653
Accounts payable 513 642
Accrued compensation 188 207
Accrued interest 64 83
Other current liabilities 291 311
- -------------------------------------------------------------------------
Total current liabilities 2,657 3,020
- -------------------------------------------------------------------------
Long-term debt, excluding current portion 4,140 3,713
- -------------------------------------------------------------------------
Other long-term liabilities 1,571 1,544
- -------------------------------------------------------------------------
Deferred income tax liabilities 1,251 1,199
- -------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock 74 74
Georgia-Pacific Group, par value $.80; 400,000,000
shares authorized; 90,740,000 and 92,249,000
shares issued and outstanding
The Timber Company, par value $.80; 250,000,000
shares authorized; 91,795,000 and 92,607,000
shares issued and outstanding
Additional paid-in capital 1,341 1,349
Treasury stock (116) -
Retained earnings 2,114 2,085
Long-term incentive plan deferred compensation (2) (5)
Other (31) (29)
- -------------------------------------------------------------------------
Total shareholders' equity 3,380 3,474
- -------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,999 $12,950
===========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION
JUNE 30, 1998
1. PRINCIPLES OF PRESENTATION. The consolidated financial statements
include the accounts of Georgia-Pacific Corporation and subsidiaries (the
"Corporation"). All significant intercompany balances and transactions
are eliminated in consolidation. The interim financial information
included herein is unaudited; however, such information reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the Corporation's financial position, results of
operations, and cash flows for the interim periods. All such adjustments
are of a normal, recurring nature except for the items discussed in Notes
2 and 4 below. Certain 1997 amounts have been reclassified to conform
with the 1998 presentation. The Timber Company's and the Georgia-Pacific
Group's combined financial statements should be read in conjunction with
the Corporation's consolidated financial statements.
2. OTHER INCOME. The 1997 first quarter sale of the company's Martell
operations, which included a sawmill, particleboard mill and timberlands,
generated a pretax gain of $128 million. This sale resulted in an after-
tax gain of $80 million.
3. PROVISION FOR INCOME TAXES. The effective tax rate was 42 percent for
the three months ended June 30, 1998, and 47 percent for the three months
ended June 30, 1997. The effective tax rate was 42 percent for the six
months ended June 30, 1998, and 43 percent for the six months ended June
30, 1997. The effective tax rate for each period was different than the
statutory rate primarily because of nondeductible goodwill amortization
expense.
4. EXTRAORDINARY ITEM. The Corporation redeemed approximately $600 million
of its outstanding debt during the first six months of 1998. As a
result, the Corporation recognized an after-tax extraordinary loss of $15
million, of which $14 million was recognized in the first quarter of 1998
and $1 million was recognized in the second quarter of 1998.
<PAGE> 7
5. EARNINGS PER SHARE. The Corporation's common stock was redesignated in
December 1997 to reflect separately the performance of the Corporation's
pulp, paper and building products businesses, which are now known as
Georgia-Pacific Group. A separate class of common stock was distributed
to reflect the performance of the Corporation's timber operating group,
which is now known as The Timber Company. Basic earnings per share is
computed based on net income and the weighted average number of common
shares outstanding. Diluted earnings per share reflect the annual
issuance of common shares under long-term incentive stock option and
stock purchase plans. The computation of diluted earnings per share does
not assume conversion or exercise of securities that would have an
antidilutive effect on earnings per share. Earnings per share for 1998
are computed for each class of common stock based on the separate
earnings attributed to each of the respective businesses.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", which specifies the computation, presentation and
disclosure requirements for earnings per share. The Corporation adopted
SFAS No. 128 in the 1997 fourth quarter. All prior period earnings per
share data were restated to conform with the provisions of SFAS No. 128.
The per share amounts reported under SFAS No. 128 are not materially
different from those calculated and presented under APB Opinion No. 15.
The following tables provide earnings and per share data for Georgia-
Pacific Group and The Timber Company for 1998 and for Georgia-Pacific
Corporation for 1997.
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------------------
(In millions, except per share amounts) 1998 1998 1997
---------------------------------------------------------------
Georgia-Pacific The Timber Georgia-Pacific
Group Company Corporation
---------------------------------------------------------------
<S> <C> <C> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 30 $ 38 $ 27
Extraordinary item, net of taxes (1) - -
---------------------------------------------------------------
Net income $ 29 $ 38 $ 27
================================================================
Shares (denominator):
Average shares outstanding 90.5 92.3 91.2
Dilutive securities:
Incentive plans and option plans 1.5 0.8 0.3
Employee stock purchase plans 0.2 0.1 0.1
---------------------------------------------------------------
Total assuming conversion 92.2 93.2 91.6
================================================================
Basic per share amounts:
Income before extraordinary item $ 0.33 $ 0.41 $ 0.30
Extraordinary item, net of taxes (0.01) - -
---------------------------------------------------------------
Net income $ 0.32 $ 0.41 $ 0.30
---------------------------------------------------------------
Diluted per share amounts:
Income before extraordinary item $ 0.33 $ 0.41 $ 0.29
Extraordinary item, net of taxes (0.01) - -
---------------------------------------------------------------
Net income $ 0.32 $ 0.41 $ 0.29
================================================================
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------------------
(In millions, except per share amounts) 1998 1998 1997
---------------------------------------------------------------
Georgia-Pacific The TimberGeorgia-Pacific
Group Company Corporation
---------------------------------------------------------------
<S> <C> <C> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 46 $ 90 $ 117
Extraordinary item, net of taxes (13) (2) -
---------------------------------------------------------------
Net income $ 33 $ 88 $ 117
================================================================
Shares (denominator):
Average shares outstanding 91.0 92.3 91.1
Dilutive securities:
Incentive plans and option plans 1.2 0.8 0.3
Employee stock purchase plans 0.1 0.1 0.1
---------------------------------------------------------------
Total assuming conversion 92.3 93.2 91.5
================================================================
Basic per share amounts:
Income before extraordinary item $ 0.50 $ 0.97 $ 1.28
Extraordinary item, net of taxes (0.14) (0.02) -
---------------------------------------------------------------
Net income $ 0.36 $ 0.95 $ 1.28
---------------------------------------------------------------
Diluted per share amounts:
Income before extraordinary item $ 0.50 $ 0.96 $ 1.28
Extraordinary item, net of taxes (0.14) (0.02) -
---------------------------------------------------------------
Net income $ 0.36 $ 0.94 $ 1.28
================================================================
</TABLE>
<PAGE> 9
6. COMPREHENSIVE INCOME. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components. The
Corporation adopted SFAS No. 130 in the first quarter of 1998. Other
comprehensive income includes primarily currency translation adjustments.
For the three months ended June 30, 1998 and 1997, the Corporation's
total comprehensive income was $65 million and $27 million, respectively.
For the six months ended June 30, 1998 and 1997, the Corporation's total
comprehensive income was $119 million and $115 million, respectively.
7. SUPPLEMENTAL DISCLOSURES - STATEMENTS OF CASH FLOWS. The cash impact of
interest and income taxes is reflected in the table below. The effect of
foreign currency exchange rate changes on cash was not material in either
period.
<TABLE>
<CAPTION>
Six months
ended June 30,
------------------------
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Total interest costs $ 227 $ 246
Interest capitalized (2) (5)
---------------------------------------------------------------
Interest expense $ 225 $ 241
================================================================
Interest paid $ 244 $ 249
================================================================
Income taxes paid, net $ 44 $ 29
================================================================
</TABLE>
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from
the purchaser in the amount of $270 million for the Martell timberlands.
In April 1997, the Corporation monetized these notes receivable through the
issuance of notes payable in a private placement. These proceeds were used
to reduce the Corporation's debt. Proceeds from the notes receivable will
be used to fund payments required for the notes payable, which are
classified as "Other long-term liabilities" on the Corporation's balance
sheets.
In connection with the June 30, 1998 acquisition of CeCorr Inc.
("CeCorr"), the Corporation issued 1.6 million shares of Georgia-Pacific
Group common stock ("Georgia-Pacific Group stock") valued at $57.875 per
share and assumed approximately $92 million of CeCorr debt, of which $34
million was owed to Georgia-Pacific Corporation ($58 million net debt
assumed). (See Note 9.)
<PAGE> 10
8. INVENTORY VALUATION. Inventories include costs of materials, labor, and
plant overhead. The Corporation uses the dollar value pool method for
computing LIFO inventories. The major components of inventories were as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Raw materials $ 358 $ 396
Finished goods 824 878
Supplies 296 295
LIFO reserve (209) (212)
---------------------------------------------------------------
Total inventories $ 1,269 $1,357
============================================================
</TABLE>
9. ACQUISITION. On June 30, 1998, the Corporation completed its acquisition
of CeCorr, a leading independent producer of corrugated sheets in the
United States. On June 30, 1998, the Corporation paid approximately $95
million in cash and issued approximately 1.6 million shares of Georgia-
Pacific Group stock valued at $57.875 per share for all the outstanding
shares of CeCorr. In addition the Corporation assumed approximately $58
million of CeCorr's debt. On July 2, 1998, certain former owners of CeCorr
exercised their rights to sell to the Corporation approximately 1.1 million
shares of Georgia-Pacific Group stock. The June 30, 1998 financial
statements reflect the transaction as if the Corporation paid $161 million
in cash and issued 500,000 shares of Georgia-Pacific Group stock. The
acquisition includes 11 CeCorr sheet feeder plants, which manufacture
corrugated sheets that are sold to others for final conversion into
corrugated containers. Also included are a corrugating medium paper mill,
and several specialty operations and support service groups. CeCorr ships
6.3 billion square feet of corrugated sheets per year. The Corporation
will account for this transaction using the purchase method.
10. DEBT. In May 1998, the Corporation issued $300 million of 7.25% Debentures
due June 1, 2028.
11. SHARE REPURCHASES. During the first six months of 1998, the Corporation
purchased on the open market 2,312,500 shares of Georgia-Pacific Group
stock at an aggregate price of $150 million, of which 1,289,000 shares
were held as treasury stock as of June 30, 1998. The Corporation also
purchased on the open market 975,500 shares of The Timber Company common
stock ("The Timber Company stock") in the second quarter at an aggregate
price of $21 million, of which 388,000 shares were held as treasury stock
at June 30, 1998.
<PAGE> 11
12. COMMITMENTS AND CONTINGENCIES. The Corporation is a party to various legal
proceedings incidental to its business and is subject to a variety of
environmental and pollution control laws and regulations in all
jurisdictions in which it operates. As is the case with other companies in
similar industries, the Corporation faces exposure from actual or potential
claims and legal proceedings involving environmental matters. Liability
insurance in effect during the last several years provides only very
limited coverage for environmental matters.
The Corporation is involved in environmental remediation activities at
approximately 170 sites, both owned by the Corporation and owned by others,
where it has been notified that it is or may be a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state "superfund" laws. Of the known sites in
which it is involved, the Corporation estimates that approximately 47
percent are being investigated, approximately 25 percent are being
remediated and approximately 28 percent are being monitored (an activity
that occurs after either site investigation or remediation has been
completed). The ultimate costs to the Corporation for the investigation,
remediation and monitoring of many of these sites cannot be predicted with
certainty, due to the often unknown magnitude of the pollution or the
necessary cleanup, the varying costs of alternative cleanup methods, the
amount of time necessary to accomplish such cleanups, the evolving nature
of cleanup technologies and government regulations, and the inability to
determine the Corporation's share of multiparty cleanups or the extent to
which contribution will be available from other parties. The Corporation
has established reserves for environmental remediation costs for these
sites in amounts that it believes are probable and reasonably estimable.
Based on analysis of currently available information and previous
experience with respect to the cleanup of hazardous substances, the
Corporation believes that it is reasonably possible that costs associated
with these sites may exceed current reserves by amounts that may prove
insignificant or that could range, in the aggregate, up to approximately
$60 million. This estimate of the range of reasonably possible additional
costs is less certain than the estimates upon which reserves are based, and
in order to establish the upper limit of such range, assumptions least
favorable to the Corporation among the range of reasonably possible
outcomes were used. In estimating both its current reserve for
environmental remediation and the possible range of additional costs, the
Corporation has not assumed it will bear the entire cost of remediation of
every site to the exclusion of other known potentially responsible parties
who may be jointly and severally liable. The ability of other potentially
responsible parties to participate has been taken into account, based
generally on the parties' financial condition and probable contribution on
a per site basis.
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation.
In many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
The Corporation generally resolves asbestos cases by voluntary dismissal or
settlement for amounts it considers reasonable given the facts and
circumstances of each case. The amounts it has paid to date to defend and
settle these cases to date have been substantially covered by product
liability insurance. The Corporation is currently defending claims of
approximately 63,500 such plaintiffs and anticipates that additional suits
will be filed against it over the next several years. The Corporation has
insurance available in amounts that it believes are adequate to cover
substantially all of the reasonably foreseeable damages and settlement
amounts arising out of claims and suits currently pending. The Corporation
has further insurance coverage available for the disposition of suits that
may be filed against it in the future, but there can be no assurance that
the amounts of such insurance will be adequate to cover all future claims.
The Corporation has established reserves for liabilities and legal defense
costs it believes are probable and reasonably estimable with respect to
pending suits and claims and a receivable for expected insurance
recoveries.
The Corporation has been defending an action in Alabama state court brought
to recover damages on behalf of a class of all persons currently owning
structures in the United States on which allegedly defective hardboard
siding manufactured by the Corporation after January 1, 1980 has been
installed. On January 9, 1998, the court approved a settlement pursuant to
which the Corporation will establish a procedure for resolving product
warranty claims on certain of the Corporation's hardboard siding products,
and will pay $3 million in legal fees to plaintiffs' counsel, plus expenses
not to exceed $200,000. In addition, plaintiffs' counsel will be entitled
to additional fees based upon a percentage of claims paid by the
Corporation. Claims under the settlement may be filed through August 18,
1998. The Corporation has previously established financial reserves it
believes to be adequate to pay eligible claims and legal fees.
In May 1997, the Corporation and nine other companies were named as
defendants in a suit brought by the Attorney General of the State of
Florida alleging that they engaged in a conspiracy to fix the prices of
sanitary commercial paper products, such as towels and napkins, in
violation of federal and state laws. Approximately 45 similar suits have
been filed by private plaintiffs in federal courts in California, Florida,
Georgia and Wisconsin, and in the state courts of California, Wisconsin,
Minnesota and Tennessee. On October 15, 1997, the Federal Judicial Panel
on Multi-District Litigation consolidated all federal court cases in the
federal district court in Gainesville, Florida. On July 24, 1998, the
court certified the suit as a class action consisting of non-governmental
plaintiffs. The Corporation has denied that it has engaged in any of the
illegal conduct alleged in these cases and intends to defend itself
vigorously.
The Corporation's facility in Port Hudson, Louisiana has notified the State
of Louisiana of the emitting of noncondensable gases in violation of its
air permit. The Corporation expects a penalty of an unknown amount to be
assessed by the State. The Corporation does not expect the amount of the
penalty to have a material adverse effect on the results of operations,
liquidity or consolidated financial position of the Corporation.
Although the ultimate outcome of these environmental matters and legal
proceedings cannot be determined with certainty, based on presently
available information management believes that adequate reserves have been
established for probable losses with respect thereto. Management further
believes that the ultimate outcome of such environmental matters and legal
proceedings could be material to operating results in any given quarter or
year but will not have a material adverse effect on the long-term results
of operations, liquidity or consolidated financial position of the
Corporation.
<PAGE> 12
13. RELATED PARTY TRANSACTIONS. During 1998, The Timber Company sold timber
deeds to Georgia-Pacific Group. The Timber Company recognizes revenues and
earnings from these related-party timber deed contracts as the timber is
cut by the Georgia-Pacific Group.
During the second quarter of 1998, Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into last
fall, with respect to sales of timber and wood fiber. These revisions
arose from sharp changes in the prices of timber and wood fiber from the
first quarter to the second quarter of 1998, a significant decrease in the
volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were
negotiated, The Timber Company sold a timber deed to Georgia-Pacific Group
covering timber and wood fiber having a value of approximately $23 million,
and Georgia-Pacific Group made a one-time $3 million payment to The Timber
Company for second quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern
timber and wood fiber sold by The Timber Company will be adjusted monthly,
rather than quarterly, and will be the average of prices paid by Georgia-
Pacific Group for timber purchased from third parties in a particular
forest, and prices received by The Timber Company for timber sold to third
parties from the same forest, over the most recent three-months period.
This change is intended to make prices for timber and wood fiber sold by
The Timber Company to Georgia-Pacific Group more quickly reflect changes in
market prices. In addition, premiums charged by The Timber Company for
various types of wood have been reduced, and Georgia-Pacific Group has
agreed to purchase, each quarter, in two key Southern forests, 20 percent
of the annual volume of timber and wood fiber it has committed to purchase
from The Timber Company during that year. The revised policy reduces the
volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual
harvest in those forests, and also reduces Georgia-Pacific Group's minimum
annual purchase obligation in those forests from 60 percent to 50 percent
of the annual harvest in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to
more quickly reflect market prices in particular forests, to allow Georgia-
Pacific Group more flexibility in purchasing wood from third parties, and
to allow The Timber Company greater flexibility in the timing of sales of
its annual harvest on the open market. The revised policy also contains
additional provisions which resolve issues related to certain operating
practices of The Timber Company and Georgia-Pacific Group.
<PAGE> 13
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Second Quarter
First --------------
(In millions) Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
NET SALES
Building products $1,777 55% $1,882 57% $3,659 56 %
Pulp and paper 1,431 45 1,413 43 2,844 44
Other operations 13 - 10 - 23 -
- --------------------------------------------------------------------------------
Total net sales $3,221 100% $3,305 100% $6,526 100%
===============================================================================
OPERATING PROFITS
Building products $ 168 64% $ 175 69% $ 343 66%
Pulp and paper 91 34 73 29 164 32
Other operations 6 2 6 2 12 2
- --------------------------------------------------------------------------------
Total operating profits 265 100% 254 100% 519 100%
=== === ===
General corporate expense (34) (26) (60)
Interest expense (114) (111) (225)
Provision for income taxes (49) (49) (98)
- --------------------------------------------------------------------------------
Income before extraordinary
item 68 68 136
Extraordinary item, net of taxes (14) (1) (15)
- --------------------------------------------------------------------------------
Net income $ 54 $ 67 $ 121
===============================================================================
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Third Quarter Fourth Quarter
------------------------ ------------------------
(In millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
NET SALES
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total net sales
===============================================================================
OPERATING PROFITS
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total operating
profits
General corporate
expense
Interest expense
Provision for
income taxes
- --------------------------------------------------------------------------------
Net income
===============================================================================
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Second Quarter
First --------------
(In millions) Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
NET SALES
Building products $1,781 57% $1,943 59% $3,724 58%
Pulp and paper 1,351 43 1,371 41 2,722 42
Other operations 13 - 12 - 25 -
- --------------------------------------------------------------------------------
Total net sales $3,145 100% $3,326 100% $6,471 100%
===============================================================================
OPERATING PROFITS
Building products $ 289 92% $ 203 93% $ 492 93%
Pulp and paper 20 7 12 6 32 6
Other operations 4 1 3 1 7 1
- --------------------------------------------------------------------------------
Total operating profits 313 100% 218 100% 531 100%
=== === ===
General corporate expense (37) (48) (85)
Interest expense (122) (119) (241)
Provision for income taxes (64) (24) (88)
- --------------------------------------------------------------------------------
Income before accounting
change 90 27 117
Cumulative effect of an
accounting change, net
of taxes - - -
- --------------------------------------------------------------------------------
Net income $ 90 $ 27 $ 117
===============================================================================
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
CONSOLIDATED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation and Subsidiaries
Third Quarter Fourth Quarter
------------------------ ------------------------
(In millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
NET SALES
Building products $ 1,946 58% $ 5,670 58% $ 1,816 56% $ 7,486 57%
Pulp and paper 1,414 42 4,136 42 1,420 44 5,556 43
Other operations 13 - 38 - 14 - 52 -
- --------------------------------------------------------------------------------
Total net sales $ 3,373 100% $ 9,844 100% $ 3,250 100% $13,094 100%
===============================================================================
OPERATING PROFITS
Building products $ 221 70% $ 713 84% $ (36)(171)% $ 677 78%
Pulp and paper 93 29 125 15 49 233 174 20
Other operations 3 1 10 1 8 38 18 2
- --------------------------------------------------------------------------------
Total operating
profits 317 100% 848 100% 21 100% 869 100%
=== === === ===
General corporate
expense (54) (139) (30) (169)
Interest expense (114) (355) (110) (465)
(Provision) benefit for
income taxes (63) (151) 45 (106)
- --------------------------------------------------------------------------------
Income (loss) before accounting
change 86 203 (74) 129
Cumulative effect of an
accounting change, net
of taxes - - (60) (60)
- --------------------------------------------------------------------------------
Net income (loss) $ 86 $ 203 $ (134) $ 69
===============================================================================
</TABLE>
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH 1997
The Corporation reported consolidated net sales of approximately $3.3 billion
for both of the three months ended June 30, 1998 and 1997. Net income for the
1998 second quarter was $67 million compared with $27 million in 1997. The 1998
second quarter results included an after-tax loss of $1 million from the early
retirement of debt.
The remaining discussion refers to the "Sales and Operating Profits by
Industry Segment" table (included in PART I - ITEM 1. hereto).
The Corporation's building products segment reported net sales of $1.9 billion
for both of the three months ended June 30, 1998 and 1997. Operating profits
decreased in 1998 to $175 million compared with $203 million in 1997. Return on
sales was 9.3 percent and 10.4 percent for the three months ended June 30, 1998
and 1997, respectively.
The lower quarter-over-quarter operating profit resulted principally from a
significant decrease in lumber prices and structural panels profits. Average
prices for lumber were 16 percent lower in the second quarter of 1998 than the
second quarter of 1997 while Southern pine log costs increased by an average of
23 percent. Average prices for structural panels (primarily plywood) decreased
approximately 3 percent from the second quarter of 1997 while manufacturing
costs for plywood increased approximately 12 percent over the prior year
primarily due to higher log costs. These decreases were slightly offset by
increased demand and prices for oriented strand board and gypsum. Additionally,
The Timber Company results remained relatively constant in the second quarter of
1998 compared to the same period of 1997.
Operating losses for the Corporation's building products distribution division
were $13 million in the second quarter of 1998 (excluding unusual gains of $11
million, primarily related to assets sold as part of the division's
restructuring plan), compared with a loss of $17 million in the second quarter
of 1997 (excluding unusual gains of $8 million, primarily related to assets sold
as part of the division's restructuring plan). The distribution division
restructuring plan, finalized in December 1997, is proceeding on schedule. The
plan included disposing of the division's millwork fabrication facilities
nationwide as well as several distribution centers located in the Western United
States. Through the second quarter of 1998, the division has completed the sale
of most of these millwork fabrication facilities and distribution warehouses.
Management is aggressively addressing the turn-around of the distribution
division, but cannot predict when the division will return to profitability.
Selected financial and operating data for the building products distribution
business are shown in the table below:
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Three months ended June 30,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $1,041 $ 1,108
Operating loss (before
unusual items) (13) (17)
Unusual items 11 8
Capital expenditures - 11
Depreciation 12 12
============================================================
</TABLE>
<PAGE> 18
The Corporation's pulp and paper segment reported net sales of $1.4 billion and
operating profits of $73 million in the 1998 second quarter. For the same
period in 1997, the segment reported net sales of $1.4 billion and operating
profits of $12 million. Return on sales increased to 5.2 percent in 1998 from
0.9 percent in 1997. Average containerboard prices for the quarter were
approximately 40 percent above prices in the same 1997 period. However,
containerboard prices trended downward during the first six months of the year
and have continued a slight downward trend into the third quarter.
Communications papers prices are up compared to the second quarter of 1997;
however, prices have trended downward since the first quarter of 1998, with this
trend continuing into the third quarter. Prices and demand for pulp remained
flat compared to the 1998 first quarter and are down compared with second
quarter of last year. Compared with a year ago, the Corporation has reduced
inventories for most pulp and paper products, incurring downtime in the second
quarter when necessary. During the second quarter of 1998, the Corporation took
market-related downtime at its pulp and paper mills, and reduced pulp,
containerboard and communication papers production by approximately 60,000 tons,
40,000 tons and 25,000 tons, respectively. During the third quarter of 1998,
the Corporation expects to continue to take market-related downtime due to
continued weakness in demand and pricing for pulp and paper, primarily stemming
from market conditions in Asia. In July 1998, the Corporation announced that it
is closing the market pulp portion of its operations at Port Hudson, Louisiana
and Ashdown, Arkansas indefinitely. This action and other related reductions
will decrease the Corporation's total market pulp capacity and current
production by more than 500,000 tons annually. As a result, the Corporation
expects to incur a non-recurring, non-cash charge of approximately $15 million
during the third quarter of 1998 related to these closings.
General corporate expense decreased to $26 million for the three months ended
June 30, 1998 compared with $48 million in 1997. The majority of the decrease
is attributable to lower expenses for the corporation's stock compensation
programs and its cash incentive compensation program. Interest expense declined
7 percent to $111 million in the 1998 second quarter, compared with $119 million
in the 1997 second quarter. This decline was due primarily to a lower level of
debt resulting from the application of the proceeds from the sale of Martell
timberlands in April, 1997 to pay down debt.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH 1997
The Corporation reported consolidated net sales of $6.5 billion and net income
of $121 million for the six months ended June 30, 1998, compared with net sales
of $6.5 billion and net income of $117 million in 1997. The 1998 results
include an extraordinary, after-tax loss of $15 million for the early retirement
of debt.
The remaining discussion refers to the "Sales and Operating Profits by Industry
Segment" table (included in PART I - ITEM 1. hereto).
The Corporation's building products segment reported net sales of $3.7 billion
and operating profits of $343 million for the six months ended June 30, 1998,
compared with net sales of $3.7 billion and operating profits of $492 million in
1997. Return on sales decreased to 9.4 percent from 13.2 percent a year ago.
The 1997 results include a first quarter gain of $128 million ($80 million after
taxes) from the sale of the Corporation's Martell, California, assets to Sierra
Pacific Industries. Excluding the pretax gain from the sale of the Martell
operations, operating profit in the building products segment would have been
$364 million and the return on sales would have been 9.8 percent. An 11 percent
decrease in lumber prices and higher log costs in the first six months of 1998
were offset by approximately 34 percent higher prices for oriented strand board,
increased demand for oriented strand board, particleboard and gypsum and an
increase in prices for Southern sawtimber sold by The Timber Company.
Operating losses for the Corporation's building products distribution division
were $35 million in the first half of 1998 (excluding unusual gains of $13
million, primarily related to assets sold as part of the division's
restructuring plan) compared with a loss of $51 million in the first half of
1997 (excluding unusual gains of $8 million, primarily related to assets sold as
part of the division's restructuring plan, offset in part by relocation and
severance costs). The distribution division restructuring plan, finalized in
December 1997, is proceeding on schedule. Selected financial and operating data
for the building products distribution business are shown in the table below.
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Six months ended June 30,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $2,004 $ 2,091
Operating loss (before
unusual items) (35) (51)
Unusual items 13 8
Capital expenditures 3 24
Depreciation 24 23
============================================================
</TABLE>
<PAGE> 19
The Corporation's pulp and paper segment reported net sales of $2.8 billion and
operating profits of $164 million for the six-month period ended June 30, 1998,
compared with net sales of $2.7 billion and operating profits of $32 million in
1997. Return on sales increased to 5.8 percent compared with 1.2 percent for
the same period a year ago, principally due to an increase in average prices for
almost all of the Corporation's pulp and paper products. Average containerboard
prices for the first six months of 1998 were approximately 59 percent above
prices in the same 1997 period, and average prices of communications papers for
the first six months of 1998 were approximately 7 percent above year ago levels.
Prices for most of the Corporation's pulp and paper products declined during the
second quarter of 1998, with softening of prices in containerboard and
communication papers continuing into the third quarter. Compared with a year
ago, the Corporation has reduced inventories for most pulp and paper products,
incurring downtime in the second quarter when necessary. During the first half
of 1998, the Corporation incurred market-related downtime at its pulp and paper
mills and reduced pulp, containerboard and communication papers production by
approximately 100,000 tons, 60,000 tons and 40,000 tons, respectively. During
the third quarter of 1998, the Corporation expects to continue to take market-
related downtime due to continued weakness in demand and pricing for pulp and
paper, primarily stemming from market conditions in Asia. In July 1998, the
Corporation announced that it is closing the market pulp portion of its
operations at Port Hudson, Louisiana and Ashdown, Arkansas indefinitely. This
action and other related reductions will decrease the Corporation's total market
pulp capacity and current production by more than 500,000 tons annually. As a
result, the Corporation expects to incur a non-recurring, non-cash charge of
approximately $15 million during the third quarter of 1998 related to these
closings.
Interest expense declined 7 percent to $225 million in the first half of 1998,
compared with $241 million in the first half of 1997. This decline was due
primarily to a lower level of debt resulting from the application of the
proceeds from the sale of Martell timberlands in April, 1997 to pay down debt.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Corporation generated cash from operations of $501
million during the first six months of 1998, compared with $395 million in the
first six months of 1997. The increase is primarily attributable to higher
average prices for certain of the Corporation's pulp and paper products.
INVESTING ACTIVITIES. Capital expenditures for property, plant and equipment
for the six months ended June 30, 1998 were $240 million compared with $270 for
the first six months of 1997. Expenditures in 1998 included $159 million in the
pulp and paper segment, $63 million in the building products segment, and $18
million of other and general corporate. The Corporation expects to make capital
expenditures for property, plant and equipment of approximately $700 million in
1998, excluding the cost of any acquisitions.
Cash paid for timber and timberlands was $129 million in the first six months of
1998 compared with $71 million in 1997.
On June 30, 1998, the Corporation completed its acquisition of CeCorr, a leading
independent producer of corrugated sheets in the United States. On June 30,
1998, the Corporation paid approximately $95 million in cash and issued
approximately 1.6 million shares of Georgia-Pacific Group stock valued at
$57.875 per share for all the outstanding shares of CeCorr. In addition the
Corporation assumed approximately $58 million of CeCorr's debt. On July 2,
1998, certain former owners of CeCorr exercised their rights to sell to the
Corporation approximately 1.1 million shares of Georgia-Pacific Group stock.
The June 30, 1998 financial statements reflect the transaction as if the
Corporation paid $161 million in cash and issued 500,000 shares of Georgia-
Pacific Group stock.
During the first half of 1998, the Corporation received $68 million from the
sale of assets, principally real estate development properties located in South
Carolina and Florida and various distribution facilities. During the first half
of 1997, the Corporation received proceeds of $331 million from the sale of
assets relating primarily to the sale of its Martell operations.
In 1998, the Corporation expects its cash flow from operations, together with
proceeds from any asset sales and available financing sources, to be sufficient
to fund planned capital investments, pay dividends and make scheduled debt
payments.
<PAGE> 20
FINANCING ACTIVITIES. The Corporation's total debt was $5.7 billion and $5.5
billion at June 30, 1998 and December 31, 1997, respectively. At June 30, 1998
and December 31, 1997, $4.8 billion and $4.5 billion, respectively, of such
total debt was Georgia-Pacific Group's debt and $908 million and $971 million,
respectively, was The Timber Company's debt. At June 30, 1998, Georgia-Pacific
Group had exceeded its share repurchase threshold of $4.75 billion of debt.
Accordingly, repurchases of Georgia-Pacific Group stock are precluded until the
debt falls below the share repurchase threshold.
In May 1998, the Corporation issued $300 million of 7.25% Debentures due June 1,
2028.
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from the
purchaser in the amount of $270 million for the Martell timberlands. In April
1997, the Corporation monetized these notes receivable through the issuance of
notes payable in a private placement. These proceeds were used to reduce the
Corporation's debt. Proceeds from the notes receivable will be used to fund
payments required for the notes payable, which are classified as "Other long-
term liabilities" on the Corporation's balance sheets.
At June 30, 1998, the Corporation had outstanding borrowings of $642 million
under certain Industrial Revenue Bonds. Approximately $4 million from the
issuance of these bonds is being held by trustees and is restricted for the
construction of certain capital projects. Amounts held by trustees are
classified as noncurrent assets in the accompanying balance sheets.
The Corporation has a $1.5 billion unsecured revolving credit facility which is
used for direct borrowings and as support for commercial paper and other short-
term borrowings. As of June 30, 1998, $520 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility.
The Corporation's senior management establishes parameters of the Corporation's
financial risk. Hedging interest-rate exposure through the use of swaps and
options, and hedging foreign exchange exposure through the use of forward
contracts, are specifically contemplated to manage risk in keeping with
management policy. Derivative instruments such as swaps, forwards, option or
futures, which are based directly or indirectly upon interest rates, currencies,
equities and commodities, may be used by the Corporation to manage and reduce
the risk inherent in price, currency and interest rate fluctuations. There have
been no significant changes to reported market risk since December 31, 1997.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract, invoice or transaction determines the amount, maturity and other
specifics of the hedge. Counterparty risk is limited to institutions with long-
term debt ratings of A or better.
At June 30, 1998, the Corporation's weighted average interest rate on its total
debt was 7.4% including the accounts receivable sale program and outstanding
interest rate exchange agreements. At June 30, 1998, these interest rate
exchange agreements effectively converted $456 million of floating rate
obligations with a weighted average interest rate of 5.7% to fixed rate
obligations with an average effective interest rate of 9.1%. These agreements
have a weighted average maturity of approximately 8 months. As of June 30,
1998, the Corporation's total floating rate debt, including the accounts
receivable sale program, exceeded related interest rate exchange agreements by
$1.4 billion.
The Corporation's accounts receivable sale program has been extended to May
1999.
<PAGE> 21
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at June 30, 1998.
As of June 30, 1998, the Corporation had registered for sale up to $200 million
of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission. In July 1998, the Board of Directors agreed
to increase the level of the shelf registration to $500 million.
During the first six months of 1998, the Corporation purchased on the open
market 2,312,500 shares of Georgia-Pacific Group stock at an aggregate price
of $150 million, of which 1,289,000 shares were held as treasury stock as of
June 30, 1998. The Corporation also purchased on the open market 975,500
shares of The Timber Company stock in the second quarter at an aggregate price
of $21 million, of which 388,000 shares were held as treasury stock at June
30, 1998.
OTHER. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", that establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The Corporation adopted SFAS No. 130 in the 1998 first quarter.
Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information."
This statement requires companies to determine segments based on how management
makes decisions about allocating resources to segments and measuring their
performance. Disclosures for each segment are similar to those required under
current standards, with the addition of certain quarterly disclosure
requirements. SFAS No. 131 also requires entity-wide disclosure about the
products and services an entity provides, the countries in which it holds
material assets and reports material revenues, and its significant customers.
The Corporation will be required to adopt the new standard in 1998; prior period
information will be restated. Management is evaluating the effect of this
statement on reported segment information.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement requires
additional pension related disclosures. The objective of the statement is to
provide sufficient information to understand the changes in benefit obligations
or to analyze the quality of earnings of the Corporation. SFAS No. 132 requires
disclosure of additional information about the changes in the benefit obligation
and the fair value of plan assets during the period, including unrecognized
gains and losses. The Corporation will be required to present this additional
information disclosure in the 1998 year end statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," that establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Corporation will be required to
adopt the new statement in 2000; early adoption is encouraged, no prior period
restatement is permitted. Management is evaluating the effect of this statement
on the Corporation's derivative instruments, primarily interest rate swaps and
foreign currency forward contracts. The impact of adjustment to fair value is
not expected to be material.
<PAGE> 22
The Corporation is working to resolve the effects of the Year 2000 problem on
its information systems, including the operating systems used in its
manufacturing operations as well as its facilities systems. The Year 2000
problem, which is common to most businesses, concerns the inability of such
systems to properly recognize and process dates and date-sensitive information
on and beyond January 1, 2000. In 1996, the Corporation began a company-wide
assessment of the vulnerability of its systems to the Year 2000 problem. Based
on such assessment, the Corporation has developed a Year 2000 compliance plan,
under which all key information systems are being tested, and non-compliant
software or technology is being modified or replaced. The Corporation is also
surveying the Year 2000 compliance status and compatibility of customers' and
suppliers' systems which interface with the Corporation's systems or could
otherwise impact the Corporation's operations.
The Corporation completed an inventory of its information technology systems and
processes in 1997 and currently expects to have most of the necessary revisions
to such systems and processes completed by year-end 1998, and to complete
testing and verification of such systems and processes for Year 2000 compliance
during 1999. Earlier this year, the Corporation completed an inventory of the
process control systems and embedded chips used in its manufacturing operations
and determined that only a small percentage of such systems and chips could be
subject to Year 2000 problems. The Corporation currently expects to have these
affected manufacturing systems replaced or corrected in early 1999, and to
complete testing and verification of such systems for Year 2000 compliance
during 1999. While the Corporation currently believes that it will be able to
modify or replace its affected systems in time to minimize any detrimental
effects on its operations, failure to do so, or the failure of the Corporation's
major customers and suppliers to modify or replace their affected systems, could
have a material adverse impact on the Corporation's results of operations,
liquidity or consolidated financial position in the future. The most reasonably
likely worst case scenario of failure by the Corporation or its customers or
suppliers to resolve the Year 2000 problem would be a temporary slowdown or
cessation of manufacturing operations at one or more of the Corporation's
facilities and a temporary inability on the part of the Corporation to timely
process orders and billings and to deliver finished products to customers. The
Corporation's individual business units are currently identifying and
considering various contingency options, including identification of alternate
suppliers, vendors and service providers, and manual alternatives to systems
operations, which will allow them to minimize the risks of any unresolved Year
2000 problems on their operations and to minimize the effect of any unforeseen
Year 2000 failures.
The Corporation currently estimates the incremental cost of the work needed to
resolve the Year 2000 problem at approximately $60 million, of which
approximately $7 million has been incurred to date. The bulk of the estimated
incremental cost relates to replacement or modification of affected process
control systems in the Corporation's manufacturing operations and is projected
to be incurred in late 1998 and early 1999. These costs will be expensed as
incurred, unless new systems are purchased that should be capitalized in
accordance with corporate policy. Such costs may be material to the
Corporation's results of operations in one or more fiscal quarters or years, but
will not have a material adverse impact on the long-term results of operations,
liquidity or consolidated financial position of the Corporation.
Approximately 44,000 acres of timberlands were affected by the brush fires in
Florida in June, 1998. This acreage represents approximately eight percent of
the timberlands owned in the State of Florida. The Timber Company plans to do
some salvaging and believes the loss could impact the rotation of harvests in
1999 and 2000. The Timber Company has not yet determined the amount of loss
related to timber damaged in these fires but expects to identify the amount of
loss during the last six months of 1998. Such loss may be material to the
Corporation's results of operations in one or more fiscal quarters, but will not
have a material impact on the long-term results of operations, liquidity or
financial position of the Corporation.
RELATED PARTY TRANSACTIONS
CHANGES TO THE SUPPLY AGREEMENT. During the second quarter of 1998, Georgia-
Pacific Group and The Timber Company revised the operating policy, which they
had entered into last fall, with respect to sales of timber and wood fiber.
These revisions arose from sharp changes in the prices of timber and wood fiber
from the first quarter to the second quarter of 1998, a significant decrease in
the volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were negotiated,
The Timber Company sold a timber deed to Georgia-Pacific Group covering timber
and wood fiber having a value of approximately $23 million, and Georgia-Pacific
Group made a one-time $3 million payment to The Timber Company for second
quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern timber
and wood fiber sold by The Timber Company will be adjusted monthly, rather than
quarterly, and will be the average of prices paid by Georgia-Pacific Group for
timber purchased from third parties in a particular forest, and prices received
by The Timber Company for timber sold to third parties from the same forest,
over the most recent three-months period. This change is intended to make prices
for timber and wood fiber sold by The Timber Company to Georgia-Pacific Group
more quickly reflect changes in market prices. In addition, premiums charged by
The Timber Company for various types of wood have been reduced, and Georgia-
Pacific Group has agreed to purchase, each quarter, in two key Southern forests,
20 percent of the annual volume of timber and wood fiber it has committed to
purchase from The Timber Company during that year. The revised policy reduces
the volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual harvest in
those forests, and also reduces Georgia-Pacific Group's minimum annual purchase
obligation in those forests from 60 percent to 50 percent of the annual harvest
in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to more
quickly reflect market prices in particular forests, to allow Georgia-Pacific
Group more flexibility in purchasing wood from third parties, and to allow The
Timber Company greater flexibility in the timing of sales of its annual harvest
on the open market. The revised policy also contains additional provisions
which resolve issues related to certain operating practices of The Timber
Company and Georgia-Pacific Group.
<PAGE> 23
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The statements under
"Management's Discussion and Analysis" and other statements contained herein
that are not historical facts, including statements regarding pricing trends,
expected market-related downtime and the Corporation's expectations regarding
the resolution of issues associated with the Year 2000 problem, are forward-
looking statements (as such term is defined under the Private Securities
Litigation Reform Act of 1995) based on current expectations. The accuracy of
such statements is subject to a number of risks, uncertainties and assumptions.
In addition to the risks, uncertainties and assumptions discussed elsewhere
herein, factors that could cause or contribute to actual results differing
materially from such forward-looking statements include the following: the
Corporation's production capacity continuing to exceed demand for its pulp and
paper products, necessitating market-related downtime; the ability of the
Corporation, and its customers and suppliers, to timely and efficiently address
the Year 2000 problem; changes in the productive capacity of other building
products and pulp and paper producers; the effect on the Corporation of changes
in environmental and pollution control laws and regulations; the general level
of economic activity in U.S. and export markets, particularly the Asian markets;
fluctuations in interest rates and currency exchange rates; the availability and
cost of wood fiber; and other risks, uncertainties and assumptions discussed in
the Corporation's Quarterly Report on Form 10-Q dated March 31, 1998, the
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, the Corporation's Registration Statement No. 333-35813 dated November 7,
1997 and the Corporation's Form 8-K dated October 17, 1996.
For a discussion of commitments and contingencies refer to Note 12 of the Notes
to Consolidated Financial Statements.
<PAGE> 24
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Three months Six months
ended June 30, ended June 30,
-------------- --------------
(In millions, except per share amounts) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Net sales $3,275 $3,297 $6,468 $6,417
- -----------------------------------------------------------------------
Costs and expenses
Cost of sales, excluding depreciation
and cost of timber harvested
shown below
The Timber Company 19 21 43 34
Third parties 2,556 2,608 5,031 5,050
- -----------------------------------------------------------------------
Total cost of sales 2,575 2,629 5,074 5,084
Selling, general and
administrative 256 272 518 553
Depreciation and cost of timber
harvested
The Timber Company 67 81 160 180
Third parties 229 226 440 442
- -----------------------------------------------------------------------
Total depreciation and cost of
timber harvested 296 307 600 622
Interest 94 99 190 196
Other income - - - (14)
- -----------------------------------------------------------------------
Total costs and expenses 3,221 3,307 6,382 6,441
- -----------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary item 54 (10) 86 (24)
Provision for income taxes 24 - 40 (1)
- -----------------------------------------------------------------------
Income (loss) before extraordinary item 30 (10) 46 (23)
Extraordinary item - loss from early
retirement of debt, net of taxes (1) - (13) -
- -----------------------------------------------------------------------
Net income (loss) $ 29 $ (10) $ 33 $ (23)
==========================================================================
Georgia-Pacific Group
Basic and diluted per common share:
Income before extraordinary item $ 0.33 $ 0.50
Extraordinary item - loss from early
retirement of debt, net of taxes (0.01) (0.14)
- -----------------------------------------------------------------------
Net income $ 0.32 $ 0.36
==========================================================================
Average number of shares outstanding:
Basic 90.5 91.0
Diluted 92.2 92.3
==========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 25
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Six months
ended June 30,
-------------------------
(In millions) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 33 $ (23)
Adjustments to reconcile net income (loss) to cash
provided by operations:
Depreciation 369 390
Cost of timber harvested 231 232
Other income - (14)
Deferred income taxes 50 (15)
Amortization of goodwill 30 30
Stock compensation programs 14 (15)
Gain on sales of assets (10) (14)
Increase in receivables (49) (79)
Decrease in inventories 88 108
Change in other working capital (195) (127)
Increase (decrease) in taxes payable (8) 19
Change in other assets and other
long-term liabilities 13 (24)
- -------------------------------------------------------------------------
Cash provided by operations 566 468
- -------------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment investments (238) (270)
Timber and timberlands purchases
from the Timber Company (184) (180)
Timber and timberlands purchases outside (95) (51)
CeCorr acquisition (161) -
Decrease in cash restricted for capital expenditures 26 11
Proceeds from sales of assets 34 56
Other (1) (2)
- -------------------------------------------------------------------------
Cash used for investing activities (619) (436)
- -------------------------------------------------------------------------
Cash flows from financing activities
Additions to (repayments of) long-term debt 245 (6)
Stock repurchases (155) -
Cash dividends paid (46) (45)
Other 8 15
- -------------------------------------------------------------------------
Cash provided by (used for) financing activities 52 (36)
- -------------------------------------------------------------------------
Decrease in cash (1) (4)
Balance at beginning of period 8 10
- -------------------------------------------------------------------------
Balance at end of period $ 7 $ 6
========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 26
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation--Georgia-Pacific Group
June 30, December 31,
(In millions, except shares and per share amounts) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current assets
Cash $ 7 $ 8
Receivables, less allowances of $12 and $13,
respectively 1,396 1,368
Taxes receivable 69 61
Inventories 1,268 1,355
Deferred income tax assets 67 67
Other current assets 71 52
- -------------------------------------------------------------------------
Total current assets 2,878 2,911
- -------------------------------------------------------------------------
Timber and timberlands 98 71
- -------------------------------------------------------------------------
Property, plant and equipment
Land, buildings, machinery and equipment, at cost 14,098 14,072
Accumulated depreciation (7,981) (7,795)
- -------------------------------------------------------------------------
Property, plant and equipment, net 6,117 6,277
- -------------------------------------------------------------------------
Goodwill 1,569 1,599
- -------------------------------------------------------------------------
Other assets 1,176 921
- -------------------------------------------------------------------------
Total assets $ 11,838 $11,779
========================================================================
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Short-term debt $ 1,348 $ 1,462
Accounts payable 505 639
Accrued compensation 186 207
Accrued interest 64 83
Other current liabilities 266 307
- -------------------------------------------------------------------------
Total current liabilities 2,369 2,698
- -------------------------------------------------------------------------
Long-term debt, excluding current portion 3,485 3,057
- -------------------------------------------------------------------------
Other long-term liabilities 1,567 1,542
- -------------------------------------------------------------------------
Deferred income tax liabilities 1,009 959
- -------------------------------------------------------------------------
Commitments and contingencies
Total shareholders' equity 3,408 3,523
- -------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 11,838 $11,779
===========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 28
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION--GEORGIA-PACIFIC GROUP
JUNE 30, 1998
1. PRINCIPLES OF PRESENTATION. The financial statements include the
combined accounts of operations comprising the Georgia-Pacific Group.
All significant intercompany balances and transactions are eliminated in
consolidation. The interim financial information included herein is
unaudited; however, such information reflects all adjustments which are,
in the opinion of management, necessary for a fair presentation of the
Georgia-Pacific Group's financial position, results of operations, and
cash flows for the interim periods. All such adjustments are of a
normal, recurring nature except for the items discussed in Notes 2 and 4
below. Certain 1997 amounts have been reclassified to conform with the
1998 presentation. The Georgia-Pacific Group's combined financial
statements should be read in conjunction with the Corporation's
consolidated financial statements and The Timber Company's combined
financial statements.
2. OTHER INCOME. The 1997 first quarter sale of the Corporation's Martell
operations, which included a sawmill, particleboard mill and timberlands,
generated a pretax gain of $128 million. Of this amount, a pretax gain
of $14 million ($9 million after taxes) was recorded in Georgia-Pacific
Group's building products segment for the sale of the sawmill and
particleboard plant.
3. PROVISION FOR INCOME TAXES. The effective tax rate for each period was
different than the statutory rate primarily because of nondeductible
goodwill amortization expense.
4. EXTRAORDINARY ITEM. The Corporation redeemed approximately $600 million
of its outstanding debt during the first six months of 1998. As a
result, an after-tax extraordinary charge of $13 million (14 cents per
share) was allocated to the Georgia-Pacific Group based on the ratio of
the Georgia-Pacific Group's debt to the Corporation's total debt, of
which $12 million was recognized in the first quarter of 1998 and $1
million was recognized in the second quarter of 1998.
5. EARNINGS PER SHARE. The Corporation's common stock was redesignated in
December 1997 to reflect separately the performance of the Corporation's
pulp, paper and building products businesses, which are now known as
Georgia-Pacific Group. A separate class of common stock was distributed
to reflect the performance of the Corporation's timber operating group,
which is now known as The Timber Company. Basic earnings per share is
computed based on net income and the weighted average number of common
shares outstanding. Diluted earnings per share reflect the annual
issuance of common shares under long-term incentive stock option and
stock purchase plans. The computation of diluted earnings per share does
not assume conversion or exercise of securities that would have an
antidilutive effect on earnings per share.
In February 1997, the FASB issued SFAS No. 128, which specifies the
computation, presentation and disclosure requirements for earnings per
share. Georgia-Pacific Group adopted SFAS No. 128 in the 1997 fourth
quarter.
The following table provides earnings and per share data for Georgia-
Pacific Group for 1998.
<TABLE>
<CAPTION>
Three months Six months
ended June 30,ended June 30,
-----------------------------------------
(In millions, except per share amounts) 1998 1998
---------------------------------------------------------------
<S> <C> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 30 $ 46
Extraordinary item, net of taxes (1) (13)
---------------------------------------------------------------
Net income $ 29 $ 33
================================================================
Shares (denominator):
Average shares outstanding 90.5 91.0
Dilutive securities:
Incentive plans and option plans 1.5 1.2
Employee stock purchase plans 0.2 0.1
---------------------------------------------------------------
Total assuming conversion 92.2 92.3
================================================================
Basic and diluted per share amounts:
Income before extraordinary item $ 0.33 $ 0.50
Extraordinary item, net of taxes (0.01) (0.14)
---------------------------------------------------------------
Net income $ 0.32 $ 0.36
================================================================
</TABLE>
<PAGE> 29
6. COMPREHENSIVE INCOME. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components. The
Georgia-Pacific Group adopted SFAS No. 130 in the first quarter of 1998.
Other comprehensive income includes primarily currency translation
adjustments. For the three months ended June 30, 1998, the Georgia-
Pacific Group's total comprehensive income was $27 million, compared to a
loss of $10 million for the same period last year. For the six months
ended June 30, 1998, the Georgia-Pacific Group's total comprehensive
income was $31 million compared to a loss of $25 million for the same
period last year.
7. SUPPLEMENTAL DISCLOSURES - STATEMENTS OF CASH FLOWS. The cash impact of
interest and income taxes is reflected in the table below. The effect of
foreign currency exchange rate changes on cash was not material in either
period.
<TABLE>
<CAPTION>
Six months
ended June 30,
------------------------
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Total interest costs $ 192 $ 201
Interest capitalized (2) (5)
---------------------------------------------------------------
Interest expense $ 190 $ 196
================================================================
Interest paid by the Corporation $ 244 $ 249
================================================================
Income taxes paid by the
Corporation, net $ 44 $ 29
================================================================
Portion of interest paid charged
to the Georgia-Pacific Group $ 209 $ 204
================================================================
Portion of income taxes (refunded) paid
charged to the Georgia-Pacific Group $ (12) $ (5)
================================================================
</TABLE>
<PAGE> 30
In connection with the CeCorr acquisition, the Georgia-Pacific Group
issued 1.6 million shares of Georgia-Pacific Group common stock valued at
$57.875 per share and assumed approximately $92 million of CeCorr debt of
which $34 million was owed to Georgia-Pacific Group ($58 million net debt
assumed). (See Note 9.)
8. INVENTORY VALUATION. Inventories include costs of materials, labor, and
plant overhead. The Georgia-Pacific Group uses the dollar value pool
method for computing LIFO inventories. The major components of
inventories were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Raw materials $ 358 $ 396
Finished goods 824 878
Supplies 295 293
LIFO reserve (209) (212)
---------------------------------------------------------------
Total inventories $ 1,268 $1,355
============================================================
</TABLE>
9. ACQUISITION. On June 30, 1998, Georgia-Pacific Group completed its
acquisition of CeCorr, a leading independent producer of corrugated sheets
in the United States. On June 30, 1998, the Corporation paid approximately
$95 million in cash and issued approximately 1.6 million shares of Georgia-
Pacific Group stock valued at $57.875 per share for all the outstanding
shares of CeCorr. In addition the Corporation assumed approximately $58
million of CeCorr's debt. On July 2, 1998, certain former owners of CeCorr
exercised their rights to sell to the Corporation approximately 1.1 million
shares of Georgia-Pacific Group stock. The June 30, 1998 financial
statements reflect the transaction as if the Corporation paid $161 million
in cash and issued 500,000 shares of Georgia-Pacific Group stock. The
acquisition includes 11 CeCorr sheet feeder plants, which manufacture
corrugated sheets that are sold to others for final conversion into
corrugated containers. Also included are a corrugating medium paper mill,
and several specialty operations and support service groups. CeCorr ships
6.3 billion square feet of corrugated sheets per year. Georgia-Pacific
Group will account for this transaction using the purchase method.
10. DEBT. In May 1998, the Corporation issued $300 million of 7.25%
Debentures due June 1, 2028.
11. SHARE REPURCHASES. During the first six months of 1998, Georgia-Pacific
Group purchased on the open market 2,312,500 shares of Georgia-Pacific
Group stock at an aggregate price of $150 million, of which 1,289,000
shares were held as treasury stock at June 30, 1998.
<PAGE> 31
12. COMMITMENTS AND CONTINGENCIES. The Georgia-Pacific Group is subject to
various legal proceedings and claims that arise in the ordinary course of
its business. As is the case with other companies in similar industries,
the Georgia-Pacific Group faces exposure from actual or potential claims
and legal proceedings involving environmental matters. Liability insurance
in effect during the last several years provides very limited coverage for
environmental matters.
The following sets forth legal proceedings and claims arising out of the
operations of the Georgia-Pacific Group to which the Corporation is a
party. The holders of Georgia-Pacific Group stock are shareholders of the
Corporation and are subject to all of the risks associated with an
investment in the Corporation, including any legal proceedings and claims
involving The Timber Company.
The Corporation is involved in environmental remediation activities at
approximately 170 sites, both owned by the Corporation and owned by others,
where it has been notified that it is or may be a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state "superfund" laws. Of the known sites in
which it is involved, the Corporation estimates that approximately 47
percent are being investigated, approximately 25 percent are being
remediated and approximately 28 percent are being monitored (an activity
that occurs after either site investigation or remediation has been
completed). The ultimate costs to the Corporation for the investigation,
remediation and monitoring of many of these sites cannot be predicted with
certainty, due to the often unknown magnitude of the pollution or the
necessary cleanup, the varying costs of alternative cleanup methods, the
amount of time necessary to accomplish such cleanups, the evolving nature
of cleanup technologies and government regulations, and the inability to
determine the Corporation's share of multiparty cleanups or the extent to
which contribution will be available from other parties. The Corporation
has established reserves for environmental remediation costs for these
sites in amounts that it believes are probable and reasonably estimable.
Based on analysis of currently available information and previous
experience with respect to the cleanup of hazardous substances, the
Corporation believes that it is reasonably possible that costs associated
with these sites may exceed current reserves by amounts that may prove
insignificant or that could range, in the aggregate, up to approximately
$60 million. This estimate of the range of reasonably possible additional
costs is less certain than the estimates upon which reserves are based, and
in order to establish the upper limit of such range, assumptions least
favorable to the Corporation among the range of reasonably possible
outcomes were used. In estimating both its current reserve for
environmental remediation and the possible range of additional costs, the
Corporation has not assumed it will bear the entire cost of remediation of
every site to the exclusion of other known potentially responsible parties
who may be jointly and severally liable. The ability of other potentially
responsible parties to participate has been taken into account, based
generally on the parties' financial condition and probable contribution on
a per site basis.
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation.
In many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
The Corporation generally resolves asbestos cases by voluntary dismissal or
settlement for amounts it considers reasonable given the facts and
circumstances of each case. The amounts it has paid to date to defend and
settle these cases to date have been substantially covered by product
liability insurance. The Corporation is currently defending claims of
approximately 63,500 such plaintiffs and anticipates that additional suits
will be filed against it over the next several years. The Corporation has
insurance available in amounts that it believes are adequate to cover
substantially all of the reasonably foreseeable damages and settlement
amounts arising out of claims and suits currently pending. The Corporation
has further insurance coverage available for the disposition of suits that
may be filed against it in the future, but there can be no assurance that
the amounts of such insurance will be adequate to cover all future claims.
The Corporation has established reserves for liabilities and legal defense
costs it believes are probable and reasonably estimable with respect to
pending suits and claims and a receivable for expected insurance
recoveries.
The Corporation has been defending an action in Alabama state court brought
to recover damages on behalf of a class of all persons currently owning
structures in the United States on which allegedly defective hardboard
siding manufactured by the Corporation after January 1, 1980 has been
installed. On January 9, 1998, the court approved a settlement pursuant to
which the Corporation will establish a procedure for resolving product
warranty claims on certain of the Corporation's hardboard siding products,
and will pay $3 million in legal fees to plaintiffs' counsel, plus expenses
not to exceed $200,000. In addition, plaintiffs' counsel will be entitled
to additional fees based upon a percentage of claims paid by the
Corporation. Claims under the settlement may be filed through August 18,
1998. The Corporation has previously established financial reserves it
believes to be adequate to pay eligible claims and legal fees.
In May 1997, the Corporation and nine other companies were named as
defendants in a suit brought by the Attorney General of the State of
Florida alleging that they engaged in a conspiracy to fix the prices of
sanitary commercial paper products, such as towels and napkins, in
violation of federal and state laws. Approximately 45 similar suits have
been filed by private plaintiffs in federal courts in California, Florida,
Georgia and Wisconsin, and in the state courts of California, Wisconsin,
Minnesota and Tennessee. On October 15, 1997, the Federal Judicial Panel
on Multi-District Litigation consolidated all federal court cases in the
federal district court in Gainesville, Florida. On July 24, 1998, the
court certified the suit as a class action consisting of non-governmental
plaintiffs. The Corporation has denied that it has engaged in any of the
illegal conduct alleged in these cases and intends to defend itself
vigorously.
The Corporation's facility in Port Hudson, Louisiana has notified the State
of Louisiana of the emitting of noncondensable gases in violation of its
air permit. The Corporation expects a penalty of an unknown amount to be
assessed by the State.
Although the ultimate outcome of these environmental matters and legal
proceedings cannot be determined with certainty, based on presently
available information management believes that adequate reserves have been
established for probable losses with respect thereto. Management further
believes that the ultimate outcome of such environmental matters and legal
proceedings could be material to operating results in any given quarter or
year but will not have a material adverse effect on the long-term results
of operations, liquidity or consolidated financial position of the
Corporation.
<PAGE> 32
13. RELATED PARTY TRANSACTIONS. During 1998, The Timber Company sold timber
deeds to Georgia-Pacific Group. Georgia-Pacific Group recognizes costs
from these related-party timber deed contracts as the timber is cut .
During the second quarter of 1998, Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into last
fall, with respect to sales of timber and wood fiber. These revisions
arose from sharp changes in the prices of timber and wood fiber from the
first quarter to the second quarter of 1998, a significant decrease in the
volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were
negotiated, The Timber Company sold a timber deed to Georgia-Pacific Group
covering timber and wood fiber having a value of approximately $23 million,
and Georgia-Pacific Group made a one-time $3 million payment to The Timber
Company for second quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern
timber and wood fiber sold by The Timber Company will be adjusted monthly,
rather than quarterly, and will be the average of prices paid by Georgia-
Pacific Group for timber purchased from third parties in a particular
forest, and prices received by The Timber Company for timber sold to third
parties from the same forest, over the most recent three-months period.
This change is intended to make prices for timber and wood fiber sold by
The Timber Company to Georgia-Pacific Group more quickly reflect changes in
market prices. In addition, premiums charged by The Timber Company for
various types of wood have been reduced, and Georgia-Pacific Group has
agreed to purchase, each quarter, in two key Southern forests, 20 percent
of the annual volume of timber and wood fiber it has committed to purchase
from The Timber Company during that year. The revised policy reduces the
volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual
harvest in those forests, and also reduces Georgia-Pacific Group's minimum
annual purchase obligation in those forests from 60 percent to 50 percent
of the annual harvest in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to
more quickly reflect market prices in particular forests, to allow Georgia-
Pacific Group more flexibility in purchasing wood from third parties, and
to allow The Timber Company greater flexibility in the timing of sales of
its annual harvest on the open market. The revised policy also contains
additional provisions which resolve issues related to certain operating
practices of The Timber Company and Georgia-Pacific Group.
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Second Quarter
First --------------
(In millions) Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
NET SALES
Building products $1,753 55% $1,854 57% $3,607 56%
Pulp and paper 1,431 45 1,413 43 2,844 44
Other operations 9 - 8 - 17 -
- --------------------------------------------------------------------------------
Total net sales $3,193 100% $3,275 100% $6,468 100%
===============================================================================
OPERATING PROFITS
Building products $ 66 41% $ 96 55% $ 162 48%
Pulp and paper 91 56 73 42 164 49
Other operations 5 3 5 3 10 3
- --------------------------------------------------------------------------------
Total operating profits 162 100% 174 100% 336 100%
=== === ===
General corporate expense (34) (26) (60)
Interest expense (96) (94) (190)
Provision for income taxes (16) (24) (40)
- --------------------------------------------------------------------------------
Income before extraordinary item 16 30 46
Extraordinary item, net of taxes (12) (1) (13)
- --------------------------------------------------------------------------------
Net income $ 4 $ 29 $ 33
===============================================================================
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Third Quarter Fourth Quarter
------------------------ ------------------------
(In millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
NET SALES
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total net sales
===============================================================================
OPERATING PROFITS
Building products
Pulp and paper
Other operations
- --------------------------------------------------------------------------------
Total operating
profits
General corporate
expense
Interest expense
Provision for
income taxes
- --------------------------------------------------------------------------------
Net income
===============================================================================
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Second Quarter
First --------------
(In millions) Quarter Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
NET SALES
Building products $1,760 57% $1,918 58% $3,678 57%
Pulp and paper 1,351 43 1,371 42 2,722 43
Other operations 9 - 8 - 17 -
- --------------------------------------------------------------------------------
Total net sales $3,120 100% $3,297 100% $6,417 100%
===============================================================================
OPERATING PROFITS
Building products $ 95 80% $ 122 90% $ 217 85%
Pulp and paper 20 17 12 9 32 13
Other operations 4 3 1 1 5 2
- --------------------------------------------------------------------------------
Total operating profits 119 100% 135 100% 254 100%
=== === ===
General corporate expense (36) (46) (82)
Interest expense (97) (99) (196)
Benefit for income taxes 1 - 1
- --------------------------------------------------------------------------------
Net loss $ (13) $ (10) $ (23)
===============================================================================
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
COMBINED SALES AND OPERATING PROFITS BY INDUSTRY SEGMENT (Unaudited)
Georgia-Pacific Corporation--Georgia-Pacific Group
Third Quarter Fourth Quarter
------------------------ ------------------------
(In millions) Quarter Year-to-date Quarter Year-to-date
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
NET SALES
Building products $ 1,906 57% $ 5,584 57% $ 1,791 56% $ 7,375 57%
Pulp and paper 1,414 43 4,136 43 1,420 44 5,556 43
Other operations 10 - 27 - 10 - 37 -
- --------------------------------------------------------------------------------
Total net sales $ 3,330 100% $ 9,747 100% $ 3,221 100% $12,968 100%
===============================================================================
OPERATING PROFITS
Building products $ 127 57% $ 344 72% $ (106) 212% $ 238 56%
Pulp and paper 93 42 125 26 49 (98) 174 41
Other operations 3 1 8 2 7 (14) 15 3
- --------------------------------------------------------------------------------
Total operating
profits 223 100% 477 100% (50) 100% 427 100%
=== === === ===
General corporate
expense (54) (136) (28) (164)
Interest expense (95) (291) (90) (381)
(Provision) benefit for
income taxes (33) (32) 64 32
- --------------------------------------------------------------------------------
Income (loss) before accounting
change 41 18 (104) (86)
Cumulative effect of an
accounting change, net
of taxes - - (60) (60)
- --------------------------------------------------------------------------------
Net income (loss) $ 41 $ 18 $ (164) $ (146)
===============================================================================
</TABLE>
<PAGE> 36
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH 1997
Georgia-Pacific Group reported net sales of approximately $3.3 billion for both
of the three months ended June 30, 1998 and 1997. Net income for the 1998
second quarter was $29 million compared with a net loss of $10 million in 1997.
The 1998 second quarter results include an after-tax loss of $1 million from the
early retirement of debt.
The remaining discussion refers to the "Sales and Operating Profits by
Industry Segment" table (included in PART I - ITEM 1. hereto).
Georgia-Pacific Group's building products segment reported net sales of $1.9
billion for both of the three months ended June 30, 1998 and 1997. Operating
profits decreased in 1998 to $96 million compared with $122 million in 1997.
Return on sales was 5.2 percent and 6.4 percent for both of the three months
ended June 30, 1998 and 1997, respectively.
The lower quarter-over-quarter operating profit resulted principally from a
significant decrease in lumber prices and structural panels profits. Average
prices for lumber were 16 percent lower in the second quarter of 1998 than the
second quarter of 1997 while Southern pine log costs increased by an average of
23 percent. Average prices for structural panels (primarily plywood) decreased
approximately 3 percent from the second quarter of 1997 while manufacturing
costs for plywood increased approximately 12 percent over the prior year
primarily due to higher log costs. These decreases were slightly offset by
increased demand and prices for oriented strand board and gypsum.
Operating losses for Georgia-Pacific Group's building products distribution
division were $13 million in the second quarter of 1998 (excluding unusual gains
of $11 million, primarily related to assets sold as part of the division's
restructuring plan), compared with a loss of $17 million in the second quarter
of 1997 (excluding unusual gains of $8 million, primarily related to assets sold
as part of the division's restructuring plan). The distribution division
restructuring plan, finalized in December 1997, is proceeding on schedule. The
plan included disposing of the division's millwork fabrication facilities
nationwide as well as several distribution centers located in the Western United
States. Through the second quarter of 1998, the division has completed the sale
of most of these millwork fabrication facilities and distribution warehouses.
Management is aggressively addressing the turn-around of the distribution
division, but cannot predict when the division will return to profitability.
Selected financial and operating data for the building products distribution
business are shown in the table below:
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Three months ended June 30,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $1,041 $ 1,108
Operating loss (before
unusual items) (13) (17)
Unusual items 11 8
Capital expenditures - 11
Depreciation 12 12
============================================================
</TABLE>
<PAGE> 37
Georgia-Pacific Group's pulp and paper segment reported net sales of $1.4
billion and operating profits of $73 million in the 1998 second quarter. For
the same period in 1997, the segment reported net sales of $1.4 billion and
operating profits of $12 million. Return on sales increased to 5.2 percent in
1998 from 0.9 percent in 1997. Average containerboard prices for the quarter
were approximately 40 percent above prices in the same 1997 period. However,
containerboard prices trended downward during the first six months of the year
and have continued a slight downward trend into the third quarter.
Communications papers prices are up compared to the second quarter of 1997;
however, prices have trended downward from the first quarter of 1998, with this
trend continuing into the third quarter. Prices and demand for pulp remained
flat compared to the 1998 first quarter and are down compared with second
quarter of last year. Compared with a year ago, Georgia-Pacific Group has
reduced inventories for most pulp and paper products, incurring downtime in the
second quarter when necessary. During the second quarter of 1998, Georgia-
Pacific Group took market-related downtime at its pulp and paper mills and
reduced pulp, containerboard and communication papers production by
approximately 60,000 tons, 40,000 tons and 25,000 tons, respectively. During
the third quarter of 1998, Georgia-Pacific Group expects to continue to take
market-related downtime due to continued weakness in demand and pricing for pulp
and paper, primarily stemming from market conditions in Asia. In July 1998, the
Corporation announced that it is closing the market pulp portion of its
operations at Port Hudson, Louisiana and Ashdown, Arkansas indefinitely. This
action and other related reductions will decrease Georgia-Pacific Group's total
market pulp capacity and current production by more than 500,000 tons annually.
As a result, Georgia-Pacific Group expects to incur a non-recurring, non-cash
charge of approximately $15 million during the third quarter of 1998 related to
these closings.
General corporate expense decreased to $26 million for the three months ended
June 30, 1998 compared with $46 million in 1997. The majority of the decrease
is attributable to lower expenses for Georgia-Pacific Group's stock compensation
programs and its cash incentive compensation program.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH 1997
Georgia-Pacific Group reported consolidated net sales of $6.5 billion and net
income of $33 million for the six months ended June 30, 1998, compared with net
sales of $6.4 billion and net loss of $23 million in 1997. The 1998 results
include an extraordinary, after-tax loss of $13 million for the early retirement
of debt.
The remaining discussion refers to the "Sales and Operating Profits by Industry
Segment" table (included in PART I - ITEM 1. hereto).
Georgia-Pacific Group's building products segment reported net sales of $3.6
billion and operating profits of $162 million for the six months ended June 30,
1998, compared with net sales of $3.7 billion and operating profits of $217
million in 1997. Return on sales decreased to 4.5 percent from 5.9 percent a
year ago. The 1997 results include a first quarter gain of $14 million ($9
million after taxes) from the sale of the Georgia-Pacific Group's Martell,
California, assets to Sierra Pacific Industries. Excluding the pretax gain from
the sale of the Martell operations, operating profit in the building products
segment would have been $203 million and the return on sales would have been 5.5
percent. An 11 percent decrease in lumber prices and higher log costs in the
first six months of 1998 were offset by approximately 34 percent higher prices
for oriented strand board and increased demand for oriented strand board,
particleboard and gypsum.
Operating losses for Georgia-Pacific Group's building products distribution
division were $35 million in the first half of 1998 (excluding unusual gains of
$13 million, primarily related to assets sold as part of the division's
restructuring plan) compared with a loss of $51 million in the first half of
1997 (excluding unusual gains of $8 million, primarily related to assets sold as
part of the division's restructuring plan, offset in part by relocation and
severance costs). The distribution division restructuring plan, finalized in
December 1997, is proceeding on schedule. Selected financial and operating data
for the building products distribution business are shown in the table below.
<PAGE> 38
<TABLE>
<CAPTION>
SELECTED DISTRIBUTION DIVISION DATA
Six months ended June 30,
(In millions) 1998 1997
---------------------------------------------------------------
<S> <C> <C>
Sales $2,004 $ 2,091
Operating loss (before
unusual items) (35) (51)
Unusual items 13 8
Capital expenditures 3 24
Depreciation 24 23
============================================================
</TABLE>
Georgia-Pacific Group's pulp and paper segment reported net sales of $2.8
billion and operating profits of $164 million for the six-month period ended
June 30, 1998, compared with net sales of $2.7 billion and operating profits of
$32 million in 1997. Return on sales increased to 5.8 percent compared with 1.2
percent for the same period a year ago, principally due to an increase in
average prices for almost all of the Georgia-Pacific Group's pulp and paper
products. Average containerboard prices for the first six months of 1998 were
approximately 59 percent above prices in the same 1997 period, and average
prices of communications papers for the first six months of 1998 were
approximately 7 percent above year ago levels. Prices for most of the Georgia-
Pacific Group's pulp and paper products declined during the second quarter of
1998, with softening of prices in containerboard and communication papers
continuing into the third quarter. Compared with a year ago, Georgia-Pacific
Group has reduced inventories for most pulp and paper products, incurring
downtime in the second quarter when necessary. During the first half of 1998,
Georgia-Pacific Group incurred market-related downtime at its pulp and paper
mills and reduced pulp, containerboard and communication papers production by
approximately 100,000 tons, 60,000 tons and 40,000 tons, respectively. During
the third quarter of 1998, Georgia-Pacific Group expects to continue to take
market-related downtime due to continued weakness in demand and pricing for pulp
and paper, primarily stemming from market conditions in Asia. In July 1998,
Georgia-Pacific Group announced that it is closing the market pulp portion of
its operations at Port Hudson, Louisiana and Ashdown, Arkansas indefinitely.
This action and other related reductions will decrease Georgia-Pacific Group's
total market pulp capacity and current production by more than 500,000 tons
annually. As a result, Georgia-Pacific Group expects to incur a non-recurring,
non-cash charge of approximately $15 million during the third quarter of 1998
related to these closings.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Georgia-Pacific Group generated cash from operations
of $566 million for the six months ended June 30, 1998 compared with $468
million a year ago. The increase is primarily attributable to higher average
prices for many of the Georgia-Pacific Group's pulp and paper products.
INVESTING ACTIVITIES. Capital expenditures for property, plant and equipment
for the six months ended June 30, 1998 were $238 million compared with $270 for
the first six months of 1997. Expenditures in 1998 included $159 million in the
pulp and paper segment, $61 million in the building products segment, and $18
million of other and general corporate. Georgia-Pacific Group expects to make
capital expenditures for property, plant and equipment of approximately $700
million in 1998, excluding the cost of any acquisitions.
Cash paid for timber and timberlands was $279 million in the first six months of
1998 compared with $231 million in 1997.
On June 30, 1998, Georgia-Pacific Group completed its acquisition of CeCorr, a
leading independent producer of corrugated sheets in the United States. On June
30, 1998, the Corporation paid approximately $95 million in cash and issued
approximately 1.6 million shares of Georgia-Pacific Group stock valued at
$57.875 per share for all the outstanding shares of CeCorr. In addition the
Corporation assumed approximately $58 million of CeCorr's debt. On July 2,
1998, certain former owners of CeCorr exercised their rights to sell to the
Corporation approximately 1.1 million shares of Georgia-Pacific Group stock.
The June 30, 1998 financial statements reflect the transaction as if the
Corporation paid $161 million in cash and issued 500,000 shares of Georgia-
Pacific Group stock.
During the first half of 1998, the Georgia-Pacific Group received $34 million
from the sales of assets, principally the sale of various distribution
facilities. During the first half of 1997, the Georgia-Pacific Group received
proceeds from the sale of assets of $56 million relating principally to the sale
of its Martell operations.
In 1998, the Corporation expects its cash flow from operations, together with
proceeds from any asset sales and available financing sources, to be sufficient
to fund planned capital investments, pay dividends and make scheduled debt
payments.
<PAGE> 39
FINANCING ACTIVITIES. The Corporation's total debt was $5.7 billion and $5.5
billion at June 30, 1998 and December 31, 1997, respectively. At June 30, 1998
and December 31, 1997, $4.8 billion and $4.5 billion, respectively, of such
total debt was Georgia-Pacific Group's debt and $908 million and $971 million,
respectively, was The Timber Company's debt. At June 30, 1998, Georgia-Pacific
Group had exceeded its share repurchase threshold of $4.75 billion of debt.
Accordingly, repurchases of Georgia-Pacific Group stock are precluded until the
debt falls below the share repurchase threshold.
In May 1998, the Corporation issued $300 million of 7.25% Debentures due June 1,
2028.
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from the
purchaser in the amount of $270 million for the Martell timberlands. In April
1997, the Corporation monetized these notes receivable through the issuance of
notes payable in a private placement. These proceeds were used to reduce the
Corporation's debt. Proceeds from the notes receivable will be used to fund
payments required for the notes payable, which are classified as "Other long-
term liabilities" on the Corporation's balance sheets.
At June 30, 1998, the Corporation had outstanding borrowings of $642 million
under certain Industrial Revenue Bonds. Approximately $4 million from the
issuance of these bonds is being held by trustees and is restricted for the
construction of certain capital projects. Amounts held by trustees are
classified as noncurrent assets in the accompanying balance sheets.
The Corporation has a $1.5 billion unsecured revolving credit facility which is
used for direct borrowings and as support for commercial paper and other short-
term borrowings. As of June 30, 1998, $520 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility.
The Corporation's senior management establishes parameters of the Corporation's
financial risk. Hedging interest-rate exposure through the use of swaps and
options, and hedging foreign exchange exposure through the use of forward
contracts, are specifically contemplated to manage risk in keeping with
management policy. Derivative instruments such as swaps, forwards, option or
futures, which are based directly or indirectly upon interest rates, currencies,
equities and commodities, may be used by the Corporation to manage and reduce
the risk inherent in price, currency and interest rate fluctuations. There have
been no significant changes to reported market risk since December 31, 1997.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract, invoice or transaction determines the amount, maturity and other
specifics of the hedge. Counterparty risk is limited to institutions with long-
term debt ratings of A or better.
At June 30, 1998, the Corporation's weighted average interest rate on its total
debt was 7.4% including the accounts receivable sale program and outstanding
interest rate exchange agreements. At June 30, 1998, these interest rate
exchange agreements effectively converted $456 million of floating rate
obligations with a weighted average interest rate of 5.7% to fixed rate
obligations with an average effective interest rate of 9.1%. These agreements
have a weighted average maturity of approximately 8 months. As of June 30,
1998, the Corporation's total floating rate debt, including the accounts
receivable sale program, exceeded related interest rate exchange agreements by
$1.4 billion.
The Corporation's accounts receivable sale program has been extended to May
1999.
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at June 30, 1998.
As of June 30, 1998, the Corporation had registered for sale up to $200 million
of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission. In July 1998, the Board of Directors agreed
to increase the level of the shelf registration to $500 million.
During the first six months of 1998, Georgia-Pacific Group purchased on the open
market 2,312,500 shares of Georgia-Pacific Group stock at an aggregate price of
$150 million, of which 1,289,000 shares were held as treasury stock at June 30,
1998.
<PAGE> 40
OTHER. In June 1997, the FASB issued SFAS No. 130 that establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The Corporation adopted SFAS No.
130 in the 1998 first quarter.
Also in June 1997, the FASB issued SFAS No. 131 which requires companies to
determine segments based on how management makes decisions about allocating
resources to segments and measuring their performance. Disclosures for each
segment are similar to those required under current standards, with the addition
of certain quarterly disclosure requirements. SFAS No. 131 also requires
entity-wide disclosure about the products and services an entity provides, the
countries in which it holds material assets and reports material revenues, and
its significant customers. The Corporation will be required to adopt the new
standard in 1998; prior period information will be restated. Management is
evaluating the effect of this statement on reported segment information.
In February 1998, the FASB issued SFAS No. 132 which requires additional pension
related disclosures. The objective of the statement is to provide sufficient
information to understand the changes in benefit obligations or to analyze the
quality of earnings of the Corporation. SFAS No. 132 requires disclosure of
additional information about the changes in the benefit obligation and the fair
value of plan assets during the period, including unrecognized gains and losses.
The Corporation will be required to present this additional disclosure in the
1998 year end statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," that establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Corporation will be required to
adopt the new statement in 2000; early adoption is encouraged, no prior period
restatement is permitted. Management is evaluating the effect of this statement
on the Corporation's derivative instruments primarily interest rate swaps and
foreign currency forward contracts. The impact of adjustment to fair value is
not expected to be material.
The Georgia-Pacific Group is working to resolve the effects of the Year 2000
problem on its information systems, including the operating systems used in its
manufacturing operations as well as its facilities systems. The Year 2000
problem, which is common to most businesses, concerns the inability of such
systems to properly recognize and process dates and date-sensitive information
on and beyond January 1, 2000. In 1996, Georgia-Pacific Group began a company-
wide assessment of the vulnerability of its systems to the Year 2000 problem.
Based on such assessment, Georgia-Pacific Group has developed a Year 2000
compliance plan, under which all key information systems are being tested, and
non-compliant software or technology is being modified or replaced. Georgia-
Pacific Group is also surveying the Year 2000 compliance status and
compatibility of customers' and suppliers' systems which interface with Georgia-
Pacific Group's systems or could otherwise impact Georgia-Pacific Group's
operations.
Georgia-Pacific Group completed an inventory of its information technology
systems and processes in 1997 and currently expects to have most of the
necessary revisions to such systems and processes completed by year-end 1998,
and to complete testing and verification of such systems and processes for Year
2000 compliance during 1999. Earlier this year, Georgia-Pacific Group completed
an inventory of the process control systems and embedded chips used in its
manufacturing operations and determined that only a small percentage of such
systems and chips could be subject to Year 2000 problems. Georgia-Pacific Group
currently expects to have these affected manufacturing systems replaced or
corrected in early 1999, and to complete testing and verification of such
systems for Year 2000 compliance during 1999. While Georgia-Pacific Group
currently believes that it will be able to modify or replace its affected
systems in time to minimize any detrimental effects on its operations, failure
to do so, or the failure of Georgia-Pacific Group's major customers and
suppliers to modify or replace their affected systems, could have a material
adverse impact on Georgia-Pacific Group's results of operations, liquidity or
consolidated financial position in the future. The most reasonably likely worst
case scenario of failure by Georgia-Pacific Group or its customers or suppliers
to resolve the Year 2000 problem would be a temporary slowdown or cessation of
manufacturing operations at one or more of Georgia-Pacific Group's facilities
and a temporary inability on the part of Georgia-Pacific Group to timely process
orders and billings and to deliver finished products to customers. Georgia-
Pacific Group's individual business units are currently identifying and
considering various contingency options, including identification of alternate
suppliers, vendors and service providers, and manual alternatives to systems
operations, which will allow them to minimize the risks of any unresolved Year
2000 problems on their operations and to minimize the effect of any unforeseen
Year 2000 failures.
Georgia-Pacific Group currently estimates the incremental cost of the work
needed to resolve the Year 2000 problem at approximately $60 million, of which
approximately $7 million has been incurred to date. The bulk of the estimated
incremental cost relates to replacement or modification of affected process
control systems in Georgia-Pacific Group's manufacturing operations and is
projected to be incurred in late 1998 and early 1999. These costs will be
expensed as incurred, unless new systems are purchased that should be
capitalized in accordance with corporate policy. Such costs may be material to
Georgia-Pacific Group's results of operations in one or more fiscal quarters or
years, but will not have a material adverse impact on the long-term results of
operations, liquidity or consolidated financial position of Georgia-Pacific
Group.
<PAGE> 41
RELATED PARTY TRANSACTIONS
CHANGES TO THE SUPPLY AGREEMENT. During the second quarter of 1998, Georgia-
Pacific Group and The Timber Company revised the operating policy, which they
had entered into last fall, with respect to sales of timber and wood fiber.
These revisions arose from sharp changes in the prices of timber and wood fiber
from the first quarter to the second quarter of 1998, a significant decrease in
the volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were negotiated,
The Timber Company sold a timber deed to Georgia-Pacific Group covering timber
and wood fiber having a value of approximately $23 million, and Georgia-Pacific
Group made a one-time $3 million payment to The Timber Company for second
quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern timber
and wood fiber sold by The Timber Company will be adjusted monthly, rather than
quarterly, and will be the average of prices paid by Georgia-Pacific Group for
timber purchased from third parties in a particular forest, and prices received
by The Timber Company for timber sold to third parties from the same forest,
over the most recent three-months period. This change is intended to make prices
for timber and wood fiber sold by The Timber Company to Georgia-Pacific Group
more quickly reflect changes in market prices. In addition, premiums charged by
The Timber Company for various types of wood have been reduced, and Georgia-
Pacific Group has agreed to purchase, each quarter, in two key Southern forests,
20 percent of the annual volume of timber and wood fiber it has committed to
purchase from The Timber Company during that year. The revised policy reduces
the volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual harvest in
those forests, and also reduces Georgia-Pacific Group's minimum annual purchase
obligation in those forests from 60 percent to 50 percent of the annual harvest
in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to more
quickly reflect market prices in particular forests, to allow Georgia-Pacific
Group more flexibility in purchasing wood from third parties, and to allow The
Timber Company greater flexibility in the timing of sales of its annual harvest
on the open market. The revised policy also contains additional provisions
which resolve issues related to certain operating practices of The Timber
Company and Georgia-Pacific Group.
REFER TO THE "CAUTIONARY STATEMENT FOR PURPOSES OF THE 'SAFE HARBOR' PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" ON PAGE 23 OF THIS
FORM 10-Q.
For a discussion of commitments and contingencies refer to Note 12 of the Notes
to Combined Financial Statements.
<PAGE> 42
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF INCOME (Unaudited)
Georgia-Pacific Corporation--The Timber Company
Three months Six months
ended June 30, ended June 30,
-------------- --------------
(In millions, except per share amounts) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
Net sales
Timber-Georgia-Pacific Group $ 86 $ 102 $ 203 $ 214
Timber-third parties
Delivered 18 17 25 34
Stumpage 10 4 27 8
Other 5 8 9 12
- -----------------------------------------------------------------------
Total net sales 119 131 264 268
- -----------------------------------------------------------------------
Costs and expenses
Cost of sales, excluding depreciation
and cost of timber harvested
shown below 23 28 42 62
Selling, general and
administrative 9 11 18 21
Depreciation and cost of timber
harvested 7 11 21 25
Interest 17 20 35 45
Other income - - - (114)
- -----------------------------------------------------------------------
Total costs and expenses 56 70 116 39
- -----------------------------------------------------------------------
Income before income taxes
and extraordinary item 63 61 148 229
Provision for income taxes 25 24 58 89
- -----------------------------------------------------------------------
Income before extraordinary item 38 37 90 140
Extraordinary item - loss from early
retirement of debt, net of taxes - - (2) -
- -----------------------------------------------------------------------
Net income 38 37 88 140
Uncut portion of timber deeds sold to
Georgia-Pacific Group, net of taxes 13 - 13 -
- -----------------------------------------------------------------------
Pro forma net income $ 51 $ 37 $ 101 $ 140
==========================================================================
The Timber Company
Basic per common share:
Income before extraordinary item $ 0.41 $ 0.97
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.02)
- -----------------------------------------------------------------------
Net income 0.41 0.95
Uncut portion of timber deeds sold to
Georgia-Pacific Group, net of taxes 0.14 0.14
- -----------------------------------------------------------------------
Pro forma net income $ 0.55 $ 1.09
- -----------------------------------------------------------------------
Diluted per common share:
Income before extraordinary item $ 0.41 $ 0.96
Extraordinary item - loss from early
retirement of debt, net of taxes - (0.02)
- -----------------------------------------------------------------------
Net income 0.41 0.94
Uncut portion of timber deeds sold to
Georgia-Pacific Group, net of taxes 0.14 0.14
- -----------------------------------------------------------------------
Pro forma net income $ 0.55 $ 1.08
==========================================================================
Average number of shares outstanding:
Basic 92.3 92.3
Diluted 93.2 93.2
==========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 43
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Georgia-Pacific Corporation--The Timber Company
Six months
ended June 30,
------------------
(In millions) 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 88 $ 140
Adjustments to reconcile net income to cash
provided by operations:
Depreciation 2 2
Cost of timber harvested 19 23
Other income - (114)
Deferred income taxes 2 55
Gain on sales of assets (13) (4)
Change in other assets and other
long-term liabilities 21 5
- -----------------------------------------------------------------------
Cash provided by operations 119 107
- -----------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment investments (2) -
Timber and timberlands purchases (34) (20)
Proceeds from sales of assets 34 275
Other - -
- -----------------------------------------------------------------------
Cash provided by (used for) investing activities (2) 255
- -----------------------------------------------------------------------
Cash flows from financing activities
Share repurchased (8) -
Repayments of long-term debt (63) (316)
Cash dividends paid (46) (46)
- -----------------------------------------------------------------------
Cash used for financing activities (117) (362)
- -----------------------------------------------------------------------
Increase in cash - -
Balance at beginning of period - -
- -----------------------------------------------------------------------
Balance at end of period $ - $ -
=======================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 44
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
Georgia-Pacific Corporation--The Timber Company
June 30, December 31,
(In millions) 1998 1997
- ----------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Timber and timberlands
Timberlands $ 302 $ 302
Fee timber 595 608
Reforestation 201 182
Other 31 30
- ----------------------------------------------------------------------------
Total timber and timberlands 1,129 1,122
- ----------------------------------------------------------------------------
Machinery and equipment, less accumulated
depreciation of $43 and $42, respectively 21 20
- ----------------------------------------------------------------------------
Investment in real estate held for
development and sale - 14
- ----------------------------------------------------------------------------
Other assets 11 15
- ----------------------------------------------------------------------------
Total assets $ 1,161 $ 1,171
============================================================================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Debt $ 908 $ 971
- ----------------------------------------------------------------------------
Other liabilities 39 9
- ----------------------------------------------------------------------------
Deferred income tax liabilities 242 240
- ----------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity (28) (49)
- ----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,161 $ 1,171
============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 45
NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited)
GEORGIA-PACIFIC CORPORATION--THE TIMBER COMPANY
JUNE 30, 1998
1. PRINCIPLES OF PRESENTATION. The financial statements include the
combined accounts of operations of The Timber Company. All significant
intercompany balances and transactions are eliminated in consolidation.
The interim financial information included herein is unaudited; however,
such information reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of The Timber Company's
financial position, results of operations, and cash flows for the interim
periods. All such adjustments are of a normal, recurring nature except
for the items discussed in Notes 2 and 3 below. Certain 1997 amounts
have been reclassified to conform with the 1998 presentation. The Timber
Company's combined financial statements should be read in conjunction
with the Corporation's consolidated financial statements and Georgia-
Pacific Group's combined financial statements.
2. OTHER INCOME. The 1997 first quarter sale of the Corporation's Martell
operations, which included a sawmill, particleboard mill and timberlands,
generated a pretax gain of $128 million. Of this amount, a pretax gain
of $114 million ($71 million after-tax) was recorded by The Timber
Company for the sale of the timberlands.
3. EXTRAORDINARY ITEM. The Corporation redeemed approximately $600 million
of its outstanding debt during the first half of 1998. As a result, an
after-tax extraordinary charge of $2 million (two cents per share) was
allocated to The Timber Company based on the ratio of The Timber
Company's debt to the Corporation's total debt.
4. EARNINGS PER SHARE. The Corporation's common stock was redesignated in
December 1997 to reflect separately the performance of the Corporation's
pulp, paper and building products businesses, which are now known as
Georgia-Pacific Group. A separate class of common stock was distributed
to reflect the performance of the Corporation's timber operating group,
which is now known as The Timber Company. Basic earnings per share is
computed based on net income and the weighted average number of common
shares outstanding. Diluted earnings per share reflect the annual
issuance of common shares under long-term incentive stock option and
stock purchase plans. The computation of diluted earnings per share does
not assume conversion or exercise of securities that would have an
antidilutive effect on earnings per share.
In February 1997, the FASB issued SFAS No. 128, which specifies the
computation, presentation and disclosure requirements for earnings per
share. The Timber Company adopted SFAS No. 128 in the 1997 fourth
quarter.
Pro forma net income includes earnings from timber deeds sold and paid
for by Georgia-Pacific Group but not harvested as of the end of the
quarter. Pro forma net income reflects earnings from these timber deeds
as they would have been accounted for had they been sold to a third
party. (See Note 10.)
The following table provides earnings and per share data for The Timber
Company for 1998.
<TABLE>
<CAPTION>
Three months Six months
ended June 30,ended June 30,
-----------------------------------------
(In millions, except per share amounts) 1998 1998
---------------------------------------------------------------
<S> <C> <C>
Basic and diluted income available to
shareholders (numerator):
Income before extraordinary item $ 38 $ 90
Extraordinary item, net of taxes - (2)
---------------------------------------------------------------
Net income 38 88
Uncut portion of timber deeds sold to
Georgia-Pacific Group, net of taxes 13 13
---------------------------------------------------------------
Pro forma net income $ 51 $ 101
================================================================
Shares (denominator):
Average shares outstanding 92.3 92.3
Dilutive securities:
Incentive plans and option plans 0.8 0.8
Employee stock purchase plans 0.1 0.1
---------------------------------------------------------------
Total assuming conversion 93.2 93.2
================================================================
Basic per share amounts:
Income before extraordinary item $ 0.41 $ 0.97
Extraordinary item, net of taxes - (0.02)
---------------------------------------------------------------
Net income 0.41 0.95
Uncut portion of timber deeds sold to
Georgia-Pacific Group, net of taxes 0.14 0.14
---------------------------------------------------------------
Pro forma net income $ 0.55 $ 1.09
---------------------------------------------------------------
Diluted per share amounts:
Income before extraordinary item $ 0.41 $ 0.96
Extraordinary item, net of taxes - (0.02)
---------------------------------------------------------------
Net income 0.41 0.94
Uncut portion of timber deeds sold to
Georgia-Pacific Group, net of taxes 0.14 0.14
---------------------------------------------------------------
Pro forma net income $ 0.55 $ 1.08
================================================================
</TABLE>
<PAGE> 46
5. COMPREHENSIVE INCOME. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components. The
Timber Company adopted SFAS No. 130 in the 1998 first quarter. For the
three months ended June 30, 1998 and 1997, The Timber Company's total
comprehensive income was $38 million and $37 million, respectively. For
the six months ended June 30, 1998 and 1997, The Timber Company's total
comprehensive income was $88 million and $140 million, respectively.
6. SUPPLEMENTAL DISCLOSURES - STATEMENTS OF CASH FLOWS. In conjunction with
the sale of the Corporation's Martell, California, operations in March,
1997, the Corporation received notes receivable from the purchaser in the
amount of $270 million for the timberlands of The Timber Company. In April
1997, the Corporation monetized these notes receivable through the issuance
of notes payable in a private placement. These proceeds were used to
reduce The Timber Company's debt. Proceeds from the notes receivable will
be used to fund payments required for the notes payable, which are
classified as "Other long-term liabilities" on the Corporation's balance
sheets.
7. DEBT. In May 1998, the Corporation issued $300 million of 7.25%
Debentures due June 1, 2028.
8. SHARE REPURCHASES. During the second quarter of 1998, The Timber Company
purchased on the open market 975,500 shares of The Timber Company stock
at an aggregate price of $21 million, of which 388,000 shares were held
as treasury stock at June 30, 1998.
9. COMMITMENTS AND CONTINGENCIES. The Corporation is a party to various legal
proceedings incidental to the businesses of the Georgia-Pacific Group and
The Timber Company and is subject to a variety of environmental and
pollution control laws and regulations in all jurisdictions in which it
operates. As is the case with other companies in similar industries, the
Corporation faces exposure from actual or potential claims and legal
proceedings involving environmental matters. Liability insurance in effect
during the last several years provides very limited coverage for
environmental matters. The management of The Timber Company believes that
the Corporation has established adequate reserves for probable losses with
respect to such environmental matters and legal proceedings. However,
holders of The Timber Company stock are shareholders of the Corporation and
are subject to all of the risks associated with an investment in the
Corporation, including the environmental matters and legal proceedings
involving the Georgia-Pacific Group discussed below.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO THE TIMBER COMPANY. The
Timber Company is subject to various legal proceedings and claims that
arise in the ordinary course of its business. Although the ultimate
outcome of these matters and legal proceedings cannot be determined with
certainty, based on presently available information, management of the
Corporation believes that the final outcome of such matters and legal
proceedings could be material to the operating results of The Timber
Company in any given quarter or year, but will not have a material adverse
effect on the long-term results of operations, liquidity or financial
position of The Timber Company.
COMMITMENTS AND CONTINGENCIES WITH RESPECT TO GEORGIA-PACIFIC GROUP. The
following sets forth legal proceedings to which the Corporation is a party
and claims related to the operations of the Georgia-Pacific Group.
The Corporation is involved in environmental remediation activities at
approximately 170 sites, both owned by the Corporation and owned by others,
where it has been notified that it is or may be a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state "superfund" laws. Of the known sites in
which it is involved, the Corporation estimates that approximately 47
percent are being investigated, approximately 25 percent are being
remediated and approximately 28 percent are being monitored (an activity
that occurs after either site investigation or remediation has been
completed). The ultimate costs to the Corporation for the investigation,
remediation and monitoring of many of these sites cannot be predicted with
certainty, due to the often unknown magnitude of the pollution or the
necessary cleanup, the varying costs of alternative cleanup methods, the
amount of time necessary to accomplish such cleanups, the evolving nature
of cleanup technologies and government regulations, and the inability to
determine the Corporation's share of multiparty cleanups or the extent to
which contribution will be available from other parties. The Corporation
has established reserves for environmental remediation costs for these
sites in amounts that it believes are probable and reasonably estimable.
Based on analysis of currently available information and previous
experience with respect to the cleanup of hazardous substances, the
Corporation believes that it is reasonably possible that costs associated
with these sites may exceed current reserves by amounts that may prove
insignificant or that could range, in the aggregate, up to approximately
$60 million. This estimate of the range of reasonably possible additional
costs is less certain than the estimates upon which reserves are based, and
in order to establish the upper limit of such range, assumptions least
favorable to the Corporation among the range of reasonably possible
outcomes were used. In estimating both its current reserve for
environmental remediation and the possible range of additional costs, the
Corporation has not assumed it will bear the entire cost of remediation of
every site to the exclusion of other known potentially responsible parties
who may be jointly and severally liable. The ability of other potentially
responsible parties to participate has been taken into account, based
generally on the parties' financial condition and probable contribution on
a per site basis.
<PAGE> 47
The Corporation and many other companies are defendants in suits brought in
various courts around the nation by plaintiffs who allege that they have
suffered personal injury as a result of exposure to asbestos-containing
products. These suits allege a variety of lung and other diseases based on
alleged exposure to products previously manufactured by the Corporation. In
many cases, the plaintiffs are unable to demonstrate that they have
suffered any compensable loss as a result of such exposure.
The Corporation generally resolves asbestos cases by voluntary dismissal or
settlement for amounts it considers reasonable given the facts and
circumstances of each case. The amounts it has paid to defend and settle
these cases to date have been substantially covered by product liability
insurance. The Corporation is currently defending claims of approximately
63,500 such plaintiffs and anticipates that additional suits will be filed
against it over the next several years. The Corporation has insurance
available in amounts that it believes are adequate to cover substantially
all of the reasonably foreseeable damages and settlement amounts arising
out of claims and suits currently pending. The Corporation has further
insurance coverage available for the disposition of suits that may be filed
against it in the future, but there can be no assurance that the amounts of
such insurance will be adequate to cover all future claims. The
Corporation has established reserves for liabilities and legal defense
costs it believes are probable and reasonably estimable with respect to
pending suits and claims and a receivable for expected insurance
recoveries.
The Corporation has been defending an action in Alabama state court brought
to recover damages on behalf of a class of all persons currently owning
structures in the United States on which allegedly defective hardboard
siding manufactured by the Corporation after January 1, 1980 has been
installed. On January 9, 1998, the court approved a settlement pursuant to
which the Corporation will establish a procedure for resolving product
warranty claims on certain of the Corporation's hardboard siding products,
and will pay $3 million in legal fees to plaintiffs' counsel, plus expenses
not to exceed $200,000. In addition, plaintiffs' counsel will be entitled
to additional fees based upon a percentage of claims paid by the
Corporation. Claims under the settlement may be filed through August 18,
1998. The Corporation has previously established financial reserves it
believes to be adequate to pay eligible claims and legal fees.
In May 1997, the Corporation and nine other companies were named as
defendants in a suit brought by the Attorney General of the State of
Florida alleging that they engaged in a conspiracy to fix the prices of
sanitary commercial paper products, such as towels and napkins, in
violation of federal and state laws. Approximately 45 similar suits have
been filed by private plaintiffs in federal courts in California, Florida,
Georgia and Wisconsin, and in the state courts of California, Wisconsin,
Minnesota and Tennessee. On October 15, 1997, the Federal Judicial Panel
on Multi-District Litigation consolidated all federal court cases in the
federal district court in Gainesville, Florida. On July 24, 1998 the court
certified the suit as a class action consisting of non-governmental
plaintiffs. The Corporation has denied that it has engaged in any of the
illegal conduct alleged in these cases and intends to defend itself
vigorously.
The Corporation's facility in Port Hudson, Louisiana has notified the state
of Louisiana of the emitting of noncondensable gases in violation of its
air permit. The Corporation expects a penalty of an unknown amount to
assessed by the State. The Corporation does not expect the amount of the
penalty to have a material adverse effect on the results of operations,
liquidity or consolidated financial position of the Corporation.
Although the ultimate outcome of these environmental matters and legal
proceedings cannot be determined with certainty, based on presently
available information management believes that adequate reserves have been
established for probable losses with respect thereto. Management further
believes that the ultimate outcome of such environmental matters and legal
proceedings could be material to operating results in any given quarter or
year but will not have a material adverse effect on the long-term results
of operations, liquidity or consolidated financial position of the
Corporation.
<PAGE> 48
10. RELATED PARTY TRANSACTIONS. During 1998, The Timber Company sold timber
deeds to Georgia-Pacific Group. The Timber Company recognizes revenues and
earnings from these related party timber deed contracts as the timber is
cut by the Georgia-Pacific Group. Had The Timber Company recognized
revenues and earnings on these related party timber deed contracts at the
time of the agreement (which is the accounting policy for timber deed sales
to third parties), pro forma net sales, depreciation and cost of timber
harvested, income before income taxes and extraordinary item, net income
and basic and diluted earnings per share would have been as follows:
<TABLE>
<CAPTION>
Georgia-Pacific Corporation--The Timber Company
Three months ending June 30, 1998
(In millions, except per share amounts) As ReportedPro forma (a)
---------------------------------------------------------------
<S> <C> <C>
Net Sales $ 119 $ 143
Depreciation and cost of timber harvested 7 9
Income before income taxes and
extraordinary item 63 85
Net income 38 51
Basic and diluted earnings per share 0.41 0.55
============================================================
Six months ending June 30, 1998
(In millions, except per share amounts) As ReportedPro forma (a)
---------------------------------------------------------------
<S> <C> <C>
Net Sales $ 264 $ 288
Depreciation and cost of timber harvested 21 23
Income before income taxes and
extraordinary item 148 170
Net income 88 101
Basic earnings per share 0.95 1.09
Diluted earnings per share 0.94 1.08
============================================================
</TABLE>
(a) Reported on a pro forma basis as if The Timber Company had recognized
revenues and earnings on timber deed sales to Georgia-Pacific Group at the
time of the contract, which is the accounting treatment utilized in the
case of timber deeds sold to third parties.
During the second quarter of 1998, Georgia-Pacific Group and The Timber
Company revised the operating policy, which they had entered into last
fall, with respect to sales of timber and wood fiber. These revisions
arose from sharp changes in the prices of timber and wood fiber from the
first quarter to the second quarter of 1998, a significant decrease in the
volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were
negotiated, The Timber Company sold a timber deed to Georgia-Pacific Group
covering timber and wood fiber having a value of approximately $23 million,
and Georgia-Pacific Group made a one-time $3 million payment to The Timber
Company for second quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern
timber and wood fiber sold by The Timber Company will be adjusted monthly,
rather than quarterly, and will be the average of prices paid by Georgia-
Pacific Group for timber purchased from third parties in a particular
forest, and prices received by The Timber Company for timber sold to third
parties from the same forest, over the most recent three-months period.
This change is intended to make prices for timber and wood fiber sold by
The Timber Company to Georgia-Pacific Group more quickly reflect changes in
market prices. In addition, premiums charged by The Timber Company for
various types of wood have been reduced, and Georgia-Pacific Group has
agreed to purchase, each quarter, in two key Southern forests, 20 percent
of the annual volume of timber and wood fiber it has committed to purchase
from The Timber Company during that year. The revised policy reduces the
volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual
harvest in those forests, and also reduces Georgia-Pacific Group's minimum
annual purchase obligation in those forests from 60 percent to 50 percent
of the annual harvest in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to
more quickly reflect market prices in particular forests, to allow Georgia-
Pacific Group more flexibility in purchasing wood from third parties, and
to allow The Timber Company greater flexibility in the timing of sales of
its annual harvest on the open market. The revised policy also contains
additional provisions which resolve issues related to certain operating
practices of The Timber Company and Georgia-Pacific Group.
<PAGE> 49
The following data is presented on a pro forma basis as if The Timber
Company recognized revenues (and related volumes) on timber deed sales to
Georgia-Pacific Group at the time of the contract, which is the accounting
treatment utilized in the case of timber deeds sold to third parties.
<TABLE>
<CAPTION>
SELECTED COMBINED PRO FORMA SALES DATA (Unaudited)
Georgia-Pacific Corporation--The Timber Company
Three months Six months
ended June 30, ended June 30,
-------------- --------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRO FORMA VOLUME (in thousand tons)
Southern softwood sawtimber 1,463 1,430 3,278 3,152
Western softwood sawtimber 468 435 769 734
Softwood pulpwood 1,111 1,337 2,246 2,651
Hardwood sawtimber 95 36 162 149
Hardwood pulpwood 459 501 941 1,173
- --------------------------------------------------------------------------------
Total volume 3,596 3,739 7,396 7,859
===============================================================================
PRO FORMA SELLING PRICES (per ton)
Southern softwood sawtimber $ 54 $ 48 $ 52 $ 46
Western softwood sawtimber 73 75 72 75
Softwood pulpwood 18 12 16 14
Hardwood sawtimber 33 22 34 40
Hardwood pulpwood 10 9 11 10
- --------------------------------------------------------------------------------
Weighted average price $ 39 $ 33 $ 38 $ 33
===============================================================================
</TABLE>
<PAGE> 50
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH 1997
The Timber Company reported net sales of approximately $119 million for the
three months ended June 30, 1998 and $131 million for the same period in 1997.
Net income for the 1998 second quarter was $38 million compared with $37 million
in 1997. Pro forma net income for the 1998 second quarter was $51 million,
which is 38 percent more than the 1997 second quarter net income. Pro forma net
income includes earnings from timber deeds sold and paid for by Georgia-Pacific
Group but not harvested as of the end of the quarter. Pro forma net income
reflects earnings from these timber deeds as they would have been accounted for
had they been sold to a third party. Timber deeds sold to Georgia-Pacific Group
will be harvested within 12 months.
Earnings before interest and taxes decreased by $1 million to $80 million in the
second quarter of 1998, compared with $81 million in the second quarter of 1997.
On a pro forma basis, assuming timber sales to Georgia-Pacific Group were
recognized at the contract date, earnings before interest and taxes increased by
$21 million to $102 million in the second quarter of 1998. This increase was
primarily the result of approximately 13 percent higher selling prices of
Southern sawtimber over the second quarter of 1997. Additionally, Western
timber volumes increased by 8 percent compared to second quarter 1997, offset
somewhat by 3 percent lower average selling prices of Western timber.
Interest expense declined 15 percent to $17 million in the 1998 second quarter,
compared with $20 million in the 1997 second quarter. This decline was due
primarily to a lower level of debt resulting from the application of the
proceeds from the sale of Martell timberlands in April, 1997 to pay down debt.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH 1997
The Timber Company reported net sales of approximately $264 million for the six
months ended June 30, 1998 and $268 million for the same period in 1997. Net
income for the six months ended June 30, 1998 was $88 million compared with $140
million in 1997. Pro forma net income for the six months ended June 30, 1998
was $101 million. The 1998 results included an after-tax extraordinary charge
of $2 million for the early retirement of debt. The 1997 results included a net
after-tax gain of $71 million from the sale of 127,000 acres of timberlands
located near Martell, California.
Excluding the gain on the Martell sale, earnings before interest and taxes
increased by $23 million to $183 million for the six months ended June 30, 1998,
compared with $160 million in 1997. On a pro forma basis, assuming timber sales
to Georgia-Pacific Group were recognized at the contract date, and excluding the
gain on the Martell sale, earnings before interest and taxes increased by $45
million to $205 million in the second quarter of 1998. This increase was
primarily the result of a significant increase in Southern sawtimber prices, up
approximately 13 percent, most of which took place in the first quarter of 1998
due to extremely wet weather conditions, offset somewhat by a 6 percent decrease
in total timber volumes sold over the same period in 1997. The Timber Company
expects to sell approximately the same volumes in the second six months of 1998
as it did in the first six months.
Interest expense declined by 22 percent to $35 million in the 1998 first half,
compared with $45 million in the 1997 first half. This decline was due
primarily to a lower level of debt resulting from the application of the
proceeds from the sale of Martell timberlands in April, 1997 to pay down debt.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. The Timber Company generated cash from operations of $119
million during the first six months ended June 30, 1998 compared with $107
million a year ago.
INVESTING ACTIVITIES. Expenditures for the six months ended June 30, 1998 were
$36 million, which included $34 million for timber and timberlands and $2
million for capital. The Timber Company expects to spend approximately $50
million on timber and timberlands in 1998 without considering the cost of any
acquisitions.
During the first half of 1998, The Timber Company received $34 million in
proceeds from the sale of assets, principally real estate development properties
located in South Carolina and Florida. On March 31, 1997, the Corporation
completed the sale of its Martell, California, timberlands to Sierra Pacific
Industries for $270 million. These proceeds were used to repay outstanding
debt. (See further discussion in Financing Activities below.)
In 1998, The Timber Company expects its cash flow from operations, together with
proceeds from any asset sales and available financing sources, to be sufficient
to fund planned capital investments, pay dividends and make scheduled debt
payments.
<PAGE> 51
FINANCING ACTIVITIES. After the payment of dividends of $46 million and cash
payments for share repurchases of $8 million through June 30, 1998, the
remaining cash flow of $63 million through June 30, 1998 was applied to reduce
The Timber Company's debt.
The Corporation's total debt was $5.7 billion and $5.5 billion at June 30, 1998
and December 31, 1997, respectively. At June 30, 1998 and December 31, 1997,
$4.8 billion and $4.5 billion, respectively, of such total debt was Georgia-
Pacific Group's debt and $908 million and $971 million, respectively, was The
Timber Company's debt.
In May 1998, the Corporation issued $300 million of 7.25% Debentures due June 1,
2028.
In conjunction with the sale of the Corporation's Martell, California,
operations in March, 1997, the Corporation received notes receivable from the
purchaser in the amount of $270 million for the Martell timberlands. In April
1997, the Corporation monetized these notes receivable through the issuance of
notes payable in a private placement. These proceeds were used to reduce the
Corporation's debt. Proceeds from the notes receivable will be used to fund
payments required for the notes payable, which are classified as `Other long-
term liabilities' on the Corporation's balance sheets.
At June 30, 1998, the Corporation had outstanding borrowings of $642 million
under certain Industrial Revenue Bonds. Approximately $4 million from the
issuance of these bonds is being held by trustees and is restricted for the
construction of certain capital projects. Amounts held by trustees are
classified as noncurrent assets in the accompanying balance sheets.
The Corporation has a $1.5 billion unsecured revolving credit facility which is
used for direct borrowings and as support for commercial paper and other short-
term borrowings. As of June 30, 1998, $520 million of committed credit was
available in excess of all short-term borrowings outstanding under or supported
by the facility.
The Corporation's senior management establishes parameters of the Corporation's
financial risk. Hedging interest-rate exposure through the use of swaps and
options, and hedging foreign exchange exposure through the use of forward
contracts, are specifically contemplated to manage risk in keeping with
management policy. Derivative instruments such as swaps, forwards, option or
futures, which are based directly or indirectly upon interest rates, currencies,
equities and commodities, may be used by the Corporation to manage and reduce
the risk inherent in price, currency and interest rate fluctuations. There have
been no significant changes to reported market risk since December 31, 1997.
The Corporation does not utilize derivatives for speculative purposes.
Derivatives are transaction-specific so that a specific debt instrument,
contract, invoice or transaction determines the amount, maturity and other
specifics of the hedge. Counterparty risk is limited to institutions with long-
term debt ratings of A or better.
At June 30, 1998, the Corporation's weighted average interest rate on its total
debt was 7.4% including the accounts receivable sale program and outstanding
interest rate exchange agreements. At June 30, 1998, these interest rate
exchange agreements effectively converted $456 million of floating rate
obligations with a weighted average interest rate of 5.7% to fixed rate
obligations with an average effective interest rate of 9.1%. These agreements
have a weighted average maturity of approximately 8 months. As of June 30,
1998, the Corporation's total floating rate debt, including the accounts
receivable sale program, exceeded related interest rate exchange agreements by
$1.4 billion.
The Corporation's accounts receivable sale program has been extended to May
1999.
The Corporation also enters into foreign currency exchange agreements, the
amounts of which were not material to the consolidated financial position of the
Corporation at June 30, 1998.
As of June 30, 1998, the Corporation had registered for sale up to $200 million
of debt securities under a shelf registration statement filed with the
Securities and Exchange Commission. In July 1998, the Board of Directors agreed
to reinstate the shelf registration to $500 million.
During the second quarter of 1998, The Timber Company purchased on the open
market 975,500 shares of The Timber Company stock at an aggregate price of $21
million, of which 388,000 shares were held as Treasury stock at June 30, 1998.
<PAGE> 52
OTHER. In June 1997, the FASB issued SFAS No. 130 that establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The Timber Company adopted SFAS No.
130 in 1998.
Also in June 1997, the FASB issued SFAS No. 131 which requires companies to
determine reporting segments based on the manner in which management makes
decisions about allocating resources to segments and measuring their
performance. The Timber Company will be required to adopt SFAS No. 131 in 1998,
but is not expected to be impacted significantly as The Timber Company is not
expected to have any reportable segments under SFAS No. 131.
In February 1998, the FASB issued SFAS No. 132 which requires additional pension
related disclosures. The objective of the statement is to provide sufficient
information to understand the changes in benefit obligations or to analyze the
quality of earnings of the Corporation. SFAS No. 132 requires disclosure of
additional information about the changes in the benefit obligation and the fair
value of plan assets during the period, including unrecognized gains and losses.
The Corporation will be required to present this additional information
disclosure in the 1998 year end statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," that establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Corporation will be required to
adopt the new statement in 2000; early adoption is encouraged, no prior period
restatement is permitted. Management is evaluating the effect of this statement
on the Corporation's derivative instruments; primarily interest rate swaps and
foreign currency forward contracts. The impact of adjustment to fair value is
not expected to be material.
The Timber Company is working to resolve the effects of the Year 2000 problem on
its information systems. The Year 2000 problem, which is common to most
businesses, concerns the inability of such systems to properly recognize and
process dates and date-sensitive information on and beyond January 1, 2000. In
1996, the Corporation began a company-wide assessment of the vulnerability of
its systems to the Year 2000 problem. Based on such assessment, The Timber
Company has developed a Year 2000 compliance plan, under which all of its key
information systems are being tested, and non-compliant software or technology
is being modified or replaced. The Timber Company is also surveying the Year
2000 compliance status and compatibility of customers' and suppliers' systems
which interface with The Timber Company's systems or could otherwise impact The
Timber Company's operations.
The Timber Company currently expects to have most of the necessary revisions to
its systems and processes completed by year-end 1998, and to complete testing
and verification of such systems and processes for Year 2000 compliance during
1999. The Timber Company has completed an inventory of the systems and embedded
chips used in its operations and has determined that a only a small percentage
of such systems and chips could be subject to Year 2000 problems. The Timber
Company currently expects the work needed to resolve the Year 2000 problem with
regard to its operations to be performed as part of its normal systems
maintenance and replacement practices, and does not currently expect to incur
any incremental cost for such work. The most reasonably likely worst case
scenario of failure by The Timber Company or its customers or suppliers to
resolve the Year 2000 problem would be a temporary inability on the part of The
Timber Company to timely process timber sales and billings. The Timber Company
is currently identifying and considering various contingency options, including
identification of alternate suppliers, vendors and service providers, and manual
alternatives to systems operations, which will allow it to minimize the risks of
any unresolved Year 2000 problems on its operations and to minimize the effect
of any unforeseen Year 2000 failures.
Approximately 44,000 acres of timberlands were affected by the brush fires in
Florida in June, 1998. This acreage represents approximately eight percent of
the timberlands owned by The Timber Company in the State of Florida. The Timber
Company plans to salvage any useable timber and believes that the loss could
impact the rotation of harvests in 1999 and 2000. The Timber Company has not
yet determined the amount of loss related to timber damaged in these fires but
expects to identify the amount of the loss during the last six months of 1998.
Such loss may be material to The Timber Company's results of operations in one
or more fiscal quarters , but will not have a material impact on the long-term
results of operations, liquidity or financial position of The Timber Company.
RELATED PARTY TRANSACTIONS
CHANGES TO THE SUPPLY AGREEMENT. During the second quarter of 1998, Georgia-
Pacific Group and The Timber Company revised the operating policy, which they
had entered into last fall, with respect to sales of timber and wood fiber.
These revisions arose from sharp changes in the prices of timber and wood fiber
from the first quarter to the second quarter of 1998, a significant decrease in
the volume of timber purchased by Georgia-Pacific Group in the second quarter,
and other issues in the policy. At the time these revisions were negotiated,
The Timber Company sold a timber deed to Georgia-Pacific Group covering timber
and wood fiber having a value of approximately $23 million, and Georgia-Pacific
Group made a one-time $3 million payment to The Timber Company for second
quarter adjustments due under the revised policy.
Under the revised policy, beginning July 1, 1998, the prices for southern timber
and wood fiber sold by The Timber Company will be adjusted monthly, rather than
quarterly, and will be the average of prices paid by Georgia-Pacific Group for
timber purchased from third parties in a particular forest, and prices received
by The Timber Company for timber sold to third parties from the same forest,
over the most recent three-months period. This change is intended to make prices
for timber and wood fiber sold by The Timber Company to Georgia-Pacific Group
more quickly reflect changes in market prices. In addition, premiums charged by
The Timber Company for various types of wood have been reduced, and Georgia-
Pacific Group has agreed to purchase, each quarter, in two key Southern forests,
20 percent of the annual volume of timber and wood fiber it has committed to
purchase from The Timber Company during that year. The revised policy reduces
the volume of timber which Georgia-Pacific Group can purchase in the same two
forests from 80 percent to 70 percent of The Timber Company's annual harvest in
those forests, and also reduces Georgia-Pacific Group's minimum annual purchase
obligation in those forests from 60 percent to 50 percent of the annual harvest
in 1999-2000.
These changes are intended to cause prices paid by Georgia-Pacific Group to more
quickly reflect market prices in particular forests, to allow Georgia-Pacific
Group more flexibility in purchasing wood from third parties, and to allow The
Timber Company greater flexibility in the timing of sales of its annual harvest
on the open market. The revised policy also contains additional provisions
which resolve issues related to certain operating practices of The Timber
Company and Georgia-Pacific Group.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. The statements under this
"Management's Discussion and Analysis" and other statements contained herein
that are not historical facts, including statements regarding The Timber
Company's projections concerning sales volumes for the remainder of 1998 and its
expectations regarding resolution of issues associated with the Year 2000
problem, are forward-looking statements (as such term is defined under the
Private Securities Litigation Reform Act of 1995) based on current expectations.
In addition to the risks, uncertainties and assumptions discussed elsewhere
herein, factors that could cause or contribute to actual results differing
materially from such forward-looking statements include the following:
acquisitions or divestitures of material timberland acreage by The Timber
Company; the effect on The Timber Company of government, legislative and
environmental restrictions; catastrophic losses from fires, floods, windstorms,
earthquakes, volcanic eruptions, insect infestations or diseases; material
variations in regional market demand for timber products; fluctuations in
interest rates; the ability of The Timber Company, and its customers and
suppliers, to timely and efficiently address the Year 2000 problem; and other
risks, uncertainties and assumptions discussed in the Corporation's Quarterly
Report on 10-Q dated March 31, 1998, the Corporation's Annual Report on Form 10-
K for the year ended December 31, 1997, the Corporation's Registration Statement
No. 333-35813 dated November 7, 1997 and the Corporation's current report on
Form 8-K dated October 17, 1996.
For a discussion of commitments and contingencies refer to Note 9 of the Notes
to Combined Financial Statements.
<PAGE> 53
PART II - OTHER INFORMATION
---------------------------
GEORGIA-PACIFIC CORPORATION
JUNE 30, 1998
Item 1. Legal Proceedings
The information contained in Note 12 "Commitments and
Contingencies" of the Notes to Consolidated Financial Statements--
Georgia-Pacific Corporation, Note 12 "Commitments and
Contingencies" of the Notes to Combined Financial Statements--
Georgia-Pacific Group and Note 9 "Commitments and Contingencies" of
the Notes to Consolidated Financial Statements--The Timber Company
filed as part of this Quarterly Report on Form 10-Q is incorporated
herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Corporation was held on May
5, 1998. At the annual meeting, four directors were elected. Proxies
for the meeting were solicited pursuant to Regulation 14 under the
Securities Exchange Act of 1934. There was no solicitation in
opposition to management's nominees for election to the Board of
Directors as listed in the related proxy statement, and all of such
nominees were elected. The results of shareholder voting are as
follows:
Election of Directors:
For Withheld
Donald V. Fites 151,635,578 1,703,081
Harvey C. Fruehauf, Jr. 151,611,764 1,726,895
David R. Goode 151,633,788 1,704,871
James B. Williams 151,546,203 1,792,466
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1 Articles of Amendment to Restated Articles of
Incorporation.
Exhibit 3.2 Bylaws, as amended to date.
Exhibit 10.1 Stock Purchase Agreement by and among Jack W.
Schwarz, Jeffery A. Schwarz, John W. Schwarz,
Schwarz Family Irrevocable Trust, Schwarz Partners
II, L.P., Schwarz Partners III, L.P. and S.
Richard Van Horne III and Georgia-Pacific
Corporation dated June 30, 1998.
Exhibit 10.2 Stock Purchase Agreement by and among S. Richard
Van Horne III, William S. Van Horne, John T. Van
Horne and the S. Richard Van Horne II Trust.
Exhibit 27. Financial Data Schedule.
(b) The Corporation filed Current Reports on Form 8-K dated June 2,
1998 and July 1, 1998 in which it reported under Item 5 - "Other
Events".
<PAGE> 54
SIGNATURES
Pursuant to the requirements 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.
Date: August 13, 1998 GEORGIA-PACIFIC CORPORATION
(Registrant)
by /s/John F. McGovern
----------------------------
John F. McGovern,
Executive Vice President -
Finance and Chief
Financial Officer
by /s/James E. Terrell
----------------------------
James E. Terrell,
Vice President and Controller
(Chief Accounting Officer)
<PAGE> 55
GEORGIA-PACIFIC CORPORATION
---------------------------
INDEX TO EXHIBITS
FILED WITH THE QUARTERLY REPORT
ON FORM 10-Q FOR THE
QUARTER ENDED JUNE 30, 1998
Number Description
- ----------- -------------------------------
Exhibit 3.1 Articles of Amendment to Restated Articles of Incorporation. (1)
Exhibit 3.2 Bylaws, as amended to date. (1)
Exhibit 10.1 Stock Purchase Agreement by and among Jack W. Schwarz, Jeffery A.
Schwarz, John W. Schwarz, Schwarz Family Irrevocable Trust,
Schwarz Partners II, L.P., Schwarz Partners III, L.P. and S.
Richard Van Horne III and Georgia-Pacific Corporation dated June
30, 1998. (1)
Exhibit 10.2 Stock Purchase Agreement by and among S. Richard Van Horne III,
William S. Van Horne, John T. Van Horne and the S. Richard Van
Horne II Trust. (1)
Exhibit 27 Financial Data Schedule. (1)
- -------------------------------
ARTICLES OF AMENDMENT
OF
GEORGIA-PACIFIC CORPORATION
Pursuant to the provisions of the Georgia Business Corporation Code,
Section 14-2-1002(9), the undersigned corporation hereby amends its Restated
Articles of Incorporation dated December 16, 1997, and for that purpose, submits
the following statement:
1. The name of the Corporation is Georgia-Pacific Corporation (the
"Corporation").
2. The Restated Articles of Incorporation are amended by adding Section H to
Article V thereof to read as follows:
H. Reacquired Shares. Any shares of Common Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever
shall constitute treasury shares.
3. The foregoing amendment was adopted by the Corporation's Board of Directors
on March 26, 1998.
4. Pursuant to the Georgia Business Corporation Code Section 14-2-631(d),
Shareholder approval is not required for this amendment.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be executed and its corporate seal to be affixed and has caused its seal and
the execution hereof to be attested, all by its duly authorized officers, this
31st day of March, 1998.
GEORGIA-PACIFIC CORPORATION
By:/s/ James F. Kelley
James F. Kelley
Senior Vice President- Law
and General Counsel
[CORPORATE SEAL]
Attest:
/s/ Kenneth F. Khoury
Kenneth F. Khoury
Vice President, Deputy General
Counsel and Secretary
BYLAWS
OF
GEORGIA-PACIFIC CORPORATION
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1. Annual Meeting. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place, either within or
without the State of Georgia, on such date and at such time as the Board of
Directors may by resolution provide, or, if the Board of Directors fails to
provide, then such meeting shall be held at the principal executive office of
the Corporation at 11:00 A.M. on the first Tuesday in the month of May in each
year, or, if such date is a legal holiday, on the next following business day.
If an annual meeting of shareholders is not held as provided in this Section 1
of this Article I, any business, including the election of directors, that might
properly have been acted upon at such annual meeting may be acted upon at a
special meeting in lieu of the annual meeting held pursuant to these Bylaws or
held pursuant to a court order.
SECTION 2. Special Meetings. Special meetings of the shareholders may be
called at any time by the Chairman, any Vice Chairman, the President, the Chief
Executive Officer or the Board of Directors. In addition, special meetings of
shareholders shall be called by the Corporation as set forth in the
Corporation's Articles of Incorporation or upon written demand of the holders of
at least seventy-five percent (75%) of the voting power of the outstanding
capital stock of the Corporation entitled to vote on any issue proposed to be
considered at the proposed special meeting, voting as a separate voting group,
or upon the written demand of shareholders as provided in Section 1 (C) of
Article II hereof, any such written demand to be made in accordance with the
requirements of applicable law. Each special meeting shall be held at such
place, either within or without the State of Georgia, as the Board of Directors
may by resolution provide, or, if the Board of Directors fails to provide, then
such meeting shall be held at the principal executive office of the Corporation,
on such date and at such time as shall be fixed by the party calling the
meeting.
SECTION 3. Notice of Meeting. Except as may otherwise be required or
prohibited by law, written notice stating the place, day and hour of the meeting
of shareholders and, in case of a special meeting of shareholders, the purpose
or purposes for which the meeting is called, shall be delivered in the case of
an annual or special meeting of shareholders, not less than ten (10) nor more
than sixty (60) days before the date of the meeting either personally or by
mail, by the Corporation by or at the direction of the Chairman, any Vice
Chairman, the President, the Chief Executive Officer, the Secretary or the
officer or persons calling the meeting, to each shareholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the shareholder at his or
its address as it appears on the stock transfer books of the Corporation, with
first class postage thereon prepaid, or, if the Corporation has more than 500
shareholders of record entitled to vote at the meeting and the notice is mailed
not less than thirty (30) days before the date of the meeting, with postage
thereon prepaid for any other class of United States mail.
SECTION 4. Waivers. Notwithstanding anything herein to the contrary,
notice of a meeting of shareholders need not be given to any shareholder who
waives notice of such meeting in accordance with the Georgia Business
Corporation Code.
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SECTION 5. Voting Group. Voting group means all shares of one or more
classes or series that are entitled to vote and be counted together collectively
on a matter at a meeting of shareholders. All shares entitled to vote generally
on the matter are for that purpose a separate voting group.
SECTION 6. Quorum. With respect to shares entitled to vote as a separate
voting group on a matter at a meeting of shareholders, the presence, in person
or by proxy, of a majority of the votes entitled to be cast on the matter by the
voting group shall constitute a quorum of that voting group for action on that
matter unless the Articles of Incorporation, any designation of a class or
series of capital stock of the Corporation, or the Georgia Business Corporation
Code provides otherwise. Once a share is represented for any purpose at a
meeting, other than solely to object to holding the meeting or to transacting
business at the meeting, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of the meeting unless a new
record date is or must be set for the adjourned meeting.
SECTION 7. Vote Required for Action. If a quorum exists, action on a
matter (other than the election of directors) by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles of Incorporation, provisions of these
Bylaws validly adopted by the shareholders, or the Georgia Business Corporation
Code requires a greater number of affirmative votes. Unless otherwise provided
in the Articles of Incorporation, directors shall be elected by a plurality of
the votes cast by the shares entitled to vote in the election of directors at a
meeting at which a quorum is present. If the Articles of Incorporation or the
Georgia Business Corporation Code provide for voting by two or more voting
groups on a matter, action on that matter is taken only when voted upon by each
of those voting groups counted separately. Action may be taken by one voting
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group on a matter even though no action is taken by another voting group
entitled to vote on the matter.
SECTION 8. Voting of Shares. Unless the Articles of Incorporation, any
designation of a class or series of capital stock of the Corporation, or the
Georgia Business Corporation Code provides otherwise, each outstanding share
having voting rights shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders. Voting on all matters shall be by voice vote
or by show of hands unless any qualified voter, prior to the voting on any
matter, demands vote by ballot, in which case each ballot shall state the name
of the shareholder voting and the number of shares voted by him, and if the
ballot be cast by proxy, it shall also state the name of the proxy.
SECTION 9. Proxies. A shareholder entitled to vote may vote in person or
by proxy pursuant to an appointment of proxy executed in writing by the
shareholder or by his or its attorney in fact. An appointment of proxy shall be
valid for only one meeting to be specified therein, and any adjournments of such
meeting, but shall not be valid for more than eleven (11) months unless
expressly provided therein. Appointments of proxy shall be dated and filed with
the records of the meeting to which they relate. If the validity of any
appointment of proxy is questioned, it must be submitted to the secretary of the
meeting of shareholders for examination or to a proxy officer or committee
appointed by the person presiding at the meeting. The secretary of the meeting
or, if appointed, the proxy officer or committee shall determine the validity or
invalidity of any appointment of proxy submitted, and reference by the secretary
in the minutes of the meeting to the regularity of an appointment of proxy shall
be received as prima facie evidence of the facts stated for the purpose of
establishing the presence of a quorum at the meeting and for all other purposes.
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SECTION 11. Presiding Officer. The Chief Executive Officer shall serve as
the chairman of every meeting of shareholders unless another person is elected
by shareholders to serve as chairman at the meeting. The chairman shall appoint
any persons he deems necessary to assist with the meeting.
SECTION 12. Adjournments. Whether or not a quorum is present to organize
a meeting, any meeting of shareholders (including an adjourned meeting) may be
adjourned by the holders of a majority of the voting power represented at the
meeting to reconvene at a specific time and place, but no later than 120 days
after the date fixed for the original meeting unless the requirements of the
Georgia Business Corporation Code concerning the selection of a new record date
have been met. At any reconvened meeting within that time period, any business
may be transacted that could have been transacted at the meeting that was
adjourned. If notice of the adjourned meeting was properly given, it shall not
be necessary to give any notice of the reconvened meeting or of the business to
be transacted, if the date, time and place of the reconvened meeting are
announced at the meeting that was adjourned and before adjournment; provided,
however, that if a new record date is or must be fixed, notice of the reconvened
meeting must be given to persons who are shareholders as of the new record date.
SECTION 13. Fixing of Record Date with Regard to Shareholder Action. For
the purpose of determining shareholders entitled to notice of a shareholders'
meeting, to demand a special meeting, to vote, or to take any other action, the
Board of Directors may fix a future date as the record date, which date shall be
not more than seventy (70) days and, in case of a meeting of shareholders, not
less than ten (10) days prior to the date on which the particular action,
requiring a determination of shareholders, is to be taken. A determination of
shareholders entitled to notice of or to vote at a shareholders' meeting is
effective for any adjournment of the meeting unless the Board of Directors fixes
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a new record date, which it must do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting. If no record date
is fixed by the Board of Directors, the record date shall be determined in
accordance with the provisions of the Georgia Business Corporation Code.
SECTION 14. Shareholder Proposals. No proposal for a shareholder vote
(other than director nominations, to which Section 1(D) of Article II applies)
shall be submitted by a shareholder (a "Shareholder Proposal") to the
Corporation's shareholders unless the shareholder submitting such proposal (the
"Proponent") shall have filed a written notice setting forth with particularity
(i) the names and business addresses of the Proponent and all natural persons,
corporations, partnerships, trusts or any other type of legal entity or
recognized ownership vehicle (collectively, a "Person") acting in concert with
the Proponent; (ii) the name and address of the Proponent and the Persons
identified in clause (i), as they appear on the Corporation's books (if they so
appear); (iii) the class and number of shares of the Corporation beneficially
owned by the Proponent and the Persons identified in clause (i); (iv) a
description of the Shareholder Proposal containing all material information
relating thereto; and (v) such other information as the Board of Directors
reasonably determines is necessary or appropriate to enable the Board of
Directors and shareholders of the Corporation to consider the Shareholder
Proposal. Shareholder Proposals shall be delivered to the Secretary of the
Corporation at the principal executive office of the Corporation within the time
period specified in Securities and Exchange Commission Rule 14a-8(a)(3)(i), or
any successor rule. The presiding officer at any shareholders' meeting may
determine that any Shareholder Proposal was not made in accordance with the
procedures prescribed in these Bylaws or is otherwise not in accordance with
law, and if it is so determined, such officer shall so declare at the meeting
and the Shareholder Proposal shall be disregarded.
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ARTICLE II
DIRECTORS
SECTION 1. Number, Election and Term of Office.
(A) Number of Directors. The business and affairs of the Corporation shall
be managed and controlled by or under the authority of its Board of Directors.
In addition to the powers and authority expressly conferred upon it by these
Bylaws and the Articles of Incorporation, the Board of Directors may exercise
all such lawful acts and things as are not by law, by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done by
the shareholders. The number of directors shall be thirteen (13), but the
number may be increased or diminished by amendment of these Bylaws either by the
Board of Directors or by the affirmative vote of at least seventy-five percent
(75%) of the voting power of the outstanding capital stock of the Corporation
entitled to vote generally in the election of directors, voting as a separate
voting group. The directors shall be divided into three (3) classes, each
composed, as nearly as possible, of one-third of the total number of directors.
In the event that the number of directors shall not be evenly divisible by three
(3), the Board of Directors shall determine in which class or classes the
remaining director or directors, as the case may be, shall be included. The
term of office of each director shall be three (3) years; provided, that, of
those directors initially elected in classes, the term of office of directors of
the first class shall expire at the first annual meeting of the shareholders
after their election, that of the second class shall expire at the second annual
meeting after their election, and that of the third class shall expire at the
third annual meeting after their election. At each annual meeting of
shareholders subsequent to the initial election of directors in classes,
directors shall be elected for a full term of three (3) years to succeed those
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whose terms expire. When the number of directors is increased and any newly
created directorships are filled by the Board of Directors, there shall be no
classification of the additional directors until the next election of directors
by the shareholders.
(B) Special Voting Rights. Anything in this Section 1 of this Article II
to the contrary notwithstanding, if and whenever any class or series of capital
stock of the Corporation shall have the exclusive right, voting as a separate
voting group, to elect one or more directors of the Corporation, the term of
office of all directors in office when such voting rights shall vest in such
class or series (other than directors who were elected by vote of another class
or series of capital stock) shall terminate upon the election of any new
directors at any meeting of shareholders called for the purpose of electing
directors; and, while such voting rights are vested in any class or series of
capital stock, the directors shall not be divided into classes, and the term of
office of each director elected shall extend only until the next succeeding
annual meeting of shareholders.
(C) Election of Directors Following Termination of Special Voting Rights.
Upon the termination of the exclusive right of one or more classes or series of
capital stock, voting as a separate voting group, to vote for directors, the
term of office of all such directors then in office shall terminate upon the
election of any new directors at a meeting of the shareholders then entitled to
vote for directors, which meeting may be held at any time after the termination
of such exclusive right and which meeting, if not previously called, shall be
called by the Secretary of the Corporation upon written request of the holders
of record of ten percent (10%) of the aggregate voting power of the outstanding
capital stock of the Corporation then entitled to vote generally in the election
of directors. At such election and thereafter, unless and until a class or
series of capital stock shall again have the exclusive right, voting as a
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separate voting group, to vote for directors, the directors shall again be
divided into three (3) classes, as hereinabove provided, the term of office of
each to be three (3) years; provided, that the terms of office of those
initially elected in classes shall be as hereinabove provided.
(D) Nominations for Election of Directors.
(i) Subject to the rights of holders of any class or series of capital
stock of the Corporation then outstanding, nominations for the election of
directors may be made by the affirmative vote of a majority of the entire Board
of Directors or by any shareholder of record entitled to vote generally in the
election of directors. However, any shareholder of record entitled to vote
generally in the election of directors may nominate one or more persons for
election as directors at a meeting only if written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by first class United States mail, postage prepaid, to the Secretary
of the Corporation not less than 60 days nor more than 75 days prior to the
meeting; provided, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of meeting was mailed or such public disclosure was made, whichever first
occurs.
(ii) Each notice to the Secretary under subsection (D)(i) above shall set
forth: (a) the name and address of record of the shareholder who intends to make
the nomination; (b) a representation that the shareholder is a holder of record
of shares of the Corporation's capital stock entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) the class and number of shares of
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common stock held of record, owned beneficially, and represented by proxy, by
the shareholder, and each proposed nominee, as of the date of the notice; (d)
the name, age, business and residence addresses, and principal occupation or
employment of each proposed nominee; (e) a description of all arrangements or
understandings between the shareholder and each proposed nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (f) such other
information regarding each proposed nominee as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission; and (g) the written consent of each proposed nominee to
serve as a director of the Corporation if so elected. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a director of the Corporation.
(iii) The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 2. Term. Subject to the provisions of the Articles of
Incorporation and of Section 1 of this Article II, each director shall hold
office until the election and qualification of his successor or until his death
or until he shall resign or be removed from office as hereinafter provided.
SECTION 3. Resignations. Any director of the Corporation may resign at
any time by giving written notice thereof to the Board of Directors, the
Chairman or the Corporation. Such resignation shall take effect at the time the
notice is delivered unless the notice specifies a later effective date; and,
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unless otherwise specified with respect thereto, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4. Removal of Directors. At any shareholders' meeting with
respect to which notice of such purpose has been given, the entire Board of
Directors or any individual director may be removed, with or without cause, by
the affirmative vote of the holders of seventy-five percent (75%) of the voting
power of the outstanding capital stock of the Corporation entitled to vote
generally in the election of directors, voting as a separate voting group.
Whenever the holders of the shares of any class or series of capital stock are
entitled to elect one or more directors by the provisions of the Articles of
Incorporation, the provisions of this Section 4 of this Article II shall apply,
in respect of the removal of a director or directors so elected, to the vote of
the holders of the outstanding shares of that class or series and not to the
vote of the outstanding shares as a whole. Removal action may be taken at any
shareholders' meeting with respect to which notice of such purpose has been
given.
SECTION 5. Vacancies.
(A) Director Elected by All Shareholders. Except as provided in
Subsection 5(B) below, any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors, or by the sole remaining director,
as the case may be, or, if the vacancy is not so filled, or if no director
remains, by the holders of the shares of capital stock who are entitled to vote
for the director with respect to which the vacancy is being filled.
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(B) Director Elected by Particular Class or Series. If a vacancy occurs
with respect to a director elected by a particular class or series of shares
voting as a separate voting group, the vacancy may be filled by the remaining
director or directors elected by that class or series, or, if the vacancy is not
filled by such remaining director or directors, or if no such director remains,
by the holders of that class or series of shares.
(C) Term of New Director. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any directorship
to be filled by reason of an increase in the number of directors may be filled
by the Board of Directors, but only for a term of office continuing until the
next election of directors by the shareholders and the election and
qualification of his successor.
SECTION 6. Place of Meeting. Meetings of the Board of Directors or of any
committee thereof may be held either within or without the State of Georgia.
SECTION 7. Regular Meetings. The Board of Directors may, by resolution
adopted by vote of a majority of the whole Board, from time to time, appoint the
time and place for holding regular meetings of the Board, if deemed advisable by
the Board; and such regular meetings shall, thereupon, be held at the time and
place so appointed, without the giving of any notice with regard thereto. In
case the day appointed for the regular meeting shall fall on a legal holiday,
such meeting shall be held on the next following business day, at the regular
appointed hour.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman, by any Vice Chairman, by the
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President, by the Chief Executive Officer, by the Chief Operating Officer, or by
any two directors. Notice of any such meeting shall be mailed to each director,
addressed to him at his residence or usual place of business, not later than
three (3) days before the day on which the meeting is to be held, or shall be
sent to him at such place by telegram, telex, facsimile or cablegram, or be
delivered personally, or by telephone, not later than the day before the day on
which the meeting is to be held. Notice of a meeting of the Board of Directors
need not be given to any director who signs a waiver of notice either before or
after the meeting (in addition to any other form of waiver, such waiver may be
evidenced by a telegram, telex, facsimile or cablegram from a director).
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the meeting,
the time of the meeting or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting (or promptly upon
his arrival), any such objection or objections to the transaction of business
and does not thereafter vote for or assent to action taken at the meeting.
Neither the business to be transacted at, nor the purpose of, any special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting. Except as is otherwise indicated in the notice thereof,
any and all business may be transacted at any special meeting of the Board of
Directors.
SECTION 9. Quorum and Manner of Acting. Except as herein otherwise
provided, two-fifths of the whole Board of Directors at a meeting duly assembled
shall constitute a quorum for the transaction of business, except that, if the
Chairman or the President is not present at any such meeting, a majority of the
whole Board of Directors shall be necessary to constitute a quorum; and, except
as otherwise required by statute or by the Bylaws, the act of a majority of the
directors present at any such meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum, a majority of the
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directors present may adjourn the meeting from time to time, until a quorum is
present. No notice of any adjourned meeting need be given.
SECTION 10. Participation by Conference Telephone. Any or all directors
may participate in a meeting of the Board of Directors or of a committee of the
Board of Directors through the use of any means of communication by which all
directors participating may simultaneously hear each other during the meeting.
A director participating in a meeting by this means is deemed to be present in
person at the meeting.
SECTION 11. Action by Directors Without a Meeting. Unless the Articles of
Incorporation or these Bylaws provide otherwise, any action required or
permitted to be taken at any meeting of the Board of Directors or any action
that may be taken at a meeting of a committee of the Board of Directors may be
taken without a meeting if the action is taken by all the members of the Board
of Directors (or of the committee as the case may be). The action must be
evidenced by one or more written consents describing the action taken, signed by
each director (or each director serving on the committee, as the case may be),
and delivered to the Corporation for inclusion in the minutes or filing with the
corporate records.
SECTION 12. Directors' Fees. In consideration of a director serving in
such capacity, each director of the Corporation, other than directors who are
officers of the Corporation or any of its subsidiary companies, shall be
entitled to receive such compensation as the Board of Directors, by vote of a
majority of the whole Board, may from time to time determine. The Board of
Directors shall also have the authority to determine, from time to time, the
amount of compensation, if any, which shall be paid to its members for
attendance at any meeting of the Board or any committee thereof. A director may
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also serve the Corporation in a capacity other than that of director and receive
compensation, as determined by the Board of Directors, for services rendered in
such other capacity.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Constitution and Powers. The Board of Directors may, by
resolution adopted by vote of a majority of the whole Board, designate from
among its members an Executive Committee, to consist of the Chairman, the Chief
Executive Officer (provided he is also a director), and one or more other
directors, which Executive Committee shall have and may exercise all the powers
of the Board of Directors in the management of the business, affairs and
property of the Corporation and the exercise of its corporate powers, including
the power to authorize the seal of the Corporation to be affixed to all papers
which may require it. So far as practicable, members of the Executive Committee
shall be designated at the organization meeting of the Board, in each year, and,
unless sooner discharged by vote of a majority of the whole Board of Directors,
shall hold office until the organization meeting of the Board in the next
subsequent year and until their respective successors are appointed. The Board
shall designate one member of the Committee as Chairman of the Executive
Committee, but such designee shall not be considered to be an officer of the
Corporation by reason of such designation. Anything herein to the contrary
notwithstanding, the Executive Committee shall not exercise the authority of the
Board of Directors in reference to: (1) approving or proposing to shareholders
any action required by applicable law to be approved by the shareholders of the
Corporation; (2) the filling of vacancies on the Board of Directors or any of
its committees; (3) amending the Articles of Incorporation of the Corporation;
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(4) the adoption, amendment or repeal of any Bylaws of the Corporation; or (5)
the approval of a plan of merger or consolidation, the sale, lease, exchange or
other disposition of all or substantially all the property and assets of the
Corporation, or a voluntary dissolution of the Corporation or a revocation
thereof.
SECTION 2. Meetings. Regular meetings of the Executive Committee, of
which no notice shall be necessary, shall be held on such days and at such
places as shall be fixed, from time to time, by resolution adopted by vote of a
majority of the Committee and communicated to all the members thereof. Special
meetings of the Executive Committee may be called by the Chairman of the
Committee at any time. Notice of each special meeting of the Committee shall be
sent to each member of the Committee by mail to his residence or usual place of
business not later than three (3) days before the day on which the meeting is to
be held, or shall be sent to him at such place by telegram, telex, facsimile or
cablegram, or be delivered personally, or by telephone, to each member of the
Committee not later than the day before the day on which the meeting is to be
held. Notice of any such meeting need not be given to any member who signs a
waiver of notice either before or after the meeting (in addition to any other
form of waiver, such waiver may be evidenced by a telegram, telex, facsimile or
cablegram from a member). Attendance of a member at a meeting shall constitute
a waiver of notice of such meeting and waiver of any and all objections to the
place of the meeting, the time of the meeting or the manner in which it has been
called or convened, except when a member states, at the beginning of the meeting
(or promptly upon his arrival), any such objection or objections to the
transaction of business. Neither the business to be transacted at, nor the
purpose of, any meeting of the Committee need be specified in the notice or
waiver of notice of such meeting. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the act of a majority
of those present at a meeting, at which a quorum is present, shall be the act of
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the Executive Committee. The members of the Executive Committee shall act only
as a committee, and the individual members shall have no power as such.
SECTION 3. Records. The Executive Committee shall keep a record of its
acts and proceedings and shall report the same promptly to the Board of
Directors. Such acts and proceedings shall be subject to review by the Board of
Directors, but no rights of third parties shall be affected by such review. The
Secretary of the Corporation, or, in his absence, an Assistant Secretary, shall
act as secretary to the Executive Committee; or the Committee may, in its
discretion, appoint its own secretary.
SECTION 4. Vacancies. Any vacancy in the Executive Committee shall be
filled by vote of a majority of the whole Board of Directors.
ARTICLE IV
OTHER COMMITTEES
The Board of Directors, by resolution adopted by a majority of the whole
Board, may designate from among its members other committees in addition to the
Executive Committee, each consisting of two (2) or more directors and each of
which, to the extent provided in such resolution, shall have and may exercise
all the authority of the Board of Directors, provided that no such committee
shall have the authority of the Board of Directors in reference to: (1)
approving or proposing to shareholders any action required by applicable law to
be approved by the shareholders of the Corporation; (2) the filling of vacancies
on the Board of Directors or any of its committees; (3) amending the Articles of
Incorporation of the Corporation; (4) the adoption, amendment or repeal of any
Bylaws of the Corporation; or (5) the approval of a plan of merger or
- 17 -
consolidation, the sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Corporation, or a voluntary
dissolution of the Corporation or a revocation thereof. The provisions of
Section 2 of Article III as to the Executive Committee and its deliberations
shall be applicable to any such other committee of the Board of Directors.
ARTICLE V
OFFICERS AND AGENTS; POWERS AND DUTIES
SECTION 1. Officers. The Board of Directors shall elect a Chairman (who
shall be a director), a President, a Secretary and a Treasurer. The Board of
Directors may also elect one or more Vice Chairmen, one or more Vice Presidents
(one or more of whom may be designated an Executive Vice President and one or
more of whom may be designated a Senior Vice President and one or more of whom
may be designated a Group Vice President), a Controller and such other officers
and agents of the Corporation as from time to time may appear to be necessary or
advisable in the conduct of the affairs of the Corporation. The Board shall
designate from among such elected officers a Chief Executive Officer and may
designate from among such elected officers a Chief Operating Officer. Any two
or more offices may be held by the same person, except that the office of
President and the office of Secretary shall be held by separate persons. In
addition to the authority of the Board of Directors set forth in this Section 1,
the Chief Executive Officer shall have the authority to appoint one or more Vice
Presidents, none of whom may be designated an Executive Vice President, Senior
Vice President or Group Vice President (a "CEO Appointed Office").
Individuals appointed to CEO Appointed Offices by the Chief Executive Officer
shall be officers of the Corporation as fully as if elected by the Board of
Directors.
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SECTION 2. Term of Office. So far as practicable, all officers shall be
elected at the organization meeting of the Board of Directors in each year, and,
subject to the provisions of Section 3 of this Article V, each officer shall
hold office until the organization meeting of the Board of Directors in the next
subsequent year and until his successor has been elected and has qualified, or
until his earlier resignation, removal from office, or death.
SECTION 3. Removal of Officers. Any officer may be removed at any time,
either with or without cause, by the Board of Directors at any meeting. Any
officer holding a CEO Appointed Office, whether elected to such office by the
Board or appointed by the Chief Executive Officer, may be removed at any time,
either with or without cause, by the Chief Executive Officer, except for such
individuals holding CEO Appointed Offices who also hold any of the titles of
Controller, Treasurer or Secretary.
SECTION 4. Vacancies. If any vacancy occurs in any office, the Board of
Directors may elect a successor to fill such vacancy for the remainder of the
term. If a vacancy occurs in any CEO Appointed Office, the Chief Executive
Officer may appoint a successor to fill such vacancy for the remainder of the
term.
SECTION 5. Chief Executive Officer. The Chief Executive Officer shall,
under the direction of the Board of Directors, have general direction of the
Corporation's business, policies and affairs. He shall preside, when present,
at all meetings of the shareholders and, in the absence of the Chairman of the
Executive Committee, at all meetings of the Executive Committee. He, the Vice
Chairmen, the President and the Chief Operating Officer shall each have general
power to execute bonds, deeds and contracts in the name of the Corporation and
to affix the corporate seal; to sign stock certificates; and to remove or
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suspend such employees or agents as shall not have been appointed by the Board
of Directors. In the absence or disability of the Chief Executive Officer, his
duties shall be performed and his powers may be exercised by the Chief Operating
Officer or by such other officer as shall be designated by the Board of
Directors.
SECTION 6. Chief Operating Officer. The Chief Operating Officer shall,
under the direction of the Chief Executive Officer, have direct superintendence
of the Corporation's business, policies, properties and affairs. He shall have
such further powers and duties as from time to time may be conferred upon, or
assigned to, him by the Board of Directors or the Chief Executive Officer. In
the absence or disability of the Chief Executive Officer, the Chief Operating
Officer shall perform his duties and may exercise his powers.
SECTION 7. Chairman. The Chairman shall preside, when present, at all
meetings of the Board of Directors and shall have such other powers and duties
as from time to time may be conferred upon or assigned to him by the Board of
Directors or the Chief Executive Officer (if the Chairman is not the Chief
Executive Officer).
SECTION 8. Vice Chairmen. Each of the several Vice Chairmen shall have
such powers and duties as from time to time may be conferred upon or assigned to
him by the Board of Directors or the Chief Executive Officer (if such Vice
Chairman is not the Chief Executive Officer).
SECTION 9. President. The President shall have such powers and duties as
from time to time may be conferred upon or assigned to him by the Board of
Directors or the Chief Executive Officer (if the President is not the Chief
Executive Officer).
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SECTION 10. Vice Presidents. The several Vice Presidents shall have such
powers and duties as shall be assigned to or required of them, from time to
time, by the Board of Directors, the Chief Executive Officer or the Chief
Operating Officer.
SECTION 11. Secretary. The Secretary shall attend to the giving of notice
of all meetings of shareholders and of the Board of Directors and shall keep and
attest true records of all proceedings thereat. He shall have the
responsibility of authenticating records of the Corporation. He shall have
charge of the corporate seal and have authority to attest any and all
instruments or writings to which the same may be affixed. He shall keep and
account for all books, documents, papers and records of the Corporation, except
those which are hereinafter directed to be in the charge of the Treasurer or the
Controller. He shall have authority to sign stock certificates and shall
generally perform all the duties usually appertaining to the office of secretary
of a corporation. In the absence of the Secretary, an Assistant Secretary or
Secretary pro tempore shall perform his duties.
SECTION 12. Treasurer. The Treasurer shall have the care and custody of
all moneys, funds and securities of the Corporation and shall deposit or cause
to be deposited all funds of the Corporation in and with such depositories as
shall, from time to time, be designated by the Board of Directors or by such
officers of the Corporation as may be authorized by the Board of Directors to
make such designation. He shall have power to sign stock certificates; to
endorse for deposit or collection, or otherwise, all checks, drafts, notes,
bills of exchange or other commercial paper payable to the Corporation; and to
give proper receipts or discharges therefor.
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SECTION 13. Controller. The Controller shall keep complete and accurate
books of account relating to the business of the Corporation, including records
of all assets, liabilities, commitments, receipts, disbursements and other
financial transactions of the Corporation, and its divisions and subsidiaries.
He shall render a statement of the Corporation's financial condition whenever
required to do so by the Board of Directors, the Chief Executive Officer, the
Chief Operating Officer or the Executive Vice President - Finance.
SECTION 14. Attorneys. The Board of Directors may, from time to time,
appoint one or more attorneys-in-fact to act for and in representation of the
Corporation, either generally or specially, judicially or extra-judicially, and
may delegate to any such attorney or attorneys-in-fact all or any powers which,
in the judgment of the Board of Directors, may be necessary, advisable,
convenient or suitable for exercise in any country or jurisdiction in the
administration or management of the business of the Corporation, or the defense
or enforcement of its rights, even though such powers be herein provided or
directed to be exercised by a designated officer of the Corporation, or by the
Board of Directors. The act of the Board of Directors in conferring any such
powers upon, or delegating the same to, any attorney-in-fact shall be conclusive
evidence in favor of any third person of the right of the Board of Directors so
to confer or delegate such powers; and the exercise by any attorney-in-fact of
any powers so conferred or delegated shall in all respects be binding upon the
Corporation.
SECTION 15. Additional Powers and Duties. In addition to the foregoing
especially enumerated duties and powers, the several officers of the Corporation
shall perform such other duties and exercise such further powers as may be
provided by these Bylaws or as the Board of Directors may, from time to time,
determine, or as may be assigned to them by any competent superior officer.
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SECTION 16. Compensation. The compensation of all officers of the
Corporation shall be fixed, from time to time, by the Board of Directors.
SECTION 17. Designated Positions and Titles. The Chief Executive Officer
may, from time to time, designate employees ("Designated Employees") to serve
in such designated capacities for the Corporation and to hold such nominal
titles (such as a designated officer of a group, division or of another area of
the business affairs of the Corporation) as the Chief Executive Officer may
deem appropriate. No individual designated pursuant to this Section 17 shall,
by reason of such designation, become an officer of the Corporation. Each
Designated Employee shall perform such duties and shall have such authority as
shall be delegated to him from time to time by the Chief Executive Officer. Any
title granted to any Designated Employee pursuant to this Section 17 may be
withdrawn, with or without cause, at any time by the Chief Executive Officer,
and any duty or authority delegated to any Designated Employee pursuant to this
Section 17 may be withdrawn, with or without cause, at any time by the Chief
Executive Officer.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. Indemnified Parties. Every person (and the heirs and personal
representatives of such person) who is or was a director, officer, employee or
agent of the Corporation, or of any other corporation, partnership, joint
venture, trust or other enterprise in which he served as such at the request of
the Corporation, shall be indemnified by the Corporation in accordance with the
provisions of this Article VI against any and all liability and expense
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(including, without limitation, counsel fees and disbursements, and amounts of
judgments, fines or penalties against, or amounts paid in settlement by, a
director, officer, employee or agent) actually and reasonably incurred by him in
connection with or resulting from any threatened, pending or completed claim,
action, suit or proceeding, whether civil, criminal, administrative, or
investigative or in connection with any appeal relating thereto, in which he may
become involved, as a party or otherwise, or with which he may be threatened, by
reason of his being or having been a director, officer, employee or agent of the
Corporation or such other corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action taken or omitted by him in his
capacity as such director, officer, employee or agent whether or not he
continues to be such at the time such liability or expense shall have been
incurred.
SECTION 2. Indemnification As of Right. Every person (and the heirs and
personal representatives of such person) referred to in Section I of this
Article VI, to the extent that such person has been successful on the merits or
otherwise with respect to any claim, action, matter, suit or proceeding of the
character described in Section 1, shall be entitled to indemnification as of
right for expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
SECTION 3. Indemnification Based on Review. Except as provided in Section
2 of this Article VI, upon receipt of a claim for indemnification hereunder, the
Corporation shall proceed as follows, or as otherwise permitted by applicable
law. If the claim is made by a director or officer of the Corporation, the
Board of Directors, by a majority vote of a quorum consisting of directors who
were not parties to the applicable action, suit or proceeding, shall determine
whether the claimant met the applicable standard of conduct as set forth in
Subsections (A) and (B) below. If such quorum is not obtainable or, even if
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obtainable, a quorum of disinterested directors so directs, such determination
shall be made by independent legal counsel (who may be the regular inside or
outside counsel of the Corporation) in a written opinion. If such determination
has not been made within 90 days after the claim is asserted, the claimant shall
have the right to require that the determination be submitted to the
shareholders at the next regular meeting of shareholders by vote of a majority
of the shares entitled to vote thereon. If a claim is made by a person who is
not a director or officer of the Corporation, the Chief Executive Officer and
the general counsel of the Corporation shall determine, subject to applicable
law, the manner in which there shall be made the determination as to whether the
claimant met the applicable standard of conduct as set forth in Subsections (A)
and (B) below. In the case of each claim for indemnification, the Corporation
shall pay the claim to the extent the determination is favorable to the person
making the claim.
(A) In the case of a claim, action, suit or proceeding other than by or in
the right of the Corporation to procure a judgment in its favor, the director,
officer, employee or agent must have acted in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, in addition,
in any criminal action or proceeding, had no reasonable cause to believe that
his conduct was unlawful. In addition, any director seeking indemnification
must not have been adjudged liable on the basis that any personal benefit was
received by him. For the purpose of this Subsection (A), the termination of any
claim, action, suit or proceeding, civil, criminal or administrative, by
judgment, order, settlement (either with or without court approval) or
conviction, or upon a plea of guilty or nolo contenders or its equivalent, shall
not create a presumption that a director, officer, employee or agent did not
meet the standards of conduct set forth in this Subsection.
(B) In the case of a claim, action, suit or proceeding by or in the right
of the Corporation to procure a judgment in its favor, the director, officer,
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employee or agent must have acted in good faith in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation;
provided, however, that no indemnification under this Subsection (B) shall be
made (1) with regard to any claim, issue or matter as to which such director,
officer, employee or agent shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such director, officer, employee
or agent is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper, or (2) for amounts paid, or expenses incurred, in
connection with the defense or settlement of any such claim, action, suit or
proceeding, unless a court of competent jurisdiction has approved
indemnification with regard to such amounts or expenses.
SECTION 4. Advances. Expenses incurred with respect to any claim, action,
suit or proceeding of the character described in Section 1 of this Article VI
shall be advanced by the Corporation prior to the final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it shall be ultimately determined that he is not entitled to indemnification
under this Article VI.
SECTION 5. General. The rights of indemnification and advancement of
expenses provided in this Article VI shall be in addition to any rights to which
any such director, officer, employee or other person may otherwise be entitled
by contract or as a matter of law. Each person who shall act as a director,
officer, employee or agent of the Corporation or of any other corporation
referred to in Section 1 of this Article VI, shall be deemed to be doing so in
reliance upon the right of indemnification provided for in this Article VI, and
this Article VI constitutes a contract between the Corporation and each of the
persons from time to time entitled to indemnification hereunder, and the rights
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of each such person hereunder may not be modified without the consent of such
person.
ARTICLE VII
STOCK AND TRANSFER OF STOCK
SECTION 1. Direct Registration of Shares. The Corporation may, with the
Board of Directors' approval, participate in a direct registration system
approved by the Securities and Exchange Commission and by the New York Stock
Exchange or any securities exchange on which the stock of the Corporation may
from time to time be traded, whereby shares of capital stock of the Corporation
may be registered in the holder's name in uncertificated, book-entry form on the
books of the Corporation.
SECTION 2. Stock Certificates. Except in the case of shares represented
in book-entry form under a direct registration system contemplated in Section 1
of this Article VII, every shareholder shall be entitled to a certificate signed
by the Chairman, the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, certifying the
number of shares owned by him in the Corporation and that those shares are fully
paid and non-assessable. Where any such certificate is countersigned by either
a Transfer Agent or a Registrar (other than the Corporation or one of its
employees) designated by the Corporation for that purpose, any other signature
on such certificate may be a facsimile, engraved, stamped or printed. In case
any person who served as any such officer shall have signed any such certificate
or whose facsimile signature shall have been placed thereon shall have ceased to
hold such office prior to the issue of such certificate, such certificate may be
issued at the direction of the Corporation with the same effect as if such
person held such office at the date of the issue of such certificate.
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SECTION 3. Transfer Agents and Registrars. The Board of Directors may, in
its discretion, appoint responsible banks or trust companies in such city or
cities as the Board may deem advisable, from time to time, to act as Transfer
Agents and Registrars of the stock of the Corporation; and, upon such
appointments being made, no stock certificate shall be valid until countersigned
by one of such Transfer Agents and registered by one of such Registrars.
SECTION 4. Transfer of Stock. Except in the case of shares represented in
book-entry form under a direct registration system contemplated in Section 1 of
this Article VII, shares of stock may be transferred by delivery of the
certificates therefor, accompanied either by an assignment, in writing on the
back of the certificates or by written power of attorney to sell, assign and
transfer the same, signed by the record holder thereof; but no transfer shall
affect the right of the Corporation to pay any dividend upon the stock to the
holder of record thereof, or to treat the holder of record as the holder in fact
thereof for all purposes, and no transfer shall be valid, except between the
parties thereto, until such transfer shall have been made upon the books of the
Corporation.
SECTION 5. Lost Certificates. In case any certificate of stock shall be
lost, stolen or destroyed, the Board of Directors or the Executive Committee, in
its discretion, may authorize the issue of a substitute certificate in place of
the certificate so lost, stolen or destroyed, and may cause such substitute
certificate to be countersigned by the appropriate Transfer Agent and registered
by the appropriate Registrar; provided, that, in each such case, the applicant
for a substitute certificate shall furnish to the Corporation, or to its
Transfer Agents and Registrars, satisfactory evidence of the loss, theft or
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destruction of such certificate and of the ownership thereof, and also such
security or indemnity as may be required by any of such parties.
ARTICLE VIII
MISCELLANEOUS
SECTION 1. Inspection of Books and Records. The Board of Directors shall
have power to determine which accounts, books and records of the Corporation
shall be opened to the inspection of shareholders, except those as may by law
specifically be made open to inspection, and shall have power to fix reasonable
rules and regulations not in conflict with the applicable law for the inspection
of accounts, books and records which by law or by determination of the Board of
Directors shall be open to inspection. Without the prior approval of the Board
of Directors in its discretion, the right of inspection set forth in Section 14-
2-1602(c) of the Georgia Business Corporation Code shall not be available to any
shareholder owning two percent or less of the shares outstanding.
SECTION 2. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
SECTION 3. Surety Bonds. Such officers or agents of the Corporation as
the Board of Directors may direct, from time to time, shall be bonded for the
faithful performance of their duties, in such amounts and by such surety
companies as the Board of Directors may determine. The premiums on such bonds
shall be paid by the Corporation, and the bonds so furnished shall be in the
custody of the Secretary.
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SECTION 4. Signature of Negotiable Instruments. All bills, notes, checks
or other instruments for the payment of money shall be signed or countersigned
by such officers and in such manner as, from time to time, may be prescribed by
resolution (whether general or special) of the Board of Directors.
SECTION 5. Conflict with Articles of Incorporation. In the event that any
provision of these Bylaws conflicts with any provision of the Articles of
Incorporation, the Articles of Incorporation shall govern.
SECTION 6. Election of Certain Provisions of Georgia Business Corporation
Code. All requirements and provisions of Parts 2 and 3 of Article 11 of the
Georgia Business Corporation Code, as may be in effect from time to time,
including any successor statutes, shall be applicable to any "business
combination" (as respectively defined in Parts 2 and 3 of such Article 11) of
the Corporation.
ARTICLE IX
AMENDMENTS
Subject to the provisions of the Georgia Business Corporation Code, the
Board of Directors shall have the power to alter, amend or repeal these Bylaws
or to adopt new bylaws, but any bylaws adopted by the Board of Directors may be
altered, amended or repealed, and new bylaws adopted, by the shareholders. The
shareholders may prescribe that any bylaw or bylaws adopted by them shall not be
altered, amended or repealed by the Board of Directors. Action by the directors
with respect to the Bylaws shall be taken by an affirmative vote of a majority
of all of the directors then in office. Except as provided in the Articles of
Incorporation, action by the shareholders with respect to the Bylaws shall be
taken by an affirmative vote of the holders of a majority of the voting power of
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the outstanding capital stock of the Corporation entitled to vote generally in
the election of directors, voting as a separate voting group.
The undersigned Secretary of Georgia-Pacific Corporation, a Georgia
corporation, hereby certifies that the foregoing is a true and complete copy of
the Bylaws of the said Corporation, as at present in full force and effect.
Witness the hand of the undersigned and the seal of the said Corporation
this 30th day of July, 1998.
Kenneth F. Khoury
Vice President, Deputy General Counsel
and Secretary
STOCK PURCHASE AGREEMENT
(also known as Agreement for the Purchase of Stock of CeCorr, Inc.)
BY AND AMONG
JACK W. SCHWARZ, JEFFREY A. SCHWARZ, JOHN W. SCHWARZ,
SCHWARZ FAMILY IRREVOCABLE TRUST, SCHWARZ PARTNERS II, L.P.,
SCHWARZ PARTNERS III, L.P. AND S. RICHARD VAN HORNE III
AND
GEORGIA-PACIFIC CORPORATION
June 30, 1998
RECITALS
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of June 30,
1998, is made and entered into by and between JACK W. SCHWARZ, an individual
resident of the State of Indiana ("Schwarz"), JEFFREY A. SCHWARZ, an
individual resident of the State of Massachusetts, JOHN W. SCHWARZ, an
individual resident of the State of New York, the SCHWARZ FAMILY IRREVOCABLE
TRUST dated January 1, 1993, SCHWARZ PARTNERS II, L.P., an Indiana limited
partnership, SCHWARZ PARTNERS III, L.P., an Indiana limited partnership (the
foregoing parties, including Schwarz, being hereinafter referred to
collectively as the "Schwarz Parties"), S. RICHARD VAN HORNE III, an
individual resident of the State of Illinois and trustee under the S. Richard
Van Horne III Trust (hereinafter referred to in both such capacities as "Van
Horne") (the Schwarz Parties and Van Horne being sometimes hereinafter
referred to collectively as the "Sellers" and individually as a "Seller")
and GEORGIA-PACIFIC CORPORATION, a Georgia corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Sellers own shares of voting and non-voting common stock
of CeCorr, Inc., an Indiana corporation ("CeCorr"), constituting
approximately Fifty-Three Percent (53%) of the issued and outstanding shares
of capital stock of CeCorr (the "CeCorr Shares");
WHEREAS, CeCorr and its subsidiaries are engaged in manufacturing,
coating and selling corrugated packaging materials and in manufacturing and
selling recycled paper (the "Business");
WHEREAS, the Schwarz Parties own One Thousand Six Hundred Twenty
(1,620) shares of voting common stock and Fourteen Thousand Five Hundred
Eighty (14,580) shares of non-voting common stock of CeCorr, constituting
approximately Fifty Percent (50%) of the issued and outstanding capital stock
of CeCorr (the "Schwarz Shares"), as more particularly described on Exhibit
A;
WHEREAS, Van Horne owns One Hundred (100) shares of voting common
stock and Nine Hundred (900) shares of non-voting common stock of CeCorr,
constituting approximately Three Percent (3%) of the issued and outstanding
capital stock of CeCorr (the "Van Horne Shares"); and
WHEREAS, Purchaser desires to purchase, and Sellers desire to sell,
all of the CeCorr Shares upon the terms and subject to the conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby covenant and agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Shares. In exchange for the consideration
specified in Section 1.2, and upon the terms and subject to the conditions
provided for in this Agreement, on the date of the "Closing" (as defined in
Section 2.1) Sellers will sell to Purchaser, and Purchaser will purchase from
Sellers, all of the CeCorr Shares.
1.2 Consideration. (a) Except as provided in Section 1.2(b), the
consideration for the Schwarz Shares, to be delivered to Schwarz at Closing,
shall be that number of whole shares of Georgia-Pacific Corporation --
Georgia-Pacific Group common stock, par value $.80 ("G-P Group Stock"),
having a value, based on the closing price of G-P Group Stock on the New York
Stock Exchange (trading under the symbol "GP") on the last trading day
immediately preceding the date of the Closing (the "Closing Date"), closest
to, but not exceeding, Ninety-Four Million Nine Hundred Thirty-Eight Thousand
Two Hundred Seventy-Eight Dollars ($94,938,278) (the "Schwarz Purchase
Price"). The difference between the value of such G-P Group Stock delivered
to Schwarz at Closing and the Schwarz Purchase Price shall be paid to Schwarz
in cash at Closing.
(b) The consideration for the two (2) shares of the Schwarz Shares
owned by Jeffrey A. Schwarz or John W. Schwarz, to be delivered to Schwarz at
Closing by check, shall be Five Thousand Eight Hundred Sixty-One Dollars
($5,861) per share (the "Additional Schwarz Purchase Price").
(c) The consideration for the Van Horne Shares, to be delivered to
Van Horne at Closing by wire transfer in immediately available funds, shall be
Five Million Six Hundred Ninety-Seven Thousand Dollars ($5,697,000) (the "Van
Horne Purchase Price"). Van Horne shall deliver the necessary wire transfer
instructions to Purchaser not less than three (3) days before the Closing.
(d) The Schwarz Purchase Price, the Additional Schwarz Purchase
Price and the Van Horne Purchase Price are sometimes hereinafter referred to
collectively as the "Purchase Price." The Purchase Price is subject to
adjustment following the Closing in accordance with Section 1.3.
1.3 Closing Date Balance Sheet; Post-Closing Payments.
(a) As soon as practicable following the Closing Date, but in no
event later than ninety (90) days thereafter, Purchaser shall deliver to
Sellers a balance sheet (the "Closing Date Balance Sheet") for CeCorr and all
of CeCorr's subsidiary corporations and affiliates listed on Schedule 1.3
(the "Subsidiaries") (CeCorr and the Subsidiaries being sometimes hereinafter
referred to collectively as the "CeCorr Companies" and individually as a
"CeCorr Company") as of the Closing Date prepared in accordance with
generally accepted accounting principles as consistently applied with the
audited financial statements of the CeCorr Companies as at and for each of the
two years ended June 30, 1996 and 1997 ("GAAP"). The Closing Date Balance
Sheet shall be prepared in conjunction with and audited by Geo. S. Olive & Co.
LLC ("Olive"). If and to the extent that the consolidated Stockholders'
Equity of the CeCorr Companies as reflected on the Closing Date Balance Sheet
is less than Twenty-One Million Two Hundred Sixteen Thousand Five Hundred
Seventy-One Dollars ($21,216,571) (the "Base Net Equity"), Sellers shall pay
to Purchaser an amount equal to Fifty-Three Percent (53%) of such deficiency
within ten (10) days of the delivery of the Closing Date Balance Sheet to
Sellers, unless Sellers or Purchaser choose to contest the existence or
amount of such deficiency pursuant to Section 1.3(b). If and to the extent
that the consolidated Stockholders' Equity of the CeCorr Companies as
reflected on the Closing Date Balance Sheet is greater than the Base Net
Equity, Purchaser shall pay to Sellers an amount equal to Fifty-Three Percent
(53%) of such excess upon delivery to Sellers of the Closing Date Balance
Sheet, unless Purchaser or Sellers choose to contest the existence or amount
of such excess pursuant to Section 1.3(b). Any amount payable pursuant to
this Section 1.3(a) shall: (i) be paid either by or to each Seller in
proportion to his or its relative ownership of the CeCorr Shares; (ii) if
payable by Sellers, such payments shall be made by each Seller in the same
form of consideration in which such Seller received his or its proportionate
share of the Purchase Price, provided, however, that any payment of G-P Group
Stock made by any Seller shall be valued based on the closing price of G-P
Group Stock on the New York Stock Exchange on the last trading day immediately
preceding such Seller's delivery of the stock to Purchaser; (iii) if payable
by Purchaser to Sellers, such payments shall be made in cash; and (iv) bear
interest at LIBOR, as quoted in the Wall Street Journal on the Closing Date,
plus one-quarter percent (0.25%), from the Closing Date until paid in full.
(b) The consolidated Stockholders' Equity of the CeCorr Companies as
reflected on the Closing Date Balance Sheet shall be final and binding for
purposes of this Agreement unless Sellers on the one hand, or Purchaser, on the
other hand, shall give the other written notice of disagreement with any entries
or amounts thereon within thirty (30) days following their receipt of the
Closing Date Balance Sheet, specifying in reasonable detail the nature and
extent of such disagreement. If Sellers and Purchaser are unable to resolve any
disagreement with respect to the Closing Date Balance Sheet within thirty (30)
business days following delivery of the notice of disagreement referred to
above, each party shall then have thirty (30) days to prepare such written
materials as it deems relevant to the disagreement. Purchaser shall make
available to each Seller such records, work papers and other documents used in
preparation of the Closing Date Balance Sheet as may be reasonably requested by
such Seller. At the end of such thirty (30)-day period, the disagreement,
together with the written materials prepared by each party, shall be submitted
for resolution to the Atlanta, Georgia office of Deloitte & Touche LLP (the
"Neutral Accountants"). The Neutral Accountants shall act as an arbitrator to
determine and resolve only those issues still in dispute. The Neutral
Accountants' resolution shall be made within thirty (30) days of the submission
of the dispute, shall be in accordance with this Agreement, shall be set forth
in a written statement delivered to Sellers and Purchaser and shall be final,
binding and conclusive.
(c) Each of the Sellers and Purchaser represents and warrants that it has
had no significant business or other relationships with Deloitte & Touche LLP
since January 1, 1993. The fees and expenses of the Neutral Accountants in
connection with any determination under Section 1.3(b) shall be apportioned
between Sellers, on the one hand, and Purchaser, on the other hand, by the
Neutral Accountants based on the inverse proportion of disputed amounts resolved
in favor of each party. Each of the Sellers and Purchaser shall pay their own
costs incurred in connection with this Section 1.3 , including the fees and
expenses of their auditors.
(d) To the extent any amount payable to Purchaser by Sellers under Section
1.3(a) is based upon any write-off of accounts receivable, Purchaser may not
submit such write-off as an indemnity claim for breach of Section 3.16.
(e) The fees and expenses of Olive in connection with the Closing Date
Balance Sheet shall be apportioned between the parties as follows: Purchaser
shall be responsible for payment of Fifty Percent (50%) of such fees and
expenses, the Schwarz Parties shall be responsible for payment of Twenty-Five
Percent (25%) of such fees and expenses and Van Horne shall be responsible for
payment of One and One-Half Percent (1.5%) of such fees and expenses. The
remaining Twenty-Three and One-Half Percent (23.5%) of such fees and expenses
shall be paid by the current shareholders of Brown Board Holding, Inc.
ARTICLE II
THE CLOSING
2.1 Time and Place of Closing. The closing of the transactions
provided for in this Agreement (the "Closing") shall be held at 10:00 a.m.
local time, on the later of June 30, 1998 or the second business day after the
fulfillment or waiver of the conditions set forth in Articles VIII and IX
hereof at the offices of Purchaser at 133 Peachtree Street, N.E., Atlanta,
Georgia 30303, or at such other place and time as the parties may agree. If
the Closing occurs on or before June 30, 1998, it shall be deemed effective as
of the close of business on June 30, 1998.
2.2 Deliveries by Sellers. At the Closing, Sellers will deliver the
following to Purchaser:
(a) Stock certificates representing the CeCorr Shares, together with
duly executed stock powers;
(b) The stock book, stock ledger, and minute book of each of the
CeCorr Companies;
(c) The opinion(s) and certificate(s) contemplated by Article IX;
and
(d) All other documents, instruments and writings required to be
delivered by any of the Sellers at or prior to the Closing Date pursuant to
this Agreement or otherwise required or reasonably requested by Purchaser in
connection herewith.
2.3 Deliveries by Purchaser. At the Closing, Purchaser will deliver
the following to Sellers:
(a) Certificates for the number of shares of G-P Group Stock
calculated pursuant to Section 1.2(a);
(b) The Van Horne Purchase Price by wire transfer of
immediately available funds to an account designated by Van Horne;
(c) The Additional Schwarz Purchase Price by certified or cashier's
checks;
(d) The opinion(s) and certificate(s) contemplated by Article
VIII; and
(e) All other documents, instruments and writings required to
be delivered by Purchaser at or prior to the Closing Date pursuant to this
Agreement or otherwise required or reasonably requested by Sellers in
connection herewith.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby jointly and severally represent and warrant to
Purchaser as follows:
3.1 Due Incorporation, Etc. Each of the CeCorr Companies: (a) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state of its incorporation; (b) has all requisite corporate power
and authority to conduct its business as it presently is being conducted and to
own and lease the properties and assets owned or leased by it; and (c) is duly
licensed and qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased or the operation of its
business makes such licensing or qualification to do business necessary.
Complete and correct copies of the Certificate or Articles of Incorporation and
Bylaws, as amended to date, of each of the CeCorr Companies have been delivered
or made available to Purchaser.
3.2 No Conflicts, Etc. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby by
Sellers will not, except as set forth on Schedule 3.2: (a) with or without the
giving of notice and/or the passage of time, conflict with or result in the
breach of any provision of (i) the Articles or Certificate of Incorporation or
Bylaws of any of the CeCorr Companies, or (ii) any material instrument, license,
agreement or commitment to which any of the CeCorr Companies is a party or by
which any of their assets or properties are bound; or (b) constitute a violation
of any order, judgment or decree to which any of the CeCorr Companies is a party
or by which any of the CeCorr Companies' assets or properties are bound.
3.3 Capital Stock of the CeCorr Companies. (a) The authorized
capital stock of CeCorr consists of Ten Thousand (10,000) shares of voting
common stock, no par value (the "Voting Common Stock"), of which Three Thousand
Two Hundred Forty (3,240) shares are issued and outstanding, and Ninety Thousand
(90,000) shares of non-voting common stock, no par value (the "Non-Voting
Common Stock"), of which Twenty-Nine Thousand One Hundred Sixty (29,160) shares
are issued and outstanding (the Voting Common Stock and the Non-Voting Common
Stock are sometimes hereinafter referred to collectively as the "Common
Stock"). No shares of Common Stock are held by CeCorr in its treasury. There
are no securities of CeCorr or any of the other CeCorr Companies outstanding
which are convertible into or exchangeable or exercisable for any shares of
Common Stock, and there are no outstanding or authorized subscriptions, options,
warrants, calls, rights, commitments or any other agreements of any character
obligating CeCorr or any of the other CeCorr Companies to issue, sell or
transfer any additional shares of Common Stock or any securities convertible
into or evidencing the right to subscribe for any shares of Common Stock. All
of the CeCorr Shares are duly authorized, validly issued, fully paid and
nonassessable, and none of the CeCorr Shares are subject to any option, call or
contract right. Except for the Subsidiaries listed on Schedule 1.3, there are
no subsidiaries of CeCorr.
(b) The authorized capital stock, and the issued and outstanding
capital stock, of each of the Subsidiaries are set forth on Schedule 3.3(b).
All of the shares of issued and outstanding capital stock of the Subsidiaries
(collectively, the "Subsidiary Shares") are owned by CeCorr and there are no
outstanding or authorized subscriptions, options, warrants, calls, rights,
commitments or any other agreements of any character obligating CeCorr or any of
the Subsidiaries to issue, sell or transfer any additional shares of capital
stock of any of the Subsidiaries or any securities convertible into or
evidencing the right to subscribe for any shares of such stock. All of the
Subsidiary Shares are duly authorized, validly issued, fully paid and
nonassessable, are not subject to any power, call or other contract right, and
are owned by CeCorr free and clear of all liens, pledges and other encumbrances.
CeCorr has the sole and exclusive right, power and authority to vote the
Subsidiary Shares. Upon consummation of the transactions contemplated hereby,
Purchaser will acquire title to all of the Subsidiary Shares free and clear of
all liens, pledges and encumbrances.
3.4 Absence of Violations. Except as disclosed on Schedule 3.4, none
of the CeCorr Companies is in violation of its Certificate or Articles of
Incorporation or Bylaws, or in violation (or with notice or lapse of time or
both would be in violation) of any term or provision of: (a) any law, statute,
ordinance, rule, regulation, order, writ, judgment, injunction, permit or decree
applicable to them or any of their assets, operations or properties; or (b) any
agreement, lease, or other document, by which any of them or any of their assets
or properties are bound.
3.5 Condition of Assets. Except as disclosed on Schedule 3.5: (a) to
the best of Sellers' knowledge, the improvements,
machinery, equipment, furniture, vehicles, tools, inventory and tangible
personal property owned, leased, or held by any of the CeCorr Companies for use
in the Business are suitable for their present uses; and (b) Sellers have no
knowledge of (i) any structural or mechanical defects with respect to any
buildings or improvements located on the "Real Property" (as defined in
Section 3.14) or (ii) any material defect in any assets used in the Business.
3.6 Taxes. (a) Each of the CeCorr Companies has duly and timely filed
all "Tax Returns" (as defined below) required to be filed by it and has paid
all "Taxes" (as defined below) due and payable by it on or prior to the
Closing or such Taxes are reflected and reserved against in the "Financial
Statements' (as defined in Section 3.10); such Tax Returns correctly reflected
the facts regarding the income, business, assets, operations, activities, status
or other matters of the CeCorr Companies or any other information required to be
shown thereon. In particular, but without limitation, none of the Tax Returns
contain any position which is or would be subject to penalties under Section
6661 or Section 6662 of the "Code" (as defined below) (or any corresponding
provision of any state, local or foreign Tax law). Adequate provision has been
made in the Financial Statements for all such Taxes payable for the current year
for which Tax Returns are not yet required to be filed. The unpaid Taxes of the
CeCorr Companies do not exceed the reserve for Tax liability set forth or
included in the Financial Statements. There are no agreements, waivers or other
arrangements providing for an extension of time with respect to the filing of
any of the Tax Returns or payment of any of the Taxes by any of the CeCorr
Companies; except as disclosed on Schedule 3.6, there are no investigations,
examinations, reassessments, claims, actions, suits or proceedings threatened or
pending against any of the CeCorr Companies in respect of any of the Taxes, nor
are there any matters under discussion with any federal, provincial, state or
local government or taxing authority, relating to any of the Taxes imposed,
levied or assessed by any such government or authority.
(b) Each of the CeCorr Companies has withheld from each payment made
to any of its former or present employees, directors, officers or shareholders
all amounts which it is required by the laws to which it is subject to withhold
or deduct and has duly remitted all amounts so withheld or deducted to the
proper recipients thereof within the time limits and in the manner required by
such laws.
(c) Schedule 3.6 lists all tax-sharing agreements or similar
arrangements with respect to or involving any of the CeCorr Companies, and
copies of all such agreements or arrangements have been or will be provided to
Purchaser. Purchaser shall advise Sellers as to any such agreements or
arrangements which Purchaser wishes to be terminated and Sellers shall cause
same to be terminated as of the Closing Date, and after the Closing Date the
CeCorr Companies shall not be bound thereby or have any liability thereunder for
amounts due in respect of periods prior to the Closing Date.
(d) Except for the group of which CeCorr is currently a member and
except as disclosed on Schedule 3.6, none of the CeCorr Companies have ever been
a member of an affiliated group of corporations, within the meaning of Section
1504 of the Code.
(e) All material elections with respect to Taxes affecting any of the
CeCorr Companies as of the date hereof, including, but not limited to, elections
(i) to amortize start-up expenditures under section 195(b), (ii) to amortize
organizational expenditures under section 248, and (iii) with respect to
earnings and profits under Reg. section 1.1502-33(d), are disclosed on Schedule
3.6. After the date hereof, no election with respect to Taxes will be made by
any of the CeCorr Companies without the written consent of the Purchaser.
(f) Except as disclosed on Schedule 3.6, no asset of any CeCorr
Company is property which such Company is required to treat as being owned by
any other person pursuant to the "safe harbor lease" provisions of former
Section 168(f)(8) of the Code, or any similar provision of any Tax law.
(g) Except as disclosed on Schedule 3.6, no asset of any CeCorr
Company directly or indirectly secures any debt, the interest on which is tax-
exempt under Section 103(a) of the Code.
(h) Except as disclosed on Schedule 3.6, no asset of any CeCorr
Company is "tax-exempt use property" within the meaning of Section 168(h) of
the Code.
(i) No CeCorr Company is a party to any agreement, contract,
arrangement or plan that has resulted or would result in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code.
(j) No CeCorr Company is a party to any joint venture, partnership,
limited liability company, or other arrangement or contract which could be
treated as a partnership for federal or state income tax purposes.
(k) Each of the CeCorr Companies is filing all necessary Tax Returns
in all states in which it is conducting business.
(l) Schwarz, Schwarz Partners II, L.P. and Van Horne (hereinafter
referred to collectively as the "Indemnifying Sellers", and excluding for all
purposes Gaye H. Schwarz either individually or in her capacity as a general
partner of Schwarz Partners II, L.P.) will jointly and severally indemnify the
Purchaser against and hold it harmless from any liability of any of the CeCorr
Companies for Taxes of any person or entity other than the CeCorr Companies
under Treasury Regulation 1.1502-6 (or any similar provision of state, local or
foreign law), for any period ending prior to the Closing Date and for any costs,
expenses, attorneys' fees or similar costs incurred by the Purchaser or any of
the CeCorr Companies as a result of the assertion of such liability by any
taxing authority.
(m) Each Seller is a United States person within the meaning of the
Code.
(n) No CeCorr Company has, nor have they had, a permanent
establishment in any foreign country, as defined in any applicable Tax treaty or
convention between the United States and such foreign country.
(o) No CeCorr Company is, nor has been, a United States real property
holding corporation (as defined in section 897(c)(2) of the Code) during the
applicable period specified in section 897(c)(1)(A)(ii) of the Code.
(p) Except as disclosed on Schedule 3.6, no item of income or gain
reported by any CeCorr Company for financial accounting purposes in any pre-
closing period is required or will be required to be included in taxable income
for a post-closing period.
(q) Except as disclosed on Schedule 3.6, there are no outstanding
requests for rulings from any Tax authority with respect to any Tax matter of
any CeCorr Company.
(r) There are no liens for Taxes (other than for current Taxes not yet
due and payable) upon any of the assets of any of the CeCorr Companies.
(s) As used in this Agreement, the following defined terms shall have
the following meanings:
(i) "Code" means the Internal Revenue Code of 1986, as amended.
All citations to the Code, or to the Regulations promulgated thereunder, shall
include any amendments or any substitute or successor provisions thereto.
(ii) "Tax or Taxes" means all taxes, assessments, reassessments,
charges, levies and all other imposts, together with all interest, penalties and
fines thereon or additions thereto, of whatever kind or nature, including
without limitation, gross or net income, ad valorem, alternative or add-on
minimum tax, capital stock, capital duty, documentary, employment (including,
without limitation, social security and unemployment), environmental, excise,
franchise, gains, goods and services, gross receipts, import, intangible,
license, mining, net worth, occupation, payroll, privilege, production, profits,
property, registration, sales, services, severance, stamp, surplus, transfer,
use, wage, wealth withholding, workers compensation, value added taxes, charges,
fees and customs duties, imposed, levied or assessed by any federal, state,
provincial or local government or taxing authority, and including any transferee
or secondary liability in respect of any tax (whether imposed by law,
contractual agreement or otherwise) and any liability in respect of any tax as a
result of being a member of any affiliated, consolidated, combined, unitary or
similar group.
(iii) "Tax Returns" means all federal, state or local tax reports,
returns, declarations of estimated tax or other information required to be filed
with respect to any of the CeCorr Companies, their income, properties or
business.
3.7 Books and Records. The books and records of the CeCorr
Companies, other than the minutes of directors' and shareholders' meetings and
the consents of directors and shareholders (collectively, the `Minutes and
Consents') have, in all material respects, been maintained in accordance with
good business and bookkeeping practices, and all such books and records,
including the Minutes and Consents, accurately reflect in all material
respects the ownership and operations of the CeCorr Companies. The minutes of
the meetings of the directors and shareholders of each of the CeCorr Companies
and their respective stock ledgers, which have been provided to Purchaser, are
true and correct records of the subject directors' and shareholders' meetings
and of all capital stock issuances and transfers through and including the
date hereof.
3.8 Licenses and Permits. Except as disclosed on Schedule 3.8: (a)
the CeCorr Companies are conducting the Business in substantial compliance
with all applicable laws and regulations; (b) each CeCorr Company has all
licenses, franchises, permits, approvals, authorizations, exemptions,
classifications, certificates, registrations, and similar documents or
instruments required to conduct the Business as presently conducted
(collectively, the "Licenses and Permits"); (c) all Licenses and Permits are
valid, binding, and in full force and effect; and (d) copies of all Licenses
and Permits have been delivered or made available to Purchaser.
3.9 Insurance. Schedule 3.9 contains a complete list of all
casualty, property, workers compensation and other insurance policies and
arrangements (including without limitation the names of the insurers and the
expiration dates thereof) affecting or relating to the ownership, use, or
operation of any of the assets or properties of any of the CeCorr Companies.
All such policies and arrangements are in full force and effect and each
CeCorr Company is in good standing and compliance thereunder. Except as
disclosed on Schedule 3.9: (a) no CeCorr Company has received notice of any
pending or threatened cancellation of any such insurance or of any premium
increase or any retroactive premium assessment; and (b) there are no pending
claims with respect to any CeCorr Company against such insurance as to which
insurers have asserted a reservation of rights or have denied liability, and
there exists no claim under such insurance that has not been properly filed
with such insurers.
3.10 Financial Statements. Each CeCorr Company has maintained books
and records which: (a) are, and during the periods covered by the "Financial
Statements" (as hereinafter defined), were correct and complete in all
respects; (b) fairly and accurately reflect or reflected its income, cash
flow, expenses, assets and liabilities, including the nature thereof and the
transactions giving rise thereto; and (c) provide or provided a fair and
accurate basis for the preparation of the audited financial statements listed
on Schedule 3.10 and the CeCorr Companies' consolidating balance sheet as of
February 28, 1998 ("the Consolidating Balance Sheet") (collectively, the
"Financial Statements"). The Financial Statements include, on the basis
described therein or in the notes thereto, the financial condition and results
of operations of the CeCorr Companies as at and for each of the two years
ended June 30, 1996 and 1997. The business, assets, properties, rights,
obligations, liabilities and operations of the CeCorr Companies as they
existed on February 28, 1998 (the "Financial Statement Date"), except for
such changes as have occurred in the normal and ordinary course of business
since the Financial Statement Date or as otherwise permitted or contemplated
by this Agreement, will be, substantially and in all material respects, the
business, assets, properties, rights, obligations, liabilities and operations
of the CeCorr Companies on the Closing Date. With certain exceptions set
forth on Schedule 3.10 or in the Financial Statements or described in the
notes thereto, the Financial Statements have been prepared in accordance with
GAAP and the Financial Statements are, in all material respects, complete, and
present fairly (as the concept is used in certified financial statements) the
information shown therein.
3.11 No Material Adverse Change. Except as disclosed on Schedule
3.11, since the Financial Statement Date the CeCorr Companies have conducted
the Business in the ordinary course and in a manner consistent with the
practices applied during the periods specified in the Financial Statements,
there has been no material adverse change in the financial condition or
results of operations, or the business, assets or operations of any of the
CeCorr Companies, and no CeCorr Company has:
(a) purchased or redeemed directly or indirectly any shares of its
capital stock;
(b) issued or sold or agreed to issue or sell any shares of its
capital stock or any option, warrant, conversion or other right to acquire any
such share or any securities convertible into or exchangeable for such shares;
(c) been a party to any corporate reorganization, restructuring or
merger or amalgamation or amended its certificate or articles of incorporation
or bylaws;
(d) declared or paid any dividend or declared or made any other
distribution (whether in cash, stock or property) on any of the shares of its
capital stock;
(e) incurred or discharged any obligation or liability (whether
accrued, absolute or contingent) other than in the ordinary course of and in a
manner consistent with past practices for the Business;
(f) entered into any transaction, contract, agreement, indenture,
instrument or commitment other than in the ordinary course of and in a manner
consistent with past practices for the Business;
(g) suffered or incurred any material damage, destruction, loss or
liability (whether or not covered by any insurance);
(h) experienced any strike, lockout or other labor trouble such as
slow down or work stoppage, or any loss of any of its key employees, customers,
suppliers or distributors;
(i) suffered any shortage or cessation or interruption of raw
materials, supplies or utilities;
(j) made any change in its accounting principles, policies and
practices as utilized in the preparation of the Financial Statements;
(k) made any loan or advance, or assumed, guaranteed, endorsed or
otherwise become liable with respect to the liabilities or obligations of any
other person or entity, or permitted any of its assets to be subjected to any
lien or security interest;
(l) granted to any customer any allowance or discount or changed its
pricing, credit or payment policies other than in the ordinary course of and in
a manner consistent with past practices for the Business;
(m) incurred any indebtedness, liability or obligation (absolute,
accrued, contingent or otherwise) other than in the ordinary course of and in a
manner consistent with past practices for the Business;
(n) sold, leased or otherwise disposed of any of its assets or any
right, title or interest therein other than in the ordinary course of and in a
manner consistent with past practices for the Business;
(o) made any payment to, or for the benefit of, any present or former
employee, director, officer or shareholder otherwise than at the regular rates
payable to them, by way of salary, pension, bonus or other remuneration
consistent with past practices for the Business;
(p) committed to any capital expenditure project or made any
investment, in either case in excess of Five Hundred Thousand Dollars ($500,000)
not disclosed to Purchaser prior to the date of this Agreement or consented to
by Purchaser; or
(q) authorized or agreed to do any of the foregoing matters referred
to in this Section 3.11.
3.12 Material Contracts and Leases. Schedule 3.12 sets forth each
written or oral contract and lease relating to the Business to which any of
the CeCorr Companies are a party and which involves an executory obligation of
more than Fifty Thousand Dollars ($50,000) per annum (collectively, the
"Material Contracts"). Each Material Contract is in full force and effect,
and no CeCorr Company is in breach of or default under any Material Contract.
Complete and correct copies of all written Material Contracts have been made
available for inspection by Purchaser, along with a detailed description and
explanation of all oral Material Contracts.
3.13 Undisclosed Liabilities/Assets. Except as disclosed in the
Financial Statements or on Schedule 3.13: (a) no CeCorr Company has any
material liabilities or obligations of any kind, whether accrued, absolute,
contingent or otherwise, except for undiscovered or unasserted claims
presently unknown to any of the Sellers or CeCorr; and (b) no CeCorr Company
holds any loan or advance due by, or any stock, obligation or securities of,
or any other interest in, any other person or entity.
3.14 Real Properties. Schedule 3.14 identifies all real property
owned of record or beneficially by any of the CeCorr Companies, or leased by
any of the CeCorr Companies (collectively, the "Real Property"). Except as
set forth on Schedule 3.14, each CeCorr Company has: (a) (i) with respect to
such real properties owned by it, good and marketable title to such real
properties, free and clear of all liens, leases, encumbrances, claims under
bailment and storage agreements, conditional sales contracts, encroachments,
conditions, security interests and restrictions (collectively, "Liens"),
except any such Liens which are unknown to Sellers and which would have been
disclosed in an accurate title commitment and survey of such real properties
and except for Liens, if any, for real property taxes and assessments for
public improvements not yet due and payable, and (ii) with respect to such
real properties leased by it, valid leases in full force and effect and with
no defaults thereunder; (b) all easements and rights, including but not
limited to easements for power lines, water lines, sewers and roadways
necessary to conduct the Business conducted on such real properties; and (c)
with respect to any real properties owned by it, a valid owner's policy of
title insurance insuring fee simple title in its name. Complete and correct
copies of all leases and owner's policies of title insurance for all real
property owned by any of the CeCorr Companies referred to on Schedule 3.14
have been furnished to Purchaser. No Real Property is subject to any pending
condemnation or similar proceeding by any governmental authority, and no
CeCorr Company has received any notice that any such condemnation is
threatened or contemplated, and no material permit, license or certificate of
occupancy pertaining to the ownership or operation of any of the Real
Property, other than those which are transferable with such properties, is
required by any governmental body or agency.
3.15 Equipment and Other Tangible Personal Property. (a) Schedule
3.15(a) sets forth a list of all material items of equipment, including,
without limitation, rolling stock, used in the Business as of May 31, 1998
(the "Equipment") and indicates, as to each such item, whether it is owned or
leased. As to each item of Equipment which is owned, Schedule 3.15(a)
identifies the CeCorr Company holding title. As to each item of Equipment
which is leased, Schedule 3.15(a) identifies the lessor, lessee and the
subject lease agreement.
(b) Except as disclosed on Schedule 3.15(b): (i) each CeCorr
Company has good title to all of the items of Equipment and other tangible
personal property owned by it and valid and subsisting leases with respect to
all of the items of Equipment and other tangible personal property leased by
it and used in the Business; (ii) all such Equipment and other tangible
personal property is reflected on the Financial Statements (except as
purchased, leased, sold or disposed of after the Financial Statement Date in
the ordinary course of business consistent with past practice); (iii) all such
owned Equipment and other tangible personal property is owned free and clear
of all Liens; (iv) all such leases of Equipment and other tangible personal
property are with individuals who are not related to any of the Sellers or
with companies that are not controlled by any of the Sellers; and (v) since
May 31, 1998, none of the Equipment has been sold, leased or otherwise
disposed of other than in the ordinary course of business consistent with past
practice.
3.16 Inventories and Accounts Receivable.
(a) The inventories of raw materials, work in process, finished
goods, spares and supplies of the CeCorr Companies reflected on the Financial
Statements are reflected thereon at the lower of cost or market value in
accordance with GAAP and are in all material respects of good and marketable
quality and in sufficient quantity for the conduct of the Business as
presently conducted, and the reserves for obsolete or surplus inventories
reflected on the Financial Statements are adequate in accordance with GAAP.
(b) The accounts receivable of the CeCorr Companies reflected on the
Financial Statements are reflected thereon in accordance with GAAP and are and
will be bona fide, have been and will be properly recorded in the ordinary
course of the Business and represent amounts due for goods or services sold or
rendered in the ordinary course of the Business, and are collectible in the
ordinary course of the Business. The reserves for doubtful accounts reflected
on the Financial Statements are adequate in accordance with GAAP. Except as
disclosed on Schedule 3.16, Sellers have no knowledge of any disputes, set off
rights or defenses to collection of any of the accounts receivable.
3.17 Intellectual Property. Schedule 3.17 sets forth a list of each
patent, patent license, patent application, trade name, trademark, service
mark, trademark and service mark registration or pending application,
copyright registration and any other proprietary or trade right (other than
unregistered copyrights) used in the Business (collectively, the "Intellectual
Property"), and all private licenses to use any of the foregoing, other than
software licenses. With respect to any patent, copyright, trademark, service
mark, trade name or industrial design listed on Schedule 3.17 which is not
owned in its entirety by a CeCorr Company, Sellers have (a) identified on
Schedule 3.17 the owner of the subject patent, copyright, trademark, service
mark, trade name or industrial design and (b) delivered to Purchaser true and
correct copies of the license or other agreement authorizing the CeCorr
Companies' use thereof. Except as specifically disclosed on Schedule 3.17, no
rights under any such licenses or agreements will be terminated, limited or
otherwise adversely affected as a result of the transactions contemplated
hereunder, and no CeCorr Company has received any notice or claim alleging
that the use of the Intellectual Property by any CeCorr Company conflicts
with, infringes upon or violates any intellectual property right of any third
party.
3.18 Bank Accounts. Schedule 3.18 sets out the name of: (a) each
bank, trust company other institution with which any CeCorr Company has an
account or safekeeping arrangement or safety deposit box and the names of each
individual or entity authorized to operate or who has access to such account,
arrangement or box on behalf thereof; and (b) each person or entity holding a
general or special power of attorney from any CeCorr Company with a summary of
the terms thereof.
3.19 Litigation.
Except as disclosed on Schedule 3.19: (a) there are no claims,
actions, proceedings (public or private) or governmental investigations
(collectively, "Claims") pending against or affecting any of the CeCorr
Companies, at law or in equity, before or by any federal, state, or municipal
court, regulatory agency or other governmental entity, or by any other entity
or private person; and (b) there are no existing orders, judgments or decrees
of any court or governmental agency against or affecting any CeCorr Company.
None of the matters disclosed on Schedule 3.19 would give any third party the
right to enjoin or rescind the transactions contemplated hereby.
3.20 Employees, Pension and Other Benefit Plans.
(a) Schedule 3.20(a) lists (i) all the employees who, as of June 15,
1998, were employed by any of the CeCorr Companies whether or not as salaried or
hourly employees and whether or not on short-term or long-term disability,
accident or sickness, maternity, lay-off or other authorized leave of absence
("Employees") together with their respective positions, years of employment,
and rates of remuneration, as at June 15, 1998; (ii) all the Employees who, as
of June 15, 1998, are absent from work because of disability or are otherwise
incapable of working in their regular duties or who have claimed that they are
so disabled or incapable of working as at such date ("Employees on Medical
Leave") who are receiving benefits under applicable federal, state or local
codes, laws, statutes, regulations, decrees, and orders in force (the "Laws")
or the "CeCorr Plans" (as defined in Section 3.20(c)), together with their
respective entitlement under the CeCorr Plans, as at June 15, 1998; and (iii)
all former Employees who have rights under the CeCorr Plans as at June 15, 1998
("Retired Employees"). All Employees who are Employees on Medical Leave and
all Retired Employees are included (without limitation) and specifically so
designated on Schedule 3.20(a).
(b) Except as disclosed on Schedule 3.20(b), no CeCorr Company is a
party to or bound by any collective bargaining agreement or any other agreement
with, or commitment to, any union of employees or any contract of employment,
written or oral, with any of its Employees.
(c) Except as disclosed on Schedule 3.20(c), no CeCorr Company is a
party to nor does it sponsor, maintain, or contribute to any "Employee Plans".
For purposes of this Agreement, the term "Employee Plans" means all "employee
welfare benefit plans" and "employee pension benefit plans" as respectively
defined in sections 3(1) and 3(2) of the Employee Retirement Income Security Act
of 1974, as amended, and regulations promulgated thereunder ("ERISA"), all
employee benefit and pension plans, all other bonus, deferred compensation,
retirement, savings, excess benefit, stock option or purchase, retention,
termination, severance and incentive plans, contracts, programs, funds,
arrangements, policies, or practices and all other plans, contracts, programs,
funds, arrangements, policies, or practices that provide or may provide money
(other than as current salary or wages), services, property or other benefits,
whether written or oral and whether funded or unfunded, including (without
limitation) any that have been frozen or terminated since the Financial
Statements Date, and any trust, escrow or similar agreement related thereto,
whether written or oral and whether funded or unfunded, which are established
and maintained by any of the CeCorr Companies with respect to any of their
Employees, Retired Employees, independent contractors, directors, officers,
shareholders, or their dependents or which are established or maintained by any
person (which together with a CeCorr Company is or would have been as of the
date of the Agreement treated as a single employer under section 414 of the
Code) (the "Related Persons") or with respect to which any CeCorr Company or
the Related Persons have made or are required to make payments, transfers or
contributions. The Employee Plans listed in Schedule 3.20(c) (the "CeCorr
Plans") are duly registered where required by, and are in good standing under,
the Laws, and each of the pension plans thereunder is in the funding status as
disclosed on Schedule 3.20(c).
(d) Sellers have delivered to Purchaser true, complete and up-to-date
copies of all documents embodying the CeCorr Plans including, without
limitation, all amendments thereto, all funding agreements thereunder
(including, but not limited to, trust agreements), all summaries of such CeCorr
Plans provided by the CeCorr Companies to any of their Employees, Retired
Employees, directors, officers or shareholders, and all material communications
received from or sent to the regulatory authorities within the prior two (2)
plan years with respect to each such CeCorr Plan as well as the most recent
valuation for each defined contribution retirement plan maintained by any of the
CeCorr Companies and the most recent actuarial valuation for each of the CeCorr
Plans for which such valuations are required. Sellers have delivered to
Purchaser a complete written description of all unwritten CeCorr Plans, and will
deliver such other documentation with respect to any CeCorr Plan as is
reasonably requested by Purchaser.
(e) Except as disclosed on Schedule 3.20(e) and approved in writing by
Purchaser, no promise or commitment has been made by any CeCorr Company (i) to
amend any of the CeCorr Plans or to provide increased benefits thereunder to any
of its Employees, Retired Employees, directors, officers, shareholders, or their
dependents, except pursuant to the requirements, if any, of the CeCorr Plans,
nor (ii) to establish any new Employee Plan. No actual amendment to any CeCorr
Plan has been adopted by any CeCorr Company since the Financial Statement Date.
One or more of the CeCorr Companies has the right pursuant to the terms of each
CeCorr Plan and all agreements related to such plan unilaterally to terminate
such plan (or its participation in such plan) or to amend the terms of such plan
at any time without triggering a penalty or an obligation to make any additional
contributions to such plan, and at the Closing each CeCorr Plan may be amended
to provide that Purchaser immediately after the Closing will have the same
rights as such CeCorr Companies unilaterally to take such action without
triggering any penalty or any obligation to make any additional contributions to
such plan. Except as disclosed on Schedule 3.11 or Schedule 3.20(e), the
transactions contemplated by this Agreement will not result in any additional
payments to, or increase the vested interest of, any Employee, Retired Employee,
director, officer, shareholder, or their dependents under any CeCorr Plan; and
the transactions contemplated by this Agreement will not result in any payment
to any Employee or Retired Employee, director, officer, or shareholder of any
CeCorr Company which will be subject to section 280G of the Code.
(f) Each CeCorr Plan has been established, maintained, and
administered in compliance with its terms and all related documents or
agreements and in compliance with applicable provisions of ERISA, the Code, and
other applicable Laws.
(g) Except as disclosed on Schedule 3.20(g), all required employer
contributions, premium payments and source-deducted employee contributions under
the CeCorr Plans have been made and remitted to the funding agents thereunder
including, without limitation, all current service costs and special payments
within the time prescribed by any such CeCorr Plan and the Laws. All insurance
premiums required with respect to any CeCorr Plan, including any premiums
payable to the Pension Benefit Guarantee Corporation, have been paid, made,
accrued or booked within the time prescribed by any such CeCorr Plan and the
Laws. All benefits, expenses and other amounts due and payable to or under any
CeCorr Plan, and all contributions, transfers or payments required to be made to
any CeCorr Plan, have been paid, made, accrued or booked within the time
prescribed by any such CeCorr Plan and the Laws. All of the assets which have
been set aside in a trust or account (other than an account which is part of a
CeCorr Company's general assets) to satisfy any obligation under any CeCorr Plan
are shown on the books and records of each such trust and each such account at
their fair market value, such current fair market value as of the last valuation
date is equal to or exceeds the present value of any obligation under the CeCorr
Plan, and the liabilities for all other obligations under any CeCorr Plan are
accurately set forth in the Financial Statements. Except as disclosed on
Schedule 3.20(g), no CeCorr Company has taken any "contribution holiday" with
respect to, and has not withdrawn any amount from, the CeCorr Plans.
(h) Except as disclosed on Schedule 3.20(h), there is no pending or
threatened claim with respect to a CeCorr Plan (other than routine and
reasonable claims for benefits made in the ordinary course of the CeCorr Plan)
or with respect to the terms and conditions of employment or termination of
employment by any Employee, Employee on Medical Leave, or Retired Employee, and
no audit or investigation by any governmental or other law enforcement agency is
pending or has been proposed with respect to any CeCorr Plan.
(i) No CeCorr Plan is subject to Title IV of ERISA. Neither any of
the CeCorr Companies nor any Related Person has incurred any material liability
under or pursuant to Title I or IV of ERISA or the penalty, excise tax or joint
and several liability provisions of the Code relating to employee benefit plans
and, to the best of Sellers' knowledge, no event or condition has occurred or
exists which could result in any material liability to a CeCorr Company, such
Related Person or Purchaser under or pursuant to Title I or IV of ERISA or such
penalty, excise tax or joint and several liability provisions of the Code. No
CeCorr Plan is subject to the minimum funding standards of section 412 of ERISA
or section 302 of the Code; no CeCorr Plan has incurred an "accumulated funding
deficiency" within the meaning of such sections of the Code and ERISA, whether
or not waived; and no such CeCorr Plan has been terminated. Except as disclosed
on Schedule 3.20(i), none of the CeCorr Companies contribute to, nor do they
have any obligation to contribute to, a multiemployer plan as defined in Section
4001(a)(3) of ERISA with regard to the Employees or Retired Employees.
(j) Each of the CeCorr Plans intended to be qualified under section
401(a) of the Code, and the trust, if any, forming a part thereof, has received
a favorable determination letter from the Internal Revenue Service as to its
qualification under the Code and to the effect that each such trust is exempt
from taxation under Section 501(a) of the Code or such a determination letter
has been timely requested from the Internal Revenue Service within the
applicable remedial amendment period specified under the Code, and nothing has
occurred since the date of such determination letter or, in the case of a plan
without a determination letter, since the inception of the plan that adversely
affects such qualification or tax-exempt status. Except as disclosed in
Schedule 3.20(j), all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, actuarial reports, audits or tax returns) have
been duly filed or distributed on a timely basis, and copies thereof have been
or will be furnished to Purchaser prior to the Closing Date.
(k) Except as disclosed on Schedule 3.20(k), (i) there is no strike,
lockout, or other labor trouble (including, but not limited to, any work
slowdown or work stoppage) pending or, to the best of Sellers' knowledge,
threatened against or in connection with any CeCorr Company; (ii) there is no
union election pending or, to the best of Sellers' knowledge, threatened nor, to
the best of Sellers' knowledge, is any union conducting any organizing campaign
with respect to any of the Employees; (iii) there is no outstanding grievance
under any collective bargaining agreement to which any CeCorr Company is a
party; and (iv) there is no unfair labor practice charge pending or, to the best
of Sellers' knowledge, threatened against any CeCorr Company (the conditions and
occurrences described in sub-sections (i)-(iv) of this Section 3.20(k) being
hereinafter referred to collectively as `Labor Controversies'').
(l) Except as disclosed on Schedule 3.20(l), there has been no notice
of violation issued by any state or federal safety and health agency within the
three (3) years prior to the date of this Agreement.
3.21 Environmental Matters. (a) As used herein, the following terms
shall have the following meanings:
(i) "Environment" means soil, land, water and air in their
natural state, including, without limitation, land surface or subsurface strata,
surface water, ground water and ambient air;
(ii) "Environmental Authorities" means all federal, state or
local governmental bodies or regulatory agencies, foreign or domestic, charged
with enforcing any of the Environmental Laws;
(iii) "Environmental Laws" means all applicable federal,
state, or local codes, laws, statutes, regulations, decrees, orders and by-laws
in respect of (A) the protection of the quality of the Environment, and (B) the
health and safety of employees, in either case including, without limitation,
those relating to the release, discharge, escape, disposal or dumping of
Hazardous Substances into the Environment or the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances;
(iv) "Environmental Permits" means all permits, licenses,
certificates and authorizations of, and registrations with, any of the
Environmental Authorities pursuant to any of the Environmental Laws, issued or
granted to any of the CeCorr Companies for the purpose of conducting the
Business as presently conducted, all of which are disclosed on Schedule 3.21(a);
and
(v) "Hazardous Substances" means all contaminants issued or
discharged into the Environment in a greater quantity or concentration than that
provided for in any of the Environmental Laws or the presence of which in the
Environment is prohibited pursuant to any of the Environmental Laws. For the
purposes of the definition, "contaminants" means all solid, liquid or gaseous
matter, micro-organism, sound, vibration, ray, heat, water, radiation or a
combination of any of them that adversely alters the quality of the Environment.
(b) Except as disclosed on Schedule 3.21(b):
(i) The Environmental Permits are all the permits, licenses,
certificates and authorizations of, and registrations with, any of the
Environmental Authorities pursuant to the Environmental Laws necessary to
conduct the Business substantially as presently conducted. The Environmental
Permits are in full force and effect and the CeCorr Companies are in substantial
compliance in all respects thereunder. The consummation of the transactions
contemplated hereunder will not require any renewal, consent, amendment or other
action in connection with any of the Environmental Permits. The CeCorr
Companies are in substantial compliance with the Environmental Laws applicable
to the conduct of the Business. Without limiting the generality of the
foregoing, the CeCorr Companies' Riegelsville, New Jersey facility will be
leased to Purchaser in compliance with the site assessment and other
requirements of the New Jersey Department of Environmental Protection Industrial
Site Recovery Act.
(ii) There is no claim, suit, action or other proceeding, including
appeals and applications for review, outstanding or pending against any CeCorr
Company pursuant to any of the Environmental Laws.
(iii) No CeCorr Company has caused the release, spill, leakage,
pumping, emission, empty, discharge, injection, escape, leaching, disposal or
dumping of any Hazardous Substances on or from any of the Real Property, except
in such manner or quantity as would not constitute a violation of any of the
Environmental Laws or Environmental Permits.
(iv) The CeCorr Companies have maintained in respect of the
Business records substantially in the manner and for the time periods required
by the Environmental Laws and Environmental Permits.
(v) Since June 30, 1993, no CeCorr Company has received any notice
of investigation or non-compliance or written order from any of the
Environmental Authorities, including any notice of contamination or clean-up
requirements, pursuant to any of the Environmental Laws.
(vi) The Sellers have, to the best of their knowledge, delivered
to the Purchaser true, correct and complete copies of all environmental audit
reports which have been prepared by or for any CeCorr Company or any of the
Sellers, whether generated internally or by any environmental contractors or
consultants, in respect of the Business in the five (5) year period ending on
the date of this Agreement.
3.22 Willamette Indemnification. Corrugated Paper Group, Inc., an
Indiana corporation and a CeCorr Company ("CPGI-IN"), holds all rights to
indemnification and other rights originally granted to Corrugated Paper Group,
Inc., a New Jersey corporation ("CPGI-NJ"), under that certain Indemnification
Agreement dated as of September 7, 1990 from Willamette Industries, Inc. to
CPGI-NJ, Ferguson Containers, Inc. and Corrugated Paper Group, L.P., and such
rights are fully enforceable by CPGI-IN in accordance with the terms of such
Indemnification Agreement.
3.23 Computer Equipment/Year 2000 Warranty. Schedule 3.23 sets forth
a complete and accurate list of all computer hardware, software and other
equipment containing embedded computer chips used in the Business. Sellers have
fully and accurately disclosed to Purchaser all of the CeCorr Companies' plans,
reports, studies, surveys, questionnaires, communications with vendors and other
information regarding problems with any such hardware, software or equipment
associated with or relating to the change in any year, up to, through and
including the Year 2000.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SCHWARZ PARTIES
Each of the Schwarz Parties hereby jointly and severally represents and
warrants to Purchaser as follows:
4.1 Title to Shares. All of the Schwarz Shares are owned by the
Schwarz Parties as set forth on Exhibit A free and clear of all liens, pledges
and other encumbrances. The Schwarz Parties have the sole and exclusive right,
power and authority to vote the Schwarz Shares. Upon consummation of the
transactions contemplated hereby, Purchaser will acquire title to all the
Schwarz Shares free and clear of all liens, pledges and encumbrances.
4.2 Authorization/Consents and Approvals. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by each of the Schwarz Parties have been or prior to the
Closing will be duly authorized by any and all requisite partnership, trust or
other organizational action. This Agreement has been duly executed and
delivered by each of the Schwarz Parties and (assuming the due authorization,
execution and delivery hereof by Purchaser) is a valid and binding obligation of
the Schwarz Parties, enforceable against each of them in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity). Each of the
Schwarz Parties has all requisite power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. Except as
otherwise disclosed on Schedule 4.2, the Schwarz Parties' execution and delivery
of this Agreement, their compliance with the terms hereof and their consummation
of the transactions contemplated hereby, does not and will not: (a) with or
without the giving of notice and/or the passage of time, conflict with or result
in the breach of any provision of any partnership or trust document applicable
to any of them; (b) constitute a violation of any order, judgment or decree to
which any of them is a party; or (c) require any of them or any CeCorr Company
to obtain any consent, approval or action of, or make any filing with or give
any notice to, any person or entity.
4.3 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Schwarz Parties
directly with Purchaser, without the intervention of any third party on their
behalf in such manner as to give rise to any valid claim by any third party
against Purchaser or any CeCorr Company for a finder's fee, brokerage
commission, or similar payment.
4.4 Knowledge as to Certain Matters. To the best of the Schwarz
Parties' knowledge:
(a) No condemnation or similar proceeding by any governmental
authority is threatened or contemplated regarding any of the Real Property;
(b) Except as disclosed on Schedule 3.17, the use of the Intellectual
Property by the CeCorr Companies does not in any material respect conflict with,
infringe upon or violate any intellectual property right of any third party;
(c) Except as disclosed on Schedule 3.19, there are: (i) no claims,
actions, proceedings (public or private) or governmental investigations
threatened against or affecting any of the CeCorr Companies; and (ii) no orders,
judgments or decrees of any court or governmental agency threatened against or
affecting any of the CeCorr Companies;
(d) Except as disclosed on Schedule 3.20(k), there are no Labor
Controversies threatened against any of the CeCorr Companies;
(e) Except as disclosed on Schedule 3.21(b):
(i) No fact or circumstance exists that is likely to prohibit or
prevent the issuance to the Purchaser of any of the permits, licenses,
certificates and authorizations of, and registrations with, any of the
Environmental Authorities pursuant to any of the Environmental Laws, which are
necessary for the Purchaser to conduct the Business substantially as presently
conducted;
(ii) There is no claim, suit or proceeding threatened against any
CeCorr Company pursuant to any of the Environmental Laws, and no facts or
circumstances exist which are reasonably likely to give rise to such a claim,
suit, or proceeding; and
(iii) No facts or circumstances exist that would result in the
issuance to any CeCorr Company of any notice of investigation or non-compliance
or written order from any of the Environmental Authorities pursuant to any of
the Environmental Laws.
4.5 Disclosure. No representation or warranty of any of the Schwarz
Parties contained in this Agreement, and no statement by any of them contained
herein or in any certificate or document furnished to Purchaser pursuant
hereto, knowingly contains any untrue statement of a material fact or
intentionally omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF VAN HORNE
Van Horne hereby represents and warrants to Purchaser as follows:
5.1 Title to Shares. All of the Van Horne Shares are owned by Van
Horne free and clear of all liens, pledges and other encumbrances. Van Horne
has the sole and exclusive right, power and authority to vote the Van Horne
Shares. Upon consummation of the transactions contemplated hereby, Purchaser
will acquire title to all the Van Horne Shares free and clear of all liens,
pledges and encumbrances.
5.2 Authorization/Consents and Approvals. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby by Van Horne have been or prior to the Closing will be
duly authorized by any and all requisite action. This Agreement has been duly
executed and delivered by Van Horne and (assuming the due authorization,
execution and delivery hereof by Purchaser) is a valid and binding obligation
of Van Horne, enforceable against him in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). Van Horne has all
requisite power and authority to enter into this Agreement and to carry out
the transactions contemplated hereby. Except as otherwise disclosed on
Schedule 5.2, Van Horne's execution and delivery of this Agreement, his
compliance with the terms hereof and his consummation of the transactions
contemplated hereby, does not and will not: (a) with or without the giving of
notice and/or the passage of time, conflict with or result in the breach of
any provision of any agreement applicable to him; (b) constitute a violation
of any order, judgment or decree to which he is a party; or (c) require him to
obtain any consent, approval or action of, or make any filing with or give any
notice to, any person or entity.
5.3 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Van Horne directly
with Purchaser, without the intervention of any third party on his behalf in
such manner as to give rise to any valid claim by any third party against
Purchaser or any CeCorr Company for a finder's fee, brokerage commission, or
similar payment.
5.4 Knowledge as to Certain Matters. To the best of Van Horne's
knowledge:
(a) No condemnation or similar proceeding by any governmental
authority is threatened or contemplated regarding any of the Real Property;
(b) Except as disclosed on Schedule 3.17, the use of the
Intellectual Property by the CeCorr Companies does not in any material respect
conflict with, infringe upon or violate any intellectual property right of any
third party;
(c) Except as disclosed on Schedule 3.19, there are: (i) no claims,
actions, proceedings (public or private) or governmental investigations
threatened against or affecting any of the CeCorr Companies; and (ii) no
orders, judgments or decrees of any court or governmental agency threatened
against or affecting any of the CeCorr Companies;
(d) Except as disclosed on Schedule 3.20(k), there are no Labor
Controversies threatened against any of the CeCorr Companies; and
(e) Except as disclosed on Schedule 3.21(b):
(i) No fact or circumstance exists that is likely to prohibit or
prevent the issuance to the Purchaser of any of the permits, licenses,
certificates and authorizations of, and registrations with, any of the
Environmental Authorities pursuant to any of the Environmental Laws, which are
necessary for the Purchaser to conduct the Business substantially as presently
conducted;
(ii) There is no claim, suit or proceeding threatened against any
CeCorr Company pursuant to any of the Environmental Laws, and no facts or
circumstances exist which are reasonably likely to give rise to such a claim,
suit, or proceeding; and
(iii) No facts or circumstances exist that would result in the
issuance to any CeCorr Company of any notice of investigation or non-
compliance or written order from any of the Environmental Authorities pursuant
to any of the Environmental Laws.
5.5 Disclosure. No representation or warranty of Van Horne
contained in this Agreement, and no statement by him contained herein or in
any certificate or document furnished to Purchaser pursuant hereto, knowingly
contains any untrue statement of a material fact or intentionally omits to
state a material fact necessary in order to make the statements contained
herein or therein not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as follows:
6.1 Due Incorporation. Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Georgia and has all requisite corporate power and authority to enter
into this Agreement and to perform its obligations hereunder.
6.2 Authorization, No Conflicts, Etc. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by Purchaser have been or prior to the Closing will be
duly authorized by all requisite corporate action of Purchaser. This
Agreement has been duly executed and delivered by Purchaser and (assuming the
due authorization, execution and delivery hereof by Sellers) is a valid and
binding obligation of Purchaser, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity). The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by Purchaser will not:
(a) violate any provisions of law applicable to Purchaser; (b) with or without
the giving of notice and/or the passage of time, conflict with or result in
the breach of any provision of the Articles of Incorporation or Bylaws of
Purchaser; or (c) constitute a violation of any order, judgment or decree to
which Purchaser is a party where such violation could have a material adverse
effect on the Purchaser's ability to consummate the transactions contemplated
by this Agreement.
6.3 Consents and Approvals. The execution and delivery by Purchaser
of this Agreement does not, and compliance by Purchaser with the terms hereof
and consummation by Purchaser of the transactions contemplated hereby will
not, require Purchaser to obtain any consent, approval or action of, or make
any filing with or give any notice to, any third party except: (a) as
disclosed on Schedule 6.3 hereto; and (b) those which the failure to obtain
will have no material adverse effect on any of the transactions contemplated
hereby.
6.4 G-P Group Stock. All of the shares of G-P Group Stock to be
delivered to Schwarz at Closing (the "Consideration Shares") shall: (a) be
duly authorized, validly issued, fully paid and nonassessable: (b) not be
subject to any power, call or other contract right of any third party; and (c)
be transferred to the Schwarz Parties free and clear of all liens, pledges and
other encumbrances. Upon delivery at Closing, the Schwarz Parties shall have
the sole and exclusive right, power and authority to vote the Consideration
Shares.
6.5 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Purchaser directly
with Sellers, without the intervention of any third party on behalf of
Purchaser in such manner as to give rise to any valid claim by any third party
against Sellers for a finder's fee, brokerage commission, or similar payment.
6.6 Qualifications. To Purchaser's knowledge, there are no facts
which would, as a matter of law, disqualify Purchaser from acquiring the
CeCorr Shares or making changes in the ownership, control, directors, officers
or management of the CeCorr Companies as contemplated by this Agreement.
6.7 Legal Proceedings. There are no legal, administrative, or other
proceedings or governmental investigations pending or, to the best knowledge
of Purchaser, threatened, against Purchaser which would give any third party
the right to enjoin or rescind the transactions contemplated hereby.
6.8 Disclosure. No representation or warranty of Purchaser
contained in this Agreement, and no statement contained herein or in any
certificate or document furnished to Sellers pursuant hereto, knowingly
contains any untrue statement of a material fact or intentionally omits to
state a material fact necessary in order to make the statements contained
herein not misleading.
6.9 No Knowledge of Material Breach. Except as disclosed on
Schedule 6.9, to the best of Purchaser's knowledge there exists no fact or
circumstance that would cause any representations of Sellers to be materially
incorrect or untrue. For purposes of determining whether Purchaser shall be
deemed to have "knowledge" under this Section 6.9, the actual knowledge of
each of the persons listed on Schedule 6.9, and only such persons, shall be
imputed to Purchaser, and each of such persons shall be deemed to have read
this Agreement and the Schedules hereto.
6.10 Financial Resources. Purchaser has adequate resources to
complete the transactions contemplated hereunder.
ARTICLE VII
COVENANTS
The parties, as specified in this Article VII, covenant and agree as
follows:
7.1 Maintenance and Preservation of Business. During the period
from the date hereof to the Closing Date or the date of termination of the
parties' obligation to close under this Agreement, except as may be
specifically approved in writing by Purchaser, Sellers shall cause the CeCorr
Companies to conduct the Business only in the ordinary course and
substantially in the same manner as presently conducted and to not make or
institute any new methods, principles or practices of manufacture, purchase,
sale, lease, management, accounting or operation except in the ordinary course
of business, and will use their best efforts to maintain the CeCorr Companies'
business organizations and their relationships with and the goodwill of their
suppliers, distributors, licensors, customers and others having business
relations with them, so as to maintain the goodwill and ongoing business of
the CeCorr Companies. By way of illustration and without limiting the
generality of the foregoing, Sellers shall cause each of the CeCorr Companies
to:
(a) use reasonable efforts to preserve intact and keep available the
services of its present employees through the Closing Date;
(b) use reasonable efforts to keep in effect through the Closing
Date the insurance policies identified on Schedule 3.9 hereto or to procure
similar coverage, and to cooperate fully with the Purchaser and take such
actions as the Purchaser may reasonably request (including, without
limitation, placing insurance carriers on notice of this Agreement and/or
providing or seeking necessary consents) to ensure that from and after the
Closing Date, the Purchaser will be entitled to make claims (or receive the
proceeds of claims) under all such policies. In addition, Sellers agree, if
so requested by Purchaser, to make all reasonable and necessary efforts to
purchase, at the Purchaser's expense, extended reporting coverages or the
equivalent thereof for five (5) years from the Closing Date for all current
claims made or modified claims made coverages of the CeCorr Companies and the
Business including, without limitation, all casualty, liability and directors
and officers coverages;
(c) maintain all its physical properties in their condition as of
the Financial Statement Date subject only to ordinary wear and tear;
(d) perform and comply in all material respects with the terms of
the Material Contracts;
(e) manage its working capital, including accounts receivable, other
current assets, trade payables and other current liabilities, in a fashion
consistent with past practice, including by selling inventory and other
property in an orderly and prudent manner and paying outstanding obligations,
trade accounts and other indebtedness as they come due;
(f) except as disclosed on Schedule 7.1(f), not sell, transfer,
mortgage or pledge, or create or permit to be created any lien or security
interest on, any of its assets other than in the ordinary course of business;
(g) except as disclosed on Schedule 7.1(g), not incur any material
obligations or liabilities other than in the ordinary course of business or
incur any indebtedness for borrowed money which is not repaid prior to the
Closing Date;
(h) except as disclosed on Schedule 7.1(h), not amend or terminate
any employee benefit plans or increase the rates of compensation payable or to
become payable to any officer, employee, agent or consultant of CeCorr, except
in the ordinary course of business or in accordance with existing compensation
policies or the existing terms of contracts entered into prior to the date of
this Agreement;
(i) not make any change in the number of shares of its capital stock
authorized, issued or outstanding or grant any option, warrant or other right
to purchase, or to convert any obligation into, shares of its capital stock;
(j) except as disclosed on Schedule 7.1(j), not amend its Articles
or Certificate of Incorporation or Bylaws; or
(k) not make any acquisition other than in the ordinary course of
business.
7.2 Access to Information/Confidentiality. (a) Sellers shall, and
shall cause each of the CeCorr Companies to allow Purchaser and its
representatives, at Purchaser's expense and upon reasonable notice and during
regular business hours, to make such investigation of the business,
properties, books and records of the CeCorr Companies, and to conduct such
examination of their financial and legal condition, as Purchaser deems
necessary or advisable to familiarize itself with such business, properties,
books, records, financial and legal condition and other matters. Without
limiting the generality of the foregoing, Sellers shall, and shall cause each
of the CeCorr Companies to allow Purchaser and its representatives full access
to all premises of the CeCorr Companies and to produce or cause to be produced
for inspection by Purchaser, its employees and representatives, all title
documents, title deeds, minute books, share registers, agreements, contracts,
leases, licenses, insurance policies, pension and benefit plans, documents
relating to pending lawsuits and all other books, records and information
which in the reasonable opinion of the Purchaser is required to make an
examination of the CeCorr Companies and their business and properties and to
verify the accuracy of Sellers' joint and individual representations and
warranties contained herein. Purchaser and its authorized representatives
will conduct all such investigations in a manner which will minimize any
disruptions of the business and operations of the CeCorr Companies.
(b) Until the Closing Date, Purchaser will hold any information
regarding the CeCorr Companies accessed or otherwise made available to
Purchaser by Sellers or any of the CeCorr Companies, including the results of
any environmental testing performed by Purchaser or its representatives
pursuant to Section 7.8, in accordance with the provisions of the Non-
Disclosure Agreement between Purchaser and CeCorr dated as of February 17,
1998 (the "Non-Disclosure Agreement"), a copy of which is attached hereto as
Exhibit 7.2. Upon any termination of this Agreement, Purchaser and its
representatives shall return all such information to CeCorr.
7.3 Related Party Debt. Sellers agree that they will cause all debt
owing by any of the CeCorr Companies to Sellers, and all debt owing by any of
the Sellers to any of the CeCorr Companies, to be eliminated prior to the
Closing Date, and will terminate prior to the Closing Date, without any
liability to any CeCorr Company, all consulting agreements between any Seller
and any CeCorr Company.
7.4 Tax Assistance. Sellers shall be solely responsible for the
preparation of all Tax Returns of the CeCorr Companies for any period ending on
or before the Closing Date, including but not limited to the state and federal
income tax returns for the fiscal year ending on the Closing Date. Sellers
shall deliver a copy of such Tax Returns and supporting documentation to
Purchaser for Purchaser's review and approval, which approval shall not be
unreasonably withheld, at least thirty (30) business days prior to the due date
(including extensions) for such Tax Returns. Purchaser shall deliver any
objections to Sellers within ten (10) business days following Purchaser's
receipt of such Tax Returns from Sellers. After the Closing Date, Sellers shall
furnish or cause to be furnished to Purchaser, upon request, such information
with respect to the CeCorr Companies as is reasonably necessary for the
preparation and filing of any Tax Return, for the preparation for any tax audit
or for the prosecution or defense of any proceeding or proposed adjustment with
respect to Taxes of any CeCorr Company or the Purchaser.
7.5 Title Insurance. Sellers shall cooperate, and shall cause the
CeCorr Companies to cooperate with Purchaser with respect to obtaining current
title examination reports in accordance with Section 9.6, including providing
owner's affidavits and taking such other actions as may reasonably be requested
by Purchaser. The cost of obtaining such current title examination reports
shall be borne by Purchaser.
7.6 Antitrust Approvals. Nothing in this Agreement shall be deemed to
limit the ability of Purchaser to contest, in any appropriate administrative or
judicial forum, any effort of any federal, state or local governmental authority
to require the divestiture by Purchaser of particular assets or categories of
assets or businesses of the Purchaser or any of its subsidiaries or of any
CeCorr Company.
7.7 Consulting and Noncompetition Agreements. Prior to or at the
Closing, Schwarz shall execute and deliver a consulting agreement in
substantially the form attached as Exhibit 7.7A and Van Horne shall enter into a
noncompetition agreement with Purchaser in substantially the form attached as
Exhibit 7.7B.
7.8 Environmental Audit. Purchaser and Sellers agree to keep all
environmental audit or survey reports and other environmental information
generated by or exchanged among the parties pursuant to this Agreement
confidential and not to disclose or use for any purpose not expressly
contemplated by this Agreement, or permit any other party to use for any
purpose, any such reports or information concerning the Real Property.
Purchaser shall remedy any damage to the Real Property which is caused by any
environmental audit or survey performed on Purchaser's behalf at the Real
Property.
7.9 Books and Records. Each of the parties hereto agrees that, so
long as any of the books, records or files of the CeCorr Companies remain in
existence and are under its direct or indirect control, the other parties
shall have the right, following reasonable notice, to inspect and to make
copies (at its expense) of the same during business hours with respect to any
litigation related to the ownership of any of the CeCorr Companies, or for any
similar proper purpose. Neither the Sellers, on the one hand, or the
Purchaser, on the other hand, will destroy, without first having offered to
deliver to the other, any of such books, records and files for a period of
five (5) years after the Closing Date.
7.10 Placement of Consideration Shares. Sellers and Purchaser
acknowledge and agree that it is their intent that the transfer of the
Consideration Shares to the Schwarz Parties at Closing constitute a private
placement of securities pursuant to Section 4(2) of the Securities Act of 1933,
as amended, and/or Regulation D promulgated thereunder (the "Private
Placement"), and that the Consideration Shares will not be registered under the
Securities Act. Purchaser shall deliver to each of the Schwarz Parties, prior
to the Closing Date, a confidential private placement memorandum dated May 28,
1998 (a "Private Placement Memorandum") in connection with the Private
Placement. Prior to Closing, each of the Schwarz Parties receiving
Consideration Shares at the Closing shall deliver to Purchaser such
representations and undertakings as in the opinion of Purchaser's counsel shall
reasonably be required to effectuate the Private Placement.
7.11 Put Agreement. Prior to or at the Closing, Purchaser and each of
the Schwarz Parties receiving Consideration Shares at Closing shall enter into a
Put Agreement in substantially the form attached hereto as Exhibit 7.11.
7.12 Lien Search. Prior to Closing, Purchaser shall have a UCC,
judgment and tax lien search (the "Lien Search") performed on the CeCorr
Companies, at the Purchaser's expense.
7.13 Consents and Further Actions. As soon as practicable, Sellers and
Purchaser will commence to take all reasonable action required to obtain all
consents, approvals and agreements of any third parties necessary or desirable
to authorize, approve or permit the full and complete consummation of the
transactions contemplated by this Agreement. In addition, subject to the terms
and conditions herein provided, each of the parties hereto covenants and agrees
to use all reasonable efforts to take, or cause to be taken, all action, or do,
or cause to be done, all things, necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. Sellers and Purchaser agree that from and
after the Closing Date, if reasonably requested by the other, they will execute
and deliver such further instruments of conveyance and transfer and take such
other action as may be necessary or desirable to convey and transfer to
Purchaser more effectively the CeCorr Shares or any of the business, assets,
properties, rights, obligations, liabilities or operations of the CeCorr
Companies.
7.14 Indemnity Agreement (Captive Insurance Program). Prior to or at
the Closing, an indemnity agreement in substantially the form attached as
Exhibit 7.14 shall be executed and delivered by J.W. & J.A., Inc.; TransCorr,
LLC; G.H.S. Associates, Inc.; C.M. Trailer Leasing, Inc.; J.S., LLC; S.V.
Partners; LeaseCorr LLC; Schwarz Partners, LP; RAM Leasing Inc.; Forum Leasing
LLC and the Purchaser.
7.15 Waiver of Rights Under Shareholders Agreement. Each of the
Sellers hereby waives any right of first refusal with regard to any of the
CeCorr Shares and any and all other rights they may have under that certain
Shareholder's Agreement dated September 30, 1992, or pursuant to Section 2.04
of the By-laws of CeCorr.
7.16 CeCorr Plans. Purchaser shall take such action as may be
necessary to cause the CeCorr Companies to continue the CeCorr Plans through at
least December 31, 1998; provided, however, the CeCorr, Inc. Profit Sharing Plan
("Profit Sharing Plan") and CeCorr, Inc. 401(k) Plan ("401(k) Plan") shall be
amended at or prior to Closing to provide that the accrued benefits of the
Employees who are participants in each such plan are 100% vested and
nonforfeitable at Closing. Purchaser shall cause the CeCorr Companies after
Closing to transfer the accounts of the participants in the Profit Sharing Plan
and 401(k) Plan who are, after the Closing, employees of TransCorr, LLC, and
related assets held in trust thereunder in a trustee-to-trustee transfer from
each such respective plan to the trustee for a profit sharing plan and Section
401(k) plan qualified under Code Section 401(a) established and maintained by
TransCorr, LLC (or other entity designated by Seller), subject to the rules and
procedures set forth on Schedule 7.16. At or prior to Closing, CeCorr shall
have approved, by appropriate shareholder and director action, the payment of
discretionary bonuses to specified employees of the CeCorr Companies conditioned
upon the consummation of the transactions contemplated by this Agreement.
7.17 Litigation Indemnity. The Indemnifying Sellers shall, following
the Closing, jointly and severally indemnify and hold harmless Purchaser and
each of the CeCorr Companies from and against any and all actual costs, losses,
liabilities, damages and expenses (including, without limitation, reasonable
attorney's fees) arising out of or resulting from any judgments, awards or
settlements, including legal costs and expenses, relating to any Claims pending
against any of the CeCorr Companies as of the Closing Date, whether or not any
such Claims are disclosed on Schedule 3.19. With respect to each such Claim,
the Indemnifying Sellers shall either (a) pay the Claim either in full or upon
compromise agreed to by the Indemnifying Sellers or (b) dispute the Claim and
thereafter defend against it and pay any adverse final judgment or award or
settlement amount in regard thereto. Such defense shall be controlled by the
Indemnifying Sellers, and the cost of such defense shall be borne by them,
except that the Purchaser or the CeCorr Companies shall have the right to
participate in such defense at their own expense. If the Indemnifying Sellers
fail to take action with regard to a Claim as set forth above, then the
Purchaser shall have the right to pay, compromise or defend such Claim and to
assert the amount of any payment on the Claim plus the expense of defense or
settlement as an indemnity claim under this Section 7.17. The Purchaser shall
also have the right, exercisable in good faith, to take such action as may be
necessary to avoid a default prior to the assumption of the defense of any Claim
by the Indemnifying Sellers and any expenses incurred by so acting shall be paid
by the Indemnifying Sellers.
7.18 Indemnity for Board and Stockholder Actions. The Indemnifying
Sellers shall, following the Closing, jointly and severally indemnify and hold
harmless Purchaser and each of the CeCorr Companies from and against any and all
actual costs, losses, liabilities, damages and expenses (including, without
limitation, reasonable attorney's fees) arising out of or resulting from any
action of the board of directors or stockholders of any CeCorr Company taken
prior to the Closing which is not reflected in the books and records of such
CeCorr Company which have been or will be provided to Purchaser by the Sellers
prior to the Closing.
ARTICLE VIII
CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers to consummate the transactions
contemplated by this Agreement are subject, in the discretion of Sellers, to
the satisfaction at or prior to the Closing Date of each of the following
conditions:
8.1 Representations and Warranties. All representations and
warranties of Purchaser contained in Article VI of this Agreement shall be
true and correct in all material respects at and as of the Closing Date as if
such representations and warranties were made at and as of such date except
for representations and warranties that speak as of a specific date or time
other than the Closing Date (which need only be true and correct in all
material respects as of such date or time).
8.2 Performance of Obligations. Purchaser shall have performed or
complied, in all material respects, with all agreements, covenants,
obligations and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing Date, including, without
limitation, those contained in Article VII of this Agreement.
8.3 No Injunction. No injunction, stay or restraining order shall
be in effect prohibiting the consummation of the transactions contemplated by
this Agreement.
8.4 Opinion of Counsel. Purchaser shall have delivered to Sellers
an opinion of Kenneth F. Khoury, Vice President and Secretary of Purchaser,
dated the Closing Date, in form and substance satisfactory to Sellers, as to
the matters contained in Sections 6.1, 6.2 and 6.3. Mr. Khoury may, as to
facts material to such opinion which are not independently established by him,
rely on certificates of public officials or of other officers of the
Purchaser. As to matters not covered by federal laws, he may rely upon
opinions of local counsel or other members of Purchaser's legal department.
8.5 Certificates. Purchaser shall have furnished Sellers with such
certificates of its officers, directors and others to evidence compliance with
the conditions set forth in this Article VIII as may be reasonably requested
by Sellers.
8.6 Ancillary Agreements. Purchaser shall have entered into each of
the leases, contracts and agreements listed on Schedule 8.6.
8.7 Purchase of CSC Stock. Purchaser shall have consummated the
purchase of all of the remaining issued and outstanding shares of Common
Stock, other than the CeCorr Shares, from Brown Board Holding, Inc., a
Delaware corporation formerly known as Corrugated Supplies Corp.
ARTICLE IX
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject, in the discretion of the
Purchaser, to the satisfaction at or prior to the Closing Date of each of the
following conditions:
9.1 Representations and Warranties. All representations and
warranties of Sellers, the Schwarz Parties and Van Horne contained in Articles
III, IV and V of this Agreement shall be true and correct in all material
respects at and as of the Closing Date as if such representations and
warranties were made at and as of such date except for representations and
warranties that speak as of a specific date or time other than the Closing
Date (which need only be true and correct in all material respects as of such
date or time).
9.2 Performance of Obligations. Sellers shall have performed or
complied, in all material respects, with all agreements, covenants,
obligations and conditions required by this Agreement to be performed or
complied with by any of them prior to or at the Closing Date, including,
without limitation, those contained in Article VII of this Agreement.
9.3 Permits, Consents and Approvals. The parties shall have
received, without any condition materially adverse to Purchaser or any of the
CeCorr Companies, all permits, consents, orders and approvals required by any
federal, state or local governmental authority, as the case may be, for the
purposes of the consummation of the transactions contemplated hereby, and all
statutory periods in connection with notification procedures required under
applicable antitrust laws and regulations shall have lapsed.
9.4 No Injunction. No injunction, stay or restraining order shall
be in effect prohibiting the consummation of the transactions contemplated by
this Agreement or restricting any of the CeCorr Companies from conducting the
Business in the usual course consistent with past practice.
9.5 Environmental Matters. The results of the environmental audits or
surveys of the Real Property performed by or on behalf of the Purchaser shall
not have identified any matter or matters relating to compliance with
Environmental Laws or to the handling, storage, transportation, treatment,
disposal, release or potential release into the soil or groundwater on the Real
Property of any Hazardous Substances which, in the aggregate, is or is
reasonably likely to be adverse to the Real Property or the results of
operations, business or financial condition or prospects of the CeCorr
Companies, and as to which Sellers were unable or unwilling to remediate or
otherwise correct to Purchaser's satisfaction.
9.6 Title to Real Property. Purchaser shall have obtained current
title examination reports indicating that as of the Closing Date each of the
CeCorr Companies identified on Schedule 3.14 as owning any of the Real
Property has good and marketable title in fee simple absolute to such Real
Property, free and clear of all title defects, liens or encumbrances of any
nature whatsoever, except as described in such title reports and which are
reasonably acceptable to Purchaser.
9.7 Lien Search. The Lien Search shall not have revealed any Lien
not disclosed on Schedule 3.15(b).
9.8 Opinion of Counsel. Sellers shall have delivered to Purchaser
an opinion or opinions of Sellers' counsel(s), dated the Closing Date, in form
and substance satisfactory to Purchaser, as to the matters contained in
Sections 3.1, 3.2, 3.3, 3.4, 4.1, 4.2, 5.1 and 5.2. Counsel may, as to facts
material to such opinion which are not independently established by such
counsel, rely on certificates of public officials or of officers of CeCorr.
9.9 Resignations and Releases. Resignations of all directors and
officers of the CeCorr Companies specified in any written notice from
Purchaser provided to Sellers prior to Closing shall have been delivered to
Purchaser, effective upon the Closing, including a release from any and all
their respective claims against the CeCorr Companies.
9.10 Certificates. Sellers shall have furnished Purchaser with such
certificates of Sellers and of the CeCorr Companies' officers, directors and
others to evidence compliance with the conditions set forth in this Article IX
as may be reasonably requested by Purchaser.
9.11 Purchase of CSC Stock. Purchaser shall have consummated the
purchase of all of the remaining issued and outstanding shares of Common
Stock, other than the CeCorr Shares, from Corrugated Supplies Corp., a
Delaware corporation.
9.12 Ancillary Agreements. Sellers shall have entered into, or
caused the appropriate CeCorr Companies to enter into, the leases, contracts
and agreements listed on Schedule 8.6.
9.13 Shareholder Approvals. Sellers shall have made adequate
disclosure to and obtained the approval of the persons owning more than
seventy-five percent (75%) of the voting power of the outstanding Common Stock
in order to comply with the shareholder approval requirement of section
280G(b)(5) of the Code with respect to any payments made or to be made to
employees of any CeCorr Companies.
9.14 Seller Acknowledgments. Each of the Schwarz Parties receiving
Consideration Shares at Closing shall have acknowledged that they have
requested and received all information necessary to make an informed decision
to exchange their CeCorr Shares for Consideration Shares.
9.15 Accredited Investors. Each of the Schwarz Parties receiving
Consideration Shares in the Private Placement shall constitute an `accredited
investor' as that term is defined under the Securities Act of 1933, as
amended, and shall have completed and returned to Purchaser an Investor
Questionnaire delivered with the Private Placement Memorandum.
ARTICLE X
SURVIVAL; INDEMNITIES
10.1 Survival. Subject to the specific limitations and other express
provisions of this Agreement: (a) the representations and warranties of the
parties contained in Sections 3.1, 3.2, 3.3, 3.14, 3.15, 4.1, 4.2, 4.3, 5.1,
5.2, 5.3 and 6.5 shall remain in full force and effect without limitation as
to time except as may be limited by law; (b) the representations and
warranties of the parties contained in Sections 3.21 (other than those
contained in Section 3.21(b)(i)), 4.4(e) and 5.4(e) shall remain in full
force and effect for a period of ten (10) years after the Closing Date; (c)
the representations and warranties of the parties contained in Sections 3.6
and 3.20 shall remain in full force and effect until expiration of the
applicable statute of limitations or prescription period; and (d) all other
representations and warranties of the parties contained herein shall remain in
full force and effect for a period of three (3) years after the Closing Date.
10.2 Indemnification.
(a) By the Indemnifying Sellers. The Indemnifying Sellers shall
jointly and severally indemnify, save and hold harmless Purchaser and its
subsidiaries, from and against any and all actual costs, losses, liabilities,
damages and expenses (including, without limitation, reasonable attorney's
fees) arising out of or resulting from: (i) the breach or inaccuracy of any
representations and warranties of Sellers contained in Article III hereof;
(ii) the breach by Sellers of any of the covenants or agreements made by them
in Sections 7.1, 7.2(a), 7.3, 7.4, 7.5, 7.8, 7.9, 7.13, 7.17, 7.18 or 7.19 of
this Agreement; and (iii) any misrepresentation contained in any certificate
furnished by or on behalf of Sellers pursuant to this Agreement.
(b) By the Indemnifying Schwarz Parties. Schwarz and Schwarz
Partners II, L.P. (collectively, the "Indemnifying Schwarz Parties", and
excluding for all purposes Gaye H. Schwarz, either individually or in her
capacity as a general partner of Schwarz Partners II, L.P.) shall jointly and
severally indemnify, save and hold harmless Purchaser and its subsidiaries,
from and against any and all actual costs, losses, liabilities, damages and
expenses (including, without limitation, reasonable attorney's fees) arising
out of or resulting from: (i) the breach or inaccuracy of any representations
and warranties of the Schwarz Parties contained in Article IV hereof; (ii) the
breach by any of the Schwarz Parties of any of the covenants or agreements
made by them in Section 7.7, 7.10, 7.11 or 7.14, or on Schedule 7.16 of this
Agreement; and (iii) any misrepresentation contained in any certificate
furnished by or on behalf of any of the Schwarz Parties pursuant to this
Agreement.
(c) By Van Horne. Van Horne shall indemnify, save and hold harmless
Purchaser and its subsidiaries, from and against any and all actual costs,
losses, liabilities, damages and expenses (including, without limitation,
reasonable attorney's fees) arising out of or resulting from: (i) the breach
or inaccuracy of any representations and warranties of Van Horne contained in
Article V hereof; (ii) the breach by Van Horne of any of the covenants or
agreements made by him in Section 7.7 of this Agreement; and (iii) any
misrepresentation contained in any certificate furnished by or on behalf of
Van Horne pursuant to this Agreement.
(d) By Purchaser. Purchaser shall indemnify, save and hold harmless
Sellers from and against any and all actual costs, losses, liabilities,
damages and expenses (including, without limitation, reasonable attorney's
fees) arising out of or resulting from: (i) the breach or inaccuracy of any
representations and warranties of Purchaser contained in Article VI hereof;
(ii) the breach by Purchaser of any of the covenants or agreements made by it
in Article VII of this Agreement; and (iii) any misrepresentation contained in
any certificate furnished by or on behalf of Purchaser pursuant to this
Agreement.
(e) Third Party Claims. If any claim or demand is asserted against an
indemnified party by a third party with respect to any matter under the
indemnities set forth in Sections 10.2(a), (b), (c) or (d) (a "Third Party
Claim"), the indemnified party shall promptly give written notice and details
thereof, including copies of all pleadings and the pertinent documents, to the
indemnifying party. Within twenty (20) days of receipt of such notice, the
indemnifying party shall either (i) pay the Third Party Claim either in full or
upon compromise agreed to by the indemnifying party or (ii) notify the
indemnified party that the indemnifying party disputes the Third Party Claim and
intends to defend against it, and thereafter so defend and pay any adverse final
judgment or award or settlement amount in regard thereto. Such defense shall be
controlled by the indemnifying party, and the cost of such defense shall be
borne by it, except that the indemnified party shall have the right to
participate in such defense at its own expense. If the indemnifying party fails
to take action within twenty (20) days as set forth above, then the indemnified
party shall have the right to pay, compromise or defend any Third Party Claim
and to assert the amount of any payment on the Third Party Claim plus the
expense of defense or settlement as an indemnity claim. The indemnified party
shall also have the right, exercisable in good faith, to take such action as may
be necessary to avoid a default prior to the assumption of the defense of the
Third Party Claim by the indemnifying party and any expenses incurred by so
acting shall be paid by the indemnifying party.
(f) Payment. With respect to all claims other than Third Party
Claims, the indemnifying party shall promptly pay or reimburse the indemnified
party in respect of any claim or liability for any cost, loss, damage or expense
to which the foregoing indemnities relate after receipt of written notice from
the indemnified party outlining with reasonable particularity the nature and
amount of the claim(s). In the event the indemnifying party fails or refuses to
make payment for such claims within a period of twenty (20) days from the date
of notice to the indemnifying party, the indemnified party shall be entitled to
commence the dispute resolution process set forth under Section 12.3(b).
(g) Access and Information. With respect to any claim for
indemnification hereunder, the indemnified party will give to the indemnifying
party and its counsel, accountants and other representatives reasonable access,
during normal business hours and upon the giving of reasonable prior notice, to
their books and records relating to such claims, and to their employees,
accountants, counsel and other representatives, all without charge to the
indemnifying party, except for reimbursement of reasonable out-of-pocket
expenses. In this regard, upon notice of an indemnification claim, the
indemnified party agrees to use reasonable efforts to maintain any of its books
and records which it knows may relate to a claim for indemnification hereunder
for such period of time as may be necessary to enable the indemnifying party to
resolve such claim.
(h) Limitations on Indemnification.
(i) Anything in this Agreement to the contrary notwithstanding, the
parties hereto agree that none of them shall be liable to any other party
pursuant to the indemnification provisions of paragraphs (a), (b), (c) or (d)
of this Section 10.2 relating to the breach or inaccuracy of any
representation or warranty contained herein unless notice of such claim for
indemnification pursuant to paragraph (e) or (f) of this Section 10.2 is
received by the party from whom indemnification is being sought prior to
expiration of the applicable survival period for the subject representation or
warranty under Section 10.1.
(ii) The Indemnifying Schwarz Parties shall not be obligated hereunder
to indemnify Purchaser with respect to any liabilities, losses, claims,
judgments, damages, expenses and costs as to which Purchaser is otherwise
entitled to indemnification under this Agreement unless and until the aggregate
amount of indemnification so asserted exceeds One Hundred Thousand Dollars
($100,000), and thereafter Purchaser shall be entitled to indemnity from the
Indemnifying Schwarz Parties hereunder only with respect to any amounts in
excess of One Hundred Thousand Dollars ($100,000); provided, however, that the
foregoing limitation shall not apply to any individual indemnity claim which
itself is in excess of One Hundred Thousand Dollars ($100,000), nor shall the
amount of any such individual claim count toward the aggregate One Hundred
Thousand Dollar ($100,000) threshold. The Indemnifying Schwarz Parties' maximum
aggregate obligation to Purchaser pursuant to this Section 10.2: (A) for any
breach or inaccuracy of the representations and warranties contained in Section
3.21 shall not exceed Fifty Million Dollars ($50,000,000); and (B) for any other
indemnifiable claims hereunder shall not exceed Thirty Million Dollars
($30,000,000).
(iii) Van Horne shall not be obligated hereunder to indemnify
Purchaser with respect to any liabilities, losses, claims, judgments, damages,
expenses and costs as to which Purchaser is otherwise entitled to
indemnification under this Agreement unless and until the aggregate amount of
indemnification so asserted exceeds One Hundred Thousand Dollars ($100,000),
and thereafter Purchaser shall be entitled to indemnity from Van Horne hereunder
only with respect to any amounts in excess of One Hundred Thousand Dollars
($100,000); provided, however, that the foregoing limitation shall not apply to
any individual indemnity claim which itself is in excess of One Hundred Thousand
Dollars ($100,000), nor shall the amount of any such individual claim count
toward the aggregate One Hundred Thousand Dollar ($100,000) threshold. Van
Horne's maximum aggregate obligation to Purchaser pursuant to this Section 10.2:
(A) for any breach or inaccuracy of the representations and warranties contained
in Section 3.21 shall not exceed Fifty Million Dollars ($50,000,000); and (B)
for any other indemnifiable claims hereunder shall not exceed Thirty Million
Dollars ($30,000,000).
(iv) Purchaser shall not be obligated hereunder to indemnify the
Schwarz Parties or Van Horne with respect to any liabilities, losses, claims,
judgments, damages, expenses and costs as to which the Schwarz Parties or Van
Horne is otherwise entitled to indemnification under this Agreement unless and
until the aggregate amount of indemnification so asserted exceeds One Hundred
Thousand Dollars ($100,000), and thereafter the Schwarz Parties and Van Horne
shall be entitled to indemnity from Purchaser hereunder only with respect to any
amounts in excess of One Hundred Thousand Dollars ($100,000); provided, however,
that the foregoing limitation shall not apply to any individual indemnity claim
which itself is in excess of One Hundred Thousand Dollars ($100,000), nor shall
the amount of any such individual claim count toward the aggregate One Hundred
Thousand Dollar ($100,000) threshold. Notwithstanding anything in this
Agreement to the contrary, Purchaser's maximum aggregate obligation to the
Schwarz Parties and Van Horne pursuant to this Section 10.2 shall not exceed
Thirty Million Dollars ($30,000,000).
(v) Notwithstanding anything in this Agreement to the contrary: (A)
the limitations of Sections 10.2(h)(ii) and 10.2(h)(iii) shall not apply to any
liabilities, losses, claims, judgments, damages, expenses or costs arising due
to any breach or inaccuracy of any of the representations and warranties set
forth in Sections 3.1, 3.2, 3.3, 4.1 or 5.1, or to any claim under any of the
indemnities set forth in Sections 3.6(l), 7.17 or 7.18, or on Schedule 7.16; and
(B) the One Hundred Thousand Dollar ($100,000) threshold stipulated in Sections
10.2(h)(ii) and 10.2(h)(iii) shall not apply to any liabilities, losses, claims,
judgments, damages, expenses or costs arising due to any breach or inaccuracy of
any of the representations and warranties set forth in Section 3.21 to the
extent such breach or inaccuracy arises from any failure of the effluent
discharge from the CeCorr Companies' facilities located at either Santa Teresa,
New Mexico or Devens, Massachusetts to comply with applicable Environmental Laws
and Environmental Permits (a "Discharge Deficiency"), provided that Purchaser
shall notify Sellers in writing prior to initiating any discussions or
correspondence with any Environmental Authorities regarding a Discharge
Deficiency and shall consult with Sellers prior to incurring any indemnifiable
expense in connection with a Discharge Deficiency.
(vi) The aggregate amount of any indemnification obligation of
Sellers pursuant to Section 10.2(a), of the Indemnifying Schwarz Parties
pursuant to Section 10.2(b), or of Van Horne pursuant to Section 10.2(c), to
Purchaser for a particular matter (an "Indemnification Claim") shall be offset
dollar for dollar by (A) any insurance proceeds received by any CeCorr Company
after the Closing Date directly in respect of such specific Indemnification
Claim; and (B) any `Tax Benefit'' (as defined below) received by CeCorr in
respect of such specific Indemnification Claim. No obligation to indemnify
Purchaser for an Indemnification Claim shall be deferred pending the
determination of a possible recovery from any insurance carrier or the
availability of any Tax Benefit. For purposes of this Section 10.2(h)(vi), a
"Tax Benefit" means an amount by which the consolidated Tax liability of
CeCorr is reduced (including, without limitation, by deduction, reduction of
income by virtue of increased tax basis or otherwise, entitlement to refund,
credit or otherwise) plus any related interest received from the relevant taxing
authority. Where CeCorr or Purchaser has other losses, deductions, credits or
items available to it, the Tax Benefit from any losses, deductions, credits or
items relating to the Indemnity Claims shall be deemed to be realized only after
the utilization of such other losses, deductions, credits or items. In the
event that there should be a determination disallowing a Tax Benefit previously
used to reduce the obligation for an Indemnification Claim pursuant to this
Section 10.2(h)(vi), the indemnifying party or parties whose obligation was so
reduced shall be obligated, within ten (10) days of receipt of written notice of
such disallowance, to refund to CeCorr or Purchaser, as the case may be, the
amount of such reduction or offset previously allowed or payments previously
made to them pursuant to this Section 10.2(h)(vi).
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time, but not later
than the Closing Date:
(a) by mutual consent of the parties; or
(b) by Sellers, on the one hand, or Purchaser, on the other hand, if
the Closing shall not have occurred by the close of business on July 31, 1998,
so long as such failure to consummate the transactions contemplated hereunder
on or before such date did not result solely from the failure by the party or
parties seeking termination of this Agreement to fulfill any undertaking or
commitment on its or their part provided for herein prior to Closing; or
(c) by either Sellers or Purchaser if any court of competent
jurisdiction in the United States or other United States governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, decree, ruling or other action shall have become final
and nonappealable.
In the event of the termination of this Agreement as above provided,
without material fault of any party, no party shall have any liability
hereunder, including any liability for damages, except pursuant to Sections
7.8 (with respect to any damages arising from Purchaser's performance of
environmental testing), 7.2 (with respect to confidentiality), 12.4 (with
respect to public announcements) and 12.9 (with respect to each party bearing
its own expenses), the provisions of which shall survive any termination of
this Agreement; provided, that notwithstanding the foregoing, each party shall
be and remain liable to the others in the event that the failure so to close
hereunder shall occur as a consequence of the failure of a party to perform
fully its covenants and agreements hereunder or the material breach by a party
of its representations or warranties contained herein. In the event that a
condition precedent to its obligation is not met, nothing contained herein
shall be deemed to require any party to terminate this Agreement, rather than
to waive such condition precedent and proceed with the Closing.
ARTICLE XII
MISCELLANEOUS
12.1 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns, provided that neither this Agreement nor any right or
obligation hereunder shall be assigned by any party without the prior written
consent of the other parties hereto.
12.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered (by
hand delivery or confirmed facsimile transmission) or three (3) days after
being mailed, by certified mail, return receipt requested, first class postage
prepaid, to the parties at the following addresses:
If to Sellers:
Jack W. Schwarz
c/o Kunz & Opperman, P.C.
Suite 1750
135 N. Pennsylvania Street
Indianapolis, Indiana 46204
Attention: Leonard Opperman, Esq.
Fax No.: (317) 684-6061
and S. Richard Van Horne III
c/o Corrugated Supplies Corp.
5101 W. 65th Street
Bedford Park, IL 60638
Fax No.: (708) 458-0013
If to the Schwarz Parties:
Jack W. Schwarz
c/o Kunz & Opperman, P.C.
Suite 1750
135 N. Pennsylvania Street
Indianapolis, Indiana 46204
Attention: Leonard Opperman, Esq.
Fax No.: (317) 684-6061
If to Van Horne:
S. Richard Van Horne III
c/o Corrugated Supplies Corp.
5101 W. 65th Street
Bedford Park, IL 60638
Fax No.: (708) 458-0013
If to Purchaser:
Georgia-Pacific Corporation
133 Peachtree Street, N. E.
Atlanta, Georgia 30303
Attention: General Counsel
Fax No. (404) 230-7543
or to such other place as any party may designate by written notice to the
other parties.
12.3 Choice of Law; Dispute Resolution.
(a) This Agreement shall be construed, interpreted and the rights of
the parties determined in accordance with the laws of the State of Georgia,
without reference to the choice of law principles thereof.
(b) The parties will attempt in good faith to resolve any controversy
or claim arising out of or relating to this Agreement promptly by negotiations
between Schwarz, Van Horne and senior executives of Purchaser who have authority
to settle the controversy. If a controversy or claim should arise, Schwarz, Van
Horne, and Clint M. Kennedy, Executive Vice President-Pulp and Paperboard of
Purchaser, and Stephen E. Macadam, Senior Vice President - Containerboard and
Packaging of Purchaser, will meet for negotiations at a mutually agreed time and
place, and thereafter as often as they reasonably deem necessary to exchange
relevant information and to attempt to resolve the dispute. Any party may
request the others to meet within fourteen (14) days. If the matter has not
been resolved within ten (10) days of the meeting, or if any party will not meet
within the fourteen (14)-day period referred to above, the parties will attempt
in good faith to resolve the controversy or claim by mediation in accordance
with the American Arbitration Association model procedures for mediation of
business/commercial disputes. If the matter has not been resolved pursuant to
the aforesaid mediation procedure within thirty (30) days of the commencement of
such procedure, or if any party will not participate in a mediation, any other
party may initiate litigation upon seven (7) days' written notice to the other
parties. All deadlines specified in this Section 12.3(b) may be extended by
mutual agreement.
(c) Except as specifically provided to the contrary herein, the procedures
specified in Section 12.3(b) shall be the sole and exclusive procedures for the
resolution of disputes between the parties arising out of or relating to this
Agreement; provided, however, that a party may seek a preliminary injunction or
other preliminary judicial relief if in its judgment such action is necessary to
avoid irreparable damage. Despite such action the parties will continue to
participate in good faith in the procedures specified in Section 12.3(b). All
applicable statutes of limitation shall be tolled while the procedures specified
in Section 12.3(b) are pending, and the parties will take such action, if any,
required to effectuate such tolling.
12.4 Public Announcements. No press release or other public
statement with respect to this Agreement or the transactions contemplated
hereby shall be issued by any party without that party having consulted with
and, except to the extent public disclosure is required under the federal
securities laws or applicable rules of the New York Stock Exchange, obtained
the consent of the other parties hereto, which shall not be unreasonably
withheld.
12.5 Entire Agreement. This Agreement supersedes all prior
discussions and agreements, other than the Non-Disclosure Agreement, between
the parties with respect to the subject matter hereof, and this Agreement,
including the Schedules and Exhibits hereto, the Non-Disclosure Agreement, and
other documents required to be delivered in connection herewith, contain the
sole and entire agreement between the parties hereto with respect to the
subject matter hereof.
12.6 Waiver. Any term or condition of this Agreement may be waived
at any time by the party which is entitled to the benefit thereof. To be
effective, each such waiver shall be in writing and shall specifically refer
to this Agreement and the term or condition being waived. A waiver on one
occasion shall not be deemed to be a waiver of the same or any other breach on
a future occasion.
12.7 Amendment. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of all the parties hereto.
12.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.9 Expenses. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses in connection with this Agreement and
the consummation of the transactions contemplated hereby.
12.10 Invalid Provisions. Except as expressly provided to the
contrary herein, if any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future law, rule, or
regulation, such provision shall be fully severable and this Agreement shall
be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part hereof. The remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance herefrom.
12.11 Interpretation/Headings. "Article", "Section",
"Exhibit" or other subdivision of this Agreement shall mean and refer to the
specified article, section, exhibit or subdivision of this Agreement; and
"herein", "hereof", "hereunder" and similar expressions shall mean and
refer to this Agreement and not to any particular Article or Section hereof.
Bold and capitalized headings and sub-headings contained on any of the
Schedules hereto are included for convenience and reference only and shall not
affect the meaning or interpretation of any such Schedules or of this
Agreement.
12.12 No Third-Party Beneficiary. Nothing contained in this
Agreement is intended, or should be interpreted as having been intended, to
create any right or assume any obligation in favor of, or grant any waiver or
release from any obligation to, or otherwise constitute a stipulation in favor
of any third party.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the day and year first above written.
"Sellers":
"The Schwarz Parties"
Jack W. Schwarz
Jeffrey A. Schwarz
John W. Schwarz
SCHWARZ FAMILY IRREVOCABLE TRUST
By:
--------------------------
Title:
------------------------
SCHWARZ PARTNERS II, L.P.
By:
-------------------------
Title:
------------------------
(signatures continued on following page)
SCHWARZ PARTNERS III, L.P.
By:
-------------------------
Title:
------------------------
"Van Horne"
S. Richard Van Horne III,
individually and as trustee under
the S. Richard Van Horne III
Trust
"Purchaser":
GEORGIA-PACIFIC CORPORATION
By:
-----------------------------
Stephen E. Macadam
Senior Vice President -
Containerboard and Packaging
Exhibits
Exhibit A Schwarz Shares
Exhibit 7.2 Non-Disclosure Agreement
Exhibit 7.7A Schwarz Consulting Agreement and Covenant Not To Compete
Exhibit 7.7B Van Horne Covenant Not To Compete
Exhibit 7.11 Put Agreement
Exhibit 7.14 Indemnity Agreement (Captive Insurance Program)
Schedules
Schedule 1.3 CeCorr, Inc. Subsidiaries
Schedule 3.2 Sellers' Conflicts
Schedule 3.3(b) Subsidiary Shares
Schedule 3.4 Violations by CeCorr Companies
Schedule 3.5 Exceptions to Condition of Assets
Schedule 3.6 Tax Matters
Schedule 3.8 Licenses and Permits
Schedule 3.9 Insurance Matters
Schedule 3.10 List of Audited Financial Statements
Schedule 3.11 Material Adverse Changes
Schedule 3.12 Material Contracts
Schedule 3.13 Undisclosed Liabilities/Assets
Schedule 3.14 Real Property
Schedule 3.15(a)Owned Equipment
Schedule 3.15(b)Lien Schedule
Schedule 3.16 Disputed Accounts Receivable
Schedule 3.17 Intellectual Property
Schedule 3.18 Bank Accounts
Schedule 3.19 Litigation
Schedule 3.20(a)Employees
Schedule 3.20(b)Collective Bargaining Agreements
Schedule 3.20(c)CeCorr Plans
Schedule 3.20(e)Changes to CeCorr Plans
Schedule 3.20(g)Funding of CeCorr Plans
Schedule 3.20(h)Claims Against CeCorr Plans
Schedule 3.20(i)Contributions to Multiemployer Plans
Schedule 3.20(j)Filing Deficiencies on CeCorr Plans
Schedule 3.20(k)Labor Controversies
Schedule 3.20(l)Notices of Safety and Health Violations
Schedule 3.21(a)Environmental Permits
Schedule 3.21(b)Environmental Exceptions
Schedule 3.23 Computer Hardware and Software
Schedule 4.2 Schwarz Parties' Conflicts
Schedule 5.2 Van Horne Conflicts/Violations/Consents
Schedule 6.3 Purchaser's Consent and Approval
Schedule 6.9 Knowledge Group of Purchaser
Schedule 7.1(f) Sales, Transfers and Liens Not in the Ordinary Course
Schedule 7.1(g) Material Obligations or Liabilities Not in the Ordinary Course
Schedule 7.1(h) Changes To Compensation and Benefits Not in the Ordinary Course
Schedule 7.1(j) Amendments to Articles of Incorporation and Bylaws
Schedule 7.16 Change of Control and Severance Program Benefits
STOCK PURCHASE AGREEMENT
BY AND AMONG
S. RICHARD VAN HORNE III, WILLIAM S. VAN HORNE,
JOHN T. VAN HORNE AND THE S. RICHARD VAN HORNE II TRUST
AND
GEORGIA-PACIFIC CORPORATION
June 30,1998
STOCK PURCHASE AGREEMENT
Table of Contents
ARTICLE I
PAGE
PURCHASE AND SALE OF SHARES....................1
Section 1.1 Purchase and Sale of Shares....................1
Section 1.2 Consideration .................................2
Section 1.3 Closing Date Balance Sheet; Post-Closing
Payments.....................................2
ARTICLE II
THE CLOSING ...................................4
Section 2.1 Time and Place of Closing .....................4
Section 2.2 Deliveries by Sellers .........................4
Section 2.3 Deliveries by Purchaser .......................4
Section 2.4 Deliveries by CSC .............................4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS .....5
Section 3.1 Due Incorporation, Etc. .......................5
Section 3.2 Authorization, No Conflicts, Etc. .............5
Section 3.3 Capital Stock of the CSC ......................6
Section 3.4 Absence of Violations .........................6
Section 3.5 Consents and Approvals ........................7
Section 3.6 Assets at Closing .............................7
Section 3.7 Taxes .........................................7
Section 3.8 Books and Records .............................10
Section 3.9 Licenses and Permits ..........................10
Section 3.10 Insurance .....................................11
Section 3.11 Financial Statements ..........................11
Section 3.12 No Material Adverse Change ....................11
Section 3.13 Material Contracts and Leases .................13
Section 3.14 Undisclosed Liabilities .......................13
Section 3.15 Bank Accounts .................................13
Section 3.16 Litigation ....................................14
Section 3.17 Employees, Pension and Other Benefit Plans ....14
Section 3.18 Environmental Matters .........................18
Section 3.19 Brokers .......................................20
Section 3.20 Disclosure ....................................20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER ...20
Section 4.1 Due Incorporation .............................20
Section 4.2 Authorization, No Conflicts, Etc. .............21
Section 4.3 Consents and Approvals ........................21
Section 4.4 Brokers .......................................21
Section 4.5 Qualifications ................................21
Section 4.6 Legal Proceedings .............................22
Section 4.7 Disclosure ....................................22
ARTICLE V
COVENANTS .....................................22
Section 5.1 Transfer of Operating Assets and Liabilities ..22
Section 5.2 Indemnity for Transfer Liabilities ............23
Section 5.3 [Intentionally Omitted] .......................23
Section 5.4 Access to Information/Confidentiality .........23
Section 5.5 Tax Assistance ................................24
Section 5.6 [Intentionally Omitted] .......................24
Section 5.7 Books and Records .............................24
Section 5.8 Consents and Further Actions ..................25
ARTICLE VI
CONDITIONS TO SELLERS' OBLIGATIONS ............25
Section 6.1 Representations, Warranties and Covenants .....25
Section 6.2 Performance of Obligations ....................25
Section 6.3 No Injunction .................................25
Section 6.4 Opinion of Counsel ............................25
Section 6.5 Certificates ..................................26
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS .........26
Section 7.1 Representations, Warranties and Covenants .....26
Section 7.2 Performance of Obligations ....................26
Section 7.3 Permits, Consents and Approvals ...............26
Section 7.4 No Injunction .................................26
Section 7.5 Assets and Liabilities of CSC .................27
Section 7.6 Resignations and Releases .....................27
Section 7.7 Opinion of Counsel ............................27
Section 7.8 Certificates ..................................27
Section 7.9 Purchase of Remaining CeCorr Shares ...........27
ARTICLE VIII
SURVIVAL; INDEMNITIES .........................27
Section 8.1 Survival ......................................27
Section 8.2 Indemnification ...............................28
ARTICLE IX
TERMINATION ...................................29
Section 9.1 Termination ...................................29
ARTICLE X
MISCELLANEOUS .................................30
Section 10.1 Successors and Assigns ........................30
Section 10.2 Notices .......................................30
Section 10.3 Choice of Law; Dispute Resolution .............31
Section 10.4 Public Announcements ..........................32
Section 10.5 Entire Agreement ..............................32
Section 10.6 Waiver ........................................32
Section 10.7 Amendment .....................................32
Section 10.8 Counterparts ..................................33
Section 10.9 Expenses ......................................33
Section 10.10Invalid Provisions ............................33
Section 10.11Interpretation ................................33
Section 10.12No Third-Party Beneficiary ....................33
LIST OF EXHIBITS
Exhibit A CSC Shares
Exhibit 5.1 Asset Acquisition Agreement
Exhibit 5.4 Non-Disclosure Agreement
LIST OF SCHEDULES
Schedule Title
3.2 Sellers' Conflicts
3.3 CSC Subsidiaries
3.4 Violations
3.5 Seller's Consents and Approvals
3.7 Tax Matters
3.9 Licenses and Permits
3.10 Insurance Matters
3.11 List of Audited Financial Statements
3.11A Exceptions to Financial Statements
3.12 Material Adverse Changes
3.13 Material Contracts
3.14 Undisclosed Liabilities
3.15 Bank Accounts
3.16 Litigation
3.17(b) Collective Bargaining Agreements
3.17(c) CSC Plans
3.17(g) Funding of CSC Plans
3.17(h) Claims Against CSC Plans
3.17(i) Contributions to Multiemployer Plans
3.17(j) Filing Deficiencies on CSC Plans
3.17(k) Labor Controversies
3.18(a) Environmental Permits
3.18(b) Environmental Exceptions
4.3 Purchaser's Consents and Approvals
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of June 30,
1998, is made and entered into by and between S. RICHARD VAN HORNE III, an
individual resident of the State of Illinois and trustee under the S. Richard
Van Horne III Trust (hereinafter referred to in both such capacities as `Van
Horne'), WILLIAM S. VAN HORNE, an individual resident of the State of
Illinois, JOHN T. VAN HORNE, an individual resident of the State of
California, and the S. RICHARD VAN HORNE II TRUST (all of the foregoing
parties being sometimes hereinafter referred to collectively as the "Sellers"
and individually as a "`Seller") and GEORGIA-PACIFIC CORPORATION, a Georgia
corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Sellers own all of the issued and outstanding shares of
common stock of Brown Board Holding, Inc., a Delaware corporation formerly
known as Corrugated Supplies Corp. ("CSC") as more particularly described on
Exhibit A (the "CSC Shares");
WHEREAS, CSC is in the business of manufacturing and selling
corrugated packaging materials (the "Business"): and
WHEREAS, Purchaser desires to purchase, and Sellers desire to sell,
the CSC Shares upon the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby covenant and agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Shares. In exchange for the consideration
specified in Section 1.2, and upon the terms and subject to the conditions
provided for in this Agreement, on the date of the "Closing" (as defined in
Section 2.1) Sellers will sell to Purchaser, and Purchaser will purchase from
Sellers, all of the CSC Shares.
1.2 Consideration. The purchase price (the "Purchase Price")
payable in consideration for the CSC Shares shall be the sum of Eighty-Nine
Million Two Hundred Fifty-Three Thousand Dollars ($89,253,000) plus the amount
of the outstanding principal on the "Van Horne Note" (as defined in Section
3.6). Purchaser shall pay the Purchase Price to Sellers in accordance with
2
Section 2.3(a) hereof. The Purchase Price is subject to adjustment following
the Closing in accordance with Section 1.3.
1.3 Closing Date Balance Sheet; Post-Closing Payments.
(a) As soon as practicable following the Closing Date, but in no
event later than ninety (90) days thereafter, Purchaser shall deliver to
Sellers a balance sheet (the `Closing Date Balance Sheet'') for CeCorr, Inc.,
an Indiana corporation of which approximately Forty-Seven Percent (47%) of the
capital stock is owned by CSC ("CeCorr"), and all of CeCorr's subsidiary
corporations and affiliates (CeCorr and all such subsidiaries and affiliates
being hereinafter referred to collectively as the "CeCorr Companies") as of
the Closing Date in accordance with generally accepted accounting principles
("GAAP") as consistently applied with previously audited financial statements
of the CeCorr Companies. The Closing Date Balance Sheet shall be prepared in
conjunction with and audited by Geo. S. Olive & Co. LLC ("Olive"). If and to
the extent that the consolidated Stockholders' Equity of the CeCorr Companies
as reflected on the Closing Date Balance Sheet is less than Twenty-One Million
Two Hundred Sixteen Thousand Five Hundred Seventy-One Dollars ($21,216,571)
(the "Base Net Equity"), Sellers shall pay to Purchaser an amount equal to
Forty-Seven Percent (47%) of such deficiency within ten (10) days of the
delivery of the Closing Date Balance Sheet to Sellers, unless Sellers or
Purchaser choose to contest the existence or amount of such deficiency
pursuant to Section 1.3(b). If and to the extent that the consolidated
Stockholders Equity of the CeCorr Companies as reflected on the Closing Date
Balance Sheet is greater than the Base Net Equity, Purchaser shall pay to
Sellers an amount equal to Forty-Seven Percent (47%) of such excess upon
delivery to Sellers of the Closing Date Balance Sheet, unless Purchaser or
Sellers choose to contest the existence or amount of any such excess pursuant
to Section 1.3(b). Any amount payable pursuant to this Section 1.3(a) shall:
(i) be paid either by or to each Seller, in cash, in proportion to his or its
relative ownership of the CSC Shares; and (ii) bear interest at LIBOR, as
3
quoted in the Wall Street Journal on the Closing Date, plus one-quarter
percent (0.25%), from the Closing Date until paid in full.
(b) The consolidated Stockholders' Equity of the CeCorr Companies as
reflected on the Closing Date Balance Sheet shall be final and binding for
purposes of this Agreement unless a party to this Agreement gives to all other
parties to this Agreement written notice of disagreement with any entries or
amounts thereon within thirty (30) business days following their receipt of the
Closing Date Balance Sheet, specifying in reasonable detail the nature and
extent of such disagreement. If Sellers and Purchaser are unable to resolve any
disagreement with respect to the Closing Date Balance Sheet within thirty (30)
business days following receipt of the notice referred to above, each party
shall then have thirty (30) days to prepare such written materials as it deems
relevant to the disagreement. At the end of such thirty (30) day period, the
disagreement, together with the written materials prepared by each party, shall
be submitted for resolution to the Atlanta, Georgia office of Deloitte & Touche
LLP (the "Neutral Accountants"). The Neutral Accountants shall act as an
arbitrator to determine and resolve only those issues still in dispute. The
Neutral Accountants' resolution shall be made within thirty (30) days of the
submission of the dispute, shall be in accordance with this Agreement, shall be
set forth in a written statement delivered to Sellers and Purchaser and shall be
final, binding and conclusive. Purchaser shall make available to each Seller
such records, work papers and other documents used in preparation of the Closing
Date Balance Sheet as may be reasonably requested by Sellers.
(c) Each of the Sellers and Purchaser represents and warrants that it has
had no significant business or other relationships with Deloitte & Touche LLP
since January 1, 1993. The fees and expenses of the Neutral Accountants in
connection with any determination under Section 1.3(b) shall be apportioned
between Sellers, on the one hand, and Purchaser, on the other hand, by the
Neutral Accountants based on the inverse proportion of disputed amounts resolved
4
in favor of each party. Each of the Sellers and Purchaser shall pay their own
costs incurred in connection with Section 1.3(b) ,
(d) Sellers shall be responsible for payment of Twenty-Three and One-Half
Percent (23.5%) of the fees and expenses of Olive in connection with preparation
and delivery of the Closing Date Balance Sheet.
ARTICLE II
THE CLOSING
2.1 Time and Place of Closing. The closing of the transactions
provided for in this Agreement (the "Closing") shall be held at 10:00 a.m.
local time, on the later of June 30, 1998 or the second business day after the
fulfillment or waiver of the conditions set forth in Articles VI and VII
hereof at the offices of Purchaser at 133 Peachtree Street, N.E., Atlanta,
Georgia 30303, or at such other place and time as the parties may agree.
2.2 Deliveries by Sellers. At the Closing, Sellers will deliver the
following to Purchaser:
(a) Stock certificates representing the CSC Shares, together with
duly executed stock powers;
(b) The stock book, stock ledger, and minute book of CSC;
(c) The opinion(s) and certificate(s) contemplated by Article VII;
(d) The outstanding principal and interest under the Van Horne Note
by wire transfer of immediately available funds to an account designated by
Purchaser prior to the Closing Date; and
(e) All other documents, instruments and writings required to be
delivered by any of the Sellers at or prior to the Closing Date pursuant to
this Agreement or otherwise required, or reasonably requested by Purchaser, in
connection herewith.
2.3 Deliveries by Purchaser. At the Closing, Purchaser will deliver
the following to Sellers:
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(a) The Purchase Price by wire transfer of immediately
available funds to an escrow account designated in writing by such Sellers
prior to the Closing Date (the "Escrow");
(b) The opinion(s) and certificate(s) contemplated by Article
VI; and
(c) All other documents, instruments and writings required to
be delivered by Purchaser at or prior to the Closing Date pursuant to this
Agreement or otherwise required, or reasonably requested by Sellers, in
connection herewith.
2.4 Deliveries by CSC. At Closing, upon payment of the outstanding
principal and interest under the Van Horne Note as contemplated by Section 2.2
hereof, CSC shall deliver the Van Horne Note to Van Horne or to the Escrow.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby jointly and severally represent and warrant to
Purchaser as follows:
3.1 Due Incorporation, Etc. CSC: (a) is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware;
(b) has all requisite corporate power and authority to conduct its business as
it presently is being conducted and to own and lease the properties and assets
owned or leased by it; and (c) is duly licensed and qualified to do business and
is in good standing in each jurisdiction in which the properties owned or leased
or the operation of its business makes such licensing or qualification to do
business necessary. Complete and correct copies of the Certificate or Articles
of Incorporation and Bylaws, as amended to date, of CSC have been delivered or
made available to Purchaser.
3.2 Authorization, No Conflicts, Etc. Sellers have all requisite
power and authority to enter into this Agreement and to carry out the
6
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby by
each of the Sellers have been or prior to Closing will be duly authorized by any
and all requisite trust or other organizational action. This Agreement has been
duly executed and delivered by Sellers and (assuming the due authorization,
execution and delivery hereof by Purchaser) is a valid and binding obligation of
Sellers, enforceable against each of them in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity). The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby by Sellers will not, except as set forth on
Schedule 3.2: (a) violate any provision of law applicable to any of the Sellers;
(b) with or without the giving of notice and/or the passage of time, conflict
with or result in the breach of any provision of (i) any trust document
applicable to any Seller or (ii) the Articles or Certificate of Incorporation or
Bylaws of CSC, or (iii) any material instrument, license, agreement or
commitment to which CSC is a party or by which any of its assets or properties
are bound; or (c) constitute a violation of any order, judgment or decree to
which any of the Sellers or CSC is a party or by which any of CSC's assets or
properties are bound.
3.3 Capital Stock of CSC. The authorized capital stock of CSC
consists of: (a) 1,000 shares of voting common stock , par value $1.00 per share
(the "Voting Common Stock"), of which 218 shares are issued and outstanding;
(b) 1,000 shares of nonvoting common stock, par value $1.00 per share (the
"Nonvoting Common Stock"), of which 460 shares are issued and outstanding; and
(c) 3,000 shares of voting preferred stock (the "Voting Preferred Stock"), of
which 1907 shares are issued and outstanding (the Voting Common Stock, Nonvoting
7
Common Stock and Voting Preferred Stock being hereinafter referred to
collectively as the "Capital Stock"). Except for 645 shares of Voting
Preferred Stock previously redeemed but not canceled, no shares of Capital Stock
are held by CSC in its treasury. There are no securities of CSC outstanding
which are convertible into or exchangeable or exercisable for any shares of
Capital Stock, and except for the rights in the outstanding Voting Preferred
Stock, there are no outstanding or authorized subscriptions, options, warrants,
calls, rights, commitments or any other agreements of any character obligating
CSC to issue, sell or transfer any additional shares of Capital Stock or any
securities convertible into or evidencing the right to subscribe for any shares
of Capital Stock. The CSC Shares constitute all of the issued and outstanding
shares of Capital Stock. All of the CSC Shares are duly authorized, validly
issued, fully paid and nonassessable, and none of the CSC Shares are subject to
any option, call or contract right. All of the CSC Shares are owned by Sellers
free and clear of all liens, pledges and other encumbrances, and Sellers have
the sole and exclusive right, power and authority to vote the CSC Shares. Upon
consummation of the transactions contemplated hereby, Purchaser will acquire
title to all of the CSC Shares free and clear of all liens, pledges and
encumbrances. Except as disclosed on Schedule 3.3, there are no subsidiaries of
CSC.
3.4 Absence of Violations. Except as disclosed on Schedule 3.4, CSC
is not in violation of its Certificate or Articles of Incorporation or Bylaws,
or in violation (or with notice or lapse of time or both would be in violation)
of any term or provision of: (a) any law, statute, ordinance, rule, regulation,
order, writ, judgment, injunction, permit or decree applicable to them or any of
their assets, operations or properties; or (b) any agreement, lease, or other
document, by which it or any of its assets or properties are bound.
3.5 Consents and Approvals. Except as disclosed on Schedule 3.5, the
Sellers' execution and delivery of this Agreement, their compliance with the
8
terms hereof and their consummation of the transactions contemplated hereby,
does not and will not require any of them or CSC to obtain any consent,
approval or action of, or make any filing with or give any notice to, any
person or entity.
3.6 Assets at Closing. As of the Closing Date, the assets of CSC
shall consist exclusively of: (a) One Thousand Five Hundred Twenty (1,520)
shares of the voting common stock of CeCorr and Eleven Thousand Eight Hundred
Eight (11,880) shares of the non-voting common stock of CeCorr, constituting
approximately Forty-Seven Percent (47%) of the issued and outstanding capital
stock of CeCorr (collectively, the "CeCorr Stock"); and (b) a promissory
note of Van Horne payable to CSC at the Closing in the principal amount of Nine
Million Six Hundred Thousand Dollars ($9,600,000) dated June 29, 1998 (the "Van
Horne Note").
3.7 Taxes. (a) CSC, and each of its former or present subsidiaries
(other than CeCorr) (collectively, the "CSC Companies" and individually a
"CSC Company") has duly and timely filed all "Tax Returns" (as defined below)
required to be filed by it and has paid all "Taxes" (as defined below) due and
payable by it on or prior to the Closing, and such Tax Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities, status or other matters of the CSC Companies or any other
information required to be shown thereon. In particular, but without
limitation, none of the Tax Returns contain any position which is or would be
subject to penalties under Section 6661 or Section 6662 of the "Code" (as
defined below) (or any corresponding provision of any state, local or foreign
Tax law). There are no agreements, waivers or other arrangements providing for
an extension of time with respect to the filing of any of the Tax Returns or
payment of any of the Taxes by any of the CSC Companies; except as disclosed on
Schedule 3.7, there are no investigations, examinations, reassessments, claims,
actions, suits or proceedings threatened or pending against any of the CSC
9
Companies in respect of any of the Taxes, nor are there any matters under
discussion with any federal, provincial, state or local government or taxing
authority, relating to any of the Taxes imposed, levied or assessed by any such
government or authority.
(b) Each of the CSC Companies has withheld from each payment made to
any of its former or present employees, directors, officers or shareholders all
amounts which it is required by the laws to which it is subject to withhold or
deduct and has duly remitted all amounts so withheld or deducted to the proper
recipients thereof within the time limits and in the manner required by such
laws.
(c) Schedule 3.7 lists all tax-sharing agreements or similar
arrangements with respect to or involving any of the CSC Companies and any
entity that is not a CSC Company, and copies of all such agreements or
arrangements have been or will be provided to Purchaser. Sellers shall cause
all such agreements or arrangements to be terminated as of the Closing Date, and
after the Closing Date the CSC Companies shall not be bound thereby or have any
liability thereunder for amounts due in respect of periods prior to the Closing
Date.
(d) Except as disclosed on Schedule 3.7, none of the CSC Companies
have ever been a member of an affiliated group of corporations, within the
meaning of Section 1504 of the Code.
(e) All material elections with respect to Taxes affecting any of the
CSC Companies as of the date hereof are disclosed on Schedule 3.7. After the
date hereof, no election with respect to Taxes will be made by any of the CSC
Companies without the written consent of the Purchaser.
(f) Except as disclosed on Schedule 3.7, no asset of any CSC Company
is property which such Company is required to treat as being owned by any other
10
person pursuant to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code, or any similar provision of any Tax law.
(g) Except as disclosed on Schedule 3.7, no asset of any CSC Company
directly or indirectly secures any debt, the interest on which is tax-exempt
under Section 103(a) of the Code.
(h) Except as disclosed on Schedule 3.7, no asset of any CSC Company
is "tax-exempt use property" within the meaning of Section 168(h) of the Code.
(i) No CSC Company is a party to any agreement, contract, arrangement
or plan that has resulted or would result in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
(j) No CSC Company is a party to any joint venture, partnership,
limited liability company, or other arrangement or contract which could be
treated as a partnership for federal or state income tax purposes.
(k) Each CSC Company has filed all necessary Tax Returns in all states
in which it is conducting business.
(l) The Sellers will indemnify the Purchaser against and hold it
harmless from any liability of any of the CSC Companies for Taxes of any person
or entity other than the CSC Companies under Treasury Regulation 1.1502-6 (or
any similar provision of state, local or foreign law), for any period ending
prior to the Closing Date and for any costs, expenses, attorneys' fees or
similar costs incurred by the Purchaser or any of the CSC Companies as a result
of the assertion of such liability by any taxing authority.
(m) Each Seller is a United States person within the meaning of the
Code.
(n) No CSC Company has, nor have they had, a permanent establishment
in any foreign country, as defined in any applicable Tax treaty or convention
between the United States and such foreign country.
(o) Except as disclosed on Schedule 3.7 no CSC Company is, nor has
been, a United States real property holding corporation (as defined in section
11
897(c)(2) of the Code) during the applicable period specified in section
897(c)(1)(A)(ii) of the Code.
(p) Except as disclosed on Schedule 3.7, no item of income or gain
reported by any CSC Company for financial accounting purposes in any pre-Closing
period is required or will be required to be included in taxable income for a
post-Closing period.
(q) Except as disclosed on Schedule 3.7, there are no outstanding
requests for rulings from any Tax authority with respect to any Tax matter of
any CSC Company.
(r) There are no liens for Taxes (other than for current Taxes not yet
due and payable) upon any of the assets of any of the CSC Companies.
(s) As used in this Agreement, the following defined terms shall have
the following meanings:
(i) "Code" means the Internal Revenue Code of 1986, as amended.
All citations to the Code, or to the Regulations promulgated thereunder, shall
include any amendments or any substitute or successor provisions thereto.
(ii) "Tax or Taxes" means all taxes, assessments, reassessments,
charges, levies and all other imposts, together with all interest, penalties and
fines thereon or additions thereto, of whatever kind or nature, including
without limitation, gross or net income, ad valorem, alternative or add-on
minimum tax, capital stock, capital duty, documentary, employment (including,
without limitation, social security and unemployment), environmental, excise,
franchise, gains, goods and services, gross receipts, import, intangible,
license, mining, net worth, occupation, payroll, privilege, production, profits,
property, registration, sales, services, severance, stamp, surplus, transfer,
use, wage, wealth withholding, workers compensation, value added taxes, charges,
fees and customs duties, imposed, levied or assessed by any federal, state,
provincial or local government or taxing authority, and including any transferee
or secondary liability in respect of any tax (whether imposed by law,
12
contractual agreement or otherwise) and any liability in respect of any tax as a
result of being a member of any affiliated, consolidated, combined, unitary or
similar group.
(iii) "Tax Returns" means all federal, state or local tax reports,
returns, declarations of estimated tax or other information required to be filed
with respect to any of the CSC Companies, their income, properties or business.
3.8 Books and Records. The books and records of the CSC Companies
have, in all material respects, been maintained in accordance with good
business and bookkeeping practices, and accurately reflect in all material
respects the ownership and operations of the CSC Companies. The minutes of
the meetings of the directors and shareholders of each of the CSC Companies
and their respective stock ledgers, which have been provided to Purchaser, are
the complete, true and correct records of directors' and shareholders'
meetings and capital stock issuances and transfers through and including the
date hereof.
3.9 Licenses and Permits. Except as disclosed on Schedule 3.9: (a)
the CSC Companies have conducted the Business in substantial compliance with
all applicable laws and regulations; (b) each CSC Company has all licenses,
franchises, permits, approvals, authorizations, exemptions, classifications,
certificates, registrations, and similar documents or instruments required to
conduct the Business as presently conducted (collectively, the "Licenses and
Permits"); and (c) all Licenses and Permits are valid, binding, and in full
force and effect; and (d) copies of all Licenses and Permits have been
delivered or made available to Purchaser.
3.10 Insurance. Schedule 3.10 contains a complete list of all
casualty, property, workers compensation and other insurance policies and
arrangements (including without limitation the names of the insurers and the
expiration dates thereof) affecting or relating to the ownership, use, or
operation of any of the assets or properties of any of the CSC Companies. All
13
such policies and arrangements are in full force and effect and each CSC
Company is in good standing and compliance thereunder. Except as disclosed on
Schedule 3.10: (a) no CSC Company has received notice of any pending or
threatened cancellation of any such insurance or of any premium increase and
(b) there are no pending claims with respect to any CSC Company against such
insurance as to which insurers have asserted a reservation of rights or have
denied liability, and to the best of Sellers knowledge there exists no claim
under such insurance that has not been properly filed with such insurers.
3.11 Financial Statements. Each CSC Company has maintained books and
records which: (a) are, and during the periods covered by the "Financial
Statements" (as hereinafter defined), were correct and complete in all
material respects; (b) fairly and accurately reflect or reflected its income,
cash flow, expenses, assets and liabilities, including the nature thereof and
the transactions giving rise thereto; and (c) provide or provided a fair and
accurate basis for the preparation of the audited and unaudited financial
statements attached hereto as Schedule 3.11 (collectively, the "Financial
Statements"). The Financial Statements include, on the basis described
therein or in the notes thereto, the financial condition and results of
operations of the CSC Companies as at and for each of the three years ended
August 31, 1995, 1996 and 1997. With certain exceptions set forth on Schedule
3.11A or in the Financial Statements or described in the notes thereto, the
Financial Statements have been prepared in accordance with GAAP and CSC's
normal accounting and reporting practices, and the Financial Statements are,
in all material respects, complete, and present fairly (as the concept is used
in certified financial statements) the information shown therein.
3.12 No Material Adverse Change. Except as disclosed on Schedule
3.12, since August 31, 1997 no CSC Company has:
14
(a) purchased or redeemed directly or indirectly any shares of its
capital stock;
(b) issued or sold or agreed to issue or sell any shares of its
capital stock or any option, warrant, conversion or other right to acquire any
such share or any securities convertible into or exchangeable for such shares;
(c) been a party to any corporate reorganization, restructuring or
merger or amalgamation or amended its certificate or articles of incorporation
or bylaws;
(d) declared or paid any dividend or declared or made any other
distribution (whether in cash, stock or property) on any of the shares of its
capital stock;
(e) incurred or discharged any obligation or liability (whether
accrued, absolute or contingent) other than in the ordinary course of and in a
manner consistent with past practices for the Business;
(f) entered into any transaction, contract, agreement, indenture,
instrument or commitment other than in the ordinary course of and in a manner
consistent with past practices for the Business;
(g) suffered or incurred any damage, destruction, loss or liability
(whether or not covered by any insurance);
(h) experienced any strike, lockout or other labor trouble such as
slow down or work stoppage, or any loss of any of its key employees, customers,
suppliers or distributors;
(i) made any change in its accounting principles, policies and
practices as utilized in the preparation of the Financial Statements;
(j) made any loan or advance, or assumed, guaranteed, endorsed or
otherwise become liable with respect to the liabilities or obligations of any
other person or entity, or permitted any of its assets to be subjected to any
lien or security interest;
15
(k) incurred any indebtedness, liability or obligation (absolute,
accrued, contingent or otherwise) other than in the ordinary course of and in a
manner consistent with past practices for the Business;
(l) sold, leased or otherwise disposed of any of its assets or any
right, title or interest therein other than in the ordinary course of and in a
manner consistent with past practices for the Business;
(m) made any payment to, or for the benefit of, any present or former
employee, director, officer or shareholder otherwise than at the regular rates
payable to them, by way of salary, pension, bonus or other remuneration
consistent with past practices for the Business;
(n) committed to any capital expenditure project or made any
investment, in either case in excess of Five Hundred Thousand Dollars ($500,000)
not disclosed to Purchaser prior to the date of this Agreement or consented to
by Purchaser; or
(o) authorized or agreed to do any of the foregoing matters referred
to in this Section 3.12.
3.13 Material Contracts and Leases. Schedule 3.13 sets forth each
written or oral contract and lease to which any of the CSC Companies are a
party and which involves an executory obligation of more than Twenty Thousand
Dollars ($20,000) per annum (collectively, the "Material Contracts"). Each
Material Contract is in full force and effect, and no CSC Company is in breach
of or default under any Material Contract. Complete and correct copies of all
written Material Contracts have been made available for inspection by
Purchaser, along with a detailed description and explanation of all oral
Material Contracts. Except as set forth on Schedule 3.13 all of the CSC
Companies' rights and obligations under the Material Contracts, and all other
contracts, leases or agreements other than the Van Horne Note and this
Agreement, shall be fully extinguished, either by assignment or termination,
prior to the Closing Date, and at the Closing Date no CSC Company shall have
16
any obligation or liability under any such contract, lease or agreement other
than this Agreement.
3.14 Undisclosed Liabilities. Except as disclosed on Schedule 3.14
at the Closing Date: (a) no CSC Company shall have any liabilities or
obligations of any kind, whether accrued, absolute, contingent or otherwise,
including liabilities payable after the Closing relating to any pre-Closing
transaction, activity or event irrespective of whether any CSC Company was
aware or on notice of such liability or obligation at the time of Closing; and
(b) with the exception of the CeCorr Stock and the Van Horne Note, no CSC
Company will hold any loan or advance due by, or any stock, obligation or
securities of, or any other interest in, any other person or entity.
3.15 Bank Accounts. Schedule 3.15 sets out the name of: (a) each
bank, trust company other institution with which any CSC Company has an
account or safekeeping arrangement or safety deposit box and the names of each
individual or entity authorized to operate or who has access to such account,
arrangement or box on behalf thereof; and (b) each person or entity holding a
general or special power of attorney from any CSC Company with a summary of
the terms thereof. All of the accounts, arrangements, boxes and powers of
attorney set out on Schedule 3.15 shall be assigned or terminated prior to
Closing and thereafter no CSC Company shall have any obligation or liability
in connection therewith.
3.16 Litigation. Except as disclosed on Schedule 3.16: (a) there are
no claims, actions, proceedings (public or private) or governmental
investigations pending, or to Sellers' knowledge threatened, against or
affecting any of the CSC Companies, at law or in equity, before or by any
federal, state, or municipal court, regulatory agency or other governmental
entity, or by any other entity or private person; and (b) there are no
existing orders, judgments or decrees of any court or governmental agency
17
against or affecting any CSC Company and, to Sellers' knowledge, no such
order, judgment or decree is being threatened.
3.17 Employees, Pension and Other Benefit Plans.
(a) At the Closing Date, no CSC Company will employ any employee in
any capacity, nor will any CSC Company have any "Employment-Related
Obligations" (as hereinafter defined) of any nature whatsoever to any former
employee or other person or entity, regardless of whether such obligations may
have occurred or arisen before, on or after the Closing Date or were originally
obligations of Seller. For purposes of this Agreement, "Employment-Related
Obligations" includes, without limitation, any obligation now or any time in
the future to pay compensation, benefits, damages, Taxes, or any other monetary
payment to or on behalf of any person or entity arising out of or related in any
way to the employment of any person; any obligation to employ, reemploy, promote
or otherwise provide employment to any person; and any other obligation under
any federal, state or local statute, ordinance, regulation or common law of or
relating to workers' compensation (regardless when the injury occurred),
employee benefits, employment discrimination, occupational safety and health,
labor/management relations, wages and hours of employment, payment of wages,
plant closings and mass layoffs, wrongful discharge, or any other labor,
employment or employee benefits matter.
(b) Except as disclosed on Schedule 3.17(b), no CSC Company is a party
to or bound by any collective bargaining agreement or any other agreement with,
or commitment to, any union of employees or former employees or any contract of
employment, written or oral, with any person.
(c) At the Closing Date, no CSC Company will be a party to, nor will
it sponsor, maintain, or contribute to any "Employee Plans". For purposes of
this Agreement, the term "Employee Plans" means all "employee welfare benefit
plans" and "employee pension benefit plans" as respectively defined in
sections 3(1) and 3(2) of the Employee Retirement Income Security Act of 1974,
18
as amended, and regulations promulgated thereunder ("ERISA"), all employee
benefit and pension plans, all other bonus, deferred compensation, retirement,
savings, excess benefit, stock option or purchase, retention, termination,
severance and incentive plans, contracts, programs, funds, arrangements,
policies, or practices and all other plans, contracts, programs, funds,
arrangements, policies, or practices that provide or may provide money (other
than as current salary or wages), services, property or other benefits, whether
written or oral and whether funded or unfunded, and any trust, escrow or similar
agreement related thereto, whether written or oral and whether funded or
unfunded, which are established and maintained by any of the CSC Companies with
respect to any of its salaried or hourly employees (whether or not on short-term
or long-term disability, accident or sickness, maternity, lay-off or other
authorized leave of absence ("Employees")), former Employees who have rights
under the CSC Plans ("Retired Employees"), independent contractors, directors,
officers, shareholders, or their dependents or which are established or
maintained by any person (which together with a CSC Company is or would have
been as of the date of the Agreement treated as a single employer under section
414 of the Code) (the "Related Persons") or with respect to which any CSC
Company or the Related Persons have made or are required to make payments,
transfers or contributions. The Employee Plans are listed in Schedule 3.17(c)
(the "CSC Plans") and are all the Employee Plans currently sponsored,
maintained or contributed to by any CSC Company, and are all duly registered
where required by, and are in good standing under, the Laws, and each of the
pension plans meets the minimum surcharge standards specified under ERISA and
the Code.
(d) Sellers have delivered to Purchaser true, complete and up-to-date
copies of all documents embodying the CSC Plans including, without limitation,
all amendments thereto, all funding agreements thereunder (including, but not
limited to, trust agreements), all summaries of such CSC Plans provided by the
CSC Companies to any of their Employees, Retired Employees, directors, officers
19
or shareholders, and all material communications received from or sent to the
regulatory authorities as well as the most recent actuarial valuation filed with
the regulatory authorities for each of the CSC Plans for which valuations are
required. Sellers have delivered to Purchaser a complete written description of
all unwritten CSC Plans, and will deliver such other documentation with respect
to any CSC Plan as is reasonably requested by Purchaser.
(e) No promise or commitment has been made by any CSC Company (i) to
amend any of the CSC Plans or to provide increased benefits thereunder to any of
its Employees, Retired Employees, directors, officers, shareholders, or their
dependents, except pursuant to the requirements, if any, of the CSC Plans, nor
(ii) to establish any new Employee Plan . No actual amendment to any CSC Plan
has been adopted by any CSC Company since the Financial Statement Date.
(f) Each CSC Plan has been established, maintained, and administered
in compliance with its terms and all related documents or agreements and in
compliance with ERISA, the Code, and other applicable Laws.
(g) All required employer contributions, premium payments and source-
deducted employee contributions under the CSC Plans have been made and remitted
to the funding agents thereunder including, without limitation, all current
service costs and special payments within the time prescribed by any such CSC
Plan and the Laws. All insurance premiums required with respect to any CSC
Plan, including any premiums payable to the Pension Benefit Guarantee
Corporation, have been paid, made, accrued or booked within the time prescribed
by any such CSC Plan and the Laws. All benefits, expenses and other amounts due
and payable to or under any CSC Plan, and all contributions, transfers or
payments required to be made to any CSC Plan, have been paid, made, accrued or
booked within the time prescribed by any such CSC Plan and the Laws. All of the
assets which have been set aside in a trust or account (other than an account
which is part of a CSC Company's general assets) to satisfy any obligation under
any CSC Plan are shown on the books and records of each such trust and each such
account at their fair market value, such current fair market value as of the
20
last valuation date is equal to or exceeds the present value of any obligation
under the CSC Plan, and the liabilities for all other obligations under any CSC
Plan are accurately set forth in the Financial Statements. Except as disclosed
on Schedule 3.17(g), no CSC Company has taken any "contribution holiday" with
respect to, and has not withdrawn any amount from, the CSC Plans.
(h) Except as disclosed on Schedule 3.17(h), there is no pending or
threatened claim against any CSC Company with respect to a CSC Plan, and no
audit or investigation by any governmental or other law enforcement agency is
pending or has been proposed against any CSC Company with respect to any CSC
Plan.
(i) No CSC Plan is subject to Title IV of ERISA. Neither any of the
CSC Companies nor any Related Person has incurred any material liability under
or pursuant to Title I or IV of ERISA or the penalty, excise tax or joint and
several liability provisions of the Code relating to employee benefit plans and,
to the best of Sellers' knowledge, no event or condition has occurred or exists
which could result in any material liability to a CSC Company, such Related
Person or Purchaser under or pursuant to Title I or IV of ERISA or such penalty,
excise tax or joint and several liability provisions of the Code. No CSC Plan
is subject to the minimum funding standards of section 412 of ERISA or section
302 of the Code; no CSC Plan has incurred an "accumulated funding deficiency"
within the meaning of such sections of the Code and ERISA, whether or not
waived; and no such CSC Plan has been terminated. Except as disclosed on
Schedule 3.17(i), none of the CSC Companies contribute to, nor do they have any
obligation to contribute to, a multiemployer plan as defined in Section
4001(a)(3) of ERISA with regard to the Employees or Retired Employees.
(j) Each of the CSC Plans intended to be qualified under section
401(a) of the Code, and the trust, if any, forming a part thereof, has received
a favorable determination letter from the Internal Revenue Service as to its
qualification under the Code and to the effect that each such trust is exempt
21
from taxation under Section 501(a) of the Code, and nothing has occurred since
the date of such determination letter that adversely affects such qualification
or tax-exempt status. Except as disclosed in Schedule 3.17(j), all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been duly filed or distributed on a timely
basis.
(k) Except as disclosed on Schedule 3.17(k): (i) there is no pending
or threatened claim against any CSC Company with respect to the terms or
conditions of employment of any person, the termination of employment of any
person, or the failure to hire, promote or to otherwise provide employment to
any person, nor any audit or investigation by any governmental entity or law
enforcement agency relating in any way to the employment of any person; (ii)
there is no strike, lockout, or other labor trouble (including, but not limited
to, any work slowdown or work stoppage) pending or, to the best of Sellers'
knowledge, threatened against or in connection with any CSC Company; (iii) there
is no union election pending or, to the best of Sellers' knowledge, threatened
nor, to the best of Sellers' knowledge, is any union conducting any organizing
campaign with respect to any of the Employees; (iv) there is no outstanding
grievance under any collective bargaining agreement to which any CSC Company is
or was a party; (v) there is no unfair labor practice charge pending or, to the
best of Sellers' knowledge, threatened against any CSC Company; and (vi) there
has been no notice of violation issued against any CSC Company by any state or
federal safety and health agency.
3.18 Environmental Matters. (a) As used herein, the following terms
shall have the following meanings:
(i) "Environment" means soil, land, water and air in their
natural state, including, without limitation, land surface or subsurface strata,
surface water, ground water and ambient air;
22
(ii) "Environmental Authorities" means all federal, state or
local governmental bodies or regulatory agencies, foreign or domestic, charged
with enforcing any of the Environmental Laws;
(iii) "Environmental Laws" means all applicable federal,
state, or local codes, laws, statutes, regulations, decrees, orders and by-laws
in respect of (A) the protection of the quality of the Environment, and (B) the
health and safety of employees, in either case including, without limitation,
those relating to the release, discharge, escape, disposal or dumping of
Hazardous Substances into the Environment or the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances;
(iv) "Environmental Permits" means all permits, licenses,
certificates and authorizations of, and registrations with, any of the
Environmental Authorities pursuant to any of the Environmental Laws, issued or
granted to any of the CSC Companies for the purpose of conducting the Business
as presently conducted, all of which are disclosed on Schedule 3.18(a); and
(iv) "Hazardous Substances" means all contaminants issued or
discharged into the Environment in a greater quantity or concentration than that
provided for in any of the Environmental Laws or the presence of which in the
Environment is prohibited pursuant to any of the Environmental Laws. For the
purposes of the definition, "contaminants" means all solid, liquid or gaseous
matter, micro-organism, sound, vibration, ray, heat, water, radiation or a
combination of any of them that adversely alters the quality of the Environment.
(b) Except as disclosed on Schedule 3.18(b):
(i) The Environmental Permits are all the permits, licenses,
certificates and authorizations of, and registrations with, any of the
Environmental Authorities pursuant to the Environmental Laws necessary to
conduct the Business substantially as presently conducted. The Environmental
Permits are in full force and effect and the CSC Companies are in substantial
23
compliance in all respects thereunder. The CSC Companies are in substantial
compliance with the Environmental Laws applicable to the conduct of the
Business.
(ii) There is no claim, suit, action or other proceeding, including
appeals and applications for review, outstanding or pending against, or to
Sellers' knowledge threatened against, any CSC Company pursuant to any of the
Environmental Laws, and to Sellers' knowledge no facts or circumstances exist
which are reasonably likely to give rise to such a claim, suit, or proceeding.
(iii) No CSC Company has caused the release, spill, leakage,
pumping, emission, empty, discharge, injection, escape, leaching, disposal or
dumping of any Hazardous Substances on or from any real property now or
previously owned, leased or occupied by it, except in such manner or quantity as
would not constitute a violation of any of the Environmental Laws or
Environmental Permits.
(iv) The CSC Companies have maintained in respect of the Business
records substantially in the manner and for the time periods required by the
Environmental Laws and Environmental Permits.
(v) Since June 30, 1993, no CSC Company has received any notice of
investigation or non-compliance or written order from any of the Environmental
Authorities, including any notice of contamination or clean-up requirements,
pursuant to any of the Environmental Laws, and to Sellers' knowledge no facts or
circumstances exist that would result in the issuance to any CSC Company of any
such notice of investigation or non-compliance or written order.
(vi) The Sellers have delivered to the Purchaser true, correct and
complete copies of all environmental audit reports which have been prepared in
respect of the Business in the five (5) year period ending on the date of this
Agreement by or for any CSC Company or any of the Sellers.
3.19 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Sellers directly
with Purchaser, without the intervention of any third party on their behalf in
24
such manner as to give rise to any valid claim by any third party against
Purchaser or any CSC Company for a finder's fee, brokerage commission, or
similar payment.
3.20 Disclosure. No representation or warranty of any of the Sellers
contained in this Agreement, and no statement by any of them contained herein
or in any certificate or document furnished to Purchaser pursuant hereto,
knowingly contains any untrue statement of a material fact or intentionally
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as follows:
4.1 Due Incorporation. Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Georgia and has all requisite corporate power and authority to enter
into this Agreement and to perform its obligations hereunder.
4.2 Authorization, No Conflicts, Etc. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby by Purchaser have been or prior to the Closing will be
duly authorized by all requisite corporate action of Purchaser. This
Agreement has been duly executed and delivered by Purchaser and (assuming the
due authorization, execution and delivery hereof by Sellers) is a valid and
binding obligation of Purchaser, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding at law or in
equity). The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by Purchaser will not:
25
(a) violate any provisions of law applicable to Purchaser; (b) with or without
the giving of notice and/or the passage of time, conflict with or result in
the breach of any provision of the Articles of Incorporation or Bylaws of
Purchaser; or (c) constitute a violation of any order, judgment or decree to
which Purchaser is a party where such violation could have a material adverse
effect on the Purchaser's ability to consummate the transactions contemplated
by this Agreement.
4.3 Consents and Approvals. The execution and delivery by Purchaser
of this Agreement does not, and compliance by Purchaser with the terms hereof
and consummation by Purchaser of the transactions contemplated hereby will
not, require Purchaser to obtain any consent, approval or action of, or make
any filing with or give any notice to, any third party except: (a) as
disclosed on Schedule 4.3 hereto; and (b) those which the failure to obtain
will have no material adverse effect on any of the transactions contemplated
hereby.
4.4 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Purchaser directly
with Sellers, without the intervention of any third party on behalf of
Purchaser in such manner as to give rise to any valid claim by any third party
against Sellers for a finder's fee, brokerage commission, or similar payment.
4.5 Qualifications. To Purchaser's knowledge, there are no facts
which would, as a matter of law, disqualify Purchaser from acquiring the CSC
Shares or making changes in the ownership, control, directors, officers or
management of the CSC Companies as contemplated by this Agreement.
4.6 Legal Proceedings. There are no legal, administrative, or other
proceedings or governmental investigations pending or, to the best knowledge
of Purchaser, threatened, against Purchaser which would give any third party
the right to enjoin or rescind the transactions contemplated hereby.
26
4.7 Disclosure. No representation or warranty of Purchaser
contained in this Agreement, and no statement contained herein or in any
certificate or document furnished to Sellers pursuant hereto, knowingly
contains any untrue statement of a material fact or intentionally omits to
state a material fact necessary in order to make the statements contained
herein not misleading.
ARTICLE V
COVENANTS
The parties, as specified in this Article V, covenant and agree as
follows:
5.1 Transfer of Operating Assets and Liabilities. Prior to the
Closing Date, Sellers shall cause all assets and liabilities of the CSC
Companies, other than the CeCorr Stock (the "Operating Assets and
Liabilities"), to be transferred and assigned to Van Horne or an entity
controlled by him in accordance with the Asset Purchase Agreement
substantially in the form attached hereto as Exhibit 5.1 (the "Asset
Acquisition Agreement") in exchange for the Van Horne Note. The amount of the
Van Horne Note represents the fair market value of the Operating Assets,
subject to the Liabilities, as determined by an independent appraisal.
Without limiting the generality of the foregoing, the Operating Assets and
Liabilities shall include, without limitation:
(a) all rights and obligations of any CSC Company under the Material
Contracts and all other contracts, leases and agreements to which any CSC
Company is a party or otherwise bound except for the post-Closing obligations
of CSC pursuant to Section 5.8 hereof;
(b) all employees, employment contracts, labor agreements and
Employment-Related Obligations of the CSC Companies, including without
limitation any workers' compensation liabilities;
27
(c) the CSC Plans and any and all other employee benefit and welfare
plans and all obligations and liabilities associated therewith;
(d) any and all liabilities or obligations existing or hereafter
arising due to any violation of any Environmental Laws by any CSC Company
prior to or on the Closing Date;
(e) all debt instruments, payables and other payment obligations
owing by any of the CSC Companies; and
(f) all other liabilities and obligations of any nature, whether or
not disclosed to Purchaser in writing, orally or on any Schedule hereto,
arising from or relating to the ownership, operation or transfer of the
Business, the CSC Shares or any of the Operating Assets or Liabilities.
5.2 Indemnity for Transfer Liabilities. Sellers shall be jointly
and severally liable for payment of, and shall indemnify and hold Purchaser
and the CSC Companies harmless for, any and all Taxes, severance obligations,
transfer costs and other expenses or liabilities arising from, or associated
with the transfer of, the Operating Assets and Liabilities pursuant to Section
5.1, and from any penalty, fine, fee or other expense arising from any failure
to comply with all applicable laws and regulations in connection with such
transfer.
5.3 [INTENTIONALLY OMITTED]
5.4 Access to Information/Confidentiality. (a) Sellers shall, and
shall cause each of the CSC Companies to allow Purchaser and its
representatives, at Purchaser's expense and upon reasonable notice and during
regular business hours, to make such investigation of the business,
properties, books and records of the CSC Companies, and to conduct such
examination of their financial and legal condition, as Purchaser deems
necessary or advisable to familiarize itself with such business, properties,
books, records, financial and legal condition and other matters. Without
limiting the generality of the foregoing, Sellers shall, and shall cause each
28
of the CSC Companies to allow Purchaser and its representatives full access to
all premises of the CSC Companies and to produce or cause to be produced for
inspection by Purchaser, its employees and representatives, all title
documents, title deeds, minute books, share registers, agreements, contracts,
leases, licenses, insurance policies, pension and benefit plans, documents
relating to pending lawsuits and all other books, records and information
which in the reasonable opinion of the Purchaser is required to make an
examination of the CSC Companies and their business and properties and to
verify the accuracy of Sellers' representations and warranties contained
herein. Purchaser and its authorized representatives will conduct all such
investigations in a manner which will minimize any disruptions of the business
and operations of the CSC Companies. Nothing disclosed or made available to,
or observed or discovered by, Purchaser or its representatives in the course
of any investigation undertaken pursuant to this Section 5.4(a) shall act to
limit or eliminate any indemnification or other obligation of any party
arising under this Agreement. The foregoing provisions of Section 5.4
notwithstanding Sellers shall not be obligated to make available or to
disclose to Purchaser customer lists, supplier lists, salaries, inventory
records, pricing records, receivables records, sales records and distribution
agreements.
(b) Until the Closing Date, Purchaser will hold any information
regarding the CSC Companies accessed or otherwise made available to Purchaser
by Sellers or any of the CSC Companies, in accordance with the provisions of
the Non-Disclosure Agreement between Purchaser and CSC dated as of April 20,
1998 (the "Non-Disclosure Agreement"), a copy of which is attached hereto as
Exhibit 5.4. Upon any termination of this Agreement, Purchaser and its
representatives shall return all such information to CSC.
5.5 Tax Assistance. After the Closing Date, Sellers shall furnish or
cause to be furnished to Purchaser, upon request, such information with respect
29
to the CSC Companies as is reasonably necessary for the preparation and filing
of any Tax Return, for the preparation for any tax audit or for the prosecution
or defense of any proceeding or proposed adjustment with respect to Taxes of any
CSC Company or the Purchaser.
5.6 [INTENTIONALLY OMITTED]
5.7 Books and Records. Each of the parties hereto agrees that, so
long as any of the books, records or files of the CSC Companies remain in
existence and are under its direct or indirect control, the other parties
shall have the right, following reasonable notice, to inspect and to make
copies (at its expense) of the same during business hours with respect to any
litigation related to the ownership of any of the CSC Companies, or for any
similar proper purpose. Neither the Sellers, on the one hand, or the
Purchaser, on the other hand, will destroy, without first having offered to
deliver to the other, any of such books, records and files for a period of
five (5) years after the Closing Date.
5.8 Consents and Further Actions. Subject to the terms and conditions
herein provided, each of the parties hereto covenants and agrees to use all
reasonable efforts to take, or cause to be taken, all action, or do, or cause to
be done, all things, necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. Sellers and Purchaser agree that from and after the Closing
Date, if reasonably requested by the other, they will execute and deliver or
cause to be executed and delivered such further instruments of conveyance and
transfer and take such other action as may be necessary or desirable to convey
and transfer more effectively ( i) the CSC Shares to Purchaser or (ii) any of
the business, assets, properties, rights, obligations, liabilities or operations
of the CSC Companies that existed on or prior to the Closing Date or were the
result of the business or operations of the CSC Companies on or prior to the
30
Closing, including, without limitation, the liabilities set forth in Section
5.2, to Sellers.
ARTICLE VI
CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers to consummate the transactions
contemplated by this Agreement are subject, in the discretion of Sellers, to
the satisfaction at or prior to the Closing Date of each of the following
conditions:
6.1 Representations, Warranties and Covenants. All representations
and warranties of Purchaser contained in Article IV of this Agreement shall be
true and correct in all material respects at and as of the Closing Date as if
such representations and warranties were made at and as of such date except
for representations and warranties that speak as of a specific date or time
other than the Closing Date (which need only be true and correct in all
material respects as of such date or time).
6.2 Performance of Obligations. Purchaser shall have performed or
complied, in all material respects, with all agreements, covenants,
obligations and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing Date.
6.3 No Injunction. No injunction, stay or restraining order shall
be in effect prohibiting the consummation of the transactions contemplated by
this Agreement.
6.4 Opinion of Counsel. Purchaser shall have delivered to Sellers
an opinion of Kenneth F. Khoury, Vice President and Secretary of Purchaser,
dated the Closing Date, in form and substance satisfactory to Sellers, as to
the matters contained in Sections 4.1, 4.2 and 4.3. Mr. Khoury may, as to
facts material to such opinion which are not independently established by him,
rely on certificates of public officials or of other officers of the
31
Purchaser. As to matters not covered by federal laws, he may rely upon
opinions of local counsel or other members of Purchaser's legal department.
6.5 Certificates. Purchaser shall have furnished Sellers with such
certificates of its officers, directors and others to evidence compliance with
the conditions set forth in this Article VI as may be reasonably requested by
Sellers.
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject, in the discretion of the
Purchaser, to the satisfaction at or prior to the Closing Date of each of the
following conditions:
7.1 Representations, Warranties and Covenants. All representations
and warranties of Sellers contained in Article III of this Agreement shall be
true and correct in all material respects at and as of the Closing Date as if
such representations and warranties were made at and as of such date except
for representations and warranties that speak as of a specific date or time
other than the Closing Date (which need only be true and correct in all
material respects as of such date or time).
7.2 Performance of Obligations. Sellers shall have performed or
complied, in all material respects, with all agreements, covenants,
obligations and conditions required by this Agreement to be performed or
complied with by any of them prior to or at the Closing Date.
7.3 Permits, Consents and Approvals. The parties shall have
received, without any condition materially adverse to Purchaser or any CSC
Company, all permits, consents, orders and approvals required by any federal,
state or local governmental authority, as the case may be, for the purposes of
the consummation of the transactions contemplated hereby.
32
7.4 No Injunction. No injunction, stay or restraining order shall
be in effect prohibiting the consummation of the transactions contemplated by
this Agreement.
7.5 Assets and Liabilities of CSC. (a) The assets of the CSC
Companies shall consist solely of the CeCorr Stock and the Van Horne Note, (b)
there shall be no existing liabilities of the CSC Companies other than post-
closing obligations of CSC pursuant to Section 5.8 and the tax liabilities
arising from this transaction and the transactions contemplated by Section 5.1
hereof, (c) the Asset Acquisition Agreement shall have been executed and
delivered and all of CSC's assets and liabilities shall have been transferred
as contemplated thereby.
7.6 Resignations and Releases. Resignations of all current
directors and officers of the CSC Companies shall have been delivered to
Purchaser, effective upon the Closing, including a release from any and all
their respective claims against any of the CSC Companies.
7.7 Opinion of Counsel. Sellers shall have delivered to Purchaser
an opinion or opinions of Sellers' counsel(s), dated the Closing Date, in form
and substance satisfactory to Purchaser, as to the matters contained in
Sections 3.1, 3.2, 3.3 and 3.4. Counsel may, as to facts material to such
opinion which are not independently established by such counsel, rely on
certificates of public officials or of officers of CSC.
7.8 Certificates. Sellers shall have furnished Purchaser with such
certificates of Sellers and of CSC's officers, directors and others to
evidence compliance with the conditions set forth in this Article VII as may
be reasonably requested by Purchaser.
7.9 Purchase of Remaining CeCorr Shares. Purchaser shall
simultaneously consummate or have consummated the purchase of all of the
33
issued and outstanding shares of capital stock of CeCorr, other than the
CeCorr Stock.
ARTICLE VIII
SURVIVAL; INDEMNITIES
8.1 Survival. The representations, warranties and covenants of the
parties contained herein shall survive the Closing and shall remain in full
force and effect without limitation as to time and amount, and the parties
hereto hereby agree, as between the Sellers, on the one hand, and the
Purchaser, on the other hand, to an indefinite extension and waiver of any
statute of limitation or prescription period which might otherwise apply to
limit the survival and duration of any action for breach or inaccuracy of or
failure to perform any such representation, warranty or covenant.
8.2 Indemnification.
(a) By Sellers. Sellers shall jointly and severally indemnify, save
and hold harmless Purchaser and its subsidiaries, and their respective
employees, representatives, officers, directors and agents, from and against
any and all actual costs, losses, liabilities, damages and expenses
(including, without limitation, reasonable attorney's fees) arising out of or
resulting from: (i) the breach or inaccuracy of any representations and
warranties of Sellers contained in Article III hereof; (ii) the breach by
Sellers of any of the covenants or agreements made by them in this Agreement;
and (iii) any misrepresentation contained in any certificate furnished by or
on behalf of Sellers pursuant to this Agreement.
(b) By Purchaser. Purchaser shall indemnify, save and hold harmless
Sellers and their respective representatives and agents from and against any
and all actual costs, losses, liabilities, damages and expenses (including,
without limitation, reasonable attorney's fees) arising out of or resulting
from: (i) the breach or inaccuracy of any representations and warranties of
34
Purchaser contained in Article IV hereof; (ii) the breach by Purchaser of any
of the covenants or agreements made by it in this Agreement; and (iii) any
misrepresentation contained in any certificate furnished by or on behalf of
Purchaser pursuant to this Agreement.
(c) Third Party Claims. If any claim or demand is asserted against an
indemnified party by a third party with respect to any matter under the
indemnities set forth in Sections 8.2(a) or (b) (a "Third Party Claim"), the
indemnified party shall promptly give written notice and details thereof,
including copies of all pleadings and the pertinent documents, to the
indemnifying party. Within twenty (20) days of receipt of such notice, the
indemnifying party shall either (i) pay the Third Party Claim either in full or
upon compromise agreed to by the indemnifying party or (ii) notify the
indemnified party that the indemnifying party disputes the Third Party Claim and
intends to defend against it, and thereafter so defend and pay any adverse final
judgment or award or settlement amount in regard thereto. Such defense shall be
controlled by the indemnifying party, and the cost of such defense shall be
borne by it, except that the indemnified party shall have the right to
participate in such defense at its own expense. If the indemnifying party fails
to take action within twenty (20) days as set forth above, then the indemnified
party shall have the right to pay, compromise or defend any Third Party Claim
and to assert the amount of any payment on the Third Party Claim plus the
expense of defense or settlement as an indemnity claim. The indemnified party
shall also have the right, exercisable in good faith, to take such action as may
be necessary to avoid a default prior to the assumption of the defense of the
Third Party Claim by the indemnifying party and any expenses incurred by so
acting shall be paid by the indemnifying party.
(d) Payment. With respect to all claims other than Third Party
Claims, the indemnifying party shall promptly pay or reimburse the indemnified
party in respect of any claim or liability for any cost, loss, damage or expense
35
to which the foregoing indemnities relate after receipt of written notice from
the indemnified party outlining with reasonable particularity the nature and
amount of the claim(s). In the event the indemnifying party fails or refuses to
make payment for such claims within a period of twenty (20) days from the date
of notice to the indemnifying party, the indemnified party shall be entitled to
commence the dispute resolution process set forth under Section 10.3(b).
(e) Access and Information. With respect to any claim for
indemnification hereunder, the indemnified party will give to the indemnifying
party and its counsel, accountants and other representatives reasonable access,
during normal business hours and upon the giving of reasonable prior notice, to
their books and records relating to such claims, and to their employees,
accountants, counsel and other representatives, all without charge to the
indemnifying party, except for reimbursement of reasonable out-of-pocket
expenses. In this regard, upon notice of an indemnification claim, the
indemnified party agrees to use reasonable efforts to maintain any of its books
and records which it knows may relate to a claim for indemnification hereunder
for such period of time as may be necessary to enable the indemnifying party to
resolve such claim.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time, but not later
than the Closing Date:
(a) by mutual consent of the parties; or
(b) by Sellers, on the one hand, or Purchaser, on the other hand, if
the Closing shall not have occurred by the close of business on July 31, 1998,
so long as such failure to consummate the transactions contemplated hereunder
on or before such date did not result solely from the failure by the party or
36
parties seeking termination of this Agreement to fulfill any undertaking or
commitment on its or their part provided for herein prior to Closing; or
(c) by either Sellers or Purchaser if any court of competent
jurisdiction in the United States or other United States governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, decree, ruling or other action shall have become final
and nonappealable.
In the event of the termination of this Agreement as above provided,
without material fault of any party, no party shall have any liability
hereunder, including any liability for damages, except pursuant to Sections
5.4 (with respect to confidentiality), 10.4 (with respect to public
announcements) and 10.9 (with respect to each party bearing its own expenses),
the provisions of which shall survive any termination of this Agreement;
provided, that notwithstanding the foregoing, each party shall be and remain
liable to the others in the event that the failure so to close hereunder shall
occur as a consequence of the failure of a party to perform fully its
covenants and agreements hereunder or the material breach by a party of its
representations or warranties contained herein. In the event that a condition
precedent to its obligation is not met, nothing contained herein shall be
deemed to require any party to terminate this Agreement, rather than to waive
such condition precedent and proceed with the Closing.
ARTICLE X
MISCELLANEOUS
10.1 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns, provided that neither this Agreement nor any right or
obligation hereunder shall be assigned by any party without the prior written
consent of the other parties hereto.
37
10.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered (by
hand delivery or confirmed facsimile transmission) or three (3) days after
being mailed, by certified mail, return receipt requested, first class postage
prepaid, to the parties at the following addresses:
If to Sellers:
S. Richard Van Horne III
c/o Corrugated Supplies Corp.
5101 W. 65th Street
Bedford Park, IL 60638
Fax No.: (708) 458-0013
If to Purchaser:
Georgia-Pacific Corporation
133 Peachtree Street, N. E.
Atlanta, Georgia 30303
Attention: General Counsel
Fax No. (404) 230-7543
or to such other place as any party may designate by written notice to the
other parties.
10.3 Choice of Law; Dispute Resolution.
(a) This Agreement shall be construed, interpreted and the rights of
the parties determined in accordance with the laws of the State of Georgia,
without reference to the choice of law principles thereof.
(b) The parties will attempt in good faith to resolve any controversy
or claim arising out of or relating to this Agreement promptly by negotiations
between Van Horne and senior executives of Purchaser who have authority to
settle the controversy. If a controversy or claim should arise, any party may
38
request the others to meet within fourteen (14) days. If the matter has not
been resolved within ten (10) days of the meeting, or if any party will not meet
within the fourteen (14)-day period referred to above, the parties will attempt
in good faith to resolve the controversy or claim by mediation before the
American Arbitration Association ("AAA") in accordance with AAA model
procedures for mediation of business/commercial disputes. If the matter has not
been resolved pursuant to the aforesaid mediation procedure within thirty (30)
days of the date either party refers such matter to AAA any party may initiate
litigation upon seven (7) days' written notice to the other parties. All
deadlines specified in this Section 10.3(b) may be extended by mutual agreement.
Except as specifically provided to the contrary herein, the procedures
specified in this Section 10.3(b) shall be the sole and exclusive procedures for
the resolution of disputes between the parties arising out of or relating to
this Agreement; provided, however, that a party may seek a preliminary
injunction or other preliminary judicial relief if in its judgment such action
is necessary to avoid irreparable damage. Despite such action the parties will
continue to participate in good faith in the procedures specified in this
Section 10.3(b). All applicable statutes of limitation shall be tolled while
the procedures specified in this Section 10.3(b) are pending, and the parties
will take such action, if any, required to effectuate such tolling.
10.4 Public Announcements. No press release or other public
statement with respect to this Agreement or the transactions contemplated
hereby shall be issued by any party without that party having consulted with
and, except to the extent public disclosure is required under the federal
securities laws or applicable rules of the New York Stock Exchange, obtained
the consent of the other parties hereto, which shall not be unreasonably
withheld.
10.5 Entire Agreement. This Agreement supersedes all prior
discussions and agreements, other than the Non-Disclosure Agreement, between
39
the parties with respect to the subject matter hereof, and this Agreement,
including the Schedules and Exhibits hereto, the Non-Disclosure Agreement, and
other documents required to be delivered in connection herewith, contain the
sole and entire agreement between the parties hereto with respect to the
subject matter hereof.
10.6 Waiver. Any term or condition of this Agreement may be waived
at any time by the party which is entitled to the benefit thereof. To be
effective, each such waiver shall be in writing and shall specifically refer
to this Agreement and the term or condition being waived. A waiver on one
occasion shall not be deemed to be a waiver of the same or any other breach on
a future occasion.
10.7 Amendment. This Agreement may be modified or amended only by a
writing duly executed by or on behalf of all the parties hereto.
10.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9 Expenses. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses in connection with this Agreement and
the consummation of the transactions contemplated hereby.
10.10 Invalid Provisions. Except as expressly provided to the
contrary herein, if any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future law, rule, or
regulation, such provision shall be fully severable and this Agreement shall
be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part hereof. The remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance herefrom.
40
10.11 Interpretation. "Article", "Section", "Exhibit" or
other subdivision of this Agreement shall mean and refer to the specified
article, section, exhibit or subdivision of this Agreement; and "herein",
"hereof", "hereunder" and similar expressions shall mean and refer to this
Agreement and not to any particular Article or Section hereof.
10.12 No Third-Party Beneficiary. Nothing contained in this
Agreement is intended, or should be interpreted as having been intended, to
create any right or assume any obligation in favor of, or grant any waiver or
release from any obligation to, or otherwise constitute a stipulation in favor
of any third party.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the day and year first above written.
"Sellers":
"Van Horne"
S. Richard Van Horne III,
individually and as trustee under
the S. Richard Van Horne III
Trust
William S. Van Horne
John T. Van Horne
S. RICHARD VAN HORNE TRUST
By:
-----------------------------
Mayellyn Van Horne, Trustee
First Chicago Bank and Trust Co.,
Trustee
By:
--------------------------
Title:
-------------------------
"Purchaser":
GEORGIA-PACIFIC CORPORATION
By:
-----------------------------
Stephen E. Macadam
Senior Vice President -
Containerboard and Packaging
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GEORGIA-PACIFIC CORPORATION FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS."
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 1406
<ALLOWANCES> 12
<INVENTORY> 1269
<CURRENT-ASSETS> 2887
<PP&E> 14162
<DEPRECIATION> 8024
<TOTAL-ASSETS> 12999
<CURRENT-LIABILITIES> 2657
<BONDS> 4140
0
0
<COMMON> 74
<OTHER-SE> 3306
<TOTAL-LIABILITY-AND-EQUITY> 12999
<SALES> 6526
<TOTAL-REVENUES> 6526
<CGS> 5070
<TOTAL-COSTS> 5070
<OTHER-EXPENSES> 461
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 225
<INCOME-PRETAX> 234
<INCOME-TAX> 98
<INCOME-CONTINUING> 136
<DISCONTINUED> 0
<EXTRAORDINARY> (15)
<CHANGES> 0
<NET-INCOME> 121
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Georgia-Pacific Group EPS - Primary 0.36
The Timber Company EPS - Primary 0.95
<F2>Georgia-Pacific Group EPS - Diluted 0.36
The Timber Company EPS - Diluted 0.94
</FN>
</TABLE>
