<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1996 1-3560
P. H. GLATFELTER COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-0628360
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
228 South Main Street
Spring Grove, Pennsylvania 17362
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (717) 225-4711
including area code
Securities registered pursuant to Section 12(b) of the Act:
Common Stock American Stock Exchange Inc.
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates at February 26, 1997 was $392,022,040.
Common Stock outstanding at February 26, 1997: 42,330,048 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference in this Report on Form 10-K.
1. Proxy Statement dated March 14, 1997 (Part III)
<PAGE> 2
PART I
Item 1. Business.
The Registrant, a paper manufacturing company, began
operations in Spring Grove, Pennsylvania in 1864 and was incorporated as a
Pennsylvania corporation in 1905. On January 30, 1979 the Registrant acquired by
merger Bergstrom Paper Company with paper mills located in Wisconsin and Ohio.
The Ohio mill was sold on September 10, 1984. On May 7, 1987 the Registrant
acquired all of the outstanding capital stock of Ecusta Corporation ("Ecusta")
with a paper mill located in Pisgah Forest, North Carolina and other operations
in North Dakota, Canada and Australia. Ecusta was merged into and became a
division of the Registrant on June 30, 1987.
The Registrant's paper mills are located in Spring Grove,
Pennsylvania, Pisgah Forest, North Carolina and Neenah, Wisconsin. It
manufactures printing papers and tobacco and other specialty papers.
The Registrant sells its products throughout the United States
and in a number of foreign countries. Net export sales in 1996, 1995 and 1994
were $55,532,000, $54,961,000 and $44,821,000, respectively.
Most of the Registrant's printing paper products are directed
at the uncoated free-sheet portion of the industry. The Registrant's printing
paper products are used principally for the printing of case bound and quality
paperback books, commercial and financial printing and envelope converting.
Printing papers are manufactured in each of the Registrant's mills.
In 1996, sales of paper for book publishing and commercial
printing generally were made through wholesale paper merchants, whereas sales of
paper to financial printers and converters generally were made directly. During
1994, one of the Registrant's wholesale paper merchants, Central National-
Gottesman Inc. (which buys paper through its division, Lindenmeyr Book
Publishing) acquired substantially all of the assets of Perkins & Squier,
another of the Registrant's wholesale paper merchants. As a result, during 1996,
1995 and 1994, Central National-Gottesman Inc. accounted for 12%, 14% and 13% of
the Registrant's net sales, respectively.
The Registrant's tobacco and other specialty papers are used
for cigarette manufacturing and other specialty uses such as the manufacture of
playing cards, stamps, labels and surgical gowns. Sales of these papers are
generally made directly to the converter of the paper. Tobacco papers are
manufactured in the Pisgah Forest mill. Other specialty papers are manufactured
in each of the Registrant's mills.
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A significant portion of the Pisgah Forest mill's sales are
made to a limited number of major tobacco companies. The current legal and
regulatory pressures on that industry could have an adverse effect on the future
tobacco paper sales and profitability of the Pisgah Forest mill. Under such
conditions, the Registrant would attempt to replace any lost sales and
profitability with lightweight printing and other specialty papers.
Set forth below is the amount (in thousands) and percentage of
net sales contributed by each of the Registrant's two classes of similar
products during each of the years ended December 31, 1996, 1995 and 1994. Sales
of certain paper grades have been reclassified during 1996 to be consistent with
the Registrant's definition of other specialty papers. Prior year amounts have
been restated to be in conformity with the 1996 classification.
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
---- ---- ----
Net Sales % Net Sales % Net Sales %
--------- - --------- - --------- -
<S> <C> <C> <C> <C> <C> <C>
Printing
Papers $355,328 63% $421,868 68% $302,400 63%
Tobacco
and Other
Specialty
Papers 210,756 37% 201,841 32% 175,902 37%
-------- --- -------- --- -------- ---
Total $566,084 100% $623,709 100% $478,302 100%
</TABLE>
The competitiveness of the markets in which the Registrant
sells its products varies. There are numerous concerns in the United States
manufacturing printing papers and no one company holds a dominant position.
Capacity in the uncoated free-sheet industry, which includes uncoated printing
papers, is not expected to increase significantly for the next few years. In the
tobacco papers business, while there is only one significant domestic
competitor, there are numerous international competitors. The Registrant is a
major tobacco papers supplier to the domestic tobacco products industry. If
foreign production of tobacco products by U.S. companies increases significantly
it may have an adverse effect on the Registrant's overall competitive position.
Service, product performance and technological advances are
important competitive factors in all of the Registrant's businesses. The
Registrant believes its reputation in these areas continues to be excellent.
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Backlogs are not significant in the Registrant's business.
The principal raw material used at the Spring Grove mill is
pulpwood. In 1996, the Registrant acquired approximately 78% of its pulpwood
from saw mills and independent logging contractors and 22% from Company-owned
timberlands. Hardwood and softwood purchases each constituted 50% of the
pulpwood acquired. Hardwoods are still available within a relatively short
distance of the Registrant's Spring Grove mill, but the radius within which the
Registrant has been acquiring hardwoods continues to increase. Softwood is
obtained primarily from Maryland, Delaware and Virginia. In order to protect its
sources of pulpwood, the Registrant actively promotes conservation and forest
management among suppliers and woodland owners. In addition, its subsidiary, The
Glatfelter Pulp Wood Company, has acquired, and is acquiring, woodlands,
particularly softwood growing land, with the objective of having a significant
portion of its softwood requirement available from Company-owned woodlands.
The Spring Grove pulp mill converts the pulpwood into wood
pulp for use in its papermaking operations. In addition to the pulp it produces,
the Spring Grove mill purchases market pulp from others. During the fourth
quarter of 1994, the Registrant completed the pulp mill modernization project at
the Spring Grove mill. This project, undertaken primarily for environmental
reasons, resulted in an increase in total pulp production capacity at the mill.
The principal raw material used by the Neenah mill is
high-grade recycled wastepaper. The quality of different types of high-grade
wastepaper varies significantly depending on the amount of contamination.
Wastepaper prices were relatively stable throughout 1996. It is anticipated that
there will be an adequate supply of wastepaper in the future. During December
1996, the Neenah mill completed a project increasing its capacity to recycle
lower quality high-grade wastepapers. Although this project did not increase the
mill's total de-inking capacity, it is expected to reduce cost.
The major raw materials used at the Ecusta mill are purchased
wood pulp and processed flax straw, which is derived from linseed flax plants.
The current supply of wood pulp and flax straw is sufficient for the present and
anticipated future operations at the Ecusta mill. Ecusta receives a majority of
its processed flax straw from the Registrant's Canadian operation.
Wood pulp consumed which was purchased from others comprised
approximately 106,000 short tons or 23% of the total 1996 fiber requirements of
the Registrant. The cost of market pulp decreased significantly during the first
four months of 1996, then increased moderately and finally decreased slightly at
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the end of the year. Pulp prices are expected to remain low with possible
increases in the second-half of 1997.
The Registrant's Spring Grove mill generates all of its steam
requirements and is 100% self-sufficient in electrical energy generation. The
mill also produces excess electricity which is sold to the local power company
under a long-term co-generation contract. Such net energy sales were $8,559,000
in 1996. Principal fuel sources used by the Spring Grove mill are coal, spent
chemicals, bark and wood waste, and oil which were used to produce approximately
58%, 35%, 6% and 1%, respectively, of the total energy internally generated at
the Spring Grove mill in 1996.
The Pisgah Forest mill generates all of its steam requirements
and a majority of its electrical requirements (64% in 1996) and purchases the
remainder of its electric power requirements. Coal was used to produce
essentially all of the mill's internally generated energy during 1996.
The Neenah mill generates all of its steam requirements and a
portion of its electric power requirements (13% in 1996) and purchases the
remainder of its electric power requirements. Gas was used to produce
essentially all of the mill's internally generated energy during 1996.
At December 31, 1996, the Registrant had 3,029 active
full-time employees.
Hourly employees at the Registrant's mills are represented by
different locals of the United Paperworkers International Union, AFL-CIO. A
five-year labor agreement covering approximately 320 employees at the Neenah
mill expires in August 1997. Under this agreement, wages increased 3% in 1996. A
five-year labor agreement covering approximately 740 employees in Spring Grove
expires in January 1998. Under this agreement, wages increased by 3% in 1996 and
are to increase by 3% in 1997. In October 1996 a five-year labor agreement
covering approximately 1,035 employees at the Pisgah Forest mill was ratified.
Under this agreement, which expires in October 2001, wages will increase by 3%
each year.
ENVIRONMENTAL MATTERS
The Registrant is subject to numerous federal, state, local
and foreign laws and rules and regulations thereunder with respect to air and
water emissions and noise from its mills, as well as disposal of solid waste
generated by its operations. It has been the Registrant's experience over many
years that directives with respect to the abatement of pollution have
periodically been made increasingly stringent. During the past twenty years or
more, the Registrant has taken a number of measures and spent substantial sums
of money both for the
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installation of facilities and operating expenses in order to abate air, water
and noise pollution and to alleviate the problem of disposal of solid waste. In
spite of the measures it has already taken, the Registrant anticipates that
environmental regulation of the Registrant's operations will continue to become
more burdensome and that compliance therewith, when and if technologically
feasible, will require additional capital expenditures and operating expenses.
In addition, the Registrant may incur obligations to remove or mitigate any
adverse effects on the environment resulting from its operations, including the
restoration of natural resources, and liability for personal injury and damage
to property, including natural resources. For further information with respect
to such compliance, reference is made to Item 3 of this report.
Compliance with government environmental regulations is a
matter of high priority to the Registrant. In order to meet environmental
requirements, the Registrant has undertaken certain projects, the most
significant of which relates to the modernization of the Spring Grove pulpmill.
The pulpmill modernization project, which began in 1990, was completed during
the fourth quarter of 1994 for a total cost of $171,000,000 (exclusive of
capitalized interest). During 1996, the Registrant expended approximately
$2,000,000 on environmental capital projects. The Registrant estimates that
$12,000,000 and $8,000,000 will be expended for environmental capital projects
in 1997 and 1998, respectively. Since capital expenditures for pollution
abatement generally do not increase the productivity or efficiency of the
Registrant's mills, the Registrant's earnings have been and will be adversely
affected to the extent that selling prices have not been and cannot be increased
to offset additional incremental operating costs, including depreciation,
resulting from such capital expenditures and to offset additional interest
expense on the amounts expended for environmental purposes. Because other paper
companies located in the United States are generally subject to the same
environmental regulations, the Registrant does not believe that its competitive
position in the U.S. paper industry will be materially adversely affected by its
capital expenditures for, or operating costs of, pollution abatement facilities
for its present mills or the limitations which environmental compliance may
place on its operations.
The Registrant, along with six other companies which operate
or formerly operated facilities along the Fox River in Wisconsin, has been in
discussions with the Wisconsin Department of Natural Resources and the United
States Fish and Wildlife Service (the "USFWS") regarding the alleged discharge
of polychlorinated biphenyls ("PCBs") and other hazardous substances to the Fox
River below Lake Winnebago (the "lower Fox River") and the Bay of Green Bay.
Effective as of January 31, 1997, the Registrant and the six other companies
entered into an agreement with the State of Wisconsin establishing a framework
for the
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final resolution of claims for natural resources damages and other relief which
the State asserts against the companies.
Under the agreement, the companies will provide in the
aggregate $10 million in work and funds to facilitate natural resources damages
assessment activities, including, among other things, modelling and risk
assessment, as well as field scale demonstration of sediment dredging and the
enhancement of certain environmental amenities. The State will act as "lead
authorized official" under federal law for purposes of any assessment of damages
to natural resources within Wisconsin, except those within the administrative
jurisdiction of a federal agency. In general, the parties have agreed to toll
all limitations periods and to forbear from litigation during the term of the
agreement. The parties intend to conclude a final resolution of all of the
State's claims during the course of, or after completion of, the work called for
by the agreement.
By letter dated January 31, 1997, and received by the
Registrant on February 3, 1997, the USFWS provided 60 days' notice of the
intention of the United States Departments of the Interior and Commerce to
commence an action for natural resources damages against the Registrant and the
six other companies referred to above similarly relating to the discharge of
hazardous substances into the lower Fox River. The federal trustees invited the
Registrant to resume negotiations toward a non-litigated resolution of the
federal trustees' claims; the negotiations had been suspended at the federal
trustees' request.
In addition to the State and the federal trustees, the
Menominee Indian Tribe of Wisconsin ("MITW") and the Oneida Indian Tribe of
Wisconsin ("OITW") have asserted claims for natural resources damages against
the seven companies. The MITW commenced litigation in the United States District
Court for the Western District of Wisconsin against the State to establish the
Tribe's off-reservation usufructuary rights to natural resources, including the
Fox River. Those rights form the predicate to the MITW's natural resource damage
claims. On September 16, 1996, the district court dismissed the MITW's claims
and the MITW has filed an appeal to the United States Court of Appeals for the
Seventh Circuit.
Effective as of March 1, 1997, the Registrant, the six other
companies, the federal trustees, the MITW and the OITW entered into an agreement
which provides that between March 1, 1997 and May 29, 1997 all limitation
periods shall be tolled and the parties shall forbear from litigation. In the
event that the federal trustees commence an action after expiration of the
forbearance period, the Registrant does not know the amount which the federal
trustees will claim as natural resources damages, but the Registrant believes
that it will be substantial. The agreement with the State of Wisconsin
specifically contemplates a modification to address the claims of the federal
trustees and
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the roles of the State and the federal trustees. The parties to that agreement
have invited the federal trustees to begin negotiations towards such a
modification.
The amount and timing of future expenditures for environmental
compliance, clean-up, remediation and personal injury, natural resource damage
and property damage liability, including but not limited to those related to the
lower Fox River and the Bay of Green Bay, cannot be ascertained with any
certainty due to, among other things, the unknown extent and nature of any
contamination, the extent and timing of any technological advances for pollution
control, the remedial or restoration actions which may be required and the
number and financial resources of any other responsible parties. The Registrant
continues to evaluate its exposure and the level of its reserves including, but
not limited to, its future negotiations with the State concerning Fox River and
Bay of Green Bay and the unknown amount which could be claimed by the federal
trustees as natural resource damages related to the lower Fox River. The
Registrant's current assessment, after consultation with legal counsel, is that
future expenditures for these matters are not likely to have a material adverse
impact on the Registrant's financial condition or liquidity, but could have a
material adverse effect on the Registrant's results from operations in a given
year; however, there can be no assurances that the Registrant's reserves will be
adequate or that a material adverse effect on the Registrant's financial
condition or liquidity will not occur at some future time.
Item 2. Properties.
The Registrant's executive offices are located in Spring
Grove, Pennsylvania, 11 miles southwest of York. The Registrant's paper mills
are located in Spring Grove, Pisgah Forest, North Carolina and Neenah,
Wisconsin.
The Spring Grove facilities include seven uncoated paper
machines with a daily capacity ranging from 12 to 298 tons and an aggregate
annual capacity of about 296,000 tons of finished paper. The machines have been
rebuilt and modernized from time to time. An off-machine coater gives the
Registrant a potential annual production capacity for coated paper of
approximately 51,000 tons. Since uncoated paper is used in producing coated
paper, this does not represent an increase in the Spring Grove mill capacity.
The Spring Grove facilities also include a pulpmill, which has a production
capacity of approximately 625 tons of bleached pulp per day.
The Pisgah Forest facilities include twelve paper machines,
stock preparation equipment, a modified kraft bleached flax pulpmill with
thirteen rotary digesters, a precipitated calcium carbonate plant and a small
recycled pulping operation.
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The annual light weight paper capacity is approximately 99,000 tons. Nine paper
machines are essentially identical while the newer three machines have design
variations specific for the products produced. Converting equipment includes
winders, calendars, slitters, perforators and printing presses.
The Neenah facilities, consisting of a paper manufacturing
mill, converting plant and offices, are located at two sites. The Neenah mill
includes three paper machines, with an aggregate annual capacity of
approximately 163,000 tons and a wastepaper de-inking and bleaching plant with
an annual capacity of approximately 97,000 tons. The converting plant contains a
paper processing area and warehouse space.
The Glatfelter Pulp Wood Company, a subsidiary of the
Registrant, owns and manages approximately 111,000 acres of land, most of which
is timberland.
The Registrant owns substantially all of the properties used
in its papermaking operations except for certain land leased from the City of
Neenah under leases expiring in 2050, on which wastewater treatment, storage and
other facilities and a parking lot are located. All of the Registrant's
properties, other than those which are leased, are free from any major liens or
encumbrances. In conjunction with a financing transaction completed in February
1997, however, the Registrant has agreed that by August 23, 1997 it will secure
the indebtedness incurred in the transaction with mortgages on real estate
assets having a value of approximately $300 million. The Registrant considers
that all of its buildings are in good structural condition and well maintained
and its properties are suitable and adequate for present operations.
Item 3. Pending Legal Proceedings.
For a discussion of potential legal procedings involving the
lower Fox River, see "Environmental Matters" in Part I of this Report. The
Registrant does not believe that the environmental matters discussed below will
have a material effect on its business or consolidated financial position.
On May 16, 1989, the Pennsylvania Environmental Hearing Board
approved and entered an Amended Consent Adjudication between the Registrant and
the Pennsylvania Department of Environmental Resources, now known as the
Department of Environmental Protection ("DEP") in connection with the
Registrant's permit to discharge effluent into the West Branch of the Codorus
Creek. The Amended Consent Adjudication establishes limitations on in-stream
color, and requires the Registrant to conduct certain studies and to submit
certain reports regarding internal and external measures to control the
discharge of color and certain other adverse byproducts of chlorine bleaching to
the West Branch of the Codorus Creek.
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During 1990 and again in 1991, the Pennsylvania DEP proposed
to reissue the Registrant's waste water discharge permit on terms with which the
Registrant does not agree. On March 4, 1997 the Pennsylvania DEP sent to the
Registrant a revised proposed waste water discharge permit which still contains
some terms to which the Registrant ogjects. The Registrant plans to file
appropriate comments, and intends to contest those terms should
they be included in the final permit.
The Wisconsin DNR has reissued the Registrant's wastewater
discharge permit for the Neenah mill on terms unacceptable to the Registrant.
The Registrant has requested an adjudicatory hearing on the terms of that
permit. The Wisconsin Paper Council is presently engaged in joint negotiation of
some issues common to a number of permits issued at the same time to similar
mills. At the conclusion of those negotiations, the Registrant will litigate or
settle any remaining individual issues.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Executive Officers of the Registrant.
<TABLE>
<CAPTION>
Executive Officers Office Age
- ------------------ ------ ---
<S> <C> <C>
T. C. Norris Chairman of the Board, 58
President and Chief Executive
Officer (a)
G. H. Glatfelter II Senior Vice President (b) 45
R. P. Newcomer Senior Vice President, 48
Treasurer and Chief Financial
Officer (c)
R. S. Lawrence Vice President - General 57
Manager, Ecusta Paper Division
(d)
R. L. Miller Vice President - Administration 50
(e)
J. F. Myers Vice President - Manufacturing 58
Technology (f)
E. J. Gillis Vice President - Marketing, 49
Glatfelter Paper Division (g)
</TABLE>
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<TABLE>
<CAPTION>
Executive Officers Office Age
- ------------------ ------ ---
<S> <C> <C>
C. M. Smith Comptroller (h) 38
R. S. Wood Secretary and Assistant 39
Treasurer (i)
</TABLE>
Officers are elected to serve at the pleasure of the Board of
Directors. Except in the case of officers elected to fill a new position or a
vacancy occurring at some other date, officers are elected at the annual meeting
of the Board held immediately after the annual meeting of shareholders.
- --------------------
(a) Mr. Norris became Chairman of the Board on April 27, 1988. Prior
thereto he was President and Chief Executive Officer.
(b) Mr. Glatfelter became Senior Vice President in September 1995. From May
1993 to September 1995, he was Vice President - General Manager,
Glatfelter Paper Division. Prior to May 1993, he was General Manager,
Glatfelter Paper Division.
(c) Mr. Newcomer became Senior Vice President, Treasurer and Chief
Financial Officer in September 1995. From April 1995 to September 1995,
he was Vice President, Treasurer and Chief Financial Officer; he was
Vice President and Treasurer from May 1993 to April 1995. Prior to May
1993, he was Assistant Comptroller.
(d) Mr. Lawrence became Vice President - General Manager, Ecusta Paper
Division in May 1993. Prior to May 1993, he was Director of Planning,
Acquisitions and Governmental Affairs.
(e) Mr. Miller became Vice President - Administration in September 1995.
From August 1994 to September 1995, he was Director of Planning,
Acquisitions and Governmental Affairs. He was Director, Marketing
Services from May 1993 to August 1994; prior to May 1993, he was
Director, Customer Services.
(f) Dr. Myers became Vice President - Manufacturing Technology on April 26,
1989.
(g) Mr. Gillis became Vice President - Marketing, Glatfelter Paper Division
in May 1993. Prior to May 1993, he was Vice President - Sales,
Glatfelter Paper Division.
(h) Mr. Smith became Comptroller in May 1993. Prior to May 1993, he was a
Financial Analyst.
(i) Mr. Wood became Secretary and Assistant Treasurer in September 1992.
Prior to September 1992, he was Assistant Secretary and Assistant
Treasurer.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
Common Stock Prices and Dividends Paid Information
The table below shows the high and low prices of the Registrant's common stock
on the American Stock Exchange (Ticket Symbol "GLT") and the dividends paid per
share for each quarter during the past two years.
<TABLE>
<CAPTION>
1996 1995
==============================================================================================================
Quarter High Low Dividends High Low Dividends
<C> <C> <C> <C> <C> <C> <C>
1st $18 $15 5/8 $.175 $18 3/8 $15 3/8 $.175
2nd 18 3/8 16 1/4 .175 20 1/4 17 1/2 .175
3rd 18 5/8 16 3/4 .175 23 5/8 19 3/4 .175
4th 19 5/8 16 3/4 .175 22 3/8 15 7/8 .175
</TABLE>
As of December 31, 1996, the Registrant had 4,290 shareholders of record. A
number of the shareholders of record are nominees.
Item 6. Selected Financial Data.
Seven-Year Summary of Selected Consolidated Financial Data
Year Ended December 31
(in thousands except per share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $566,084 $623,709 $ 478,302 $473,509 $540,057 $567,764 $625,429 $598,777
Income (loss) before 60,399 65,828 (118,251)(a) 20,409(c) 56,544 76,049 88,332 92,864
accounting changes
Income (loss) per 1.41 1.49 (2.67)(a) .46(c) 1.27 1.67 1.88 1.93
common share before
accounting changes
Total assets 715,310 673,107 650,810(b) 842,087(d) 648,464 630,115 598,842 550,015
Debt 150,000 150,000 174,100 150,000 10,100 __ __ 1,100
Cash dividends $ .70 $ .70 $ .70 $ .70 $ .70 $ .60 $ .575 $ .50
declared per
common share
</TABLE>
- --------------
(a) After impact of an after tax charge for a writedown of impaired assets
(unusual items) of $127,981,000 or $2.89 per share.
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(b) After impact of writedown of impaired assets (unusual items)
of $208,949,000.
(c) After impact of an after tax charge for rightsizing and restructuring
(unusual items) of $8,430,000 or $.19 per share and the effect of an
increased federal corporate income tax rate of $3,587,000 or $.08 per
share.
(d) Includes an increase of $61,062,000 resulting from the adoption of
Statement of Financial Accounting Standards No. 109.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
OVERVIEW
The Company classifies its sales into two product groups: 1) printing papers;
and 2) tobacco and other specialty papers. The Spring Grove, Pennsylvania and
Neenah, Wisconsin mills produce printing papers and specialty papers. The Pisgah
Forest mill (hereinafter referred to as the "Ecusta Division" or "Ecusta")
produces printing papers and tobacco and other specialty papers. Sales of
certain paper grades have been reclassified during 1996 to be consistent with
the Company's definition of other specialty papers. Prior year amounts have been
restated to be in conformity with the 1996 classification.
Most of the Company's printing paper products are directed at the uncoated
free-sheet portion of the industry, which experienced weak demand in the
beginning of 1996. It is generally believed that this situation was caused by
abnormally high customer inventory levels at the beginning of the year. The
Company believes such customer inventory levels were lower at the end of 1996
than as of the beginning of the year. Prices for the Company's printing paper
products declined during the year. While demand for the Company's printing paper
products declined during 1996, the Company believes that demand and pricing for
papers sold to the book publishing industry, which is a significant part of the
Company's printing paper business, remained stronger as compared to paper sold
to the rest of the printing paper market. The Company expects that sluggish
conditions in the printing paper market will continue during the first half of
1997. The Company believes that demand will improve during the second half of
the year and that some price relief may occur during the last six months of
1997.
Demand and pricing for tobacco and other specialty products were not
significantly impacted by the softer printing paper market and remained fairly
constant during the year. Domestic cigarette consumption was flat in 1996
compared to 1995 and international cigarette consumption continued to grow.
Overall demand and pricing for tobacco and other specialty papers is expected to
remain relatively stable throughout the coming year. A significant portion of
Ecusta's sales are made to a limited number of major tobacco companies. The
current legal and regulatory pressures on that industry could have an adverse
effect on the future tobacco paper sales and profitability of Ecusta. Under such
conditions, the Company would attempt to replace any lost sales and
profitability with lightweight printing and other specialty papers.
1996 COMPARED TO 1995
Net sales in 1996 decreased $57,625,000, or 9.2%, compared to 1995. This
decrease was principally caused by a decrease in average selling prices at the
Spring Grove and Neenah mills. The sales volume at all the Company's mills was
also down slightly in 1996 compared to 1995.
Printing paper sales decreased by $66,540,000, or 15.8%, in 1996 compared to
1995. The annual average net printing paper selling price decreased 12.2% in
1996 from 1995 due to the decrease in demand for printing papers. Demand for
these papers was slow early in the year, improved in the second and third
quarters, and then slowed again in the fourth quarter.
Net tobacco and other specialty paper sales increased $8,915,000, or 4.4%, in
1996 compared to 1995. The Company had a slight decrease in tobacco paper sales
in 1996 compared to 1995. Tobacco paper sales volume was down 3.4% in 1996
versus 1995; however, demand was sufficient for the Company to improve its sales
mix for these papers. This resulted in a slight increase in average tobacco
paper selling price in 1996 compared to 1995. Other specialty paper sales
increased by 12.5% in 1996 compared to 1995 as sales volume increased by 7.3%.
The average selling price of other specialty papers increased by 4.9%, in part
due to improved product mix.
Profit from operations before interest income and expense and taxes was
$105,639,000 in 1996 compared to $116,501,000 in 1995. This decrease was the
result of decreased selling prices and sales volume. Despite these decreases,
gross margin increased from 22.7% in 1995 to 23.2% in 1996. The increase in
gross margin was primarily a result of lower costs for market pulp, pulp
substitutes and wastepaper. These cost reductions particularly benefited the
Ecusta and Neenah mills which rely more on purchased fiber than the Spring Grove
mill. These raw material price decreases more than offset the unfavorable impact
of lower production during 1996 compared to 1995. The Company's lower production
resulted in higher fixed costs per ton as fixed costs were absorbed over fewer
tons produced.
Selling, general and administrative expenses were $886,000 lower in 1996 than in
1995. This decrease was primarily the result of lower profit sharing and
incentive expenses, which were partially offset by increased miscellaneous
general and administrative expenses. Selling, general and administrative
expenses were 6.3% and 5.8% of net sales for 1996 and 1995, respectively.
Interest on debt in 1996 decreased $957,000 from 1995. This decrease was
primarily the result of reduced short-term bank borrowings. The Company had
average net short-term borrowings of $20,000 and $9,447,000 during 1996 and
1995, respectively, at an average interest rate of 6.1% and 6.2%, respectively.
The Company had no short-term borrowings at the end of 1996. Interest on debt
also decreased as a result of a lower variable interest rate on the Company's
interest rate swap agreement which has a total notional principal amount of
$50,000,000.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
RESULTS BY MILL
The Spring Grove mill's profit from operations decreased by $27,073,000 in 1996
compared to 1995. Net sales decreased $32,738,000 in 1996 compared to 1995 due
primarily to a decrease in average selling price. Sales volume was less than 1%
lower in 1996 than 1995. Cost of sales decreased slightly, primarily due to
lower raw material costs, offsetting increases in other costs including
depreciation. Selling, general and administrative expenses also decreased,
primarily due to lower profit sharing and incentive expenses.
Despite a decrease in net sales of $24,185,000 in 1996 compared to 1995, profit
from operations at the Neenah mill increased by $2,404,000. The net sales
decrease was primarily the result of lower average selling price. Sales volume
was approximately 2% lower in 1996 than 1995. Neenah's cost of sales decreased
by $27,147,000, primarily due to significantly lower wastepaper, pulp and pulp
substitute costs. Wastepaper costs were extremely high in 1995 and the 1996
costs represented a return closer to historical levels.
Profit from operations at Ecusta increased $13,807,000 in 1996 compared to 1995.
Net sales were flat in 1996 compared to 1995. A slight increase in average
selling price due to improved product mix offset a slight reduction in sales
volume. Ecusta's cost of sales decreased significantly during the year,
primarily as a result of decreased pulp costs. During the second half of 1996,
the Ecusta mill purchased a significant amount of pulp, much of which remains in
the Company's inventory at the end of the year.
1995 COMPARED TO 1994
Net sales in 1995 increased $145,407,000, or 30.4%, over 1994. The Company's
sales volume also increased in 1995 compared to 1994. Overall demand for the
Company's products was very strong into the third quarter of 1995. The demand
for printing papers weakened towards the end of the third quarter and incoming
orders remained below normal levels during the fourth quarter of 1995. Strong
market conditions resulted in significant price increases during the first nine
months of 1995, tempered somewhat by a marginal decline during the fourth
quarter of 1995.
Printing paper sales increased by $119,468,000, or 39.5%, in 1995 compared to
1994. The annual average net printing paper selling price increased 29.4% in
1995 from 1994 due to the significant increase in demand for printing papers as
well as the Company's ability to offset increased raw material costs,
particularly for market pulp, pulp substitutes and wastepaper. The increased
demand for printing papers resulted in a 7.8% increase in sales volume in 1995
compared to 1994. Weakening demand resulted in some marginal price decreases
during the fourth quarter of 1995. Despite these decreases, the average selling
price during the fourth quarter of 1995 was significantly higher than the
average selling price during the fourth quarter of 1994.
Net tobacco and other specialty paper sales increased $25,939,000, or 14.7%, in
1995 compared to 1994. The Company had a 14.2% increase in tobacco paper sales
volume in 1995 over 1994. An increase in worldwide demand for tobacco paper
products in general and flax based tobacco papers specifically, and a lack of
industry capacity increases allowed the Company to sell more tobacco paper
volume and improve its sales mix. These factors also resulted in a slight
increase in average tobacco paper selling price in 1995, compared to 1994. Other
specialty paper sales increased by 13.3% in 1995 compared to 1994 due to a 13.9%
increase in average selling prices.
Increased sales volumes and selling prices led to a significant increase in
operating profit in 1995 compared to 1994. Profit from operations, before
unusual items, interest income and expense and taxes was $116,501,000 compared
to $21,541,000 in 1994. The increase in average selling prices more than offset
the increase in cost of products sold resulting in an increase in gross margin
from 8.5% in 1994 to 22.7% in 1995. The cost of products sold increased
primarily as a result of higher costs for market pulp, pulp substitutes and
wastepaper. These cost increases more than offset (i) the ability of the Company
to spread its fixed manufacturing costs over more tons of products manufactured
during 1995 compared to 1994, and (ii) the favorable impact of lower
depreciation expense of approximately $10,000,000 during 1995 compared to 1994.
Increased depreciation expense at the Spring Grove mill, due primarily to the
completion of the pulpmill modernization project in the fourth quarter of 1994,
was more than offset by a reduction in depreciation at Ecusta in 1995 of
approximately $14,400,000 compared to 1994. The decrease in Ecusta's
depreciation resulted from the writedown of the net assets of Ecusta in the
fourth quarter of 1994.
Selling, general and administrative expenses were $9,157,000 higher in 1995 than
in 1994. This increase occurred primarily from higher profit sharing and
incentive related expenses during 1995 compared to 1994. Selling, general and
administrative expenses were 5.8% and 5.7% of net sales for 1995 and 1994,
respectively.
Interest on debt in 1995 increased $3,901,000 over 1994. The Company capitalized
$3,066,000 of interest expense in 1994. No interest expense was capitalized
during 1995. The increase in interest on debt was also due to a higher variable
interest rate on the Company's interest rate swap agreement which has a total
notional principal amount of
14
<PAGE> 16
$50,000,000. Interest on short-term borrowings during 1995 was $50,000 less than
in 1994. The Company had no short-term borrowings at the end of 1995.
RESULTS BY MILL
The Spring Grove mill's profit from operations increased by $56,792,000 in 1995
compared to 1994. Net sales increased $78,426,000 in 1995 compared to 1994 due
to a significant increase in sales volume and average selling price. Cost of
sales increased primarily due to increased depreciation. Depreciation increased
due to the completion of the pulpmill modernization project during the fourth
quarter of 1994. This project, undertaken primarily for environmental reasons,
resulted in an increase in total pulp production capacity at the mill. The
corresponding reduction in volume of purchased market pulp resulted in increased
profitability at Spring Grove during 1995.
Profit from operations at the Neenah mill increased by $9,298,000 in 1995
compared to 1994. Net sales increased $42,370,000 in 1995 due to a significant
increase in sales volume and average selling price. Neenah's 1995 profit from
operations was negatively impacted by a significant increase in the cost of
wastepaper. Wastepaper costs decreased during the second half of 1995 and by the
end of 1995 had returned closer to historical levels.
Profit from operations at Ecusta increased $28,870,000 in 1995 compared to 1994.
Net sales increased $24,611,000 in 1995, primarily due to an increase in average
selling price due to improved product mix and Ecusta's ability to offset
increased raw material costs, particularly for market pulp. Ecusta's increase in
raw material costs was more than offset through a combination of price increases
and by a decrease of approximately $14,400,000 in depreciation costs, due to the
writedown of the net assets of Ecusta in the fourth quarter of 1994. Ecusta's
profitability was also significantly enhanced through comprehensive cost
reduction efforts.
1994 - UNUSUAL CHARGES
During 1994, the Company closely monitored the Ecusta Division and continued its
efforts to maximize utilization of Ecusta's assets by attempting to direct sales
volume to its more profitable grades and by controlling costs. Despite these
efforts, Ecusta experienced a 1994 operating loss before an unfavorable LIFO
inventory charge, unusual items, interest expense and taxes of $4,921,000.
Ecusta continued to be negatively impacted by the continuing trend of declining
domestic tobacco consumption, a trend which was expected to continue. Increased
competition for foreign tobacco paper sales had also negatively impacted
Ecusta's profitability.
Based on 1994 Ecusta operating results, which indicated that market conditions
were unlikely to improve significantly in the near future, the Company
determined that its efforts to return Ecusta to an acceptable level of
profitability would not be successful. As a result, the Company decided to
evaluate other strategic alternatives. As part of its consideration of such
alternatives, the Company solicited offers to buy the Ecusta Division during the
fourth quarter of 1994. In January 1995, the Company rejected all offers which
it received to buy the Ecusta Division because the offers were less than the
Company's valuation of the net assets. Nevertheless, as a result of these
offers, as well as the Company's revised valuation of the net assets of Ecusta,
the Company concluded that the fair value of the net assets was less than the
book value. Accordingly, during the fourth quarter of 1994, the net assets of
Ecusta were written down to fair value, resulting in a $198,189,000 charge to
pre-tax earnings. This writedown had no cash impact on the Company.
The Company concluded that asset impairment recognition was required as the
revised projected undiscounted future cash flows of the Ecusta Division were
less than the carrying value. In developing the revised projections, the Company
considered 1994 actual results and the Company's conclusions concerning future
market conditions and the resulting impact on prices. To determine the fair
value of the Ecusta Division net assets, the Company projected the present value
of future cash flows using a 13% discount rate. The resulting fair value, which
exceeded the offers received, was used to determine the amount of the writedown.
The writedown of Ecusta's net assets reduced depreciation expense in 1995 by
approximately $14,400,000 and will reduce depreciation in subsequent periods by
declining amounts.
During the fourth quarter of 1994, the Company also identified impaired assets
at its Spring Grove and Neenah mills, resulting in a pre-tax charge of
$10,760,000. This writedown primarily related to solid waste disposal assets,
specifically, a sludge combustor at the Neenah mill and an unused landfill at
the Spring Grove mill. During the fourth quarter of 1994, the Company identified
more economical means, acceptable to the appropriate environmental agencies, by
which to dispose of its solid waste at these locations and concluded that the
significant additional expenditures necessary to make the assets operational
were not prudent, resulting in unusable assets.
FINANCIAL CONDITION
Liquidity
During 1996, the Company's cash and cash equivalents increased by $12,938,000.
This increase in cash and cash equivalents was due to cash generated by
operations of $96,608,000 which was largely offset by the funding of $35,644,000
for capital-related projects, the payment of
15
<PAGE> 17
$29,977,000 for dividends and the expenditure of $19,068,000 to purchase common
stock for the treasury. During 1996, the Company's inventory increased by
$14,153,000. This increase was primarily due to the purchase at low cost of a
significant amount of market pulp for the Ecusta mill. The Company plans to
reduce Ecusta's market pulp inventory to historical levels by the end of 1997.
The Company's interest rate risk is limited to its level of variable rate
borrowings. In March 1993, the Company issued $150,000,000 principal amount of
its 5-7/8% Notes due March 1, 1998 and immediately entered into an interest rate
swap agreement having a total notional principal amount of $50,000,000. Under
the agreement, the Company receives a fixed rate of 5-7/8% and pays a floating
rate (London Interbank Offered Rate (LIBOR) plus sixty basis points), as
determined at six month intervals. The floating rate is 6.37344% for the six
month period ending February 28, 1997. Although the Company can pay to terminate
the swap agreement at any time, the Company intends to hold the swap agreement
until its March 1, 1998 maturity. The cost to the Company to terminate the
agreement fluctuates with prevailing market interest rates. As of December 31,
1996, the cost to terminate the swap agreement was approximately $430,000.
In February 1997, the Company completed a transaction pursuant to which the
Company deposited approximately $155,500,000 into a trust to defease certain
covenants under the indenture under which the Company's $150,000,000 5-7/8%
Notes are outstanding. The amount deposited in the trust and the Company's
$150,000,000 5-7/8% Notes will continue to be reported on the Company's
Consolidated Balance Sheets.
The Company expects to meet all its near-term cash needs from a combination of
internally generated funds, cash, cash equivalents, marketable securities and
existing bank lines of credit.
Capital Resources
During 1996, the Company expended $35,644,000 for capital projects. Most of
these expenditures were for maintenance related capital projects; however,
approximately $2,000,000 was expended for environmental capital projects.
Capital spending in 1997 is expected to increase significantly as certain large
projects begun in 1996 are expected to be completed during 1997. The Company
expects to complete the installation of a gravure coater and a precipitated
calcium carbonate plant at the Spring Grove mill during the latter part of 1997.
These projects are expected to cost approximately $15,000,000 and $9,500,000,
respectively, including some minor expenditures made during 1996.
ENVIRONMENTAL MATTERS
The Company is subject to loss contingencies resulting from regulation by
various federal, state, local and foreign governmental authorities with respect
to the environmental impact of air and water emissions and noise from its mills
as well as its disposal of solid waste generated by its operations. In order to
comply with environmental laws and regulations, the Company has incurred
substantial capital and operating expenditures over the past several years. The
Company anticipates that environmental regulation of the Company's operations
will continue to become more burdensome and that capital and operating
expenditures will continue, and perhaps increase, in the future. In addition,
the Company may incur obligations to remove or mitigate any adverse effects on
the environment resulting from its operations, including the restoration of
natural resources, and liability for personal injury and damage to property,
including natural resources. In particular, while the Company continues to
negotiate with the State of Wisconsin (and expects to resume negotiations with
the United States Fish and Wildlife Service) regarding natural resources
restoration and damages related to the discharge of polychlorinated biphenyls
(PCBs) and other hazardous substances into the lower Fox River, on which the
Company's Neenah mill is located, the cost of such restoration and damages is
presently unknown but could be substantial. Management's current assessment,
after consultation with legal counsel, is that such expenditures are not likely
to have a material adverse effect on the Company's financial condition or
liquidity, but could have a material adverse effect on the Company's results
from operations in a given year; however, there can be no assurance that the
Company's reserves will be adequate or that a material adverse effect on the
Company's financial condition or liquidity will not occur at some future time.
EFFECTS OF CHANGING PRICES
The moderate levels of inflation during recent years have not had a material
effect on the Company's net sales, revenues or income from operations. Although
the replacement cost of assets increases during inflationary periods, earnings
and cash flow may be maintained through an increase in selling prices.
FORWARD-LOOKING STATEMENTS
Any statements set forth in this annual report or otherwise made in writing or
orally by the Company with regard to its expectations as to industry conditions
and its financial results, demand and pricing for its products and other aspects
of its business may constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Although the Company makes
such statements based on assumptions which it believes to be reasonable, there
can be no assurance that actual
16
<PAGE> 18
results will not differ materially from the Company's expectations. Accordingly,
the Company hereby identifies the following important factors, among others,
which could cause its results to differ from any results which might be
projected, forecasted or estimated by the Company in any such forward-looking
statements: (i) variations in demand for its products; (ii) changes in the cost
or availability of raw materials used by the Company, in particular market pulp,
pulp substitutes and wastepaper; (iii) changes in industry paper production
capacity, including the construction of new mills, the closing of mills and
incremental changes due to capital expenditures or productivity increases; (iv)
the gain or loss of significant customers; (v) cost and other effects of
environmental compliance, cleanup, damages, remediation or restoration, or
personal injury or property damage related thereto, such as the cost of natural
resource restoration or damages related to the presence of PCBs in the lower Fox
River on which the Company's Neenah mill is located; (vi) significant changes in
cigarette consumption, both domestically and internationally; (vii) enactment of
adverse state or federal legislation or changes in government policy or
regulation; (viii) adverse results in litigation; and (ix) disruptions in
production and/or increased costs due to labor disputes.
17
<PAGE> 19
Item 8. Financial Statements and Supplementary Data.
CONSOLIDATED STATEMENTS OF INCOME
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(in thousands except per share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $566,084 $623,709 $ 478,302
OTHER INCOME:
Interest on investments and other -- net 1,574 1,376 998
Energy sales -- net 8,559 9,455 5,645
Gain from property dispositions, etc. -- net 977 1,852 2,558
-------- -------- ---------
Total 577,194 636,392 487,503
-------- -------- ---------
COSTS AND EXPENSES:
Cost of products sold 434,491 482,139 437,745
Selling, administrative and general expenses 35,490 36,376 27,219
Interest on debt (Notes 1(h) and 10) 9,308 10,265 6,364
-------- -------- ---------
479,289 528,780 471,328
Unusual items (Note 2) -- -- 208,949
-------- -------- ---------
Total costs and expenses 479,289 528,780 680,277
-------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 97,905 107,612 (192,774)
-------- -------- ---------
INCOME TAX PROVISION (CREDIT) (Note 6):
Current 20,604 18,123 526
Deferred 16,902 23,661 (75,049)
-------- -------- ---------
Total 37,506 41,784 (74,523)
-------- -------- ---------
NET INCOME (LOSS) $ 60,399 $ 65,828 $(118,251)
======== ======== =========
INCOME (LOSS) PER COMMON SHARE (Notes 1(b) and 3): $ 1.41 $ 1.49 $ (2.67)
</TABLE>
The accompanying notes are an integral part of these financial statements
18
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
December 31, 1996 and 1995
<TABLE>
<CAPTION>
(in thousands except share information) 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1(c)) $ 31,802 $ 18,864
Marketable securities (Note 1(f)) 811 111
Accounts receivable (less allowance for doubtful accounts:
1996, $1,913; 1995, $1,979) 49,703 52,052
Inventories (Note 1(d)) 101,231 87,078
Prepaid expenses 4,522 2,318
--------- ---------
Total current assets 188,069 160,423
PLANT, EQUIPMENT AND TIMBERLANDS -- NET (Notes 1(e), 1(h), 2 and 7) 455,190 451,461
OTHER ASSETS (Notes 1(f) and 4) 72,051 61,223
--------- ---------
Total assets $ 715,310 $ 673,107
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 35,249 $ 34,623
Dividends payable 7,444 7,597
Federal, state and local taxes (Note 6) 4,305 235
Accrued compensation, other expenses and deferred income taxes 39,185 41,553
--------- ---------
Total current liabilities 86,183 84,008
LONG-TERM DEBT (Note 10) 150,000 150,000
DEFERRED INCOME TAXES (Notes 1(g) and 6) 99,139 80,682
OTHER LONG-TERM LIABILITIES (Notes 3 and 5) 48,958 43,011
--------- ---------
Total liabilities 384,280 357,701
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
SHAREHOLDERS' EQUITY (Note 3):
Common stock, $.01 par value; authorized -- 120,000,000 shares; issued
(including shares in treasury:
1996, 11,822,152; 1995, 10,926,668) -- 54,361,980 shares 544 544
Capital in excess of par value 41,601 40,921
Retained earnings 462,337 431,762
--------- ---------
Total 504,482 473,227
Less cost of common stock in treasury (173,452) (157,821)
--------- ---------
Total shareholders' equity 331,030 315,406
--------- ---------
Total liabilities and shareholders' equity $ 715,310 $ 673,107
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Capital in Total
(in thousands except Shares Common Excess of Par Retained Treasury Shareholders'
shares outstanding) Outstanding Stock Value Earnings Stock Equity
- ----------------------------------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 43,987,328 $544 $39,323 $ 545,770 $(144,237) $ 441,400
Net loss (118,251) (118,251)
Cash dividends declared (30,884) (30,884)
Delivery of treasury shares:
Restricted stock award plan 15,012 67 209 276
Employee stock purchase plans 197,489 448 2,745 3,193
---------- ---- ------- --------- --------- ---------
Balance, December 31, 1994 44,199,829 544 39,838 396,635 (141,283) 295,734
Net income 65,828 65,828
Cash dividends declared (30,701) (30,701)
Delivery of treasury shares:
Employee stock purchase and
401(k) plans 174,929 955 2,402 3,357
Employee stock options
exercised (net) 16,754 128 138 266
Purchase of stock for treasury (956,200) (19,078) (19,078)
---------- ---- ------- --------- --------- ---------
Balance, December 31, 1995 43,435,312 544 40,921 431,762 (157,821) 315,406
Net income 60,399 60,399
Cash dividends declared (29,824) (29,824)
Delivery of treasury shares:
Restricted stock award plan 72,193 223 1,054 1,277
Employee stock purchase and
401(k) plans 151,265 447 2,207 2,654
Employee stock options
exercised (net) 12,131 10 176 186
Purchase of stock for treasury (1,131,073) (19,068) (19,068)
---------- ---- ------- --------- --------- ---------
Balance, December 31, 1996 42,539,828 $544 $41,601 $ 462,337 $(173,452) $ 331,030
========== ==== ======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 22
CONSOLIDATED STATEMENTS OF CASH FLOWS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 60,399 $ 65,828 $(118,251)
Unusual item -- writedown of impaired assets -- -- 208,949
Items included in net income (loss) not using (providing) cash:
Depreciation and depletion 33,570 32,599 42,906
Expense related to employee stock purchase and 401(k) plans 1,224 975 814
Loss (gain) on disposition of fixed assets 169 (476) (345)
Changes in assets and liabilities:
Accounts receivable 2,349 (3,140) (14,572)
Inventories (14,153) (5,247) 11,459
Other assets and prepaid expenses (13,032) (9,999) (11,116)
Accounts payable, accrued compensation, other expenses,
deferred income taxes and other long-term liabilities 3,555 17,096 (950)
Federal, state and local taxes 4,070 (2,254) (2,383)
Deferred income taxes -- noncurrent 18,457 20,369 (70,196)
-------- --------- ---------
Net cash provided by operating activities 96,608 115,751 46,315
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) or maturity of investments -- net (700) 2,861 22,073
Proceeds from disposal of fixed assets 102 987 1,569
Additions to plant, equipment and timberlands (37,477) (25,777) (83,499)
Increase (decrease) in liabilities related to fixed asset acquisitions 1,833 (6,716) 1,860
-------- --------- ---------
Net cash used in investing activities (36,242) (28,645) (57,997)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (repayment) of short-term debt -- net -- (24,100) 24,100
Dividends paid (29,977) (30,839) (30,847)
Purchases of common stock (19,068) (19,078) --
Employees' contribution -- common stock issued under
employee benefit plans 1,617 2,642 2,380
-------- --------- ---------
Net cash used in financing activities (47,428) (71,375) (4,367)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents 12,938 15,731 (16,049)
CASH AND CASH EQUIVALENTS
At beginning of year 18,864 3,133 19,182
-------- --------- ---------
At end of year $ 31,802 $ 18,864 $ 3,133
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid For:
Interest (net of amount capitalized) $ 9,684 $ 10,366 $ 5,832
Income taxes 20,480 21,571 2,899
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations and Principles of Consolidation
P. H. Glatfelter Company and subsidiaries are principally manufacturers of
printing papers and tobacco and other specialty papers. Headquartered in Spring
Grove, Pennsylvania, the Company's paper mills are located in Spring Grove,
Pisgah Forest, North Carolina and Neenah, Wisconsin. The Pisgah Forest mill is
also known as the Ecusta Division. The Company's products are marketed in most
parts of the United States and in many foreign countries, either through
wholesale paper merchants, brokers and agents, or direct to customers. The
accounts of the Company, and its wholly-owned, significant subsidiaries, are
included in the consolidated financial statements. All inter-company
transactions have been eliminated.
(b) Income (Loss) per Common Share
Income (loss) per share of common stock is computed on the basis of the weighted
average number of shares of common stock and common stock equivalents (Note 3)
outstanding during each year.
(c) Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with effective
maturities at date of purchase of three months or less to be cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market. Raw materials and
in-process and finished inventories are valued using the last-in, first-out
(LIFO) method, and the supplies inventory is valued principally using the
average cost method. Inventories at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Raw materials $ 36,355 $ 25,577
In-process and finished 33,073 30,821
Supplies 31,803 30,680
-------- --------
Total $101,231 $ 87,078
======== ========
</TABLE>
If the Company had valued all inventories using the average cost method,
inventories would have been $2,571,000 and $14,563,000 higher than reported at
December 31, 1996 and 1995, respectively. During 1994, the Company liquidated
certain LIFO inventories. The effect of the liquidation did not have a
significant impact on net income.
At December 31, 1996 and 1995, the value of the above inventories exceeded
inventories for income tax purposes by approximately $20,400,000 and
$22,800,000, respectively.
(e) Plant, Equipment, and Timberlands
Depreciation is computed for financial reporting on the straight-line method
over the estimated useful lives of the respective assets and for income taxes
principally on accelerated methods over lives established by statute or Treasury
Department procedures. Provision is made for deferred income taxes applicable to
this difference (Notes 1(g) and 6).
Maintenance and repairs are charged to income and major renewals and betterments
are capitalized. At the time property is retired or sold, the cost and related
reserve are eliminated and any resultant gain or loss is included in income.
Depletion of the cost of timber is computed on a unit rate of usage by growing
area based on estimated quantities of recoverable material.
Plant, equipment and timberlands accounts are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(in thousands)
<S> <C> <C>
Land and buildings $ 112,973 $ 110,348
Machinery and equipment 870,116 847,535
Other 28,286 27,557
Less accumulated
depreciation (Note 2) (585,954) (557,075)
--------- ---------
Total 425,421 428,365
Construction in progress 12,342 6,220
Timberlands, less depletion 17,427 16,876
--------- ---------
Plant, equipment and
timberlands -- net $ 455,190 $ 451,461
========= =========
</TABLE>
(f) Investments in Debt and Equity Securities
The Company accounts for investments in debt and equity securities under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities".
Long-term investments, which are due ratably over an 18-year period and are
classified as held-to-maturity, are included in "Other assets" on the
Consolidated Balance Sheets at December 31, 1996 and 1995. The investments
consist of approximately $11,900,000 and $13,200,000 in U.S. Treasury and
government obligations in 1996 and 1995, respectively. The estimated fair value
of the investments in such securities approximated the amortized cost, and
therefore, there were no significant unrealized gains or losses as of December
31, 1996 and 1995. Investments in municipal debt and equity securities of
$811,000 and $111,000 classi-
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
fied as available-for-sale, are reported as "Marketable securities" on the
Consolidated Balance Sheets at December 31, 1996 and 1995, respectively. The
fair market value for such securities approximates cost.
(g) Income Tax Accounting
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Note 6).
Deferred taxes are provided for differences between amounts shown for financial
reporting purposes and those included with tax return filings that will reverse
in future periods.
(h) Capitalized Interest
The Company capitalizes interest incurred in connection with qualified additions
to property. The Company capitalized $3,066,000 of interest in 1994. The Company
did not capitalize any interest in 1996 or 1995.
(i) Fair Market Value of Financial Instruments
The amounts reported in the Consolidated Balance Sheets for cash and cash
equivalents, marketable securities, trade receivables, other assets and
long-term debt approximate fair value.
(j) Long-Lived Asset Impairment
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," assets are reviewed for impairment on an annual basis in
conjunction with the preparation of the annual budget or when a specific event
indicates that the carrying value of an asset may not be recoverable.
Recoverability is assessed based on estimates of future cash flows expected to
result from the use and eventual disposition of the asset. If the sum of
expected undiscounted cash flows is less than the carrying value of the asset,
an impairment loss is recognized. The impairment loss is measured as the amount
by which the carrying amount of the asset exceeds its fair value.
(k) Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of management's estimates and
assumptions. Management believes the estimates and assumptions used in the
preparation of these consolidated financial statements are reasonable based upon
currently available facts and known circumstances but recognizes that actual
results may differ from those estimates and assumptions (see Note 7).
2. WRITEDOWN OF IMPAIRED ASSETS (UNUSUAL ITEMS)
During the fourth quarter of 1994, the Company recognized a noncash, pre-tax
writedown of impaired assets of $208,949,000. Of this amount, $198,189,000
related to the pre-tax writedown of the Company's Ecusta Division to its fair
value primarily due to writedowns related to property, plant and equipment of
$189,441,000 and inventory of $6,406,000.
The Company concluded that asset impairment recognition was required as the
revised projected undiscounted future cash flows of the Ecusta Division were
less than the carrying value. In developing the revised projections, the Company
considered 1994 actual results and the Company's conclusions concerning future
market conditions and the resulting impact on prices. To determine the fair
value of the Ecusta Division net assets, the Company projected the present value
of future cash flows using a 13% discount rate. The resulting fair value was
used to determine the amount of the writedown.
During the fourth quarter of 1994, the Company also identified impaired property
and equipment at its Spring Grove, Pennsylvania and Neenah, Wisconsin mills,
resulting in a pre-tax charge of $10,760,000. This writedown primarily related
to solid waste disposal assets, specifically, a sludge combustor at the Neenah
mill and an unused landfill at the Spring Grove mill. During the fourth quarter
of 1994, the Company identified more economical means, acceptable to the
appropriate environmental agencies, by which to dispose of its solid waste at
these locations and concluded that the significant additional expenditures
necessary to make the assets operational were not prudent, resulting in unusable
assets.
The aggregate after tax impact of this writedown in 1994 was $127,981,000, or
$2.89 per common share.
3. KEY EMPLOYEE LONG-TERM INCENTIVE PLAN, RESTRICTED COMMON STOCK AWARD PLAN AND
EMPLOYEE STOCK PURCHASE PLANS
On April 22, 1992, the common shareholders approved the 1992 Key Employee
Long-Term Incentive Plan ("1992 Plan") which authorizes the issuance of up to
3,000,000 shares of the Company's common stock to eligible participants. The
1992 Plan provides for incentive stock options, non-qualified stock options,
restricted stock awards, performance shares and performance units. The Company's
1988 Restricted Common Stock Award Plan ("1988 Plan") was simultaneously amended
to provide that no further awards of common shares may be made thereunder.
On May 1, 1995, January 1, 1996 and January 1, 1997, the Company awarded, under
the 1992 Plan, 59,620, 44,860 and 40,060 shares, respectively, subject to
certain conditions, to certain key employees to be issued in whole or in part
depending on the Company's degree of success in achieving certain financial
performance goals during defined four-year performance periods. The May 1, 1995,
January 1, 1996
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
and January 1, 1997 awards are for the performance periods ending December 31,
1998, 1999 and 2000, respectively, and if earned will be distributed the
following year. Compensation expense is recognized over the performance period
and is affected by the likelihood of achieving the performance goals and the
fair value of the Company's common stock at the end of each reporting period.
The Company expensed $504,000 and $186,000 related to these awards in 1996 and
1995, respectively. The fair market value of the shares awarded during 1997,
1996 and 1995 was $17.88, $17.16 and $17.81, respectively.
During 1988 and 1991, 755,000 and 76,000 shares of common stock, respectively,
were awarded under the 1988 Plan. Awarded shares are subject to forfeiture, in
whole or in part, if the recipient ceases to be an employee within a specified
period of time. Compensation expense equal to the fair market value of awarded
shares on the award date is recognized over the period from the award date to
the date the forfeiture provisions lapse. The Company may reduce the number of
shares otherwise required to be delivered by an amount which would have a fair
market value equal to the taxes withheld by the Company on delivery. The Company
may also, at its sole discretion, elect to pay to the recipients in cash an
amount equal to the fair market value of the shares that would otherwise be
required to be delivered.
On March 1, 1994, under the 1988 Plan, in lieu of delivering 28,000 shares, the
Company elected to pay in cash an amount equal to the fair market value of such
shares. On May 2, 1994, 15,012 shares were delivered from treasury (after
reduction of 8,988 shares for taxes). On May 1, 1996, in lieu of delivering
60,303 shares, the Company elected to pay in cash an amount equal to the fair
value of such shares. Also on May 1, 1996, 72,193 shares were delivered from
treasury (after reduction of 49,504 shares for taxes). The Company expensed
$283,000, $615,000 and $740,000 related to these awards in 1996, 1995 and 1994,
respectively. Shares awarded under the 1988 Plan cease to be subject to
forfeiture as follows: 20,000 in each of 1997, 1998 and 1999.
The following summarizes the activity with respect to non-qualified options to
purchase shares of common stock for the years ended December 31, 1996, 1995 and
1994:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- ------------------------- ------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Exer. Price Shares Exer. Price Shares Exer. Price
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,235,910 $17.48 1,115,000 $17.42 924,000 $17.97
Options granted 202,030 16.91 229,660 17.81 246,000 15.44
Options exercised (12,300) 15.44 (39,025) 17.42 -- --
Options canceled (22,000) 17.48 (69,725) 17.61 (55,000) 17.83
--------- --------- ---------
Outstanding at end of year 1,403,640 17.42 1,235,910 17.48 1,115,000 17.42
Exercisable at end of year 816,046 $17.39 556,362 $17.17 389,000 $16.86
</TABLE>
An additional 317,991 options became exercisable January 1, 1997 at a weighted
average exercise price of $17.66. Options typically become exercisable for 25%
of the shares of common stock issuable on exercise thereof, beginning January 1
of the year following the date of grant, assuming six months have passed, with
options for an additional 25% of such shares becoming exercisable on January 1
of each of the next three years. Options not exercisable under this schedule are
exercisable in full six months from the date of grant. All options expire on the
earlier of termination of employment or ten years from the date of grant.
The exercise price represents the fair market value of the Company's common
stock on the date of grant, or the average fair market value of the Company's
common stock on the first day before and after the date of grant for which fair
market value information was available if such information was not available on
the date of grant. The exercise prices presented above are rounded to the
nearest cent.
On January 1, 1997, the Company granted to certain key employees non-qualified
options to purchase an aggregate of 205,750 shares of common stock. Subject to
certain conditions, these stock options are exercisable as to 25% of such shares
beginning on January 1, 1998 and an additional 25% of such shares beginning on
January 1 of each of the next three years. These stock options, which expire on
December 31, 2006, were granted at an exercise price of $17.875 per share,
representing the average fair market value of the Company's common stock on
Tuesday, December 31, 1996 and Thursday, January 2, 1997.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized for the non-qualified stock options and
for which compensation cost has been recognized for stock awards, as described
above. Had compensation cost for these plans been determined consistent with
Statement of Financial Accounting Standards No. 123,
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
"Accounting for Stock-Based Compensation", the Company's net income and income
per common share for the years ended December 31, 1996 and 1995 would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
------- -------
(in thousands)
<S> <C> <C> <C>
Net income: As Reported $60,399 $65,828
Pro Forma 60,289 65,793
Income per common
share: As Reported $ 1.41 $ 1.49
Pro Forma 1.41 1.49
</TABLE>
The exercise price for the options outstanding as of December 31, 1996 is
between $15.44 and $17.97. Such options will expire on average in 7.2 years. The
weighted average fair value of options granted during 1996 and 1995 was $4.24
and $4.46, respectively, on the date of grant.
The fair value of each option on the date of grant is estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995: risk-free interest rate of 6.12%,
expected dividend yield of 3.99%; expected lives of 10 years and expected
volatility of 24%.
Under the employee stock purchase plans, eligible hourly employees may acquire
shares of the Company's common stock at its fair market value. Employees may
contribute up to 10% of their compensation, as defined. For employee
contributions up to 6% of their compensation, the Company shall contribute, as
specified in the plans, 15% of the employee's contribution.
4. RETIREMENT PLANS
The Company and its subsidiaries have trusteed noncontributory defined benefit
pension plans covering substantially all of their employees. The benefits are
based, in the case of certain plans, on average salary and years of service and,
in the case of other plans, on a fixed amount for each year of service. Plan
provisions and funding met the requirements of the Employee Retirement Income
Security Act of 1974. Pension income of $9,246,000, $6,623,000 and $6,082,000
was recognized in 1996, 1995 and 1994, respectively.
The following table sets forth the status of the Company's defined benefit
pension plans at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
Overfunded Underfunded Overfunded Underfunded
Plans Plans Plans Plans
---------- ----------- ---------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested employees $(112,164) $(38,165) $(122,716) $(10,347)
Nonvested employees (5,583) (3,614) (7,352) (622)
--------- -------- --------- --------
Total $(117,747) $(41,779) $(130,068) $(10,969)
========= ======== ========= ========
Projected benefit obligation for services rendered to date $(134,657) $(42,202) $(145,766) $(11,936)
Plan assets at fair value (primarily stocks, bonds and
cash equivalents) 311,567 23,854 289,772 --
--------- -------- --------- --------
Plan assets in excess of (less than) projected benefit
obligation 176,910 (18,348) 144,006 (11,936)
Unrecognized net (gain) loss from past experience different
from that assumed (101,050) (420) (80,824) 1,302
Unrecognized prior service cost 6,910 9,142 9,978 --
Unrecognized net (asset) liability at January 1 (14,901) 2,251 (17,014) 2,639
--------- -------- --------- --------
Prepaid (accrued) pension cost $ 67,869 $ (7,375) $ 56,146 $ (7,995)
========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Net pension income includes the following components: 1996 1995 1994
-------- --------- --------
(in thousands)
<S> <C> <C> <C>
Service cost -- benefits earned during period $ (4,076) $ (3,671) $ (3,572)
Interest cost on projected benefit obligation (11,708) (10,951) (10,361)
Actual return on plan assets 51,210 68,583 2,676
Net amortization and deferral (26,180) (47,338) 17,339
-------- --------- --------
Net pension income $ 9,246 $ 6,623 $ 6,082
======== ========= ========
</TABLE>
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
The assumptions used in computing the information above were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate --
pension expense 7.5% 8.0% 8.0%
Expected long-term rate of
return on plan assets 9.0% 8.5% 8.5%
Discount rate -- projected
benefit obligation 7.5% 7.5% 8.0%
Future compensation
growth rate 3.5% 3.5% 3.5%
</TABLE>
During 1995, the Company established a 401(k) plan for all salaried employees.
Salaried employees may contribute up to 15% of their salary to this plan,
subject to certain restrictions. The Company will contribute up to 50% of the
employee's contribution, but not more than 3% of the employee's compensation, as
defined, in the form of shares of the Company's common stock into the Company
stock fund maintained under the 401(k) plan. During 1996 and 1995, the Company
contributed shares of its common stock valued at $1,048,000 and $235,000,
respectively, to the 401(k) plan.
5. OTHER POSTRETIREMENT BENEFITS
The Company provides certain health care benefits to eligible retired employees.
These benefits include a comprehensive medical plan for retirees prior to age 65
and fixed supplemental premium payments to retirees over age 65 to help defray
the costs of Medicare. The plan is not funded; claims are paid as incurred. The
following table sets forth the plan's status as of December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 9,024 $ 9,753
Fully eligible active plan participants 5,414 4,718
Other active plan participants 13,392 13,860
-------- --------
Accumulated postretirement
benefit obligation 27,830 28,331
Unrecognized net loss (4,594) (5,970)
Unrecognized prior service cost 1,356 1,506
-------- --------
Accrued postretirement benefit cost $ 24,592 $ 23,867
======== ========
</TABLE>
Net periodic postretirement benefit cost includes the following components (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost $ 732 $ 730 $ 585
Interest on accumulated
benefit obligation 2,003 2,171 1,740
Net amortization and
deferral 75 112 20
------ ------ ------
Net periodic
postretirement
benefit cost $2,810 $3,013 $2,345
====== ====== ======
</TABLE>
The Company assumes an increase in the per capita cost of covered health
benefits of 8.0% for 1997 decreasing to 7.0%, 6.0% and 5.5% in 1998, 1999 and
2000, respectively. The weighted average discount rates used in determining the
accumulated postretirement benefit obligation were 7.5% in 1996 and 1995 and
8.0% in 1994. If the health care cost trend rate increased by 1.0%, the
accumulated postretirement benefit obligation as of December 31, 1996 would have
been approximately $2,190,000 greater and the net periodic postretirement
benefit cost would have been approximately $265,000 greater.
6. INCOME TAXES
Income taxes are recognized for (a) the amount of taxes payable or refundable
for the current year, and (b) deferred tax liabilities and assets for the future
tax consequences of events that have been recognized in the Company's
consolidated financial statements or tax returns. The effects of income taxes
are measured based on effective tax law and rates.
The Company has a federal alternative minimum tax credit carryforward of
$1,168,000 which has no expiration period.
Following are the domestic and foreign components of pre-tax income (loss):
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- ---------
(in thousands)
<S> <C> <C> <C>
United States $94,457 $104,989 $(194,512)
Foreign 3,448 2,623 1,738
------- -------- ---------
Total pre-tax income
(loss) $97,905 $107,612 $(192,774)
======= ======== =========
</TABLE>
The income tax provision (credit) consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $17,816 $ 15,851 $ (202)
State 1,801 1,711 --
Foreign 987 561 728
------- -------- --------
Total current tax
provision 20,604 18,123 526
------- -------- --------
Deferred:
Federal 14,570 20,234 (67,446)
State 2,297 3,823 (7,515)
Foreign 35 (396) (88)
------- -------- --------
Total deferred tax
provision (credit) 16,902 23,661 (75,049)
------- -------- --------
Total income tax
provision (credit) $37,506 $ 41,784 $(74,523)
======= ======== ========
</TABLE>
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
The net deferred tax amounts reported on the Company's Consolidated Balance
Sheets as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------- -------
Federal State Foreign Total Total
(in thousands)
<S> <C> <C> <C> <C> <C>
Current liability $ 2,653 $ 499 $ -- $ 3,152 $ 4,708
Long-term liability $82,965 $15,587 $587 $99,139 $80,682
</TABLE>
The following are components of the net deferred tax balances as of December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------- --------
Federal State Foreign Total Total
(in thousands)
<S> <C> <C> <C> <C> <C>
Deferred tax assets:
Current $ 4,237 $ 798 $ -- $ 5,035 $ 4,320
Long-term 20,236 3,591 -- 23,827 26,105
-------- ------- -------- -------- --------
$ 24,473 $ 4,389 $ -- $ 28,862 $ 30,425
======== ======= ======== ======== ========
Deferred tax liabilities:
Current $ 6,890 $ 1,297 $ -- $ 8,187 $ 9,028
Long-term 103,201 19,178 587 122,966 106,787
-------- ------- -------- -------- --------
$110,091 $20,475 $ 587 $131,153 $115,815
======== ======= ======== ======== ========
</TABLE>
The tax effects of temporary differences as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets: (in thousands)
Reserves $ 8,693 $ 6,570
Compensation 7,335 7,678
Postretirement benefits 9,558 9,308
Federal alternative minimum tax credit 1,168 5,090
Other 2,108 1,779
-------- --------
$ 28,862 $ 30,425
======== ========
Deferred tax liabilities:
Property $ 97,406 $ 85,640
Pension 23,433 18,363
Inventories 8,031 8,961
Other 2,283 2,851
-------- --------
$131,153 $115,815
======== ========
</TABLE>
A reconciliation between the provision (credit) for income taxes, computed by
applying the statutory federal income tax rate of 35%, to income (loss) before
income taxes, and the actual provision (credit) for income taxes follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Federal income tax provision (credit) at statutory rate $ 34,267 $ 37,664 $(67,471)
State income taxes, net of federal income tax benefit (provision) 2,663 4,201 (10,043)
Tax effect of exempt earnings of foreign sales corporation (431) (422) (19)
SFAS No. 109 impact of rate increase -- State -- -- 2,645
Other 1,007 341 365
-------- -------- --------
Actual provision (credit) for income taxes $ 37,506 $ 41,784 $(74,523)
======== ======== ========
</TABLE>
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
7. COMMITMENTS AND CONTINGENCIES
The Company is subject to loss contingencies resulting from regulation by
various federal, state, local and foreign governmental authorities with respect
to the environmental impact of air and water emissions and noise from its mills
as well as its disposal of solid waste generated by its operations. In order to
comply with environmental laws and regulations, the Company has incurred
substantial capital and operating expenditures over the past several years. The
Company anticipates that environmental regulation of the Company's operations
will continue to become more burdensome and that capital and operating
expenditures will continue, and perhaps increase, in the future. In addition,
the Company may incur obligations to remove or mitigate any adverse effects on
the environment resulting from its operations, including the restoration of
natural resources, and liability for personal injury and damage to property,
including natural resources. Because other paper companies located in the United
States are generally subject to the same environmental regulations, the Company
does not believe that its competitive position in the United States paper
industry will be materially adversely affected by its capital expenditures for,
or operating costs of, pollution abatement facilities for its present mills or
the limitations which environmental compliance may place on its operations.
The Company, along with six other companies which operate or formerly operated
facilities along the Fox River in Wisconsin, has been in discussions with the
Wisconsin Department of Natural Resources and the United States Fish and
Wildlife Service ("USFWS") regarding the alleged discharge of polychlorinated
biphenyls ("PCBs") and other hazardous substances to the Fox River below Lake
Winnebago ("the lower Fox River") and the Bay of Green Bay.
On January 30, 1997, the Company and six other companies entered into an
agreement with the State of Wisconsin establishing a framework for the final
resolution of claims for natural resources damages and other relief which the
State asserts against the companies. Under the agreement, the companies will
provide in the aggregate $10 million in work and funds to facilitate natural
resources damages assessment activities, including, among other things, modeling
and risk assessment, as well as field scale demonstration of sediment dredging
and the enhancement of certain environmental amenities. The State will act as
"lead authorized official" under federal law for purposes of any assessment of
damages to natural resources within Wisconsin, except those within the
administrative jurisdiction of a federal agency. In general, the parties have
agreed to toll all limitations periods and to forbear from litigation during the
term of the agreement. The parties intend to conclude a final resolution of all
of the State's claims during the course of, or after completion of, the work
called for by the agreement.
By letter dated January 31, 1997, and received by the Company on February 3,
1997, the USFWS provided 60 days' notice of the intention of the United States
Departments of the Interior and Commerce to commence an action for natural
resources damages against the Company and the six other companies referred to
above similarly relating to the discharge of hazardous substances into the lower
Fox River. The federal trustees invited the Company to resume negotiations
toward a non-litigated resolution of the federal trustees' claims; the
negotiations had been suspended at the federal trustees' request. The Company
does not know the amount which the federal trustees will claim as natural
resources damages, but the Company believes that it will be substantial.
The agreement with the State of Wisconsin specifically contemplates a
modification to address the claims of the federal trustees and the roles of the
State and the federal trustees. The parties to that agreement have invited the
federal trustees to begin negotiations towards such a modification.
The amount and timing of future expenditures for environmental compliance,
cleanup, remediation and personal injury and property damage liability,
including but not limited to those related to the lower Fox River and the Bay of
Green Bay, cannot be ascertained with any certainty due to among other things,
the unknown extent and nature of any contamination, the extent and timing of any
technological advances for pollution control, the remedial actions which may be
required and the number and financial resources of any other responsible
parties. The Company continues to evaluate its exposure and the level of its
reserves including, but not limited to, its share of the agreement reached with
the State regarding the lower Fox River and the Bay of Green Bay, its future
negotiations with the State concerning these areas and the unknown amount which
could be claimed by the federal trustees as natural resource damages related to
the lower Fox River. The Company's current assessment, after consultation with
legal counsel, is that future expenditures for these matters are not likely to
have a material adverse impact on the Company's financial condition or
liquidity, but could have a material adverse effect on the Company's results
from operations in a given year; however, there can be no assurances that the
Company's reserves will be adequate or that a material adverse effect on the
Company's financial condition or liquidity will not occur at some future time.
During 1996, the Company expended approximately $2,000,000 on environmental
capital projects. The Company estimates that $12,000,000 and $8,000,000 will be
expended for environmental capital projects in 1997 and 1998, respectively.
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
8. LEGAL PROCEEDINGS
The Company is involved in various lawsuits. Although the ultimate outcome of
these lawsuits cannot be predicted with certainty, the Company's management,
after consultation with legal counsel, does not expect that such lawsuits will
have a material adverse effect on the Company's financial position or results of
operations or liquidity.
9. SIGNIFICANT CUSTOMER AND FOREIGN SALES
The Company sells a significant portion of its printing and writing papers
through wholesale paper merchants. During 1994, two of the Company's wholesale
paper merchants merged into one company, and as a result, during 1996, 1995 and
1994, this customer accounted for 12.1%, 13.9% and 13.0% of the Company's net
sales, respectively. Net sales in dollars to foreign customers were 9.8%, 8.8%
and 9.4% of total net sales in 1996, 1995 and 1994, respectively.
10. BORROWINGS
At December 31, 1996, the Company had available lines of credit from two
different banks aggregating $100,000,000 at interest rates approximating money
market rates. The Company had no short-term borrowings as of December 31, 1996
and December 31, 1995. The Company had average net short-term borrowings of
$20,000 and $9,447,000 during 1996 and 1995, respectively, at an average
interest rate of 6.1% and 6.2%, respectively. Maximum short-term borrowings
during 1996 and 1995 were $4,000,000 and $29,400,000, respectively.
In March 1993, the Company issued $150,000,000 principal amount of its 5-7/8%
Notes. These Notes will mature on March 1, 1998 and may not be redeemed prior to
maturity. Interest on the Notes is payable semiannually on March 1 and September
1. The Notes are unsecured obligations of the Company.
In March 1993, the Company entered into an interest rate swap agreement having a
total notional principal amount of $50,000,000. Under the agreement, the Company
receives a fixed rate of 5-7/8% and pays a floating rate (London Interbank
Offered Rate (LIBOR) plus sixty basis points), as determined at six month
intervals. The floating rate is 6.37344% for the six month period ending
February 28, 1997. The agreement converts a portion of the Company's debt
obligation from a fixed rate to a floating rate basis. Under the agreement, the
Company recognized net interest expense of $174,000 and $453,000 in 1996 and
1995, respectively, and net interest income of $433,000 in 1994. These amounts
are included in "Interest on debt" on the Company's Consolidated Statements of
Income. The Company has pledged $2,100,000 of its other assets as security under
the swap agreement. Although the Company can pay to terminate the swap agreement
at any time, the Company intends to hold the swap agreement until its March 1,
1998 maturity. The cost to the Company to terminate the agreement fluctuates
with prevailing market interest rates. As of December 31, 1996, the cost to
terminate the swap agreement was approximately $430,000.
The Company has approximately $9,226,000 of letters of credit outstanding as of
December 31, 1996. The Company bears the credit risk on this amount to the
extent that the Company does not comply with the provisions of certain
agreements. The letters of credit do not reduce the amount available under the
Company's lines of credit.
11. SUBSEQUENT EVENT
In February 1997, the Company invested approximately $122,500,000 to acquire
approximately 99.9% of the voting Class A common stock of a company that intends
to qualify as a qualified real estate investment trust (REIT). The REIT also
issued $150,000,000 of Step-Down Preferred Stock, with an initial dividend of
approximately 13.9%, to other investors. Prospectively, the REIT will be
consolidated in the Company's consolidated financial statements and a "minority
interest" will be reported. The REIT's dividend payments will include an
amortization component of the minority interest for financial reporting
purposes; the effective yield on the preferred stock is approximately 8.1%.
Also in February 1997, the Company borrowed $270,000,000 from the REIT under a
Note to be secured by certain of the Company's real estate assets with a value
of 110% of the principal amount of the Note.
Using the proceeds of the Note and other available cash, the Company immediately
repaid, with interest, the amount borrowed to purchase the common stock of the
REIT. The Company also deposited approximately $155,500,000 into a trust to
defease certain covenants under the Company's indenture dated as of January 15,
1993 under which the Company's $150,000,000 5-7/8% Notes due March 1, 1998, are
outstanding. The amount deposited will be applied solely to pay principal and
interest due on the 5-7/8% Notes. In accordance with Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", the amount deposited in
the trust and the Company's $150,000,000 5-7/8% Notes will be reported on the
Company's Consolidated Balance Sheets until March 1, 1998.
Subsequently, the Internal Revenue Service announced that it expects to issue
regulations that could cause the Company to lose certain expected benefits of
the transaction, but which would not otherwise materially adversely affect the
Company.
29
<PAGE> 31
MANAGEMENT'S
RESPONSIBILITY REPORT
The management of P.H. Glatfelter Company has prepared and is responsible for
the Company's consolidated financial statements and other corroborating
information contained herein. Management bears responsibility for the integrity
of these statements which have been prepared in accordance with generally
accepted accounting principles and include management's best judgments and
estimates. All information in this annual report consistently reflects the data
contained in the consolidated financial statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance that assets are safeguarded, transactions are executed and
recorded in accordance with their authorizations and financial records are
maintained so as to permit the preparation of reliable financial statements. The
system of internal controls is enhanced by written policies and procedures, an
organizational structure providing appropriate segregation of duties, careful
selection and training of qualified people and periodic reviews performed by
both its internal audit department and independent auditors.
The Audit Committee of the Board of Directors, consisting exclusively of
directors who are not Company employees, provides oversight of financial
reporting. The Company's internal audit department and independent auditors meet
with the Audit Committee on a periodic basis to discuss financial reporting and
internal control issues and have completely free access to the Audit Committee.
T. C. Norris
Chairman of the Board, President
and Chief Executive Officer
R.P. Newcomer
Senior Vice President, Treasurer
and Chief Financial Officer
30
<PAGE> 32
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
P. H. Glatfelter Company,
Its Shareholders and Directors:
We have audited the accompanying consolidated balance sheets of P. H. Glatfelter
Company and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of P.H. Glatfelter Company and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. Also, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 24, 1997
31
<PAGE> 33
SUPPLEMENTAL FINANCIAL INFORMATION
P.H. GLATFELTER COMPANY AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Net Sales Gross Profit Net Income Income Per
In Thousands In Thousands In Thousands Common Share
1996 1995 1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First $140,335 $155,037 $ 31,521 $ 29,938 $13,970 $12,514 $ .32 $ .28
Second 144,687 166,879 35,771 40,573 16,276 19,025 .38 .43
Third 139,748 160,771 30,437 36,561 13,237 17,103 .31 .39
Fourth 141,314 141,022 33,864 34,498 16,916 17,186 .40 .39
-------- -------- -------- -------- ------- ------- ----- ------
Total $566,084 $623,709 $131,593 $141,570 $60,399 $65,828 $1.41 $1.49
======== ======== ======== ======== ======= ======= ===== =====
</TABLE>
32
<PAGE> 34
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Directors. The information with respect to directors
required under this item is incorporated herein by reference to pages 2, 3 and
23 of the Registrant's Proxy Statement dated March 14, 1997.
(b) Executive Officers of the Registrant. The information with
respect to the executive officers required under this item is set forth in Part
I of this Report.
Item 11. Executive Compensation.
The information required under this item is incorporated
herein by reference to pages 12 through 20 of the Registrant's Proxy Statement
dated March 14, 1997.
33
<PAGE> 35
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required under this item is incorporated
herein by reference to pages 21 through 23 of the Registrant's Proxy Statement
dated March 14, 1997.
Item 13. Certain Relationships and Related Transactions.
The information required under this item is incorporated
herein by reference to page 20 of the Registrant's Proxy Statement dated March
14, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
(a) 1. A. Financial Statements filed as part of
this report:
Consolidated Statements of Income for the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Balance Sheets, December 31, 1996
and 1995
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1996, 1995 and
1994
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements for
the Years Ended December 31, 1996, 1995 and
1994
B. Supplementary Data for each of the three
years in the period ended December 31, 1996.
2. Financial Statement Schedules (Consolidated):
For Each of the Three Years in the Period Ended
December 31, 1996:
II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because of
the absence of conditions under which they are required or
because the required information is included in the Notes to
the Consolidated Financial Statements.
34
<PAGE> 36
Individual financial statements of the Registrant are not
presented inasmuch as the Registrant is primarily an operating
company and its consolidated subsidiaries are wholly-owned.
3. Executive Compensation Plans and Arrangements: see Exhibits
10(a) through 10(g), described below.
(b) Exhibits:
Number Description of Documents
- ------ ------------------------
(3)(a) Articles of Amendment dated April 27, 1977, including
restated Articles of Incorporation (incorporated by
reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993) as
amended by Articles of Merger dated January 30, 1979
(incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of
Authorized Shares dated May 12, 1980 (incorporated by
reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993); a
Statement of Reduction of Authorized Shares dated
September 23, 1981 (incorporated by reference to
Exhibit 3(a) of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993); a Statement of
Reduction of Authorized Shares dated August 2, 1982
(incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of
Authorized Shares dated July 29, 1983 (incorporated by
reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993); by
Articles of Amendment dated April 25, 1984
(incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994); a Statement of Reduction of
Authorized Shares dated October 15, 1984 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form
10-K for the year ended December 31, 1984); a Statement
of Reduction of Authorized Shares dated December 24,
1985 (incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31,
1985); by Articles of Amendment dated April 23, 1986
(incorporated by reference to Exhibit (3) of
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1986); a Statement of Reduction
of Authorized Shares dated July 11, 1986 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form
10-K for the year ended December 31, 1986); a Statement
of Reduction of Authorized Shares dated March 25, 1988
(incorporated by reference to Exhibit (3)(b) of
35
<PAGE> 37
Registrant's Form 10-K for the year ended December 31, 1987);
a Statement of Reduction of Authorized Shares dated November
9, 1988 (incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31, 1988);
a Statement of Reduction of Authorized Shares dated April 24,
1989 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1989);
Articles of Amendment dated November 29, 1990 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for the
year ended December 31, 1990); Articles of Amendment dated
June 26, 1991 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1991);
Articles of Amendment dated August 7, 1992 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for the
year ended December 31, 1992); Articles of Amendment dated
July 30, 1993 (incorporated by reference to Exhibit 3(b) of
Registrant's Form 10-K for the year ended December 31, 1993);
and Articles of Amendment dated January 26, 1994 (incorporated
by reference to Exhibit 3(b) of Registrant's Form 10-K for the
year ended December 31, 1993).
(3)(b) Articles of Incorporation, as amended through
January 26, 1994 (restated for the purpose of filing on
EDGAR) (incorporated by reference to Exhibit 3(c) of
Registrant's Form 10-K for the year ended December 31,
1993).
(3)(c) By-Laws as amended through March 14, 1996.
(4)(a) Indenture between P. H. Glatfelter Company and Wachovia
Bank of Georgia, N.A. as Trustee dated as of
January 15, 1993 (incorporated by reference to Exhibit
4(a) of Registrant's Form 10-K for the year ended
December 31, 1993).
(4)(b) Form of Note issued to Purchasers of 5 7/8% Notes due
March 1, 1998 (incorporated by reference to Exhibit
4(b) of Registrant's Form 10-K for the year ended
December 31, 1992).
(4)(c) Escrow Agreement, dated as of February 24, 1997 between
P. H. Glatfelter Company and the Bank of New York
relating 5 7/8% Notes due March 1, 1998.
(9) P. H. Glatfelter Family Shareholders' Voting Trust
dated July 1, 1993 (incorporated by reference to
Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter
Family Shareholders' Voting Trust dated July 1, 1993).
36
<PAGE> 38
(10)(a) P. H. Glatfelter Company Management Incentive Plan,
adopted as of January 1, 1994, as amended and restated
effective March 13, 1997 (incorporated by reference to Exhibit
B of Registrant's Proxy Statement dated
March 14, 1997).
(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock
Award Plan, as amended and restated June 24, 1992
(incorporated by reference to Exhibit (10)(c) of
Registrant's Form 10-K for the year ended December 31,
1992).
(10)(c) P. H. Glatfelter Company Supplemental Executive
Retirement Plan, effective January 1, 1988, as amended
and restated December 22, 1994 (incorporated by
reference to Exhibit 10(c) of Registrant's Form 10-K
for the year ended December 31, 1994).
(10)(d) Deferral Benefit Pension Plan of Ecusta Division,
effective May 22, 1986 (incorporated by reference to
Exhibit (10)(ee) of Registrant's Form 10-K for the year
ended December 31, 1987).
(10)(e) Description of Executive Salary Continuation Plan
(incorporated by reference to Exhibit (10)(g) of
Registrant's Form 10-K for the year ended December 31,
1990).
(10)(f) P. H. Glatfelter Company Plan of Supplemental
Retirement Benefits for the Management Committee, as
amended and restated effective June 28, 1989
(incorporated by reference to Exhibit (10)(h) of
Registrant's Form 10-K for the year ended December 31,
1989).
(10)(g) P.H. Glatfelter Company 1992 Key Employee Long-Term
Incentive Plan, effective April 22, 1992 (incorporated
by reference to Exhibit (10)(i) of Registrant's Form
10-K for the year ended December 31, 1992).
(10)(h) Loan Agreement, dated February 24, 1997 between P. H.
Glatfelter Company, as borrower, and GWS Valuch, Inc.,
as lender.
(10)(i) Agreement between the State of Wisconsin and Certain
Companies Concerning the Fox River, dated as of
January 31, 1997, among P. H. Glatfelter Company, Fort
Howard Corporation, NCR Corporation, Appleton Papers
Inc., Riverside Paper Corporation, U.S. Paper Mills,
Wisconsin Tissue Mills Inc. and the State of Wisconsin.
(11) Computation of Earnings Per Share
37
<PAGE> 39
(21) Subsidiaries of the Registrant
(23) Consent of Independent Certified Public Auditors
(27) Financial Data Schedule
(b) The Registrant filed the following report on Form 8-K
during the quarter ended December 31, 1996:
Date of Report Item Reported
-------------- -------------
December 23, 1996 5
38
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
P. H. GLATFELTER COMPANY
(Registrant)
March 28, 1997
By /s/ T. C. Norris
----------------------------
T. C. Norris
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Date Signature Capacity
---- --------- --------
<S> <C> <C>
March 28, 1997 /s/ T. C. Norris Principal Executive
----------------------------
T. C. Norris Officer and Director
March 28, 1997 /s/ R. P. Newcomer Principal Financial
----------------------------
R. P. Newcomer Officer, Senior Vice
President and
Treasurer
March 28, 1997 /s/ C. M. Smith Comptroller
----------------------------
C. M. Smith
March 28, 1997 /s/ R. E. Chappell Director
----------------------------
R. E. Chappell
March 28, 1997 /s/ N. DeBenedictis Director
----------------------------
N. DeBenedictis
March 28, 1997 /s/ G. H. Glatfelter Director
----------------------------
G. H. Glatfelter
March 28, 1997 /s/ G. H. Glatfelter II Director
----------------------------
G. H. Glatfelter II
March 28, 1997 /s/ R. S. Hillas Director
----------------------------
R. S. Hillas
March 28, 1997 /s/ M. A. Johnson II Director
----------------------------
M. A. Johnson II
March 28, 1997 /s/ R. W. Kelso Director
----------------------------
R. W. Kelso
</TABLE>
<PAGE> 41
<TABLE>
<S> <C> <C>
March 28, 1997 /s/ P. R. Roedel Director
----------------------------
P. R. Roedel
March 28, 1997 /s/ J. M. Sanzo Director
----------------------------
J. M. Sanzo
March 28, 1997 /s/ R. L. Smoot Director
----------------------------
R. L. Smoot
</TABLE>
<PAGE> 42
P. H. GLATFELTER COMPANY
AND SUBSIDIARIES
Financial Statement Schedule
For Each of the Three Years in the
Period Ended December 31, 1996 and
Independent Auditors' Report
Prepared for Filing As Part of
Annual Report (Form 10-K)
to the Securities and Exchange Commission
<PAGE> 43
SCHEDULE II
P.H. GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ALLOWANCES FOR
--------------------------------------------------------------------------------------------
Doubtful Accounts Sales Discounts
---------------------------------------------- --------------------------------------------
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year $ 1,979,000 $ 1,850,000 $ 1,838,000 $ 501,000 $ 560,100 $ 554,300
Provision 10,000 201,000 12,000 8,866,000 7,937,700 6,619,900
Write-offs, recoveries and
discounts allowed (76,000) (72,000) (8,816,000) (7,996,800) (6,614,100)
----------- ----------- ----------- ----------- ----------- ----------
Balance, end of year $ 1,913,000 $ 1,979,000 $ 1,850,000 $ 551,000 $ 501,000 $ 560,100
=========== =========== =========== =========== =========== ==========
</TABLE>
The provision for doubtful accounts is included in administrative expense and
the provision for sales discounts is deducted from sales. The related
allowances are deducted from accounts receivable.
<PAGE> 44
EXHIBIT INDEX
Number
(3)(a) Articles of Amendment dated April 27, 1977, including
restated Articles of Incorporation (incorporated by
reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993) as
amended by Articles of Merger dated January 30, 1979
(incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of
Authorized Shares dated May 12, 1980 (incorporated by
reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993); a
Statement of Reduction of Authorized Shares dated
September 23, 1981 (incorporated by reference to
Exhibit 3(a) of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993); a Statement of
Reduction of Authorized Shares dated August 2, 1982
(incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993); a Statement of Reduction of
Authorized Shares dated July 29, 1983 (incorporated by
reference to Exhibit 3(a) of Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993); by
Articles of Amendment dated April 25, 1984
(incorporated by reference to Exhibit 3(a) of
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994); a Statement of Reduction of
Authorized Shares dated October 15, 1984 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form
10-K for the year ended December 31, 1984); a Statement
of Reduction of Authorized Shares dated December 24,
1985 (incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31,
1985); by Articles of Amendment dated April 23, 1986
(incorporated by reference to Exhibit (3) of
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1986); a Statement of Reduction
of Authorized Shares dated July 11, 1986 (incorporated
by reference to Exhibit (3)(b) of Registrant's Form
10-K for the year ended December 31, 1986); a Statement
of Reduction of Authorized Shares dated March 25, 1988
(incorporated by reference to Exhibit (3)(b) of
Registrant's Form 10-K for the year ended December 31,
1987); a Statement of Reduction of Authorized Shares
dated November 9, 1988 (incorporated by reference to
Exhibit (3)(b) of Registrant's Form 10-K for the year
ended December 31, 1988); a Statement of Reduction of
Authorized Shares dated April 24, 1989 (incorporated by
reference to Exhibit 3(b) of Registrant's Form 10-K for
the year ended December 31, 1989); Articles of
<PAGE> 45
Amendment dated November 29, 1990 (incorporated by reference
to Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1990); Articles of Amendment dated June 26, 1991
(incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1991); Articles of
Amendment dated August 7, 1992 (incorporated by reference to
Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1992); Articles of Amendment dated July 30, 1993
(incorporated by reference to Exhibit 3(b) of Registrant's
Form 10-K for the year ended December 31, 1993); and Articles
of Amendment dated January 26, 1994 (incorporated by reference
to Exhibit 3(b) of Registrant's Form 10-K for the year ended
December 31, 1993).
(3)(b) Articles of Incorporation, as amended through
January 26, 1994 (restated for the purpose of filing on
EDGAR) (incorporated by reference to Exhibit 3(c) of
Registrant's Form 10-K for the year ended December 31,
1993).
(3)(c) By-Laws as amended through March 14, 1996.
(4)(a) Indenture between P. H. Glatfelter Company and Wachovia
Bank of Georgia, N.A. as Trustee dated as of
January 15, 1993 (incorporated by reference to Exhibit
4(a) of Registrant's Form 10-K for the year ended
December 31, 1993).
(4)(b) Form of Note issued to Purchasers of 5 7/8% Notes due
March 1, 1998 (incorporated by reference to Exhibit
4(b) of Registrant's Form 10-K for the year ended
December 31, 1992).
(4)(c) Escrow Agreement, dated as of February 24, 1997 between
P. H. Glatfelter Company and the Bank of New York
relating 5 7/8% Notes due March 1, 1998.
(9) P. H. Glatfelter Family Shareholders' Voting Trust
dated July 1, 1993 (incorporated by reference to
Exhibit 1 of the Schedule 13D filed by P. H. Glatfelter
Family Shareholders' Voting Trust dated July 1, 1993).
(10)(a) P. H. Glatfelter Company Management Incentive Plan,
adopted as of January 1, 1994, as amended and restated
effective March 13, 1997 (incorporated by reference to Exhibit
B of Registrant's Proxy Statement dated
March 14, 1997).
(10)(b) P. H. Glatfelter Company 1988 Restricted Common Stock
Award Plan, as amended and restated June 24, 1992
(incorporated by reference to Exhibit (10)(c) of
<PAGE> 46
Registrant's Form 10-K for the year ended December 31, 1992).
(10)(c) P. H. Glatfelter Company Supplemental Executive
Retirement Plan, effective January 1, 1988, as amended
and restated December 22, 1994 (incorporated by
reference to Exhibit 10(c) of Registrant's Form 10-K
for the year ended December 31, 1994).
(10)(d) Deferral Benefit Pension Plan of Ecusta Division,
effective May 22, 1986 (incorporated by reference to
Exhibit (10)(ee) of Registrant's Form 10-K for the year
ended December 31, 1987).
(10)(e) Description of Executive Salary Continuation Plan
(incorporated by reference to Exhibit (10)(g) of
Registrant's Form 10-K for the year ended December 31,
1990).
(10)(f) P. H. Glatfelter Company Plan of Supplemental
Retirement Benefits for the Management Committee, as
amended and restated effective June 28, 1989
(incorporated by reference to Exhibit (10)(h) of
Registrant's Form 10-K for the year ended December 31,
1989).
(10)(g) P.H. Glatfelter Company 1992 Key Employee Long-Term
Incentive Plan, effective April 22, 1992 (incorporated
by reference to Exhibit (10)(i) of Registrant's Form
10-K for the year ended December 31, 1992).
(10)(h) Loan Agreement, dated February 24, 1997 between P. H.
Glatfelter Company, as borrower, and GWS Valuch, Inc.,
as lender.
(10)(i) Agreement between the State of Wisconsin and Certain
Companies Concerning the Fox River, dated as of
January 31, 1997, among P. H. Glatfelter Company, Fort
Howard Corporation, NCR Corporation, Appleton Papers
Inc., Riverside Paper Corporation, U.S. Paper Mills,
Wisconsin Tissue Mills Inc. and the State of Wisconsin.
(11) Computation of Earnings Per Share
(21) Subsidiaries of the Registrant
(23) Consent of Independent Certified Public Auditors
(27) Financial Data Schedule
<PAGE> 1
Exhibit (3)(c)
As amended by the Board of Directors
at a meeting held March 14, 1996
P. H. GLATFELTER COMPANY
BY-LAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS AND RECORD DATE
1.1 ANNUAL MEETING. An annual meeting of shareholders for the
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on the fourth Wednesday in April of each
year at 10:00 A.M. If the day fixed for the meeting is a legal holiday, the
meeting shall be held at the same hour on the next succeeding full business day
which is not a legal holiday.
1.2 SPECIAL MEETINGS. Special meetings of the shareholders may
be called at any time by the Board of Directors, the Chairman of the Board or
the President.
1.3 PLACE. The annual meeting of shareholders shall be held at
the principal office of the Company. Other meetings of shareholders may be held
at such place in Pennsylvania or elsewhere as the Board of Directors may
designate.
1.4 NOTICE. Written notice stating the place, day and hour of
each meeting of shareholders and, in the case of a special meeting, the general
nature of the business to be transacted shall be given by the Secretary at least
ten days before the meeting to each shareholder of record entitled to vote at
the meeting.
<PAGE> 2
1.5 QUORUM. Except as otherwise provided in the Articles of
Incorporation, the presence in person or by proxy of shareholders entitled to
cast at least a majority of the votes which all shareholders are entitled to
cast on a particular matter shall constitute a quorum for the purpose of
considering such matter at a meeting of shareholders, but less than a quorum may
adjourn from time to time to reconvene at such time and place as they may
determine. When a quorum is present, except as may be otherwise specified in the
Articles of Incorporation or provided by law, all matters shall be decided by
the vote of the holders of a majority of the votes entitled to be cast at the
meeting, in person or by proxy.
1.6 RECORD DATES. The Board of Directors may fix a time not
more than ninety days prior to the date of any meeting of shareholders, or the
date fixed for the payment of any dividend or distribution, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date for the determination of
the shareholders entitled to notice of or to vote at any such meeting, or to
receive payment of any such dividend or distribution, or to receive any such
allotment of rights, or to exercise the rights in respect to any such change,
conversion or exchange of shares. In such case, only such shareholders as shall
be shareholders of record at the close of business on the date so fixed shall be
entitled to notice of or to vote at such meeting, or to receive payment of such
dividend or distribution, or to receive such allotment of rights, or to
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exercise such rights in respect to any change, conversion or exchange of shares,
as the case may be, notwithstanding any transfer of any shares on the books of
the Company after the record date so fixed.
ARTICLE II
DIRECTORS
2.1 NUMBER AND TERM. The Board of Directors shall consist of
eleven persons, comprising three classes of directors of which two classes shall
consist of four directors each and one class shall consist of three directors.
At each annual meeting of shareholders, the successors to those directors whose
terms expire in that year shall be elected to hold office for a term of three
years each, so that the term of office of one class of directors shall expire in
each year.
2.2 AGE QUALIFICATION. No person, other than an officer or
employee of the Company, shall be elected or reelected a director after reaching
72 years of age; provided, however, that at the 1993 annual meeting of
shareholders Garza Baldwin, Jr. and John W. Kennedy may each be reelected a
director for one additional three-year term. When the term of any director,
other than Garza Baldwin, Jr. or John W. Kennedy or an officer or employee of
the Company, extends beyond the date when the director reaches 72 years of age,
such director shall resign from the Board of Directors effective at the annual
meeting of shareholders next succeeding his 72nd birthday.
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2.3 VACANCIES. In the case of any vacancy in the Board of
Directors by death, resignation or for any other cause, including an increase in
the number of directors, the Board may fill the vacancy by choosing a director
to serve until the next selection of the class for which such director has been
chosen and until his successor has been selected and qualified or until his
earlier death, resignation or removal.
2.4 ANNUAL MEETING. An annual meeting of the Board of Directors
shall be held each year as soon as practicable after the annual meeting of
shareholders, at the place where such meeting of shareholders was held or at
such other place as the Board of Directors may determine, for the purposes of
organization, election of officers and the transaction of such other business as
shall come before the meeting. No notice of the meeting need be given.
2.5 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such times and at such places as the Board of
Directors may determine.
2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President or any three or more
directors. Notice of every special meeting shall be given to each director not
later than the second day immediately preceding the day of such meeting in the
case of notice by mail, telegram or courier service, and not later than the day
immediately preceding the day of such meeting in the case of notice delivered
personally or by telephone, telex, TWX or facsimile transmission. Such notice
shall state
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the time and place of the meeting, but, except as otherwise provided in the
by-laws, 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.
2.7 QUORUM. A majority of the directors in office shall constitute
a quorum for the transaction of business but less than a quorum may adjourn from
time to time to reconvene at such time and place as they may determine.
2.8 COMPENSATION. Directors shall receive such compensation for
their services as shall be fixed by the Board of Directors.
2.9 COMMITTEES. The Board of Directors may, by resolution adopted
by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Company. The Board
may designate one or more directors as alternate members of any Committee, who
may replace any absent or disqualified member at any meeting of the committee.
Any such committee to the extent provided in such resolution shall have and
exercise the authority of the Board of Directors in the management of the
business and affairs of the Company.
2.10 PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT. One or
more directors may participate in a meeting of the Board of Directors or a
committee of the Board by means of conference telephone or similar
communications equipment by means
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of which all persons participating in the meeting can hear each
other.
2.11 LIABILITY OF DIRECTORS. A director of the Company shall not be
personally liable for monetary damages for any action taken, or any failure to
take any action, on or after January 27, 1987 unless he has breached or failed
to perform the duties of his office as provided for under Section 1713 of the
Pennsylvania Business Corporation Law of 1988, as amended, and the breach or
failure to perform constitutes self-dealing, willful misconduct or recklessness.
Any repeal, amendment, or modification of this Paragraph shall be prospective
only and shall not increase, but may decrease, the liability of a director with
respect to actions or failures to act occurring prior to such change.
2.12 OFFICERS. The Board of Directors shall have power to elect or
appoint at any time a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary, a Treasurer, a Comptroller and such other officers as
the Board of Directors may deem advisable. Any two or more offices may be held
by the same person.
2.13 TERM. Each officer shall hold office until his successor is
elected or appointed and qualified or until his death, resignation or removal by
the Board of Directors.
2.14 AUTHORITY, DUTIES AND COMPENSATION. All officers shall have
such authority, perform such duties and receive such compensation as may be
provided in the by-laws or as may be determined by the Board of Directors.
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2.15 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the Board of Directors and of the Executive
Committee, and in the absence or disability of the President shall have the
authority and perform the duties of the President.
2.16 PRESIDENT. The President shall be the chief executive officer
of the Company and shall preside at all meetings of the shareholders and, in the
absence or disability of the Chairman of the Board, of the Executive Committee
of the Board of Directors. He shall be responsible for the general management of
the business, subject to the control of the Board of Directors. In the absence
or disability of the Chairman, or if that office is vacant, the President shall
preside at all meetings of the Board of Directors.
2.17 VICE PRESIDENTS. In the absence or disability of the
President and Chairman of the Board, the Vice Presidents in the order designated
by the Board of Directors shall have the authority and perform the duties of the
President.
2.18 SECRETARY. The Secretary shall give notice of meetings of the
shareholders, of the Board of Directors and of the Executive Committee, attend
all such meetings and record the proceedings thereof. In the absence or
disability of the Secretary, an Assistant Secretary or any other person
designated by the Board of Directors or the President shall have the authority
and perform the duties of the Secretary.
2.19 TREASURER. The Treasurer shall have charge of the securities
of the Company and the deposit and disbursement of its
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funds, subject to the control of the Board of Directors. In the absence or
disability of the Treasurer, an Assistant Treasurer or any other person
designated by the Board of Directors or the President shall have the authority
and perform the duties of the Treasurer.
2.20 COMPTROLLER. The Comptroller shall be the principal accounting
officer and shall keep books recording the business transactions of the Company.
He shall be in charge of the accounts of all of its offices and shall promptly
report and properly record in the books of the Company all relevant data
relating to the Company's business.
ARTICLE III
INDEMNIFICATION
3.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS.
The Company shall indemnify any director or officer of the Company or any of its
subsidiaries who was or is an "authorized representative" of the Company (which
shall mean for the purposes of Paragraphs 3.1. through 3.7, a director or
officer of the Company, or a person serving at the request of the Company as a
director, officer, partner, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
and who was or is a "party" (which shall include for purposes of Paragraphs 3.1
through 3.7 the giving of testimony or similar involvement) or is threatened to
be made a party to any "proceeding" (which shall mean for
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purposes of Paragraphs 3.1 through 3.7 any threatened, pending or completed
action, suit, appeal or other proceeding of any nature, whether civil, criminal,
administrative or investigative, whether formal or informal, and whether brought
by or in the right of the Company, its shareholders or otherwise) by reason of
the fact that such person was or is an authorized representative of the Company
to the fullest extent permitted by law, including without limitation
indemnification against expenses (which shall include for purposes of Paragraphs
3.1 through 3.7 attorneys' fees and disbursements), damages, punitive damages,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such proceeding unless the
act or failure to act giving rise to the claim is finally determined by a court
to have constituted willful misconduct or recklessness. If an authorized
representative is not entitled to indemnification in respect of a portion of any
liabilities to which such person may be subject, the Company shall nonetheless
indemnify such person to the maximum extent for the remaining portion of the
liabilities.
3.2 ADVANCEMENT OF EXPENSES. The Company shall pay the expenses
(including attorneys' fees and disbursements) actually and reasonably incurred
in defending a proceeding on behalf of any person entitled to indemnification
under Paragraph 3.1 in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Company as authorized in
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Paragraphs 3.1 through 3.7 and may pay such expenses in advance on behalf of any
employee or agent on receipt of a similar undertaking. The financial ability of
such authorized representative to make such repayment shall not be prerequisite
to the making of an advance.
3.3 EMPLOYEE BENEFIT PLANS. For purposes of Paragraphs 3.1 through
3.7, the Company shall be deemed to have requested an officer or director to
serve as fiduciary with respect to an employee benefit plan where the
performance by such person of duties to the Company also imposes duties on, or
otherwise involves services by, such person as a fiduciary with respect to the
plan; excise taxes assessed on an authorized representative with respect to any
transaction with an employee benefit plan shall be deemed "fines"; and action
taken or omitted by such person with respect to an employee benefit plan in the
performance of duties for a purpose reasonably believed to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Company.
3.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect,
satisfy or secure the indemnification obligations provided herein or otherwise,
the Company may maintain insurance, obtain a letter of credit, act as
self-insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
interest in any assets or properties of the Company, or use any other mechanism
or arrangement whatsoever in such amounts, at
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such costs, and upon such other terms and conditions as the Board of Directors
shall deem appropriate.
3.5 RELIANCE UPON PROVISIONS. Each person who shall act as an
authorized representative of the Company shall be deemed to be doing so in
reliance upon the rights of indemnification provided by these Paragraphs 3.1
through 3.7.
3.6 AMENDMENT OR REPEAL. All rights of indemnification under
Paragraphs 3.1 through 3.7 shall be deemed a contract between the Company and
the person entitled to indemnification under these Paragraphs 3.1 through 3.7
pursuant to which the Company and each such person intend to be legally bound.
Any repeal, amendment or modification hereof shall be prospective only and shall
not limit, but may expand, any rights or obligations in respect of any
proceeding whether commenced prior to or after such change to the extent such
proceeding pertains to actions or failures to act occurring prior to such
change.
3.7 SCOPE. The indemnification, as authorized by these
Paragraphs 3.1 through 3.7, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in any
other capacity while holding such office. The indemnification and advancement of
expenses provided by or granted pursuant to these Paragraphs 3.1 through 3.7
shall continue as to a person who has ceased to be an officer or
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director in respect of matters arising prior to such time, and shall inure to
the benefit of the heirs and personal representatives of such person.
ARTICLE VI
STOCK CERTIFICATES AND CORPORATE SEAL
4.1 EXECUTION. Certificates for shares of capital stock of the
Company shall be signed by the President or a Vice President and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer, but
where a certificate is signed by a transfer agent or a registrar, the signature
of any corporate officer may be a facsimile, engraved or printed. The corporate
seal, which may be a facsimile, engraved or printed, shall appear on each
certificate but need not be attested. In case any officer who has signed or
whose facsimile signature has been placed upon any certificate shall have ceased
to be such officer because of death, resignation or otherwise, before the
certificate is issued, it may be issued by the Company with the same effect as
if the officer had not ceased to be such at the date of its issue. No
certificate for shares of capital stock of the Company shall be issued in place
of any certificate alleged to have been lost, stolen or destroyed, except in
such manner and upon such terms as the Board of Directors shall authorize.
4.2 SEAL. The Company shall have a corporate seal which shall bear
the name of the Company and State and year of its incorporation. The seal shall
be in the custody of the
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Secretary and may be used by causing it or a facsimile to be impressed or
reproduced upon or affixed to any document.
ARTICLE V
NOTICES
5.1 FORM OF NOTICE. Whenever written notice is required to be
given to any person by law, the Articles of Incorporation or these by-laws, it
may be given to such person either personally or by telephone or by sending a
copy thereof by first class or express mail, postage prepaid, or by telegram
(with messenger service specified), telex or TWX (with answerback received) or
courier service, charges prepaid, or by facsimile transmission, to the address
(or the telex, TWX or facsimile number) appearing on the books of the Company
or, in the case of a director, to the address supplied by the director to the
Company for the purpose of notice. If the notice is sent by mail, telegraph or
courier service, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office or
courier service for delivery to that person or, in the case of telex or TWX,
when dispatched or, in the case of facsimile transmission, when received. A
notice of meeting shall specify the place, day and hour of the meeting.
5.2 WAIVER OF NOTICE. Any notice required to be given under these
by-laws may be effectively waived by the person entitled thereto by written
waiver signed before or after the
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meeting to which such notice would relate or by attendance at such meeting
otherwise than for the purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting was not lawfully called or
convened.
ARTICLE VI
AMENDMENTS
6.1 AMENDMENTS. These by-laws may be amended or repealed and
new by-laws may be adopted by the affirmative vote of a majority of the
directors of the Company or by the affirmative vote of shareholders entitled to
cast a majority of the votes which all shareholders are entitled to cast at any
annual, regular or special meeting of directors or shareholders, as the case may
be; provided, however, that new by-laws may not be adopted and these by-laws may
not be amended or repealed in any way that limits indemnification rights,
increases the liability of directors or changes the manner or vote required for
any such adoption, amendment or repeal, except by the affirmative vote of the
shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast thereon. In the case of a meeting of
shareholders, written notice shall be given to each shareholder entitled to vote
thereat that the purpose, or one of the purposes, of the meeting is to consider
the adoption, amendment or repeal of the by-laws.
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ARTICLE VII
EMERGENCY BY-LAWS
7.1 WHEN OPERATIVE. The emergency by-laws provided by the following
Paragraphs shall be operative during any emergency resulting from warlike damage
or an attack on the United States or any nuclear or atomic disaster,
notwithstanding any different provision in the preceding Paragraphs of the
by-laws or in the Articles of Incorporation of the Company or in the
Pennsylvania Business Corporation Law. To the extent not inconsistent with these
emergency by-laws, the by-laws provided in the preceding Paragraphs shall remain
in effect during such emergency and upon the termination of such emergency the
emergency by-laws shall cease to be operative unless and until another such
emergency shall occur.
7.2 MEETINGS. During any such emergency:
(a) Any meeting of the Board of Directors may be
called by any director. Whenever any officer of the Company who is not a
director has reason to believe that no director is available to participate in a
meeting, such officer may call a meeting to be held under the provisions of this
Paragraph.
(b) Notice of each meeting called under the
provisions of this Paragraph shall be given by the person calling the meeting or
at his request by any officer of the Company. The notice shall specify the time
and the place of the meeting, which shall be the head office of the Company at
the time if feasible and otherwise any other place specified in the notice.
Notice
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need be given only to such of the directors as it may be feasible to reach at
the time and may be given by such means as may be feasible at the time,
including publication or radio. If given by mail, messenger, telephone or
telegram, the notice shall be addressed to the director at his residence or
business address or such other place as the person giving the notice shall deem
suitable. In the case of meetings called by an officer who is not a director,
notice shall also be given similarly, to the extent feasible, to the persons
named on the list referred to in part (c) of this Paragraph. Notice shall be
given at least two days before the meeting if feasible in the judgment of the
person giving the notice and otherwise the meeting may be held on any shorter
notice he shall deem suitable.
(c) At any meeting called under the provisions of
this Paragraph, the director or directors present shall constitute a quorum for
the transaction of business. If no director attends a meeting called by an
officer who is not a director and if there are present at least three of the
persons named on a numbered list of personnel approved by the Board of Directors
before the emergency, those present (but not more than the seven appearing
highest in priority on such list) shall be deemed directors for such meeting and
shall constitute a quorum for the transaction of business.
7.3 LINES OF SUCCESSION. The Board of Directors, during as
well as before any such emergency, may provide, and from time to time modify,
lines of succession in the event that during such an emergency any or all
officers or agents of the
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Company shall for any reason be rendered incapable of discharging their duties.
7.4 OFFICES. The Board of Directors, during as well as before any such
emergency, may, effective in the emergency, change the head office or designate
several alternative head offices or regional offices, or authorize the officers
so to do.
7.5 LIABILITY. No officer, director or employee acting in accordance
with these emergency by-laws shall be liable except for willful misconduct.
7.6 REPEAL OR CHANGE. These emergency by-laws shall be subject to
repeal or change by further action of the Board of Directors or by action of the
shareholders, except that no such repeal or change shall modify the provisions
of the next preceding Paragraph with regard to action or inaction prior to the
time of such repeal or change.
ARTICLE VIII
PENNSYLVANIA ACT 36 OF 1990
8.1 FIDUCIARY DUTY. Subsections (a) through (d) of Section 1715 of the
Pennsylvania Business Corporation Law of 1988, as amended, shall not be
applicable to the Company.
8.2 CONTROL-SHARE ACQUISITIONS. Subchapter G of Chapter 25 of the
Pennsylvania Business Corporation Law of 1988, as amended, (relating to
control-share acquisitions), shall not be applicable to the Company.
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8.3 DISGORGEMENT. Subchapter H of Chapter 25 of the
Pennsylvania Business Corporation Law of 1988, as amended, (relating to
disgorgement by certain controlling shareholders following attempts to acquire
control), shall not be applicable to the Company.
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Exhibit 4(c)
ESCROW AGREEMENT
Dated as of February 24, 1997
by and between
P.H. GLATFELTER COMPANY
and
THE BANK OF NEW YORK, as Trustee
Relating to the $150,000,000
5-7/8% Notes
<PAGE> 2
ESCROW AGREEMENT
AGREEMENT dated as of February 24, 1997 by and between
P.H. GLATFELTER COMPANY (the "Company") and THE BANK OF NEW YORK
(the "Trustee").
R E C I T A L S :
A. Pursuant to a Trust Indenture dated as of January 15, 1993
between the Company and the Trustee, as successor Trustee (the "Indenture"), the
Company has previously issued its 5-7/8% Notes due March 1, 1998 in the
aggregate principal amount of $150,000,000 (the "Securities").
B. The Securities will become fully due and payable on March
1, 1998.
C. The Company has requested that it be released from its
obligations under Sections 3.6, 3.7, 3.8, 3.9, and 3.10 of the Indenture with
respect to the Securities, such release to be effected in accordance with
Section 10.1(B) of the Indenture.
D. Each of the terms, unless otherwise defined herein, shall
have the meaning assigned to it in the Indenture.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto, intending to be legally bound hereby,
covenant and agree as follows:
Section 1. Deposit with Trustee. The Trustee hereby
acknowledges receipt from the Company of certain direct obligations of the
United States of America, backed by its full faith and credit ("U.S. Government
Obligations") described in Schedule A hereto and agrees to hold such U.S.
Government Obligations in an escrow account (the "Account"). The U.S. Government
Obligations described in Schedule A are hereby irrevocably deposited with the
Trustee by the Company for the purposes set forth herein.
Section 2. Application of Moneys in the Account. The Trustee
irrevocably agrees to apply the principal amount of and interest on the U.S.
Government Obligations held in the Account
<PAGE> 3
as the same become due and such other moneys in the Account available therefor
to pay the interest on the Securities as the same becomes due and to pay the
principal of the Securities at the maturity thereof on March 1, 1998. Except as
otherwise provided in Sections 3 and 6 of this Agreement, any portion of the
realized principal of and interest on the U.S. Government Obligations or other
moneys on deposit in the Account not needed at the time to make the aforesaid
payments on the Securities shall remain on deposit in the Account, uninvested,
except as provided in Section 3 hereof, in trust for the benefit of the holders
of the Securities until applied as aforesaid.
Section 3. Reinvestment of Account and Substitution
for U.S. Government Obligations.
(a) The Trustee shall, at the written direction of the
Company, reinvest any portion of the realized principal of and interest on the
U.S. Government Obligations or other moneys on deposit in the Account not needed
at the time to make the payments required under Section 2 of this Agreement in
such U.S. Government Obligations as the Company shall so direct; provided that
the Company shall determine that all such investments shall mature, or be
subject to redemption by the Trustee at not less than the principal amount
thereof or the cost of acquisition (whichever is lower), not later than the date
when such amounts will be needed for purposes of Section 2 hereof.
(b) At the written direction of the Company and upon
compliance with the conditions hereinafter stated, the Trustee shall sell,
transfer or otherwise dispose of or request the redemption of such portion of
the U.S. Government Obligations held in the Account and shall substitute such
U.S. Government Obligations therefor as the Company shall so direct, which
substituted U.S. Government Obligations may or may not permit the redemption
thereof at the option of the Company. The Trustee shall purchase such
substituted U.S. Government Obligations with the proceeds derived from the sale,
transfer, disposition or redemption of the U.S. Government Obligations held in
the Account and any other moneys available therefor in the Account. The
transactions may be effected only if the Company shall have first provided the
Trustee with a certificate from an independent certified accountant that the
aggregate principal amount of the U.S. Government Obligations to be substituted,
together with the principal amount of any U.S. Government Obligations remaining,
and the interest income to be earned thereon and other money available therefor
in the Account, will be sufficient to permit the Trustee to make all payments
required by Section 2 hereof and not theretofore paid.
(c) Except as provided in this Section 3, the Trustee shall
have no power or duty to invest any moneys held in the Account or to sell,
transfer or otherwise dispose of any U.S.
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Government Obligations except to a successor trustee under the Indenture.
Section 4. Payment of Fees and Expenses. The Company agrees to
pay the Trustee's fees and expenses, including but not limited to those related
to payment of the principal of, and interest on, the Securities and the fees and
expenses of any other paying agent due or to become due with respect to its
acting as Trustee and paying agent in connection with the Securities. The
Trustee agrees that it shall have no claim or lien whatsoever on any of the
moneys, U.S. Government Obligations on deposit in the Account for the payment of
fees and expenses for services rendered or costs incurred by the Trustee under
this Agreement or otherwise.
Section 5. Trustee's Acknowledgment of Covenant Defeasance and
Release of Covenants in the Indenture with Respect to Securities. In reliance
upon the computations in the report prepared by Bear Stearns & Co. Inc., the
mathematical accuracy of which was verified by Deloitte & Touche LLP in their
report dated February 24, 1997, the Company represents to the Trustee that the
U.S. Government Obligations shall mature at such times and shall provide
sufficient moneys, together with the cash deposit and any other moneys and
securities then on deposit in the Account, to provide for the payment of the
principal of and interest on the Securities in accordance with Section 2. The
Trustee, in reliance upon the foregoing representation of the Company, hereby
acknowledges that the principal of and interest on the U.S. Government
Obligations, as received, together with other moneys being deposited in the
Account, will provide sufficient moneys to pay the interest on the Securities as
the same becomes due on March 1, 1998. Upon receipt by the Trustee of an
Officer's Certificate and an Opinion of Counsel that the condition set forth in
Section 10.1(B)(b) of the Indenture has been satisfied, the covenants of the
Company set forth in Sections 3.6, 3.7, 3.8, 3.9 and 3.10 of the Indenture shall
be released.
Section 6. Termination. This Agreement shall terminate when
all transfers, payments and other acts required to be made or taken by the
Trustee under the provisions hereof shall have been made or taken.
Section 7. Severability. If any one or more of the covenants
or agreements provided in this Agreement on the part of the Company or the
Trustee to be performed should be determined by a court of competent
jurisdiction to be contrary to law, such covenant or agreement shall be deemed
and construed to be severable from the remaining covenants and agreements herein
contained and shall in no way affect the validity of the remaining provisions of
this Agreement.
Section 8. Successors and Assigns. All of the covenants,
promises and agreements hereunder of the Company shall
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<PAGE> 5
be binding upon, and inure to the benefit of, its respective successors and
assigns. All of the covenants, promises and agreements hereunder of the Trustee
shall be binding upon, and inure to the benefit of, any successor trustee under
the Indenture.
Section 9. Governing Law. This Agreement shall be governed by
and construed in accordance with the law of the State of New York.
Section 10. Headings. Any headings preceding the text of the
several Sections hereof shall be solely for convenience of reference and shall
not constitute a part of this Agreement, nor shall they affect its meaning,
construction or effect.
Section 11. Counterparts. This Agreement may be executed in
several counterparts, all or any of which shall be regarded for all purposes as
one original and shall constitute and be but one and the same instrument.
Section 12. Trustee Not Liable for Investment Losses. The
Trustee shall not be liable for any loss resulting from any investment made
pursuant to this Agreement in compliance with the provisions hereof.
Section 13. Trustee May Rely on Signatures. The Trustee may
act in reliance upon any signature believed by it to be genuine and may assume
that any person purporting to give any notice or receipt of advice or make any
statement with respect to the provisions of this Agreement has been duly
authorized to do so. The Trustee shall not be liable for any mistake of fact or
error of judgment, or for any acts or omissions of any kind, unless caused by
its negligence or bad faith.
Section 14. Liability of Trustee. The Trustee shall not be
liable for any loss or damage, including counsel fees and expenses, resulting
from its actions or omissions to act hereunder, except for any loss or damage
arising out of its own bad faith, negligence or willful misconduct. Without
limiting the generality of the foregoing, the Trustee shall not be liable for
any action taken or omitted in reliance on any notice, direction, consent,
certificate, affidavit, statement, designation or other paper or document
reasonably believed by it to be genuine and to have been duly and properly
signed or presented to it by the Company.
Section 15. Indemnification. The Company shall indemnify and
exonerate, save and hold harmless the Trustee from and against any and all
claims, demands, expenses (including counsel fees and expenses) and liabilities
of any and every nature which the Trustee may sustain or incur or which may be
asserted against the Trustee as a result of any action taken or omitted by the
Trustee hereunder without bad faith, negligence or willful misconduct. At any
time, the Trustee may apply to the Company for written instructions with respect
to any matter
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<PAGE> 6
arising under this Agreement and shall be fully protected in acting in
accordance with such instructions. In addition, the Trustee may, as reasonably
necessary, consult counsel to the Company or its own counsel, at the expense of
the Company, and shall be fully protected with respect to any action taken or
omitted in good faith in accordance with such advice or opinion of counsel to
the Company or its own counsel.
Section 16. Agents of Trustee. The Trustee may employ agents
or attorneys-in-fact, and shall not be liable for any loss or damage arising out
of, or in connection with, the actions or omissions to act of such agents or
attorneys-in-fact provided the Trustee acted without bad faith, negligence, or
willful misconduct in connection with the selection of such agents or
attorneys-in-fact.
IN WITNESS WHEREOF, the parties hereto have each caused this
Agreement to be executed by their duly authorized officers and their corporate
seals to be hereto affixed and attested as of the date first above written.
P.H. GLATFELTER COMPANY
[SEAL]
ATTEST: By
-----------------------------
Name:
---------------------------
Title:
--------------------------
- --------------------------
Assistant Secretary
THE BANK OF NEW YORK
By
-----------------------------
Name:
---------------------------
Title:
--------------------------
5
<PAGE> 7
Schedule A
U.S. GOVERNMENT OBLIGATIONS
United States Treasury Notes
Principal
Principal Interest Maturity
Amount Rate Date
<PAGE> 1
Exhibit 10(h)
LOAN AGREEMENT
dated as of February 24, 1997
between
P.H. GLATFELTER COMPANY
as Borrower
and
GWS VALUCH, INC.
as Lender
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS............................. 1
SECTION 1.1. Definitions.................................................. 1
SECTION 1.2. Interpretation............................................... 12
ARTICLE 2
THE BORROWING............................ 14
SECTION 2.1. Commitment to Lend........................................... 14
SECTION 2.2. Method of Borrowing.......................................... 14
SECTION 2.3. Note......................................................... 14
SECTION 2.4. Maturity of Loan............................................. 14
SECTION 2.5. Interest Rate................................................ 14
SECTION 2.6. Optional Prepayments......................................... 15
SECTION 2.7. Mandatory Prepayments........................................ 16
SECTION 2.8. Changes in Tax Laws.......................................... 16
SECTION 2.9. General Provisions as to Payments............................ 17
SECTION 2.10. Computation of Interest..................................... 17
SECTION 2.11. Interest on Reimbursable and Other Amounts.................. 17
ARTICLE 3
CONDITIONS............................. 17
SECTION 3.1. Conditions to Borrowing...................................... 17
ARTICLE 4
REPRESENTATIONS AND WARRANTIES................... 18
SECTION 4.1. Organization and Qualification............................... 18
SECTION 4.2. Authorization; No Contravention; Binding Effect.............. 19
SECTION 4.3. Litigation................................................... 19
SECTION 4.4. Regulatory Restrictions on Borrowing......................... 19
SECTION 4.5. [RESERVED]................................................... 19
SECTION 4.6. Representations in Collateral Documents True
and Correct................................................ 20
SECTION 4.7. Other Representations and Warranties as to
Mortgaged Property......................................... 20
SECTION 4.8. Representations and Warranties of Lender..................... 21
ARTICLE 5
COVENANTS.............................. 22
SECTION 5.1. Mortgage Delivery............................................ 22
SECTION 5.2. Information.................................................. 23
SECTION 5.3. Transfers.................................................... 24
SECTION 5.4. Liens........................................................ 25
i
<PAGE> 3
SECTION 5.5. Mortgage Recording: Further Assurances....................... 25
SECTION 5.6. Title Insurance Upon Material Event of
Default or Downgrade....................................... 26
SECTION 5.7. Environmental Covenant....................................... 27
SECTION 5.8. Impositions.................................................. 28
SECTION 5.9. Legal and Insurance Requirements............................. 28
SECTION 5.10. Permitted Contests.......................................... 28
SECTION 5.11. Insurance................................................... 29
SECTION 5.12. Additional Covenants........................................ 29
ARTICLE 6
DEFAULTS.............................. 33
SECTION 6.1. Events of Default............................................ 33
SECTION 6.2. Remedies..................................................... 35
ARTICLE 7
MISCELLANEOUS............................ 36
SECTION 7.1. Notices...................................................... 36
SECTION 7.2. No Waivers................................................... 36
SECTION 7.3. Expenses..................................................... 37
SECTION 7.4. Indemnification.............................................. 37
SECTION 7.5. Amendments and Waivers....................................... 40
SECTION 7.6. Successors and Assigns....................................... 40
SECTION 7.7. Substitution and Release of Collateral....................... 40
SECTION 7.8. Transfers and Release of Certain Minor Parcels............... 43
SECTION 7.9. Estoppel Certificates........................................ 45
SECTION 7.10. WAIVER OF JURY TRIAL........................................ 45
SECTION 7.11. SUBMISSION TO JURISDICTION.................................. 45
SECTION 7.12. GOVERNING LAW............................................... 45
SECTION 7.13. Counterparts Integration.................................... 45
SECTION 7.14. [RESERVED].................................................. 46
SECTION 7.15. Lost Notes.................................................. 46
SECTION 7.16. Termination................................................. 46
EXHIBIT A - Form of Note
EXHIBIT B - Form of Mortgage
EXHIBIT C - Lender's Wire Transfer Instructions
SCHEDULE 1 - Non-Recording States
ii
<PAGE> 4
LOAN AGREEMENT (this "Agreement") dated as of February 24,
1997 by and between P.H. Glatfelter Company (the "Borrower") and GWS Valuch,
Inc. (the "Lender").
W I T N E S S E T H:
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. As used in this Agreement, unless
otherwise specified, the following terms have the following meanings:
"actual knowledge" means the then actual knowledge of any
officer of a Borrower or Lender (as applicable) having oversight of the
transactions contemplated by the Loan Documents and, as to any matter relating
to an Individual Property, any other officer of a Borrower or Lender (as
applicable) having oversight as to such Individual Property.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
For purposes of this definition, the term "control" (including the correlative
meanings of the terms "controlling, "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise, provided (but without limiting the foregoing) that no
pledge of voting securities of any Person without the current right to exercise
voting rights with respect thereto shall by itself be deemed to constitute
control over such Person. For purposes of this Agreement, Borrower and Lender
shall not be considered Affiliates of each other.
"Agreements" means as to any Individual Property, all leases
and subleases, restrictive covenants, deed restrictions and easements (including
any applicable Permitted Encumbrances and Permitted Easements), all insurance
policies (including all unearned premiums and dividends thereunder), all
guarantees and warranties, all supply and service contracts for water, sanitary
and storm sewer, drainage, electricity, steam, gas, telephone or other utilities
and all other documents, agreements and instruments, in all of such cases now or
hereafter relating to any Individual Property and all other contract rights, now
or hereafter relating to the use or operation of any Individual Property.
<PAGE> 5
"Applicable Laws" means as to any Individual Property all
applicable laws (including Environmental Laws and subdivision laws), rules,
regulations, statutes, treaties, codes, ordinances, and Permits, of any
Governmental Authority, and applicable judgments, decrees, injunctions, writs,
orders or other action of any court, binding arbitrator or other administrative,
judicial or quasi-judicial tribunal or agency of competent jurisdiction
(including those pertaining to health or safety and those pertaining to the
construction, use or occupancy of any Individual Property), whether now or
hereafter in effect.
"Award" means the entire award, compensation or other payment,
if any, on account of any Condemnation, including all amounts received or
receivable with respect to any voluntary or involuntary sale, conveyance or
other transfer in lieu or anticipation of a Condemnation or in connection with
any agreement with any Governmental Authority which has been made in settlement
of any proceeding relating to a Condemnation.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as
amended.
"Borrower" means P.H. Glatfelter, a Pennsylvania corporation,
and any other Owner to the extent such Owner shall become a party to this
Agreement and the Note (or any replacement thereof) pursuant to the provisions
of Section 4.7 hereof provided that nothing herein shall constitute a
representation or warranty of any Owner unless and until such Owner becomes
subject to this Agreement.
"Borrowing" means the borrowing of the Loan made to Borrower
pursuant to Article 2.
"Business Day" means any day other than a Saturday, Sunday or
other day on which banks are authorized to be closed in New York, New York.
"Casualty" means any material damage to or the destruction of
all or a material portion of any Individual Property by any casualty or cause,
other than any intentional demolition of any Improvements or harvesting of
timber that, pursuant to the terms of the Loan Documents, Borrower is permitted
to perform in connection with the making of any alterations to such Improvements
permitted under the Loan Documents.
"Claims" means liabilities, obligations, damages, losses,
demands, penalties, fines, claims, actions, suits, judgments, settlements,
costs, expenses and disbursements (including, without limitation, reasonable
legal fees and expenses and costs of investigation by engineers, environmental
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<PAGE> 6
consultants and similar technical personnel) of any kind and nature whatsoever
(but limited in the case of damages, losses and claims resulting from
diminutions in Fair Market Value to actual pecuniary losses resulting from
diminutions in Fair Market Value).
"Closing Date" means the date on which the Loan is made
pursuant to Section 2.1.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute, and the regulations promulgated thereunder, as in effect
from time to time.
"Collateral" means collateral subject to the Collateral
Documents.
"Collateral Documents" means, the Mortgage and any other
pledges, security agreements, financing statements, mortgages, deeds of trust,
guaranties or similar documents delivered pursuant to any Loan Document.
"Condemnation" means any condemnation or other taking or
temporary (subject to the next sentence) or permanent requisition of any
Individual Property or material part thereof, any material interest therein or
material right appurtenant thereto, as the result of the exercise by any
Governmental Authority of any right of condemnation or eminent domain. The term
"Condemnation" shall not include a Temporary Condemnation. A voluntary or
involuntary sale, conveyance, assignment, lease or other transfer to a
Governmental Authority in lieu or anticipation of Condemnation shall be deemed
to be a Condemnation.
"Default Rate" means, with respect to any amount payable by
Borrower hereunder which is not paid when due, a rate per annum equal to the
lesser of (i) the highest interest rate permitted by applicable law and (ii) the
Interest Rate plus 2% per annum.
"Downgrade Event" means (A) the announcement by S&P and
Moody's of a reduction in the rating of the unsecured long-term debt securities
of Borrower to less than BB- and Ba3, respectively; or if either Rating Agency
ceases to perform rating services, the relevant announcement by the other Rating
Agency; or, if both Rating Agencies cease to perform such services, the
announcement by another nationally recognized credit rating service selected by
Lender and reasonably acceptable to Borrower of the comparable reduction in the
rating of the unsecured long-term debt securities of Borrower; or (B) in the
event Borrower has no unsecured, long-term debt securities outstanding, the
announcement by S&P of a reduction in the implied rating of
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<PAGE> 7
unsecured long-term debt securities of Borrower, or if S&P ceases to perform
such rating services, the announcement by another nationally recognized credit
rating service selected by Lender and reasonably acceptable to Borrower of the
comparable reduction in the implied rating of the unsecured long-term debt
securities of Borrower.
"Eligible Indebtedness" means indebtedness that will (i) have
an interest rate greater than each of (a) the yield as of the date of prepayment
of the United States Treasury Security whose maturity is closest to that of such
Eligible Indebtedness plus 50 basis points and (b) 91% of the initial yield of
the Note; (ii) have a fixed principal amount which, is not less than the
principal amount of the Note or Eligible Indebtedness that is being prepaid;
(iii) have the same seniority as the Note or then existing Eligible
Indebtedness, as applicable; (iv) have restrictive covenants and other terms and
conditions no less favorable to the Lender than the terms of, at Borrower's
Option, either this Agreement or of the then most recently issued rated senior
indebtedness of Borrower; (v) be secured by real estate assets of Borrower or
its Affiliate, that, but for requirements of Section 5.1, would qualify as
Mortgaged Property and which assets together with all other Mortgaged Property
will have a Fair Market Value as of the date of issuance of such Eligible
Indebtedness which equals or exceeds the Required Value; and (vi) qualify in its
entirety as an interest in a mortgage on real property for purposes of Section
856(c)(6)(B) of the Code.
"Environmental Laws" means any and all applicable federal,
state and local statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees, injunctions, permits and other governmental restrictions,
whether now or hereafter in effect, relating to (i) the environment, (ii) the
effect of Hazardous Substances on human health or natural resources, (iii)
emissions, discharges or releases of Hazardous Substances into the environment
including, without limitation, ambient air, surface water, ground water, or
land, or (iv) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances or the clean-up
or other remediation thereof.
"Fair Market Value" means, with respect to the Mortgaged
Property or any Individual Property, as the context shall require, the estimated
value, as reasonably determined and represented by Borrower, that would be
expected to be obtained in an arm's-length transaction for cash between informed
and willing parties, each having reasonable knowledge of all relevant facts,
neither of whom is under any compulsion to buy or to sell, for the purchase or
sale of such Mortgaged Property or Individual Property, as the case may be,
based on the assumption that the
4
<PAGE> 8
Mortgaged Property or such Individual Property, as applicable, is not encumbered
by the Mortgage.
"Governmental Action" means all permits, authorizations,
registrations, approvals, waivers, exceptions, variances, orders, judgments,
decrees, licenses, exemptions, and declarations of or with, or required by, any
Governmental Authority, or required by any Applicable Law in connection with the
use, occupancy, zoning and operation of the Mortgaged Properties, and shall
include, without limitation, all environmental and operating permits and
licenses.
"Governmental Authority" means any federal, state, county,
municipal or other governmental or regulatory authority, agency, board,
commission, instrumentality or court.
"Governmental Obligations' means obligations issued or
guaranteed by, and constituting full faith and credit obligations of, the United
States of America.
"Hazardous Substances" means any pollutant, contaminant or
chemical, any toxic, explosive, corrosive, flammable, radioactive, caustic or
otherwise hazardous substance, waste or material or any substance, waste or
material, having any constituent elements displaying any of the foregoing
characteristics, including, without limitation, petroleum, its derivatives,
by-products or other hydrocarbons, asbestos or asbestos-containing material.
"Impositions" means all Taxes, in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
(including all interest and penalties thereon), which at any time may be
assessed, levied, confirmed or imposed on or in respect of, or be a Lien upon,
(i) the Mortgaged Property or any interest therein, (ii) any occupancy, use or
possession of, or activity conducted on, the Mortgaged Property, (iii) the rents
from the Mortgaged Property or the use or occupancy thereof, or (iv) the Secured
Obligations or the Loan Documents. Anything in this Agreement to the contrary
notwithstanding, Impositions shall not include any Taxes that are based on net
or gross income (including any capital gain) or any excess profits, value added,
franchise, estate, inheritance, capital, doing business, transfer or similar
Taxes, in each case, of Lender, unless and to the extent such Taxes are in lieu
of or a substitute for ad valorem real or personal property taxes, or any
assessments upon or with respect to the Mortgaged Property which, if such other
Taxes were in effect would be payable by Borrower hereunder; provided, however,
Borrower shall pay and discharge any Taxes which are or are in the nature of
sales or use or license Taxes.
5
<PAGE> 9
"Improvements" means all buildings, structures, fixtures,
facilities and other improvements of every kind and description now or hereafter
located on the Land described in the Mortgage but excluding any standing timber.
"Individual Property" shall have the meaning set forth in the
Mortgage.
"Insurance Proceeds" means, at any time, all proceeds (except
proceeds of business interruption insurance) or payments to which Borrower may
be or become entitled by reason of any Casualty under any insurance policies or
coverages maintained by Borrower with respect to the Mortgaged Property. The
term "Insurance Proceeds" shall include all deductible, self retained and self
insured amounts, all of which shall be paid by Borrower in the same manner and
to the same Person as Insurance Proceeds are required to be paid under the
applicable Loan Documents.
"Insurance Requirements" means all provisions of the insurance
policies applicable to any Individual Property, all requirements of the issuer
of any of the Insurance Policies and all orders, rules, regulations and any
other requirements of the National Board of Fire Underwriters (or any other body
exercising similar functions) binding upon Borrowers or applicable to such
Individual Property, any adjoining vaults, sidewalks, parking areas or driveways
or any use or condition thereof.
"Interest Rate" shall have the meaning set forth in Section
2.5 hereof.
"Land" means the parcel or parcels of land referred to in the
Mortgage.
"Legal Requirements" means all provisions of Applicable Laws,
Permits and Agreements.
"Lender" means GWS Valuch, Inc., a Delaware corporation, and
its successors and assigns.
"Lien" means, with respect to any asset, any mortgage, deed of
trust, lien, pledge, charge, security interest or encumbrance of any kind,
including any thereof arising under any conditional sale agreement, capital
lease or other title retention agreement.
"Loan" means the loan made by Lender pursuant to Section 2.1,
the Borrower's obligations with respect to which are evidenced by the Note or if
substituted for the Note, Eligible Indebtedness.
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<PAGE> 10
"Loan Documents" means this Agreement, the Note, and the
Collateral Documents.
"Loss" means any Casualty or Condemnation.
"Material Adverse Effect" means, with respect to the Mortgaged
Property, a material adverse effect on (i) the Fair Market Value of the
Mortgaged Property that results in, as reasonably determined by Borrower, the
then outstanding principal amount of the Loan exceeding 91% of the then
aggregate Fair Market Value of the Mortgaged Property, or (ii) Lender's Liens,
taken as a whole, on or in the Mortgaged Property or any of Lender's rights or
remedies under the Loan Documents.
"Material Casualty" means, with respect to the Mortgaged
Property, a Casualty with respect to which the estimated cost, as reasonably
determined by Borrower, of Restoration of any Improvements to the Mortgaged
Property is fifty percent (50%) or more of the estimated Fair Market Value of
the Mortgaged Property taken as a whole before the Casualty.
"Material Condemnation" means a Condemnation that affects or
would affect 50% or more of the Fair Market Value of the Mortgaged Property
taken as a whole prior to such Condemnation.
"Material Event of Default" means any Event of Default, other
than an Event of Default described in Section 6.1(c), (f) or (g) that does not
have a Material Adverse Effect.
"Moody's" means Moody's Investors Service, Inc., and its
successors.
"Mortgage" means, with respect to the Mortgaged Property, a
mortgage, deed of trust and fixture filing substantially in the form of Exhibit
B hereto; provided, however, that the parties hereto agree to revise and adopt
such mortgage to a form suitable for the state in which the Mortgaged Property
(or portion thereof) is located.
"Mortgage Delivery Date" means the date on which, pursuant to
Section 5.1(a), Lender shall receive from Borrower or the applicable Owner duly
executed counterparts of the Mortgage and any other Collateral Documents and,
Borrower otherwise complies with the provision of Section 5.1 hereof.
"Mortgaged Property" means, collectively, (i) those properties
which are to be designated by Borrower pursuant to Section 5.1(a) as properties
subject to the Mortgage and in which Borrower or the applicable Owner has a fee
simple interest, and which properties are to be more particularly described in
the
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<PAGE> 11
Mortgage and (ii) any Substitute Property from and after the Release Date which
becomes subject to the lien of the Mortgage pursuant to Section 7.7(c).
"Net Award" means any Award or Insurance Proceeds, less any
out-of-pocket expenses (including, but not limited to, reasonable attorneys'
fees and expenses), that are reasonably incurred in collecting such award,
compensation, insurance proceeds or other payment (which, unless expressly
prohibited by this Agreement or any other Loan Document, may be paid or
reimbursed from such award, compensation, insurance proceeds or other payments).
The term "Net Award" shall include all deductible, self retained and self
insured amounts all of which shall be required to be paid by Borrower in the
same manner and to the same party as Insurance Proceeds are required to be paid.
"Non-Recording States" means the States listed on Schedule I
annexed hereto.
"Note" means the promissory note of Borrower in favor of
Lender, substantially in the form of Exhibit A hereto, evidencing the obligation
of Borrower to repay the Loan.
"Notice Recording" means the recording of the Mortgage in a
Non-Recording State as to only a portion of the principal balance of the Loan,
not to exceed the lesser of (A) $300,000 with respect to any Individual Property
or (B) the Fair Market Value of such Individual Property.
"Owners" means, collectively, the holders of the fee simple
interest in the Mortgaged Property as of the Mortgage Delivery Date.
"Permits" means, as to any Individual Property, all licenses,
authorizations, certificates, variances, concessions, grants, franchises,
registrations, consents, permits and other approvals now or hereafter pertaining
to the ownership, management, occupancy, use or operation of such Individual
Property, including certificates of occupancy.
"Permitted Disposition" means as to any Individual Property,
any (i) Transfer of such Individual Property pursuant to a Condemnation, (ii)
harvesting and using and harvesting and selling, or entering into contracts for
the harvesting and sale, of timber located on the Land, (iii) Transfer in the
ordinary course of business of used, surplus or worn out equipment or other
personal property which is not necessary to operate such Individual Property,
(iv) Permitted Easements, (v) occupancy agreements made in connection with the
conduct of Borrower's business at the Mortgaged Property, or (v) lease of all or
any portion of an Individual Property as long as such lease (A) is
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<PAGE> 12
subordinate to the Mortgage, which subordination will, upon Borrower's request
at the time of execution of the lease, include a non-disturbance agreement,
reasonably satisfactory to the Borrower, by the Lender that provides that so
long as lessee performs all the terms, covenants and conditions of the lease and
agrees to attorn to Lender, lessee's right to possession under the lease will
not be disturbed; and (B) shall provide that in the event of any exercise of
foreclosure or power of sale or similar remedies by Lender under the Mortgage,
Lender may, at its option, take over all right, title and interest of the
applicable Owner, as lessor, under such lease and the lessee shall, at Lender's
option, if a subordination, attornment and non-disturbance agreement has not
been executed pursuant to (A) above, attorn to Lender pursuant to the then
executory provisions of such lease, provided that Lender shall not be (i) liable
for any previous act or omission of the applicable Owner under such lease, (ii)
subject to any credit, offset, counterclaim or defense, (iii) bound by any
modification of such lease made without Lender's consent or by any previous
prepayment of more than one month's rent, (iv) bound to complete any
construction with respect to the leased premises, and (v) required to pay any
funds to such lessee except for the return of any security deposit of the lessee
actually received by Lender (if Lender shall be required to return the same
pursuant to the lease).
"Permitted Easements" means, as to any Mortgaged Property,
easements, covenants and restrictions agreement, leases, licenses (including,
but not limited to hunting and recreational licenses or leases), rights of way
or similar encumbrances with respect to such Mortgaged Property that (i) do not
materially interfere with the then current use and operation of such Individual
Property as of the Mortgage Delivery Date and (ii) do not have a Material
Adverse Effect on the Mortgaged Property.
"Permitted Encumbrances" means the Loan Documents, any other
documents delivered at Closing or on the Mortgage Delivery Date pursuant to the
Loan Documents and all title exceptions (including recorded leasehold
interests), defects and other matters of record as of the Mortgage Delivery Date
relating to the Mortgaged Property and any Permitted Disposition that would
constitute an encumbrance.
"Permitted Liens" means, with respect to the Mortgaged
Property, (i) liens for Taxes either not yet due or being contested in
accordance with Section 5.10, (ii) materialmen's, mechanics', workers',
repairmen's or other like Liens for amounts either not yet due or being
contested in accordance with Section 5.10, (iii) Liens arising out of judgments
or awards with respect to which at the time an appeal or proceeding for review
is being prosecuted in good faith and if a Downgrade Event shall have
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<PAGE> 13
occurred and be continuing, either which have been bonded or which adequate
reserves for the payment thereof (in the reasonable determination of Lender)
shall have been established on its books, so long as there is not any material
risk of loss of the priority of the Lien of the Loan Documents and the Mortgage
or any material danger of the sale, forfeiture or loss of any material part of
the Mortgaged Property or title thereto, (iv) Permitted Encumbrances, (v)
Permitted Easements, (vi) Liens permitted by any Loan Document, (vii) any right
or claim of any third party under a written contract with respect to subsurface
minerals located under the Land, (viii) any Lien or other matter to which Lender
has consented in writing, (ix) Liens that are the subject of a permitted contest
pursuant to Section 5.10, but only during the pendency of the permitted contest,
and (x) the respective rights and interests of Borrower and Lender in this
Agreement.
"Person" means an individual, a corporation, a limited
liability company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Quarterly Date" means the Business Day immediately preceding
each March 30, June 30, September 30 and December 30 occurring after the date
hereof and prior to the payment in full of the Secured Obligations.
"Rating Agencies" means S&P and Moody's.
"Recording Documents" means any Loan Document or Collateral
Document, including, any mortgage, UCC financing statement or fixture filing
(including with respect to timber) or assignment intended for recordation or in
recordable form, other than any Notice Recording.
"REIT" means a real estate investment trust under Section 856
of the Code.
"Required Value" means, with respect to the Mortgaged
Property, or if applicable, the real estate described in clause (v) of the
definition of Eligible Indebtedness, at least 110% of (A) the then outstanding
principal amount of the Loan, plus (B) any other monetary obligations secured by
or encumbering the Mortgaged Property.
"Restoration" means the restoration, repair, replacement or
rebuilding of an Improvement located on an Individual Property after a Casualty
or Condemnation (including any demolition in whole or in part of the
Improvements located on such Individual Property after such Casualty or
Condemnation to the extent permitted under the Loan Documents), and "Restore"
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<PAGE> 14
means to restore, repair, replace or rebuild an Individual Property after a
Casualty or Condemnation (including, to demolish in whole or in part any of the
Improvements located on such Individual Property after such Casualty or
Condemnation to the extent permitted under the Loan Documents).
"S&P" means Standard & Poor's Ratings Services, a subsidiary
of McGraw-Hill Companies, Inc., and its successors.
"Secured Obligations" means: (i) (a) all principal of and
interest (including any interest which accrues after the commencement of any
case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of Borrower) on the Note; (b) all other amounts payable by
Borrower hereunder or under any other Loan Document; and (c) any renewals or
extensions of any of the foregoing; and (ii) the performance and observance of
each other term, covenant, agreement, obligation, requirement, condition and
provision to be performed or observed by Borrower hereunder or under any other
Loan Document.
"State" means the state or commonwealth in which any
applicable portion of the Mortgaged Property is located.
"Taxes" means all taxes (including, without limitation,
property (real or personal, tangible or intangible) sales, use, transfer,
transfer gains, capital, gross income and receipts taxes), assessments
(including all assessments for public improvements or benefits, whether or not
commenced or completed prior to the date hereof), water, sewer or other rents,
rates and charges, excises, levies, license fees, permit fees, inspection fees
and other authorization fees and other charges, general and special, ordinary or
extraordinary, foreseen and unforeseen imposed by any Governmental Authority in
the United States.
"Temporary Condemnation" means any condemnation or other
taking or requisition of any Mortgaged Property or any part thereof or any
interest therein or right appurtenant thereto, as the result of the exercise of
any right of condemnation or eminent domain, for a period of less than twelve
(12) consecutive months.
"Title Company" means Chicago Title Insurance Company or such
other title insurance company or companies acceptable to Lender.
"Transfer" means, when used as a noun, any sale, conveyance,
assignment, lease, mortgage, encumber, pledge or other transfer or disposition
and, when used as a verb, to sell, convey, assign, lease, mortgage, encumber,
pledge or otherwise transfer or dispose of, in each case (i) whether voluntary
or involuntary, and (ii) whether direct or indirect.
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"UCC" means the Uniform Commercial Code in effect in the State
in which any applicable portion of the Mortgaged Property is located.
"Unavoidable Delays" means delays due to acts of God, fire,
flood, drought, earthquake, explosion or other Casualty, inability to procure or
shortage of labor, equipment, facilities, sources of energy (including
electricity, steam, gas or gasoline), materials or supplies, failure of
transportation, strikes, lockouts, action of labor unions, Condemnation,
litigation relating to Legal Requirements, inability to obtain Permits or other
causes beyond the reasonable control of Borrower, provided that Borrower's lack
of funds shall not be deemed to be a cause beyond the control of Borrower and
that Borrower shall take all action reasonably necessary to mitigate or limit
the duration of such Unavoidable Delay.
"United States" means the United States of America, including
the States and the District of Columbia, but excluding its territories and
possessions.
SECTION 1.2. Interpretation. (a) In this Agreement,
unless otherwise specified or the context otherwise requires:
(i) singular words include the plural and plural words
include the singular;
(ii) words which include a number of constituent parts,
things or elements shall be construed as referring separately to each
constituent part, thing or element thereof, as well as to all of such
constituent parts, things or elements as a whole;
(iii) words importing any gender include any other gender;
(iv) references to any Person include such Person's
successors and assigns and in the case of an individual, the word
"successors" includes such Person's heirs, devisees, legatees,
executors, administrators and personal representatives;
(v) references to any statute or other law include all
applicable rules, regulations and orders adopted or made thereunder and
all statutes or other laws amending, consolidating or replacing the
statute or law referred to;
(vi) the words "consent", "approve", "agree" and
"request", and derivations thereof or words of similar import, mean the
prior written consent, approval, agreement or request of the Person in
question;
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(vii) the words "include" and "including", and words of
similar import, shall be deemed to be followed by the words "without
limitation";
(viii) the words "hereto", "herein", "hereof" and
"hereunder", and words of similar import, refer to this Agreement in
its entirety;
(ix) references to Articles, Sections, Schedules,
Exhibits, subsections, paragraphs and clauses are to the Articles,
Sections, Schedules, Exhibits, subsections, paragraphs and clauses of
this Agreement;
(x) the Schedules and Exhibits to this Agreement are
incorporated herein by reference;
(xi) the titles and headings of Articles, Sections,
Schedules, Exhibits, subsections, paragraphs and clauses are inserted
as a matter of convenience and shall not affect the construction of
this Agreement;
(xii) all obligations of Borrower hereunder shall be
satisfied by Borrower, at Borrower's sole cost and expense;
(xiii) all rights and powers granted to Lender hereunder
shall be deemed to be coupled with an interest and be irrevocable; and
(xiv) references to this Agreement or any other Loan
Document include all amendments, supplements, consolidations,
replacements, restatements, extensions, renewals and other
modifications thereof in whole or in part.
(b) Borrower acknowledges that it was represented by counsel
in connection with this Agreement, that it and its counsel reviewed and
participated in the preparation and negotiation of this Agreement and that any
rule of construction to the effect that ambiguities are to be resolved against
the drafting party or lender shall not be employed in the interpretation of this
Agreement.
ARTICLE 2
THE BORROWING
SECTION 2.1. Commitment to Lend. On the terms and conditions
set forth in this Agreement, Lender agrees to make a loan to Borrower on the
date hereof in the principal amount of TWO HUNDRED SEVENTY MILLION
($270,000,000.00) DOLLARS.
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SECTION 2.2. Method of Borrowing. (a) Borrower shall give
Lender notice (the "Notice of Borrowing") on or prior to the date of the
Borrowing hereunder, specifying the date (which shall be a Business Day) of the
Loan, unless waived by Lender.
(b) Not later than 12:00 Noon (New York City time) on the date
of the Borrowing, Lender shall make available the amount of the Loan in Federal
or other funds immediately available in New York City to Borrower.
SECTION 2.3. Note. The Loan to Borrower shall be evidenced by
a single Note of Borrower payable to the order of Lender in the amount of the
Loan.
SECTION 2.4. Maturity of Loan. The Loan shall be interest-only
through the Maturity Date. The Loan shall mature, and the principal amount
thereof shall be due and payable, on December 30, 2027 (the "Maturity Date").
Any overdue principal of the Loan shall bear interest, payable on demand, for
each day such principal is overdue until such principal of the Loan is paid, at
the Default Rate as in effect for such day; provided that the foregoing shall
not impair or limit in any way Lender's rights under Article 6 or under any
other Loan Document.
SECTION 2.5. Interest Rate. (a) Subject to the provisions of
paragraph (b) below, the Loan shall bear interest, for each day from the date
the Loan is made until it becomes due, at a rate per annum equal to 8.62% (the
"Interest Rate"). Such interest shall be payable quarterly in arrears on each
Quarterly Date.
(b) The Loan shall bear interest at the Default Rate for each
day that Borrower shall be in default under the requirements of Section 5.1
hereof until such default is cured.
(c) Any overdue interest on the Loan shall bear interest,
payable on demand, for each day such interest is overdue until it is paid at the
Default Rate as in effect for such day; provided that the foregoing shall not
impair or limit in any way Lender's rights under Article 6 or under any other
Loan Document.
(d) Notwithstanding anything herein to the contrary, the
interest payable by Borrower with respect to the Loan shall not exceed the
maximum amount permitted by Applicable Law and, to the extent that any payments
in excess of such permitted amount are received by Lender, such excess shall be
considered payments in respect of the principal amount of the Note.
SECTION 2.6. Optional Prepayments. (a) Borrower may prepay the
Loan in whole at any time, or in part from time to
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time, on any Quarterly Date occurring (each such date, a "Prepayment Date") not
earlier than thirty (30) days after Lender's receipt of the Prepayment Notice,
either (i) in cash in an amount equal to the principal amount to be prepaid, as
set forth in the Prepayment Notice, together with all accrued interest on the
Note or Eligible Indebtedness, if applicable, through the Prepayment Date and
all other amounts then due and payable under the Loan Documents, or (ii) "in
kind" in accordance with the procedures outlined in Section 2.6(c).
(b) If Borrower has elected to prepay all or a portion of the
Loan pursuant to Section 2.6(a), Borrower shall deliver to Lender an irrevocable
notice (the "Prepayment Notice") which shall include the following information:
(i) the Prepayment Date, (ii) the principal amount of the Loan to be prepaid,
and whether in cash or "in kind" (in accordance with Section 2.6(c)) and (iii)
if any of the Mortgaged Property is to be released, a description of such
Mortgaged Property to be released and a certificate of Borrower meeting the
requirements of Section 7.7(b). If any of the Mortgaged Property is to be
released, the Prepayment Notice shall be accompanied by requisite release
documents (in recordable form) to be executed and acknowledged by Lender.
(c) If Borrower has elected to prepay all or a portion of the
Loan Indebtedness "in kind", Borrower shall deliver to Lender on or prior to the
Prepayment Date (i) Eligible Indebtedness, (ii) all amounts then due and payable
under the Loan Documents (other than principal of the Note or then existing
Eligible Indebtedness, as applicable, and interest thereon), in cash, (iii) an
opinion of counsel reasonably satisfactory to Lender to the effect that such
prepayment "in kind" will not adversely affect the ability of Lender to qualify
as a REIT and will not subject Lender to registration under the Investment
Company Act of 1940, as amended, and (iv) an opinion of counsel reasonably
satisfactory to Lender that such prepayment "in kind" by Borrower will not be
deemed a fraudulent conveyance under Applicable Law or create a preference
within the meaning of the Bankruptcy Code.
(d) Upon receipt of the Prepayment Notice and the release
documents accompanying the Prepayment Notice and upon compliance by Borrower
with the other requirements set forth in this Section 2.6 (including the
appropriate prepayment in cash or "in kind" and all accrued interest on the Note
or Eligible Indebtedness through the Prepayment Date and all other amounts then
due and payable under the Loan Documents other than principal and interest
thereon not yet due and payable), Lender shall execute and acknowledge and
return to Borrower on the Prepayment Date such release documents and Borrower
shall cause
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such documents to be recorded in the appropriate records, if required.
(e) [RESERVED]
SECTION 2.7. Mandatory Prepayments. If at any time a
Condemnation or Casualty occurs and, following the Restoration of the applicable
Individual Property in question, the Fair Market Value of such Mortgaged
Property as Restored is an amount that results in there occurring a Material
Adverse Effect and Borrower shall elect not to substitute a Substitute Property
or such Individual Property pursuant to Section 7.7 in order to "cure" such
Material Adverse Effect, and there shall be remaining any portion of the Net
Award pertaining to such Condemnation, or any portion of the Insurance Proceeds
pertaining to such Casualty, Borrower, promptly following the request of Lender,
shall prepay a portion of the Loan equal to the amount of the remaining portion
of the Net Award or Insurance Proceeds, as applicable, in cash, on the next
occurring Quarterly Date, together with all accrued interest on the Note or
Eligible Indebtedness, as the case may be, as of such Quarterly Date. To the
extent such Condemnation or Casualty and Restoration does not result in a
Material Adverse Effect, Borrower shall be entitled to retain any remaining
portion of the Net Award or Insurance Proceeds, as applicable.
SECTION 2.8. Changes in Tax Laws. If, after the date hereof,
there shall be enacted any Applicable Law deducting from the value of the
Mortgaged Property for the purpose of taxation the Lien of any Collateral
Document or changing in any way the Applicable Law for the taxation of
mortgages, deeds of trust or other Liens or loans or other obligations secured
thereby, or of any interest of Lender in the Mortgaged Property, or the manner
of collection of such taxes, so as to materially and adversely affect the
Mortgage or the Secured Obligations, then promptly following demand by Lender,
Borrower shall pay all taxes, assessments or other charges resulting therefrom
unless Borrower shall not, under Applicable Law, be permitted to pay such taxes,
assessments or other charges, in which case Lender shall be entitled to declare
the Secured Obligations immediately due and payable.
SECTION 2.9. General Provisions as to Payments. Borrower shall
make each interest payment on the Loan not later than 1:00 P.M. (New York City
time) on the date when due, by wire or electronic transfer in Federal or other
funds immediately available, to Lender at the account established by or for the
benefit of Lender in accordance with the instructions set forth on Exhibit C, or
to such other account or accounts in the continental United States as Lender may
from time to time
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designate by not less than fifteen days prior written notice to Borrower.
SECTION 2.10. Computation of Interest. Interest on the Loan
hereunder shall be computed on the basis of a year of 360 days consisting of
twelve 30-day months (including the first day but excluding the last day). The
number of days contained in the period from any Quarterly Date to the next
succeeding Quarterly Date shall be deemed to be ninety (90) days, and the
interest on the Loan shall be payable in four equal quarterly installments on
each Quarterly Date occurring during any calendar year, through and including
the last calendar day of the calendar month in which such Quarterly Date occurs,
notwithstanding the fact that such payment is being made on the Business Day
immediately preceding the 30th day of the applicable calendar month.
Notwithstanding anything else stated herein to the contrary, with respect to the
period from the Closing Date to the first occurring Quarterly Date, interest on
the Loan shall accrue based upon the actual number of days contained in each
such period.
SECTION 2.11. Interest on Reimbursable and Other Amounts. If,
pursuant to the terms of any Loan Document, Lender shall have the right to make
and shall make any payment on behalf of Borrower, or shall have the right to
incur and shall incur any expense for which Lender is entitled to reimbursement
pursuant to the terms of the Loan Document, Borrower shall reimburse Lender for
the amount so paid or incurred by Lender within three (3) Business Days after
demand therefor, or, if an Event of Default has occurred and is continuing, on
demand, and any amounts not paid when due shall bear interest, payable on
demand, for each day they remain due and unpaid at the Default Rate as in effect
for such day. Such interest, and any other interest on the obligations under the
Loan Documents payable at the Default Rate pursuant to the terms of the Loan
Documents, shall accrue through the date paid notwithstanding any intervening
judgment of foreclosure or sale.
ARTICLE 3
CONDITIONS
SECTION 3.1. Conditions to Borrowing. The obligation of Lender
to make the Loan on the date of the Borrowing is subject to the satisfaction of
the following conditions by Borrower:
(a) receipt by Lender of a duly executed Note of Borrower
payable to the order of Lender, in the form of Exhibit A hereto, dated on or
before the Closing Date;
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(b) receipt by Lender of opinions of counsel covering such
matters reasonably requested by and in form and substance reasonably
satisfactory to Lender;
(c) receipt by Lender of such other documents Lender may
reasonably request relating to the corporate existence of Borrower, the
corporate authority for and the validity of the Loan Documents, and any other
matters relevant to the transactions contemplated by the Loan Documents, all in
form and substance reasonably satisfactory to Lender;
(d) receipt by Lender of the Notice of Borrowing pursuant to
Section 2.2, unless waived by Lender;
(e) the fact that the representations and warranties of
Borrower contained in this Agreement shall be true in all material respects on
and as of the Closing Date except that any such representations and warranties
which are made as of a day other than the Closing Date shall be true in all
material respects as of such date; and
(f) the delivery of such other documents or instruments or
taking of such other actions as Borrower is required to deliver or take under
the Loan Documents or as Lender shall reasonably request to effectuate the
transactions contemplated by the Loan Documents in accordance with the
provisions thereof.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants, for itself and on behalf of
each Owner, if applicable, that:
SECTION 4.1. Organization and Qualification. Borrower is a
corporation duly formed, validly existing and in good standing under the laws of
the State of Pennsylvania and is, and will be as of the Mortgage Delivery Date,
duly qualified to do business in and in good standing in the State where the
Mortgaged Property (or any portion thereof) is located to the extent required
under the laws of such State and has all requisite corporate power and authority
to carry on its business as now conducted and to execute and deliver, and
perform its obligations under, the Loan Documents to which it is a party.
SECTION 4.2. Authorization; No Contravention; Binding Effect.
(a) The execution, delivery and performance by Borrower of the Loan Documents,
to which it is a party, are, in each case, within its corporate powers; have
been duly authorized by all necessary corporate action; require no Governmental
Action, except such filings as have been made and as to which any
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required waiting periods have elapsed; do not contravene, or constitute a
default under, any provision of Applicable Law or of its certificate of
incorporation or bylaws or result in the creation or (except for the Liens
created by the Collateral Documents) imposition of any Lien on any of its
assets, and do not contravene, or constitute a default under, any agreement,
judgment, injunction, order, decree or other instrument binding upon it in a
manner which would have a material adverse effect on (i) the ability of Borrower
to conduct its business in the ordinary course, (ii) the financial condition of
Borrower considered on a consolidated basis, (iii) the ability of Borrower to
perform its obligations under this Agreement or any other Loan Document or (iv)
the validity of the Liens created by the Loan Documents.
(b) When executed and delivered, each of the Loan Documents
will constitute valid and binding agreements of Borrower and each of the Owners,
to the extent that it is a party thereto, and the Note, when executed and
delivered in accordance with this Agreement, will constitute a valid and binding
obligation of Borrower and, if applicable, to each of the Owners, in each case
enforceable in accordance with its terms except as the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws relating to the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether such matter is considered in a proceeding at law or in
equity).
SECTION 4.3. Litigation. Except as described in Borrower's
Current Report on Form 8-K dated January 30, 1997 and Borrower's Forms 10-K and
10-Q, there is no action, suit or proceeding pending against, or, to the actual
knowledge of Borrower, threatened against or affecting Borrower before any court
or arbitrator or any governmental body, agency or official in which there is a
substantial likelihood of an adverse decision which would materially adversely
affect the ability of Borrower to perform its obligations under the Loan
Documents.
SECTION 4.4. Regulatory Restrictions on Borrowing. Borrower is
not an "investment company" within the meaning of the Investment Company Act of
1940, as amended, or a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 4.5. [RESERVED]
SECTION 4.6. Representations in Collateral Documents True and
Correct. Each of the representations and warranties of Borrower and the Owners,
if applicable, to be contained in the Collateral Documents will be true and
correct in all material respects on and as of the date of execution thereof.
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SECTION 4.7. Other Representations and Warranties as to
Mortgaged Property. With respect to the Mortgaged Property, Borrower represents
and warrants for itself and on behalf of each of the applicable Owners, that as
of the Mortgage Delivery Date:
(i) To the extent that Borrower is not the record owner of
all of the Mortgaged Property on such date, it shall have caused the
applicable Owner of such fee interest in such Mortgaged Property or
Individual Property, as the case may be, to become a party to this
Agreement by executing a counterpart signature page hereof and to
become an Obligor under the Note, or a replacement thereof,
substantially in the form of Exhibit A, in an amount not to exceed the
Fair Market Value of such Owner's Mortgaged Property or Individual
Property, as applicable.
(ii) The Borrower or the Owners, as applicable, will have
good, marketable and valid record title to and be lawfully seized of an
indefeasible fee simple estate in all of the Mortgaged Property, free
and clear of any liens or encumbrances except for Permitted Liens and
Permitted Encumbrances and will warrant and for so long as Borrower's
obligations hereunder remain outstanding defend the title thereof unto
Lender against any and all claims whatsoever, subject to Permitted
Liens and Permitted Encumbrances and Borrower further warrants that the
Mortgage shall constitute a valid lien upon the Mortgaged Property.
(iii) The Fair Market Value of the Mortgaged Property
shall be equal to not less than the Required Value.
(iv) There will be no agreements pursuant to which a right
of reversion, option to purchase, right of first refusal or first
offer, right of approval of a purchaser or occupant or similar right
exists or by which Borrower or any Owner of any Mortgaged Property is
bound relating to the sale of any material portion of the Mortgaged
Property or the right to purchase or obligation to sell any material
portion of the Mortgaged Property.
(v) There are no agreements pursuant to which any third
party has purchased, or has a right or option to purchase, cut or
convey the standing timber located upon any material portion of the
Mortgaged Property, and there are no UCC-1 Financing Statements filed
or recorded against any material portion of the Mortgaged Property that
constitutes "fixtures" or "goods" under the UCC, including timber.
(vi) Neither Borrower nor any of the Owners will have
taken any action which would cause any Lien (other
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than Permitted Liens or Permitted Encumbrances and Liens being
contested pursuant to Section 5.10) to attach to any Mortgaged Property
nor will they have failed to take any action which would prevent any
Lien (other than Permitted Liens and Liens being contested pursuant to
Section 5.10) from attaching to any Mortgaged Property.
(vii) The Mortgaged Property will be in compliance in all
material respects with all Applicable Laws to the extent the failure to
be in compliance would have a Material Adverse Effect, and to
Borrower's actual knowledge, there will be no suits, actions, writs,
decrees, injunctions, orders, judgments, claims or proceedings pending
or threatened or contemplated, against or with respect to the Mortgaged
Property which would have a Material Adverse Effect.
(viii) Any information, books, records and other documents
regarding the Mortgaged Property delivered to Lender by Borrower or its
agents are, to Borrower's actual knowledge, true and correct in all
material respects and fairly present the information contained therein.
SECTION 4.8. Representations and Warranties of Lender. Lender
represents and warrants to Borrower as of the Closing Date that:
(i) Lender is a corporation, duly formed, validly existing
and in good standing under the laws of the State of Delaware, is duly
qualified to do business in the States where the Mortgaged Property (or
any portion thereof) is located to the extent required under the laws
of such States, and has all requisite corporate power and authority to
carry on its business as now conducted and to execute, deliver and
perform this Agreement and the other Loan Documents to be executed and
delivered by Lender.
(ii) The execution, delivery and performance by Lender of
this Agreement and the other Loan Documents to be executed and
delivered by Lender are within its corporate powers, have been duly
authorized by all necessary corporate action, require no Governmental
Action by or in respect of, or filing with, any Governmental Authority;
except such filings as have been made and as to which any required
waiting periods have elapsed and do not contravene, or constitute a
default under, any Applicable Laws or any provision of its certificate
of incorporation or by-laws or of any material agreement, judgment,
injunction, order, decree or other instrument binding upon it or result
in the creation or imposition of any Lien on any of its assets.
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(iii) This Agreement is a valid and binding agreement of
Lender, enforceable against Lender in accordance with its terms except
as the enforceability thereof may be limited by bankruptcy, insolvency
or other similar laws relating to the enforcement of creditor's rights
generally and by general equitable principles (regardless of whether
such matter is considered in a proceeding at law or in equity). When
executed and delivered, the Loan Documents to be executed and delivered
by Lender will be valid and binding agreements of Lender, enforceable
against Lender in accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or
other similar laws relating to the enforcement of creditor's rights
generally and by general equitable principles (regardless of whether
such matter is considered in a proceeding at law or in equity).
ARTICLE 5
COVENANTS
Borrower covenants and agrees that so long as any amount
payable hereunder or under the Note remains unpaid:
SECTION 5.1. Mortgage Delivery. Borrower shall deliver or
cause to be delivered to Lender:
(a) not later than 180 days after the Closing Date, with
respect to sufficient Mortgaged Property as shall be necessary to meet or exceed
the Required Value, a (A) duly executed counterpart of the Mortgage in
recordable form executed by the applicable Owners of such Mortgaged Property,
with respect to such Mortgaged Property; and (B) duly executed counterparts of
any other Collateral Documents.
(b) at least five (5) Business Days prior to the Mortgage
Delivery Date, a copy of a last owner search or title report with respect to
each Individual Property comprising the Mortgaged Property identifying the
Borrower or applicable Owner as the current legal fee owner and holder of record
title to the applicable Individual Property.
(c) a certificate (a "Certificate") by each Owner, if
applicable, representing and warranting that as of the date of execution of the
Certificate and the Mortgage Delivery Date:
(i) The Owner is a corporation, limited partnership or
other entity, as the case may be, duly formed, validly existing and in
good standing under the laws of the State of its formation, and is, and
will be as of the Mortgage Delivery Date, duly qualified to do business
and in
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good standing in the State in which the Individual Property comprising
the Mortgage Property is located, to the extent required by the laws of
such State, and has all requisite organizational power and authority to
carry on its business as now conducted and to execute and deliver, and
perform its obligations under the Loan Documents;
(ii) That each of the representations and warranties
contained in Section 4.2, Section 4.3, Section 4.4, Section 4.6 and
Section 4.7 (as appropriately qualified or revised to reflect issues
not applicable to any such Owner) of this Agreement is true and correct
in all material respects on and as of the date of execution of the
Certificate and the Mortgage Delivery Date; and
(iii) Owner agrees to be and as of the Mortgage Delivery
Date will be subject to this Agreement and the Loan Documents upon
execution of such documents;
(d) with respect to all of the Mortgaged Property, an opinion
of counsel or counsels reasonably satisfactory to Lender, dated as of the
Mortgage Delivery Date, covering such matters reasonably requested by, and in
form and substance reasonably satisfactory to, Lender; and
(e) on or before the Mortgage Delivery Date, with respect to
all of the Mortgaged Property, any environmental transfer or disclosure forms
required by the State or the municipality in which any Individual Property is
located.
SECTION 5.2. Information. Borrower shall deliver or cause to
be delivered to Lender:
(a) within thirty (30) days of obtaining actual knowledge
thereof, notice of the occurrence of any of the following events: (i) the
failure of any of the Mortgaged Property to comply with any applicable
Environmental Law the result of which such failure to comply would reasonably be
expected to have a Material Adverse Effect; (ii) the issuance to any Borrower or
any lessee of any Mortgaged Property (or portion thereof) or any assignee of any
Borrower by any Governmental Authority of any request for information (other
than in the ordinary course of Borrower's business), complaint, citation,
summons, order, or notice of any violation, noncompliance or liability of any
nature whatsoever with regard to such Mortgaged Property or the use thereof with
respect to any applicable Environmental Laws; (iii) the receipt by Borrower of
any written notice from any Governmental Authority of a pending or threatened
investigation (other than routine inspection) by any Governmental Authority as
to the failure of the operations of any Mortgaged Property to be in compliance
with or under any applicable
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Environmental Law; or (iv) the occurrence of an event or the existence of a
situation which would result in a violation of or any material liability of
Borrower under any applicable Environmental Law or which is likely to result in
Borrower being liable to Lender for any amount by virtue of the indemnity given
by Borrower pursuant to Section 7.4(a);
(b) within five (5) days after Borrower obtains actual
knowledge of any Event of Default, if such Default is then continuing, a
certificate of Borrower setting forth the details thereof and the action which
Borrower is taking or proposes to take with respect thereto.
SECTION 5.3. Transfers. (a) From and after the Mortgage
Delivery Date Borrower shall not Transfer, nor shall Borrower suffer or permit
any Transfer of, the Mortgaged Property or any part thereof or interest therein,
except, provided no Event of Default has occurred and is continuing: (i)
Permitted Dispositions (other than Permitted Easements), (ii) Permitted
Easements, subject to Borrower's compliance with Section 5.3(b), (iii) Transfers
to any Subsidiary or Affiliate of Borrower; provided, that such Transfer shall
be subject to the lien of the Mortgage and all of the terms and conditions of
this Agreement and the other Loan Documents; and provided, further, that
Borrower shall, upon the request of Lender, promptly cause to be executed and
delivered to Lender an assignment and assumption agreement with respect to the
obligations of Borrower under the Loan Documents, between the applicable Owner
and such transferee, in form and substance reasonably satisfactory to Lender and
(iv) other Transfers permitted by Section 5.12(e), Section 7.7 and Section 7.8
hereof.
(b) Provided that no Material Event of Default shall have
occurred and be continuing, (i) Borrower may, from time to time, execute and
deliver Permitted Easements, plats or replans with respect to the Mortgaged
Property, and release existing Permitted Easements with respect to any Mortgaged
Property, and (ii) Lender shall, within ten (10) Business Days after Borrower's
request, execute and deliver to the grantee of any Permitted Easement, a
subordination agreement, subordinating the Lien of the Mortgage to such easement
or similar agreement.
(c) Lender shall have no obligation to pay and Borrower shall
pay (to the extent that non-payment by Borrower could result in an obligation to
Lender) any fees or expenses directly related to the granting or entering into
or the release (as the case may be) of any Permitted Easement, plat or re-plat
or other agreement (such as recording fees and transfer taxes) or to the
platting process (such as plat preparation costs, governmental fees and
recording costs). Within ten (10) Business Days of Borrower's receipt of the
executed documentation required
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for a transfer, platting or release, Borrower shall reimburse Lender for all of
Lender's reasonable out-of-pocket expenses incurred in connection with its
review of a Permitted Easement, plat, re-plat or other agreement or a release of
any thereof (as the case may be). Lender agrees to execute documents in
connection with re-platting of Mortgaged Property to facilitate Releases and
Substitutions as permitted hereunder.
SECTION 5.4. Liens. Borrower shall not create or permit to be
created or to remain, and shall promptly discharge or cause to be discharged,
any Lien on any Mortgaged Property or any interest therein, in each case (i)
whether voluntarily or involuntarily created, and (ii) whether subordinated
hereto, except, in each case, Permitted Liens.
SECTION 5.5. Mortgage Recording: Further Assurances. (a)
Notwithstanding anything to the contrary contained herein or in the Mortgage or
any other Loan Document, no Recording Documents (other than the Notice
Recording) shall be recorded or filed against or with respect to any Individual
Property located in a Non-Recording State without the consent of the Borrower
unless and until (i) either a Material Event of Default or a Downgrade Event
shall occur and be continuing, (ii) Lender shall have delivered to Borrower five
(5) Business Days prior notice of Lender's intent to so record or file any of
the Recording Documents and (iii) within such five (5) Business Day period, such
Material Event of Default or Downgrade Event shall not have been cured or
Borrower shall have failed to provide Lender with such additional security or
Collateral for the payment and performance of the obligations of Borrowers under
the Note and the other Loan Documents as shall be satisfactory to Lender.
(b) Subject to the provisions of paragraph (a) above Lender
(to the extent applicable) and Borrower shall execute and acknowledge and
deliver, and Borrower shall cause to be recorded or filed in the manner and
place required by any present or future law the Recording Documents. Upon the
happening and during the continuation of an Event of a Default, Borrower hereby
irrevocably appoints for such duration Lender as its attorney-in-fact (with a
power to substitute any other Person in its place as such attorney-in-fact) to
act in Borrower's own name, to execute, acknowledge, deliver and record the
documents described above upon the failure of Borrower to do so, and Borrower
hereby irrevocably authorizes and directs any other Person to rely and act on
behalf of the foregoing appointment and a certificate of the Person appointed to
act under this subsection that such Person is authorized to act under this
subsection. Subject to any applicable notice and cure provisions, the previous
sentence shall not prevent any default in the observance of this Section 5.5(b)
by Borrower from constituting an Event of Default. Borrower shall pay all costs
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and expenses in connection with the recording of any such Recording Documents.
(c) Borrower shall at its sole cost and expense, do, execute,
acknowledge and deliver all such further acts, deeds, conveyances, mortgages,
deeds of trust, assignments, notices of assignment and transfers as Lender shall
from time to time request, which may be necessary in the reasonable judgment of
Lender from time to time, to assure, perfect, convey, assign and transfer to
Lender the property and rights intended by the parties to be conveyed or
assigned pursuant to the Collateral Documents, or the filing, registering or
recording of such Collateral Documents.
(d) All costs and expenses in connection with the grant to
Lender of any Liens or security interests under the Collateral Documents,
including mortgage, document, stamp, intangible, recording, filing and other
taxes, fees and charges, Lender's reasonable legal fees and reasonable other
costs and expenses in connection with the granting, perfecting and maintenance
of any Liens or security interests under the Collateral Documents or the
preparation, execution, delivery, recordation or filing of documents and any
other acts as Lender may reasonably request in connection with the grant of such
Liens or security interests shall be paid by Borrower promptly upon demand.
(e) Borrower shall execute an acknowledgment and reaffirmation
of the Loan or other obligation hereunder or under any other Loan Document, in
such form and substance and at such times from time to time, as reasonably
requested by Lender.
SECTION 5.6. Title Insurance Upon Material Event of Default or
Downgrade. If at any time a Material Event of Default or a Downgrade Event shall
have occurred and be continuing and as a result thereof the Mortgage has been
recorded against the Mortgaged Property for the entire outstanding principal
amount of the Loan in any Non-Recording State, Borrower shall, upon demand by
Lender, deliver as soon as practicable to Lender or its designee, with respect
to the Mortgaged Property or such Individual Property as designated by Lender, a
mortgagee's policy or policies of title insurance on American Land Title
Association or local equivalent forms and in form and substance reasonably
satisfactory to Lender, issued by the Title Company, insuring the Lien created
under the Mortgage encumbering such Mortgaged Property in such amounts as are
designated by Lender (which shall not, in the aggregate exceed the then
outstanding principal amount of the Loan), subject only to Permitted Liens and
Permitted Encumbrances, and containing such reinsurance agreements, affirmative
assurances and endorsements, including a first-dollar endorsement, a last-dollar
endorsement and a tie-in
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endorsement, as are reasonably and customarily required by lenders for similar
transactions secured by properties similar to the Mortgaged Property in size,
location and utility, if available in the State where such portion of the
Mortgaged Property is located, with all premiums, expenses and fees paid or
caused to be paid by Borrower. Borrower shall execute and deliver to the Title
Company an owner's affidavit typically required by such companies in connection
with the issuance of such policy of title insurance and sufficient to permit the
customary omission of the standard exceptions. To the extent there has occurred
and is continuing a Material Event of Default, if a Substitute Property is
substituted for a Released Property for the Mortgaged Property as to which a
mortgagee's title policy has been issued pursuant to this Section 5.6, then a
like amount of title insurance shall be purchased for such Substitute Property
at Borrower' cost and expense.
SECTION 5.7. Environmental Covenant. Borrower shall not cause
or permit or suffer, and shall require its subtenants and its and their
respective agents, employees, contractors, licensees and invitees not to cause
or permit or suffer, the existence, use or release (including a release as
defined in 42 U.S.C. Sections 9601(22), a "Release"), generation, treatment,
storage, recycling, transportation or disposal of any Hazardous Substances
(each, a "Regulated Activity") on or in any Mortgaged Property in a manner which
could reasonably be expected to have a Material Adverse Effect on the Mortgaged
Property under any Environmental Law. Borrower shall comply, and shall require
its employees and its subtenants and assigns and its and their respective
agents, employees, contractors, licensees and invitees to comply, in all
material respects, with all applicable Environmental Laws. In the event that any
portion of the Mortgaged Property is not in compliance in all material respects,
with all applicable Environmental Laws, Borrower covenants that it shall either
(A) within thirty (30) days of Borrower's actual knowledge of such event, effect
a Release or Substitution of such portion of the Mortgaged Property pursuant to
Section 7.7 hereof, in accordance with all of the applicable criteria set forth
in 7.7 for a Release or Substitution, as the case may be, or (B) use all
commercially reasonable efforts to remedy, or cause to be remedied in a timely
manner (and in any event within the time period permitted by applicable
Environmental Laws), such non-compliance, subject, however to Borrower's right
to contest alleged non-compliance of such Environmental Laws in accordance with
Section 5.10. Borrower shall require that any Alterations of any Mortgaged
Property undertaken by, through or under the Borrower be done in material
compliance with applicable Environmental Laws.
SECTION 5.8. Impositions. Borrower shall (i) subject to
Section 5.10, duly and punctually pay all Impositions prior to
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the delinquency date thereof; (ii) subject to Section 5.10, duly and punctually
file all returns and other statements required to be filed with respect to any
Imposition prior to the delinquency date thereof (iii) within five (5) Business
Days after their receipt thereof, notify Lender of the receipt by Borrower of
any notice of default in the payment of any Imposition or in the filing of any
return or other statement relating to any Imposition and simultaneously furnish
to Lender a copy of such notice of default; and (iv) not make deduction from or
claim any credit on any Secured Obligation by reason of any Imposition and, to
the extent permitted under Applicable Law, Borrower hereby irrevocably waives
any right to do so.
SECTION 5.9. Legal and Insurance Requirements. (a) Borrower
represents and warrants that as of the Mortgage Closing Date, (i) the Mortgaged
Property and the use and operation thereof will comply, in all material
respects, with all Legal Requirements and Insurance Requirements, (ii) to the
actual knowledge of Borrower, there will be no material default under any Legal
Requirement or Insurance Requirement, and (iii) the execution, delivery and
performance of the Mortgage with respect to the Mortgaged Property will not
contravene any provision of or constitute a violation of any Legal Requirement
or Insurance Requirement the result of which failure to comply would reasonably
be expected to have a Material Adverse Effect.
(b) Borrower shall (i) duly and punctually comply with and
cause the Mortgaged Property to comply in all material respects with all Legal
Requirements and Insurance Requirements the result of which failure to comply
would reasonably be expected to have a Material Adverse Effect, other than Legal
Requirements and Insurance Requirements, the validity or applicability of which
are being contested pursuant to Section 5.10; and (ii) procure, maintain and
duly and punctually comply in all material respects with all Permits required
for any construction, reconstruction, repair, alteration, addition, improvement,
maintenance, use and operation of the Mortgaged Property as conducted from time
to time other than Permits, the necessity of which are being contested pursuant
to Section 5.10.
SECTION 5.10. Permitted Contests. Borrower may contest and/or
settle at its expense, by appropriate proceedings conducted in good faith and
with due diligence, with respect to any Mortgaged Property, any Legal
Requirement, any Insurance Requirement or any Imposition without Lender's
consent; provided that (i) no Material Event of Default shall have occurred and
be continuing at any time during such contest; (ii) such Mortgaged Property is
not in material danger of being sold (or be subject to imminent sale), forfeited
or lost, as a result of such contest or proceedings; (iii) if the Mortgage shall
have been recorded, there shall not be a material risk of the loss of priority
of the
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Lien of the Mortgage with respect to such Mortgaged Property; (iv) in the case
of any Legal Requirement, Lender is not in danger of any criminal or material
civil penalty or any other material liability for failure to comply therewith
unless, in the case of any such civil penalty or other material liability or
risk of loss of priority, Borrower furnishes to Lender security reasonably
satisfactory to Lender against such penalty or liability.
SECTION 5.11. Insurance. (a) Borrower shall have the right to
self-insure against loss or damage to the Mortgaged Property as a result of fire
or other casualty and against liability for death or injury to persons thereon
(except if self insurance is prohibited by Applicable Laws) and shall notify
Lender in writing of its election to self-insure. Borrower shall pay all
self-insured and deductible amounts in the same manner and to the same Persons
as and when such amounts are to be paid under the applicable Loan Documents if
such amounts were Insurance Proceeds and such self-insurance must afford the
same benefits and coverages that Lender would have if Borrower had maintained
the insurance required under this Section 5.11 with third-party insurers.
(b) In the event Borrower does not elect to self-insure under
Section 5.11(a) above, Borrower shall maintain or cause to be maintained in full
force and effect casualty and liability insurance policies (including a blanket
policy of coverage) with respect to the Mortgaged Property and in the amounts
and covering such risks as are usually covered by prudent owners or operators
engaged in similar businesses involving similar properties in the same general
area as the Mortgaged Property.
SECTION 5.12. Additional Covenants. (a) Borrower shall duly
and promptly (i) pay the principal and interest on the Note or Eligible
Indebtedness, as applicable, and all other monetary obligations hereunder or
under any other Loan Document, on the dates due and in the manner provided
herein, and (ii) duly and punctually observe and/or perform all of the other
covenants or conditions set forth herein as in the other Loan Documents to be
observed or performed by Borrower.
(b) Borrower may not, and may not permit any Affiliate or
Subsidiary to, issue, incur, assume, guarantee or suffer to exist any
indebtedness for borrowed money secured by a pledge of, lien on, or security
interest in, the Mortgaged Property that is not subordinate to the lien of the
Mortgage, except for Permitted Liens and Permitted Encumbrances.
(c) Borrower will not, and will not permit any Subsidiary to,
directly or indirectly, create, incur, assume or
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suffer to exist, any mortgage, pledge, security interest or lien (a "Financing
Lien") of or upon any of their respective properties or assets, whether real or
personal, tangible or intangible, or otherwise, whether owned at the Closing
Date or thereafter acquired ("Property"). This limitation does not apply,
however, to any of the following: (1) the Mortgage to be granted in favor of the
Lender to secure the Note; (2) Financing Liens on any Property created or
assumed contemporaneously with (or within 120 days after) the acquisition of
such Property to secure or provide for the payment or refinancing of all or any
substantial part of the purchase price of such Property or the cost of
improvements to such Property; provided that (i) the principal amount of the
Indebtedness secured by such Financing Liens does not exceed 100% of the costs
of such Property and/or improvements and (ii) such Financing Liens shall not
apply to any Property of Borrower or any Subsidiary, other than the acquired
Property and any improvements with respect thereto; (3) Financing Liens on any
Property existing at the time of acquisition thereof; provided, that such
Financing Liens (i) shall not extend to any Property of Borrower or any
Subsidiary other than the Property so acquired and (ii) are not incurred in
connection with or in contemplation of the acquisition of the Property acquired;
(4) Financing Liens on any Property to secure Indebtedness of a Subsidiary to
Borrower or to another Subsidiary; (5) Financing Liens for Impositions not yet
due or which are being contested in accordance with Section 5.10 hereof; (6)
warehousemen's, mechanics', carriers', materialmen's, repairmen's and other like
Financing Liens incurred in the ordinary course of business, and Financing Liens
securing reimbursement obligations with respect to trade letters of credit,
banker's acceptances and sight drafts incurred in the ordinary course of
business which encumber documents and other property relating to such letters of
credit, banker's acceptances and sight drafts; (7) Financing Liens existing on
the date of this Agreement; (8) in addition to Financing Liens incurred in
connection with any Indebtedness permitted by any other provision of this
Section 5.12(c), Financing Liens securing indebtedness in an aggregate principal
amount which does not in the aggregate at the time any such Financing Lien is
incurred, exceed 10% of Consolidated Net Tangible Assets; (9) Financing Liens on
any Property in favor of the United States of America or any State thereof or
the Commonwealth of Puerto Rico, or any department, agency or instrumentality or
political subdivision of the United States of America or any State thereof or
the Commonwealth of Puerto Rico, to secure partial, progress, advance or other
payments, or other obligations pursuant to any contract or statute or to secure
any indebtedness or other obligations incurred for the purpose of financing all
or any part of the cost of acquiring, constructing or improving the Property
subject to such Financing Liens (including Financing Liens incurred in
connection with pollution control, industrial revenue, Title XI maritime
financings or
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similar financings); (10) Financing Liens on timberlands in connection with an
arrangement under which Borrower and/or one or more Subsidiaries are obligated
to cut or pay for timber in order to provide the lienholder with a specified
amount of money, however reasonably determined; or (11) any extension, renewal
or replacement (or successive extensions, renewals or replacements) in whole or
in part, of any Financing Lien referred to in the foregoing clauses (1) to (10)
inclusive; provided, however, that the principal amount of Indebtedness secured
thereby shall not be in excess of the outstanding principal amount of
Indebtedness so secured at the time of such extension, renewal or replacement,
and that such extension, renewal or replacement shall be limited to all or a
part of the Property which secured the Financing Lien so extended, renewed or
replaced (plus improvements on such property).
(d) Borrower will not, nor will it permit any Subsidiary to,
enter into directly or indirectly any arrangement with any person (other than
Borrower or any Subsidiary) providing for the leasing by Borrower or a
Subsidiary of any Property (except for temporary leases for a term, including
any renewal thereof, of not more than three years), which Property has been or
is to be sold or transferred by the Borrower or such Subsidiary to such person
(herein referred to as a "Sale and Lease-Back Transaction"), unless either (1)
Borrower or such Subsidiary would be entitled under Section 5.12(c) hereof to
incur Indebtedness secured by a Financing Lien on the Property to be leased
equal to or exceeding the amount of the net proceeds received by Borrower or
such Subsidiary with respect to such Sale and Lease-Back Transaction or (2)
within 90 days after the effective date of any such Sale and Lease-Back
Transaction, Borrower or such Subsidiary applies an amount (net of applicable
taxes) equal to the greater of (x) the net proceeds of such sale or transfer and
(y) the fair value at the time of the transaction (as determined by the Board of
Directors) of the property so leased to the retirement (other than any mandatory
retirement) of any funded Indebtedness of Borrower or any Subsidiary which by
its terms is senior to, or pari passu with, the Note.
(e) Borrower shall not consolidate with or merge into any
other corporation or sell, lease, convey, transfer or otherwise dispose of all
or substantially all of its properties or assets in one transaction or a series
of related transactions to any person unless:
(1) the corporation formed by such consolidation or into
which the Borrower is merged or the person which acquires by conveyance
or transfer the properties and assets of the Borrower substantially as
an entirety shall be a corporation organized and existing under the
laws of the United States of America, any State thereof or the District
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of Columbia, and the transferee or successor corporation, if other than
the Borrower, shall expressly assume, by an agreement supplemental
hereto, executed and delivered to the Lender for the Note, in form
satisfactory to such Lender, the due and punctual payment of the
principal of and interest, if any, (including all additional amounts,
if any, payable pursuant to this Agreement) on the Note and the
performance of every covenant of this Agreement on the part of the
Borrower to be performed or observed;
(2) immediately after giving effect to such transaction,
no Event of Default with respect to the Note, and no event which, after
notice or lapse of time or both, would become an Event of Default with
respect to any series of the Note, shall have happened and be
continuing; and
(3) the Borrower has delivered to the Lender a certificate
by an officer of Borrower, in a form and substance reasonably
satisfactory to Lender, and an opinion of counsel, in a form and
substance reasonably satisfactory to Lender, each stating that such
consolidation, merger, conveyance or transfer and such supplemental
agreement comply with the applicable provisions of this Agreement and
that all conditions precedent provided for in this Section 5.12(e)
relating to such transaction have been complied with.
For purposes of this Section 5.12 hereof,
"Capitalized Lease Obligation" means obligations under a lease
that are required to be capitalized for financial reporting purposes in
accordance with generally accepted accounting principles, and the amount of
Indebtedness represented by such obligations shall be the capitalized amount of
such obligations determined in accordance with generally accepted accounting
principles.
"Consolidated Net Tangible Assets" means the aggregate amount
of assets (less applicable reserves and other properly deductible items) after
deducting therefrom (a) total current liabilities (excluding debt or any
guaranty thereof due within 12 months), (b) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth in the most recent consolidated balance sheet of
Borrower and its consolidated subsidiaries and computed in accordance with
generally accepted accounting principles.
"Indebtedness" of any person shall mean, at any date, any of
the following (without duplication): (a) all obligations unconditional or
contingent, of such person for borrowed money or evidenced by bonds, debentures,
notes or other similar
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instruments or letters of credit; (b) all obligations of such person to pay the
deferred purchase price of property or services, except accounts payable and
accrued liabilities, in each case, arising in the ordinary course of business;
(c) Capitalized Lease Obligations of such person; (d) reimbursement obligations
of such person with respect to letters of credit; (e) all Indebtedness of others
secured by a lien on any asset of such person, whether or not such indebtedness
is assumed or guaranteed by such person; and (f) all Indebtedness of others
guaranteed by such person; and the amount thereof shall be the outstanding
principal balance of any such unconditional obligations as described in (a)
through (f) and the maximum liability of any such conditional obligations at
such date.
"Subsidiary" means any corporation, partnership or other
entity the outstanding securities or interests of which having ordinary voting
power to elect a majority of the board of directors or similar governing body of
such corporation, partnership or other entity (whether or not any other class of
securities has or might have voting power by reason of the happening of a
contingency) are at the time owned or controlled directly or indirectly by the
Issuer or one or more Subsidiaries or by the Issuer and one or more
Subsidiaries.
ARTICLE 6
DEFAULTS
SECTION 6.1. Events of Default. Any of the following
occurrences or acts shall constitute an "Event of Default":
(a) Borrower shall fail to pay when due hereunder or under the
Note or Eligible Indebtedness, as applicable, (i) any interest on the Loan and
such failure shall continue for thirty (30) days or (ii) the principal amount of
the Loan;
(b) Borrower shall fail to make any payment due under the Loan
Documents other than as described in Section 6.1(a) when the same shall become
due and such failure shall continue for sixty (60) days after Lender shall have
given Borrower written notice specifying such default and demanding the same be
cured;
(c) Except as to Section 6.1(h), Borrower shall fail to
observe or perform any other covenant contained herein or in any other Loan
Document, including any Transfer of the Mortgaged Property in violation of the
provisions of any of the Loan Documents, for sixty (60) days after notice of
such failure has been given to Borrower by Lender; provided that if such failure
is susceptible to cure but not within such sixty (60)-day period then Borrower
shall have such additional time as shall be reasonably necessary to complete
such cure, as long as Borrower has commenced taking steps to cure such failure
within sixty (60)
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days of such notice and continues diligently and in good faith to pursue the
cure to completion, it being intended that the time within which to cure shall
be extended for such period as may be necessary to complete the curing of the
same in good faith and with due diligence;
(d) Either Borrower or any of the Owners shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(e) an involuntary case or other proceeding shall be commenced
against Borrower or any of the Owners seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of ninety (90) days;
(f) any representation or warranty of Borrower or any of the
Owners set forth herein or in any other Loan Document to which it is a party, or
in any notice, certificate, demand, request or other document or instrument
delivered by the Borrower in connection with this Agreement or pursuant hereto
or in connection with or pursuant to any other Loan Document shall prove to have
been incorrect or misleading (x) in any material respect when made and (y) at
the time of discovery is material and is not cured within sixty (60) days of
notice thereof by Lender to Borrower specifying such default and demanding that
the same be cured (or, in the case of a default which is curable but cannot be
cured with the payment of money and which cannot with due diligence be wholly
cured within such sixty (60)-day period, if Borrower shall fail to commence to
cure the same within said sixty (60)-day period, or, having promptly so
commenced to cure the same shall fail thereafter to prosecute the curing thereof
in good faith and with all due diligence, it being intended that the time within
which to cure shall be extended for such period as may be necessary to complete
the curing of the same in good faith and with due diligence);
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(g) the estate or interest of Borrower in any material portion
of the Mortgaged Property shall be levied upon or attached in any proceeding and
such process shall not be vacated or discharged within ninety (90) days after
such levy or attachment, unless Borrower shall be contesting such levy or
attachment in accordance with the requirements of Section 5.10.
(h) Borrower shall fail to satisfy, in all material respects,
the requirements of Section 5.1 within 180 days of the Closing Date.
Notwithstanding anything contained in Sections 6.1(c) or
6.1(f) to the contrary, with respect to any representation or warranty referred
to in Section 6.1(c) or Section 6.1(f) or any other covenant relating to
Permitted Encumbrances, title or survey matters or any other similar documents
or agreements relating to the use of any Mortgaged Property, the fact that (a)
the representation or warranty was incorrect or misleading or (b) a covenant was
breached shall not (x) give rise to a right of Lender to cause Borrower to cure
any such breach of a covenant or (y) constitute an Event of Default, unless and
until the fact that the representation or warranty was incorrect or misleading
or the covenant was breached gives rise to a Material Adverse Effect.
SECTION 6.2. Remedies. Upon the occurrence of an Event of
Default, Lender may by notice to Borrower (i) declare the Loan and the Note or
Eligible Indebtedness, as applicable, to be, and the Loan shall thereupon
become, immediately due and payable without any additional presentment, demand,
protest or other notice of any kind, all of which are hereby waived by Borrower
and (ii) demand payment of the principal of and accrued and unpaid interest
(including interest on overdue interest in accordance with Section 2.5) on the
Note or Eligible Indebtedness, as applicable; provided that in the case of any
of any Event of Default specified in Section 6.1(d), 6.1(e), or 6.1 (h), without
any notice to Borrower or any other act by Lender, the Loan and the Note or
Eligible Indebtedness, as applicable (together with accrued interest thereon)
shall be immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by Borrower and (iii)
from and after the Mortgage Delivery Date, exercise any rights or remedies set
forth in the Mortgage.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. Notices. (a) All notices, requests, demands,
consents, approvals and other communications hereunder shall be in writing and
shall be deemed to have been given (i) if mailed by first class registered or
certified mail, postage
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prepaid, upon actual receipt or refusal to accept, (ii) if deposited for
overnight delivery with a nationally recognized courier service, upon receipt or
refusal to accept, or (iii) if delivered by hand, upon receipt or refusal to
accept, in each case addressed or directed as follows:
(A) if to Borrower:
P.H. Glatfelter Company
228 South Main Street
Spring Grove, Pennsylvania 17362
Attention: Corporate Secretary
with copies to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street
Philadelphia, Pennsylvania 19103
Attention: Morris Cheston, Jr.
(B) if to Lender:
GWS Valuch, Inc.
P.O. Box 7048
Wilmington, Delaware 19803
Attention: Corporate Secretary
(b) On the Closing Date, or thereafter upon not less than
fifteen (15) days' written notice to the other party, Lender and Borrower shall
have the right to (i) add a copy party or copy address to those specified above,
(ii) change its address specified above and (iii) change its copy addressee or
copy address specified above or specified in a notice delivered pursuant to
clause (i) above.
SECTION 7.2. No Waivers. No failure or delay by Lender in
exercising any right, power or privilege hereunder or under the Note or Eligible
Indebtedness, if applicable, or any Collateral Document shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein and therein provided shall be
cumulative and not exclusive of any rights or remedies provided at law or in
equity.
SECTION 7.3. Expenses. Borrower shall pay to Lender within ten
(10) days after receipt of Lender's demand therefor: (a) all reasonable
out-of-pocket expenses of Lender, including fees and disbursements of counsel
for Lender, mortgage, document, stamp, intangible, recording, filing and other
taxes, fees and charges in connection with the preparation, recording, filing
and
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<PAGE> 40
administration of the Loan Documents, including, subject to the other provisions
of this Agreement, the amount of any Impositions which Lender may have paid by
reason of the Lien of any of the Mortgages or to free any of the Mortgaged
Property from any Lien thereon (other than Permitted Liens or any Lien arising
by, through or under Lender or any Secured Party), any waiver or consent
thereunder or any amendment thereof or any Event of Default or alleged Event of
Default thereunder; (b) the amount of any and all reasonable out-of-pocket
expenses, including the fees and disbursements of outside counsel, the allocated
costs and disbursements of inside counsel and of any other experts or agents,
which Lender may incur, in connection with preserving the validity, perfection,
rank and value of the Lien of any Collateral Document or in connection with any
prepayment under Section 2.6 or 2.7, or any substitution of Collateral under
Section 7.7; and (c) if an Event of Default shall have occurred and be
continuing, all reasonable out-of-pocket expenses incurred by Lender, including
(without duplication) the fees and disbursements of outside counsel, the
allocated costs and disbursements of inside counsel for work on any matters
relating to such Event of Default and the fees and disbursements of any other
experts or agents, in connection with such Default and collection, bankruptcy,
insolvency and other enforcement proceedings resulting therefrom.
SECTION 7.4. Indemnification. (a) Borrower shall be liable for
and pay and shall indemnify, hold harmless and defend Lender and its Affiliates
and the directors, officers, agents, employees, partners, members, principals
and shareholders of each of them and each of their successors and assigns (each
an "Indemnified Party") from and against all Claims by a third party, Claims
arising from facts or circumstances occurring prior to the making of the Loan,
during the period that any portion of the Loan is outstanding, or after the Loan
has been repaid in full from or in connection with any of the following: (i)
this Agreement, the other Loan Documents, the Mortgaged Property, the Mortgage
or the performance or non-performance of any of the terms hereof or thereof by
Borrower or any other Person (other than an Indemnified Party), or the
enforcement of any of the terms hereof or thereof; (ii) the ownership,
possession, use, operation, condition, transfer of title, abandonment, sale or
other disposition of the Mortgaged Property; (iii) any accident, injury to or
death of persons or loss of property occurring on, in or about the Mortgaged
Property or any part thereof or on the adjoining sidewalks, curbs, adjacent
property or adjacent parking areas, street or ways; (iv) the performance of any
labor or services or the furnishing of any materials or other property in
respect of the Mortgaged Property or any part thereof; (v) any other act,
omission, conduct or misconduct of Borrower, any lessee of any of the Mortgaged
Property, or any of their respective agents, contractors, subcontractors,
servants,
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<PAGE> 41
employees, licensees or invitees, to the extent the same relate to a specific
Mortgaged Property and arise as a result of an event occurring prior (a) to any
foreclosure and sale of such Mortgaged Property by Lender pursuant to any
Collateral Document or (b) Lender having actual and immediate possession custody
or control of the Mortgaged Property; (vi) any contest conducted pursuant to
Section 5.10 or 7.4(b); (vii) any matters arising under or relating to any
applicable Environmental Law; (viii) the occurrence of any Regulated Activity at
any time; (ix) the actual or alleged Release, threatened Release or presence of
any Hazardous Substances at, on, in, from or under the Mortgaged Property at any
time; (x) the failure of any Mortgaged Property to comply with Applicable Laws,
Agreements and Permits; (xi) the failure of Borrower to remove and discharge of
record, in accordance with the provisions of this Agreement, any Liens affecting
any Mortgaged Property, or the existence of any Liens affecting, or any defects
in Owner's fee title to the Mortgaged Property, in any case, other than
Permitted Liens or Permitted Encumbrances; and (xii) any exercise by any Person
of any right to use the surface or subsurface of any Property for the extraction
or development of minerals (including oil and gas), in each case other than any
Claim based upon any Permitted Encumbrances or any Permitted Dispositions.
Notwithstanding the foregoing, neither Borrower nor any Owner shall be liable to
pay or indemnify, hold harmless or defend any Indemnified Party from and against
any Claim (x) related to a change in interest rates, property values or other
general economic conditions or (y) to the extent such Claim arises out of the
willful misconduct or gross negligence of any Indemnified Party or accrues
during any period of time Lender has actual and immediate possession, custody or
control of the Mortgaged Property; provided, however, that the term "gross
negligence' shall not include negligence imputed as a matter of law to such
Indemnified Party solely by reason of such Indemnified Party's interest in any
Mortgaged Property or Lender's failure to act in respect of matters which are
the obligations of Borrower under the Loan Documents or by reason of the
negligence or willful misconduct of Borrower, their Affiliates and their
respective shareholders, directors, officers, employees and agents regardless of
whether such Persons or parties are acting as agent of Lender or on its behalf.
(b) Lender or the applicable Indemnified Party shall notify
Borrower in writing as soon as practicable after it learns that a Claim or
potential Claim with respect to which Borrower's indemnification obligation
under Section 7.4(a) applies or has been alleged to apply. Borrower and its
insurers shall have the right (in each such case at Borrower's sole cost and
expense) to investigate such Claim or potential Claim and, provided that:
(i) as soon as required in order to respond in a timely
manner, including, without limitation, within a time
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<PAGE> 42
period sufficient to respond to any notice of any Claim for which any
Indemnified Party seeks indemnification hereunder, but in any event
within thirty (30) days of Borrower's receipt of written notice
thereof, Borrower shall notify Lender in writing whether or not it
intends to defend such Claim; and
(ii) a Material Event of Default shall not be continuing
on either the date upon which Borrower shall send notice under clause
(i) above or the date upon which Borrower seeks to commence the defense
in question;
to defend or contest any such Claim for which indemnification is sought pursuant
to this Section 7.4 with counsel selected by Borrower and reasonably acceptable
to such Indemnified Party (in the case of an insurer, counsel selected by the
insurer shall be deemed acceptable), and each Indemnified Party potentially
entitled to indemnification with respect to such Claim, at the request of
Borrower, shall reasonably cooperate at Borrower's sole cost and expense with
Borrower or its insurers with respect thereto, and provided, further, that if,
in the opinion of such counsel or any Indemnified Party, an actual material
conflict of interest exists between the interests of Borrower and the
Indemnified Party where it is advisable for such Indemnified Party to be
represented by separate counsel, such Indemnified Party may participate in the
conduct of the defense of proceedings relating to such Claim and shall be
represented by counsel selected by such Indemnified Party and reasonably
acceptable to Borrower. In such event, Borrower shall pay the reasonable costs
and expenses of such Indemnified Party's separate counsel. Except as otherwise
described in this paragraph, where Borrower or the insurers under a policy of
insurance maintained by Borrower undertake the defense of an Indemnified Party
with respect to such a proceeding relating to a Claim, no additional legal fees
or expenses of such Indemnified Party in connection with the defense of any such
proceeding relating to such Claim shall be indemnified hereunder unless the fees
or expenses were incurred at the written request of Borrower or such insurers.
Subject to the requirement of any policy of insurance applicable to a Claim, an
Indemnified Party may participate at its own expense at any judicial proceeding
controlled by Borrower or its insurers pursuant to the preceding provision to
the extent that such party's participation does not, in the reasonable opinion
of the counsel for Borrower or its insurers conducting such proceedings,
interfere with such control or, unless such Indemnified Party shall have
executed a confidentiality agreement reasonably acceptable to Borrower, result
in the disclosure of confidential information. Such participation shall not
constitute a waiver of the indemnification provided in this Section 7.4.
Borrower shall not enter into any settlement or compromise which Borrower has
not
39
<PAGE> 43
agreed to discharge or with respect to which Borrower has not agreed to
indemnify such Indemnified Party to such Indemnified Party's satisfaction. No
Indemnified Party shall enter into any settlement or other compromise with
respect to any Claim described in this Section 7.4 without the prior written
consent of Borrower, unless such Indemnified Party waives its right to be
indemnified under this Section 7.4 with respect to such Claim. Notwithstanding
anything to the contrary contained herein, if a Material Event of Default shall
occur at any time after Borrower shall have commenced to defend any Claim,
Borrower shall immediately (or at such time thereafter specified by Lender) upon
the demand of Lender cease defending such Claim and cooperate with Lender, in
all respects, to enable Lender to defend such Claim, at Borrower's cost, with
counsel selected by Lender.
(c) Subject to the right of Borrower and its insurer to
investigate or contest the same as set forth in this Section 7.4, any amount
determined to be payable under this Section 7.4 will be deemed an obligation
payable within fifteen (15) Business Days from the date on which the Indemnified
Party gives Borrower written notice of the Claim for indemnification hereunder,
or if an Event of Default shall have occurred and is continuing, on the date of
such notice. Any amounts payable pursuant to this Section 7.4 shall bear
interest pursuant to Section 2.11 from the date on which they become due and
payable to the date of payment. The obligations of Borrower under this Section
7.4 shall survive the termination of this Agreement.
SECTION 7.5. Amendments and Waivers. Any provision of any of
the Loan Documents to which Borrower is a party may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by Borrower and
each Owner that is a party thereto and Lender.
SECTION 7.6. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
SECTION 7.7. Substitution and Release of Collateral. Borrower
may at any time from time to time (i) substitute as Collateral one or more of
Borrower's or its Affiliates' properties for the Mortgaged Property or any
portion thereof (a "Substitution") that exceeds the De minimus Transfer
Threshold (as defined in Section 7.8 below) or (ii) have a portion of the
Mortgaged Property that exceeds the De minimus Transfer Threshold released from
the Lien of the Mortgage without the substitution of additional Collateral (a
"Release"), and in that connection Borrower may obtain the release of the Lien
on such Mortgaged Property, by giving written notice to Lender of its intent to
do
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<PAGE> 44
so and upon satisfaction of the following conditions on or before the date of
the Substitution or Release (the "Release Date"):
(a) no Material Event of Default shall have occurred and then
be continuing;
(b) in the case of a Release, (i) receipt by Lender of a
certificate from an authorized officer of Borrower identifying the Mortgaged
Property to be released as Collateral (each, a "Released Property"), and (ii)
Borrower shall have provided to Lender a certificate executed by an authorized
officer of Borrower having sufficient familiarity with the Mortgaged Property,
as appropriate, and the valuation thereof, which shall be certified to Lender
and dated not more than ten (10) days prior to the Release Date and shall
indicate that the aggregate Fair Market Value of the Mortgaged Property
remaining subject to the Lien of the Mortgage following the Release of the
Released Property is equal to or greater than the Required Value (such Fair
Market Value of the remaining Mortgage Property being based on the assumption
that Borrower has been and is at such time in compliance with the Loan
Documents);
(c) in the case of a Substitution, (i) receipt by Lender of a
certificate from an authorized officer of Borrower having sufficient familiarity
with the Mortgaged Property and the valuation thereof, identifying the Released
Property, and identifying one or more properties located in the United States
owned by Borrower or one of its Affiliates to be added as Collateral (each, a
"Substitute Property") and (ii) Borrower shall have provided to Lender a
certificate executed by an authorized officer of Borrower with knowledge of the
valuation of the Mortgaged Property, which shall be certified to Lender and
dated not more than ten (10) days prior to the Release Date and shall indicate
that (A) if the Substitution is for less than all of the Mortgaged Property, the
aggregate Fair Market Value of the Substitute Property in question is equal to
or greater than the aggregate Fair Market Value of the Released Property as of
the date the Released Mortgage Property became subject to the Lien of the
Mortgage or (B) if the Substitution is for all of the Mortgaged Property, the
aggregate Fair Market Value of the Substitute Property on the date of
substitution is equal to or greater than the Required Value (such Fair Market
Value of the Substitute Property being based on the assumption that Borrower has
been and is at such time in compliance with the Loan Documents); provided in the
case of a substitution following and as the result of a Casualty or a
Condemnation, the Fair Market Value of the Released Property shall be determined
assuming no such Casualty or Condemnation shall have occurred;
(d) receipt by Lender of (i) with respect to each Substitute
Property, a duly executed counterpart of a Mortgage,
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<PAGE> 45
in recordable form, granting a Lien on such Substitute Property securing the
outstanding principal balance of the Loan as of the date of the applicable
substitution, any such Substitute Property being subject only to Permitted Liens
and Permitted Encumbrance as of the date of substitution; (ii) duly executed
counterparts of each of the other Collateral Documents relating to such
Substitute Property subject to and in accordance with Section 5.5, and (iii) if
such Substitute Property is substituted for a Released Property as to which a
Mortgagee's title policy has been issued pursuant to Section 5.6, (A) a policy
of title insurance meeting the requirements of Section 5.6 hereof and (B)
evidence that (x) each such Mortgage has been or will promptly be duly filed for
record in the real estate records in the appropriate county of the State where
such Substitute Property covered thereby is located, (y) each of such other
Collateral Agreements has been or will be so promptly filed for record, and (z)
all recording, filing, mortgage, intangible and similar taxes, fees and charges
with respect to such mortgage and other Collateral Agreements have been paid by
Borrower or that Borrower has provided for the payment thereof;
(e) receipt by Lender, with respect to a Substitution of an
opinion of counsel reasonably satisfactory to Lender in the State where such
Substitute Property or the remaining Mortgaged Property, as applicable, is
located, dated the date of the Substitution in form and substance substantially
similar to the opinions first furnished to Lender pursuant to Section 5.1(d),
satisfactory to Lender, provided that if the Substitute Property is located in a
State with respect to which Lender has theretofore received an opinion of
counsel covering such matters, an update of such opinion reasonably satisfactory
to Lender shall be acceptable;
(f) receipt by Lender of an opinion of counsel reasonably
satisfactory to Lender to the effect that there has been no change in law after
the date hereof that would result in the applicable Substitution or Release
adversely affecting Lender's qualification as a REIT;
(g) receipt by Lender, with respect to each Substitute
Property, of any environmental transfer or disclosure forms required in
connection with the applicable Substitution by the State or municipality in
which such Substitute Property is located; and
(h) receipt by Lender of any other documents it may reasonably
request including those relating to the organizational authority of Borrower or
its Affiliates, as applicable, to grant a Mortgage on any Substitute Property,
and all other matters relevant thereto, all in form and substance reasonably
satisfactory to Lender; and
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<PAGE> 46
Upon Borrower's compliance with the conditions to the Substitution or Release,
as applicable, Lender shall execute a release of the Released Property from the
Lien of the Mortgage held by it or them, which release shall be in recordable
form and otherwise in form and substance reasonably satisfactory to Borrower,
and any other documents that Borrower may reasonably request in order to ensure
the termination of the Lien held by Lender as to the Released Property.
Notwithstanding the foregoing, the obligations and liabilities of Borrower,
whether actual or contingent, under the Loan Documents that are expressly stated
herein to survive the termination of the Lien as to such Released Property
(including, without limitation, Section 7.4) shall survive such termination.
Borrower shall pay all costs and expenses in connection with such substitution,
including fees and disbursements of special counsel to Lender and mortgage,
document, stamp, intangible, recording, filing and other taxes, fees and
charges.
SECTION 7.8. Transfers and Release of Certain Minor Parcels.
(a) Anything in this Agreement to the contrary notwithstanding, provided that no
Material Event of Default shall have occurred and be continuing under the Loan
Documents at the time of the Transfer, Borrower shall be entitled to (i)
Transfer (in one or more transactions) (each, "a De minimis Transfer") a portion
of the Mortgaged Property that does not, when taken together with all other
prior De minimis Transfers from the date of issuance of the Note, exceed either
(i) 500 acres or (ii) a Fair Market Value of $1,000,000 (the "De minimis
Transfer Threshold") without the consent of Lender.
(b) Upon the consummation of a De minimis Transfer, the
portion of the Mortgaged Property so transferred shall be automatically released
from the Lien of the Mortgage pursuant to the express terms thereof, without the
need for any further instrument, provided, however, that Lender, at Borrower's
request and at Borrower's sole cost and expense, shall execute, acknowledge and
deliver a Satisfaction and any deeds, conveyances, mortgages, amendments,
assignments or releases which may be necessary or appropriate to assure the
conveyance of such portion of the Mortgaged Property free and clear of the Lien
of the Mortgage.
(c) For any calendar year in which a De minimus Transfer shall
have occurred, Borrower shall, within 30 days after the expiration of such
calendar year, (i) provide to Lender a certificate executed by an authorized
representative of Borrower having sufficient familiarity with the Mortgaged
Property and the valuation thereof which shall (A) identify, by legal
description sufficient for recordation, each portion of the Mortgaged Property
so transferred and released as Collateral pursuant to this Section 7.8, (B)
indicate the aggregate acreage
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<PAGE> 47
and Fair Market Value of any portion of the Mortgaged Property so transferred
and released pursuant to this Section 7.8, both during the calendar year in
question and cumulatively since the date of the Borrowing and (C) certify that
the aggregate Fair Market Value of the Mortgaged Property remaining subject to
the Lien of the Mortgage following the De minimus Transfer is equal to or
greater than the Required Value (such Fair Market Value of the remaining
Mortgaged Property being based on the assumption that Borrower has been and is
at such time in compliance with the Loan Documents); and (ii) cause to be
recorded in the appropriate county or counties a duly executed release, to
reflect the release of such portion of the Mortgaged Property from the Lien of
the Mortgage.
(d) In any calendar year in which the aggregate of all De
minimus Transfers shall be equal to or greater than the De minimus Transfer
Threshold, Borrower shall, in addition to providing the certifications required
in clauses (A) and (B) of Section 7.8(c) above, within 30 days after the
expiration of such calendar year, (i) provide to Lender a certificate executed
by an authorized representative of Borrower having sufficient familiarity with
the Mortgaged Property and the valuation thereof which shall certify that the
aggregate Fair Market Value of the Mortgaged Property remaining subject to the
Lien of the Mortgage following the most recent De Minimis Transfer during such
calendar year is equal to or greater than the Required Value (such Fair Market
Value of the remaining Mortgaged Property being based on the assumption that
Borrower has been and is at such time in compliance with the Loan Documents);
provided, that, in the event that Borrower is unable to provide such
certification because the Fair Market Value of the Mortgaged Property
(subsequent to the most recent De Minimis Transfer) has fallen below the
Required Value solely as a result of a general decline in the market value of
timberland due to general economic conditions beyond the control of the Borrower
and not as a result of any such De Minimis Transfers, then it shall not be an
Event of Default hereunder if Borrower shall deliver, in lieu of the required
certification above, a certification substantiating the effect of the foregoing;
and (ii) cause to be recorded in the appropriate county or counties a duly
executed release, to reflect the release of such portion of the Mortgaged
Property from the Lien of the Mortgage.
SECTION 7.9. Estoppel Certificates. Each party hereto agrees
that, once each year within thirty (30) days after request by one of the other
parties hereto, it will execute, acknowledge and deliver to such other party or
a third party designated by such other party, a certificate stating (a) that the
Mortgage is unmodified and in force and effect (or if there have been
modifications, that the Mortgage is in force and effect as modified, and
identifying the modification agreements); (b) the
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<PAGE> 48
outstanding principal amount of the Loan and the date to which interest payments
on the Loan have been paid; and (c) whether or not there is any existing Event
of Default by Borrower in the payment of interest payments on the Loan.
SECTION 7.10. WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
SECTION 7.11. SUBMISSION TO JURISDICTION. BORROWER AND LENDER
HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMIT IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT TO THE NON-EXCLUSIVE GENERAL JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY, THE COURTS OF
THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN
NEW YORK COUNTY AND APPELLATE COURTS FROM ANY THEREOF; (B) CONSENT THAT ANY SUCH
ACTION OR PROCEEDING MAY BE BROUGHT IN ANY SUCH COURTS AND WAIVE ANY OBJECTION
THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING IN ANY SUCH COURTS OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN
AN INCONVENIENT COURT AND AGREE NOT TO PLEAD OR CLAIM THE SAME; (C) AGREE THAT
SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED IN THE
MANNER SPECIFIED FOR NOTICES AND OTHER COMMUNICATIONS IN SECTION 7.1 AND SHALL
BE EFFECTIVE AS PROVIDED IN SECTION 7.1; AND (D) AGREE THAT NOTHING HEREIN SHALL
AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION OR COURT HAVING
JURISDICTION.
SECTION 7.12. GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE CONFLICT-OF-LAW PROVISIONS THEREOF.
SECTION 7.13. Counterparts Integration. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
SECTION 7.14. [RESERVED].
SECTION 7.15. Lost Notes. Upon receipt by Borrower of evidence
reasonable and satisfactory to it of the loss, theft, destruction or mutilation
of the Note or Eligible Indebtedness, as applicable, and (in case of loss, theft
or destruction) of indemnity reasonably satisfactory to them, and upon surrender
and
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<PAGE> 49
cancellation of such Note or Eligible Indebtedness, if mutilated, within three
(3) Business Days thereafter, Borrower will deliver to the Lender in lieu of
such Note or Eligible Indebtedness, a new note in a like unpaid principal
amount, dated as of the date to which interest has been paid thereon.
SECTION 7.16. Termination. (a) This Agreement shall cease,
terminate and thereafter be of no further force or effect (except as provided
otherwise in the Loan Documents) upon the payment in full of all Secured
Obligations (other than obligations that may arise from and after the date of
release under any indemnification provisions included in any of the Loan
Documents) and in the event that this Agreement is so terminated, the Mortgaged
Property shall become free and clear of the liens, grants, security interests
and conveyances evidenced by the Mortgage and the Lender shall release or cause
to be released without warranty the Mortgage and the Mortgage shall be void and
the terms thereof shall be of no further force and effect, except to the extent
any such terms shall, by the terms of this Agreement or any other Loan Document,
survive such payment in full of all the Secured Obligations and this release.
IN WITNESS WHEREOF, Borrower and Lender have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
Borrower:
P.H. GLATFELTER COMPANY
By:_______________________________
Name: R.P. Newcomer
Title: Senior Vice President,
Treasurer and Chief
Financial Officer
Lender:
GWS VALUCH, INC.
By:_______________________________
Name: Robert S. Wood
Title: Secretary and Treasurer
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<PAGE> 50
EXHIBIT A
PROMISSORY NOTE
$_____________
February __, 1997
FOR VALUE RECEIVED, P.H. Glatfelter Company, a Pennsylvania
corporation ("Borrower") promises to pay to the order of GWS Valuch, Inc. a
Delaware corporation ("Lender"), the principal amount of _____________________
AND 00/100 DOLLARS ($________.00) (or such lesser principal amount of the Loan
made by Lender to Borrower pursuant to the Loan Agreement defined below as may
then be outstanding) on the Maturity Date. Borrower also promises to pay
interest on the unpaid principal amount of the Loan on the dates and at the
rates provided for in the Loan Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in federal or other
immediately available funds as specified in or pursuant to the Loan Agreement.
This Note is the Note referred to in the Loan Agreement dated
as of ___________, 1997, between Borrower and Lender (as the same may be
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement"). Terms defined in the Loan Agreement are used herein with the same
meanings. Reference is made to the Loan Agreement for provisions for the
repayment of the principal hereof, the calculation and payment of interest on
the principal amount hereof, the prepayment of the principal amount hereof and
the acceleration of the maturity hereof. The terms, covenants, and provisions of
the Loan Agreement are incorporated herein by reference as if set forth in full
herein.
The obligations of Borrower under this Note and the Loan
Agreement are, or will be, secured by certain assets of Borrower pursuant to the
terms and conditions of the Loan Agreement and the Collateral Documents referred
to in the Loan Agreement, including certain Mortgages relating to certain
Mortgaged Property referred to in the Loan Agreement.
This Note and the obligations of Borrower under this Note
shall be governed by, and construed and interpreted in accordance with, the laws
of the State of New York, without regard to the conflict-of-law provisions
thereof.
__________________________________
By:_______________________________
Name: _________________________
Title: ________________________
<PAGE> 51
NOTARY
<PAGE> 52
EXHIBIT B
Form of Mortgage
B-1
<PAGE> 53
This instrument was prepared by
the attorney below and, when
recorded, the recorded counterpart
should be returned to:
Harvey R. Uris, Esq.
Skadden Arps Slate Meager & Flom
919 Third Avenue
New York, New York 10022
================================================================================
BLANKET DEED OF TRUST, [DEED TO SECURE DEBT],
INDENTURE OF MORTGAGE AND FIXTURE FILING
dated as of __________, 1997
by
The parties listed on Schedule I hereto
Grantor,
[__________________],
Beneficiary
and
[__________________],
Trustee
Property:
______________________________
[County of _____________]
State of______________
================================================================================
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS. [AS MORE FULLY
PROVIDED IN SECTION 1.3, THE MAXIMUM PRINCIPAL IN-DEBTEDNESS THAT UNDER ANY
CONTINGENCY MAY BE SECURED BY THIS INDENTURE IS $ __________].
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TABLE OF CONTENTS
PAGE
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PREAMBLE.................................................................... 1
RECITALS ................................................................... 1
GRANTING CLAUSES............................................................ 2
GRANTING CLAUSE I........................................................... 2
GRANTING CLAUSE II.......................................................... 2
GRANTING CLAUSE III......................................................... 2
GRANTING CLAUSE IV.......................................................... 3
GRANTING CLAUSE V........................................................... 3
GRANTING CLAUSE VI.......................................................... 4
GRANTING CLAUSE VII......................................................... 4
GRANTING CLAUSE VIII........................................................ 4
GRANTING CLAUSE IX.......................................................... 4
ARTICLE I
DEFINITIONS, INTERPRETATION AND SECURED LOAN AMOUNT
SECTION 1.1. Definitions................................................. 6
SECTION 1.2. Interpretation.............................................. 6
SECTION 1.3. Limitation on Secured Loan Amount. ......................... 7
ARTICLE II
CERTAIN WARRANTIES AND COVENANTS OF GRANTOR
SECTION 2.1. Title....................................................... 8
SECTION 2.2. Secured Obligations......................................... 9
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PAGE
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SECTION 2.3. Status and Care of the Property; Zoning
and Subdivision Changes.................................. 9
ARTICLE III
CASUALTY AND CONDEMNATION
SECTION 3.1. Casualty and Condemnation................................... 11
SECTION 3.2. Insurance Claims and Proceeds, Condemnation Awards.......... 12
ARTICLE IV
CERTAIN SECURED OBLIGATIONS
SECTION 4.1. Changes in the Laws Regarding Taxation...................... 13
ARTICLE V
DEFAULTS, REMEDIES AND RIGHTS
SECTION 5.1. Events of Default........................................... 14
SECTION 5.2. Remedies.................................................... 14
SECTION 5.3. Waivers by Grantor.......................................... 17
SECTION 5.4. Jurisdiction and Process.................................... 18
SECTION 5.5. Sales....................................................... 18
SECTION 5.6. Proceeds.................................................... 20
SECTION 5.7. [Reserved].................................................. 21
SECTION 5.8. Dealing With the Mortgaged Property......................... 21
SECTION 5.9. Right of Entry.............................................. 21
SECTION 5.10. Right to Perform Obligations................................ 22
SECTION 5.11. Agents...................................................... 22
SECTION 5.12. [RESERVED].................................................. 22
SECTION 5.13. Assignment of Agreements and Permits........................ 22
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PAGE
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ARTICLE Vl
FIXTURE FILING
SECTION 6.1. Security Interest and Fixture Filing........................ 23
SECTION 6.2. Limitation on Security Interest in Timber................... 24
SECTION 6.3. Executive Office............................................ 24
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Release of Mortgaged Property............................... 24
SECTION 7.2. Notices..................................................... 25
SECTION 7.3. Trustee..................................................... 25
SECTION 7.4. Amendments in Writing....................................... 27
SECTION 7.5 Severability.................................................27
SECTION 7.6. Binding Effect.............................................. 27
SECTION 7.7. WAIVER OF JURY TRIAL........................................ 28
SECTION 7.8. GOVERNING LAW............................................... 28
SECTION 7.9. JURISDICTION................................................ 28
SECTION 7.10. Counterparts: Integration................................... 28
SECTION 7.11. Consents by Beneficiary..................................... 28
ARTICLE VIII
STATE SPECIFIC PROVISIONS
SECTION 8.1. Incorporation by Reference ................................. 29
EXHIBIT A[1] Legal Description
EXHIBIT B Trustee Name and Address
EXHIBIT C State Specific Provisions
SCHEDULE 1 Grantors
SCHEDULE 2 Mortgage States
SCHEDULE 3 Trust States
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BLANKET DEED OF TRUST, [DEED TO SECURE DEBT], INDENTURE OF
MORTGAGE AND FIXTURE FILING (this "Indenture") dated as of __________, 1997 by
the parties listed on Schedule 1 (collectively and individually, as the case may
be, "Grantor") as mortgagor of interests in real property under this indenture
as a mortgage, if the real property encumbered hereby is located in one of the
States listed on Schedule 2 attached hereto (the "Mortgaged States"), as trustor
of the trusts hereinafter created under this Indenture as a deed of trust if the
property encumbered hereby is located in one of the States listed on Schedule 3
attached hereto (the "Trust States"), in favor of [__________], a [Delaware]
corporation, having an address at [c/o ____________________] (together with its
successors and assigns, the "Beneficiary"), as mortgagee of interests under this
Indenture as a mortgage in the Mortgaged States, as beneficiary of the trusts
hereinafter created under this Indenture as a deed of trust in the Trust States,
the person or persons or entity identified as "Trustee" on the cover page hereof
(herein together with his or its successors and assigns, the "Trustee").
W I T N E S S E T H:
RECITALS
A. Loan. Grantor is the owner of the fee simple interest in
the real property described in Exhibit A, annexed hereto. On __________, 1997
(the "Closing Date"), Beneficiary made a loan (the "Loan") to the Grantor in the
original principal amount of $[__________] pursuant to that certain Loan
Agreement (as amended, supplemented or otherwise modified from time to time, the
"Loan Agreement") dated as of the Closing Date, between Grantor and Beneficiary,
which Loan is evidenced by a certain promissory note, dated as of the Closing
Date (as amended, modified, supplemented or replaced, the "Note").
B. Indenture. This Indenture constitutes a deed of trust,
mortgage and fixture filing encumbering the Mortgaged Property, and the Lien of
this Indenture is being granted to secure the payment, performance and
observance of the Secured Obligations (it being understood that except to the
extent the Lien of this Indenture is limited to the Secured Loan Amount as set
forth on the Cover Page hereof and in Section 1.3 hereof, each of the Individual
Properties secures repayment of the full amount of the Secured Obligations):
(i) (a) all principal of and interest (including any
interest which accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy,
insolvency or reorganization of Grantor) on the Note, and (b)
all other amounts payable by Grantor hereunder or under any
other Loan Document; and
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(ii) the performance and observance of each other
term, covenant, agreement, obligations, requirement, condition
and provision to be performed or observed by Grantor hereunder
or any other Loan Document.
C. The scheduled Maturity Date of the latest to mature of the
Secured Obligations is ____________________, 2027.
GRANTING CLAUSES
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, for the purpose of securing the due and punctual payment,
performance and observance of the Secured Obligations and intending to be
legally bound hereby, Grantor does hereby WARRANT, GRANT, BARGAIN, SELL, CONVEY,
ASSIGN, PLEDGE, TRANSFER AND SET OVER unto Beneficiary, with all POWERS OF SALE,
ASSENTS, RIGHTS OF ENTRY AND POSSESSION, AND STATUTORY RIGHTS AND COVENANTS in
the State where the applicable Individual Property is located, and (to the
extent covered by the UCC) does hereby GRANT AND WARRANT to Beneficiary a
continuing security interest in, all estate, right, title and interest of
Grantor in, to, under or derived from, all of the Grantor's property and rights
described in the following Granting Clauses (all of which property and rights
are collectively called the "Mortgaged Property" and such property and rights
with respect to any one parcel of Land and the Improvements thereon (as such
terms are defined below) is hereinafter referred to as an "Individual
Property"), to wit:
GRANTING CLAUSE I.
Land. The parcel or parcels of land more particularly
described in Exhibits A-1 through A-[_____ ] (the " Land").
GRANTING CLAUSE II.
Timber. All standing timber now or hereafter located on the
Land (the "Timber").
GRANTING CLAUSE III.
Improvements. All buildings, structures, facilities and other
improvements of every kind and description now or hereafter located on the Land
and owned by Grantor, including all parking areas, roads, driveways, walks,
fences, walls and beams; all drainage and lighting facilities and other site
improvements; all water, sanitary and storm sewer, drainage, electricity, steam,
gas, telephone, telecommunications and other utility equipment
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and facilities; all plumbing, lighting, heating, ventilating, air-conditioning,
refrigerating, incinerating, compacting, fire protection and sprinkler,
surveillance and security, vacuum cleaning, public address systems; all walls,
floor coverings, partitions, elevators, escalators, motors, electrical, and
communications wiring, machinery, pipes, fittings; and all other items of
fixtures (collectively, the "Fixtures"), (provided that, to the extent any vault
or similar improvement shall constitute a Fixture, the contents of any such
vault or similar improvement are specifically excluded from the grant hereby
made), in each case now or hereafter located on the Land or affixed to the
Improvements which by the nature of their location thereon or affixation thereto
are real property under Applicable Law (all of the foregoing, including the
Fixtures, being collectively called the "Improvements").
GRANTING CLAUSE IV.
Appurtenant Rights. All tenements, hereditaments and appurtenances now
or hereafter relating to the Mortgaged Property; the streets, roads, sidewalks
and alleys abutting the Land; all strips and gores within or adjoining the Land;
all land in the bed of any body of water adjacent to the Land; all air space and
rights to use air space above the Land; all development or similar rights now or
hereafter appurtenant to the Land; all rights of ingress and egress now or
hereafter appertaining to the Land; all easements and rights of way now or
hereafter appertaining to the Land; and all royalties and other rights now or
hereafter appertaining to the use and enjoyment of the Mortgaged Property
(provided that, "royalties", as aforesaid, shall not include royalties or
similar rights derived from the business conducted at the Mortgaged Property),
including alley, party walls, support, drainage, crop, timber, agricultural,
horticultural, oil, gas and other mineral, water stock, riparian and other water
rights.
GRANTING CLAUSE V.
Agreements. To the extent assignable, as to any Individual Property or
the streets, sidewalks, vaults, vault spaces, curbs or gutters adjoining such
Mortgaged Property, or the appurtenances to such Individual Property, or the
franchises and privileges connected with or in respect of Land or the
Improvements that constitute real property (collectively, the "Appurtenant
Property"), all leases and subleases, restrictive covenants, deed restrictions
and easements (including any applicable Permitted Encumbrances and Permitted
Easements), all insurance policies (including all unearned premiums and
dividends thereunder), all guarantees and warranties, all supply and service
contracts for water, sanitary and storm sewer, drainage, electricity, steam,
gas, telephone or other utilities and all other documents, agreements and
instruments, in all of such cases now or hereafter relating to any Individual
Property and all other contract rights, now or hereafter relating to the use or
operation of any Individual Property together with any and all amendments,
supplements, consolidations, replacements, extensions, renewals and other
modifications of any thereof, exclusive of contracts related to the business
conducted at the Mortgaged Property, to the extent not
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constituting contracts in respect of real property interests (the foregoing
being collectively called the "Agreements").
GRANTING CLAUSE VI.
Permits. To the extent assignable, all licenses (other than
Grantor's rights under any lease or license arrangement with an Affiliate of
Grantor or Parent), authorizations, certificates, variances, concessions,
grants, franchises, consents, approvals and other permits now or hereafter
pertaining and necessary to the ownership or operation of the Land or the
Improvements (the foregoing being collectively called the "Permits ").
GRANTING CLAUSE VII.
Proceeds and Awards. Subject to the provisions of Article III,
all Insurance Proceeds and Awards, including any amounts held by a Depositary
pursuant to Section 3.2(c) and including any unearned premiums, and title
insurance proceeds under any title insurance policy now or hereafter held by
Grantor, and all rights and other claims of any kind whatsoever (including
damage, secured, unsecured, priority and bankruptcy claims) now or hereafter
relating to any of the Mortgaged Property, all of which Grantor hereby
irrevocably directs be paid to Beneficiary to the extent provided hereunder, to
be held, applied and disbursed as provided in this Indenture.
GRANTING CLAUSE VIII.
Books and Records. All books and records of Grantor now or
hereafter pertaining and necessary to the ownership or operation of the
Mortgaged Property.
GRANTING CLAUSE IX.
Additional Property. All greater, additional or other estate,
right, title and interest of Grantor in, to, under or derived from the Mortgaged
Property now or hereafter acquired by Grantor which constitutes a real property
interest or right, including all extensions, improvements, betterments,
renewals, substitutions and replacements of, and additions and appurtenances to,
any of the Mortgaged Property hereafter acquired by or released to Grantor or
constructed or located on, or affixed to, the Mortgaged Property, in each case,
immediately upon such acquisition, release, construction, location or
affixation, to the extent any of the foregoing constitutes a real property
interest or right, required to be subjected to the Lien hereof and all other
property and rights which are by any instrument or otherwise subjected to the
Lien hereof by Grantor or anyone acting on its behalf.
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EXCLUDING HOWEVER, from the Mortgaged Property, the Lien
hereof and the foregoing assignments, pledges and grants of security interests,
all of Grantor's right, title and interest in and to any of the following
property (such property being collectively called the "Excluded Property"): (i)
any mineral resources (including coal) located beneath the surface of the Land
and (ii) any Permits or Agreements if, but only to the extent that, Grantor is
expressly prohibited thereunder or under any Applicable Law from granting a Lien
or security interest therein or any thereof or Applicable Law provides for a
default thereunder or the termination or forfeiture thereof in the event a Lien
or security interest is granted therein without the consent of the appropriate
Governmental Authority or other Person; provided that this provision does not
limit any of Borrower's representations under Section 4.1 of the Loan Agreement
and provided further that Grantor shall use reasonable efforts promptly to
obtain any such consent or the waiver or termination of any such prohibition or
condition requiring such consent and, upon obtaining the same, shall promptly
notify Beneficiary; and provided further that if any such consent is obtained or
any such prohibition or condition requiring such consent is waived, terminated
or eliminated to the extent sufficient to permit any Excluded Property to become
Mortgaged Property hereunder, to the fullest extent permitted under the
applicable Permit or Agreement or under Applicable Law, such Excluded Property
under clause (2) above only shall automatically be deemed to be included in the
Mortgaged Property hereunder; and provided further that if any such prohibition
or condition requiring such consent relates only to the foreclosure of a Lien or
security interest or the exercise of other rights or remedies upon a default but
not to the granting of a Lien or security interest, then the relevant Excluded
Property under clause (2) above only nevertheless shall be deemed included in
the Mortgaged Property but subject to the condition that the relevant consent
must be obtained prior to foreclosure or the exercise of any other rights or
remedies hereunder with respect to such Excluded Property. Nothing contained
herein shall be deemed to grant any interest in the business conducted upon the
Land or within or upon the Improvements and in no event shall Beneficiary or
Trustee be deemed to have any interest in any copyrights, trademarks,
servicemarks, logos or other intellectual property owned or licensed to or by
Grantor or any of its affiliates.
TO HAVE AND TO HOLD the Mortgaged Property, together with all
estate, right, title and interest of Grantor in, to, under or derived from the
Mortgaged Property, with all the privileges and appurtenances to the same
belonging, and with the possession and right of possession thereof,
SUBJECT, HOWEVER, to the Permitted Encumbrances.
WITH MORTGAGE COVENANTS and with all POWERS OF SALE, STATUTORY
POWERS OF SALE and other STATUTORY RIGHTS AND COVENANTS and upon the STATUTORY
CONDITIONS in the subject Mortgage State,
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UNTO Beneficiary, as mortgagee, and its successors and assigns
forever, subject to the terms hereof, forever, the Mortgaged Property if the
same is located in one of the Mortgage States;
OR
UNTO the Trustee, as trustee for the benefit of Beneficiary,
to the successors of said trustee in the trust created by this Indenture, and to
its or their respective successors and assigns forever, in trust, with POWER OF
SALE, the Mortgaged Property if the same is located in one of the Trust States;
TO HAVE AND TO HOLD the Mortgaged Property, with all the
privileges and appurtenances to the same belonging, and with the possession and
right of possession thereof, unto the Trustee for the benefit of Beneficiary, to
its and their successors in the trust created by this Indenture, and to its and
their respective assigns forever, in trust, however, upon the terms and
conditions set forth herein.
PROVIDED ALWAYS that this Indenture is upon the express
condition that the Mortgaged Property shall be released from the Lien of this
Indenture in full or in part in the manner and at the time provided in Section
7.1.
GRANTOR ADDITIONALLY COVENANTS AND AGREES WITH BENEFICIARY AS
FOLLOWS:
ARTICLE I
DEFINITIONS, INTERPRETATION AND SECURED LOAN AMOUNT
SECTION 1.1. Definitions. As used in this Indenture unless
otherwise specified, capitalized terms used but not defined herein have the
meanings assigned to them in the Loan Agreement.
SECTION 1.2. Interpretation. (a) In this Indenture, unless
otherwise specified, (i) singular words include the plural and plural words
include the singular; (ii) words which include a number of constituent parts,
things or elements, including the terms Secured Obligations, Mortgaged Property,
Land, Improvements, Property, Permits, Agreements, Leases and Rents shall be
construed as referring separately to each constituent part, thing or element
thereof, as well as to all of such constituent parts, things or elements as a
whole; (iii) words importing any gender include the other gender; (iv)
references to any Person include such Person's successors and assigns and in the
case of a natural Person, the word "successors" includes such Person's heirs,
devisees, legatees, executors, administrators
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and personal representatives; (v) references to any statute or other law include
all applicable rules, regulations and orders adopted or made thereunder and all
statutes or other laws amending, consolidating or replacing the statute or law
referred to; (vi) the words "consent," "approve," "agree" and "request," and
derivations thereof or words of similar import, mean the prior written consent,
approval, agreement or request of the Person in question; (vii) the words
"include" and "including," and words of similar import, shall be deemed to be
followed by the words "without limitation"; (viii) the words "hereto," "herein,"
"hereof" and "hereunder," and words of similar import, refer to this Indenture
in its entirety; (ix) references to Articles, Sections, Schedules or Exhibits
are to the Articles, Sections, Schedules and Exhibits of this Indenture; (x) the
Schedules and Exhibits to this Indenture are incorporated herein by reference;
(xi) the titles and headings of Articles, Sections, Schedules, Exhibits,
subsections, paragraphs and clauses are inserted as a matter of convenience and
shall not affect the construction of this Indenture; (xii) all obligations of
Grantor hereunder shall be satisfied by Grantor at Grantor's sole cost and
expense; (xiii) all rights and powers granted to Trustee or Beneficiary
hereunder shall be deemed to be coupled with an interest and be irrevocable
(subject to the provisions hereof; including Section 7.1) and (xiv) references
to this Indenture, any other Loan Agreement, the Permits, Agreements or Leases
include all amendments, supplements, consolidations, replacements, restatements,
extensions, renewals and other modifications thereof in whole or in part.
(b) Grantor acknowledges that it was represented by
counsel in connection with this Indenture, that it and its counsel reviewed and
participated in the preparation and negotiation of this Indenture and that any
rule of construction to the effect that ambiguities are to be resolved against
the drafting party, Trustee or Beneficiary shall not be employed in the
interpretation of this Indenture.
SECTION 1.3. Limitation on Secured Loan Amount.
Notwithstanding anything to the contrary contained herein or in any other Loan
Document, the maximum amount secured or which by any contingency may be secured
by this Indenture (the "Secured Loan Amount") is [$__________ ][plus interest as
provided in the Note and any amounts which may be advanced by Beneficiary to
protect the Mortgaged Property or Beneficiary's interest therein, including, but
not limited to, (a) taxes, charges or assessments which may be imposed by
Applicable Law upon the Mortgaged Property; (b) premiums on insurance policies
covering the Mortgaged Property; and (c) expenses incurred in upholding the lien
of this Indenture, including but not limited to, (1) the expenses of any
litigation to prosecute or defend the rights and lien created by this Indenture
and (2) any amount, cost or charge to which Beneficiary becomes subrogated, upon
payment, whether under recognized principles of law or equity, or under express
statutory authority.]
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ARTICLE II
CERTAIN WARRANTIES AND COVENANTS OF GRANTOR
SECTION 2.1. Title. (a) Grantor represents and warrants that,
as of the date hereof, (i) Grantor has good, marketable and valid record title
to and is lawfully seized of an indefeasible estate in fee simple in the Land
and the Improvements, in each case, free and clear of all Liens, encumbrances
and other exceptions in and to such title except Permitted Liens and Permitted
Encumbrances and (ii) this Indenture constitutes a valid, binding, enforceable
obligation of Grantor and, upon recordation (to the extent provided under the
Loan Agreement), will constitute a perfected mortgage Lien on the Mortgaged
Property free and clear of all Liens, encumbrances and claims except Permitted
Liens and Permitted Encumbrances.
(b) Grantor shall until the Loan is repaid or deemed
repaid in full in accordance with the provisions of the Loan Agreement preserve,
protect, warrant and defend (A) the estate, right, title and interest of Grantor
in and to the Mortgaged Property; (B) the validity and enforceability of the
Lien of this Indenture on the Mortgaged Property; and (C) the right, title and
interest of Trustee or Beneficiary and any purchaser at any sale of the
Mortgaged Property hereunder or relating hereto, in each case against all Liens
and claims whatsoever, except Permitted Liens and Permitted Encumbrances.
(c) Grantor, at its sole cost and expense, shall (i)
promptly correct any defect or error which may be discovered in this Indenture
or other document relating thereto; and (ii) promptly execute, acknowledge and
deliver, and, to the extent required under the Loan Agreement, record and
re-record, register and re-register and file and refile this Indenture and any
financing statements or other documents which Beneficiary may reasonably require
from time to time (all in form and substance reasonably satisfactory to
Beneficiary) in order (A) to effectuate, complete, perfect, continue or preserve
the Lien of this Indenture on the Mortgaged Property, whether now owned or
hereafter acquired, subject only to Permitted Liens, or (B) to effectuate,
complete, perfect, continue or preserve any right, power or privilege granted or
intended to be granted to Trustee or Beneficiary hereunder or otherwise
accomplish the purposes of this Indenture.
(d) Nothing herein shall be construed to subordinate the
Lien of this Indenture to any Permitted Lien to which the Lien of this Indenture
is not otherwise subordinate. Grantor shall pay within five (5) Business Days
after receiving a request therefor, the reasonable costs of, or incidental to,
any recording or filing (to the extent required under the Loan Agreement) of any
financing or continuation statement, or amendment thereto, to the extent
permitted or required under the Loan Agreement, concerning the Mortgaged
Property.
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SECTION 2.2. Secured Obligations. Grantor shall duly and
punctually pay, perform and observe the Secured Obligations in accordance with
the terms and provisions of the Loan Documents.
SECTION 2.3. Status and Care of the Property: Zoning and
Subdivision Changes. (a) Subject to the provisions of paragraph (b) below,
Grantor shall, at its cost and expense, keep and maintain the Mortgaged Property
in as safe condition as on the date of this Indenture (as reasonably determined
by Grantor) and in such repair and condition, ordinary wear and tear excepted,
as is necessary to prevent a Material Adverse Effect from occurring, and make
any structural and non-structural repairs and replacements which may be required
to be made upon or in connection with the Mortgaged Property in order to keep
the same in such condition.
(b) Grantor may make additions or improvements to the
Mortgaged Property with the consent of the Beneficiary, which consent shall not
be unreasonably withheld, delayed or conditioned. The foregoing to the contrary
notwithstanding, if Grantor complies with the requirements of clauses (i) - (v)
of this Section 2.3(b) and, if applicable, with Section 2.3(d), Grantor may,
without the consent of Beneficiary, at Grantor's own cost and expense, make
additions, improvements or alterations to the Mortgaged Property, including (A)
the construction of new Improvements and (B) the demolition of existing
Improvements (1) for the purpose of constructing new improvements, (2) to the
extent the continued use or operation of such existing Improvements is, as
reasonably determined by Grantor, no longer economically practicable in
furthering the business purposes of the Grantor or (3) in the ordinary course of
Grantor's business (such structural or nonstructural additions, improvements or
alterations and any such demolition in connection therewith are referred to as
"Alterations"):
(i) No Alterations shall adversely affect the structural
stability or integrity of the Improvements intended by Grantor to be
permanent structures;
(ii) No Alterations, upon completion of such Alterations
(including any demolition in connection therewith), shall reduce the
Fair Market Value of the Mortgaged Property if such reduction could
reasonably be expected to result in a Material Adverse Effect;
(iii) No Alterations shall violate, contravene or
interfere with any Permitted Encumbrance or Legal Requirement if such
violation, contravention or interference would cause a Material Adverse
Effect;
(iv) All Governmental Action required in connection with
each phase of the Alterations shall be obtained when required in
connection with such phase (and Beneficiary shall, at Grantor's
expense, join in the application
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for any such Governmental Action and execute and deliver any document
required by Applicable Laws in connection therewith, whenever such
joinder is necessary); and
(v) The making of any Alterations shall be performed in a
good and workmanlike manner and shall be completed in compliance with
all applicable Legal Requirements and any applicable Insurance
Requirements.
Notwithstanding the foregoing, if a Material Event of Default
shall have occurred and be continuing, Grantor shall not commence or continue
making any such Alteration without obtaining the prior written consent of
Beneficiary.
(c) [Reserved]
(d) Notwithstanding the restrictions set forth in paragraph
(ii) of Section 2.3(b) above, Grantor shall have the right, without the consent
of Beneficiary, to make Alterations which result in a Material Adverse Effect,
if, prior to the commencement of such Alterations, Grantor provides to
Beneficiary Substitute Property having a Fair Market Value equal to the
diminution in value (as reasonably estimated by Grantor) causing such Material
Adverse Effect and otherwise reasonably satisfactory to Beneficiary and in a
form that is reasonably satisfactory to Beneficiary and will not affect the
ability of Beneficiary to qualify as a REIT; provided, however, that such
Substitute Property shall consist of real property or interests therein and
Grantor shall provide to Beneficiary the applicable due diligence materials
described in Section 7.7 of the Loan Agreement with respect to such Substitute
Property. Grantor shall deliver to Beneficiary a certificate of an authorized
officer of Grantor with respect to any Alteration which Grantor reasonably
believes will cause a Material Adverse Effect. Such certificate shall describe
the proposed Alteration in reasonable detail and include an estimate of the
amount that the Fair Market Value will be reduced and an estimate of the
aggregate loan-to-value ratio (giving effect to the completion of the proposed
Alteration).
(e) Grantor, within thirty (30) days after obtaining actual
knowledge of any proposed change in the zoning that is likely to result in a
Material Adverse Effect, shall provide written notice to Beneficiary of any such
change and shall diligently contest the same, if the failure to so contest would
result in a Material Adverse Effect, in the manner described in Section 5.9 of
the Loan Agreement; provided, however, Grantor may abstain from contesting such
action if, prior to the expiration of the time within which a contest must be
commenced expires, Grantor shall provide to Beneficiary, in accordance with the
requirements set forth in Section 2.3(d), Substitute Property having a Fair
Market Value equal to the diminution in value (as reasonably estimated by
Grantor) causing such Material Adverse Effect. Without the prior written consent
of Beneficiary, which consent may be withheld in Beneficiary's sole and absolute
discretion, Grantor shall not execute or file any
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subdivision or other plat or map or seek any variance (or any change in any
variance) of the zoning if such action shall result in a Material Adverse
Effect; provided, however, Grantor may take such actions if a reduction in the
Fair Market Value of the Property would cause a Material Adverse Effect if,
prior to taking any such actions, Grantor shall, in accordance with the
requirements set forth in Section 2.3(d), provide to Beneficiary Substitute
Property having a Fair Market Value equal to the diminution of value (as
reasonably estimated by Grantor) causing such Material Adverse Effect.
(f) Grantor shall deliver to Beneficiary a certificate of an
authorized officer of Grantor with respect to any proposal to execute or deliver
any subdivision or other plat or map or proposal or any variance or change in
variance in the zoning which Grantor reasonably believes will materially reduce
the Fair Market Value of the Mortgaged Property and/or cause a Material Adverse
Effect. Such certificate shall describe the proposal in reasonable detail and
include an estimate of the amount that the Fair Market Value of such Mortgaged
Property will be reduced and an estimate of the aggregate loan-to-value ratio
(giving effect to the completion of the actions proposed to be taken by
Grantor).
ARTICLE III
CASUALTY AND CONDEMNATION
SECTION 3.1. Casualty and Condemnation. (a) Grantor represents
and warrants that, as of the date hereof, (i) there is no Material Casualty or
Material Condemnation, (ii) there are no negotiations or proceedings which might
result in a Material Condemnation and (iii) to the actual knowledge of Grantor,
no Material Condemnation is proposed or threatened.
(b) Promptly after Grantor acquires actual knowledge of
the occurrence of a Material Casualty or of any threat or pendency of a Material
Condemnation, Grantor shall give Beneficiary notice thereof. If any Material
Casualty occurs, Grantor shall immediately take such action as may reasonably be
necessary or appropriate to preserve the undamaged portion of the applicable
Individual Property and to protect against personal injury or property damage.
(c) Subject to Grantor's rights under the Loan Agreement,
if any Material Casualty or Material Condemnation occurs, Grantor shall, to the
extent necessary to prevent a Material Adverse Effect from occurring only,
promptly commence and diligently pursue to completion the Restoration of the
applicable Individual Property, subject to Unavoidable Delays provided that any
such required Restoration commenced by Grantor shall be effected with due
diligence, in a good and workmanlike manner, and in compliance with
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Section 2.3, and all applicable Legal Requirements and any Insurance
Requirements. The foregoing to the contrary notwithstanding, Grantor shall not
be required to undertake any Restoration necessary to prevent a Material Adverse
Effect from occurring provided Grantor delivers to Beneficiary Substitute
Property having a Fair Market Value equal to the diminution in value (as
reasonably estimated by Grantor) causing such Material Adverse Effect.
SECTION 3.2. Insurance Claims and Proceeds, Condemnation
Awards. (a) It any Material Casualty occurs, subject to Section 3.2(c), and if
Grantor is not then self-insuring against any resulting loss, (i) Grantor shall
promptly make proof of loss under the applicable insurance policies and
diligently pursue to conclusion its claim for the Insurance Proceeds payable
thereunder and any suit, action or other proceeding necessary or appropriate to
obtain payment of such Insurance Proceeds and (ii) the Net Award arising from
any such Insurance Proceeds shall be applied as provided for herein or in the
Loan Agreement. Subject to the provisions of the Loan Agreement, any such Net
Award received by Grantor shall be held in trust by Grantor for and as the
property of the Depositary (as hereinafter defined) and the Beneficiary and
shall not be commingled with any other funds or property of Grantor.
(b) If any Condemnation occurs, or if any negotiation or
proceeding is commenced which might result in a Condemnation, or if any
Condemnation is proposed or threatened, subject to Section 3.2(c), Grantor
shall, promptly after receiving notice or obtaining knowledge thereof, do all
things deemed necessary or appropriate by Grantor to preserve Grantor's interest
in such Individual Property, promptly make claim to the Awards payable with
respect thereto and diligently pursue to conclusion such claim for such Awards,
if the failure to take the aforesaid actions would cause a Material Adverse
Effect. Subject to Grantor's rights set forth in Section 2.6 and Section 2.7 of
the Loan Agreement, Net Awards with respect to any Condemnation shall be applied
as provided to herein. Subject to the provisions of the Loan Agreement, any such
Net Awards received by Grantor shall be held in trust by Grantor for and as the
property of Beneficiary and shall not be commingled with any other funds or
property of Grantor.
(c) In the event of any loss as a result of a Material
Casualty or Material Condemnation, (i) if a Material Event of Default has
occurred and is continuing either at the time such Loss occurs or at the time
any Awards or Insurance Proceeds are received (or would be payable but for the
fact that Grantor is self insuring), (A) Grantor shall have no right to settle,
and shall not settle, any claim or proceeding relating to such Loss or the
proceeds relating thereto without the consent of Beneficiary, not to be
unreasonably withheld or delayed, (B) Beneficiary shall be entitled to
participate in Grantor's exercise of or, if the Consent required under the
foregoing clause (A) is not given, exercise, such settlement rights (and Grantor
shall, upon demand thereof or by Beneficiary, reimburse Beneficiary for the
reasonable cost incurred by Beneficiary in exercising such rights), and
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(C) Beneficiary shall have the right, if the Net Awards in respect of a Material
Casualty or Material Condemnation, to require that such proceeds be deposited
with a bank, trust company or other institution (the "Depositary") selected by
Grantor and reasonably acceptable to Beneficiary and be applied towards the
repayment of the Loan or disbursed in connection with Restoration as provided in
Section 3.2(d), at Lender's discretion; and (ii) if no Material Event of Default
has occurred and is then continuing, (A) Grantor shall not have to obtain the
consent of Beneficiary to settle any claim for such proceeds and (B) the Net
Awards are in respect of a Material Casualty or Material Condemnation shall be
used by Grantor, at its election, but only to the extent necessary to prevent a
Material Adverse Effect from occurring, to pay the cost of Restoration of the
Mortgaged Property or to apply such proceeds towards the repayment of the Loan
in accordance with the terms of the Loan Agreement.
(d) If proceeds are deposited with the Depositary pursuant
to Section 3.2(c), the Depositary shall, and is hereby directed to, place such
proceeds into an interest-bearing account of the Depository designated by
Grantor and any interest earned on such proceeds shall be added to the funds
already on deposit. Upon the completion of the Restoration, any remaining
proceeds shall be paid to Grantor or Beneficiary as provided in the Loan
Agreement.
ARTICLE IV
CERTAIN SECURED OBLIGATIONS
SECTION 4.1. Changes in the Laws Regarding Taxation. If, after
the date hereof, there shall be enacted any Applicable Law deducting from the
value of the Mortgaged Property for the purpose of taxation the Lien of any
Collateral Document or changing in any way the Applicable Law for the taxation
of mortgages, deeds of trust or other Liens or Loans or other obligations
secured thereby, or of any interest of Beneficiary in the Mortgaged Property, or
the manner of collection of such taxes, so as to adversely affect this Indenture
or the Secured Obligations, then upon demand by Beneficiary, Grantor shall pay
all taxes, assessments or other charges resulting therefrom unless Grantor shall
not, under Applicable Law, be permitted to pay such taxes, assessments or other
charges, in which case Beneficiary shall be entitled to declare the Secured
Obligations immediately due and payable.
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ARTICLE V
DEFAULTS, REMEDIES AND RIGHTS
SECTION 5.1. Events of Default. Any Event of Default under the
Loan Agreement shall constitute an "Event of Default" hereunder. All notice and
cure periods provided in the Loan Agreement and the other Loan Documents shall
run concurrently with any notice or cure periods provided under Applicable Law.
SECTION 5.2. Remedies. (a) Upon the occurrence and continuance
of an Event of Default but subject to the last paragraph of Section 6.1 of the
Loan Agreement, Beneficiary shall have the right and power to exercise any of
the following remedies and rights, subject to mandatory provisions of Applicable
Law, to wit:
(i) to institute a proceeding or proceedings, by
advertisement, judicial process or otherwise as provided under
Applicable Law, for the complete or partial foreclosure of this
Indenture or the complete or partial sale of the Mortgaged Property
under the power of sale hereunder or under any provision of Applicable
Law; or
(ii) to sell the Mortgaged Property, and all estate,
right, title, interest, claim and demand of Grantor therein and
thereto, and all rights of redemption thereof, at one or more sales, as
an entirety or in parcels, with such elements of real or personal
property, at such time and place and upon such terms as Beneficiary,
(acting through Trustee, if applicable) may deem expedient or as may be
required under Applicable Law, and in the event of a sale hereunder or
under any Applicable Law of less than all of the Mortgaged Property,
this Indenture shall continue as a Lien on the remaining Mortgaged
Property; or
(iii) to institute a suit, action or proceeding for the
specific performance of any of the provisions of this Indenture; or
(iv) to be entitled to the appointment of a receiver,
supervisor, trustee, liquidator, conservator or other custodian (a
"Receiver") of the Mortgaged Property to the fullest extent permitted
by Applicable Law, as a matter of right and without regard to, or the
necessity to disprove, the adequacy of the security for the Secured
Obligations or the solvency of Grantor, and Grantor hereby, to the
fullest extent permitted by Applicable Law, irrevocably waives such
necessity and consents to such appointment, said appointee to be vested
with the fullest powers permitted under Applicable Law, including to
the extent permitted under Applicable Law those under clause (v) of
this subsection (a); or
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(v) to enter upon any of the Mortgaged Property, by
Beneficiary, Trustee or a Receiver (whichever is the Person exercising
the rights under this clause), and, to the extent permitted by
Applicable Law, exclude Grantor and its managers, employees,
contractors, agents and other representatives therefrom in accordance
with Applicable Law, without liability for trespass, damages or
otherwise, and take possession of the Mortgaged Property and all books,
records and accounts relating thereto, and upon demand Grantor shall
surrender possession of the Mortgaged Property and such books, records
and accounts to the Person exercising the rights under this clause; and
having and holding the same, the Person exercising the rights under
this clause may use, operate, manage, preserve, control and otherwise
deal therewith and conduct the business thereof, either personally or
by its managers, employees, contractors, agents or other
representatives, without interference from Grantor or its managers,
employees, contractors, agents and other representatives; and, upon
each such entry and from time to time thereafter, at the expense of
Grantor and the Mortgaged Property, without interference by Grantor or
its managers, employees, contractors, agents and other representatives,
the Person exercising the rights under this clause may, as such Person
deems expedient, (A) insure or reinsure the Mortgaged Property, (B)
make all necessary or proper repairs, renewals, replacements,
alterations, additions, Restorations, betterments and improvements to
the Mortgaged Property and (C) in such Person's own name or, at the
option of such Person, in Grantor's name as attorney-in-fact, exercise
all rights, powers and privileges of Grantor with respect to the
Mortgaged Property, including the right to enter into leases with
respect to the Mortgaged Property, including leases extending beyond
the time of possession by the Person exercising the rights under this
clause; and the Person exercising the rights under this clause shall
not be liable to account for any action taken hereunder, other than for
rents actually received by such Person, and shall not be liable for any
loss sustained by Grantor resulting from any failure to let the
Property or from any other act or omission of such Person, except to
the extent such loss is caused by such Person's own willful misconduct
or gross negligence; or
(vi) with or, to the fullest extent permitted by
Applicable Law, without entry upon the Mortgaged Property, in the name
of Beneficiary, the Trustee or a Receiver as required by Applicable Law
(whichever is the Person exercising the rights under this clause) or,
at such Person's option, in the name of Grantor, to collect, receive,
sue for and recover all rents and proceeds of or derived from the
Mortgaged Property, and after deducting therefrom all costs, expenses
and liabilities of every character incurred by the Person exercising
the rights under this clause in collecting the same and in using,
operating, managing, preserving and controlling the Mortgaged Property
and otherwise in exercising the rights under clause (vi) of this
subsection (a) or any other rights hereunder, including all amounts
necessary to pay Impositions, rents, insurance premiums and other
costs, expenses and liabilities relating to the Mortgaged Property, as
well as reasonable compensation for the services of such
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Person and its managers, employees, contractors, agents or other
representatives, to apply the remainder as provided in Section 5.6; or
(vii) to take any action with respect to any portion of
the Mortgaged Property permitted under the Uniform Commercial Code as
in effect in the State (the "UCC"); or
(viii) to declare the Loan or the portion thereof
allocated to the applicable Individual Property pursuant to Section 6.2
of the Loan Agreement (together with interest thereon) to be
immediately due and payable in accordance with Section 6.2 of the Loan
Agreement and to seek a judgment for the same; or
(ix) to take any other action, or pursue any other remedy
or right, as Beneficiary or Trustee may have under Applicable Law,
including the right to foreclosure through court action, and Grantor
does hereby grant the same to Beneficiary and Trustee.
(b) To the fullest extent permitted by Applicable Law,
(i) each remedy or right hereunder shall be in addition
to, and not exclusive or in limitation of, any other remedy or right
hereunder, under any other Loan Document, under Applicable Law, or in
equity;
(ii) every remedy or right hereunder, under any other Loan
Document or under Applicable Law may be exercised concurrently or
independently and whenever and as often as deemed appropriate by the
party exercising such remedy;
(iii) no failure to exercise or delay in exercising any
remedy or right hereunder, under any other Loan Document or under
Applicable Law shall be construed as a waiver of any default or Event
of Default or other occurrence hereunder or under any other Loan
Document;
(iv) no waiver of, failure to exercise or delay in
exercising any remedy or right hereunder, under any other Loan Document
or under Applicable Law upon any Default or other occurrence hereunder
or under any other Loan Document shall be construed as a waiver of, or
otherwise limit the exercise of, such remedy or right upon any other or
subsequent default or Event of Default or other or subsequent
occurrence hereunder or under any other Loan Document;
(v) no single or partial exercise of any remedy or right
hereunder, under any other Loan Document or under Applicable Law upon
any Event of Default or other occurrence hereunder or under any other
Loan Document shall preclude or
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otherwise limit the exercise of any other remedy or right hereunder,
under any other Loan Document or under Applicable Law upon such Event
of Default or occurrence or upon any other or subsequent default or
Event of Default or other or subsequent occurrence hereunder or under
any other Loan Document;
(vi) the acceptance by Beneficiary or any other Secured
Party of any payment less than the amount of the Secured Obligation in
question shall be deemed to be an acceptance on account only and shall
not be construed as a waiver of any default or Event of Default
hereunder or under any other Loan Document with respect thereto; and
(vii) the acceptance by Beneficiary or any other Secured
Party of any payment of, or on account of, any Secured Obligation shall
not be deemed to be a waiver of any default or Event of Default or
other occurrence hereunder or under any other Loan Document with
respect to any other Secured Obligation.
(c) If Beneficiary or Trustee has proceeded to enforce any
remedy or right hereunder or with respect hereto by foreclosure, sale, entry or
otherwise, it may compromise, discontinue or abandon such proceeding for any
reason without notice to Grantor or any other Person; and, if any such
proceeding shall be discontinued, abandoned or determined adversely for any
reason, Grantor, Trustee and Beneficiary shall retain and be restored to their
former positions and rights hereunder with respect to the Mortgaged Property,
subject to the Lien hereof except to the extent any such adverse determination
specifically provides to the contrary.
(d) For the purpose of carrying out any provisions of Section
5.2(a)(v), 5.2(a)(vi), 5.5, 5.10 or 6.1 or any other provision hereunder
authorizing Beneficiary, Trustee or any other Person to perform any action on
behalf of Grantor, Grantor hereby irrevocably appoints Beneficiary, Trustee or a
Receiver appointed pursuant to Section 5.2(a)(iv) or such other Person as the
attorney-in-fact of Grantor (with a power to substitute any other Person in its
place as such attorney-in-fact) to act in the name of Grantor or, at the option
of the Person appointed to act under this subsection, in such Person's own name,
to take the action authorized under Section 5.2(a)(v), 5.2(a)(vi), 5.5, 5.10 or
6.1 or such other provision, and to execute, acknowledge and deliver any
document in connection therewith or to take any other action incidental thereto
as the Person appointed to act under this subsection shall deem appropriate in
its discretion; and Grantor hereby irrevocably authorizes and directs any other
Person to rely and act on behalf of the foregoing appointment and a certificate
of the Person appointed to act under this subsection that such Person is
authorized to act under this subsection; provided, however, that the appointment
made hereby shall only be effective for any period following the happening of
and during the continuance of an Event of Default.
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SECTION 5.3. Waivers by Grantor. To the fullest extent
permitted under Applicable Law, Grantor shall not assert, and hereby irrevocably
waives, any right or defense Grantor may have under any statute or rule of law
or equity now or hereafter in effect relating to (i) appraisement, valuation,
homestead exemption, extension, moratorium, stay, statute of limitations,
redemption, marshalling of the Mortgaged Property or the other assets of
Grantor, sale of the Mortgaged Property in any order or notice (including,
without limitation, notice of intention to accelerate), presentment, demand,
protest or other formalities of any kind; (ii) impairment of any right of
subrogation, set-off, counterclaim, deduction or reimbursement; (iii) any
requirement that at any time any action must be taken against any other Person,
any portion of the Mortgaged Property or any other asset of Grantor or any other
Person; (iv) any provision barring or limiting the right of Beneficiary or
Trustee to sell any Mortgaged Property after any other sale of any other
Mortgaged Property or any other action against Grantor or any other Person; (v)
any provision barring or limiting the recovery by Beneficiary or Trustee of a
deficiency after any sale of the Mortgaged Property; or (vi) any other provision
of Applicable Law which might defeat, limit or adversely affect any right or
remedy of Beneficiary under or with respect to this Indenture or any other
Collateral Document as it relates to any Mortgaged Property.
SECTION 5.4. Jurisdiction and Process. (a) To the extent
permitted under Applicable Law, in any suit, action or proceeding arising out of
or relating to this Indenture or any other Collateral Document as it relates to
any Mortgaged Property, Grantor (i) irrevocably consents to the non-exclusive
jurisdiction of any state or federal court sitting in the State in which the
applicable Individual Property is located and irrevocably waives any defense or
objection which it may now or hereafter have to the jurisdiction of such court
or the venue of such court or the convenience of such court as the forum for any
such suit, action or proceeding; and (ii) irrevocably consents to the service of
(A) any process in any such suit, action or proceeding, or (B) any notice
relating to any sale, or the exercise of any other remedy by Beneficiary
hereunder by mailing a copy of such process or notice by United States
registered or certified mail, postage prepaid, return receipt requested to
Grantor at its address specified in or pursuant to Section 7.2. such service to
be effective when such process or notice is mailed as aforesaid.
(b) Nothing in this Section 5.4 shall affect the right of
Beneficiary or Trustee to bring any suit, action or proceeding arising out of or
relating to this Indenture or any other Collateral Document in any court having
jurisdiction under the provisions of any other Collateral Document or Applicable
Law or to serve any process, notice of sale or other notice in any manner
permitted by any other Collateral Document or Applicable Law.
SECTION 5.5. Sales. Except as otherwise provided herein, to
the fullest extent permitted under Applicable Law, at the election of
Beneficiary, the following provisions shall apply to any sale of the Mortgaged
Property hereunder, whether made
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pursuant to the power of sale hereunder, any judicial proceeding or any judgment
or decree of foreclosure or sale or otherwise:
(a) Beneficiary, Trustee or the court officer (whichever is
the Person conducting any sale) may conduct any number of sales from time to
time. The power of sale hereunder or with respect hereto shall not be exhausted
by any sale as to any part or parcel of the Mortgaged Property which is not
sold, unless and until the Secured Obligations shall have been paid in full, and
shall not be exhausted or impaired by any sale which is not completed or is
defective. Any sale may be as a whole or in part or parcels and, as provided in
Section 5.3, Grantor has waived its right to direct the order in which the
Mortgaged Property or any part or parcel thereof is sold.
(b) Any sale may be postponed or adjourned by public
announcement at the time and place appointed for such sale or for such postponed
or adjourned sale without further notice.
(c) After each sale, the Person conducting such sale shall
execute and deliver to the purchaser or purchasers at such sale a good and
sufficient instrument or instruments granting, conveying, assigning,
transferring and delivering all right, title and interest of Grantor in and to
the Mortgaged Property sold, and shall receive the proceeds of such sale and
apply the same as provided in Section 5.6. Grantor hereby irrevocably appoints
the Person conducting such sale as the attorney-in-fact of Grantor (with full
power to substitute any other Person in its place as such attorney-in-fact) to
act in the name of Grantor or, at the option of the Person conducting such sale,
in such Person's own name, to make without warranty by such Person any
conveyance, assignment, transfer or delivery of the Mortgaged Property sold, and
to execute, acknowledge and deliver any instrument of conveyance, assignment,
transfer or delivery or other document in connection therewith or to take any
other action incidental thereto, as the Person conducting such sale shall deem
appropriate in its discretion; and Grantor hereby irrevocably authorizes and
directs any other Person to rely and act upon the foregoing appointment and a
certificate of the Person conducting such sale that such Person is authorized to
act hereunder. Nevertheless, upon the request of such attorney-in-fact, Grantor
shall promptly execute, acknowledge and deliver any documentation which such
attorney-in-fact may require for the purpose of ratifying, confirming or
effectuating the powers granted hereby or any such conveyance, assignment,
transfer or delivery by such attorney-in-fact.
(d) Any statement of fact or other recital made in any
instrument referred to in Section 5.5(c) given by the Person conducting any sale
as to the nonpayment of any Secured Obligation, the occurrence of any Event of
Default, the amount of the Secured Obligations due and payable, the request to
Trustee or Beneficiary to sell, the notice of the time, place and terms of sale
and of the Mortgaged Property to be sold having been duly given, the refusal,
failure or inability of Trustee or Beneficiary to act, the appointment of
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any substitute or successor agent, any other act or thing having been duly done
by Grantor, Trustee, Beneficiary or any other such Person, shall be taken as
conclusive and binding against all other Persons as evidence of the truth of the
facts so stated or recited.
(e) The receipt by the Person conducting any sale of the
purchase money paid at such sale shall be sufficient discharge therefor to any
purchaser of any Mortgaged Property sold, and no such purchaser, or its
representatives, grantees or assigns, after paying such purchase price and
receiving such receipt, shall be bound to see to the application of such
purchase price or any part thereof upon or for any trust or purpose of this
Indenture or the other Loan Documents, or, in any manner whatsoever, be
answerable for any loss, misapplication or nonapplication of any such purchase
money or be bound to inquire as to the authorization, necessity, expediency or
regularity of such sale.
(f) Subject to mandatory provisions of Applicable Law, any
sale shall operate to divest all of the estate, right, title, interest, claim
and demand whatsoever, whether at law or in equity, of Grantor in and to the
Mortgaged Property sold, and shall be a perpetual bar both at law and in equity
against Grantor and any and all Persons claiming such Mortgaged Property or any
interest therein by, through or under Grantor.
(g) At any sale, Beneficiary may bid for and acquire the
Mortgaged Property sold and, in lieu of paying cash therefor, may make
settlement for the purchase price by causing the Beneficiary to credit against
the Secured Obligations, including the expenses of the sale and the cost of any
enforcement proceeding hereunder, the amount of the bid made therefor to the
extent necessary to satisfy such bid.
(h) If Grantor or any Person claiming by, through or under
Grantor shall transfer or fail to surrender possession of the Mortgaged
Property, after the exercise by Beneficiary of Beneficiary's remedies under
Section 5.2(a)(v) or after any sale of the Mortgaged Property pursuant hereto,
then Grantor or such Person shall be deemed a tenant at sufferance of the
purchaser at such sale, subject to eviction by means of summary process for
possession of land, or subject to any other right or remedy available hereunder
or under Applicable Law.
(i) Upon any sale, it shall not be necessary for the Person
conducting such sale to have any Mortgaged Property being sold present or
constructively in its possession.
(j) If a sale hereunder shall be commenced by Trustee or
Beneficiary, Beneficiary may at any time before the sale abandon the sale, and
may institute suit for the collection of the Secured Obligations or for the
foreclosure of this Indenture; or if Beneficiary shall institute a suit for
collection of the Secured Obligations or the foreclosure of this Indenture,
Beneficiary may at any time before the entry of final judgment in said suit
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dismiss the same and sell or cause Trustee to sell the Mortgaged Property in
accordance with the provisions of this Indenture.
SECTION 5.6. Proceeds. Except as otherwise provided herein or
required under Applicable Law, the proceeds of any sale of, or other realization
upon, the Mortgaged Property hereunder, whether made pursuant to the power of
sale hereunder, any judicial proceeding or any judgment or decree of foreclosure
or sale or otherwise, shall be applied and paid as follows:
(a) First: to the payment of all expenses of such sale or
other realization, including reasonable compensation for the Person conducting
such sale (which may include Trustee or Beneficiary), the cost of title
searches, foreclosure certificates and reasonable attorneys' fees and expenses
incurred by such Person;
(b) Second: to the payment of all expenses and other amounts
payable under Sections 4.1, 5.10 and 5.12;
(c) Third: to the payment of the other Secured Obligations in
such order and manner as Beneficiary shall determine in its sole discretion,
until all Secured Obligations shall have been paid in full; and
(d) Fourth: to pay to Grantor or its successors and assigns
any surplus then remaining from such proceeds.
SECTION 5.7. [Reserved].
SECTION 5.8. Dealing With the Mortgaged Property. Subject to
Section 7.1, Beneficiary shall have the right to release any portion of the
Mortgaged Property, or grant or consent to the granting of any Lien affecting
any portion of the Mortgaged Property, to or at the request of Grantor, for such
consideration as Beneficiary may require without, subject to Grantor's rights
with respect to a Substitution and Release as set forth herein and in the Loan
Agreement, as to the remainder of the Mortgaged Property, in any way impairing
or affecting the Lien or priority of this Indenture, or improving the position
of any subordinate lienholder with respect thereto, or the position of any
guarantor, endorser, co-maker or other obligor of the Secured Obligations,
except to the extent that the Secured Obligations shall have been reduced by any
actual monetary consideration received for such release and applied to the
Secured Obligations, and may accept by assignment, pledge or otherwise any other
property in place thereof as Beneficiary may require without being accountable
therefor to any other lienholder.
SECTION 5.9. Right of Entry. To the extent permitted under
applicable law, Beneficiary and the representatives of Beneficiary shall have
the right, (i) without notice, if
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an Event of Default has occurred and is continuing, or (ii) after reasonable
notice, in all other cases, to enter upon any Individual Property at reasonable
times, and with reasonable frequency, to inspect such Individual Property or,
subject to the provisions hereof, to exercise any right, power or remedy of
Beneficiary hereunder, provided that any Person so entering such Individual
Property shall not unreasonably interfere with the ordinary conduct of Grantor's
or any occupant's business, and provided further that no such entry on the
Property, for the purpose of performing obligations under Section 5.10 or for
any other purpose, shall be construed to be (x) possession of such Individual
Property by such Person or to constitute such Person as a mortgagee in
possession, unless such Person exercises its right to take possession of such
Individual Property under Section 5.2(a)(v), or (y) a cure of any Event of
Default or a waiver of any default or Event of Default or Secured Obligation.
The costs and expenses of any inspection pursuant to clause (ii) above shall be
borne by Beneficiary unless an Event of Default shall have occurred and be
continuing at the time of such inspection, in which case Grantor shall pay, or
reimburse Beneficiary for, such costs and expenses.
SECTION 5.10. Right to Perform Obligations. If Grantor fails
to pay or perform any obligation of Grantor hereunder or under any other Loan
Document, Beneficiary and the representatives of Beneficiary shall have the
right to pay or perform such obligation (i) with simultaneous notice, if an
Event of Default has occurred and is continuing, or if such payment or
performance is necessary in the reasonable opinion of Beneficiary to preserve
Beneficiary's rights under this Indenture or with respect to the Mortgaged
Property (unless, in light of the exigent circumstances, it shall be impractical
to give such notice) or (ii) after notice given reasonably in advance to allow
Grantor an opportunity to pay or perform such obligation if such payment or
performance is not pursuant to clauses (i) or (ii) above, provided that Grantor
is not contesting payment or performance in accordance with the terms hereof or
of any other Loan Document and further provided that no such payment or
performance shall be construed to be a cure of any Event of Default or a waiver
of any default or Event of Default or Secured Obligation. Grantor shall
reimburse Beneficiary on demand for the reasonable costs of performing any such
obligations and any amounts not paid on demand shall bear interest, payable on
demand, for each day until paid at the Default Rate for such day.
SECTION 5.11. Agents. At any time or times, in order to comply
with any legal requirement in any jurisdiction, Beneficiary may appoint a bank
or trust company or one or more other Persons, either to act as co-agent or
co-agents, jointly with Beneficiary, or to act as separate agent or agents on
behalf of Lender with such power and authority as may be necessary for the
effectual operation of the provisions hereof and may be specified in the
instrument of appointment (which may, in the discretion of Beneficiary, include
provisions for the protection of such co-agent or separate agent similar to the
provisions of this Section 5.11). References to Beneficiary in Section 5.12 and
elsewhere herein shall be deemed to
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include any co-agent or co-agents or separate agent or agents appointed pursuant
to this Section 5.11.
SECTION 5.12. [RESERVED]
SECTION 5.13. Assignment of Agreements and Permits. (a)
Subject to paragraph (b) of this Section 5.13, the assignments of the Agreements
and the Permits under Granting Clauses IV and V are collateral assignments by
the Grantor of its right and interest in the Agreements and the Permits to the
Beneficiary. Unless a Material Event of Default shall have occurred and be
continuing, the Grantor shall retain the right to enforce the terms of the
Agreements and the Permits, to exercise all of the Grantor's rights thereunder
and to collect all sums due to the Grantor thereunder. Upon the occurrence and
during the continuance of any Material Event of Default, at the request of the
Beneficiary, the Trustee or a Receiver appointed pursuant to Section 5.2(a)(iv)
(whichever is the Person exercising the rights under this Section 5.13), the
Grantor shall promptly execute, acknowledge, deliver, record, register and file
any additional general assignment of the Agreements or the Permits or specific
assignment of any Agreement or Permit which the Beneficiary, the Trustee or such
Receiver may reasonably require from time to time (all in form and substance
satisfactory to the Beneficiary, the Trustee or such Receiver) to effectuate,
complete, perfect, continue or preserve the assignments of the Agreements and
the Permits under Granting Clauses IV and V. Grantor hereby irrevocably appoints
Beneficiary as the attorney-in-fact of Grantor (with a power to substitute any
other Person in its place as such attorney-in-fact) exercisable only upon and
during the continuance of a Material Event of Default, to act in the name of
Grantor to execute, acknowledge and deliver any such documents upon the failure
by the Grantor to do so.
(b) Nothing herein shall be construed to be an assumption by
the Person exercising rights pursuant to this Section 5.13, or otherwise make
such Person liable for the performance, of any of the obligations of the Grantor
under the Agreements or the Permits.
ARTICLE Vl
FIXTURE FILING
SECTION 6.1. Security Interest and Fixture Filing. To the
extent that any portion of the Mortgaged Property defined as Timber in Granting
Clause 11 or Fixtures in Granting Clause III hereof constitutes fixtures under
the UCC or Applicable Law, and to the extent permitted under Applicable Law,
Grantor hereby grants a security interest therein and this Indenture shall be
construed as a pledge and security agreement with respect to such Timber and
Fixtures; and, upon the filing of this Indenture in the real estate records of
the
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appropriate county in the State in which the Mortgaged Property (or the
applicable Individual Property) is located shall also operate from the time of
filing as a fixture filing with respect to the Timber and Fixtures located
thereon. In connection with any such filing, the debtor and record owner is the
Grantor and the secured party is the Beneficiary and their addresses are those
set forth at the beginning of this Indenture. Upon the occurrence and during the
continuance of a Material Event of Default, the Trustee or Beneficiary, as
applicable, shall be entitled to exercise with respect to such Timber and
Fixtures all remedies available under the UCC or Applicable Law. At any time and
from time to time, upon the occurrence and during the continuance of an Event of
Default, Beneficiary shall be the attorney-in-fact of Grantor (with a power to
substitute any other Person in its place as such attorney-in-fact) with respect
to any and all matters pertaining to such Timber and Fixtures with full power
and authority to give instructions with respect to the collection and remittance
of payments, to endorse checks, to enforce the rights and remedies of Grantor
and to execute on behalf of Grantor and in Grantor's name any instruction,
agreement or other writing required therefor. Grantor acknowledges and agrees
that a disposition of the Timber and Fixtures in accordance with Beneficiary's
rights and remedies with respect to the Mortgaged Property as heretofore
provided is a commercially reasonable disposition thereof.
SECTION 6.2. Limitation on Security Interest in Timber.
Grantor acknowledges that Beneficiary may be required by the provisions of the
UCC to file separate UCC financing statements with respect to the perfection of
Beneficiary's security interest in the Timber. Notwithstanding anything to
contrary contained in Granting Clause 11, Section 6.1 or elsewhere in this
Indenture, Beneficiary and Grantor acknowledge and agree that it is the intent
of the parties hereto that Beneficiary's security interest in the Timber
pursuant to this Indenture and the UCC shall be limited to a security interest
in the proceeds derived by Grantor from the harvesting and/or sale of such
Timber and that so long as no Material Event of Default shall have occurred and
be continuing hereunder, Grantor shall be entitled to continue to operate its
business on the Land, including the harvesting and use of the Timber thereon, in
the ordinary course; including, but not limited to, (i) cutting and using and
cutting and selling, or entering into contracts for the cutting and sale, of the
Timber, (ii) granting easements or constructing roads to facilitate any of the
foregoing, (iii) exploiting all mineral resources now or hereafter located on
the Land, (iv) granting licenses or leases with respect to the Land, such as
hunting and recreational licenses; and (v) retaining any proceeds in connection
with the granting of such licenses, leases or easements, in each case, without
the consent or approval of Beneficiary.
SECTION 6.3. Executive Office. Grantor represents and warrants
Grantor maintain its principal executive offices, at the address of Grantor
first set forth above and in Burbank California and Grantor's books and records
in respect of the Mortgaged Property are kept at such locations. Grantor
covenants and agrees with Beneficiary that, in the event Grantor changes the
address of its executive offices or place where Grantor's books and
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records in respect of the Mortgaged Property are kept, Grantor shall notify
Beneficiary of any such change of address within ten (10) days thereafter.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. Release of Mortgaged Property. (a) This Indenture
shall cease, terminate and thereafter be of no further force or effect upon any
of the following events: (i) the payment in full of all Secured Obligations
(other than obligations that may arise from and after the date of release under
any indemnification provisions included in any Loan Document); (ii) a
substitution of the entire Mortgaged Property by the Mortgagor pursuant to
Section 7.7 of the Loan Agreement; (iii) the optional or mandatory, as
applicable, prepayment in full of the Loan by Grantor in respect of the
Mortgaged Property pursuant to Section 2.6(a) or Section 2.7(a) of the Loan
Agreement or Section 4.1 hereof; and (iv) with respect to the applicable
Individual Property, the prepayment of the Loan by Grantor in respect of such
Individual Property pursuant to Section 2.7(a) of the Loan Agreement.
(b) At any time and from time to time prior to such
termination of this Indenture, Beneficiary shall, or shall cause the Trustee to,
release from the Lien of this Indenture a portion of the Mortgaged Property in
connection with a Substitution or Release with respect to such portion in
accordance with Section 7.7 of the Loan Agreement.
(c) Beneficiary shall release, or cause Trustee to release,
any and all Mortgaged Property required in connection with any transaction, or
sale, Transfer, assignment or other disposition of the Mortgaged Property
consummated by Grantor as permitted by the Loan Agreement or any other Loan
Document, and shall be fully protected in relying on a certificate of an
authorized officer of Grantor to such effect.
(d) Any termination or release under this Section 7.1 shall be
at Grantor's request and expense and either in the statutory form or in form and
substance reasonably satisfactory to Beneficiary, Trustee and Grantor and
legally sufficient to accomplish the release.
SECTION 7.2. Notices. All notices, approvals, requests,
demands, consents, approvals and other communications hereunder shall be in
writing and shall be deemed given to Grantor or Beneficiary as the case may be,
in the manner and at its address for notices specified in or pursuant to Section
7.1 of the Loan Agreement. All notices and other communications hereunder to be
given to Trustee shall be given to Trustee in the manner specified in such
Section 7.1 addressed or directed as set forth in Exhibit B annexed hereto.
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Trustee may change its address specified above as provided in Section 7.1 of the
Loan Agreement.
SECTION 7.3. Trustee. To the extent that the Mortgaged
Property or any Individual Property (or such portion thereof as shall be
applicable) is located is a Trust State, the following provisions, and all
references here to the Trustee, shall be applicable:
(a) Grantor hereby acknowledges the appointment of Trustee to
act as trustee for the benefit of Beneficiary and its successors and assigns
Trustee.
(b) Trustee may, at its option, resign as trustee hereunder by
notice given to Beneficiary and Grantor and such resignation shall be effective
on the earlier to occur of (i) the date which is 30 days after the date on which
Trustee gives such notice to Beneficiary and Grantor or (ii) the date on which a
successor trustee is appointed by Beneficiary and accepts such appointment.
(c) Beneficiary may, at its option, with or without cause or
notice, remove Trustee, appoint a successor trustee or appoint an additional
trustee or trustees (including a separate trustee for each jurisdiction in which
an Individual Property is located) hereunder by an instrument in writing
executed and acknowledged by Beneficiary and accepted by such successor or
additional trustee and recorded, registered or filed in the real estate records
of the jurisdiction in which the Mortgaged Property affected by such instrument
is located; and, thereupon, without further act, deed or conveyance, such
substitute or additional trustee shall be fully vested with an estate, right,
title and interest of its predecessor or co-trustee in, to, under or derived
from the Mortgaged Property and all rights, powers, privileges and obligations
of such predecessor or co-trustee, with the same effect as if such successor or
additional trustee had originally been named as trustee or co-trustee hereunder.
The execution, acknowledgement and recording, registration or filing of such an
instrument shall be conclusive evidence against Grantor and all other Persons of
the proper removal of Trustee and/or substitution or addition of the successor
or additional trustee; and, if Beneficiary or such successor or additional
trustee is a corporation, the execution and acknowledgement by an officer of
such corporation shall be conclusive evidence against all other Persons of the
due authorization, execution and delivery thereof by such corporation.
(d) Notwithstanding anything herein to the contrary, Trustee
shall not exercise or waive the exercise of any of its rights, powers or
remedies hereunder or otherwise act or refrain from acting hereunder unless
directed to do so by Beneficiary, and Trustee shall exercise or waive the
exercise of any of its rights, powers or remedies hereunder and otherwise act or
refrain from acting when and in the manner directed by Beneficiary, provided
that Trustee (i) shall not be required to follow any direction of Beneficiary if
Trustee has been advised by counsel that such action would violate Applicable
Law, (ii) shall not be required to expend or risk its own funds or otherwise
incur any financial liability in
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connection with such action if it has grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not assured
to it, and (iii) shall be entitled to exercise its rights under subsection (b)
and (e) of this Section without such direction by Beneficiary.
(e) Trustee shall be entitled to receive, and Grantor shall
pay, reasonable and customary compensation to Trustee for its services rendered
hereunder after any Event of Default and reimbursement to Trustee for its
expenses (including attorneys' fees and expenses) in connection herewith or the
exercise of any right, power or remedy hereunder.
(f) Trustee shall not be liable with respect to any act taken
or omitted by it in good faith in accordance with any direction of Beneficiary.
Except for willful misconduct or gross negligence, Trustee shall not be liable
(i) in acting upon any direction, demand, request, notice, statement or other
document believed by it in good faith to be genuine and delivered by the Person
empowered to do so, (ii) for any error in judgment or mistake of fact or law
made in good faith, or (iii) for any action taken or omitted by it in accordance
with the provisions of this Indenture. Trustee shall not be responsible to see
to the recording, registration or filing of this Indenture or any financing
statement relating hereto in any jurisdiction or for the payment of any fees,
charges or taxes in connection therewith. No co-trustee hereunder shall be
liable for any act or omission of any other co-trustee.
All moneys received by Trustee hereunder (other than amounts
payable to Trustee pursuant to subsection (e) of this Section 7.3) shall be held
by Trustee in trust for the purposes for which such moneys were received; and,
except as provided herein or under mandatory provisions of Applicable Law,
Trustee need not segregate such moneys from any other moneys and shall have no
liability to pay interest thereon, except such interest as it may actually earn
thereon.
SECTION 7.4. Amendments in Writing. No provision of this
Indenture shall be modified, waived or terminated, and no consent to any
departure by Grantor from any provision of this Indenture shall be effective,
unless the same shall be by an instrument in writing, signed by Grantor and
Beneficiary in accordance with Section 7.5 of the Loan Agreement. Any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 7.5. Severability. All rights, powers and remedies
provided in this Indenture may be exercised only to the extent that the exercise
thereof does not violate Applicable Law, and all the provisions of this
Indenture are intended to be subject to all mandatory provisions of Applicable
Law and to be limited to the extent necessary so that they will not render this
Indenture illegal, invalid, unenforceable or not entitled to be recorded,
registered or filed under Applicable Law. If any provision of this Indenture or
the application thereof to any Person or circumstance shall, to any extent, be
illegal, invalid or
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<PAGE> 84
unenforceable, or cause this Indenture not to be entitled to be recorded,
registered or filed, the remaining provisions of this Indenture or the
application of such provision to other Persons or circumstances shall not be
affected thereby, and each provision of this Indenture shall be valid and be
enforced to the fullest extent permitted under Applicable Law.
SECTION 7.6. Binding Effect. (a) The provisions of this
Indenture shall be binding upon and inure to the benefit of each of the parties
hereto and their respective successors and assigns.
(b) To the fullest extent permitted under Applicable Law, the
provisions of this Indenture binding upon Grantor shall be deemed to be
covenants which run with the land.
(c) Nothing in this Section 7.6 shall be construed to permit
Grantor to Transfer or grant a Lien upon the Mortgaged Property (or any portion
thereof) contrary to the provisions of the Loan Agreement.
SECTION 7.7. WAIVER OF JURY TRIAL. GRANTOR HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS INDENTURE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 7.8. GOVERNING LAW. THIS INDENTURE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE
APPLICABLE INDIVIDUAL PROPERTY IS LOCATED WITHOUT REGARD TO THE CONFLICT-OF-LAW
PROVISIONS THEREOF.
SECTION 7.9. JURISDICTION. GRANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY: (A) SUBMITS IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
INDENTURE TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE
IN WHICH THE PROPERTY IS LOCATED AND THE COURTS OF THE UNITED STATES OF AMERICA
FOR THE DISTRICT IN WHICH THE PROPERTY IS LOCATED AND APPELLATE COURTS FROM ANY
THEREOF; (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN ANY
SUCH COURT AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME; (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED IN THE MANNER SPECIFIED FOR NOTICES AND OTHER COMMUNICATIONS IN
SECTION 7.1 AND SHALL BE EFFECTIVE AS PROVIDED IN SECTION 7.1; AND (D) AGREES
THAT NOTHING HEREIN SHALL AFFECT
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THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION OR COURT HAVING
JURISDICTION.
SECTION 7.10. Counterparts: Integration. This Indenture may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Indenture together with the other Loan Documents constitutes
the entire understanding among the parties hereto with respect to the subject
matter hereof and supersedes any and all prior understandings, oral or written,
relating to the subject matter hereof.
SECTION 7.11. Consents by Beneficiary. If Beneficiary is
determined to have been unreasonable in withholding any consent or approval to
any action where Beneficiary is required to be reasonable in granting or
withholding such consent or approval, the sole remedy available to Grantor shall
be declaratory relief.
ARTICLE VIII
STATE SPECIFIC PROVISIONS
SECTION 8.1. Incorporation by Reference. The provisions of
Exhibit C annexed hereto are hereby incorporated by reference herein as though
set forth in full herein.
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<PAGE> 86
IN WITNESS WHEREOF, Grantor has executed and delivered this
Indenture as of the day first set forth above.
Grantor
[ ]
By: ______________________________
Name:
Title:
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<PAGE> 87
[Add Appropriate State Acknowledgement]
31
<PAGE> 88
EXHIBIT A[_____]
Legal Description[s]
<PAGE> 89
EXHIBIT B
Trustee Name and Address
<PAGE> 90
EXHIBIT C
State Specific Provisions
<PAGE> 91
SCHEDULE I
Grantors
<PAGE> 92
EXHIBIT C
Lender's Wire Transfer
Instructions
<PAGE> 93
Schedule 1
Non-Recording States*
(* Subject to revision to reflect changes in law from the Closing Date
through the Mortgage Delivery Date)
Alabama
District of Columbia
Florida
Georgia
Hawaii
Kansas
Louisiana (Only in Orleans Parish)
Maryland
Minnesota
New York
Oklahoma
Puerto Rico
Tennessee
Virginia
Any jurisdiction outside the United States whose laws with respect to the
recording and enforcement of the Mortgage are substantially similar in effect to
the laws of the State of New York.
<PAGE> 1
Exhibit 10(i)
AGREEMENT BETWEEN THE STATE OF WISCONSIN AND CERTAIN
COMPANIES CONCERNING THE FOX RIVER
I. INTRODUCTION
This Agreement, effective as of January 31, 1997, is hereby
entered into by and among the following parties: Fort Howard Corporation, NCR
Corporation, Appleton Papers Inc., P.H. Glatfelter Company, Riverside Paper
Corporation, U.S. Paper Mills Corp., and Wisconsin Tissue Mills Inc.
("Companies"); and the State of Wisconsin ("State"), through the Wisconsin
Department of Natural Resources ("WDNR") and the Wisconsin Department of Justice
("Wisconsin DOJ"). The above listed parties shall be referred to as "the
Parties."
As set forth more fully below, the subject matter of this
Agreement involves claims for damages for injuries to, destruction of, or loss
of natural resources and/or services resulting from releases of polychlorinated
biphenyls ("PCBs") and other hazardous substances to the Lower Fox River for
which the Companies are alleged to be responsible, and plans, studies or
activities concerning the restoration or replacement of such injured resources
and/or services or the acquisition of the equivalent.
The Parties have executed this Agreement in order to
investigate claims that the United States and the State have asserted against
the Companies for natural resource damages and to pursue a negotiated settlement
of all claims of any kind whatsoever under either federal or state statute or
common law among the State, the United States, and the Companies relating to the
release of PCBs and other hazardous substances to the Lower Fox River
("Claims"). The Parties are entering into the negotiations in good faith and
agree to consider and to discuss all issues that any party deems necessary or
appropriate to a final resolution.
Except as otherwise specifically provided, this Agreement
shall not constitute, be interpreted, be construed or be used as: evidence of
any admission of liability, law or fact; a waiver of any right or defense; or an
estoppel against any party to this Agreement.
II. AGREEMENT OBJECTIVES
The Parties agree that the objectives of this Agreement are as follows:
(1) to begin certain plans, studies or activities in the Lower Fox River/Green
Bay area that will improve natural resources and will serve as a basis for
evaluating certain sediment management techniques; (2) to establish a one-year
"time
<PAGE> 2
out" from litigation, including tolling of limitations periods and forbearance
from litigation; (3) to establish a mechanism for collaborative natural resource
damage ("NRD") assessment planning or activities in the Lower Fox River/Green
Bay area; and (4) to establish a framework for negotiations, leading to
settlement of the Claims.
III. STATE AUTHORITY OVER NATURAL RESOURCES
A. Legal Framework
Under its Constitution and laws, the State is trustee for, and
has administrative jurisdiction over, all natural resources within its borders
("State Natural Resources"). Federal trustees under various federal statutes may
have co- trusteeship authority over certain resources.
Federal regulations provide that the state and federal
trustees may arrange to divide responsibility for implementing the natural
resources damages assessment if a lead authorized official is designated by
mutual agreement of all the trustees. 43 C.F.R. Section 11.32(a)(1). If the
trustees cannot reach consensus on the designation of the lead authorized
official, the state shall act as lead authorized official for the natural
resources delineated in 43 C.F.R. Section 11.32(a)(1)(ii)(D). Id.
Federal regulations further provide that if there is a
reasonable basis for dividing the assessment, natural resource trustees may act
independently and pursue separate assessments, actions or claims so long as the
claims do not overlap with those of other trustees. 43 C.F.R. Section
11.32(a)(1)(iii).
B. Attempts to Delineate Trusteeship Authority
In compliance with the letter and the spirit of the
regulations, the representatives of the State of Wisconsin, the U.S. Department
of the Interior, the U.S. Department of Justice, the National Oceanographic and
Atmospheric Administration, the Oneida Tribe of Indians of Wisconsin, and the
Menominee Indian Tribe of Wisconsin have met several times to attempt to
delineate the respective roles of the State and the asserted federal trustees in
NRD assessment planning or activities in the Lower Fox River/Green Bay area.
However, despite these multiple attempts, the State and the federal trustees to
date have been unable to reach agreement about whether the assessment should be
divided or who should be designated the lead authorized official.
C. Assertion of Authority by the State of Wisconsin over Natural
Resources in the Fox River/Green Bay Area
Because the State and the asserted federal trustees to date
have been unable to reach agreement on their respective roles, the State, in
compliance with 43 C.F.R. Section 11.32(a)(1), has
2
<PAGE> 3
asserted and will continue to assert trusteeship authority over all State
Natural Resources.
1. For the purposes of NRD assessment and claims
under any federal or state statute, including
restoration and compensation issues, the State
will act as lead authorized official pursuant to
43 C.F.R. Section 11.32(a)(1)(ii)(A) for all State
Natural Resources, except for resources located on
lands or waters subject to the administrative
jurisdiction of a federal agency.
2. The resources described in paragraph III.C.1 are
hereinafter collectively called "State-Lead
Resources."
3. Coordination. The State will coordinate with
other trustees as required by law.
4. Authority to Assess, Compromise, and Litigate. The
State has the authority independently to assess, to
compromise and to litigate its claims against the
Companies regarding the State Natural Resources over
which no other trustee has overlapping authority.
Regarding other State-Lead Resources, the State's
responsibility as lead authorized official includes,
pursuant to 43 C.F.R. Section 11.32(a)(1)(ii)(A), the
authority to act as final arbitrator of disputes if
consensus among the authorized officials cannot be
reached regarding the assessment of natural resource
damage claims.
IV. WORK WITH RESPECT TO STATE-LEAD RESOURCES
A. Actions of the Companies
The Companies will make available a total of $10 million,
consisting of a combination of work by the Companies and funding of State
activities, for the Interim Phase of the resource assessment and restoration
projects for the Fox River and Green Bay. Work on this Interim Phase shall
proceed as fast as reasonably possible. The State and the Companies have the
goal of finishing work on the Interim Phase by December 1, 1998. The Interim
Phase will include the work described in paragraphs 1-4 below:
1. Field-Scale Demonstration of Restoration Projects.
The Companies will make available a total of $8
million, consisting of a combination of work by
the Companies and funding of State activities, for
the following work:
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<PAGE> 4
a. A portion of the design, implementation, and/or
monitoring of the Deposit N sediment restoration
project. At a minimum, the Companies will perform
monitoring of the Deposit N project. The Companies
understand that the State contemplates that a portion
of the costs of the Deposit N project will be paid by
funds held by the Fox River Coalition, which funds
include monies previously contributed by some of the
Companies. The Companies will not be obligated for
any additional contribution through the Fox River
Coalition for the Deposit N project.
b. The design, implementation, and monitoring of a
sediment restoration project below DePere Dam that is
designed to provide important information regarding
large-scale sediment restoration projects in the
Lower Fox River, the specific parameters of which are
to be worked out by separate technical discussions of
the Technical Committee. The Companies' aggregate
commitment for this work shall be in an amount not
less than $7.0 million.
c. The following two resource restoration projects. The
Companies' aggregate commitment for these projects
shall be in an amount to be agreed upon by the
parties:
i. Preserve Point Au Sable Wetlands. The
Companies will attempt to purchase and
transfer to public ownership as much of
Point Au Sable as possible and construct the
following: public access and a small parking
area for vehicular traffic (in a location
that limits human interference with the
interior wetland habitat), along with a
hiking trail, observation decks, a fishing
pier, and educational facilities such as
interpretive signage.
ii. Enhance 1,000 Islands Environmental Center
(City of Kaukauna). The Companies will seek
to implement the 1,000 Islands Environmental
Center's long-range plan of acquiring key
land parcels on the eastern perimeter of the
conservancy zone; upgrading a trail to a
paved, wheelchair-accessible surface; and
building a canoe launch and an observation
deck with a view of the pair of bald eagles
that have successfully
4
<PAGE> 5
nested in that location for the last six
years.
d. The plans submitted under Section IV.A.4 for
work to be done under Section IV.A.1 will
call for adequate monitoring to allow for
appropriate evaluation of these field-scale
demonstration projects for selection of
restoration methods. The Companies will not
be required to implement monitoring plans
until the State and the Companies jointly
approve those plans.
2. The Companies will conduct a collaborative
assessment of natural resource damages concerning
State-Lead Resources, including injury
identification and quantification and damages
estimation or scaling of compensatory restoration.
The State will direct, in consultation with the
Companies, the assessment work. This work shall
be coordinated with the Technical Committee
established under this Agreement. The Companies'
commitment under this paragraph will not exceed in
the aggregate $1 million in costs to the
Companies.
3. The Companies will perform technical work,
consistent with the activities and the oversight
described in Section IV.A.2., above, designed (a)
to evaluate existing models for PCB fate and
transport in the Fox River and Green Bay; (b) to
enhance the human and ecological risk assessment
information available to the trustees; and (c) to
support the identification and analysis of further
sediment management alternatives, all to promote
future decision making and claims resolution by
the trustees. The Companies' commitment under
this paragraph will not exceed in the aggregate $1
million in costs to the Companies.
4. The Companies will submit draft plans for the
performance of work under this Section IV.A on the
schedule set out below. The State will consider
those draft plans as called for by Section IV.B of
this Agreement, and may call for consideration of
any appropriate issues by the Technical Committee
established by Section IV.D of this Agreement.
The draft plan may be modified by agreement of the
Parties following discussions with the Technical
Committee prior to its approval by the State.
Upon approval of any plan by the State, the
Companies and State will implement that plan
according to its terms and schedule.
5
<PAGE> 6
a. The Companies will submit a plan for the
provision of funds and for the development of
a monitoring plan for the Deposit N project
within 60 days of receipt of notice from the
State that the State has completed conceptual
design of the rest of the Deposit N project,
and provision of that conceptual design to
the Companies.
b. The Companies will submit a plan for the work
and/or funding described in Section IV.A.1.b,
including, but not limited to, implementation
of monitoring by the Companies within 60 days
of receipt of notice from the State that the
Technical Committee has completed discussions
concerning a technical framework for that
project, and provision to the Companies of
that technical framework.
c. The Companies will submit a plan for the
design and implementation of the work called
for by Section IV.A.1.c within 75 days of
the effective date of this Agreement.
d. The Companies will submit a plan for the
work called for by Sections IV.A.2 and
IV.A.3 within 120 days of the effective date
of this Agreement, unless the State extends
that date to allow further discussion by the
Technical Committee of the technical
framework for that work pursuant to Section
IV.B.
5. The undertaking of all of the foregoing work is subject
to the receipt of any necessary permits and approvals.
B. Actions of the State of Wisconsin
The State, as lead authorized official for State-Lead
Resources, and the Companies will together cooperatively define the above
sediment management and restoration projects. They will attempt to agree as
expeditiously as possible on a technical framework for the projects, studies,
and analyses outlined above. The technical framework will serve as a basis for
developing scopes of work, work plans, budgets, and schedules.
C. Cost Recovery and Contribution
All of the work under this section shall be implemented in a
manner that will not prejudice the Companies' potential cost recovery and
contribution claims. The Parties intend that the Companies shall receive the
maximum protection available under the law against claims regarding matters
addressed by this Agreement. Expenditures by the Companies pursuant to this
Agreement will be credited against any final judgment or
6
<PAGE> 7
settlement obtained by the trustee(s) relating to claims for response actions or
costs or natural resource damages arising from releases to the Fox River.
D. Technical Committee
The State and the Companies will form a Technical Committee to
serve as a forum for the exchange of data, information and views concerning the
projects, studies and analyses to be undertaken and the technical issues
relating to State-Lead Resources or the State's Claims.
E. Terms of Payment
The Companies will pay funds committed in this Agreement in
the form of payment of invoices for goods and services purchased under work
plans approved according to the terms of this Agreement.
F. Monitoring and Assessment Activities by the Companies
All work performed by the Companies: (a) to monitor the
Deposit N project pursuant to Section IV.A.1.a, (b) to monitor the sediment
restoration project pursuant to Section IV.A.1.b, (c) to assess natural resource
damages pursuant to Section IV.A.2, and (d) to implement technical work pursuant
to Section IV.A.3 shall be subject to this Section IV.F.
1. All work shall be performed subject to the oversight of
the WDNR.
2. The Companies shall provide WDNR access to all data and
analyses developed by the Companies as they become
available.
3. WDNR may conduct any additional data collection or
analyses it may deem appropriate. WDNR shall provide
all such data or analyses to the Companies as they
become available.
4. The Parties shall endeavor to plan and to implement
their effort cooperatively to satisfy each Party's need
for data or analyses.
5. The State shall expedite the issuance of any permits
needed by the Companies to perform work under this
Agreement.
6. The plans for such work shall provide a budget for the
reasonable expenses of the WDNR in overseeing and
participating in that work. The budgeted amount shall be
included within the Companies' financial commitment for that
work.
7
<PAGE> 8
V. PUBLIC INFORMATION
Subject to Section VIII (Settlement Discussions/
Confidentiality), the Parties will undertake measures to inform and obtain input
from the Fox River Coalition and the public regarding activities conducted and
results obtained pursuant to the Agreement, as appropriate. Such activities may
include periodic public meetings.
VI. TOLLING/STANDSTILL PROVISIONS
The State contends that it presently has claims for relief or
causes of action (hereinafter "claims") against the Companies, and it has
initiated these proceedings and asserted these claims, under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9601 et. ("CERCLA"), and the Clean Water Act, 33 U.S.C.
Sections 1251 et seq., to seek damages, including assessment costs, for
injury to natural resources under its trusteeship in the Lower Fox River/Green
Bay area. The State also contends that it presently has claims against the
Companies under secs. 283.87 and 292.11, Wis. Stats., and the common law of
nuisance.
The Parties agree that the time from January 31, 1997, through
the date of termination of this Agreement will not be included in computing the
time limited by any statute of limitations or other limitation that applies or
may apply to claims referred to above, or to claims derivative of or arising out
of those referred to above ("Tolled Claims"), which the Parties may have against
each other, nor will that time period be considered on a defense of laches or
similar defense concerning timeliness of commencing a civil action, for the
recovery of damages or other relief on account of the Tolled Claims. Tolled
Claims shall not include claims to enforce, or claims related to the
implementation of, this Agreement. With respect to the Tolled Claims, any
statute of limitations shall be tolled during and for that period. Except as
specifically set forth in this paragraph, no other defense to any claim by the
State or by the Companies or any other person is waived or otherwise foregone
hereby, including, but not limited to, any statute of limitations defense or
similar defenses to claims that may be asserted by persons not a party to this
Agreement. Notwithstanding anything to the contrary in this Agreement, all
defenses and limitations of the Companies to the claims existing on the
effective date of this Agreement based on the expiration of any limitations
period or the passage of time shall be preserved, and neither this Agreement nor
work performed pursuant to this Agreement shall be construed to revive any claim
barred by a statute of limitations or the passage of time, or give rise to any
claim other than one to enforce performance in accordance with its terms. The
State reserves the right to assert that no statute of limitations, limitation,
defense of laches, or similar defense concerning timeliness of commencing a
civil action applies to the Tolled Claims.
8
<PAGE> 9
Except as otherwise agreed by the Parties or compelled by
court rule or judicial order to avoid loss of claims, no Party will initiate or
prosecute litigation against any other Party on any Tolled Claims during the
term of the Agreement.
It is the Parties' intent that all natural resource damages
assessment and planning activities conducted during the term of this Agreement
will be conducted collaboratively.
VII. MODIFICATION
This Agreement may be modified (including without limitation
the addition of new parties to the Agreement) by agreement of the Parties. All
modifications shall be in writing and signed by authorized representatives of
the Parties.
The Parties presently intend to modify this Agreement to
address natural resource damages assessment activities and claims of the federal
trustees, if the federal trustees will agree to enter into such a modified
agreement on mutually acceptable terms.
VIII. SETTLEMENT DISCUSSIONS/CONFIDENTIALITY
Using the analyses and studies to be conducted hereunder, the
Parties will attempt to negotiate a settlement of the Claims. Any Party may
attempt to negotiate a settlement of the Claims at any time during the term of
the Agreement. To encourage full and frank discussions, the Parties agree that
the substance of all settlement negotiations are confidential and that all
documents and information related to the negotiations shall not be released or
communicated to anyone except the attorneys, consultants and administrative
personnel involved in the negotiations and principals and their insurers and
indemnitors. The subsequent use of all communications or statements made in
connection with settlement negotiations will be subject to the Federal Rules of
Evidence, including Rule 408, and similar provisions under State evidentiary
law.
IX. NON-WAIVER OF CLAIMS, DEFENSES AND PRIVILEGE
Each party to this Agreement reserves the right to assert any
claim, defense, or matter of avoidance in any subsequent litigation among or
between any or all of the Parties hereto, and a party's execution of this
Agreement or participation in settlement negotiations will not in any way affect
such rights. By entering into this Agreement or participating in settlement
negotiations, no party waives any right, privilege, defense or claim that could
otherwise be asserted or raised with respect to the Claims or the subject matter
of this Agreement.
X. TERMINATION OF AGREEMENT
9
<PAGE> 10
This Agreement shall not be terminated prior to January 31,
1998, without agreement of all of the Parties. On or after that date, the
Agreement shall be terminated upon the occurrence of either of the following
events: (1) the Parties agree that the work set forth in Section IV of this
Agreement has been completed; or (2) 30 days after the State or the Companies as
a group provide written notice of intent to terminate this Agreement to the
other Parties. Termination of the Agreement will terminate all of each Party's
obligations under this Agreement, except for obligations under Section VIII;
provided, however, that if the Companies as a group terminate this Agreement
pursuant to clause (2) of the previous sentence, obligations under Section IV
will not terminate; provided further that the State will continue to exercise
its sovereign rights over State Natural Resources and to assert trusteeship
authority in accordance with Section III during the term of this Agreement and
otherwise during the course of good faith settlement negotiations regarding the
Claims.
XI. EFFECT ON SUCCESSORS, ASSIGNS, AND CORPORATE AFFILIATES
This Agreement will be binding on and shall inure to the
benefit of each Party and its successors, assigns, and corporate affiliates.
XII. COUNTERPARTS; CONSIDERATION; AUTHORITY
This Agreement may be signed in counterparts, which together
shall constitute one and the same instrument. The Parties acknowledge that the
covenants and forbearances under this Agreement constitute adequate and
sufficient consideration. The undersigned representative of each party to this
Agreement certifies that he or she is fully authorized to enter into the terms
and conditions of this Agreement, and to execute for and bind such party to this
Agreement.
XIII. STEERING COMMITTEE.
For purposes of implementing this Agreement, the Parties agree
to form a Steering Committee to address problems, to assess progress of the
Technical Committee, and to provide quarterly reports to the Parties and the
public on the implementation of this Agreement.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on
the day and year appearing above.
FOR THE STATE OF WISCONSIN:
By:________________________
WDNR
By:________________________
Wisconsin DOJ
FOR APPLETON PAPERS, INC.: FOR RIVERSIDE PAPER CORPORATION:
By:_______________________ By:_________________________
Print Name:______________ Print Name:_________________
FOR FORT HOWARD CORPORATION: FOR U.S. PAPER MILLS CORP.:
By:_______________________ By:_________________________
Print Name:_______________ Print Name:_________________
FOR NCR CORPORATION: FOR WISCONSIN TISSUE MILLS INC.:
By:_______________________ By:_________________________
Print Name:______________ Print Name:_________________
FOR P.H. GLATFELTER COMPANY:
By:_______________________
Print Name:_______________
11
<PAGE> 1
EXHIBIT 11
<TABLE>
<CAPTION>
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
- -----------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Weighted average number of common shares:
Shares outstanding, beginning of year 22,314,701 44,057,273 43,987,328 44,199,829 43,435,312
Adjusted for stock split in 1992
exclusive of shares below - applied retroactively 22,314,701
Issued for employee stock purchase plans 42,810 73,745 72,734 73,772 32,460
Issued for stock award plan 41,674 -- 10,035 -- 48,326
Issued for stock option plans -- -- -- 6,003 4,537
Issued for 401(k) plan -- -- -- 1,265 35,043
Shares of treasury stock to be issued under
restricted stock award plan and stock option
plans - common stock equivalents 484,149 290,343 178,060 304,908 192,261
Shares acquired and held in treasury (524,257) (106,601) -- (327,103) (837,844)
------------ ------------ ------------- ------------ ------------
Total 44,673,778 44,314,760 44,248,157 44,258,674 42,910,095
============ ============ ============= ============ ============
Income (loss) before accounting changes $ 56,544,143 $ 20,408,988 $(118,251,441) $ 65,828,361 $ 60,399,028
Accounting changes -- (4,193,461) -- -- --
------------ ------------ ------------- ------------ ------------
Net income (loss) 56,544,143 16,215,527 (118,251,441) 65,828,361 60,399,028
Preferred dividends (7,368) (5,501) -- -- --
------------ ------------ ------------- ------------ ------------
Net income (loss) applicable to common shares $ 56,536,775 $ 16,210,026 $(118,251,441) $ 65,828,361 $ 60,399,028
============ ============ ============= ============ ============
Income (loss) per common share
before accounting changes $ 1.27 $ 0.46 $ (2.67) $ 1.49 $ 1.41
============ ============ ============= ============ ============
Net income (loss) per common share $ 1.27 $ 0.37 $ (2.67) $ 1.49 $ 1.41
============ ============ ============= ============ ============
</TABLE>
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES
Ecusta Australia Pty. Limited
Ecusta Fibers Ltd.
Ecusta Export Trading Corp.
Glatfelter Investments, Inc.
The Glatfelter Pulpwood Company
Spring Grove Water Company
Glatfelter of Nevada
GWS Valuch, Inc.
Glenn-Wolfe, Inc.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
P. H. Glatfelter Company:
We consent to the incorporation by reference in the Registration Statements of
P. H. Glatfelter Company on Form S-8 (Registration Nos. 33-24858, 33-25884,
33-37198, 33-49660, 33-53338, 33-54409, 33-62331 and 33-12089) of our report
dated February 24, 1997 on the consolidated financial statements of P. H.
Glatfelter Company and subsidiaries appearing in and incorporated by reference
in the Annual Report on Form 10-K for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
P.H. Glatfelter Company and Subsidiaries
Financial Data Schedule
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 31,802
<SECURITIES> 811
<RECEIVABLES> 51,616
<ALLOWANCES> 1,913
<INVENTORY> 101,231
<CURRENT-ASSETS> 188,069
<PP&E> 1,041,144
<DEPRECIATION> 585,954
<TOTAL-ASSETS> 715,310
<CURRENT-LIABILITIES> 86,183
<BONDS> 150,000
0
0
<COMMON> 544
<OTHER-SE> 330,486
<TOTAL-LIABILITY-AND-EQUITY> 715,310
<SALES> 566,084
<TOTAL-REVENUES> 577,194
<CGS> 434,491
<TOTAL-COSTS> 434,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (66)
<INTEREST-EXPENSE> 9,308
<INCOME-PRETAX> 97,905
<INCOME-TAX> 37,506
<INCOME-CONTINUING> 60,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,399
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
</TABLE>
