SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: June 27, 1999 Commission File Number: 1-7911
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FORT JAMES CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Virginia 54-0848173
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Lake Cook Road, Deerfield, IL 60015-4753
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 317-5000
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Not Applicable
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(Former name, former address, and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Number of shares of $.10 par value common stock outstanding as
of July 30, 1999:
220,988,390 shares
<PAGE>
FORT JAMES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
June 27, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
ITEM 1. Financial Statements:
Consolidated Balance Sheets as
of June 27, 1999 and December 27, 1998 3
Consolidated Statements of Operations for
the quarters and six months ended June 27, 1999
and June 28, 1998 4
Consolidated Statements of Cash Flows for
the six months ended June 27, 1999
and June 28, 1998 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION:
ITEM 1. Legal Proceedings 16
ITEM 2. Changes in Securities 16
ITEM 3. Defaults Upon Senior Securities 16
ITEM 4. Submission of Matters to a Vote of Security Holders 16
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<S> <C>
FORT JAMES CORPORATION
CONSOLIDATED BALANCE SHEETS
June 27, 1999 and December 27, 1998
June December
(in millions, except share data) 1999 1998
- --------------------------------------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents $ 7.7 $ 5.3
Accounts receivable 920.3 857.5
Inventories 819.2 806.5
Deferred income taxes 110.9 162.7
Prepaid expenses and other current assets 34.5 24.3
- --------------------------------------------------------------------------------
Total current assets 1,892.6 1,856.3
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Property, plant and equipment 7,501.4 7,547.0
Accumulated depreciation (3,340.7) (3,225.4)
- --------------------------------------------------------------------------------
Net property, plant and equipment 4,160.7 4,321.6
Goodwill 552.4 620.0
Net assets of discontinued operations 426.2 403.4
Other assets 551.4 526.7
- --------------------------------------------------------------------------------
Total assets $ 7,583.3 $7,728.0
================================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 616.6 $ 679.2
Accrued liabilities 558.1 644.6
Current portion of long-term debt 235.8 240.0
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Total current liabilities 1,410.5 1,563.8
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Long-term debt 3,658.5 3,646.4
Deferred income taxes 733.6 756.5
Accrued postretirement benefits other than pensions 438.9 446.8
Other long-term liabilities 281.6 263.1
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Total liabilities 6,523.1 6,676.6
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Common stock, $.10 par value, 500.0 million
shares authorized; 220.9 million shares
outstanding at June 27, 1999 and 220.5
million at December 27, 1998 22.1 22.1
Additional paid-in capital 3,225.4 3,215.6
Accumulated comprehensive loss (217.0) (88.8)
Accumulated deficit (1,970.3) (2,097.5)
- --------------------------------------------------------------------------------
Total shareholders' equity 1,060.2 1,051.4
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Total liabilities and shareholders' equity $ 7,583.3 $7,728.0
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FORT JAMES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarters and Six months Ended
June 27, 1999 and June 28, 1998
Quarter Six Months
(in million, ------------------- -------------------
except per share amounts) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Net sales $1,718.5 $1,731.1 $3,387.5 $3,399.9
Cost of goods sold (1,175.2) (1,164.5) (2,310.7) (2,299.4)
Selling and administrative expenses (291.1) (275.9) (588.2) (551.6)
Restructure and other unusual items 1.1 (8.8) 1.1 (15.3)
- --------------------------------------------------------------------------------
Income from operations 253.3 281.9 489.7 533.6
Interest expense (59.4) (68.0) (121.9) (137.4)
Other income, net 14.2 (6.3) 18.1 2.5
- --------------------------------------------------------------------------------
Income from continuing operations
before income taxes, extraordinary
item, and cumulative effect of a
change in accounting principle 208.1 207.6 385.9 398.7
Income tax expense (72.2) (75.1) (132.4) (150.8)
- --------------------------------------------------------------------------------
Income from continuing operations
before extraordinary item and
cumulative effect of a change
in accounting principle 135.9 132.5 253.5 247.9
Income (loss) from discontinued
operations, net of taxes (9.3) 3.7 (4.9) 5.9
- --------------------------------------------------------------------------------
Income before extraordinary item
and cumulative effect of a
change in accounting principle 126.6 136.2 248.6 253.8
Extraordinary loss on early
extinguishment of debt, net of taxes (31.0) - (33.2) (2.6)
Cumulative effect of a change in
accounting principle, net of taxes - - (22.1) -
- --------------------------------------------------------------------------------
Net income 95.6 136.2 193.3 251.2
Preferred dividend requirements - - - (5.2)
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Net income available to
common stockholders $ 95.6 $ 136.2 $ 193.3 $ 246.0
================================================================================
Basic earnings per share:
Income from continuing operations
before extraordinary item and the
cumulative effect of a change in
accounting principle $0.62 $0.61 $1.15 $1.13
Income (loss) from discontinued
operations, net of taxes (0.04) 0.02 (0.02) 0.03
Extraordinary loss on early
extinguishment of debt (0.14) - (0.15) (0.01)
Cumulative effect of a change
in accounting principle - - (0.10) -
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Net income $0.44 $0.63 $0.88 $1.15
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Weighted average common
shares outstanding 219.6 217.6 219.6 213.1
===============================================================================
Diluted earnings per share:
Income from continuing operations
before extraordinary item and the
cumulative effect of a change in
accounting principle $0.62 $0.60 $1.15 $1.12
Income (loss) from discontinued
operations, net of taxes (0.04) 0.02 (0.02) 0.03
Extraordinary loss on early
extinguishment of debt (0.14) - (0.15) (0.01)
Cumulative effect of a change
in accounting principle - - (0.10) -
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Net income $0.44 $0.62 $0.88 $1.14
- -------------------------------------------------------------------------------
Weighted average common shares and
common share equivalents outstanding 220.9 220.3 220.6 215.6
===============================================================================
Cash dividends per common share $0.15 $0.15 $0.30 $0.30
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
FORT JAMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six months Ended
June 27, 1999 and June 28, 1998
(in millions) 1999 1998
- -----------------------------------------------------------------------------
Cash provided by (used for) operating activities:
Net income $193.3 $251.2
Depreciation expense 220.4 211.6
Amortization of goodwill 9.3 9.4
Deferred income tax provision 38.2 103.1
Restructure and other unusual items (1.1) (2.6)
(Income) loss from discontinued operations 4.9 (5.9)
Loss on early extinguishment of debt, net of taxes 33.2 2.6
Cumulative effect of a change in accounting
principle, net of taxes 22.1 -
Change in current assets and liabilities, excluding
effects of discontinued operations:
Accounts receivable (115.7) (130.6)
Inventories (28.1) 1.7
Prepaid expenses and other current assets (12.3) 2.6
Accounts payable and accrued liabilities (30.0) (73.4)
Other, net (26.1) (39.1)
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Cash provided by operating activities 308.1 330.6
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Cash provided by (used for) investing activities:
Expenditures for property, plant and equipment (220.7) (205.1)
Increase in net assets of discontinued operations (34.5) (15.5)
Other, net 2.5 3.7
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Cash used for investing activities (252.7) (216.9)
- -----------------------------------------------------------------------------
Cash provided by (used for) financing activities:
Additions to long-term debt 19.9 384.8
Payments of long-term debt (333.4) (379.2)
Net increase (decrease) in revolving debt 361.0 (84.8)
Premiums paid on early extinguishment of debt
and debt issuance costs (54.2) (5.7)
Redemption of preferred stock - (6.6)
Common and preferred stock cash dividends paid (65.9) (73.4)
Proceeds from exercise of stock options 8.6 23.6
Other, net 11.0 -
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Cash used for financing activities (53.0) (141.3)
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Increase (decrease) in cash and cash equivalents 2.4 (27.6)
Cash and cash equivalents, beginning of period 5.3 33.6
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Cash and cash equivalents, end of period $ 7.7 $ 6.0
=============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
Basis of Presentation:
In the opinion of management, the accompanying unaudited consolidated
financial statements of Fort James Corporation ("Fort James" or "the
Company") contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the Company's consolidated financial
position as of June 27, 1999, its results of operations for the quarters and
six months ended June 27, 1999 and June 28, 1998, and its cash flows for the
six months ended June 27, 1999 and June 28, 1998. The balance sheet as of
December 27, 1998 was derived from audited financial statements as of that
date. The results of operations for the quarter and six months ended June 27,
1999 are not necessarily indicative of the results to be expected for the
full year.
Certain amounts in the financial statements and supporting footnote
disclosures have been reclassified to conform to the current year's
classification.
Prospective Accounting Pronouncements:
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement requires the
recognition of all derivatives in the statement of financial position as
either assets or liabilities and their measurement at fair value. Depending
upon the nature of the derivative, changes in fair value are either
recognized in other comprehensive income or in earnings. FASB Statement No.
137, which was issued in July 1999, defers the Company's required adoption of
Statement No. 133 until fiscal 2001. The Company has not determined what
affect, if any, Statement No. 133 will have on its results of operations or
financial position.
2. Discontinued Operations
In the second quarter of 1999, the Company's Board of Directors approved a
plan to sell the Company's Packaging business to ACX Technologies, Inc. for
$830 million in cash. The Packaging business consists of the operations,
assets, and liabilities of the Company's folding carton, healthcare, and
microwave packaging manufacturing facilities. The sale closed on August 2,
1999. These operations are presented as discontinued operations for all
periods in the Company's statement of operations.
Results of the Packaging business for the quarters and six months ended
June 27, 1999 and June 28, 1998 were as follows:
Quarter Six Months
------------- -------------
(in millions) 1999 1998 1999 1998
----------------------------------------------------------------------------
Net sales $139.9 $147.4 $278.9 $293.3
=============================================================================
Income (loss) from discontinued
operations $(14.7) $ 6.7 $ (6.8) $ 10.6
Tax benefit (expense) 5.4 (3.0) 1.9 (4.7)
-----------------------------------------------------------------------------
Income (loss) from discontinued
operations, net of taxes $ (9.3) $ 3.7 $ (4.9) $ 5.9
=============================================================================
At June 27, 1999, the assets and liabilities of discontinued operations
were $478.4 million and $52.2 million, respectively.
3. Inventories
The components of inventories were as follows as of June 27, 1999 and
December 27, 1998:
June December
(in millions) 1999 1998
-------------------------------------------------------------------------
Raw materials $ 146.8 $ 164.2
Finished goods and work in process 523.3 510.9
Stores and supplies 165.6 163.2
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835.7 838.3
Reduction to state certain inventories at
last-in, first-out cost (16.5) (31.8)
-------------------------------------------------------------------------
Total inventories $ 819.2 $ 806.5
=========================================================================
4. Comprehensive Income
Comprehensive income for the quarters ended June 27, 1999 and June 28,
1998 was $57.7 million and $138.4 million, respectively. For the six months
ended June 27, 1999 and June 28, 1998, comprehensive income was $65.1 million
and $220.2 million, respectively. The difference between net income and
comprehensive income is due to foreign currency translation gains and losses.
In 1998, comprehensive income also included unrealized losses on securities.
5. Income Taxes
The Company's effective income tax rate was 34.3 percent for the six
months ended June 27, 1999 compared to 37.8 percent for the first six months
of 1998. The difference between the Company's effective income tax rate and
the statutory federal income tax rate is primarily due to state and foreign
income taxes and the benefits of tax planning strategies.
6. Extraordinary Loss on Early Extinguishment of Debt
The extraordinary loss on the early extinguishment of debt for the quarter
ended June 27, 1999 was $50.8 million, net of income taxes of $19.8 million.
For the six months ended June 27, 1999 and June 28, 1998, the extraordinary
loss on the early extinguishment of debt was $54.4 million and $4.2 million,
net of income taxes of $21.2 million and $1.6 million, respectively.
7. Net Income Per Common Share and Common Share Equivalent
Income and share information used in determining earnings per share for
the quarters and six months ended June 27, 1999 and June 28, 1998 were
calculated as follows:
1999 1998
-------------------------------
(in millions, except per share amounts) Income Shares Income Shares
- --------------------------------------------------------------------------------
Quarter:
Amounts used to compute basic earnings per share:
Income from continuing operations
before extraordinary item and
cumulative effect of a change
in accounting principle 135.9 $132.5
Weighted average common
shares outstanding 219.6 217.6
Effect of dilutive securities:
Options 1.3 2.7
- --------------------------------------------------------------------------------
Amounts used to compute diluted
earnings per share $135.9 220.9 $132.5 220.3
================================================================================
Six months:
Amounts used to compute basic earnings per share:
Income from continuing operations
before extraordinary item and
cumulative effect of a change
in accounting principle $253.5 $247.9
Preferred stock dividends - (5.2)
- --------------------------------------------------------------------------------
Net income available to
common stockholders 253.5 242.7
Weighted average common
shares outstanding 219.6 213.1
Effect of dilutive securities:
Options 1.0 2.5
- --------------------------------------------------------------------------------
Amounts used to compute
diluted earnings per share $253.5 220.6 $242.7 215.6
================================================================================
Series K, L and N preferred stocks, which were redeemed or converted in the
second quarter of 1998, were antidilutive in the first quarter of 1998.
8. Fort James Operating Company
Fort James Operating Company ("FJOC") is an obligor of certain securities
registered under the Securities Act of 1933, thus subjecting it to reporting
requirements under Section 13 or 15(d) of the Securities Exchange Act of
1934. In accordance with Staff Accounting Bulletin No. 53, the following
condensed financial information for FJOC for the quarters and six months
ended June 27, 1999 and June 28, 1998 and as of June 27, 1999 and December
27, 1998 is presented in lieu of consolidated financial statements because
the securities are fully and unconditionally guaranteed by Fort James and
management has determined that such information is not material to the
holders of the securities. Prior periods have been restated to reflect the
Packaging business as a discontinued operation.
Quarter Six Months
---------------- ----------------
(in millions) 1999 1998 1999 1998
- --------------------------------------------------------------------------------
Condensed income statement information:
Net sales $1,220.1 $ 1,119.9 $ 2,267.9 $2,186.6
Gross profit 373.9 365.9 688.8 707.6
Income from continuing operations
before extraordinary item and the
cumulative effect of a change in
accounting principle 38.6 47.3 43.1 85.0
Net income 36.9 54.5 32.6 95.1
================================================================================
June December
(in millions) 1999 1998
- ---------------------------------------------------------------------
Condensed balance sheet information:
Current assets $ 988.6 $ 865.8
Noncurrent assets 3,553.3 3,575.7
Current liabilities 496.2 651.0
Noncurrent liabilities 5,358.0 5,129.5
=====================================================================
9. Commitments and Contingent Liabilities
Environmental Matters:
Like its competitors, Fort James is subject to extensive regulation by
various federal, state, provincial, and local agencies concerning compliance
with environmental control statutes and regulations. These regulations impose
limitations, including effluent and emission limitations, on the discharge of
materials into the environment, as well as require the Company to obtain and
operate in compliance with the conditions of permits and other governmental
authorizations. Future regulations could materially increase the Company's
capital requirements and certain operating expenses in future years.
Fort James, along with others, has been identified as a potentially
responsible party ("PRP") at various U.S. Environmental Protection Agency
("EPA") designated superfund sites. The Company is involved in various
related actions under federal and state laws, including remedial
investigations to determine the appropriate remedy for such sites. The
Company, along with six other current and former operators of pulp and paper
facilities, has been identified as a PRP for contamination by hazardous
substance of the lower Fox River. Various state and federal agencies and
tribal entities are seeking sediment restoration and natural resources
damages. In February 1999, the Wisconsin Department of Natural Resources
released for public comment a draft remedial investigation/feasibility study
of the Fox River. While the draft study did not advocate any specific
restoration alternatives, it included estimated total costs ranging from zero
for `no action' to approximately $720 million, depending on the alternative
or combination of alternatives selected. The final restoration alternative
and the Company's share of the related costs are unknown at this time. The
Company, along with other PRPs, is also participating in the funding of a
remedial investigation/feasibility study of contamination of the Kalamazoo
River. Management does not anticipate selection of a remedy prior to fiscal
2002. The Company believes that its share of the restoration costs for these
sites will not have a material adverse impact on its consolidated financial
position but could have a material effect on consolidated results of
operations in a given period.
It is the Company's policy to accrue remediation costs on an undiscounted
basis when it is probable that such costs will be incurred and when a range
of loss can be reasonably estimated. As of June 27, 1999, Fort James' accrued
environmental liabilities, including remediation and landfill closure costs,
totaled $67.7 million.
Litigation:
In May 1997, the Attorney General of the State of Florida filed a civil
action in the United States District Court for the Northern District of
Florida at Gainesville (the "Florida District Court"), against the Company
and seven other manufacturers of sanitary commercial paper products alleging
violations of federal and state antitrust and unfair competition laws. The
complaint seeks damages on behalf of the state under Florida law of $1
million against each defendant for each violation, unspecified treble damages
and injunctive relief. Three other state attorney generals have brought
similar suits which have been consolidated in the Florida District Court. In
addition, numerous other filings have been filed in federal courts on behalf
of an alleged class of direct purchasers, all seeking similar damages for
similar alleged violations. The class actions were consolidated in the
Florida District Court, and in July 1998, the Court conditionally certified
the class. State class actions also have been filed in certain states, on
behalf of an alleged class of indirect purchasers, seeking similar damages
for similar alleged violations under state law. The Company believes that
these cases are without merit and is vigorously defending both the federal
and state actions.
Although the ultimate disposition of legal proceedings cannot be predicted
with certainty, it is the opinion of the Company's management that the
outcome of any claim which is pending or threatened, either individually or
on a combined basis, will not have a material adverse effect on the
consolidated financial condition of Fort James but could have a material
effect on consolidated results of operations in a given period.
10. Segments
Segment sales and income from operations before nonrecurring and other
unusual items for the quarters and six months ended June 27, 1999 and June
28, 1998 and total assets as of June 27, 1999 and June 28, 1998 were as
follows:
Tissue Communi- Inter-
------------------------ cations company
North Papers and and
(in millions) America Europe Dixie Fiber Corporate Total
- ----------------------------------------------------------------------------------------------------------------------
Quarter ended June 1999
Net sales $ 913.7 $456.3 $220.3 $200.9 $(72.7) $ 1,718.5
Intercompany sales 30.3 - 0.7 41.7 - 72.7
Income from operations before
restructure and other unusual items 183.5 57.4 38.6 (8.6) (18.7) 252.2
======================================================================================================================
Quarter ended June 1998
Net sales $ 904.6 $466.2 $224.5 $210.4 $(74.6) $ 1,731.1
Intercompany sales 29.9 - 0.5 44.2 - 74.6
Income from operations before
restructure and other unusual items 217.8 57.4 33.2 3.5 (21.2) 290.7
=======================================================================================================================
Six months ended June 1999
Net sales $1,813.1 $922.2 $395.9 $396.9 $(140.6) $ 3,387.5
Intercompany sales 55.9 - 1.6 83.1 - 140.6
Income from operations before
restructure and other unusual items 375.6 118.5 57.9 (22.8) (40.6) 488.6
Total assets 3,001.5 2,123.7 430.5 811.1 1,216.5 (a) 7,583.3
======================================================================================================================
Six months ended June 1998
Net sales $1,793.7 $924.2 $397.3 $425.9 $(141.2) $ 3,399.9
Intercompany sales 57.0 - 1.4 82.8 - 141.2
Income from operations before
restructure and other unusual items 418.6 113.1 51.1 9.9 (43.8) 548.9
Total assets 3,013.8 2,216.8 405.1 857.2 1,206.5 (a) 7,699.4
======================================================================================================================
(a) Includes net assets of discontinued operations which were previously
reported as a separate segment.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the quarters and six months ended June 27, 1999 and June 28, 1998 the
Company recorded certain unusual items. These items, which are further discussed
below, included merger-related restructure and other unusual charges,
discontinued operations, extraordinary losses on the early extinguishment of
debt, and the cumulative effect of a change in accounting principle. The
following discussion of operating results by segment exclude these charges.
Overview
1999 (a)(c) 1998 (b)(d)
(in millions, ---------------------- ----------------------
except per share data) Reported Recurring Reported Recurring
- --------------------------------------------------------------------------------
Quarter:
Net sales $ 1,718.5 $ 1,718.5 $ 1,731.1 $ 1,731.1
Income from operations 253.3 252.2 281.9 290.7
Net income 95.6 135.2 136.2 137.9
Diluted earnings per share $ 0.44 $ 0.62 $ 0.62 $ 0.63
===============================================================================
Six months:
Net sales $ 3,387.5 $ 3,387.5 $ 3,399.9 $ 3,399.9
Income from operations 489.7 488.6 533.6 548.9
Net income 193.3 252.8 251.2 257.4
Diluted earnings per share $ 0.88 $ 1.15 $ 1.14 $ 1.17
===============================================================================
(a) Income from operations and net income for the second quarter of 1999
included net non-recurring income of $1.1 million ($0.7 million after
taxes) for the reversal of merger-related restructuring liabilities settled
on terms more favorable than anticipated which were largely offset by
merger-related severance costs. Net income also included a loss from
discontinued operations of $14.7 million ($9.3 million after taxes or $0.04
per diluted share) and $50.8 million ($31.0 million after taxes or $0.14
per diluted share) for an extraordinary loss on early extinguishment of
debt.
(b) Income from operations and net income for the second quarter of 1998
included merger-related relocation costs of $8.8 million ($5.4 million
after taxes or $0.03 per diluted share). Net income also included income
from discontinued operations of $6.7 million ($3.7 million after taxes or
$0.02 per diluted share).
(c) Income from operations and net income for the first six months of 1999
included net non-recurring income of $1.1 million ($0.7 million after
taxes) for the reversal of merger-related restructuring liabilities settled
on terms more favorable than anticipated which were largely offset by
merger-related severance costs. Net income also included a loss from
discontinued operations of $6.8 million ($4.9 million after taxes or $0.02
per diluted share) and $54.4 million ($33.2 million after taxes or $0.15
per diluted share) for an extraordinary loss on early extinguishment of
debt, and $34.1 million ($22.1 million after taxes or $0.10 per diluted
share) for the cumulative effect of a change in accounting for start-up
costs.
(d) Income from operations and net income for the first six months of 1998
included merger-related relocation costs of $15.3 million ($9.5 million
after taxes or $0.05 per diluted share). Net income also included income
from discontinued operations of $10.6 million ($5.9 million after taxes or
$0.03 per diluted share) and $4.2 million ($2.6 million after taxes or
$0.01 per diluted share) for an extraordinary loss on early extinguishment
of debt.
Tissue - North America
Quarter Six months
--------------------------- --------------------------
Inc/ Inc/
(in millions) 1999 1998 (Dec) 1999 1998 (Dec)
- --------------------------------------------------------------------------------
Net sales $ 913.7 $ 904.6 1.0% $ 1,813.1 $ 1,793.7 1.1%
Income from operations 183.5 217.8 -15.7% 375.6 418.6 -10.3%
================================================================================
Tissue - North America sales for both the quarter and six months ended June
1999 were driven by strong retail volume growth which was substantially offset
by lower prices, particularly in the away-from-home category.
Retail prices declined modestly compared to the same quarter of 1998, but
were similar for the six months following a strong first quarter of 1999. Volume
growth was strong in both the quarter and the six months. Each of the Company's
flagship retail brands, including QUILTED NORTHERN bath tissue, BRAWNY towels,
and MARDI GRAS and VANITY FAIR napkins, gained market share during the second
quarter. These gains were principally driven by the combination of highly
effective new advertising, product improvements, and effective merchandising.
The majority of the decline in Tissue - North America profits occurred
in the away-from-home category. Away-from-home volumes were similar to the prior
year quarter and six months, but pricing declined due to competitive industry
conditions.
Quarter and year-to-date profits for both retail and away-from-home were
negatively affected by increased distribution costs. These increases reflect
efforts to resolve last year's service issues and costs associated with the
transition to a common order entry and scheduling system. Results for the six
months were also affected by increased marketing and promotional expenses.
Beginning in mid-July, Fort James began rolling out an improved QUILTED
NORTHERN bath tissue. This product, which is thicker, stronger, more absorbent,
and significantly softer, has been favorably received in consumer preference
tests.
Tissue - Europe
Quarter Six months
-------------------------- --------------------------
Inc/ Inc/
(in millions) 1999 1998 (Dec) 1999 1998 (Dec)
- --------------------------------------------------------------------------------
Net sales $ 456.3 $ 466.2 -2.1% $ 922.2 $ 924.2 -0.2%
Income from operations 57.4 57.4 - 118.5 113.1 4.8%
================================================================================
The Tissue - Europe business reported strong volume growth, which was
substantially offset by declining prices for both the quarter and six months.
Changes in foreign currency translation rates also had a negative effect on
sales and operating profits. Foreign currency is estimated to have reduced sales
and operating profits by approximately 3 percent compared to last year's
quarter. The year-to-date impact on both sales and operating profits was not
significant. Continuing above market growth trends of the last few years,
finished goods volumes for the quarter increased 4.5 percent, with notable gains
in France, the British Isles, Spain and Greece. For the six months, finished
goods volumes were 2.2 percent higher than the prior year. The benefits of these
volume gains, combined with cost reductions and lower year-over-year raw
material costs in both the quarter and six months, were substantially offset by
the effect of competitive pricing conditions.
On July 1st, the company completed the previously announced acquisition of
Demak'Up, the leading European brand of make-up removal cotton pads.
Dixie
Quarter Six months
----------------------- -------------------------
Inc/ Inc/
(in millions) 1999 1998 (Dec) 1999 1998 (Dec)
- --------------------------------------------------------------------------------
Net sales $220.3 $224.5 -1.9% $395.9 $397.3 -0.4%
Income from operations 38.6 33.2 16.3% 57.9 51.1 13.3%
================================================================================
Dixie's profit improvement was driven by cost reduction, foodservice
rationalization activities, and retail volume increases. Retail performance for
the quarter and six months benefited from strong volume growth in both cups and
plates, driven by good category momentum and market share gains. New
"value-pack" offerings in cups and plates were the primary contributors to the
strong volume growth. While foodservice sales were significantly below those of
the prior year, reflecting the pruning of certain low-margin product lines, good
growth was posted in key targeted areas such as the PERFECTOUCH hot cup,
dense-pack cutlery, and QUILT-RAP premium food wraps.
Communications Papers and Fiber
Quarter Six months
--------------------- -------------------------
Inc/ Inc/
(in millions) 1999 1998 (Dec) 1999 1998 (Dec)
- --------------------------------------------------------------------------------
Net sales $200.9 $210.4 -4.5% $396.9 $425.9 -6.8%
Income (loss)from operations (8.6) 3.5 NM (22.8) 9.9 NM
================================================================================
NM - not meaningful
Communications Papers and Fiber results for both the quarter and six months
continue to reflect lower pricing for uncoated free sheet, groundwood papers and
market pulp, partially offset by increased uncoated free sheet paper and pulp
volumes. However, the operating loss narrowed from first quarter 1999 levels, as
firming commodity paper markets allowed modest price recovery.
Other Income
Other income for the quarter was $14.2 million compared to other expense of
$6.3 million during the prior year quarter. The increase is primarily
attributable to interest income on an IRS refund of $9.3 million and an $8.7
million increase in foreign currency gains (losses). For the six months, other
income increased from $2.5 million in 1998 to $18.1 million in 1999. This
increase is attributable to the interest income on the IRS refund, foreign
currency gains, and increased earnings in unconsolidated subs .
Discontinued Operations
In April, Fort James announced the signing of a definitive agreement to sell
its Packaging business to ACX Technologies, Inc. for approximately $830 million
in cash. The sale was completed in the third quarter. As a result, the Packaging
business has been shown in the financial statements as a discontinued operation
and information for prior periods has been restated. The income (loss) from
discontinued operations includes Packaging operating profits, one-time
non-operating expenses, and an allocation of interest expense and taxes. The
Company plans to use the net proceeds from the sale to repay revolving credit
borrowings.
FINANCIAL CONDITION
Cash provided by operating activities totaled $308.1 million in the first six
months of 1999, compared with $330.6 million in the prior year. The decrease is
primarily due to lower earnings and increased working capital, partially offset
by reduced merger-related restructure and integration spending. The Company's
current ratio was 1.3 as of June 1999, and 1.2 as of December 1998, while
working capital increased to $482.1 million from $292.5 million for the same
periods. The increase in working capital is primarily due to decreases in
outstanding payables and accrued expenses and higher accounts receivable,
partially offset by decreased current deferred income taxes. Capital
expenditures were $220.7 million for the six months ended June 1999, compared to
$205.1 million for the same period in the prior year.
During the second quarter of 1999, the Company refinanced $125.3 million of
9.25%, $64.0 million of 8.38%, and $62.0 million of 7.75% senior notes prior to
their scheduled maturities. The debt was substantially replaced with additional
borrowings under the revolving line of credit. The redemption resulted in an
extraordinary loss on the early extinguishment of debt of $50.8 million ($31.0
million after taxes or $0.14 per diluted share).
As of June 1999, total indebtedness was $3.89 billion and, including the
effect of interest rate swaps, included approximately $2.6 billion of fixed rate
and $1.3 billion of floating rate obligations. As of December 1998, total
indebtedness was also $3.89 billion and, including the effect of interest rate
swaps, included $2.8 billion of fixed rate and $1.1 billion of floating rate
obligations. Outstanding borrowings of $1.3 billion were supported by revolving
credit facilities as of June 1999, compared to $0.9 billion as of December 1998.
Under the most restrictive provisions of the Company's debt agreements, the
Company had additional borrowing capacity of approximately $1.4 billion as of
June 1999.
Restructuring
Merger-related restructuring liabilities changed during the six months
as follows:
Estimate Cash Reclass-
Deember Revi- Pay- ifica- June
(in millions) 1998 sions ments tions 1999
- --------------------------------------------------------------------------------------
Facility closures and write-downs of
redundant property, plant and equipment $24.9 $0.6 $(6.9) $(4.8) $13.8
Severance and other employee-related costs 46.9 2.5 (13.2) - 36.2
Costs of terminating contracts and other
long-term agreements 7.8 (0.6) (1.6) (2.6) 3.0
- --------------------------------------------------------------------------------------
Accrued restructure costs $79.6 $2.5 $(21.7) $(7.4) $53.0
======================================================================================
The Company also announced plans to complete previously announced headcount
reduction programs.
Stock Repurchase Program
During the second quarter, the Company's Board of Directors authorized the
repurchase of up to $500 million of the Company's common stock over the next 18
months. The Company will repurchase its common shares from time to time on the
open market or in negotiated transactions, depending upon market conditions,
applicable securities regulations and other factors. No shares were repurchased
during the second quarter.
EFFECT OF NEW ACCOUNTING STANDARDS
See Note 1 to the Consolidated Financial Statements.
YEAR 2000
As outlined in the Company's Form 10-K for the year ended December 27,
1998, the Company has established a Y2K Project Office to coordinate its Year
2000 ("Y2K") efforts. The Y2K Project Office is organized into various work
categories which, where appropriate, include specific work plans, contingency
plans, schedules, and goals. The vast majority of the Company's Y2K remediation
work has been completed according to previously identified time schedules. The
second quarter of 1999 completion dates for certain remediation efforts in the
Mainframe - Internal Systems and Infrastructure work categories have been
revised to the third quarter of 1999. Remaining efforts will focus on a limited
number of distinct modules and site specific applications. All work categories
are currently estimated to be completed prior to the end of the third quarter,
except Business Continuity Planning which will be ongoing through the end of the
fourth quarter to manage and track the Company's contingency planning process.
Approximately $8 million and $20 million in Y2K related expenses were
incurred during the quarter and six months ended June 1999, respectively.
Additional expense of $2 million to $4 million is expected to be incurred to
make and test the required Y2K system modifications and replacements.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties that could cause actual results and Company
plans and objectives to differ materially from those projected. Such risks and
uncertainties include, but are not limited to, general business and economic
conditions; competitive pricing pressures for the Company's products; the
ability to successfully implement new product initiatives; changes in raw
material, energy and other costs; and opportunities that may be presented to and
pursued by the Company; determinations by regulatory and governmental
authorities; the ability to successfully integrate the former James River and
Fort Howard businesses; the ability to achieve synergistic and other cost
reductions and efficiencies; and the ability to successfully remediate Year 2000
problems.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
See Note 9 to the Consolidated Financial Statements of this Quarterly
Report on Form 10-Q.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders was held on April 22, 1999. At this
meeting, the Shareholder proposal, which urged the Board of Directors
to redeem the shareholders rights issued pursuant to the Shareholders
Rights Plan (the "Plan") unless he Plan was approved by a majority of
shareholders, was approved. Additionally, all of management's nominees
for members of the Board of Directors were elected.
. Shareholders of record of the Company's common stock at the close of
business on February 24, 1999, were entitled to vote at the Annual
Meeting. Votes were cast as follows:
Votes
-------------------------------------- Broker
For Against Withheld Non-Votes
----------- ---------- ---------- ---------
Shareholder proposal 134,512,331 48,180,117 1,236,515 9,955,004
Nominees for election of Directors
Barbara L. Bowles 187,202,121 6,681,846
William T. Burgin 187,260,521 6,623,446
Dr. James L. Burke 187,241,038 6,642,929
Worley H. Clark, Jr. 186,837,435 7,046,532
Gary P. Coughlan 187,237,686 6,646,281
William V. Daniel 187,220,436 6,663,531
Ernst A. Haberli 187,245,079 6,638,888
Miles L. Marsh 187,138,862 6,745,105
Robert M. O'Neil 187,258,958 6,625,009
Richard L. Sharp 187,244,215 6,639,752
Anne Marie Whittemore 187,273,230 6,610,737
Item 5. OTHER INFORMATION.
The unaudited pro forma condensed consolidated balance sheet as of June 27,
1999 and the pro forma consolidated statements of operations for the six months
ended June 27, 1999 and the year ended December 27, 1998, based on Fort James'
financial statements, as adjusted to give pro forma effect to the sale of the
Packaging business, are filed herewith as exhibit 99.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
The exhibits listed below are filed as part of this quarterly report. Each
exhibit is listed according to the number assigned to it in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit
Number
2 Asset Purchase Agreement Among Fort James Corporation, ACX Technologies,
Inc. and Graphic Packaging Corporation, dated as of April 25, 1999
(schedules omitted). Schedules relating to assets and liabilities to
be transferred; financial statements of the Packaging business; and
significant contracts, leases, and employee benefit and labor agreements
have been omitted, but will be furnished supplementary to the Securities
and Exchange Commission upon request.
27 Financial Data Schedules for the six months ended June 27, 1999 (filed
electronically only
99 Unaudited pro forma condensed consolidated balance sheet as of June
27, 1999 and the pro forma consolidated statements of operations for
the six months ended June 27, 1999 and the year ended December 27, 1998
to give pro forma effect to the sale of the Packaging business, filed
herewith
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
June 27, 1999, and subsequent thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FORT JAMES CORPORATION
By:/s/ William A. Paterson
William A. Paterson
Senior Vice President and Controller
(Principal Accounting Officer)
Date: August 10, 1999
</TABLE>
ASSET PURCHASE AGREEMENT
AMONG
FORT JAMES CORPORATION,
ACX TECHNOLOGIES, INC.
AND
GRAPHIC PACKAGING CORPORATION
Dated as of April 25, 1999
<PAGE>
-iv-
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 Definitions.................................................. 1
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale............................................. 7
2.2 Excluded Assets............................................... 8
2.3 Assumed Liabilities; Excluded Liabilities..................... 8
ARTICLE III
PURCHASE PRICE, WORKING CAPITAL ADJUSTMENT
3.1 Purchase Price................................................ 10
3.2 Working Capital Adjustment.................................... 10
3.3 Additional Payments........................................... 11
ARTICLE IV
RELATED AGREEMENTS
4.1 Related Agreements............................................ 12
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FORT JAMES
5.1 Organization; Qualification................................... 13
5.2 Authority Relative to this Agreement and the Related Agreements 13
5.3 Consents and Approvals......................................... 13
5.4 Non-Contravention............................................. 13
5.5 Compliance with Laws.......................................... 14
5.6 Environmental Matters......................................... 14
5.7 Licenses and Permits.......................................... 14
5.8 Financial Statements.......................................... 15
5.9 Litigation.................................................... 15
5.10 Title to Properties............................................ 15
5.11 Leases......................................................... 15
5.12 Intellectual Property.......................................... 16
5.13 Listed Contracts.............................................. 17
5.14 Labor Matters................................................. 17
5.15 Employee Benefit Plans......................................... 18
5.16 Conduct of Business and Management of Assets................... 19
5.17 Finders....................................................... 20
5.18 Sufficiency of Assets......................................... 20
5.19 Customers..................................................... 20
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
6.1 Organization; Qualification................................... 21
6.2 Authority Relative to this Agreement and the Related Agreements.21
6.3 Non-Contravention...............................................21
6.4 Consents and Approvals..........................................21
6.5 Litigation......................................................21
6.6 Availability of Funds...........................................22
6.7 Finders.........................................................22
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Conduct of Business and Management of Assets....................22
7.2 Forbearances by Fort James......................................22
7.3 Mail Received After Closing.....................................23
7.4 Retention of Books and Records..................................23
7.5 Expenses........................................................24
7.6 Confidentiality.................................................24
7.7 Public Announcements............................................25
7.8 Efforts to Consummate...........................................25
7.9 Further Assurances..............................................25
7.10 Use of Fort James Name..........................................25
7.11 No Solicitation of Employees....................................26
7.12 Antitrust Filings...............................................26
7.13 Title Matters...................................................27
7.14 Tax Matters.....................................................28
7.15 Access to Assets and Business Employees.........................28
7.16 Substitute Letters of Credit; Guarantees........................28
7.17 Consents and Approvals..........................................28
7.18 Negotiations....................................................29
7.19 Audited Financial Statements....................................29
7.20 Year 2000 Compliance Program....................................29
ARTICLE VIII
BUSINESS EMPLOYEE AND EMPLOYEE BENEFIT MATTERS
8.1 Business Employees..............................................29
8.2 Employment......................................................30
8.3 Employee Benefits...............................................30
8.4 Assumption of Liabilities.......................................32
8.5 Collective Bargaining Agreements................................32
8.6 Pension Plan for Salaried Business Employees....................33
8.7 401(k) Plan.....................................................33
8.8 Pension Plan For Hourly Buiness Employees.......................34
8.9 Worker's Compensation...........................................37
8.10 Vacation Pay....................................................37
8.11 Welfare Plans...................................................37
8.12 Plant Closing Laws..............................................37
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF BUYER
9.1 Representations and Warranties..................................38
9.2 Performance of this Agreement...................................38
9.3 Proceedings.....................................................38
9.4 Consents and Approvals..........................................38
9.5 Injunction, Litigation, etc.....................................38
9.6 Legislation.....................................................38
9.7 Related Agreements..............................................38
9.8 Material Adverse Change.........................................38
9.9 Opinion of Counsel for Fort James...............................39
9.10 Officer's Certificate...........................................39
9.11 Audited Financial Statements....................................39
ARTICLE X
CONDITIONS TO OBLIGATIONS OF FORT JAMES
10.1 Representations and Warranties..................................39
10.2 Performance of this Agreement...................................39
10.3 Proceedings.....................................................39
10.4 Consents and Approvals..........................................39
10.5 Injunction, Litigation, etc.....................................39
10.6 Legislation.....................................................40
10.7 Related Agreements..............................................40
10.8 Officer's Certificate...........................................40
ARTICLE XI
DELIVERIES, ETC., IN CONNECTION WITH CLOSING
11.1 Time and Place of Closing.......................................40
11.2 Deliveries by Fort James........................................40
11.3 Deliveries by Buyer.............................................41
11.4 Deliveries of Related Agreements................................41
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification by Fort James...................................41
12.2 Indemnification by Buyer........................................43
12.3 Article VIII Rights and Obligations Excluded...................43
12.4 Survival Date...................................................43
12.5 Definition of Loss..............................................44
12.6 Third Party Claims..............................................44
12.7 Subrogation Rights; No Duplication..............................45
ARTICLE XIII
TERMINATION, AMENDMENT AND WAIVER
13.1 Termination.....................................................45
13.2 Effect of Termination...........................................46
13.3 Amendment.......................................................46
13.4 Extension; Waiver...............................................46
ARTICLE XIV
GENERAL PROVISIONS
14.1 Notices.........................................................46
14.2 Interpretation..................................................47
14.3 Counterparts....................................................47
14.4 Miscellaneous...................................................47
14.5 Third Party Beneficiaries.......................................48
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of April 25,
1999, is made among FORT JAMES CORPORATION, a Virginia corporation ("Fort
James"), ACX TECHNOLOGIES, INC., a Colorado corporation ("ACX") and GRAPHIC
PACKAGING CORPORATION, a Delaware corporation ("GPC," and together with ACX,
"Buyer").
RECITALS
WHEREAS, Fort James desires to sell, or cause its Subsidiaries to sell,
the assets described herein and Buyer desires to purchase such assets, for the
consideration hereinafter set forth, including the assumption of certain
liabilities.
NOW THEREFORE, in consideration of the foregoing and the
representations, warranties, and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used herein, the following terms have the following
meanings:
"accumulated funding deficiency" has the meaning set forth in Section
5.15(d).
"Affiliate," with respect to any party, means a party, person or entity
that, directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such
party, whether through the ownership of voting securities, by contract
or otherwise; provided, that with respect to Buyer, Affiliate shall
not include Coors Brewing Company, Adolph Coors Company and their
respective affiliates except ACX and its direct and indirect
subsidiaries.
"Agreement" has the meaning set forth in the introductory paragraph
hereof.
"Allocation Schedule" has the meaning set forth in Section 7.14(b).
"Antitrust Laws" means the Sherman Act, the Clayton Act, the Antitrust
Improvements Act, the Federal Trade Commission Act, and all other
federal and state statutes, rules, regulations, orders, decrees,
administrative and judicial doctrines, and other laws that are
designed or intended to prohibit, restrict or regulate actions having
the purpose or effect of monopolization or restraint of trade.
"Applicable Percentage" has the meaning set forth in Section 12.1(c).
"Assets" has the meaning set forth in Section 2.1.
"Asset Transfer Date" has the meaning set forth in Section 8.8(g).
"Assumed Collective Bargaining Agreements" has the meaning set
forth in Section 8.5(a).
"Assumed Liabilities" has the meaning set forth in Section 2.3(a).
"Authority" means any national, federal, state or local governmental,
judicial or regulatory agency or authority within or outside the
United States.
"Basket" has the meaning set forth in Section 12.1(b).
"Business" means the business customarily operated by the packaging
business of Fort James with respect to the products manufactured at
the Transferred Sites. For purposes of clarity, it is understood that
the "Business" excludes (i) the business operated in the St. Mary's,
Georgia and Naheola, Alabama facilities and (ii) the land and
buildings located in Redmond, Washington and Chambersburg,
Pennsylvania.
"Business Employees" has the meaning set forth in Section 8.1.
"Business Intellectual Property" has the meaning set forth in Section
2.1(d).
"Buyer" has the meaning set forth in the introductory paragraph hereof.
"Buyer's DC Plan" has the meaning set forth in Section 8.7(a).
"Buyer FSA Plan" has the meaning set forth in Section 8.3(e).
"Buyer's Pension Plan" has the meaning set forth in Section 8.8(a).
"Buyer's Pension Trust" has the meaning set forth in Section 8.8(d).
"Cap" has the meaning set forth in Section 12.1(b).
"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act codified at 42 U.S.C. ss. 9601 et seq. (including
the amendments made by the Superfund Amendments and Reauthorization
Act of 1986).
"Closing" has the meaning set forth in Section 11.1.
"Closing Balance Sheet" has the meaning set forth in Section 3.2(a).
"Closing Date" has the meaning set forth in Section 11.1.
"Closing Working Capital" has the meaning set forth in Section 3.2(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" has the meaning set forth in Section 7.6.
"Disputed Items" has the meaning set forth in Section 3.2(b).
"Employee Plans" has the meaning set forth in Section 5.15(a).
"Environmental Accrual Date" has the meaning set forth in Section
12.1(c).
"Environmental Condition" means any condition existing at any
Transferred Site that relates to(i)the emission, discharge, disposal,
release or threatened release of any Hazardous Substance into the
environment, (ii) the treatment, storage, recycling or other handling
of and Hazardous Substance, or (iii) the presence of any Hazardous
Substance, including, but not limited to, asbestos, in any building,
structure or workplace or on any of the Transferred Sites.
"Environmental Laws" means Environmental Statutes and any common law
governing the contamination, pollution or protection of the
environment or allocating liabilities in respect thereof.
"Environmental Statutes" means federal, state and local statutes and
regulations promulgated thereunder intended to provide protection for
public health and the environment, including, without limitation, the
Clean Air Act, the Clean Water Act, CERCLA, the Solid Waste Disposal
Act (including the Resource Conservation and Recovery Act), the Toxic
Substances Control Act, their state statutory and regulatory
counterparts and other substantially similar foreign statutes and
regulations.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any member of a controlled group of
corporations, any member of a group of trades or businesses under
common control, or any member of an affiliated service group with Fort
James within the meaning of Section 414(b), (c), (m), or (o) of the
Code, or Section 4001(a)(14) of ERISA.
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section 2.3(b).
"Filed Business Intellectual Property" means trade names, trademarks
and service marks, together with the associated goodwill, letters
patent, copyrights, design registrations and inventor certificates as
well as applications, registrations, and certificates for any of the
foregoing or any other intellectual property which is used exclusively
in, or applicable exclusively to, the Business and embodied in a form
which is filed or registered with any Authority.
"Final Closing Working Capital" has the meaning set forth in Sections
3.2(b) and 3.2(d).
"FJ 401(k) Plan" has the meaning set forth in Section 8.7(a).
"FJ FSA Plan" has the meaning set forth in Section 8.3(e).
"FJ Group" means Fort James and all of its Subsidiaries.
"FJ Pension Plan" has the meaning set forth in Section 8.8(a).
"FJ's Pension Trust" has the meaning set forth in Section 8.8(d).
"Fort James" has the meaning set forth in the introductory paragraph
hereof.
"Fort James Corporate Designations" has the meaning set forth in
Section 7.10(a).
"Fort James Material Adverse Effect" means a material adverse effect on
the consolidated financial position or results of operations of the
Business, taken as a whole, other than as a result of (i) changes in
general economic conditions or general developments in the packaging
industry or (ii) changes which result from the announcement or
performance of this Agreement and the transactions contemplated hereby
and compliance with the covenants set forth herein.
"GAAP" means United States generally accepted accounting principles.
"Hazardous Substance" means (i) any hazardous substance, extremely
hazardous substance, hazardous material, hazardous waste, regulated
substance or toxic substance (as those terms are defined by any
applicable Environmental Laws) and (ii) any chemicals, pollutants,
contaminants, or petroleum, crude oil or any fraction thereof
"Hourly Business Employees" has the meaning set forth in Section
8.2(b).
"Indemnitee" has the meaning set forth in Section 12.4(a).
"Indemnitor" has the meaning set forth in Section 12.4(a).
"Inventory" has the meaning set forth in Section 2.1(c).
"Knowledge of Fort James" means the actual knowledge of those officers
and employees of Fort James listed on Schedule 1.1-A.
"Large Brokers" has the meaning set forth in Section 5.19.
"Large Customers" has the meaning set forth in Section 5.19.
"Leased Assets" means any real property, improvements, equipment or
other assets leased to a Person within the FJ Group and used solely in
connection with the Business.
"Leased Premises" means that real property leased by Fort James or any
of its Subsidiaries, as lessee, and listed on Schedule 1.1-B.
"Legal Action" has the meaning set forth in Section 12.5.
"Lessee Lease" and "Lessee Leases" have the respective meanings set
forth in Section 5.11.
"Lessor Lease" and "Lessor Leases" have the respective meanings set
forth in Section 5.11.
"Liability" means any liability or obligation (whether known or unknown
whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and
whether due or to become due).
"Listed Contract" has the meaning set forth in Section 5.13.
"Losses" has the meaning set forth in Section 12.5.
"Major Leases" has the meaning set forth in Section 5.11(b).
"Major Leases Title Commitment" has the meaning set forth in Section
7.13(a).
"Major Leases Title Package" has the meaning set forth in Section
7.13(b).
"March Balance Sheet" means the unaudited balance sheet for the
Business as of March 28, 1999, reflecting the Business as proposed to
be transferred hereunder, previously delivered by Fort James to Buyer
and included as Schedule 3.2(a) hereto.
"Non-Filed Business Intellectual Property" means unpatented technology,
inventions, trade secrets, processes, know-how, designs and formulae
and unfiled trade names, trademarks and service marks, together with
the associated goodwill, unregistered copyrights and other industrial
or intellectual property which is used exclusively in, or applicable
exclusively to, the Business and not filed or registered with an
Authority.
"Opening Working Capital" has the meaning set forth in Section 3.2(e).
"P&L" has the meaning set forth in Section 5.8(b).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Exceptions" means (i) statutory liens for current taxes or
assessments not yet due and payable or being contested in good faith;
(ii) terms and conditions of any Lessor Leases; (iii) the current
zoning and subdivision laws and regulations applicable to any Real
Property; and (iv) such liens, imperfections in title, charges,
easements, restrictions, encumbrances (including any of the foregoing
shown by the surveys referred to in Section 7.13) as would not have a
Fort James Material Adverse Effect.
"Person" means an individual, partnership (general or limited),
corporation, association or other form of business organization
(whether or not regarded as a legal entity under applicable law),
trust, estate or any other entity.
"Pre-Closing Environmental Loss" has the meaning set forth in Section
12.1(c).
"Purchase Price" has the meaning set forth in Section 3.1.
"Rate of Return" has the meaning set forth in Section 8.8(g).
"Real Property" has the meaning set forth in Section 2.1(a).
"Real Property Title Commitment" has the meaning set forth in Section
7.13(a).
"Real Property Title Package" has the meaning set forth in Section
7.13(a).
"Related Agreements" has the meaning set forth in Section 4.1.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment.
"Remedial Actions" means actions required under Environmental Laws to
clean up or to contain or otherwise to ameliorate or remedy any
Environmental Condition, including but not limited to preventing a
Release or threatened Release and performing studies, investigations
and monitoring.
"Representative" has the meaning set forth in Section 7.6.
"Salaried Business Employees" has the meaning set forth in Section
8.2(b).
"section 411(d)(6) protected benefits" has the meaning set forth in
Section 8.7(a).
"Subsidiary," when used with respect to any Person, means any
corporation or other business entity, whether or not incorporated, of
which such Person holds, directly or indirectly, more than 50% of the
securities or interests having, by their terms, ordinary voting power
to elect members of the Board of Directors, or other persons
performing similar functions with respect to such entity.
"Title Commitment" has the meaning set forth in Section 7.13(a).
"Title Defect" has the meaning set forth in Section 7.13(a).
"Transfer Amount" has the meaning set forth in Section 8.8(e).
"Transfer Fees" has the meaning set forth in Section 7.5(b).
"Transferred Employees" has the meaning set forth in Section 8.2(a).
"Transferred Hourly Employees" has the meaning set forth in Section
8.3(a).
"Transferred Pension Participants" has the meaning setforth in Section
8.8(a).
"Transferred Salaried Employees" has the meaning set forth in Section
8.3(a).
"Transferred Sites" means the Real Property and the Leased Premises.
"Transition Services Agreement" has the meaning set forth in Section
4.1(b).
"Window Period" has the meaning set forth in Section 8.3(a).
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale. Fort James agrees to sell and to cause its Subsidiaries
to sell, to Buyer and Buyer agrees to purchase from Fort James and its
designated Subsidiaries at Closing all of the right, title and interest of Fort
James or any Person within the FJ Group in and to the following assets,
properties and rights other than the Excluded Assets (collectively, the
"Assets"):
(a) the real property listed in Schedule 2.1(a) together with the buildings,
fixtures and other improvements located thereon and the appurtenances thereto
(the "Real Property");
(b) the machinery, equipment, furniture, vehicles, tools, supplies and other
tangible personal property which (i) is ordinarily located on the Transferred
Sites or (ii) is listed on the attached Schedule 2.1(b);
(c) the raw materials, work-in-process, finished goods, stores, supplies and
spare parts which are located at the Transferred Sites or are in transit thereto
or which are located elsewhere and relate solely to the Business (the
"Inventory");
(d) except to the extent specified in Schedule 5.12, the Filed Business
Intellectual Property listed in Schedule 5.12, the Non-Filed Business
Intellectual Property listed in Schedule 5.12, and licenses to Filed Business
Intellectual Property and Non-Filed Business Intellectual Property listed in
Schedule 5.12 (such Filed Business Intellectual Property, such Non-Filed
Business Intellectual Property, and such licenses thereto, collectively, the
"Business Intellectual Property");
(e) all of the rights of every Person within the FJ Group under (i) the Listed
Contracts, (ii) the Lessee Leases and (iii) all other contracts and commitments
to the extent the same relate exclusively to the Business;
(f) to the extent assignable, all federal, state, local and foreign governmental
licenses, permits, approvals and authorizations held by any Person within the FJ
Group to the extent the same relate solely to the Business;
(g) all accounts receivable and notes receivable arising from the Business,
including receivables from Transferred Employees;
(h) all property records, production records, engineering records, purchasing
and sales records, personnel and payroll records for Transferred Employees,
accounting records, customer and vendor lists and other records and files
(including, but not limited to, any such records maintained in connection with
any computer system, but subject to the provisions of any applicable Related
Agreement) used exclusively in the Business; a co-ownership interest in any of
the foregoing assets which are used only in part in the Business, but only to
the extent of such use; and copies of the information relating to the Business
contained in the computer files referred to in Section 2.2(d), but only to the
extent such information relates to the Business; provided, however, that the
transfer of the assets and properties referred to in this Section 2.1(h) that do
not constitute indicia of title, may, at the option of Fort James, consist of
transfer of true, correct and complete copies thereof;
(i) subject to the provisions of Section 7.10, all purchase orders, forms,
labels, stationery, shipping materials, catalogues, brochures, art work,
photographs and advertising materials which relate solely to the Business or
which are located at any Transferred Site;
(j) those categories of prepaid expenses and deferred charges created in the
ordinary course of the Business which are listed on Schedule 2.1(j);
(k) all rights, choses in action and claims, known or unknown, matured or
unmatured, accrued or contingent, against third parties arising solely out of
the Business or the ownership or operation of the Assets; and
(l) Fort James' one-third interest in the Kalamazoo Valley Group Landfill
Partnership.
2.2 Excluded Assets. The following assets (the "Excluded Assets") to the extent
that, but for this sentence, they would constitute Assets, shall not be included
in the Assets:
(a) all cash and cash equivalents, including cash on hand or in bank accounts,
certificates of deposit, commercial paper and securities, except petty cash
funds located at the Transferred Sites;
(b) all prepaid expenses and deferred charges other than those listed in
Schedule 2.1(j);
(c) the real property, improvements, equipment and all other assets to be leased
from a member of the FJ Group pursuant to any Related Agreement, and any Leased
Assets (other than the leasehold interest therein);
(d) all computer files which contain any records or lists relating to any
business of the FJ Group other than the Business;
(e) the excluded technology listed in Schedule 2.2(e);
(f) all assets listed in Schedule 2.2(f); and
(g) all prepaid insurance premiums.
2.3 Assumed Liabilities; Excluded Liabilities. (a) Except to the extent set
forth in Section 2.3(b), Buyer shall assume, at the Closing, all Liabilities and
obligations of any Person within the FJ Group to the extent such Liabilities and
obligations relate exclusively to the Business or to the Assets (collectively,
the "Assumed Liabilities"), including, without limitation, the following:
(i) the current liabilities related to the Business or the Assets,
including, but not limited to, all accounts and trade payables, all
Liabilities and all obligations accruable as a current liability on
Fort James' financial statements at Closing to the extent such
payables, liabilities and obligations are related exclusively to the
Business or the Assets;
(ii) all Liabilities and obligations of any Person within the FJ Group with
respect to goods or services delivered or to be delivered to customers
of the Business arising from orders placed prior to or following the
Closing;
(iii) all Liabilities and obligations of any Person within the FJ Group under
the Listed Contracts, the Lessee Leases and any other contract,
commitment, license, permit, approval, authorization or other agreement
or arrangement constituting part of the Assets under Section 2.1(e);
(iv) all Liabilities and obligations of any Person within the FJ Group
existing at Closing and relating to Business Employees and employee
benefits for Business Employees, except to the extent such liabilities
and obligations are specifically retained by the FJ Group pursuant to
Article VIII;
(v) subject to Section 12.1(c) hereof, all Liabilities and obligations
under Environmental Laws of any Person within the FJ Group (including,
without limitation, any obligation to conduct or to pay for any
Remedial Action for any Environmental Condition or any obligation to
correct or to pay a penalty for failure to comply with Environmental
Statutes), in connection with facts, events, conditions, actions or
omissions existing or occurring prior to or after Closing, to the
extent that such liability, obligation, condition or failure (A)
exists on any Real Property, or real property constituting Leased
Premises at the Transferred Sites or (B) is a Liability arising under
Environmental Laws with respect to hazardous substances, contaminants,
pollutants or petroleum products leaching or physically migrating from
Transferred Sites to adjacent or nearby properties, and including,
without limitation, those liabilities listed on Schedule 2.3(a)(v);
(vi) all Liabilities or obligations of any member of the FJ Group in
connection with the Port of Portland Industrial Development Revenue
Bonds; and
(vii) all other Liabilities described on Schedule 2.3(a)(vii).
(b) The following Liabilities and obligations (the "Excluded Liabilities") shall
be excluded from the Assumed Liabilities:
(i) Liabilities for federal, state and local income and franchise taxes and
any other taxes incurred by any Persons within the FJ Group in the
conduct of the Business or with respect to the Assets before Closing,
except as is otherwise provided in this Agreement;
(ii) all Liabilities or obligations to the extent relating to the
acquisition, ownership or use of any of the Excluded Assets;
(iii) all Liabilities or obligations arising under Environmental Laws in
connection with facts, events, conditions, actions or omissions
existing on or occurring prior to Closing at locations other than the
Transferred Sites; and
(iv) any Liabilities listed on Schedule 2.3(b)(iv).
ARTICLE III
PURCHASE PRICE, WORKING CAPITAL
ADJUSTMENT
3.1 Purchase Price. The consideration to be paid for the Assets (the "Purchase
Price") shall be $830 million, in cash, subject to adjustment as provided in
Section 3.2.
3.2 Working Capital Adjustment. (a) Immediately after the Closing, Fort James
and Buyer shall jointly cause PricewaterhouseCoopers LLP to prepare an audited
balance sheet of the Business as of the Closing Date (the "Closing Balance
Sheet") and schedules setting forth the Closing Working Capital as of the end of
the last shift on the day next preceding the date of the Closing. "Closing
Working Capital" shall equal the current assets less the current liabilities as
reflected in the Closing Balance Sheet. The Closing Balance Sheet shall be
prepared on a basis consistent with the preparation of the March Balance Sheet
and taking into account the assets transferred and liabilities assumed pursuant
to this Agreement. The Closing Balance Sheet (together with the schedules
setting forth Closing Working Capital), shall be completed and delivered to the
parties no later than 60 days after Closing. All items in the schedules setting
forth the Closing Working Capital the amounts of which are not objected to or
questioned by Fort James or Buyer during the 15-day period following completion
and delivery of the Closing Balance Sheet shall be deemed agreed upon by the
parties and shall be deemed conclusive for purposes of determining the Final
Closing Working Capital, as defined herein.
(b)As promptly as practicable, but no later than 15 days after completion and
delivery of the Closing Balance Sheet, the parties shall attempt to resolve any
items comprising Closing Working Capital as to which the parties differ (the
"Disputed Items"). If during such 15-day period the parties are able to resolve
all Disputed Items, the Closing Working Capital so agreed upon shall be the
"Final Closing Working Capital."
(c) If during such 15-day period any such Disputed Items cannot be resolved,
those items to the extent of the amounts agreed upon by the parties shall be
deemed agreed upon, shall no longer constitute Disputed Items and shall be
conclusive for purposes of determining the Final Closing Working Capital and
each of Fort James and Buyer shall promptly thereafter but in no event more than
10 days thereafter cause an accounting firm of internationally recognized
standing reasonably satisfactory to them promptly to review this Agreement and
the remaining Disputed Items for purposes of resolving the remaining Disputed
Items and calculating the Final Closing Working Capital. In making such
calculation, such accounting firm shall make a determination only of Disputed
Items not resolved by the parties and in the case of all other items shall use
the amounts which are agreed upon by the parties. Such accounting firm shall
deliver to Fort James and to Buyer, as promptly as practicable, a report setting
forth its resolution of the remaining Disputed Items and its calculation of
Closing Working Capital. Such report shall be final and binding upon the parties
hereto. The cost of such review and report shall be borne by the party against
whom the disagreement is in large part resolved or, if the resolution does not
substantially favor either party, such costs shall be borne equally by Fort
James and Buyer. In all events, such accounting firm will determine the
assessment of such costs.
(d) The Closing Working Capital agreed to by the parties or as calculated by the
accounting firm as set forth in Section 3.2(c) above, as the case may be, shall
be the "Final Closing Working Capital," which shall be conclusive for all
purposes of this Agreement.
(e) If the Final Closing Working Capital is greater than $72,294,000 (the
"Opening Working Capital"), Buyer shall promptly pay to (or as directed by) Fort
James, in the manner and with interest as provided in Section 3.2(f), the amount
of the difference. If the Final Closing Working Capital is less than Opening
Working Capital, Fort James shall promptly pay to (or as directed by) Buyer, in
the manner and with interest as provided in Section 3.2(f), the amount of the
difference. Any such payment pursuant to this Section 3.2(e) shall be made at a
mutually convenient time and place (i) within 5 business days after Buyer and
Fort James agree upon the Final Closing Working Capital pursuant to Section
3.2(b) or (ii) if Disputed Items are referred to a firm of independent
accountants pursuant to Section 3.2(c), then within 10 business days after the
delivery of the report of such firm referred to in Section 3.2(c).
(f) Any payments pursuant to this Section 3.2(f) shall be made by causing such
payments to be credited in immediately available funds to the account of Buyer
or of Fort James, as the case may be, as may be designated by the party
receiving payment. The amount of any payment to be made pursuant to this Section
3.2(f) shall bear interest from and including the date of Closing to but
excluding the date of payment at a rate per annum equal to the Prime Rate as
published by The Chase Manhattan Bank. Such interest shall be payable at the
same time as the payment to which it relates and shall be calculated daily on
the basis of a year of 365 days and the actual number of days for which interest
is due.
3.3 Additional Payments. (a) If any Asset or the Business shall suffer any
damage, destruction or loss after the date hereof, but before the date of
Closing, and such Asset or the Business and the related casualty are covered by
any insurance policy maintained by any Person within the FJ Group: Fort James
shall pay to Buyer, as soon as practicable after receipt by Fort James, in cash,
the amount by which the proceeds from such policy in respect of such damage,
destruction or loss exceeds the sum of (i) any amount recorded on the Closing
Balance Sheet as a current liability with respect to repair, restoration or
replacement related to such damage, destruction or loss; (ii) the amount if any
by which the current assets included in the Closing Balance Sheet shall have
been reduced from the current assets shown on the March Balance Sheet by reason
of such damage, destruction or loss, and (iii) any amount paid by any Person
within the FJ Group after the date hereof in cash for the repair, restoration or
replacement of the damaged or destroyed asset.
(b) All proceeds of insurance which are applicable to insured claims of
third parties included in the Assumed Liabilities and are received by any Person
within the FJ Group after Closing shall (i) be used to discharge, in whole or in
part, the applicable Assumed Liabilities, (ii) be paid to Buyer if, and to the
extent that, such Assumed Liabilities have been discharged by Buyer or Buyer has
made a reimbursement to Fort James in respect of such claim or (iii) be retained
by Fort James if, and to the extent that, such Assumed Liabilities have been
discharged by any Person within the FJ Group and Buyer has not made a
reimbursement to Fort James in respect of such claim.
ARTICLE IV
RELATED AGREEMENTS
4.1 Related Agreements. In connection with the consummation of the transactions
contemplated hereby, Fort James (or the Subsidiary of Fort James named therein)
and Buyer shall enter into each of the following agreements (collectively, the
"Related Agreements") at or prior to the Closing:
(a) each of the supply agreements listed in Exhibit A hereto, substantially in
the form of Exhibit A hereto, and upon the terms and conditions set forth in the
separate term sheets for each such agreement included in Exhibit A hereto;
(b) each of the broker agreements listed in Exhibit B hereto, upon the terms and
conditions set forth in such Exhibit B; and
(c) a transition services agreement (the "Transition Services Agreement")
providing for the provision by Fort James to Buyer of such of the services
listed in Exhibit C hereto as Buyer elects in writing, no later than 20 business
days prior to Closing, upon terms and conditions customary for such arrangements
and at a price to Buyer equal to Fort James' fully-loaded cost of providing such
service (which shall be comparable to amounts reflected in the P&L) in addition
to any one-time costs in connection with the provision of such service. The
Transition Services Agreement will address (i) the operation of the Chambersburg
facility until such facility is shut down (which shut down is anticipated to
occur in July 1999) and (ii) the removal of the Chambersburg equipment at
Buyer's sole cost and expense following such shut down; provided that Fort James
shall be responsible for the disposal of such Chambersburg equipment that Buyer
chooses not to remove. In addition, the Transition Services Agreement will
provide that (i) Fort James will grant to Buyer a royalty-free nonexclusive
license relating to Pressed High Performance plate and related tooling patents
and technology for use in manufacturing food packaging for sale in channels
where food is sold in the packaging at wholesale, and (ii) Fort James will
retain in the technology being transferred to Buyer, a royalty-free nonexclusive
license relating to Microwave packaging patents and technology for use in
manufacturing food packaging for sale in channels where food is not sold in the
packaging at wholesale.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FORT JAMES
Fort James hereby represents and warrants to Buyer that:
5.1 Organization; Qualification. Fort James is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia and has corporate power and authority to own all of its properties and
assets and to carry on its business as it is now being conducted. Fort James and
each member of the FJ Group engaged in the Business are duly qualified and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary except in those jurisdictions where the failure to
be duly qualified and in good standing would not have a Fort James Material
Adverse Effect.
5.2 Authority Relative to this Agreement and the Related Agreements. Each Person
within the FJ Group has the corporate power and authority to execute and deliver
each agreement or other document to be executed by it in connection with the
transactions contemplated by this Agreement and to consummate the transactions
contemplated on its part thereby. The execution and delivery by each Person
within the FJ Group of each agreement or other document to be executed by it in
connection with the transactions contemplated by this Agreement, and the
consummation by it of any transactions contemplated on its part hereby and
thereby, have been duly authorized by such Person's Board of Directors and no
other corporate proceedings on the part of such Person are necessary with
respect thereto. Assuming the due authorization, execution and delivery by Buyer
of this Agreement, this Agreement constitutes, and each agreement or other
document to be executed by a Person within the FJ Group in connection with the
transactions contemplated by this Agreement (when executed and delivered by Fort
James or that other Person within the FJ Group) will constitute, valid and
binding obligations of Fort James and/or such other Person within the FJ Group,
as the case may be, enforceable in accordance with their terms.
5.3 Consents and Approvals. Except as set forth in Schedule 5.3, there is no
requirement applicable to any Person within the FJ Group to make any filing
with, or to obtain any permit, authorization, consent or approval from, any
third party (including any Authority) as a condition to the consummation of the
transactions contemplated by this Agreement, other than such requirements, the
failure of which to satisfy would not have a Fort James Material Adverse Effect.
5.4 Non-Contravention. The execution and delivery by Fort James of this
Agreement and by each Person within the FJ Group of the other agreements and
documents to be executed in connection with the transactions contemplated by
this Agreement and the consummation of the transactions contemplated thereby
will not (a) violate or result in a breach of any provision of the Articles of
Incorporation or Bylaws of Fort James or such other Person within the FJ Group,
as the case may be, (b) result in a default (or give rise to any right of
termination, cancellation or acceleration) under the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which Fort James or such other Person within
the FJ Group, as the case may be, is a party or by which Fort James or such
other member of the FJ Group, as the case may be, or any of the Assets may be
bound, except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been or shall be
obtained by Fort James before the Closing or which would not have a Fort James
Material Adverse Effect, or (c) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to any Person within the FJ Group or any
of the Assets or the Business (other than any applicable "bulk sales" laws),
excluding from the foregoing clause (c) such violations that would not have a
Fort James Material Adverse Effect.
5.5 Compliance with Laws. Except as set forth in Schedules 5.5, 5.6 and 5.7 or
as would not have a Fort James Material Adverse Effect, all Persons within the
FJ Group have operated the Business in compliance with all laws, regulations,
policies, guidelines, orders, judgments or decrees of any Authority applicable
to, or having jurisdiction over, Persons within the FJ Group, the Assets or the
Business. Except as set forth in Schedule 5.6, with respect to the Business, to
the Knowledge of Fort James: (a) no Person within the FJ Group has received from
any Authority any notice of any failure to so comply, and (b) no Person within
the FJ Group is currently subject to any sanction for such noncompliance.
5.6 Environmental Matters. Except as described on Schedule 5.6, Persons within
the FJ Group have obtained all federal, state and local permits, licenses and
other authorizations and have submitted all notices, which are required under
applicable Environmental Laws in connection with the Business, other than
licenses, permits, and other authorizations, the failure of which to obtain
would not have a Fort James Material Adverse Effect. Except as described on
Schedule 5.6, and except for such noncompliance as would not have a Fort James
Material Adverse Effect, the Assets and the Business are in compliance with all
terms and conditions of such permits, licenses and authorizations, and are also
in compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables of any
Environmental Law or order, decree, judgment notice or demand letter entered,
promulgated or approved thereunder, and no action is pending to revoke or modify
any such permit, license or authorization. Except as described on Schedule 5.6,
neither Fort James nor any of its Subsidiaries has received notice from any
Authority or Person of any failure of the Assets or the Business to comply with,
or of any liability or any potential liability of the Assets or the Business
under, any Environmental Law, except for any such Environmental Law the failure
to comply with which would not have a Fort James Material Adverse Effect. Except
as set forth in Schedule 5.6, or for any Excluded Liability, or as would not
have a Fort James Material Adverse Effect: (i) none of the Transferred Sites,
the Assets or the Business has released or disposed of any Hazardous Substances,
and no Person in the FJ Group knows of any prior releases or disposal of
Hazardous Substances on the Transferred Sites or related to the Assets or the
Business, and (ii) there are no physical or environmental conditions located at
the Transferred Sites or related to the Assets or the Business that would give
rise to remedial obligations.
5.7 Licenses and Permits. Except as set forth on Schedule 5.7, all material
federal, state and local permits and licenses that any Person within the FJ
Group is required to obtain that are related to the Business or the ownership or
operation of the Assets have been obtained and are currently in full force and
effect other than such permits and licenses the failure of which to obtain would
not have a Fort James Material Adverse Effect. Except as set forth in Schedule
5.7 or as would not have a Fort James Material Adverse Effect, no Person within
the FJ Group has violated the terms or conditions of any such license or permit,
no notice of a violation of any such license or permit has been received by any
Person within the FJ Group or recorded or published, and no proceeding is
pending, to revoke, prevent the renewal of, or limit any such license or permit.
(b) 5.8 Financial Statements. (a) Fort James has previously furnished Buyer
with the March Balance Sheet. Such unaudited balance sheet has been prepared in
conformity with GAAP (except as otherwise set forth in the comments accompanying
such balance sheet) applied on a basis consistent with Fort James' historical
accounting policies and procedures with respect to the Business used in the
preparation of Fort James' audited financial statements.
Fort James has previously furnished Buyer with an unaudited profit and loss
statement for the Business for the fiscal year ended December 27, 1998, a copy
of which is attached as Schedule 5.8(b) (the "P&L"). Such unaudited P&L has been
prepared in conformity with GAAP (except as otherwise set forth in the comments
accompanying such P&L) applied on a basis consistent with Fort James' historical
accounting policies and procedures with respect to the Business used in the
preparation of Fort James' audited financial statements.
5.9 Litigation. Except as set forth in Schedule 5.9, there are no actions,
suits, claims, investigations or proceedings (legal, administrative or
arbitrative) pending or, to the Knowledge of Fort James, threatened against any
Person within the FJ Group which relate to the Assets or the Business, whether
at law or in equity and whether civil or criminal in nature, before any federal,
state, municipal, foreign country's or other court, arbitrator, governmental
department, commission, agency or instrumentality, nor are there any judgments,
decrees or orders of any such court, arbitrator, governmental department,
commission, agency or instrumentality outstanding against any Person within the
FJ Group which relate to the Assets or the Business and which, in either case,
have, or, if adversely determined, could be reasonably expected to have, a Fort
James Material Adverse Effect.
5.10 Title to Properties. (a) Except as set forth in Schedule 5.10 and except
for Permitted Exceptions, Fort James or another Person of the FJ Group has good
and valid fee simple title to the Real Property; and no portion of any
Transferred Site is subject to any proceeding for its sale, condemnation,
expropriation or taking (by eminent domain or otherwise) by any Authority nor,
to the Knowledge of Fort James, has any such sale, condemnation, expropriation
or taking been proposed or threatened.
5.11 Leases. (a) Schedule 5.11 lists all leases, agreements and commitments to
lease, under which any Person within the FJ Group is the lessee (each, a "Lessee
Lease" and, collectively, the "Lessee Leases"), and all leases, agreements and
commitments to lease, under which any Person within the FJ Group is the lessor
(each a "Lessor Lease" and, collectively, the "Lessor Leases") that relate, in
each case, exclusively to the Business and to either real or personal property,
other than leases of personal property which may be canceled without material
penalty upon not more than 60 days' notice or which require the payment of not
more than $10,000 per month. Except as set forth in Schedule 5.11, there is not,
with respect to any of the Lessee Leases or the Lessor Leases, any existing
material default or event of default on the part of any Person within the FJ
Group or, to the Knowledge of Fort James, any existing material default or event
of default on the part of any other party to the Lessee Leases or the Lessor
Leases.
(b) Except as set forth in Schedule 5.11, no payments are required by any Person
within the FJ Group to maintain the Lessee Leases relating to the Portland and
Mississauga facilities (the "Major Leases") other than as provided therein, and
no person has made any claim with respect to the Major Leases that would
materially interfere with the use of the premises by the tenant in the conduct
of its business.
5.12 Intellectual Property. Schedules 5.12(a-e) set forth a complete and correct
list of the Business Intellectual Property that is used exclusively in, or is
applicable exclusively to, the Business. Except as set forth in Schedules
5.12(a-e), Fort James or another member of the FJ Group owns the Business
Intellectual Property and such Business Intellectual Property is subsisting on
the date hereof. Except as set forth on Schedules 5.12(a-e), there are no
licenses of Business Intellectual Property to third parties. Except as set forth
in Schedules 5.12(a-e), there is no claim, suit, action or proceeding pending
or, to the Knowledge of Fort James, threatened against any Person within the FJ
Group asserting that its use of any Business Intellectual Property infringes
upon the rights of any third parties. Except as set forth on Schedules
5.12(a-e), to the Knowledge of Fort James, there are no third parties infringing
upon the Business Intellectual Property.
(a) Schedule 5.12(a) sets forth a complete and correct list of the Filed
Business Intellectual Property (including patents, pending applications for
letters patent and registered trademarks) that is used exclusively in, or is
applicable exclusively to, the Business.
(b) Schedule 5.12(b) sets forth a complete and correct list of the Filed
Business Intellectual Property (including patents, pending applications for
letters patent and registered trademarks) owned by third parties that is
licensed to Fort James and used exclusively in, or is applicable exclusively to
the Business.
(c) Schedule 5.12(c) sets forth a complete and correct list of the Filed
Business Intellectual Property (including patents, pending applications for
letters patent and registered trademarks) that is used in, or is applicable to,
the Business which is also applicable to portions of Fort James other than the
Business.
(d) Schedule 5.12(d) sets forth a complete and correct list of the Filed
Business Intellectual Property (including patents, pending applications for
letters patent and registered trademarks) owned by third parties that is
licensed to Fort James and is used in, or is applicable to the Business which is
also applicable to portions of Fort James other than the Business.
(e) Schedule 5.12(e) sets forth a complete and correct list of the Unfiled
Business Intellectual Property which has been reduced to a record of invention
that is used exclusively in, or is applicable exclusively to, the Business.
(f) Schedule 5.12(f) sets forth a complete and correct list of the Unfiled
Business Intellectual Property which has been reduced to a record of invention
that is used in, or is applicable to, the Business which is also applicable to
portions of Fort James other than the Business.
5.13 Listed Contracts. Schedule 5.13 contains a complete and correct list of
every contract, agreement or commitment of any Person within the FJ Group, other
than Lessee Leases and Lessor Leases (each, a "Listed Contract"):
(a) which provides for aggregate future payments by the Business of more than
$250,000, except for purchase orders or sales orders arising in the ordinary
course of business, in which case such contract, agreement or commitment is
listed only if any party thereto is obligated to make payments during the term
thereof which will exceed $1,000,000 in the aggregate;
(b) which provides for the sale, lease to a third party or other disposition,
after the date hereof and other than in the ordinary course of business, of any
of the Assets;
(c) which is a mortgage, indenture, note, or installment obligation, or other
instrument evidencing indebtedness to be assumed by Buyer;
(d) which is a guaranty of any obligation for borrowings or performance,
excluding endorsements or guaranties of instruments made in the ordinary course
of business;
(e) which is an agreement or other arrangement for the purchase of any real
estate, machinery, equipment, or other capital assets in excess of $250,000; or
(f) which is an agreement imposing material non-competition or exclusive dealing
obligations on the Business.
Except as set forth in Schedule 5.13, all of the Listed Contracts are in full
force and effect and there has not occurred, with respect to any Listed
Contract, any material default or event of default on the part of any Person
within the FJ Group or, to the Knowledge of any Person within the FJ Group, any
other party thereto.
5.14 Labor Matters. Schedule 5.14 sets forth a complete and correct list of
every collective bargaining agreement covering Business Employees. Fort James
has provided Buyer with true, complete and correct copies of each of such
collective bargaining agreements and all amendments and modifications (excluding
exhibits) thereto.
(a) Except as set forth on Schedule 5.14, and except for grievances that have
not ripened into arbitration or litigation, as of the date hereof there are no
controversies, disagreements or disputes pending between Fort James or any other
member of the FJ Group and any of their respective employees or union
representatives that would have a Fort James Material Adverse Effect.
(b) Except as set forth on Schedule 5.14, or as would not have a Fort James
Material Adverse Effect:
(i) during the last three years immediately preceding the date of this
Agreement, with respect to the Business Employees, there have been no
labor strikes, slow downs, lockouts or general employment disputes at
any of the Transferred Sites;
(ii) there have within the past three years immediately preceding the date
of this Agreement occurred (A) no events that have legally required any
member of the FJ Group to hold a union election with respect to any
Transferred Site or (B) to the Knowledge of Fort James, any union
organizing activities, or any demand for recognition from a labor
organization; and
(iii) there have within the past three years immediately preceding the date
of this Agreement been no unfair labor practice charges filed with the
National Labor Relations Board against any member within the FJ Group
related to the Business or the Assets.
5.15 Employee Benefit Plans. (a) Schedule 5.15(a) lists all of the material
employee benefit and compensation plans, programs and arrangements, including,
without limitation: (i) all retirement, savings and other pension plans other
than "multiemployer plans," (as defined in Section 4001(a)(3) of ERISA) (ii) all
health, severance, insurance, disability and other employee welfare plans; and
(iii) all employment, incentive, vacation and other similar plans, that are
maintained by Fort James, or any Person within the FJ Group, with respect to
Business Employees, or to which Fort James or any Person within the FJ Group
contributes on behalf of the Business Employees (collectively, the "Employee
Plans").
(b) Except as would not have a Fort James Material Adverse Effect: (i) the
Employee Plans that are maintained by Fort James or a member of the FJ Group are
in compliance with applicable laws and regulations, including, to the extent
applicable, ERISA and the Code, (ii) Fort James and, to the extent applicable,
each other member of the FJ Group has administered the Employee Plans in
accordance with applicable laws and regulations, including, to the extent
applicable, ERISA and the Code, and (iii) each Employee Plan that is intended to
be qualified under Section 401(a) of the Code is so qualified.
(c) Fort James has made available to Buyer copies of all Employee Plans and,
where applicable, summary plan descriptions and annual reports filed within the
last year pursuant to ERISA or the Code with respect to the Employee Plans.
(d) Except as would not have a Fort James Material Adverse Effect, neither Fort
James nor any Person within the FJ Group has engaged in any prohibited
transactions, as defined in Section 4975 of the Code, with respect to any
Employee Plan. Except as would not have a Fort James Material Adverse Effect,
(i) no Employee Plan that is a defined benefit pension plan (as defined in 3(35)
of ERISA) maintained or contributed to by Fort James or an ERISA Affiliate or
any trust established thereunder that is subject to Section 302 of ERISA and
Section 412 of the Code has incurred any "accumulated funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, (ii) all contributions required to be made with respect thereto on or
prior to Closing have been timely made, and (iii) with respect to the FJ Pension
Plan, the present value of accrued benefits under such plan, based upon the
actuarial assumptions used to prepare the most recent actuarial valuation for
such plan, did not, as of its most recent valuation date, exceed the then
current value of the assets of such plan. Except as would not have a Fort James
Material Adverse Effect, no lien exists with respect to any Employee Plan under
Section 412(n) of the Code with respect to any assets of Fort James or of any
ERISA Affiliate.
(e) Schedule 5.15(e) contains a true and correct list of all employment and
consulting contracts with an original term in excess of 60 days, providing for
compensation on a yearly basis in excess of $250,000, and not otherwise listed
on Schedule 5.13 or 5.15(a), to which any Person within the FJ Group is a party
in connection with the Business. Except as set forth on Schedule 5.15(e), each
of such contracts is in full force and effect and there has not occurred, with
respect to any such contract, any material default or event of default on the
part of any Person within the FJ Group or, to the Knowledge of Fort James, any
other party to such contracts.
(f) The Central States, Southeast and Southwest areas Pension Fund is the only
multiemployer plan (as defined in ERISA) to which Fort James or an ERISA
Affiliate contributes with respect to any Business Employee. The number of
individuals with respect to whom contributions are being made as of the date
hereof is approximately 15.
5.16 Conduct of Business and Management of Assets. (a) Between March 28, 1999
and the date hereof, Persons within the FJ Group have conducted the Business,
and have managed the Assets in the ordinary course of business consistent with
past practice.
(b) Between March 28, 1999 and the date hereof, with respect to the Business and
the Assets, no Person within the FJ Group has:
(i) made capital expenditures, other than substantially in accordance with
the capital plan of the Business attached hereto as Schedule
5.16(b)(i);
(ii) made a disposition of assets in excess of $1,000,000, other than
dispositions of inventory in the ordinary course of business of the
Business;
(iii) made loans or advances to, or investments in, other parties in excess
of $500,000 in the aggregate;
(iv) entered into employment, severance, compensation or similar agreements
with Business Employees, except (A) for incentive programs that by
their terms expire at or before Closing or (B) in the ordinary course
of business;
(v) made increases in compensation or benefits payable to Business
Employees other than in the ordinary course of business;
(vi) suffered or incurred any significant damage, destruction of property or
other loss, whether or not insured; or
(vii) incurred additional long-term debt.
(c) Between March 28, 1999 and the date hereof, with respect to the Business and
the Assets, the Persons within the FJ Group have:
(i) maintained their books and records in accordance with past accounting
practices;
(ii) maintained the same level and types of insurance as previously
maintained; and
(iii) used commercially reasonable efforts to preserve the Business and the
Assets.
5.17 Finders. Except for Goldman, Sachs & Co., no broker, finder or investment
banker is entitled to any fee or commission from Fort James for services
rendered on behalf of Fort James in connection with the transactions
contemplated by this Agreement.
5.18 Sufficiency of Assets. The Assets to be transferred pursuant to paragraphs
(a)-(g), (i) and (l) of Section 2.1, include all of the assets of the types
covered by such paragraphs as are reasonably necessary to conduct the Business
in substantially the same manner as it is presently being conducted.
5.19 Customers. Schedule 5.19 sets forth: (i) a list of the twenty largest
customers of the Business, determined by dollar volume of gross sales for the
most recently ended fiscal year (the "Large Customers"), and the dollar volume
of sales to each such customer during the most recently ended fiscal year, and
(ii) a list of the brokers and distributors of the Business that accounted for
at least $1,000,000 in sales by the Business during the most recently ended
fiscal year (the "Large Brokers"), and the dollar volume of the sales of the
Business to or through each Large Broker during the most recently ended fiscal
year. Except as described on Schedule 5.19 as of the date hereof, to the
Knowledge of Fort James, no Large Customer or Large Broker has terminated, or
given notice that it intends to terminate, its existing relationship with any
Person within the FJ Group.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Fort James that
6.1 Organization; Qualification. Each Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Delaware, in the case of
GPC, and Colorado, in the case of ACX. Each Buyer has the corporate power and
authority to own all of its properties and assets and to carry on its business
as it is now being conducted and as is contemplated to be carried on hereunder.
Each Buyer is duly qualified and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the Business makes such qualification necessary except in those jurisdictions
where the failure to be duly qualified and in good standing would not have a
material adverse effect on such Buyer.
6.2 Authority Relative to this Agreement and the Related Agreements. Each Buyer
has the corporate power and authority to execute and deliver this Agreement and
the Related Agreements to which it is contemplated to be a party and to
consummate the transactions contemplated on its part hereby and thereby. The
execution and delivery by each Buyer of this Agreement and the Related
Agreements to which it is a party and the consummation by each Buyer of the
transactions contemplated on its part hereby and thereby, have been duly
authorized by its Board of Directors and no other corporate proceedings on its
part are necessary with respect thereto. This Agreement constitutes, and any
Related Agreement to which a Buyer is a party, when executed and delivered by it
will constitute, the valid and binding obligation of such Buyer, enforceable in
accordance with its terms.
6.3 Non-Contravention. Except as set forth in Schedule 6.3 hereto, the execution
and delivery by each Buyer of this Agreement do not, and its execution and
delivery of any Related Agreements to which such Buyer is a party and the
consummation of the transactions contemplated hereby and thereby will not (a)
violate or result in a breach of any provision of such Buyer's Articles of
Incorporation or Bylaws, (b) result in a default (or give rise to any right of
termination, cancellation or acceleration) under the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement, lease or
other instrument or obligation to which such Buyer is a party or by which such
Buyer may be bound, or (c) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Buyer (other than any applicable "bulk sales"
laws).
6.4 Consents and Approvals. Except for applicable filings under the HSR Act or
as set forth in Schedule 6.3 hereto, there is no requirement applicable to
either Buyer to make any filing with, or to obtain any permit, authorization,
consent or approval from, any third party (including any Authority) as a
condition to the consummation of the transactions contemplated by this
Agreement.
6.5 Litigation. There are no actions, suits, claims, investigations or
proceedings (legal, administrative or arbitrative) pending or threatened against
either Buyer, whether at law or in equity and whether civil or criminal in
nature before any federal, state, municipal or other court, arbitrator,
governmental department, commission, agency or instrumentality, nor are there
any judgments, decrees or orders of any such court, arbitrator, governmental
department, commission, agency or instrumentality outstanding against either
Buyer which have, or, if adversely determined, could be reasonably expected to
have, a material adverse effect on such Buyer's ability to consummate the
transactions contemplated hereunder, or which seek specifically to prevent,
restrict or delay the consummation of the transaction as contemplated hereby or
the fulfillment of any of the conditions of this Agreement.
6.6 Availability of Funds. Buyer has, or will have prior to the Closing,
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to consummate the transactions contemplated by this
Agreement. Buyer has provided to Fort James copies of binding commitment letters
with respect to the financing required for the transaction.
6.7 Finders. Except for Donaldson, Lufkin & Jenrette, no broker, finder or
investment banker is entitled to any fee or commission from Buyer for services
rendered on behalf of Buyer in connection with the transactions contemplated by
this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Conduct of Business and Management of Assets. From and after the date hereof
and until the Closing, Fort James shall use reasonable commercial efforts (a) to
conduct the Business in the ordinary course of business consistent with past
practice; (b) to preserve intact the present business organization and
operations of the Business; (c) to keep available the services of its employees
and (d) to preserve its relationships with licensors, suppliers, dealers,
customers and others having business relationships with the Business.
7.2 Forbearances by Fort James. Except as specifically contemplated by this
Agreement, Fort James shall not, and shall cause each Person within the FJ
Group, from the date hereof until the Closing, without the written consent of
Buyer (not to be unreasonably withheld), not to:
(a)sell, dispose of, transfer or encumber any of the Assets except in the
ordinary course of business;
(b) make any significant acquisition of assets other than in the ordinary course
of business;
(c) amend, modify or cancel any Listed Contract, Lessee Lease or Lessor Lease
except in accordance with its terms;
(d) enter into any employment, severance, compensation or similar agreements
with any Business Employee other than in the ordinary course of business or as
may be required by law or existing contractual arrangements;
(e) increase the compensation of, or benefits payable to, Business Employees
other than in the ordinary course of business or as may be required by law or
existing contractual arrangements;
(f) change the assumptions underlying or the methods of calculating any bad
debt, contingency, or other reserve relating to the Business;
(g) dispose of or permit to lapse any right to the possession, use or enjoyment
of any Business Intellectual Property or dispose of or disclose to any person
not authorized to have such information any Non-Filed Business Intellectual
Property or other confidential Business Intellectual Property;
(h) incur any long term indebtedness that would be required hereunder to be
assumed by Buyer;
(i) enter into or renew any collective bargaining or labor agreement (oral and
legally binding or written) with respect to the Business, except with respect to
the agreement with the Paperworkers and Allied Chemical Workers Union AFL-CIO
Local No. 1010, which relates to the Paperboard Packaging Group in Kalamazoo,
Michigan and is due to expire in July 1999 which Fort James will negotiate in
good faith to renew as heretofore agreed by Buyer, it being understood that if
Fort James makes such an offer of renewal and negotiates in good faith, any
failure by such union to agree to such renewal shall not result in a breach by
Fort James of any representation, covenant or closing condition hereunder;
(j) cancel or reduce any insurance coverage relating to the Assets, unless such
coverage is replaced; or
(k) agree, so as to legally bind Buyer whether in writing or otherwise, to take
any of the actions set forth in this Section 7.2 and not otherwise permitted by
this Agreement.
7.3 Mail Received After Closing. Following the Closing, Buyer may receive and
open all mail addressed to any Person within the FJ Group and may deal with the
contents thereof in its discretion to the extent that such mail and the contents
thereof relate to the Business. Buyer shall deliver or cause to be delivered to
Fort James, promptly after receipt by Buyer, all mail, including, without
limitation, payments of accounts or claims receivable, addressed to any Person
within the FJ Group which does not relate to the Business.
7.4 Retention of Books and Records. Buyer will retain and maintain, in an
organized and retrievable manner, all documents and records pertaining to the
periods before the Closing in accordance with Fort James' record management
policies. Buyer will retain and maintain all machine-sensible records, such as
computer tapes, disks, diskettes, etc., which are considered books and records
within the meaning of Code Section 6001, in accordance with Internal Revenue
Procedure 91-59 or such amending or superseding guidance as issued by the
Internal Revenue Service. Buyer will make available such documents and records,
machine sensible records, computer time, and assistance from Buyer's personnel
as may be reasonably requested by Fort James in order to expeditiously comply
with all pertinent requests from the Internal Revenue Service and state taxing
authorities which relate to periods prior to the Closing.
7.5 Expenses. (a) Except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
(b) All sales, use, transfer taxes and other non-income taxes and any fees
(including deed recordation fees and filing fees, if any) incurred in connection
with this Agreement and the transactions contemplated hereby (the "Transfer
Fees") will be borne by Buyer. At Fort James' direction, Buyer will file all
necessary tax returns and other documents required to be filed with respect to
all such Transfer Fees. Fort James will cooperate with Buyer to the extent
reasonably necessary to enable Buyer to make such filings and join in the
execution of any tax returns or other documents as may be required in order for
Buyer to comply with the provisions of this Section.
(c) If the transactions contemplated by this Agreement are not consummated for
any reason other than (i) a failure by Fort James to satisfy the conditions set
forth in Article IX hereof or (ii) by mutual written consent of the parties
hereto, then within five (5) business days of the termination of this Agreement,
Buyer shall pay to Fort James by wire transfer of immediately available funds to
an account designated by Fort James an amount equal to $20,000,000, which
payment, when made, shall be Fort James' exclusive remedy in the event of such
non-consummation.
7.6 Confidentiality. Buyer shall hold, and shall cause its respective officers,
directors, employees, representatives, consultants and advisors (each, a
"Representative"), to hold, and Fort James shall hold, and shall cause its
respective Representatives and the Representatives of any Person within the FJ
Group to hold, in strict confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all documents and
information obtained by such parties, respectively, in connection with the
transactions contemplated hereby or otherwise obtained hereunder ("Confidential
Information," which term shall, after Closing, with respect to Fort James'
obligations hereunder, include documents and information relating to the Assets)
except to the extent that such Confidential Information has been or has become
(a) generally available to the public other than as a result of disclosure by
any party hereunder or a Representative of a party hereunder if such source is
not bound by a confidentiality agreement prohibiting such disclosure or is not
entitled to the protection offered hereby, (b) available to the public on a
nonconfidential basis from a source other than a Representative of a party
entitled to the protection offered hereby, or (c) known to the party receiving
such Confidential Information before the date of disclosure of such Confidential
Information to such party. Nothing herein shall preclude a party or a
Representative of a party receiving Confidential Information from using and/or
disclosing information rightfully received from a third party to the extent
rightfully permitted by the third party. Nothing contained in this Section 7.6
shall preclude the disclosure of Confidential Information, on the condition that
it remains confidential, to auditors, attorneys, lenders, financial advisors and
other consultants and advisors in connection with the performance of their
duties in preparation for the consummation of the transactions contemplated
hereby nor shall it prevent Buyer's disclosure after Closing of any document or
information constituting an Asset.
7.7 Public Announcements. The parties shall consult with each other before
issuing any press releases or otherwise making any public statements with
respect to this Agreement and the transactions contemplated hereby and, subject
to any applicable disclosure requirements, no party shall issue any such press
release or make any such public statement without the consent of the other party
hereto, which consent shall not be unreasonably withheld.
7.8 Efforts to Consummate. Subject to the terms and conditions of this
Agreement, each of the parties hereto shall use its best efforts to take, or to
cause to be taken, all action and to do, or to cause to be done, all things
necessary, proper or advisable to consummate, as promptly as practicable, the
transactions contemplated hereby, including, but not limited to, the
satisfaction of the conditions listed in Articles IX or X that are within the
control of such party and the obtaining of all consents, waivers,
authorizations, orders and approvals of third parties, whether private or
governmental, required of it by this Agreement. Each party shall cooperate fully
with the other party hereto in assisting such party to comply with this Section
7.8.
1.9 Further Assurances. (a) Fort James shall use its best efforts to implement
the provisions of this Agreement, and, for such purpose, at the request of
Buyer, will, at or after the Closing, promptly execute and deliver, or cause to
be so executed and delivered, such documents to Buyer and take such further
action as Buyer may deem reasonably necessary or desirable to facilitate or
better evidence the consummation of the transactions contemplated hereby.
(b) Buyer shall use its best efforts to implement the provisions of this
Agreement, and, for such purpose, at the request of Fort James, will, at or
after the Closing, promptly execute and deliver, or cause to be so executed and
delivered, such documents to Fort James and take such further action as Fort
James may deem reasonably necessary or desirable to facilitate or better
evidence the consummation of the transactions contemplated hereby.
7.10 Use of Fort James Name. As soon as practicable after the Closing, Buyer (a)
shall remove all names, logos or marks which include the words "Fort James" or
"James River" or the letters "FJ" or "JR" ("Fort James Corporate Designations")
from, or render the same illegible on, all Assets on which such Fort James
Corporate Designations are imprinted or legible or (b) shall discontinue use of
any asset described in clause (a) bearing Fort James Corporate Designations.
Notwithstanding the foregoing, Buyer shall be permitted to use the Fort James
Corporate Designations with respect to Inventory constituting finished goods on
which a Fort James Corporate Designation is imprinted or affixed at the Closing
until such Inventory is sold. After such Inventory has been sold, Buyer shall
have no rights to use the Fort James Corporate Designations. Buyer undertakes to
use reasonable best efforts to sell such Inventory within 12 months after the
Closing. At the end of such period referred to in the preceding sentence (or
upon completion of the removal, rendering illegible or discontinuance of the
Fort James Corporate Designations and variations thereof described above,
whichever occurs sooner), an executive officer of Buyer shall notify Fort James
that (a) all such Inventory has been sold or destroyed; or (b) such removal,
rendering illegible or discontinuance has been completed. Except as expressly
permitted by this Section 7.10, neither Buyer nor any of its respective
Affiliates shall use the Fort James Corporate Designations or any similar mark
or name.
7.11 No Solicitation of Employees. (a) For a period of one year after the
Closing, neither party nor any Representative of such party shall, in any
manner, directly or indirectly, (i) solicit any employee of the other party or
any Affiliate of the other party to terminate his or her employment with such
party or its Affiliate, or (ii) otherwise recruit or encourage any such employee
to become, or hire any such employee as, an employee of, or a consultant to, the
party bound hereby.
(b) As promptly as practicable after the Closing, Buyer shall use its best
efforts to advise the appropriate Subsidiaries and Representatives of Buyer
(including the department heads and human resources personnel) of its
obligations set forth in this Section 7.11.
(c) Notwithstanding clauses (a) and (b) of this Section 7.11, no party hereto
shall be restricted from soliciting for employment any employee of any other
party hereto who has left the employment of such other party other than as a
result of the breach of this Section 7.11 by any party hereto.
7.12 Antitrust Filings. (a) Fort James and Buyer shall each (i) take promptly
all actions necessary to make the filings required of it or any of its
Affiliates under the applicable Antitrust Laws, (ii) comply at the earliest
practicable date with any request for additional information or documentary
material received by it or any of its Affiliates from the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant to
the Antitrust Improvements Act and (iii) cooperate in connection with any filing
under applicable Antitrust Laws and in connection with resolving any
investigation or other inquiry concerning the transactions contemplated by this
Agreement commenced by any of the Federal Trade Commission, the Antitrust
Division of the Department of Justice or the Attorney General of any state.
(b) Fort James and Buyer shall each use all best efforts to resolve such
objections, if any, as may be asserted with respect to the transactions
contemplated by this Agreement under any Antitrust Law. If any administrative,
judicial or legislative action or proceeding is instituted or threatened to be
instituted challenging the transactions contemplated by this Agreement as
violative of any Antitrust Law, each party hereto shall cooperate to contest and
resist any such action or proceeding, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether temporary,
preliminary or permanent) that is in effect and that restricts, prevents or
prohibits consummation of the transactions contemplated by this Agreement,
including, without limitation, by pursuing all reasonable avenues of
administrative and judicial appeal.
(c) Fort James and Buyer shall each promptly inform the other party of any
material communication made to, or received by such party from, the Federal
Trade Commission, the Department of Justice or any other governmental or
regulatory authority regarding any of the transactions contemplated hereby.
7.13 Title Matters. (a) Fort James and Buyer will, as soon as practicable after
the execution and delivery of this Agreement, cause, to be issued one or more
title commitments (whether one or more, the "Title Commitment") for policies of
owner's title insurance with respect to the Real Property (the "Real Property
Title Commitment") and policies of leasehold title insurance with respect to the
Major Leases (the "Major Leases Title Commitment") and current surveys and will
cause to be made ALTA surveys. Fort James and Buyer shall each bear 50% of the
cost of the Title Commitment and ALTA surveys. Buyer shall procure and pay
premiums for such title insurance as it requires. At Buyer's request, the
Closing may be postponed until the date that is 15 days after the later of the
date hereof or the date of the delivery to Buyer of the Real Property Title
Commitment together with copies of all recorded documents listed as title
exceptions in the Real Property Title Commitment (collectively, the "Real
Property Title Package"). Within 5 days of the later of the date hereof or the
date of the delivery to Buyer of the Real Property Title Package, Buyer shall
notify Fort James of any title matter reflected in the Real Property Title
Commitment that constitutes a breach of the representation set forth in Section
5.10 (any such title matter being a "Title Defect").
(b) At Buyer's request, Closing may be postponed until the date that is 15 days
after Fort James' delivery to Buyer of the Major Leases Title Commitment,
together with copies of all recorded documents listed as title exceptions in the
Major Leases Title Commitment (collectively, the "Major Leases Title Package").
Within 5 days of Fort James' delivery to Buyer of the Major Leases Title
Package, Buyer shall notify Fort James of any title matter reflected in the
Major Leases Title Commitment that constitutes a breach of the representation
set forth in Section 5.10 (any such title matter being a "Title Defect").
(c) Within 5 days of receiving notice from Buyer of any Title Defect, Fort James
shall notify Buyer, with respect to each such Title Defect, whether Fort James
has elected to (i) cure such matter or otherwise cause the same to be deleted
from, or insured over in, the Title Commitment, (ii) pay to Buyer the amount by
which the value of the Real Property is diminished as a result of the existence
of such Title Defect at Closing (or as soon thereafter as the amount can be
established, the parties hereby agreeing to enter into an appropriate agreement
at Closing relating to the establishment of such amount by reference to the
conclusion of qualified real estate appraisers if Fort James elects to make such
payment in respect of any Title Defect and the parties cannot agree by Closing
as to the amount of such diminution in value); or (iii) take no action with
respect to such Title Defect; provided Fort James shall be required to remove
any lien which is not a Permitted Exception securing a monetary obligation which
can be removed by the payment of money the amount of which is ascertainable from
the face of the document or which has been determined in writing from the holder
of such obligation. If Buyer does not deliver written notice of its objections
to any Title Defect within the time specified above for such notice, Buyer shall
be deemed to have waived all rights it may have against Fort James (including
the right to refuse to consummate the transactions called for in this Agreement
or the right otherwise to claim breach of the representation set forth in
Section 5.10) with respect to such Title Defect. If Fort James fails to respond,
within the time set forth above, to any objection to Title Defects timely
delivered by Buyer as set forth above, Fort James shall be deemed to have
elected to respond as set forth in subsection (ii) above with respect to such
Title Defect. If Fort James elects to respond as set forth in subsection (iii)
above with respect to one or more Title Defects, Buyer may terminate this
Agreement by delivering notice of its election to do so within two days of Fort
James' delivery of its notice to Buyer that Fort James has elected to take no
action with respect to the Title Defect(s) at issue. If Buyer does not deliver
written notice of its election to terminate this Agreement within the time
specified above for such notice, Buyer shall be deemed to have waived all rights
it may have against Fort James with respect to Title Defects disclosed in the
Title Commitment (including the right to refuse to consummate the transactions
called for in this Agreement or the right otherwise to claim breach of the
representations set forth in Section 5.10 or breach of this Section).
7.14 Tax Matters. (a) Buyer will be responsible for the preparation and filing
of all federal, state and local franchise, property, payroll, and other
non-income tax returns, arising with respect to the operation of the Business
and the ownership of the Assets for all periods after the date of Closing. Buyer
will make all payments required with respect to any such tax returns.
(b) Fort James and Buyer shall allocate the Purchase Price (including, for
purposes of this Section, any other consideration paid by Buyer and any Assumed
Liabilities) among the Assets in the manner set forth on Schedule 7.14 (the
"Allocation Schedule"). Fort James and Buyer each agrees to file Internal
Revenue Service Form 8594 and any required attachments thereto, together with
all federal, state, local, and foreign tax returns, in accordance with the
Allocation Schedule. Fort James and Buyer each agrees to provide the other
promptly with any other information required to update the Allocation Schedule
at or after the Closing as described in the Allocation Schedule.
7.15 Access to Assets and Business Employees. From the date hereof until Closing
or the earlier termination or expiration of this Agreement, Fort James shall
provide Buyer, Buyer's accountants, representatives, and prospective lenders,
with reasonable opportunities to further investigate the Assets and interview
Business Employees during normal business hours upon reasonable prior notice
from Buyer, for reasonable purposes, including the preparation of audited
financial statements of the Business and lenders' due diligence, provided that
no such investigations or interviews shall unreasonably interfere with the
operation of the Business or Fort James' other business.
7.16 Substitute Letters of Credit; Guarantees. Effective as of the Closing,
Buyer shall procure substitute letters of credit, and shall cause itself to be
substituted in all respects for any member of the FJ Group with respect to, the
letter of credit and guarantees listed in Schedule 7.16.
7.17 Consents and Approvals. Except for any consents, waivers, authorizations or
approvals the failure of which to obtain would not have a Fort James Material
Adverse Effect, Fort James shall use its best efforts to obtain all necessary
consents, waivers, authorizations and approvals of all Authorities and of all
other Persons reasonably required in connection with the execution, delivery and
performance by it of this Agreement, including but not limited to, consents to
assign (a) the Listed Contracts, (b) the Lessee Leases and (c) all other
contracts and commitments to the extent the same relate exclusively to the
Business. In the event that any Listed Contract or Lessee Lease is not
transferable to Buyer, Fort James shall use commercially reasonable efforts to
maintain such Listed Contract or Lessee Lease for the benefit of Buyer, provided
that Buyer shall be responsible for performing Fort James' obligations under any
such Listed Contract or Lessee Lease. Fort James shall use reasonable efforts to
assign to Buyer the Microsoft licenses exclusively related to the Business, it
being understood that Fort James shall not be required to incur any cost or
expense in connection therewith.
7.18 Negotiations. For a period of 75 days from and after the date hereof, no
Person within the FJ Group, nor their officers or directors nor anyone acting on
behalf of any Person within the FJ Group or such persons shall, directly or
indirectly, encourage, solicit, engage in discussions or negotiations with, or
provide any information to, any person, firm, or other entity or group (other
than Buyer or its representatives) concerning any merger, sale of substantial
assets, purchase or sale of shares of capital stock or similar transaction
involving the Business or any other transaction inconsistent with the
transactions contemplated hereby.
7.19 Audited Financial Statements. Fort James will use reasonable efforts to
prepare and deliver to Buyer audited pro forma balance sheets and pro forma
statements of income as of December 27, 1998 and December 28, 1997, and for each
of the three fiscal years in the period ended December 27, 1998, which
statements shall reflect the Business as it is proposed to be transferred
hereunder.
1.20 Year 2000 Compliance Program. Fort James shall continue through the Closing
Date the implementation, in accordance with the capital plan, of its existing
program with respect to Year 2000 compliance in connection with the Business.
ARTICLE VIII
BUSINESS EMPLOYEE AND EMPLOYEE BENEFIT MATTERS
8.1 Business Employees. For purposes of this Article VIII, "Business Employees"
are hereby defined as follows:
(a) all persons actively employed by Fort James or any member of the FJ Group in
the Business immediately before Closing;
(b) all employees of Fort James or any member of the FJ Group (i) who are (A)
absent from work with the Business on account of sickness (other than employees
who are, as of the Closing Date, on long-term disability or have been approved
by the carrier for long-term disability) or leave of absence at Closing and (B)
released to return to work (and actually return to work) their regularly
scheduled number of hours within 12 weeks from the day such employee left active
employment or commenced working a reduced schedule or (ii) for whom an
obligation to recall, rehire or otherwise return to employment exists under an
Assumed Collective Bargaining Agreement; and
(c) all employees of Fort James or any member of the FJ Group who would not
otherwise be employed in the Business immediately before the Closing but who,
with the mutual consent of Fort James and Buyer, become employees of the
Business at or before the Closing.
8.2 Employment. (a) Effective as of the Closing Date, Buyer shall make an offer
of initial employment to each Business Employee at the same base salary and on
substantially the same other terms and conditions as in effect immediately prior
to Closing. For purposes of the preceding sentence, in order for an offer of
employment to a given Business Employee to be made on "substantially the same
other terms and conditions," it shall also be required to be made for employment
at the same location as that where the particular Business Employee is employed
as of Closing, except that the Business Employees employed at Deerfield,
Illinois and Neenah, Wisconsin may, instead, be offered employment at Golden,
Colorado, or another headquarters, research and development or divisional office
facility of Buyer or the Business. Buyer's employment of those Business
Employees who accept offers of employment shall be deemed to commence on the
Closing Date. Those Business Employees who accept such offers of employment
shall be referred to herein as the "Transferred Employees."
(b) After the Closing, Fort James shall not be responsible for wages, salaries
and other employee benefits for Transferred Employees for service (including
deemed service) of such Transferred Employees with the Buyer after the Closing;
it being understood that Buyer shall be responsible for paying or providing (or
reimbursing Fort James for the cost of paying or providing) any wages, salaries
and other employee benefits to all Transferred Employees, including those
employees described in Section 8.1(b)(i) above, for all periods following the
Closing Date. For purposes of this Article VIII, all persons described above who
are compensated on an hourly basis or who have been or are subject to a
collective bargaining agreement shall be referred to as "Hourly Business
Employees," and all persons described above who are compensated on a salaried
basis (or a non-union hourly basis) shall be referred to as "Salaried Business
Employees." Prior to execution of this Agreement, Fort James has provided Buyer
with a preliminary list of Business Employees, and Fort James and Buyer will
agree on a final list of Business Employees prior to the Closing, based upon new
employees hired by the Business and departures of employees of the Business
prior to Closing, and upon mutually agreed additions and deletions to such list.
Fort James shall cooperate with Buyer and Fort James shall provide information
reasonably requested by Buyer in order to enable Buyer to hire the Transferred
Employees and enroll the Transferred Employees in Buyer's benefit plans.
8.3 Employee Benefits. (a) Subject to the other provisions of this Article VIII,
Buyer agrees that for a period of at least one year after the Closing Date (the
"Window Period") it will (i) provide all Transferred Employees with severance
benefits at least as favorable as those provided to such Transferred Employees
immediately prior to the Closing Date; (ii) provide all Transferred Employees
who were Salaried Business Employees ("Transferred Salaried Employees") with
medical and other welfare benefits no less favorable than those provided to such
Transferred Salaried Employees immediately prior to the Closing Date; (iii)
provide Transferred Salaried Employees with a wage and salary program no less
favorable than that in place at the Business immediately prior to the Closing
Date; (iv) provide all Transferred Salaried Employees with other compensation
and benefits no less favorable in the aggregate than the compensation (including
incentive compensation) and benefits provided to such Transferred Salaried
Employees immediately prior to the Closing Date; and (v) provide Transferred
Employees who were Hourly Business Employees ("Transferred Hourly Employees")
covered under the Assumed Collective Bargaining Agreements (as hereinafter
defined), such compensation and benefits as are from time to time required by
such collective bargaining agreements. In addition, Buyer agrees to give all
Transferred Employees service credit for all periods of employment with Fort
James or any member of the FJ Group prior to the Closing Date for all purposes
under any plan adopted or maintained by Buyer or any of its Subsidiaries in
which Transferred Employees participate. Buyer agrees to waive any limitations
regarding pre-existing conditions for medical coverage under any medical plan in
which Transferred Employees participate, and to give full credit during calendar
year 1999 for any copayments made and deductibles fully or partially satisfied
prior to the Closing with respect to Employee Plans, under any welfare or other
employee benefit plans maintained by Buyer or any of its Subsidiaries in which
Transferred Employees participate after the Closing. Subject to paragraph (d)
hereof, from and after the Closing Date, Buyer shall be solely responsible for
all termination and severance benefits, costs, charges and liabilities of any
nature incurred with respect to (A) a Transferred Employee on or after the
Closing, including, without limitation, any claims arising out of or relating to
any plant closing, mass layoff, termination or similar event under applicable
law occurring on or after the Closing and (B) any Business Employee who does not
become a Transferred Employee and with respect to whom Buyer's failure to comply
with the employment offer requirements of Section 8.2(a) results in such
Business Employee being able to claim a termination or severance benefit.
(b) Buyer shall be responsible for the administration of and shall assume any
and all obligations, if any, arising under the continuation coverage
requirements of Section 4980B of the Code and Part 6 of Title I of ERISA with
respect to the Transferred Employees and their beneficiaries who are eligible to
exercise their rights to such coverage as of or following the Closing Date.
(c) Except as provided in Section 8.5 hereof, as of the Closing Date, the
Business Employees shall cease active participation in each Employee Plan and no
additional benefits shall be accrued thereunder for such employees. Except as
provided hereunder, Fort James shall retain all assets and liabilities under
such Employee Plans for Business Employees.
(d) Buyer shall not be responsible for assuming any employment agreements with
the Transferred Employees, and Fort James shall retain liability for any
severance benefits due under such employment agreements.
(e) As of the Closing Date, Buyer shall designate or establish for the benefit
of Transferred Employees a medical and dependent care expense reimbursement
program (the "Buyer FSA Plan") substantially similar to the Fort James Flexible
Spending Accounts program (the "FJ FSA Plan"). Fort James shall transfer the
assets (up to the maximum aggregate limit for claims under the Buyer FSA Plan)
withheld from the Transferred Employees' paychecks during calendar year 1999
through the Closing Date less any reimbursements properly made to such
Transferred Employees for calendar year 1999 expenses under the FJ FSA Plan.
With respect to the remainder of the calendar year following the Closing, Buyer
shall honor and execute under the Buyer FSA Plan the payroll deduction elections
effective for each Transferred Employee under the FJ FSA Plan as of the Closing
Date and shall pay claims made by such Transferred Employee under the terms of
the Buyer FSA Plan, without regard to when the claims arose.
8.4 Assumption of Liabilities. Except as specifically provided otherwise in this
Article VIII, at Closing, Buyer shall assume all employee-related liabilities
and obligations that are payable at or after the Closing Date with respect to
Business Employees and their beneficiaries and dependents, without regard to
when such liabilities and obligations arose; provided, however, that Buyer,
except as specifically provided otherwise in this Article VIII (including,
without limitation, the last sentence of Section 8.3(a)), shall not assume any
liabilities or obligations that are payable prior to, at or after the Closing
with respect to any employee benefit plans that are maintained by Fort James or
its Affiliates, or with respect to Business Employees who do not become
Transferred Employees.
8.5 Collective Bargaining Agreements. (a) At Closing, Buyer shall adopt and
assume the collective bargaining agreements listed on Schedule 8.5(a) (the
"Assumed Collective Bargaining Agreements"). At and after the Closing, any
obligations that may be payable under the Assumed Collective Bargaining
Agreements, with respect to Hourly Business Employees, regardless of whether
such obligations relate to services performed before or after the Closing, shall
be the sole responsibility of Buyer.
(b) With respect to each multiemployer plan that is listed on Schedule 8.5(b)
and that covers Hourly Business Employees, Fort James and Buyer agree as
follows, in accordance with the provisions of Section 4204 of ERISA:
(i) Buyer hereby assumes, effective at Closing, the obligation of any
Person within the FJ Group to contribute to each such multiemployer
plan for such Hourly Business Employees.
(ii) Buyer shall provide to each such multiemployer plan the bond or escrow
amount described in Section 4204(a)(1)(B) of ERISA, unless the bond or
escrow amount is waived by the PBGC.
(iii) The parties agree that, unless the PBGC waives the requirements of
Section 4204(a)(1)(C) of ERISA, if Buyer withdraws from any such
multiemployer plan in a withdrawal described in Section 4204(a)(1)(C)
of ERISA with respect to the Business during the first five plan years
beginning after Closing and does not pay its liability to the
multiemployer plan on account of such withdrawal, Fort James shall be
secondarily liable to the multiemployer plan for any withdrawal
liability that any Person within the FJ Group would have had to the
plan with respect to the Hourly Business Employees in the absence of
Section 4204(a) of ERISA, to the extent required by Section 4204 of
ERISA. Notwithstanding the provisions of the preceding sentence and
Section 4204 of ERISA, it is hereby expressly agreed that if any
Person within the FJ Group incurs any secondary withdrawal liability
under the preceding sentence, Buyer shall indemnify Fort James and
hold it harmless from any and all Losses incurred by any such Person
within the FJ Group by reason of such secondary liability.
As soon as is practicable after Closing, Fort James and Buyer shall request from
the PBGC an exemption from the requirements of Section 4204(a)(1)(B) and
4204(a)(1)(C) of ERISA.
8.6 Pension Plan for Salaried Business Employees. Buyer shall not assume any of
Fort James' rights and obligations with respect to the Fort James Corporation
Pension Plan for Salaried and Other Non-Bargaining Unit Employees. As of the
Closing, the Business Employees shall cease active participation in such plan
and no additional benefits shall accrue thereunder. Fort James shall retain all
assets and liabilities under such plan.
8.7 401(k) Plan. (a) Effective as of the Closing, Buyer shall establish a
defined contribution plan and trust (or amend an existing defined contribution
plan) for Transferred Employees (which for a period of at least one year
following Closing shall be generally comparable to the Fort James 401(k) Plan
(the "FJ 401(k) Plan")) and which shall be qualified under Sections 401 and 501
of the Code and which shall provide for salary reduction contributions pursuant
to Section 401(k) of the Code ("Buyer's DC Plan"). Buyer's DC Plan shall provide
that each Transferred Employee shall be given credit under Buyer's DC Plan, for
purposes of determining eligibility to participate, eligibility for benefits,
benefit calculations, benefit forms and vesting, for the Transferred Employee's
service with Fort James, or any member of the FJ Group and each of their
predecessor companies, to the extent that the FJ 401(k) Plan gave credit for
such service. If the Buyer amends one or more existing defined contribution
plans, the Buyer shall ensure that all "section 411(d)(6) protected benefits"
(as defined in Treasury Regulation 1.411(d)-4) provided by the FJ 401(k) Plan
are preserved in the amended existing, defined contribution plan. From and after
the Closing, Transferred Employees shall not accrue additional benefits under
defined contribution plans maintained by Fort James or its Affiliates.
(b) Assets of the FJ 401(k) Plan equal to the account balances of the
Transferred Employees under the FJ 401(k) Plan shall be transferred to Buyer's
DC Plan as soon as practicable after the Closing. If practicable, the transfer
shall be made as of the last day of the first calendar quarter ending after the
Closing. The transfer shall be made in kind, and Buyer shall cause the Buyer's
DC Plan to continue to maintain an investment fund for Fort James common stock
for such Transferred Employees; provided, that Buyer's DC Plan may provide that
(i) no new contributions to Buyer's DC Plan shall be invested in such investment
fund and (ii) any portion of the account balance of a Transferred Employee that
is transferred out of such investment fund may not be reinvested in the
investment fund. Any outstanding plan loans to Transferred Employees shall be
transferred with the underlying accounts. The account balances of the
Transferred Employees shall be valued as of the date on which the transfer is
made. The account balances of Transferred Employees in the FJ 401(k) Plan shall
share in the earnings, appreciation and depreciation of the investment funds in
which the accounts are invested for the period between the Closing and the date
on which the transfer is made.
(c) Any benefits that are payable to Transferred Employees from the FJ 401(k)
Plan after the Closing and before assets are transferred shall be paid from the
FJ 401(k) Plan in the ordinary course. The amount to be transferred to Buyer's
DC Plan shall be reduced by the amount of such payments.
(d) The account balances to be credited under Buyer's DC Plan for Transferred
Employees shall not be less than the account balances of the Transferred
Employees under the FJ 401(k) Plan as of the date on which the transfer is made.
Effective on the date of the transfer of FJ 401(k) Plan assets, (i) Buyer's DC
Plan shall assume all liabilities in connection with the account balances of
Transferred Employees under the FJ 401(k) Plan, and (ii) Fort James, its
Affiliates and the FJ 401(k) Plan shall have no further liability with respect
to the account balances of Transferred Employees. Fort James and its Affiliates
shall have no liability with respect to Buyer's DC Plan.
(e) Buyer shall request that the Internal Revenue Service issue a favorable
determination letter with respect to the qualification under Sections 401 and
501 of the Code of Buyer's DC Plan and the related trust. Buyer shall make such
changes to Buyer's DC Plan as may be required by the Internal Revenue Service in
order for the Internal Revenue Service to issue a favorable determination
letter. Buyer shall provide Fort James with a copy of the determination letter
received from the Internal Revenue Service with respect to Buyer's DC Plan as
soon as the determination letter is received.
(f) The transfer under this Section 8.7 shall not take place until Buyer has
delivered to Fort James either (i) a copy of a determination letter from the
Internal Revenue Service to the effect that the Buyer's DC Plan is qualified
under Section 401(a) of the Code, together with documentation reasonably
satisfactory to Fort James of the due adoption of any amendments to the Buyer's
DC Plan required by the Internal Revenue Service as a condition to such
qualification and certification from the Buyer that no events have occurred that
would adversely affect the continued validity of such determination letter
(apart from the enactment of any Federal law for which the remedial amendment
period under Section 401(b) of the Code has not yet expired), or (ii) an opinion
of outside counsel reasonably satisfactory in form and substance to Fort James
that the Buyer's DC Plan is qualified under Section 401(a) of the Code as of the
date of transfer, and Fort James has delivered to the Buyer either (A) a copy of
a determination letter from the Internal Revenue Service to the effect that the
FJ 401(k) Plan is qualified under Section 401(a) of the Code, together with
documentation reasonably satisfactory to the Buyer of the due adoption of any
amendments to the FJ 401(k) Plan required by the Internal Revenue Service as a
condition to such qualification and a certification from Fort James that no
events have occurred that would adversely affect the continued validity of such
letters (apart from the enactment of any Federal law for which the remedial
amendment period under Section 401(b) of the Code has not yet expired), or (B)
an opinion of outside counsel reasonably satisfactory in form and substance to
the Buyer that the FJ 401(k) Plan is qualified under Section 401(a) of the Code
as of the date of transfer.
8.8 Pension Plan For Hourly Business Employees. (a) Effective as of the Closing
Date, Buyer shall establish a new defined benefit pension plan, and/or amend an
existing defined benefit pension plan ("Buyer's Pension Plan"), to provide the
benefits described in this Section 8.8. From and after the Closing Date, Buyer's
Pension Plan shall cover at least those Transferred Employees who, as of the
Closing Date, are active participants in the JR II Retirement Plan (the "FJ
Pension Plan"). Such Transferred Employees are referred to hereinafter as the
"Transferred Pension Participants."
(b) Effective as of the date of the asset transfer contemplated by this Section
8.8, Buyer shall assume under Buyer's Pension Plan all liability and
responsibility for the provision of the accrued pension benefits for and on
behalf of the Transferred Pension Participants and for the eligible surviving
spouses and/or other contingent beneficiaries of such Transferred Pension
Participants, which liability and responsibility had been the obligation of Fort
James prior to the date of the asset transfer contemplated in this Section 8.8.
Fort James shall retain all liability and responsibility, under the applicable
pension plans, for participants in the FJ Pension Plan who are not Transferred
Employees, and for the eligible surviving spouses and/or other contingent
beneficiaries of such participants.
(c) Buyer's Pension Plan with respect to all Transferred Pension Participants
shall be governed by the applicable collective bargaining agreements. For each
Transferred Pension Participant, Buyer's Pension Plan shall recognize periods of
employment by, and compensation from, Fort James and its Affiliates and any
predecessors of such entities, as employment by, and compensation from, Buyer
for all purposes under Buyer's Pension Plan, to the extent recognized under the
FJ Pension Plan.
(d) In conjunction with the establishment and/or amendment of Buyer's Pension
Plan, Buyer as of the Closing Date shall, to the extent necessary, establish, or
amend, a funding arrangement for Buyer's Pension Plan through a qualified trust
under Section 501 of the Code. Such funding arrangement shall be referred to
hereinafter as "Buyer's Pension Trust." The Fort James qualified pension trust
shall be referred to hereinafter as "FJ's Pension Trust."
(e) As soon as practicable after the later of (i) the Closing Date, and (ii) the
final determination of the Transfer Amount (as hereinafter defined) pursuant to
Sections 8.8(f) and (g), Fort James shall direct the trustee of FJ's Pension
Trust to transfer to Buyer's Pension Trust, in cash, the amount of assets (the
"Transfer Amount") of FJ's Pension Trust described below. Subject to
subparagraph (f) below, the Transfer Amount shall be determined by an actuary
selected by Fort James, and shall be the amount required to be transferred with
respect to the Transferred Pension Participants to satisfy the requirements of
Section 414(l) of the Code, determined as of the Closing Date (based upon the
actuarial assumptions deemed appropriate by the PBGC as of the Closing Date
under Section 414(l) of the Code for purposes of determining the discount rate
and retirement rates, and all other actuarial assumptions used to determine
accrued benefit obligations for the last actuarial report performed for the FJ
Pension Plan prior to Closing). The transfer of the Transfer Amount shall not
take place until after the latest of (A) the expiration of the 30-day period
following the filing of any required notices with the Internal Revenue Service
pursuant to Section 6058(b) of the Code, and (B) the date the Buyer has
delivered to Fort James either (1) a copy of a determination letter from the
Internal Revenue Service to the effect that the Buyer's Pension Plan is
qualified under Section 401(a) of the Code, together with documentation
reasonably satisfactory to Fort James of the due adoption of any amendments to
the Buyer's Pension Plan required by the Internal Revenue Service as a condition
to such qualification and certification from the Buyer that no events have
occurred that would adversely affect the continued validity of such
determination letter (apart from the enactment of any Federal law for which the
remedial amendment period under Section 401(b) of the Code has not yet expired),
or (2) an opinion of outside counsel reasonably satisfactory in form and
substance to Fort James that the Buyer's Pension Plan is qualified under Section
401(a) of the Code as of the date of transfer, and the date Fort James has
delivered to the Buyer either (1) a copy of a determination letter from the
Internal Revenue Service to the effect that the FJ Pension Plan is qualified
under Section 401(a) of the Code, together with documentation reasonably
satisfactory to the Buyer of the due adoption of any amendments to the FJ
Pension Plan required by the Internal Revenue Service as a condition to such
qualification and a certification from Fort James that no events have occurred
that would adversely affect the continued validity of such letters (apart from
the enactment of any Federal law for which the remedial amendment period under
Section 401(b) of the Code has not yet expired), or (2) an opinion of outside
counsel reasonably satisfactory in form and substance to the Buyer that the FJ
Pension Plan is qualified under Section 401(a) of the Code as of the date of
transfer.
(f) Fort James shall, within the period of ninety (90) consecutive calendar days
next following the date on which its actuary has received all information from
Buyer which is required to determine, in accordance with the preceding Section
8.8(e), the Transfer Amount, notify Buyer of the Transfer Amount, and shall
provide Buyer with a copy of the actuarial computations relating to the
determination of the Transfer Amount and all information and data on which such
calculations were based. Buyer shall notify Fort James in writing of Buyer's
agreement with such determination, or shall submit to Fort James a written list
of points of disagreement, within a period of thirty (30) consecutive calendar
days next following the date of Buyer's receipt of Fort James' notification. If
Buyer submits to Fort James any such written list of points of disagreement, and
if such disagreement cannot be resolved by Buyer's and Fort James' actuaries, or
otherwise to the satisfaction of Buyer and Fort James, within the period of
thirty (30) consecutive calendar days next following the date of receipt of such
list by Fort James, then the disagreement shall be resolved by a third
independent actuary to be mutually selected by Buyer and Fort James no later
than thirty (30) consecutive calendar days after the end of the first thirty
(30) day period. The opinion of such third actuary shall be returned to Buyer
and Fort James in writing as soon as possible thereafter, and shall be accepted
by both Buyer and Fort James as conclusive in the matter. The fees and charges
of such third actuary shall be shared equally by Buyer and Fort James.
(g) The transfer of the Transfer Amount, as finally determined pursuant to
Sections 8.8(e) and (f), from FJ's Pension Trust to Buyer's Pension Trust, shall
be completed as soon as practicable after such final determination. The Transfer
Amount:
(i) shall be increased or decreased by the rate of return on the assets in
the FJ Pension Trust (the "Rate of Return") commencing on the date next
following the Closing Date and ending on the date immediately prior to
the date on which the Transfer Amount is so transferred (the "Asset
Transfer Date"), as applied solely to the Transfer Amount; and
(ii) shall be decreased by the sum of the amount of any benefit payments
which are made to or on behalf of the Transferred Pension Participants
from FJ's Pension Trust prior to the Asset Transfer Date (with such
amount increased or decreased by the Rate of Return as applied solely
to the amount of such benefit payments from the Closing Date through
the Asset Transfer Date).
(h) On and after the Closing Date, but prior to the Asset Transfer Date, Fort
James shall direct the trustee of FJ's Pension Trust to pay benefits therefrom
to or on behalf of any Transferred Pension Participant who is, or becomes
entitled to benefits under the FJ Pension Plan on or after the Closing Date, but
prior to the Asset Transfer Date, with such payments to be made in accordance
with written instructions furnished by Buyer to Fort James from time to time;
subject, however, to Fort James' audit and approval of the proper computation of
such benefits.
8.9 Worker's Compensation. At Closing, Buyer shall assume liability for all
claims under worker's compensation laws that are payable at or after the Closing
with respect to Transferred Employees, without regard to when the liabilities
arose.
8.10 Vacation Pay. Buyer shall assume liability for all unpaid vacation pay
earned, banked or accrued by Transferred Employees prior to the Closing. After
the Closing, Fort James shall have no liability for vacation pay for Transferred
Employees.
8.11 Welfare Plans. (a) Fort James shall retain all assets relating to the
Employee Plans that are welfare benefit plans and shall be liable for and shall
hold Buyer harmless from and against all claims for the benefits described below
by participants of such plans which are incurred prior to the Closing Date. For
purposes of this Agreement, the following claims shall be deemed to be incurred
as follows: (i) life, accidental death and dismemberment and business travel
accident insurance benefits, upon the death or accident giving rise to such
benefits; (ii) health, dental and/or prescription drug benefits, on the date
such services, materials or supplies were provided; and (iii) long-term
disability benefits, on the eligibility date determined by the long-term
disability carrier for the individual.
(b) Fort James shall be liable for and shall hold Buyer harmless from and
against any retiree welfare benefits to be provided to retirees of the Business
who have actually retired prior to the Closing Date or to the Business Employees
who have attained age 55 with 15 years of service as of the Closing Date and are
eligible for retiree welfare benefits under an Employee Plan as of the Closing
Date. Buyer shall be liable for and shall hold Fort James harmless from and
against any retiree welfare benefits for Transferred Hourly Employees who are or
may become eligible for retiree welfare benefits pursuant to an Assumed
Collective Bargaining Agreement.
8.12 Plant Closing Laws. Buyer shall be responsible for providing any notice
required, pursuant to the United States Federal Worker Adjustment and Retraining
Act of 1988, any successor United States federal law, and any applicable plant
closing notification law with respect to a layoff or plant closing relating to
the Business that occurs as a result of or after the Closing. Fort James shall
be responsible for providing any such notice with respect to a layoff or plant
closing occurring prior to the Closing.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by this
Agreement shall be subject, to the extent not waived, to the satisfaction of
each of the following conditions before or at the Closing:
9.1 Representations and Warranties. Except for changes contemplated by this
Agreement, the representations and warranties of Fort James contained in this
Agreement that are qualified by materiality shall be true, and all other such
representations and warranties shall be true and correct in all material
respects, in each case at and as of the date of this Agreement and as of the
Closing, provided that representations and warranties made as of a specified
date need be so true and correct (as described above) only as of the specified
date.
9.2 Performance of this Agreement. Fort James shall have performed all
obligations and complied with all conditions required by this Agreement to be
performed or complied with by it before or at the Closing, to the extent not
waived.
9.3 Proceedings. All corporate and other proceedings to be taken by Fort James
in connection with the transactions contemplated hereby shall have been
completed, all such proceedings and all documents incident thereto shall be
reasonably satisfactory in substance and form to Buyer and Buyer shall have
received all such counterpart originals or certified or other copies of such
documents as Buyer may reasonably request.
9.4 Consents and Approvals. All consents, authorizations, orders or approvals of
any Authority or Person which Fort James is required to obtain in order to
consummate the transactions contemplated by this Agreement shall have been
obtained by Fort James and all waiting periods specified by law with respect
thereto shall have passed, other than any such consents, authorizations, orders
or approvals for which the failure to so obtain would not have a Fort James
Material Adverse Effect.
9.5 Injunction, Litigation, etc. No order of any court or administrative agency
shall be in effect which restrains or prohibits the consummation of the
transactions contemplated hereby, nor shall there be pending any action or
proceeding by or before any Authority which is likely to prohibit, or
successfully challenge the validity of any of the transactions contemplated by
this Agreement.
9.6 Legislation. No statute, rule or regulation shall have been enacted which
prohibits or restricts the consummation of the transactions contemplated hereby.
9.7 Related Agreements. Each Person of the FJ Group shall have executed and
delivered each of the Related Agreements to which it is a party.
9.8 Material Adverse Change. There shall not have occurred since March 28, 1999,
any event which has resulted in a Fort James Material Adverse Effect.
9.9 Opinion of Counsel for Fort James. Buyer shall have received an opinion from
Wachtell, Lipton, Rosen & Katz as to the matters specified in Schedule 9.9, in
form and substance reasonably satisfactory to Buyer and its counsel.
9.10 Officer's Certificate. Buyer shall have received a certificate, dated the
Closing Date, signed by the Chief Financial Officer of Fort James, certifying
that the conditions specified in this Article IX have been fulfilled.
9.11 Audited Financial Statements. Buyer shall have received an audited pro
forma balance sheet and pro forma statement of income for the Business as of
December 27, 1998.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF FORT JAMES
The obligations of Fort James to consummate the transactions contemplated by
this Agreement shall be subject, to the extent not waived, to the satisfaction
of each of the following conditions before or at Closing:
10.1 Representations and Warranties. Except for changes contemplated by this
Agreement, the representations and warranties of Buyer contained in this
Agreement that are qualified by materiality shall be true, and all other such
representations and warranties shall be true and correct in all material
respects, in each case at and as of the date of this Agreement, and as of the
Closing, provided that representations and warranties made as of a specified
date need be so true and correct (as described above) only as of the specified
date.
10.2 Performance of this Agreement. Buyer shall have performed all obligations
and complied with all conditions required by this Agreement to be performed or
complied with by it before or at the Closing, to the extent not waived.
10.3 Proceedings. All corporate and other proceedings to be taken by Buyer in
connection with the transactions contemplated hereby shall have been completed,
all such proceedings and all documents incident thereto shall be reasonably
satisfactory in substance and form to Fort James, and Fort James shall have
received all such counterpart originals or other copies of such documents as
Fort James may reasonably request.
10.4 Consents and Approvals. All consents, authorizations, orders or approvals
of any Authority which Buyer is required to obtain in order to consummate the
transactions contemplated by this Agreement shall have been obtained by Buyer
and all waiting periods specified by law with respect thereto shall have passed.
10.5 Injunction, Litigation, etc. No order of any court or administrative agency
shall be in effect which restrains or prohibits the consummation of the
transactions contemplated hereby, nor shall there be pending, any action or
proceeding by or before any Authority which is likely to prohibit, or
successfully challenge the validity of any of the transactions contemplated by
this Agreement.
10.6 Legislation. No statute, rule or regulation shall have been enacted which
prohibits or restricts the consummation of the transactions contemplated hereby.
10.7 Related Agreements. Buyer shall have executed and delivered each of the
Related Agreements to which it is to be a named party.
10.8 Officer's Certificate. Fort James shall have received a certificate, dated
the Closing Date, signed by the Chief Financial Officer of Buyer, certifying
that the conditions specified in this Article X have been fulfilled.
ARTICLE XI
DELIVERIES, ETC., IN CONNECTION WITH CLOSING
11.1 Time and Place of Closing. The closing (the "Closing") shall occur as soon
as practicable, but in no event later than five business days following the
satisfaction of the conditions set forth in Articles IX and X, at the offices of
Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York, or at
the request of either party, such other date and place as the parties shall
agree. If the Closing takes place, the Closing and all of the transactions
contemplated by this Agreement shall be deemed to have occurred simultaneously
and become effective as of 12:01 a.m. on the date of Closing. The date on which
the Closing shall occur is referred to herein as the "Closing Date."
11.2 Deliveries by Fort James.At or before the Closing, Fort James shall deliver
to Buyer, as applicable, the following:
(a) duly executed deeds from the applicable member of the FJ Group in recordable
form which convey to Buyer title to the Real Property, subject to Permitted
Exceptions and subject to the exceptions and exclusions contained in the Title
Commitment as of the Closing, other than any Title Defect which Fort James has
elected to cure or otherwise delete pursuant to Section 7.13(c)(i). Fort James
will provide to Buyer's title insurance company (i) customary good standing
certificates and corporate authorizations, (ii) owner's affidavits acceptable to
such title insurer to remove any exception for (A) mechanics' or materialmens'
liens and (B) rights of parties in possession, and (iii) a gap indemnity
acceptable to such title insurer for insuring over the "gap" (i.e. the time
period since the effective date of the title company's last checkdown of title);
(b) a bill of sale and such other document or documents (suitable for filing,
registration or recording, if applicable) as are necessary to transfer to Buyer
the Assets other than the Real Property, which transfer documents shall be
without recourse and shall contain no representations or warranties;
(c) evidence that all of the proceedings contemplated by Section 9.3 have been
completed;
(d) copies of any consents obtained as contemplated by Section 9.4;
(e) certificates from the State Corporation Commission of Virginia evidencing
the good standing of Fort James in the Commonwealth of Virginia as of a recent
date;
(f) each of the Related Agreements executed by the Person of the FJ Group that
is a party thereto; and
(g) such additional documents as Buyer may reasonably request.
11.3 Deliveries by Buyer. At or before the Closing, Buyer shall deliver to Fort
James, as applicable, the following:
(a) the Purchase Price pursuant to Section 3.1;
(b) a duly executed assumption of the Assumed Liabilities;
(c) evidence that all of the proceedings contemplated by Section 10.3 have been
completed;
(d) copies of any consents obtained as contemplated by Section 10.4;
(e) certificates from the Secretary of State of the States of Delaware and
Colorado as to the good standing of each Buyer in such State as of the most
recent date obtainable;
(f) each of the Related Agreements duly executed by the Buyer; and
(g) such additional documents as Fort James may reasonably request.
11.4 Deliveries of Related Agreements. At or before the Closing, each of the
parties to each Related Agreement shall deliver an executed copy of such
Agreement to the other parties thereto.
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification by Fort James. (a) Subject to the limitations contained in
this Article XII, effective upon the Closing, Fort James shall indemnify and
hold Buyer harmless against all Losses arising out of
(i) any breach of a representation or warranty made by Fort James in this
Agreement (other than the representations and warranties contained in
(A) Section 5.6, which representations and warranties shall not
survive Closing, with Buyer's sole recourse being under Section
12.1(c), and (B) Section 5.10(a), which representations and warranties
shall not survive Closing, with Buyer's sole recourse being under such
title insurance policies as Buyer chooses to procure under Section
7.13 hereof);
(ii) the breach of any agreement of Fort James contained in this Agreement
(but not the Related Agreements, or obligations under Article VIII
hereof, which shall stand on their own); or
(iii) any Excluded Liability.
(b) Notwithstanding the foregoing, in the case of Losses incurred as a result of
the events described in Sections 12.1(a)(i) and (ii), Fort James shall not be
liable for indemnification hereunder unless and until the aggregate amount of
such Losses exceeds $20,000,000 (the "Basket"), in which event Buyer shall be
entitled to indemnification as set forth above solely to the extent that such
Losses exceed such Basket, provided, however, that Fort James' aggregate
liability with respect to Sections 12.1(a)(i) and (ii) shall in no event exceed
$100 million (the "Cap"). Neither the Basket nor the Cap shall apply to Losses
under Section 12.1(a)(iii) above or Section 12.1(c) below.
(c) Any Loss to the extent attributable to conditions existing at, or acts or
omissions on or before, the Closing with respect to any Environmental Condition
existing on any Transferred Site (including Losses arising under Environmental
Laws with respect to hazardous substances, contaminants, pollutants or petroleum
products leaching or physically migrating from Transferred Sites that results
from contamination or pollution of a Transferred Site), that, as of Closing,
constitutes a violation of, or otherwise gives rise to any Liability under, any
Environmental Laws, but excluding any such Loss to the extent arising from any
change in law after the Closing, is a "Pre-Closing Environmental Loss." The date
that a requirement of remediation or other action, or a claim for damages,
penalties, fines or other similar costs or expenses or for equitable relief is
first made by an Authority, or demanded by a potential plaintiff with respect to
any such Environmental Condition is the "Environmental Accrual Date" with
respect to such Environmental Condition. Notwithstanding any provision of this
Agreement to the contrary, Buyer shall not be entitled to any indemnification or
reimbursement from Fort James with respect to any Pre-Closing Environmental Loss
except to the extent that such Pre-Closing Environmental Loss arises out of an
Environmental Condition having an Environmental Accrual Date before the fifth
anniversary of Closing and such Pre-Closing Environmental Losses from and after
Closing, in the aggregate, exceed $10 million and then, only for the percentage
of such excess specified herein. Subject to the foregoing: for each period of
twelve months following the Closing and before the fifth anniversary of Closing,
Fort James shall indemnify Buyer for Pre-Closing Environmental Losses arising
from items having an Environmental Accrual Date during such twelve month period
in an amount equal to the Applicable Percentage of such Pre-Closing
Environmental Loss. The "Applicable Percentage" shall be 80% for events or
conditions with an Environmental Accrual Date during the period between Closing
and the first anniversary of Closing, 60% for events or conditions with an
Environmental Accrual Date during the period between the first anniversary of
Closing and the second anniversary of Closing, 40% for events or conditions with
an Environmental Accrual Date during the period between the second anniversary
of Closing and the third anniversary of Closing, 20% for events or conditions
with an Environmental Accrual Date during the period between the third
anniversary of Closing and the fourth anniversary of Closing, and 10% for events
or conditions with an Environmental Accrual Date during the period between the
fourth anniversary of Closing and the fifth anniversary of Closing.
12.2 Indemnification by Buyer. (a) Subject to the limitations contained in this
Article XII, effective upon the Closing, Buyer shall indemnify and hold Fort
James harmless against all Losses arising out of:
(i) any breach of a representation or warranty made by Buyer in this
Agreement;
(ii) the breach of any agreement of Buyer contained in this Agreement (but
not the Related Agreements, or obligations under Article VIII hereof,
which shall stand on their own); or
(iii) any Assumed Liability or the failure by Buyer to discharge any Assumed
Liability.
(b) Notwithstanding the foregoing, in the case of Losses incurred as a result of
the events described in Sections 12.2(a)(i) and (ii), Buyer shall not be liable
for indemnification hereunder unless and until the aggregate amount of such
Losses exceeds the Basket, in which event Fort James shall be entitled to
indemnification as set forth above solely to the extent that such Losses exceed
such Basket; provided, however, that Buyer's aggregate liability with respect to
Sections 12.2(a)(i) and (ii) shall in no event exceed the Cap. Neither the
Basket nor the Cap shall apply to Losses under Section 12.2(a)(iii) above.
12.3 Article VIII Rights and Obligations Excluded. The rights and obligations of
Fort James and Buyer under Section 12.1(c) and Article VIII hereof shall not be
subject to the Basket or the Cap, or in the case of obligations under Article
VIII, any other provisions of this Article XII, but shall apply separately in
accordance with their terms.
12.4 Survival Date. (a) The indemnification obligations of each party (the
"Indemnitor") obligated to provide indemnification to the other (the
"Indemnitee") under Section 12.1(a)(i) or Section 12.2(a)(i) shall lapse and
become of no further force and effect with respect to all claims not made by
Indemnitee's delivery to the Indemnitor of written notice containing details
reasonably sufficient to disclose to Indemnitor the nature and scope of the
claim by the eighteen month anniversary of the Closing. Notwithstanding anything
contained herein to the contrary, no indemnified party shall be entitled to
indemnification with respect to any claim under Section 12.1(a)(i) or
12.2(a)(i), if such indemnified party has actual knowledge prior to Closing of
any circumstance constituting a breach or failure of any such representation or
warranty resulting in such claim where such breach would have entitled such
indemnified party not to consummate the transactions contemplated by this
Agreement at Closing.
The indemnification obligations under Sections 12.1(a)(ii) and (iii) and
Sections 12.2(a)(ii) and (iii) shall not be limited by time, but shall survive
in accordance with the terms of the underlying obligations to which they relate.
12.5 Definition of Loss. For purposes of this Article XII and Article VIII,
"Losses" shall mean, collectively, any and all claims, damages, Liabilities,
liens, losses or other obligations whatsoever, together with costs and expenses,
including, without limitation, reasonable fees and disbursements of counsel and
any consultants or experts and expenses of investigation incurred by an
Indemnitee entitled to indemnification hereunder as a result of a matter giving
rise to a claim for indemnification hereunder, incurred in connection with any
action, suit or proceeding ("Legal Action") instituted against the Indemnitee
determined, net of the: (a) tax savings realized by the Indemnitee in respect of
such matter net of any tax consequences of the indemnity payment;
(b) insurance proceeds to which the Indemnitee is entitled in respect of such
matter; and
(c) indemnity payments to which the Indemnitee is entitled from parties other
than the indemnifying party hereunder in respect of such matter.
Notwithstanding any provision of this Article XII, any damages to the extent
attributable to a failure to reasonably mitigate damages shall not constitute
Losses.
12.6 Third Party Claims. (a) Each of the parties must follow the procedures set
forth in the following paragraphs of this Section 12.6 in order to be entitled
to indemnification with respect to claims resulting from the assertion of
liability by persons or entities not parties to this Agreement, including claims
by any Authority for penalties, fines and assessments.
(b) The party seeking indemnification shall give prompt written notice to the
party from whom indemnification is sought of any assertion of liability by a
third party which might give rise to a claim by the indemnified party against
the indemnifying party based on the indemnity agreements contained in this
Agreement, stating the nature and basis of the assertion and the amount thereof,
to the extent known.
(c) In the event that any Legal Action is brought against an indemnified party
with respect to which the indemnifying party may have liability under an
indemnity agreement contained in this Agreement, the Legal Action shall, upon
the written agreement of the indemnifying party that it is obligated to
indemnify under such an indemnity agreement, be defended by the indemnifying
party and such defense shall include all appeals or reviews which counsel for
the indemnifying party shall deem appropriate. In any such Legal Action the
indemnified party shall have the right to be represented by advisory counsel and
accountants, at its own expense, and the indemnifying party shall keep the
indemnified party fully informed as to such proceeding, at all stages thereof,
whether or not the indemnified party is represented by its own counsel.
(d) Until the indemnifying party shall have assumed the defense of any Legal
Action, or if the indemnified and indemnifying parties are both named parties in
such Legal Action and the indemnified party shall have reasonably concluded that
there may be defenses available to it that are materially different from or in
addition to the defenses available to the indemnifying party (in which case the
indemnifying party shall not be entitled to assume the defense of such Legal
Action, but shall remain responsible for its obligation as an indemnitor), all
legal and other reasonable expenses incurred by the indemnified party as a
result of such Legal Action shall be borne by the indemnifying party. In such
event, the indemnified party shall make available to the indemnifying party and
its attorneys and accountants, for review and copying, its books and records
relating to such Legal Action and the parties shall render to each other such
assistance as may reasonably be requested to facilitate the proper and adequate
defense of any such Legal Action.
(e) The indemnifying party shall not make any settlement of any claim without
the written consent of the indemnified party, which consent shall not be
unreasonably withheld. Without limiting the generality of the foregoing, it
shall not be deemed unreasonable to withhold consent to a settlement involving
injunctive or other equitable relief against the indemnified party or its
assets, employees, business or methods of doing business.
(f) The indemnifying party shall be relieved of its obligation to indemnify the
indemnified party to the extent that any failure to give or delay in giving
timely notice as required by this Section 12.6 prejudices the indemnifying
party.
12.7 Subrogation Rights; No Duplication. (a) Any Indemnitor required to make a
payment under this Article XII shall be subrogated, to the extent of such
payment, to the rights of the entity to which such payment has been made for
reimbursement or indemnification against third parties relating to the claim on
which such payment has been based.
(b) Notwithstanding anything in this Article XII to the contrary, the
obligations of each Indemnitor and its Affiliates pursuant to this Article XII
shall be without duplication as between entities to which such Indemnitor and
its Affiliates are required to make payments.
ARTICLE XIII
TERMINATION, AMENDMENT AND WAIVER
13.1 Termination. This Agreement may be terminated at any time before the
Closing:
(i) by mutual written consent of the parties hereto;
(ii) by either Fort James on the one hand, or Buyer on the other, if there
has been a material breach on the part of the other of a
representation, warranty or agreement contained herein, or in any
writing delivered pursuant to the provisions of this Agreement, which
remains uncured; provided, however, that no breach of representation or
warranty shall form the basis of a right to terminate this Agreement if
the party to whom such representation or warranty was made or its
officers, directors or representatives had notice of the existence of
such breach on or before the date of this Agreement; or
(iii) by Fort James or Buyer if the Closing has not occurred by the date
which is 120 days after the date of this Agreement.
13.2 Effect of Termination. If this Agreement is terminated pursuant to Section
13.1, this Agreement shall become wholly void and of no further force and effect
and there shall be no further liability or obligation on the part of any party
hereto, except to pay such expenses and amounts as are required of it pursuant
to Section 7.5 hereof, and to comply with the confidentiality provisions of
Section 7.6. No such termination shall relieve either party of any liability to
the other for any breach of this Agreement prior to the date of termination;
provided that in no event shall either party be liable to the other for any
amount in excess of $20,000,000 in connection with such a pre-Closing breach.
13.3 Amendment. This Agreement may be amended at any time only by writing
executed by each of the parties hereto.
13.4 Extension; Waiver. At any time before the Closing, any party to this
Agreement which is entitled to the benefits thereof may (a) extend the time for
the performance of any of the obligations of another party hereto, (b) waive any
misrepresentation (including an omission) or breach of a representation or
warranty of another party hereto, whether contained herein or in any exhibit,
schedule or document delivered pursuant hereto, or (c) waive compliance of
another party hereto with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in a written instrument
signed by the party or parties giving the extension or waiver.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Notices. All notices and other communications required or permitted
hereunder shall be in writing (including telefax or similar writing) and shall
be given,
(a) if to Fort James, to:
Fort James Corporation
1650 Lake Cook Road
PO Box 89
Deerfield, Illinois 60015-0089
Attention: Clifford A. Cutchins, IV
Telefax: (847) 317-5481
with copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Patricia A. Vlahakis
Telefax: (212) 403-2000
(b) if to Buyer, to:
ACX Technologies, Inc.
16000 Table Mountain Parkway
Golden, Colorado 80403
Attention: Jill B.W. Sisson
Telefax: (303) 271-7055
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln Street
Suite 4100
Denver, Colorado 80203
Attention: W. Dean Salter
Telefax: (303) 866-0200
or (c) in either case, to such other person or to such other address or telefax
number as the party to whom notice is to be given may have furnished the other
parties in writing by like notice. If mailed, any such communication shall be
deemed to have been given on the third business day following the day on which
the communication is posted by registered or certified mail (return receipt
requested). If given by any other means it shall be deemed to have been given
when delivered to the address specified in this Section 14.1.
14.2 Interpretation. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement. Unless the context otherwise requires, terms (including defined
terms) used in the plural include the singular, and vice versa.
14.3 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
14.4 Miscellaneous. This Agreement (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof; (b) is not
intended to and shall not confer upon any person, association or entity, other
than the parties hereto, any rights or remedies with respect to the subject
matter or any provision hereof; (c) shall not be assigned by operation of law or
otherwise, except that Buyer may assign this Agreement to a wholly-owned
subsidiary of ACX provided that each of ACX and GPC remains obligated under the
terms hereunder; and (d) shall be governed in all respects by the laws of the
state of Delaware without regard to its laws or regulations relating to choice
of law.
14.5 Third Party Beneficiaries. Nothing herein contained, whether express or
implied, is intended to confer any right or remedy under or by reason of this
Agreement other than to the parties hereto and their respective successors and
assigns, and no action may be brought by a third party claiming as a third party
beneficiary to this Agreement or the transactions contemplated herein.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
FORT JAMES CORPORATION
By: /s/ Ernst A. Haberli
Name: Ernst A. Haberli
Title: EVP - CFO
ACX TECHNOLOGIES, INC.
By: /s/ Jeffrey H. Coors
Name: Jeffrey H. Coors
Title: President and CO - CEO
GRAPHIC PACKAGING CORPORATION
By: /s/ Jeffrey H. coors
Name: Jeffrey H. Coors
Title: President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORT JAMES CORPORATION'S JUNE 27,
1999,FORM 10-Q FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<NAME> FORT JAMES CORPORATION
<CIK> 0000053117
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> JUN-27-1999
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 920
<ALLOWANCES> 0
<INVENTORY> 819
<CURRENT-ASSETS> 1,893
<PP&E> 7,501
<DEPRECIATION> 3,341
<TOTAL-ASSETS> 7,583
<CURRENT-LIABILITIES> 1,411
<BONDS> 3,659
0
0
<COMMON> 22
<OTHER-SE> 1,038
<TOTAL-LIABILITY-AND-EQUITY> 7,583
<SALES> 3,388
<TOTAL-REVENUES> 3,388
<CGS> (2,311)
<TOTAL-COSTS> (2,311)
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (122)
<INCOME-PRETAX> 386
<INCOME-TAX> (132)
<INCOME-CONTINUING> 254
<DISCONTINUED> (5)
<EXTRAORDINARY> (33)
<CHANGES> (22)
<NET-INCOME> 193
<EPS-BASIC> 0.88
<EPS-DILUTED> 0.88
</TABLE>
Exhibit 99 - Unaudited pro forma consolidated financial information
The following unaudited pro forma financial statements give effect to the
sale of the assets and liabilities of the Company's Packaging business to ACX
Technologies, Inc. ("ACX") and the application of the proceeds. The unaudited
pro forma balance sheet presents the consolidated financial position of Fort
James assuming the disposition of the Packaging business had been consummated on
June 27, 1999. The unaudited pro forma consolidated statements of operations for
the six months ended June 27, 1999 and the year ended December 27, 1998, present
the consolidated results of operations of Fort James assuming the disposition
had been consummated as of December 28, 1997.
The unaudited pro forma information gives effect only to the
reclassifications and adjustments set forth in the accompanying notes to the
unaudited pro forma consolidated financial statements and is not necessarily
indicative of the operating results and financial position that might have been
achieved had the sale occurred on the date or as of the beginning of the period
indicated, nor is it necessarily indicative of the operating results and
financial position that may occur in the future.
The unaudited pro forma information should be read in conjunction with the
historical consolidated financial statements of Fort James as contained in its
Annual Report on Form 10-K for the year ended December 27, 1998 and the
unaudited consolidated interim financial statements contained in its Quarterly
Report on Form 10-Q for the six months ended June 27, 1999.
<PAGE>
FORT JAMES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 27, 1999
Pro Forma
Adjustments
Historical Increase Pro Forma
(in millions) Fort James (Decrease) Fort James
- --------------------------------------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents $ 7.7 $ 7.7
Accounts receivable 920.3 920.3
Inventories 819.2 819.2
Deferred income taxes 110.9 110.9
Prepaid expenses and other
current assets 34.5 34.5
- -------------------------------------------------------------------------------
Total current assets 1,892.6 1,892.6
- -------------------------------------------------------------------------------
Property, plant and equipment 7,501.4 7,501.4
Accumulated depreciation (3,340.7) (3,340.7)
- -------------------------------------------------------------------------------
Net property, plant and equipment 4,160.7 4,160.7
Goodwill 552.4 552.4
Net assets of discontinued operations 426.2 $(426.2)(a) -
Other assets 551.4 551.4
- -------------------------------------------------------------------------------
Total assets $ 7,583.3 $(426.2) $ 7,157.1
===============================================================================
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 616.6 $ 616.6
Accrued liabilities 558.1 558.1
Current portion of long-term debt 235.8 235.8
- -------------------------------------------------------------------------------
Total current liabilities 1,410.5 1,410.5
- -------------------------------------------------------------------------------
Long-term debt 3,658.5 $(680.0)(b) $ 2,978.5
Deferred income taxes 733.6 733.6
Accrued postretirement benefits other
than pensions 438.9 438.9
Other long-term liabilities 281.6 281.6
- -------------------------------------------------------------------------------
Total liabilities 6,523.1 (680.0) 5,843.1
Shareholders' equity 1,060.2 253.8 (c) 1,314.0
- -------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 7,583.3 $(426.2) $ 7,157.1
===============================================================================
The accompanying notes are an integral part of this pro forma information.
<PAGE>
FORT JAMES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Six Months Ended June 27, 1999
Pro Forma
Adjustments
Historical Increase Pro Forma
(in millions, except per share data) Fort James (Decrease) Fort James
- -------------------------------------------------------------------------------
Net sales $3,387.5 $3,387.5
Cost of goods sold (2,310.7) (2,310.7)
Selling and administrative expenses (588.2) (588.2)
Restructure and other unusual items 1.1 1.1
- --------------------------------------------------------------------------------
Income from continuing operations 489.7 489.7
Interest expense (121.9) $ 23.0 (a) (110.0)
(11.1)(b)
Other income, net 18.1 18.1
- --------------------------------------------------------------------------------
Income from continuing operations
before income taxes, extraordinary
item, and cumulative effect of a change
in accounting principle 385.9 11.9 397.8
Income tax expense (132.4) (4.6)(c) (137.0)
- --------------------------------------------------------------------------------
Income from continuing operations
before extraordinary item and
cumulative effect of a change in
accounting principle $ 253.5 $ 7.3 $ 260.8
================================================================================
Basic earnings per share:
Net income from continuing operations $ 1.15 $ 1.19
- -------------------------------------------------------- -----------
Weighted average common shares outstanding 219.6 219.6
======================================================== ===========
Diluted earnings per share:
Net income from continuing operations $ 1.15 $ 1.18
- -------------------------------------------------------- -----------
Weighted average common shares and common
share equivalents outstanding 220.6 220.6
======================================================== ===========
The accompanying notes are an integral part of this pro forma information.
<PAGE>
FORT JAMES CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Year Ended December 27, 1998
Historical Pro Forma Pro
------------------- Adjustments Forma
(in millions, Fort Income Fort
except per share data) James Packaging (Expense) James
- --------------------------------------------------------------------------------
Net sales $7,301.1 $591.5 (d) $14.2 (e) $6,802.6
78.8 (f)
Cost of goods sold (4,965.1) (510.8)(d) (14.2)(e) (4,547.3)
(78.8)(f)
Selling and administrative expenses (1,174.5) (31.4)(d) (1,143.1)
Restructure and other unusual items (100.8) (9.7)(d) (91.1)
- --------------------------------------------------------------------------------
Income from operations 1,060.7 39.6 1,021.1
Interest expense (288.5) (23.7)(d) $45.9 (a) (242.6)
(23.7)(b)
Other income (expense), net (6.2) (0.8)(d) (5.4)
- --------------------------------------------------------------------------------
Income before income taxes
and extraordinary item 766.0 15.1 22.2 773.1
Income tax expense (265.8) (6.7)(d) (8.6)(c) (267.7)
- --------------------------------------------------------------------------------
Income before extraordinary item $ 500.2 $ 8.4 $13.6 $ 505.4
================================================================================
Basic earnings per share:
Income before extraordinary item $2.29 $2.31
- ----------------------------------------------- -------
Weighted average common
shares outstanding 216.1 216.1
=============================================== =======
Diluted earnings per share:
Income before extraordinary item $2.27 $2.30
- ----------------------------------------------- -------
Weighted average common shares
and common share equivalents
outstanding 217.9 217.9
=============================================== =======
The accompanying notes are an integral part of this pro forma information.
<PAGE>
FORT JAMES CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
1) Basis of Presentation
The following unaudited pro forma financial statements give effect to the
sale of the assets and liabilities of the Company's Packaging business to ACX
Technologies, Inc. ("ACX") and the application of the proceeds. The unaudited
pro forma balance sheet presents the consolidated financial position of Fort
James assuming the disposition of the Packaging business had been consummated on
June 27, 1999. The unaudited pro forma consolidated statements of operations for
the six months ended June 27, 1999 and the year ended December 27, 1998, present
the consolidated results of operations of Fort James assuming the disposition
had been consummated as of December 28, 1997.
The historical consolidated financial statements of Fort James are based on
the unaudited consolidated balance sheet as of June 27, 1999 and unaudited
consolidated statement of operations for the six months ended June 27, 1999. The
results of operations for the six months ended June 27, 1999 are not necessarily
indicative of the results to be expected for the full year. The pro forma
consolidated statement of operations for the year ended December 27, 1998 was
derived from audited consolidated financial statements as of that date.
The historical combined financial statements of the Packaging business
consist of the operations, assets, and liabilities of folding carton,
healthcare, and microwave packaging manufacturing facilities sold to ACX.
2) Pro Forma Balance Sheet Adjustments
The unaudited pro forma consolidated balance sheet gives effect to the
adjustments described below:
(a) To reflect the sale of the Packaging net assets to ACX.
(b) To reflect the net cash receipt $825 million, less estimated income tax
payments and transaction costs of $145 million, and the related repayment of
outstanding debt.
(c) To record the estimated net gain on the sale.
3) Pro Forma Statements of Operations Adjustments
The pro forma consolidated statements of operations give effect to the
adjustments described below:
(a) To reflect the decrease in Fort James' interest expense resulting from
the receipt of net cash proceeds from the sale which were applied to repay
outstanding debt. A 0.125 percentage point change in interest rates on variable
rate debt would have had an immaterial effect on the pro forma adjustment.
(b) To reverse interest expense allocated to discontinued operations in Fort
James' historical financial statements.
(c) To reflect the effect of the pro forma adjustments on income tax expense
using an estimated tax rate of 38.9% for the periods presented.
(d) To remove results of operations of the Packaging business.
(e) To adjust for Packaging sales to Fort James facilities which are included
as third-party sales in Packaging's historical financial statements and should
be eliminated as intercompany sales.
(f) To adjust for Fort James' sales to Packaging facilities which are
eliminated as intercompany sales in Fort James' historical financial statements
and will become third-party sales to ACX.
