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 Quarterly Period Ended June 30, 1998
Commission File Number 1-7107
LOUISIANA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0609074
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S. W. Fifth Avenue, Portland, Oregon 97204-3699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 221-0800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes -X-. No ---.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 109,777,957 shares of Common Stock, $1 par value, outstanding as
of August 1, 1998.
<PAGE>
FORWARD LOOKING STATEMENTS
Statements in this report, to the extent they are not based on historical
events, constitute forward looking statements. Forward looking statements
include, without limitation, statements regarding the outlook for future
operations, forecasts of future costs and expenditures, evaluation of market
conditions, the outcome of legal proceedings, the adequacy of reserves, or plans
for product development. Investors are cautioned that forward looking statements
are subject to an inherent risk that actual results may vary materially from
those described herein. Factors that may result in such variance, in addition to
those accompanying the forward looking statements, include changes in interest
rates, commodity prices, and other economic conditions; actions by competitors;
changing weather conditions and other natural phenomena; actions by government
authorities; uncertainties associated with legal proceedings; technological
developments; future decisions by management in response to changing conditions;
and misjudgments in the course of preparing forward looking statements.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED SUMMARY STATEMENTS OF INCOME
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
Net sales $ 623.2 $ 633.3 $1,171.5 $1,187.9
------- ------- ------- -------
Costs and expenses:
Cost of sales 506.2 552.1 1,002.2 1,059.5
Depreciation, amortization
and depletion 49.5 46.1 89.0 87.0
Selling and administrative 45.5 43.3 89.5 84.7
Unusual credits and
charges, net (328.3) --- (328.3) (121.9)
Interest expense 10.1 7.0 19.8 15.8
Interest income (1.5) (.5) (3.6) (.8)
------- ------- ------- -------
Total costs and expenses 281.5 648.0 868.6 1,124.3
------- ------- ------- -------
Income (loss) before taxes
and minority interest 341.7 (14.7) 302.9 63.6
Provision (benefit) for
income taxes 138.8 (3.4) 126.3 34.2
Minority interest in
net income (loss) of
consolidated subsidiaries (1.0) (1.2) (2.2) (2.5)
------- ------- ------- -------
Net income (loss) $ 203.9 $ (10.1) $ 178.8 $ 31.9
======= ======= ======= =======
Net income (loss) per share-
basic and diluted $ 1.87 $ (.10) $ 1.64 $ .29
======= ======= ======= =======
Cash dividends per share $ .14 $ .14 $ .28 $ .28
======= ======= ======= =======
Average shares outstanding (thousands)-
Basic 109,070 108,190 109,070 108,190
======= ======= ======= =======
Diluted 109,350 108,190 109,350 108,190
======= ======= ======= =======
See notes to financial statements
- 1 -
<PAGE>
CONSOLIDATED SUMMARY BALANCE SHEETS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
JUNE 30, 1998 DEC. 31, 1997
------------- -------------
Cash and cash equivalents $ 433.0 $ 31.9
Accounts receivable, net 160.5 146.2
Inventories 192.8 258.8
Prepaid expenses 13.1 8.9
Income tax refunds receivable --- 78.0
Deferred income taxes 73.0 73.0
-------- --------
Total current assets 872.4 596.8
-------- --------
Timber and timberlands 515.8 634.2
Property, plant and equipment 2,254.2 2,433.9
Less accumulated depreciation (1,197.2) (1,242.1)
-------- --------
Net property, plant and equipment 1,057.0 1,191.8
Timber notes receivable 403.8 49.9
Goodwill and other assets 99.4 105.7
-------- --------
Total assets $2,948.4 $2,578.4
======== ========
Current portion of long-term debt $ 83.8 $ 22.9
Short-term notes payable 28.4 22.0
Accounts payable and accrued liabilities 231.6 234.4
Current portion of contingency reserves 50.0 40.0
Income taxes payable 11.7 ---
-------- --------
Total current liabilities 405.5 319.3
-------- --------
Long-term debt, excluding current portion 598.7 572.3
Contingency reserves, net of current portion 143.3 184.0
Deferred income taxes and other 352.5 216.6
Stockholders' equity:
Common stock 117.0 117.0
Additional paid-in capital 468.4 472.2
Retained earnings 1,125.8 977.5
Treasury stock (158.7) (163.4)
Loans to Employee Stock Ownership Trusts (25.8) (37.7)
Accumulated comprehensive income (loss) (78.3) (79.4)
-------- --------
Total stockholders' equity 1,448.4 1,286.2
-------- --------
Total liabilities and equity $2,948.4 $2,578.4
======== ========
See notes to financial statements
- 2 -
<PAGE>
CONSOLIDATED SUMMARY STATEMENTS OF CASH FLOWS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998 1997
------- -------
Cash flows from operating activities:
Net income $ 178.8 $ 31.9
Depreciation, amortization and depletion 89.0 87.0
Non-cash unusual credits and charges (328.3) ---
Cash settlements of contingencies (38.9) (105.3)
Other adjustments, net 10.4 15.6
Decrease in certain working
capital components and deferred taxes 219.0 111.6
------- -------
Net cash provided by operating activities 130.0 140.8
------- -------
Cash flows from investing activities:
Capital spending, including acquisitions (75.9) (137.4)
Proceeds from sales of assets 299.5 8.3
Other investing activities, net 4.1 1.9
------- -------
Net cash provided by (used in) investing activities 227.7 (127.2)
------- -------
Cash flows from financing activities:
New borrowings 348.6 125.0
Repayment of long-term debt, including
net decrease in credit line (285.6) (115.3)
Increase (decrease) in short-term notes payable 6.4 (13.4)
Cash dividends (30.5) (30.3)
Other financing activities, net 4.5 (.5)
------- -------
Net cash provided by (used in) financing activities 43.4 (34.5)
------- -------
Net increase (decrease) in cash and cash equivalents 401.1 (20.9)
Cash and cash equivalents at beginning of year 31.9 27.8
------- -------
Cash and cash equivalents at end of period $ 433.0 $ 6.9
======= =======
See notes to financial statements
- 3 -
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 1998
--------------------
SHARES AMOUNT
----------- -------
Common Stock 116,937,022 $ 117.0
=========== =======
Additional Paid-in-Capital:
Beginning balance $ 472.2
Net transactions (3.8)
-------
Ending balance $ 468.4
=======
Retained Earnings:
Beginning balance $ 977.5
Net income 178.8
Cash dividends, $.28 per share (30.5)
-------
Ending balance $1,125.8
=======
Treasury stock:
Beginning balance 7,309,360 $(163.4)
Shares reissued for employee stock
plans and acquisition adjustment (204,023) 4.7
---------- -------
Ending balance 7,105,337 $(158.7)
========== =======
Loans to Employee Stock Ownership Trusts:
Beginning balance $ (37.7)
Less accrued contribution 11.9
-------
Ending balance $ (25.8)
=======
Accumulated comprehensive income (loss):
Beginning balance $ (79.4)
Currency translation adjustment and
amortization of deferred compensation 1.1
-------
Ending balance $ (78.3)
=======
See notes to financial statements
- 4 -
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
1. The interim period information included herein reflects all
adjustments which are, in the opinion of the management of L-P, necessary for a
fair statement of the results of the respective interim periods. Such
adjustments are of a normal recurring nature. Results of operations for interim
periods are not necessarily indicative of results to be expected for an entire
year. These summary financial statements should be read in conjunction with the
financial statements and the notes thereto included in L-P's 1997 Annual
Financial Report to Stockholders. Interim financial statements are by necessity
somewhat tentative; judgments are used to estimate quarterly amounts for items
that are normally determinable only on an annual basis.
Certain 1997 expense costs in the consolidated summary statement of
income have been reclassified to conform to 1998 classifications.
2. Basic earnings per share are based on the weighted average number
of shares of common stock outstanding during the periods. Diluted earnings per
share include the effect of potentially dilutive common stock equivalents. The
effect of potentially dilutive common stock equivalents is not included in the
calculation of diluted earnings per share in 1997 because it was anti-dilutive
as a result of L-P's net losses for the entire year.
3. The effective income tax rate is based on estimates of annual
amounts of taxable income, foreign sales corporation income and other factors.
These estimates are updated quarterly.
4. Determination of interim LIFO inventories requires estimates of
year-end inventory quantities and costs. These estimates are revised quarterly
and the estimated incremental change in the LIFO inventory reserve is expensed
over the remainder of the year.
5. Reference is made to "Legal Proceedings" for a description of
certain environmental litigation and other litigation and its potential impact
on L-P and for a description of settlements of certain class action proceedings.
6. Effective January 1, 1998, L-P adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which requires
items previously reported as a component of stockholders' equity to be more
prominently reported as a component of comprehensive income. Components of
comprehensive income include net income (loss), currency translation
adjustments, and deferred compensation. Comprehensive income (loss) was $203.6
million in the second quarter of 1998 compared to ($10.5) million in the second
quarter of 1997 and $179.9 million for the first six months of 1998 compared to
$27.0 million for the same period in 1997.
Effective June 15, 1999, the Financial Accounting Standards Board has
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). The new statement
will require recognition of all financial instruments as either assets or
liabilities on the balance sheet at fair value; changes to fair value will
impact earnings either as gains or losses. SFAS 133 will be effective for L-P in
1999. Based on an initial review of SFAS 133, L-P does not expect that it will
have a significant impact on the Company's financial statements and related
disclosures.
7. Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for further discussion and
disclosures regarding items included in the financial statement caption "unusual
credits and charges, net" and significant transactions which occurred
- 5 -
<PAGE>
during the second quarter of 1998, including asset sales, receipt of notes
receivable and issuance of debt.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
- ---------------------
General
- -------
Overall net loss before unusual credits and charges decreased to
$16.4 million ($.15 per share) for the first six months of 1998 compared to a
loss of $41.8 million ($.39 per share) in 1997. L-P earned $8.7 million ($.08
per share) before unusual credits and charges in the second quarter of 1998
compared to a loss of $10.1 million ($.10 per share) in the second quarter of
1997. The improvement was primarily the result of higher average selling prices
of oriented strand board (OSB). Total sales declined approximately one percent
for the 1998 second quarter and six month periods as compared with the
comparable periods of the prior year. In the second quarter of 1998, L-P
recorded a net credit of $328.3 million ($195.2 million after taxes, or $1.79
per share) primarily resulting from gains on the sales of timberland, sawmill
and distribution assets in California and the Weather-Seal window and door
business. Charges relating to the settlement of legal proceedings in Montrose,
Colorado of $14.0 million after taxes (or $.13 per share) and other charges were
netted against the asset sales gains and are included in "Unusual credits and
charges, net." In the first quarter of 1997, L-P's Ketchikan Pulp Company (KPC)
subsidiary recorded a net gain of $121.9 million ($73.7 million after income
taxes, or $.68 per share) to reflect the initial amount paid under a settlement
agreement with the U.S. government over claims related to KPC's long-term timber
supply contract in Alaska, net of adjustments to closure-related accruals.
L-P operates in two segments: building products and pulp. Building
products is the most significant segment, accounting for more than 93 percent of
sales in the first six months of 1998 and 1997. The results of operations are
discussed separately for each segment below. Key segment information, production
volumes and industry product price trends are presented in the following tables
labeled "Sales and Operating Profit by Major Product Group," "Summary of
Production Volumes" and "Industry Product Price Trends."
Building Products Segment
- -------------------------
Quarter Ended Six Months Ended
June 30 June 30
--------------------- -------------------------
1998 1997 % Chg 1998 1997 % Chg
------ ------ ----- -------- ------- -----
(Dollar amounts in millions)
Sales:
Structural panels $253.6 $215.9 +18% $ 467.0 $ 406.5 +15%
Lumber 159.2 187.6 -15% 295.9 342.9 -14%
Industrial panel products 45.8 46.5 -2% 89.3 90.6 -1%
Other building products 143.8 148.5 -3% 277.6 270.6 +3%
------ ------ -------- --------
Total building products $602.4 $598.5 +1% $1,129.8 $1,110.6 +2%
====== ====== ======== ========
Operating profit $ 46.0 $ 18.9 +143% $ 50.0 $ 16.8 +198%
====== ====== ======== ========
- 6 -
<PAGE>
The increase in building products segment sales for the six months
ended June 30, 1998 was primarily attributable to a 15 percent growth in
structural panel products (OSB and plywood) sales over the prior year (second
quarter 1998 increased 18 percent over the second quarter 1997). The increase in
structural panel products sales in 1998 was primarily attributable to a 36
percent increase in OSB average prices (a 51 percent increase in the second
quarter of 1998 over the same quarter in 1997), while plywood prices remained
level. OSB sales volume increased six percent due to stronger demand, while
plywood sales volume decreased 15 percent due to plant closures. Lumber sales
volume dropped moderately due to mill closures. Average lumber prices declined
approximately eight percent due to weak markets compared to the prior year
(average prices declined approximately 11 percent compared to the 1997 second
quarter). Industrial panel products sales decreased slightly due to a decrease
in average selling prices offset by an increase in sales volume in both the 1998
second quarter and six month period. The sales increase in the other building
products category was primarily attributable to the purchase of Tecton Laminates
(engineered wood products) late in the first quarter of 1997.
Building products segment operating profits increased to $50.0
million in 1998 from $16.8 million in 1997 primarily due to the increased
average OSB prices discussed above. Lower profits in industrial panels and
lumber and higher log costs, especially in the South, partially offset the OSB
improvement.
L-P's building products are primarily sold as commodities and
therefore sales prices fluctuate based on market factors over which L-P has no
control. L-P cannot predict whether prices of its building products will remain
at current levels, or will increase or decrease in the future because supply and
demand are influenced by many factors, only one of which is the cost and
availability of raw materials. Therefore, L-P is not able to determine to what
extent, if any, it will be able to pass any future increases in the price of raw
materials on to customers through product price increases.
Pulp Segment
- ------------
Quarter Ended Six Months Ended
June 30 June 30
--------------------- ----------------------
1998 1997 % Chg 1998 1997 % Chg
------ ------ ----- ------ ------ -----
(Dollar amounts in millions)
Pulp sales $ 20.8 $ 34.8 -40% $ 41.7 $ 77.3 -46%
====== ====== ====== ======
Operating profit (loss) $ (3.9) $ (6.0) +35% $(15.5) $(17.6) +12%
====== ====== ====== ======
Pulp average selling prices decreased approximately three percent
and volume decreased approximately 12 percent for the six months ended June 30,
1998 (prices increased two percent over the second quarter of 1997 and 16
percent over the first quarter of 1998) for L-P's remaining pulp mills. Pulp
sales were negatively impacted by the Asian economic crisis which affected both
prices and volume. The pulp mill owned by L-P's Ketchikan Pulp Company
subsidiary generated sales of $28.3 million in the first half of 1997. This mill
was permanently closed in 1997 and, thus, did not generate any sales in 1998.
Pulp segment losses decreased in 1998 despite the sales price
changes discussed above due to higher profit margins as a result of cost cutting
measures and higher productivity from improved maintenance programs.
L-P's pulp products are primarily sold as commodities and therefore
sales prices fluctuate based on market factors over which L-P has no control.
- 7 -
<PAGE>
L-P cannot predict whether the prices of its pulp products will remain at
current levels, or will increase or decrease in the future because supply and
demand are influenced by many factors, only one of which is the cost and
availability of raw materials. Therefore, L-P is not able to determine to what
extent, if any, it will be able to pass any future increases in the price of raw
materials on to customers through product price increases.
Unusual Credits and Charges, net
- --------------------------------
Second First
quarter quarter
1998 1997
------- ------
KPC settlement $ --- $ 135.0
Charges for litigation, property impairments
and other (30.8) (13.1)
Asset sales - net gain 359.1 ---
------- -------
$ 328.3 $ 121.9
======= =======
In the second quarter of 1998, L-P recorded a net gain of $328.3
million ($195.2 million after taxes, or $1.79 per share) primarily resulting
from gains on the sales of timberland, sawmill and distribution assets in
California and the Weather-Seal window and door business (see further discussion
below under the heading "ASSET SALES"). Charges relating to the settlement of
legal proceedings in Montrose, Colorado of $14.0 million after taxes (or $.13
per share) and other charges were netted against the asset sales gains.
In the first quarter of 1997, L-P's Ketchikan Pulp Company
subsidiary recorded a net gain of $121.9 million ($73.7 million after taxes, or
$.68 per share) to reflect the initial amount paid under a settlement agreement
with the U.S. government over claims related to KPC's long-term timber supply
contract in Alaska of $135.0 million. Adjustments to pulp mill closure-related
accruals were netted against this gain.
General Corporate and Other Expense
- -----------------------------------
The variations in net general corporate expense are due to numerous
factors, none of which are individually significant.
Net Interest Income (Expense)
- -----------------------------
Interest expense increased 25 percent in 1998 due to higher
borrowing levels and higher interest rates on borrowings. Higher borrowing
levels were attributable to losses sustained earlier in 1998 as well as capital
expenditures. Interest income increased in 1998 due to notes receivable related
to the sale of timberland late in 1997.
Legal and Environmental Matters
- -------------------------------
Refer to the "Legal Proceedings" section of this Form 10-Q for a
discussion of certain environmental litigation and other litigation and its
potential impact on L-P.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Net cash provided by operations decreased slightly in 1998 over
1997. The decrease is primarily due to the $135.0 million settlement payment
from the U.S. government received in 1997. In 1998, improved operating results
(without unusual items) and lower payments of settlement liabilities partially
offset this decrease. Cash flows from investing activities increased mainly from
asset sales proceeds which netted $299.5 million for the six months ended June
30, 1998. Financing activities also provided cash as new borrowings, from
- 8 -
<PAGE>
the transactions described under the heading "ASSET SALES", exceeded repayments
of long term debt and cash dividends. L-P repaid $265.0 million on its revolving
credit line by June 30, 1998, and subsequently repaid an additional $60.0
million on the revolving credit line and $125.0 million outstanding on its term
loan facility.
L-P's inventories decreased $66.0 million, net property, plant and
equipment decreased $134.8 million and deferred income taxes increased $135.9
million as a result of the asset sales.
L-P's liquidity has improved over year end primarily due to the
proceeds of the asset sales. Cash and cash equivalents totaled $433.0 million at
June 30, 1998 compared to $6.9 million at December 31, 1997.
ASSET SALES
- -----------
On June 30, 1998, L-P completed the sale of its California redwood
timberlands and associated sawmill and manufacturing and distribution operations
in Northern California in two separate transactions to Simpson Timber Company
("Simpson"), a subsidiary of Simpson Investment Company, and Sansome Forest
Partners, L.P., and its subsidiaries ("Sansome"). The sales included more than
300,000 acres of timberlands, three operating sawmills, and two distribution
facilities, among other operations. The sales prices for the divested assets
totaled approximately $610.2 million and were determined by arm's length
negotiations between the parties. Sansome and its subsidiaries paid $240.0
million in cash, subject to post-closing adjustments for changes in working
capital and other items. Simpson paid $16.3 million in cash and delivered
promissory notes in the aggregate principal amount of $353.9 million (the
"Simpson Notes"), subject to post-closing adjustments for changes in working
capital and other items. The Simpson Notes mature in varying amounts between
June 30, 2006 and June 30, 2018. The weighted average interest rate of the
Simpson Notes is 7 percent. The net book value of the assets sold was $192.7
million.
Subsequently, in a separate transaction, L-P issued $348.6 million
of senior debt at a weighted average interest rate of 7 percent maturing in
varying amounts between 2006 and 2018 in a private placement to institutional
investors. The Simpson Notes were pledged as additional security for this senior
debt.
On June 16, 1998, L-P completed the sale of its Weather-Seal windows
and doors operations to American Architectural Products Corporation of
Youngstown, Ohio for approximately $39.9 million. The Weather-Seal business
consists of seven manufacturing facilities and related engineering, research and
development, customer service, sales group and trucking operations in Ohio.
The proceeds realized in the asset sales completed since October
1997 have initially been used to fund operations, to reduce or eliminate
outstanding borrowings on L-P's revolving credit and term loan facilities, and
to begin implementation of a stock repurchase plan. Management continues to
study additional uses of the proceeds to maximize long-term value to L-P and its
stockholders, which may include internal investments in L-P's core businesses in
the building products market and strategic acquisitions.
In October 1997, L-P announced its intent to divest certain other
non-core business assets, including the Samoa pulp mill, L-P's fiber cement
roofing products manufacturing operations, its Creative Point, Inc. subsidiary,
and certain remaining parcels of timberland in the interior of California. The
total proceeds of such sales, together with the asset sales already completed,
are estimated to be in the range of $800 million to $1 billion, although there
can be no assurance that the higher amount will be attained.
- 9 -
<PAGE>
YEAR 2000 COMPLIANCE
- --------------------
As the year 2000 approaches, an issue impacting most companies
has emerged regarding the ability of computer applications and systems to
properly interpret the year. This is a pervasive and complex issue.
L-P is in the process of identifying significant applications
that will require modification to ensure Year 2000 compliance. Internal and
external resources are being used to make this assessment, the required
modifications and test Year 2000 compliance. L-P plans on completing the
assessment of all significant applications and developing a plan for appropriate
action by September 30, 1998.
In addition, L-P will begin communicating with others with whom
it does significant business to determine their Year 2000 compliance readiness
and the extent to which L-P is vulnerable to any third party Year 2000 issues.
However, there can be no guarantee that the systems of other companies on which
L-P's systems rely will be timely converted, or that a failure to convert by
another company, or a conversion that is incompatible with L-P's systems, would
not have a material adverse effect on L-P.
The total cost to L-P of these Year 2000 compliance activities
has not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which L-P
plans to complete the Year 2000 assessment process are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ from those
plans.
STOCK REPUCHASE PLAN
- --------------------
On July 27, 1998, L-P announced a stock repurchase plan to buy
back up to 20 million shares of common stock from time to time in open market
purchases. L-P currently has approximately 110 million shares outstanding.
- 10 -
<PAGE>
SALES AND OPERATING PROFIT BY MAJOR PRODUCT GROUP
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- ------------------
1998 1997 1998 1997
------- ------- -------- -------
Sales:
Structural panel products $ 253.6 $ 215.9 $ 467.0 $ 406.5
Lumber 159.2 187.6 295.9 342.9
Industrial panel products 45.8 46.5 89.3 90.6
Other building products 143.8 148.5 277.6 270.6
------- ------- ------- -------
Total building products 602.4 598.5 1,129.8 1,110.6
Pulp 20.8 34.8 41.7 77.3
------- ------- ------- -------
Total sales $ 623.2 $ 633.3 $1,171.5 $1,187.9
======= ======= ======= =======
Export sales $ 32.8 $ 54.4 $ 74.8 $ 127.6
======= ======= ======= =======
Profit (loss):
Building products $ 46.0 $ 18.9 $ 50.0 $ 16.8
Pulp (3.9) (6.0) (15.5) (17.6)
Unusual credits and
charges, net 328.3 -- 328.3 121.9
General corporate
expense, net (20.1) (21.1) (43.7) (42.5)
Interest, net (8.6) (6.5) (16.2) (15.0)
------- ------- ------- -------
Income (loss) before taxes
and minority interest $ 341.7 $ (14.7) $ 302.9 $ 63.6
======= ======= ======= =======
- 11 -
<PAGE>
SUMMARY OF PRODUCTION VOLUMES
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
QUARTER ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------- ----------------
1998 1997 1998 1997
----- ----- ----- -----
Oriented strand board
panels and siding,
million square ft 3/8" basis 1,086 1,040 2,101 1,971
Softwood plywood,
million square ft 3/8" basis 270 312 501 593
Lumber, million board feet 288 319 574
621
Industrial panel products
(particleboard, medium density
fiberboard and hardboard),
million square ft 3/4" basis 148 154 293 293
Engineered I-joists,
million lineal feet 24 22 46 38
Laminated veneer lumber,
thousand cubic ft 2,016 1,800 3,647 3,100
Pulp,
thousand short tons 91 88 141 201
- 12 -
<PAGE>
INDUSTRY PRODUCT PRICE TRENDS
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
OSB PLYWOOD LUMBER PARTICLEBOARD
----------- -------- --------- -------------
N. CENTRAL SOUTHERN
7/16" BASIS PINE 2" FRAMING
24/16 BASIS LUMBER INLAND
SPAN CDX COMPOSITE INDUSTRIAL
RATING 3 PLY PRICES 3/4" BASIS
----------- -------- --------- -------------
Annual Average
1992 217 248 287 200
1993 236 282 394 258
1994 265 302 405 295
1995 245 303 337 290
1996 184 258 398 290
1997 143 265 417 276
1997 Second Quarter Average
126 256 443 265
1998 First Quarter Average
158 266 368 253
1998 Second Quarter Average
195 262 346 262
Source: Random Lengths
- 13 -
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The following sets forth the current status of certain legal
proceedings:
Environmental Proceedings
- -------------------------
In March 1995, L-P's subsidiary Ketchikan Pulp Company (KPC) entered
into agreements with the federal government to resolve the issues related to
water and air compliance problems experienced at KPC's pulp mill during the late
1980s and early 1990s. In addition to civil and criminal penalties that have
been paid, KPC also agreed to undertake up to $20 million in expenditures, which
are primarily capital in nature, including certain remedial and pollution
control related measures. While the Environmental Protection Agency (the "EPA")
and KPC have agreed that the closure of the pulp mill in May 1997 eliminated the
need for many of the pollution control related measures, court approval is
required for relief from these requirements.
As part of the agreements, KPC is in the process of studying Ward Cove,
the body of water adjacent to the former mill site, to determine whether cleanup
of cove sediments is necessary. KPC may be required to spend approximately $4
million in addition to the approximately $2 million already spent on this
project, as part of the $20 million discussed above.
KPC also signed an agreement with the State of Alaska and the EPA to
investigate and, if necessary, clean up the property on which the pulp mill was
formerly located. KPC has completed the investigative portion of this project at
a cost of $1 million. A determination of whether any cleanup is necessary and,
if so, the estimated costs involved has not yet been made.
KPC is in the final stages of the closure of a landfill near Thorne
Bay, Alaska. This closure, which is being performed pursuant to an agreement
with the U.S. Forest Service (the "USFS"), should be completed by the end of
September 1998. Costs of the project are anticipated to total approximately $7
million.
The EPA and the Department of Justice have indicated their intent to
seek penalties for alleged civil violations of the Clean Water Act at the KPC
facility. The maximum penalty associated with such an action could be as much as
$975,000. KPC is also defending an appeal of an earlier court decision
dismissing a citizens' suit by plaintiff Alaska Clean Water Alliance alleging
Clean Water Act violations. KPC is actively pursuing resolution of both of these
actions.
L-P's Missoula, Montana, particleboard facility is the subject of an
investigation by the EPA for alleged improper management of sander dust at the
facility. L-P is also conducting its own investigation. L-P's potential
liability, if any, is unknown at this time, but is not anticipated to have a
material adverse effect on L-P's business, financial position, results of
operations or liquidity.
In June 1998, L-P disclosed to the EPA and the State of Florida that it
had discovered possible improper disposal of ash and waste wood onto the ground
and into potential wetland areas at L-P's West Bay, Florida, facility. Potential
remediation costs are unknown at this time.
- 14 -
<PAGE>
Certain L-P plant sites have, or are suspected of having, substances in
the ground or in the groundwater underlying the sites that are considered
pollutants. Appropriate corrective action or plans for corrective action are
underway. Where the pollutants were caused by previous owners of the property,
L-P is vigorously pursuing those parties through legal channels and is
vigorously pursuing insurance coverage under all applicable policies.
L-P maintains a reserve for estimated environmental loss contingencies.
As with all accounting estimates, significant uncertainty exists in the
reliability and precision of the estimates because the facts and circumstances
surrounding each contingency vary significantly from case to case. L-P
continually monitors its estimated exposure for environmental liabilities and
adjusts its accrual accordingly. As additional information about the
environmental contingencies becomes known, L-P's estimate of its liability for
environmental loss contingencies may change significantly, although no estimate
of the range of any potential adjustment of the liability can be made at this
time. L-P cannot estimate the time frame over which these accrued amounts are
likely to be paid out. A portion of L-P's environmental reserve is related to
liabilities for cleanup of properties which are currently owned or have been
owned in the past by L-P. Certain of these sites are subject to cost sharing
arrangements with other parties who were also involved in the site. L-P does not
believe that any of these cost sharing arrangements will result in additional
material liability to L-P due to non-performance by the other party. L-P has not
reduced its reserves for any anticipated insurance recoveries.
Although L-P's policy is to comply with all applicable environmental
laws and regulations, the company has, in the past, been required to pay fines
for non-compliance and sometimes litigation has resulted from contested
environmental actions. Also, L-P is involved in other environmental actions and
proceedings which could result in fines or penalties. Based on the information
currently available, management believes that any fines, penalties or other
losses resulting from the matters discussed above in excess of the reserve for
environmental loss contingencies will not have a material adverse effect on the
business, financial position, results of operations or liquidity of L-P.
Colorado Criminal Proceedings
- -----------------------------
In June 1995, a federal grand jury returned an indictment in the U.S.
District Court in Denver, Colorado, against L-P in connection with alleged
environmental violations, as well as alleged fraud in connection with the
submission of unrepresentative oriented strand board (OSB) product samples to an
industry product certification agency, by L-P's Montrose (Olathe), Colorado OSB
plant. A former superintendent and former plant manager at the mill were also
indicted and each pled guilty to one environmental count and were sentenced by
the court. On May 27, 1998, L-P pleaded guilty to 18 felony counts relating to
the Montrose plant, including 13 counts involving violations of the Clean Air
Act and five counts of making false statements in a matter within the
jurisdiction of an agency or department of the United States. L-P agreed to pay
total penalties of $37 million (including making $500,000 in charitable
contributions), of which $12 million has been paid, and was sentenced to five
years of probation. The $25 million balance of the fine will be paid over the
next five years and has been recorded as a note payable in L-P's financial
statements. All remaining charges against L-P were dismissed.
In December 1995, L-P received a notice of suspension from the EPA
stating that, because of the criminal proceedings pending against L-P in
Colorado, the Montrose facility would be prohibited from purchasing timber
- 15 -
<PAGE>
directly from the USFS. In April 1998, L-P signed a Suspension and Debarment
Agreement with the EPA. This agreement formally lifted the 1995 suspension
imposed on the Montrose facility. The agreement obligates L-P to develop and
implement certain corporate policies and programs, including such measures as a
policy of cooperation with the EPA, an employee disclosure program and a policy
of nonretaliation against employees, and to report significant violations of law
to the EPA.
OSB Siding Matters
- ------------------
L-P has been named as a defendant in numerous class action and
non-class action proceedings, brought on behalf of various persons or purported
classes of persons (including nationwide classes in the United States and
Canada) who own or have purchased or used OSB siding manufactured by L-P,
because of alleged unfair business practices, breach of warranty,
misrepresentation, conspiracy to defraud, and other theories related to alleged
defects, deterioration, or failure of OSB siding products.
The United States District Court for the District of Oregon has given
final approval to a settlement between L-P and a nationwide class composed of
all persons who own, have owned, or subsequently acquire property on which L-P's
OSB siding was installed prior to January 1, 1996, excluding persons who timely
opted out of the settlement and persons who are members of the settlement class
in the Florida litigation described below. Under the settlement agreement, an
eligible claimant whose claim is filed prior to January 1, 2003 (or earlier in
certain cases), and is approved by an independent claims administrator will be
entitled to receive from the settlement fund established under the agreement a
payment equal to the replacement cost (to be determined by a third-party
construction cost estimator and currently estimated to be in the range of $2.20
to $6.40 per square foot depending on the type of product and geographic
location) of damaged siding, reduced by a specific adjustment (of up to 65
percent) based on the age of the siding. Class members who have previously
submitted or resolved claims under any other warranty or claims program of L-P
may be entitled to receive the difference between the amount which would be
payable under the settlement agreement and the amount previously paid.
Independent adjusters will determine the extent of damage to OSB siding at each
claimant's property in accordance with a specified protocol. There will be no
adjustment to settlement payments for improper maintenance or installation.
A claimant who is dissatisfied with the amount to be paid under the
settlement may elect to pursue claims against L-P in a binding arbitration
seeking compensatory damages without regard to the amount of payment calculated
under the settlement protocol. A claimant who elects to pursue an arbitration
claim must prove his entitlement to damages under any available legal theory,
and L-P may assert any available defense, including defenses that otherwise had
been waived under the settlement agreement. If the arbitrator reduces the damage
award otherwise payable to the claimant because of a finding of improper
installation, the claimant will be entitled to pursue a claim against the
contractor/builder to the extent the award was reduced.
L-P is required to pay $275 million into the settlement fund in seven
annual installments beginning in mid-1996: $100 million, $55 million, $40
million, $30 million, $20 million, $15 million, and $15 million. As of June 30,
1998, L-P had funded the first three installments. If at any time after the
fourth year of the settlement period the amount of approved claims (paid and
pending) equals or exceeds $275 million, then the settlement agreement will
terminate as to all claims in excess of $275 million unless L-P timely elects to
provide additional funding within 12 months equal to the lesser of (i) the
excess of unfunded claims over $275 million or (ii) $50 million and, if
necessary to satisfy unfunded claims, a second payment within 24 months equal to
the
- 16 -
<PAGE>
lesser of (i) the remaining unfunded amount or (ii) $50 million. If the total
payments to the settlement fund are insufficient to satisfy in full all approved
claims filed prior to January 1, 2003, then L-P may elect to satisfy the
unfunded claims by making additional payments into the settlement fund at the
end of each of the next two 12-month periods or until all claims are paid in
full, with each additional payment being in an amount equal to the greater of
(i) 50 percent of the aggregate sum of all remaining unfunded approved claims or
(ii) 100 percent of the aggregate amount of unfunded approved claims, up to a
maximum of $50 million. If L-P fails to make any such additional payment, all
class members whose claims remain unsatisfied from the settlement fund may
pursue any available legal remedies against L-P without regard to the release of
claims provided in the settlement agreement.
If L-P makes all payments required under the settlement agreement,
including all additional payments as specified above, class members will be
deemed to have released L-P from all claims for damaged OSB siding, except for
claims arising under their existing 25-year limited warranty after termination
of the settlement agreement. The settlement agreement does not cover
consequential damages resulting from damage to OSB Inner-Seal siding or damage
to utility grade OSB siding (sold without any express warranty), either of which
could create additional claims. In addition to payments to the settlement fund,
L-P was required to pay fees of class counsel in the amount of $26.25 million,
as well as expenses of administering the settlement fund and inspecting
properties for damage and certain other costs. After accruing interest on
undisbursed funds and deducting class notification costs, prior claims costs
(including payments advanced to homeowners in urgent circumstances) and payment
of claims under the settlement, as of June 30, 1998, approximately $11 million
remained of the $195 million paid into the fund to date.
The claims submitted to the claims administrator to date substantially
exceed the $275 million of payments that L-P is required to make under the
settlement agreement. As calculated under the terms of the settlement, as of
June 30, 1998, claims submitted and inspected exceed $410 million. There are
insufficient data to project the future volume of claims or the total dollar
value of additional claims that may be made against the settlement fund. L-P has
not decided whether it will provide the optional funding discussed above in
excess of the required $275 million after the fourth year of the settlement.
Under the terms of the settlement, L-P must make that decision by August 2000.
As an alternative to making additional payments, L-P could elect to pursue other
options, including allowing the settlement agreement to terminate, thereby
entitling claimants with unsatisfied claims to pursue available legal remedies
against L-P.
A settlement of the Florida class action was approved by the Circuit
Court for Lake County, Florida, on October 4, 1995. Under the settlement, L-P
has established a claims procedure pursuant to which members of the settlement
class may report problems with L-P's OSB siding and have their properties
inspected by an independent adjuster, who will measure the amount of damage and
also determine the extent to which improper design, construction, installation,
finishing, painting, and maintenance may have contributed to any damage. The
maximum payment for damaged siding is $3.40 per square foot for lap siding and
$2.82 per square foot for panel siding, subject to reduction of up to 75 percent
for damage resulting from improper design, construction, installation,
finishing, painting, or maintenance, and also subject to reduction for age of
siding more than three years old. L-P has agreed that the deduction from the
- 17 -
<PAGE>
payment to a member of the Florida class will be not greater than the deduction
computed for a similar claimant under the national settlement agreement
described above. Class members will be entitled to make claims until October 4,
2000.
L-P maintains reserves for the estimated costs of these siding
settlements, although, as with any estimate, there is uncertainty concerning the
actual costs to be incurred. The discussion herein notes some of the factors, in
addition to the inherent uncertainty of predicting the outcome of claims and
litigation, that could cause actual costs to vary materially from current
estimates. Due to the various uncertainties, L-P cannot predict to what degree
actual payments under the settlement agreements, or any alternative strategies
adopted by L-P, will materially exceed the recorded liability related to these
matters, although it is possible that, in the near term, total estimated
payments will significantly exceed the recorded liabilities.
Other OSB Matters
- -----------------
Three separate purported class actions on behalf of owners and
purchasers of properties in which L-P's OSB panels are used for flooring,
sheathing, or underlayment have been consolidated in the United States District
Court for the Northern District of California under the caption Agius v.
Louisiana-Pacific Corporation. The actions seek damages and equitable relief for
alleged fraud, misrepresentation, breach of warranty, negligence, and improper
trade practices related to alleged improprieties in testing, product
certification, and marketing of OSB structural panels, and alleged premature
deterioration of such panels. A separate state court action entitled Carney v.
Louisiana-Pacific Corporation is pending in the Superior Court of the State of
California for the City and County of San Francisco, seeking relief under
California consumer protection statutes based on similar allegations. On
February 27, 1998, the United States District Court for the Northern District of
California entered an order approving a settlement that would resolve the above
actions. A final order approving the settlement is expected pending resolution
of an appeal by a single claimant.
The settlement class, other than persons who opted out, is generally
composed of all persons who purchased L-P OSB sheathing or acquired real
property or structures in the United States containing L-P OSB sheathing between
January 1, 1984, and October 22, 1997, but only if they have retained ownership
of the product. Under the settlement agreement, an eligible claimant who files a
claim prior to October 22, 2017, upon review of the claim by the claims
administrator, will be entitled to recover the reasonable cost of repair or
replacement of any L-P OSB sheathing determined to have failed to perform its
essential function as warranted and not occasioned by misuse, negligent or
intentional misconduct of a third party or an event over which L-P had no
control. The settlement agreement also provides for payment of a $1.5 million
grant to the University of California Forest Products Laboratory and reasonable
attorney fees of class counsel.
L-P maintains a reserve for its estimate of the cost of these other OSB
matters, including the sheathing settlement, although as with any estimate,
there is uncertainty concerning the actual costs to be incurred. Based on a
review of its claims records to date, L-P believes that known reports of damage
to installed L-P OSB sheathing have been immaterial in number and amount.
Other
- -----
L-P and its subsidiaries are parties to other legal proceedings.
Management believes that the outcome of such proceedings will not have a
- 18 -
<PAGE>
material adverse effect on the business, financial position, results of
operations or liquidity of L-P.
Contingency Reserves
- --------------------
L-P maintains contingency reserves in addition to the environmental
reserves discussed above. As L-P receives additional information regarding
actual claim rates and average claim amounts, L-P monitors its estimated
exposure and adjusts its accrual accordingly. The amounts ultimately paid for
these contingencies could differ materially from the amount currently recorded,
although no estimate of the timing or range of any potential adjustment can be
made at this time.
Item 4. Submission of Matters to a Vote of Security Holders.
The Registrant held its annual meeting of stockholders on May 4, 1998.
The following summarizes the matters voted upon at the meeting and the results
of the voting:
Directors elected for a term of office expiring in 2001:
<TABLE>
Shares
Name of Director Shares Voted For Individually Withheld
---------------- ---------------- ---------------------
<S> <C> <C>
John W. Barter 90,088,358 112,461
William C. Brooks 90,101,960 98,859
Patrick F. McCartan 89,483,927 716,892
Lee C. Simpson 89,977,421 223,398
</TABLE>
<TABLE>
Description Shares Shares Broker
of Proposal Shares For Against Abstained Non-Votes
----------- ---------- ------- --------- ---------
Approval of 1998 Employee Stock
<S> <C> <C> <C> <C>
Purchase Plan 85,774,190 3,604,618 822,011 0
Stockholder proposal relating to
compensation of directors
10,399,107 69,377,373 2,136,508 8,287,831
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits filed as part of this report or
incorporated by reference herein are listed in
the accompanying exhibit index.
(b) Reports on Form 8-K. During the quarter ended
June 30, 1998, the registrant filed a Report on
Form 8-K dated May 26, 1998, reporting the
issuance of preferred share purchase rights to
replace similar rights expiring on June 6,
1998, with respect to the registrant's common
shares.
Subsequent to June 30, 1998, the registrant
filed a Report on Form 8-K dated June 30, 1998,
as amended by Amendment No. 1 filed on August
7, 1998, reporting the sale of the registrant's
redwood timberlands and associated sawmill and
manufacturing and distribution operations in
Northern California, and including pro forma
financial information reflecting such sale.
- 19 -
<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.
LOUISIANA-PACIFIC CORPORATION
By /s/ Curtis M. Stevens
Curtis M. Stevens
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and
Accounting Officer)
DATED: August 14, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
3 Bylaws of the registrant as amended as of July 25,
1998.
4 Note Purchase Agreement among L-P SPV2, LLC, the
registrant and the Purchasers listed therein dated
June 30, 1998.
27 Financial Data Schedule.
LOUISIANA-PACIFIC CORPORATION
Index to Bylaws
<TABLE>
<S> <C>
ARTICLE I. STOCKHOLDERS' MEETINGS............................................................1
Section 1. Annual Meeting............................................................1
Section 2. Special Meetings..........................................................1
Section 3. Place of Meetings.........................................................1
Section 4. Notice of Meeting.........................................................1
Section 5. Quorum....................................................................1
Section 6. Organization..............................................................2
Section 7. Conduct of Business.......................................................2
Section 8. Voting....................................................................2
Section 9. Proxies...................................................................3
Section 10. List of Stockholders......................................................3
Section 11. Inspectors................................................................3
Section 12. Denial of Action by Consent of Stockholders...............................3
Section 13. Nominations for Director..................................................4
Section 14. Notice of Stockholder Business............................................4
ARTICLE II. BOARD OF DIRECTORS.................................................................5
Section 1. General Powers............................................................5
Section 2. Number, Classification, Election and Qualification........................5
Section 3. Place of Meetings.........................................................5
Section 4. Regular Meetings..........................................................5
Section 5. Special Meetings..........................................................6
Section 6. Notice....................................................................6
Section 7. Quorum and Manner of Acting...............................................6
Section 8. Organization..............................................................6
Section 9. Resignations..............................................................7
Section 10. Vacancies and Newly Created Directorships.................................7
Section 11. Removal of Directors......................................................7
Section 12. Compensation..............................................................7
Section 13. Board and Committee Action Without Meeting................................7
Section 14. Board and Committee Telephonic Meetings...................................7
Section 15. Mandatory Retirement Age..................................................8
ARTICLE III. EXECUTIVE AND OTHER COMMITTEES.....................................................8
Section 1. Executive and Other Committees............................................8
Section 2. General...................................................................8
ARTICLE IV. EXCEPTIONS TO NOTICE REQUIREMENTS..................................................9
i
<PAGE>
Section 1. Waiver of Notice..........................................................9
Section 2. Unlawful Notice...........................................................9
ARTICLE V. OFFICERS...........................................................................9
Section 1. Number, Election and Qualification........................................9
Section 2. Resignations..............................................................9
Section 3. Removal..................................................................10
Section 4. Vacancies................................................................10
Section 5. Chairman.................................................................10
Section 6. President................................................................10
Section 7. Vice Presidents..........................................................10
Section 8. Secretary................................................................10
Section 9. Treasurer................................................................11
Section 10. Additional Powers and Duties.............................................11
Section 11. Compensation.............................................................11
ARTICLE VI INDEMNIFICATION...................................................................11
Section 1. General..................................................................11
Section 2. Employee Benefit or Welfare Plan Fiduciary Liability.....................12
Section 3. Persons Not to be Indemnified Under Section 2............................12
Section 4. Advances of Expenses.....................................................12
Section 5. Mandatory Indemnification in Certain Circumstances.......................13
Section 6. Right to Indemnification upon Application;
Procedure upon Application...............................................13
Section 7. Enforcement of Rights....................................................14
Section 8. Bylaws as Contract; Non-Exclusivity.....................................14
ARTICLE VII STOCK AND TRANSFER OF STOCK.......................................................14
Section 1. Stock Certificates.......................................................14
Section 2. Transfers of Shares......................................................14
Section 3. Regulations, Transfer Agents and Registrars..............................15
Section 4. Replacement of Certificates..............................................15
Section 5. Fixing of Record Date....................................................15
ARTICLE VIII. FISCAL YEAR.......................................................................16
ARTICLE IX SEAL..............................................................................16
ARTICLE X. AMENDMENTS........................................................................16
</TABLE>
ii
<PAGE>
BYLAWS OF
LOUISIANA-PACIFIC CORPORATION
ARTICLE I. STOCKHOLDERS' MEETINGS
Section 1. Annual Meeting. The annual meeting of the stockholders shall
be held on the first Friday in the month of May in each year at 10:30 a.m. or at
such other time or date in April or May of each year as shall be fixed by the
Board of Directors, for the election of directors and the transaction of such
other business as may properly come before the meeting. If the date fixed for
the annual meeting shall be a legal holiday in the place of the meeting, the
meeting shall be held on the next succeeding business day.
Section 2. Special Meetings. Special meetings of the stockholders for
any proper purposes, unless otherwise provided by the law of Delaware, may be
called by the Chairman or pursuant to resolution of the Board of Directors and
shall be called by the Chairman at the request in writing of a majority of the
directors. Business transacted at a special meeting of stockholders shall be
confined to the purpose or purposes of the meeting as stated in the notice of
the meeting.
Section 3. Place of Meetings. Meetings of the stockholders may be held
at such places, within or without the State of Delaware, as the Board of
Directors or the officer calling the same shall specify in the notice of such
meeting.
Section 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall, unless otherwise prescribed by statute,
be given not less than ten nor more than sixty days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman,
the President, the Secretary, or other persons calling the meeting, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation. When a meeting is adjourned to another time or place, notice
of the adjourned meeting need not be given provided that the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, the adjournment is for no more than thirty days, and after
the adjournment no new record date is fixed for the adjourned meeting. Notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting if all the conditions of the proviso in the preceding
sentence are not met. At an adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting.
Section 5. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a
1
<PAGE>
meeting of stockholders except as otherwise provided by statute or in the
Certificate of Incorporation. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally noticed. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 6. Organization. At each meeting of the stockholders the
Chairman, or in his absence or inability to act, the President, or in the
absence or inability to act of the Chairman and the President, a Vice President,
or in the absence of all the foregoing, any person chosen by a majority of those
stockholders present shall act as chairman of the meeting. The Secretary, or, in
his absence or inability to act, the Assistant Secretary or any person appointed
by the chairman of the meeting, shall act as secretary of the meeting and keep
the minutes thereof.
Section 7. Conduct of Business. The Board of Directors shall have
authority to determine from time to time the procedures governing, and the rules
of conduct applicable to, annual and special meetings of the stockholders.
Except as otherwise determined by the Board of Directors prior to the meeting,
the chairman of any stockholders meeting shall determine the order of business
and shall have authority in his discretion to adjourn such meeting and to
determine the procedures governing such meeting and to regulate the conduct
thereat, including, without limitation, imposing restrictions on the persons
(other than stockholders of the Corporation or their duly appointed proxies) who
may attend any such stockholders meeting, determining whether any stockholder or
any proxy may be excluded from any stockholders meeting based upon any
determination by the chairman in his sole discretion that any such person has
unduly disrupted or is likely to disrupt the proceedings thereat and specifying
the circumstances in which any person may make a statement or ask questions at
any stockholders meetings.
Section 8. Voting. Except as otherwise provided by statute, the
Certificate of Incorporation, or any certificate duly filed pursuant to Section
151 of the Delaware General Corporation Law, each stockholder shall be entitled
to one vote on each matter submitted to a vote at a meeting of stockholders for
each share of capital stock held of record by him on the date fixed by the Board
of Directors as the record date for the determination of the stockholders who
shall be entitled to notice of and to vote at such meeting; or if such record
date shall not have been so fixed, then at the close of business on the day next
preceding the day on which notice thereof shall be given. Except as otherwise
provided by statute, these Bylaws, or the Certificate of Incorporation, any
corporate action to be taken by vote of the stockholders shall be authorized by
a majority of the total votes, or when stockholders are required to vote by
class by a majority of the votes of the appropriate class, cast at a meeting of
stockholders by the holders of shares present in person or represented by proxy
and
2
<PAGE>
entitled to vote on such action. Unless required by statute, or determined by
the chairman of the meeting to be advisable, the vote on any question need not
be by written ballot and may be by such other means as the chairman deems
advisable under the circumstances. On a vote by written ballot, each ballot
shall be signed by the stockholder voting, or by his proxy, if there be such
proxy, and shall state the number of shares voted.
Section 9. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by a proxy
signed by such stockholder or his attorney-in-fact. No proxy shall be valid
after the expiration of three years from the date thereof, unless otherwise
provided in the proxy.
Section 10. List of Stockholders. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 11. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may appoint
inspectors. The inspectors shall determine the number of shares outstanding and
the voting power of each, the number of shares represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes or ballots, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes or ballots,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the chairman of the
meeting or any stockholder entitled to vote thereat, the inspectors shall make a
report in writing of any challenge, request or matter determined by them and
shall execute a certificate of any fact found by them. No director or candidate
for the office of director shall act as inspector of an election of directors.
Inspectors need not be stockholders.
Section 12. Denial of Action by Consent of Stockholders. No action
required to be taken or which may be taken at any annual or special meeting of
the stockholders of the Corporation may be taken without a meeting, and the
power of stockholders to consent in writing, without a meeting, to the taking of
any action is specifically denied.
3
<PAGE>
Section 13. Nominations for Director. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any stockholder
of record entitled to vote for the election of directors. Any stockholder
entitled to vote for the election of directors may nominate at a meeting persons
for election as directors only if written notice of such stockholder's intent to
make such nomination is given, either by personal delivery or by certified mail,
postage prepaid, addressed to the Chairman at the Corporation's executive
offices not later than (i) with respect to an election to be held at an annual
meeting of stockholders, 60 days prior to the date of such meeting (provided
that if such annual meeting of stockholders is held on a date other than the
first Friday in May, such written notice must be given within 10 days after the
first public disclosure of the date of the annual meeting, including, without
limitation, disclosure of the meeting date set forth in any document or exhibit
thereto filed by the Corporation with the Securities and Exchange Commission),
and (ii) with respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of business on the seventh
day following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (a) the name and address, as
they appear on the Corporation's stock ledger, of the stockholder who intends to
make the nomination and the name and address of each person to be nominated; (b)
a representation that such stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear at the
meeting in person or by proxy to nominate the person or persons specified in the
notice as directors; (c) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person or
person (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission were such nominee to be nominated by the
Board of Directors; and (e) the consent of each proposed nominee to serve as a
director of the Corporation if so elected. The chairman of any meeting of
stockholders to elect directors may refuse to permit the nomination of any
person to be made without compliance with the foregoing procedure.
Section 14. Notice of Stockholder Business. At any annual meeting of
the stockholders held after May 6, 1988, only such business shall be conducted
as shall have been brought before the meeting (a) by or at the direction of the
Board of Directors or (b) by any stockholder of record of the Corporation who
complies with the notice procedures set forth in this Section 14. For business
to be properly brought before an annual meeting by any such stockholder, the
stockholder must give written notice thereof to the Chairman, either by personal
delivery or by certified mail, postage prepaid, addressed to the Chairman at the
Corporation's executive offices not less than 60 nor more than 90 days in
advance of such meeting (provided that if such annual meeting of stockholders is
held on a date other than the first Friday in May, such written notice must be
given within 10 days after the first public disclosure of the date of the annual
meeting, including, without limitation, disclosure of the meeting date set forth
in
4
<PAGE>
any document or exhibit thereto filed by the Corporation with the Securities and
Exchange Commission). Each such notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address as
they appear on the Corporation's stock ledger, of the stockholder proposing such
business, (c) a representation that such stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
at the meeting in person or by proxy to propose such business, and (d) any
material interest of such stockholder in the proposed business. The chairman of
an annual meeting shall, if the facts warrant, determine and declare to the
meeting that any such business was not properly brought before the meeting and
in accordance with the provisions of this Section 14, and if he should so
determine, he shall so declare to the meeting and such business not properly
brought before the meeting shall not be transacted.
ARTICLE II. BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors.
Section 2. Number, Classification, Election and Qualification. The
number of directors of the Corporation shall be nine, but, by vote of a majority
of the entire Board of Directors or amendment of these Bylaws, the number
thereof may be increased or decreased to such greater or lesser number (not less
than three) as may be so provided. At the first election of directors by the
stockholders, the directors shall be divided into three classes; the term of
office of those of the first class to expire at the first annual meeting
thereafter; of the second class at the second annual meeting thereafter; and of
the third class at the third annual meeting thereafter. At each annual election
held after such classification and election, directors shall be elected to
succeed those whose terms expire, each such newly elected director to hold
office for a term of three years and until his successor is elected or until his
death, resignation, retirement or removal. Except as otherwise provided by
statute or these Bylaws, directors shall be elected at the annual meeting of the
stockholders, and the persons receiving a plurality of the votes cast at such
election shall be elected, provided that a quorum is present at the meeting.
Directors need not be stockholders.
Section 3. Place of Meetings. Meetings of the Board of Directors may be
held at such place, within or without the State of Delaware, as the Board of
Directors may from time to time determine or as shall be specified in the notice
or waiver of notice of such meeting.
Section 4. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of stockholders for the purpose of
electing officers and
5
<PAGE>
the transaction of other business. The Board of Directors may provide by
resolution the time and place, either within or without the State of Delaware,
for holding of additional regular meetings without other notice than such
resolution.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman, President or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Delaware, as the place for holding any special meeting of the Board of Directors
called by them.
Section 6. Notice. Notice of any special meeting shall be given
personally or by telephone to each director at least twenty-four hours before
the time at which the meeting is to be held or shall be mailed to each director,
postage prepaid, at his residence or business address at least three days before
the day on which the meeting is to be held; provided that, in the case of any
special meeting to be held by conference telephone or similar communications
equipment, notice of such meeting may be given personally or by telephone to
each director not less than six hours before the time at which the meeting is to
be held. Except as otherwise specifically provided in these Bylaws, neither the
business to be transacted at, nor the purpose of any regular or special meeting
of the Board of Directors need be specified in the notice of the meeting.
Section 7. Quorum and Manner of Acting. A majority of the entire Board
of Directors shall be present in person at any meeting of the Board of Directors
in order to constitute a quorum for the transaction of business at such meeting,
except that one-third of the entire Board of Directors present in person at a
meeting shall constitute a quorum if the Chairman is present at the meeting.
Except as otherwise specifically required by statute or the Certificate of
Incorporation, the vote of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum at any meeting of the Board of Directors, a majority of the
directors present or, if no director be present, the Secretary may adjourn such
meeting to another time and place. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally called. Except as provided in Article III of these Bylaws,
the directors shall act only as a board of directors and the individual
directors shall have no power as such.
Section 8. Organization. At each meeting of the Board of Directors, the
Chairman (or, in his absence or inability to act, the President, or in his
absence or inability to act, another director chosen by a majority of the
directors present) shall act as chairman of the meeting. The Secretary (or, in
his absence or inability to act, any person appointed by the chairman) shall act
as secretary of the meeting and keep the minutes thereof.
6
<PAGE>
Section 9. Resignations. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors
or Chairman or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 10. Vacancies and Newly Created Directorships. Vacancies and
newly created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and any director so chosen
shall hold office until the next election of the class for which such director
has been chosen and until his successor is elected and qualified, or until his
earlier resignation or removal. When one or more directors shall resign from the
Board of Directors, effective at a future date, a majority of the directors then
in office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
Section 11. Removal of Directors. All or any number of the directors
may be removed at any time, but only for cause and only by the affirmative vote
of the holders of at least 75 percent of the outstanding Common Stock of the
Corporation at a meeting of the stockholders expressly called for that purpose.
A vacancy in the Board of Directors caused by any such removal may be filled by
such stockholders at such meeting, or if the stockholders shall fail to fill
such vacancy, as in these Bylaws provided.
Section 12. Compensation. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in any capacity, provided, no such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 13. Board and Committee Action Without Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
Section 14. Board and Committee Telephonic Meetings. A director or a
member of a committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at the meeting.
7
<PAGE>
Section 15. Mandatory Retirement Age. The date upon which a director
shall retire from service as a director of this Corporation shall be the date of
the next annual meeting of stockholders following the date the director attains
age 70 and no person who has attained the age of 70 shall become a nominee for
election as a director of the Corporation. Any director who, on February 1,
1997, has already attained age 70 shall retire at the end of his or her then
current term of office.
ARTICLE III. EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive and Other Committees. The Board of Directors may,
designate one or more committees, each committee to consist of two or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In addition, in the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval or
(ii) adopting, amending or repealing these Bylaws. Each committee shall keep
written minutes of its proceedings and shall report such minutes to the Board of
Directors when required. All such proceedings shall be subject to revision or
alteration by the Board of Directors, provided, however, that third parties
shall not be prejudiced by such revision or alteration.
Section 2. General. A majority of any committee may determine its
action and establish the time, place and procedure for its meetings, unless the
Board of Directors shall otherwise provide. Notice of such meetings shall be
given to each member of the committee in the manner provided for in Article II,
Section 6 or as the Board of Directors may otherwise provide. The Board of
Directors shall have power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. Nothing herein shall be deemed
to prevent the Board of Directors from appointing one or more committees
consisting in whole or in part of persons who are not directors of the
Corporation; provided, however, that no such committee shall have or may
exercise any authority of the Board of Directors.
8
<PAGE>
ARTICLE IV. EXCEPTIONS TO NOTICE REQUIREMENTS
Section 1. Waiver of Notice. Whenever notice is required to be given
under these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 2. Unlawful Notice. Whenever notice is required to be given
under these Bylaws to any person with whom communication is unlawful, the giving
of such notice to such person shall not be required and there shall be no duty
to apply to any governmental authority or agency for a license or permit to give
such notice to such person. Any action or meeting which shall be taken or held
without notice to any such person with whom communication is unlawful shall have
the same force and effect as if such notice has been duly given.
ARTICLE V. OFFICERS
Section 1. Number, Election and Qualification. The elected officers of
the Corporation shall be a Chairman, a President, one or more Vice Presidents
(one or more of whom may be designated Executive Vice President or Senior Vice
President), a Secretary, and a Treasurer. Such officers shall be elected from
time to time by the Board of Directors, each to hold office until the meeting of
the Board of Directors following the next annual meeting of the stockholders and
until his successor is elected and qualified, or until his earlier resignation
or removal. The Board of Directors may from time to time appoint such other
officers (including a Chairman of the Executive Committee, a Controller and one
or more Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers
and Assistant Controllers), and such agents, as may be necessary or desirable
for the business of the Corporation. Such other officers and agents shall have
such duties as may be prescribed by the Board of Directors and shall hold office
during the pleasure of the Board of Directors. Any two or more offices may be
held by the same person. From and after the distribution by G-P of the stock it
presently holds in the Corporation, no person who is serving as an officer or
director of G-P shall concurrently serve as an officer of the Corporation.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors,
the Chairman, the President or the Secretary. Any such resignation shall take
effect at the time specified
9
<PAGE>
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon its receipt; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 3. Removal. Any officer or agent of the Corporation may be
removed either with or without cause, at any time, by the Board of Directors,
except that a vote of a majority of the entire Board of Directors shall be
necessary for the removal of an elected officer. Such removal shall be without
prejudice to the contractual rights, if any, of the person so removed. Election
or appointment of an officer or agent shall not of itself create contract
rights.
Section 4. Vacancies. A vacancy in any office may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these Bylaws for the regular election or appointment of such
office.
Section 5. Chairman. The Chairman shall be the chief executive officer
of the Corporation, and shall have general direction over the management of its
business, properties and affairs. The Chairman shall preside, when present, at
all meetings of the stockholders and of the Board of Directors and, in the
absence of the Chairman of the Executive Committee, at all meetings of the
Executive Committee. He shall have general power to execute bonds, deeds and
contracts in the name of the Corporation and to affix the corporate seal; to
sign stock certificates; and to remove or suspend such employees or agents as
shall not have been elected or appointed by the Board of Directors. In the
absence or disability of the Chairman, his duties shall be performed and his
powers shall be exercised by the President.
Section 6. President. The President shall be the chief operating
officer of the Corporation and, subject to the direction of the Board of
Directors and the Chairman, he shall have general direction over the operations
of the Corporation. He shall have general power to execute bonds, deeds and
contracts in the name of the Corporation and to affix the corporate seal; and to
sign stock certificates.
Section 7. Vice Presidents. The several Vice Presidents shall perform
all such duties and services as shall be assigned to or required of them from
time to time, by the Board of Directors or the President, respectively, and
unless their authority be expressly limited shall act in the order of their
election in the place of the President, exercising all his powers and performing
his duties, during his absence or disability. The Board of Directors however,
may from time to time designate the relative positions of the Vice Presidents of
the Corporation and assign to any one or more of them such particular duties as
the Board of Directors may think proper.
Section 8. Secretary. The Secretary shall attend to the giving of
notice of all meetings of stockholders and of the Board of Directors and shall
record all of the proceedings of such meetings in a book to be kept for that
purpose. He shall have charge of the corporate seal and have authority to attest
any and all instruments or writings to which the same may be affixed. He shall
keep and account for all books,
10
<PAGE>
documents, papers and records of the Corporation, except those which are
hereinafter directed to be in charge of the Treasurer. He shall have authority
to sign stock certificates and shall generally perform all the duties usually
appertaining to the office of secretary of a corporation. In the absence of the
Secretary, an Assistant Secretary or Secretary pro tempore shall perform his
duties.
Section 9. Treasurer. The Treasurer shall have the care and custody of
all moneys, funds and securities of the Corporation, and shall deposit or cause
to be deposited all funds of the Corporation in and with such depositaries as
shall, from time to time, be designated by the Board of Directors or by such
officers of the Corporation as may be authorized by the Board of Directors to
make such designation. He shall have power to sign stock certificates; to
indorse for deposit or collection, or otherwise, all checks, drafts, notes,
bills of exchange or other commercial paper payable to the Corporation, and to
give proper receipts or discharges therefor. He shall keep all books of account
relating to the business of the Corporation, and shall render a statement of the
Corporation's financial condition whenever required so to do by the Board of
Directors, the chairman or the President. In the absence of the Treasurer, the
Board of Directors shall appoint an Assistant Treasurer to perform his duties.
Section 10. Additional Powers and Duties. In addition to the foregoing
enumerated duties and powers, the several officers of the Corporation shall
perform such other duties and exercise such further powers as may be provided by
these Bylaws or as the Board of Directors may from time to time determine or as
may be assigned to them by any competent superior officer.
Section 11. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the Corporation, but any such officer who shall also be a director shall not
have any vote in the determination of the amount of compensation paid to him.
ARTICLE VI. INDEMNIFICATION
Section 1. General. The Corporation shall, to the full extent permitted
by Section 145 of the Delaware General Corporation Law, as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto against all
expenses (including, without limitation, attorneys' fees), judgments, fines
(including excise taxes) and amounts paid in settlement (collectively, "Losses")
incurred in connection with any action, suit, or proceeding, whether threatened,
pending, or completed (collectively, "Proceedings") to which such person was or
is a party or is threatened to be made a party by reason of the fact that such
person is or was a director, officer, employee, or agent of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
11
<PAGE>
trust, or other enterprise; provided, however, that the Corporation shall
indemnify any such person seeking indemnification in connection with a
Proceeding initiated by such person only if such Proceeding was authorized by
the Board of Directors of the Corporation.
Section 2. Employee Benefit or Welfare Plan Fiduciary Liability. In
addition to any indemnification pursuant to Section 1 of this Article, but
subject to the express exclusions set forth in Section 3 of this Article, the
Corporation shall indemnify any natural person who is or was serving at the
direction or request of the Corporation in a fiduciary capacity with respect to
an employee benefit or welfare plan covering one or more employees of the
Corporation or of an affiliate of the Corporation, or who is or was performing
any service or duty on behalf of the Corporation with respect to such a plan,
its participants or beneficiaries, against all Losses incurred by such person in
connection with any Proceeding arising out of or in any way connected with such
service or performance, to the extent such Losses are insurable under applicable
law but are not covered by collectible insurance or indemnified pursuant to
Section 1 of this Article. This Section is intended to provide a right to
indemnification as permitted by Section 145(f) of the Delaware General
Corporation Law.
Section 3. Persons Not to be Indemnified Under Section 2. No
indemnification shall be made under Section 2 of this Article to any person
(other than an employee of the Corporation or of an affiliate of the
Corporation) who was or is acting as a lawyer, accountant, actuary, investment
adviser or arbitrator with respect to an employee benefit or welfare plan
against any expense, judgment, fine or amount paid in settlement incurred by
such person in connection with any action, suit or proceeding arising out of or
in any way connected with his actions in such capacity. No indemnification shall
be made under Section 2 of this Article to any person determined (in the manner
prescribed by Section 145(d) of the Delaware General Corporation Law) to have
participated in, or to have had actual knowledge of and have failed to take
appropriate action with respect to, any violation of any of the
responsibilities, obligations or duties imposed upon fiduciaries by the Employee
Retirement Income Security Act of 1974 or amendments thereto or by the common or
statutory law of the United States of America or any state or jurisdiction
therein, knowing such in either case to have been a violation of such
responsibilities, obligations or duties.
Section 4. Advances of Expenses. Except as limited by the other
provisions of this Section, the Corporation shall pay promptly (and in any event
within 60 days of receipt of the written request of the person who may be
entitled to such payment) all expenses (including but not limited to attorneys'
fees) incurred in connection with any Proceeding by any person who may be
entitled to indemnification under Sections 1 or 2 of this Article in advance of
the final disposition of such Proceeding. Notwithstanding the foregoing, any
advance payment of expenses on behalf of a director or officer of the
Corporation shall be, and if the Board of Directors so elects, any advance
payment of expenses on behalf of any other person who may be entitled to
indemnification under Sections 1 or 2 of this Article may be, conditioned upon
the receipt by the
12
<PAGE>
Corporation of an undertaking by or on behalf of such director, officer, or
other person to repay the amount advanced in the event that it is ultimately
determined that such director, officer, or person is not entitled to
indemnification; provided that such advance payment of expenses shall be made
without regard to the ability to repay the amounts advanced. Notwithstanding the
foregoing, no advance payment of expenses shall be made by the Corporation if a
determination is reasonably and promptly made by a majority vote of directors
who are not parties to such Proceeding, even though less than a quorum, or if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, that, based upon the facts known to such
directors or counsel at the time such determination is made following due
inquiry, (a) in the case of a person who may be entitled to indemnification
under Section 1, such person did not act in good faith and in a manner that such
person reasonably believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal proceeding, such person had
reasonable cause to believe his conduct was unlawful, or (b) in the case of a
person who may be entitled to indemnification under Section 2, such person is
not entitled to indemnification under the standard set forth in the second
sentence of Section 3. Nothing in this Article VI shall require any such
determination to be made as a condition to making any advance payment of
expenses, unless the Board of Directors so elects.
Section 5. Mandatory Indemnification in Certain Circumstances. To the
extent that a director, officer, employee, or agent has been successful on the
merits or otherwise in the defense of any Proceeding referred to Section 1 or
Section 2 of this Article, or in the defense of any claim, issue, or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 6. Right to Indemnification upon Application; Procedure upon
Application. Any indemnification under Sections 1 or 2 shall be made promptly,
and in any event within 60 days of receipt of the written request of the person
who may be entitled thereto following the conclusion of such person's
participation in any Proceeding or which indemnity is sought, unless with
respect to such written request, a determination is reasonably and promptly made
by a majority vote of directors who are not parties to the Proceeding, even
though less than a quorum, or if there are no such directors, or if such
directors so direct, by independent legal counsel that, based upon the facts
known to such directors or counsel at the time such determination is made
following due inquiry, (a) in the case of a person who may be entitled to
indemnification under Section 1, such person did not act in good faith and in a
manner that such person reasonably believed to be in or not opposed to the best
interests of the Corporation or, with respect to any criminal proceeding, such
person had reasonable cause to believe his conduct was unlawful, or (b) in the
case of a person who may be entitled to indemnification under Section 2, such
person is not entitled to indemnification under the standard set forth in the
second sentence of Section 3.
13
<PAGE>
Section 7. Enforcement of Rights. The right to indemnification or to an
advance of expenses as granted by this Article shall be enforceable by any
person entitled thereto in any court of competent jurisdiction, if the Board of
Directors or independent legal counsel denies the claim, in whole or in part, or
if no disposition of such claim is made within 100 days of receipt by the Board
of Directors of such person's written request for indemnification or an advance
of expenses. Such person's expenses (including but not limited to attorneys'
fees) incurred in connection with successfully establishing his right to
indemnification or an advance of expenses, in whole or in part, in any such
proceedings shall also be indemnified by the Corporation.
Section 8. Bylaws as Contract; Non-Exclusivity. All rights to
indemnification and advances or expenses under this Article shall be deemed to
be provided by a contract between the Corporation and each person entitled
thereto. Any repeal or modification of these Bylaws shall not impair or diminish
any rights or obligations existing at the time of such repeal of modification.
The rights granted by this Article shall not be deemed exclusive of any other
rights to which any person seeking indemnification or an advance of expenses may
be entitled under any bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. The rights granted by this
Article VI shall extend to the estate, heirs or legal representatives of any
person entitled to indemnification or an advance of expenses hereunder who is
deceased or incompetent.
ARTICLE VII. STOCK AND TRANSFER OF STOCK
Section 1. Stock Certificates. Every holder of stock in this
Corporation shall be entitled to have a certificate, in such form as shall be
approved by the Board of Directors, certifying the number of shares of stock of
this Corporation owned by him signed by or in the name of this Corporation by
the Chairman, or the President or a Vice President, and by the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer. Any of or all
the signatures on the certificate may be facsimiles. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may nevertheless be issued by
the Corporation with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
Section 2. Transfer of Shares. Transfers of Shares of stock of the
Corporation shall be made on the stock records of the Corporation only upon
authorization by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or
with a transfer agent, and on surrender of the certificate or certificates for
such shares properly indorsed or accompanied by a duly executed stock transfer
power and the payment of all taxes thereon. Except as otherwise provided by law,
the Corporation shall be entitled to
14
<PAGE>
recognize the exclusive right of a person in whose name any share or shares
stand on the record of stockholders as the owner of such share or shares for all
purposes, including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, and the Corporation may hold any
such stockholder of record liable for calls and assessments and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
any such share or shares on the part of any other person whether or not it shall
have express or other notice thereof. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be stated in
the entry of the transfer if, when the certificates are presented for transfer,
both the transferor and transferee request the Corporation to do so.
Section 3. Regulations, Transfer Agents and Registrars. The Board of
Directors may make such additional rules and regulations, not inconsistent with
these Bylaws, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation. It may
appoint and change from time to time one or more transfer agents and one or more
registrars and may require all certificates for shares of stock to bear the
signatures of any of them.
Section 4. Replacement of Certificates. In the event of the loss,
theft, mutilation or destruction of any certificate for shares of stock of the
Corporation, a duplicate thereof may be issued and delivered to the owner
thereof, provided he makes a sufficient affidavit setting forth the material
facts surrounding the loss, theft, mutilation or destruction of the original
certificates and gives a bond to the Corporation, in such sum limited or
unlimited, and in such form and with such surety as the Board of Directors may
authorize indemnifying the Corporation, its officers and, if applicable, its
transfer agents and registrars, against any losses, costs and damages suffered
or incurred by reason of such loss, theft, mutilation or destruction of the
original certificate and replacement thereof.
Section 5. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
15
<PAGE>
ARTICLE VIII. FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year.
ARTICLE IX. SEAL
The Board of Directors shall provide a corporate seal, which shall be
in such form as the Board of Directors shall determine.
ARTICLE X. AMENDMENTS
These Bylaws may be amended or repealed, or new Bylaws may be adopted,
at any annual or special meeting of the stockholders, by the affirmative vote of
the holders of at least 75 percent of the outstanding Common Stock of the
Corporation; provided, however, that the notice of such meeting shall have been
given as provided in these Bylaws, which notice shall mention that amendment or
repeal of these Bylaws, or the adoption of new Bylaws, is one of the purposes of
such meeting. These Bylaws may also be amended or repealed or new Bylaws may be
adopted, by the Board of Directors by the vote of two-thirds of the entire Board
of Directors.
16
================================================================================
L-P SPV2, LLC
$348,634,048.00
$69,700,000.00 6.78% Series A Senior Notes due June 30, 2006
$36,538,274.56 6.83% Series B Senior Notes due June 30, 2008
$96,467,202.00 6.95% Series C Senior Notes due June 30, 2010
$40,000,000.00 7.13% Series D Senior Notes due June 30, 2013
$22,000,000.00 7.33% Series E Senior Notes due June 30, 2018
$17,000,000.00 6.98% Series F Senior Notes due June 30, 2008
$16,928,571.44 7.10% Series G Senior Notes due June 30, 2010
$50,000,000.00 7.25% Series H Senior Notes due June 30, 2013
-------
NOTE PURCHASE AGREEMENT
-------
Dated June 30, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
Section Page
- ------- ----
<S> <C>
1. AUTHORIZATION OF NOTES.......................................................................1
2. SALE AND PURCHASE OF NOTES...................................................................2
3. CLOSING......................................................................................2
4. CONDITIONS TO CLOSING........................................................................2
4.1. Representations and Warranties.....................................................3
4.2. Performance; No Default............................................................3
4.3. Compliance Certificates............................................................3
4.4. Opinions of Counsel................................................................3
4.5. Purchase Permitted By Applicable Law, etc..........................................3
4.6. Sale of Other Notes................................................................4
4.7. Payment of Special Counsel Fees....................................................4
4.8. Private Placement Number...........................................................4
4.9. Execution of Collateral Documents and Delivery of Simpson Notes....................4
4.10. LP Timberlands Purchase Agreement.................................................5
4.11. Proceedings and Documents.........................................................5
4.12. Funding of Restricted Deposit Account.............................................5
5. REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR AND THE
COMPANY.................................................................................5
5.1. Organization; Power and Authority..................................................5
5.2. Authorization, etc.................................................................6
5.3. Disclosure.........................................................................6
5.4. Subsidiaries.......................................................................6
5.5. Financial Statements...............................................................7
5.6. Compliance with Laws, Other Instruments, etc.......................................7
5.7. Governmental Authorizations, etc...................................................7
5.8. Litigation.........................................................................7
5.9. Compliance with ERISA..............................................................8
5.10. Private Offering by the Company...................................................8
5.11. Use of Proceeds; Margin Regulations...............................................8
5.12. Existing Business and Indebtedness; Future Liens..................................8
5.13. No Event of Default...............................................................9
5.14. Representations as to L-P Redwood.................................................9
6. REPRESENTATIONS OF THE PURCHASER.............................................................9
6.1. Purchase for Investment............................................................9
6.2. Source of Funds....................................................................9
6.3. Investment Company Representation.................................................11
7. INFORMATION.................................................................................11
7.1. Financial and Business Information................................................11
i
<PAGE>
7.2. Officer's Certificate.............................................................13
7.3. Inspection........................................................................13
8. PREPAYMENT OF THE NOTES.....................................................................14
8.1. Mandatory Prepayments with Make-Whole Amount......................................14
8.2. Optional Prepayments with Make-Whole Amount.......................................14
8.3. Allocation of Partial Prepayments.................................................14
8.4. Maturity; Surrender, etc..........................................................15
8.5. Purchase of Notes.................................................................15
8.6. Make-Whole Amount.................................................................15
9. AFFIRMATIVE COVENANTS OF THE COMPANY........................................................16
9.1. Compliance with Law...............................................................16
9.2. Payment of Taxes and Claims.......................................................17
9.3. Corporate Existence, etc..........................................................17
10. NEGATIVE COVENANTS OF THE COMPANY..........................................................17
10.1. Transactions with Affiliates.....................................................17
10.2. Mergers, Consolidations, etc.....................................................17
10.3. Limitation on Liens..............................................................17
10.4. Transfer of Simpson Notes........................................................18
10.5. Business Activities..............................................................18
10.6. Indebtedness.....................................................................18
10.7. Subsidiaries; Structure..........................................................18
11. EVENTS OF DEFAULT..........................................................................18
12. REMEDIES ON DEFAULT, ETC...................................................................20
12.1. Acceleration.....................................................................20
12.2. Other Remedies...................................................................21
12.3. Rescission.......................................................................21
12.4. No Waivers or Election of Remedies, Expenses, etc................................22
13. REGISTRATION; EXCHANGE AND RESTRICTIONS ON TRANSFER;
SUBSTITUTION OF NOTES..................................................................22
13.1. Registration of Notes............................................................22
13.2. Transfer and Exchange of Notes...................................................22
13.3. Replacement of Notes.............................................................23
14. PAYMENTS ON NOTES..........................................................................24
14.1. Place of Payment.................................................................24
14.2. Home Office Payment..............................................................24
15. EXPENSES, ETC..............................................................................24
15.1. Transaction Expenses.............................................................24
15.2. Survival.........................................................................25
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT..............................................................................25
ii
<PAGE>
17. AMENDMENT AND WAIVER.......................................................................25
17.1. Requirements.....................................................................25
17.2. Solicitation of Holders of Notes.................................................26
17.3. Binding Effect, etc..............................................................26
17.4. Notes held by Company, Guarantor, etc............................................26
18. NOTICES....................................................................................26
19. REPRODUCTION OF DOCUMENTS..................................................................27
20. CONFIDENTIAL INFORMATION...................................................................27
21. SUBSTITUTION OF PURCHASER..................................................................28
22. PARENT GUARANTY; PAYMENT OF EXPENSES, ETC..................................................29
23. MISCELLANEOUS..............................................................................32
23.1. Successors and Assigns...........................................................32
23.2. Payments Due on Non-Business Days................................................32
23.3. Severability.....................................................................32
23.4. Construction.....................................................................32
23.5. Counterparts.....................................................................32
23.6. Governing Law....................................................................33
</TABLE>
iii
<PAGE>
Schedules and Exhibits
----------------------
<TABLE>
<S> <C> <C>
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE 5.3 -- Disclosure Materials
EXHIBIT 1-A -- Form of 6.78% Series A Senior Note due June 30, 2006
EXHIBIT 1-B -- Form of 6.83% Series B Senior Note due June 30, 2008
EXHIBIT 1-C -- Form of 6.95% Series C Senior Note due June 30, 2010
EXHIBIT 1-D -- Form of 7.13% Series D Senior Note due June 30, 2013
EXHIBIT 1-E -- Form of 7.33% Series E Senior Note due June 30, 2018
EXHIBIT 1-F -- Form of 6.98% Series F Senior Note due June 30, 2008
EXHIBIT 1-G -- Form of 7.10% Series G Senior Note due June 30, 2010
EXHIBIT 1-H -- Form of 7.25% Series H Senior Note due June 30, 2013
EXHIBIT 4.4(a)(i) -- Matters to Be Covered in Opinion of Counsel to the Company
and the Guarantor
EXHIBIT 4.4(a)(ii) -- Matters to Be Covered in Opinion of General Counsel to the
Company and the Guarantor
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers
EXHIBIT A -- Form of Collateral Agency Agreement
EXHIBIT B -- Form of Pledge Agreement
EXHIBIT C -- Form of Simpson Note Assignment
</TABLE>
Signature pages relating to Purchasers, Schedules 5A and 5.3 and Exhibits have
been omitted and will be provided supplementally to the Securities and Exchange
Commission upon request.
iv
<PAGE>
L-P SPV2, LLC
Suite 4300
111 SW Fifth Avenue
Portland, Oregon 97204
$348,634,048.00
6.78% Series A Senior Notes due June 30, 2006
6.83% Series B Senior Notes due June 30, 2008
6.95% Series C Senior Notes due June 30, 2010
7.13% Series D Senior Notes due June 30, 2013
7.33% Series E Senior Notes due June 30, 2018
6.98% Series F Senior Notes due June 30, 2008
7.10% Series G Senior Notes due June 30, 2010
7.25% Series H Senior Notes due June 30, 2013
June 30, 1998
TO THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
L-P SPV2, LLC, a Delaware limited liability company (the
"COMPANY"), and Louisiana-Pacific Corporation, a Delaware corporation (the
"GUARANTOR"), agree with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $348,634,048.00
aggregate principal amount of its Senior Notes consisting of $69,700,000 6.78%
Series A Senior Notes due June 30, 2006, $36,538,274.56 6.83% Series B Senior
Notes due June 30, 2008, $96,467,202.00 6.95% Series C Senior Notes due June 30,
2010, $40,000,000 7.13% Series D Senior Notes due June 30, 2013, $22,000,000
7.33% Series E Senior Notes due June 30, 2018, $17,000,000 6.98% Series F Senior
Notes due June 30, 2008, $16,928,571.44 7.10% Series G Senior Notes due June 30,
2010 and $50,000,000 Series H Senior Notes due June 30, 2013, (respectively, the
"SERIES A NOTES", the "SERIES B NOTES", the "SERIES C NOTES", the "SERIES D
NOTES", the "SERIES E NOTES", the "SERIES F NOTES", the "SERIES G NOTES" and the
"SERIES H NOTES", and collectively the "NOTES", such terms to include any such
notes issued in substitution therefor pursuant to Section 13 of this Agreement
or the Other Agreements (as hereinafter defined) and each such series of Notes
being a "SERIES")). The Series A Notes shall be substantially in the form set
out in Exhibit 1-A, the Series B Notes shall be substantially in the form set
out in Exhibit 1-B, the Series C Notes shall be substantially in the form set
out in Exhibit 1-C, the Series D Notes shall be substantially in the form set
out in Exhibit 1-D, the Series E Notes shall be substantially in the
1
<PAGE>
form set out in Exhibit 1-E, the Series F Notes shall be substantially in the
form set out in Exhibit 1-F, the Series G Notes shall be substantially in the
form set out in Exhibit 1-G, and the Series H Notes shall be substantially in
the form set out in Exhibit 1-H in each case with such changes therefrom, if
any, as may be approved by you and the Company. Certain capitalized terms used
in this Agreement are defined in Schedule B; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached
to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and you will purchase from the Company, at
the Closing provided for in Section 3, Notes in one or more Series in the
principal amounts specified opposite your name in Schedule A at the purchase
price of 100% of the principal amount thereof. Contemporaneously with entering
into this Agreement, the Company is entering into separate Note Purchase
Agreements (the "OTHER AGREEMENTS") identical to this Agreement with each of the
other purchasers named in Schedule A (the "OTHER PURCHASERS"), providing for the
sale at such Closing to each of the Other Purchasers of Notes in the principal
amount specified opposite its name in Schedule A. Your obligation hereunder and
the obligations of the Other Purchasers under the Other Agreements are several
and not joint obligations and you shall have no obligation under any Other
Agreement and no liability to any Person for the performance or non-performance
by any Other Purchaser thereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you shall
occur at the offices of O'Melveny & Myers LLP, 275 Battery Street, San
Francisco, California 94111 at 8:00 a.m., Pacific time, at a closing (the
"CLOSING") on June 30, 1998 or on such other Business Day as may be agreed upon
by the Company and you. At the Closing the Company will deliver to you the Notes
to be purchased by you in the form of a single Note for each Series (or such
greater number of Notes in denominations of at least $500,000 as you may
request) dated the date of the Closing and registered in your name (or in the
name of your nominee), against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to
account number 12333-28133 at Bank of America N.T. & S.A., Concord, California,
ABA Routing No. 121000358, Beneficiary: L-P SPV2, LLC. If at the Closing the
Company shall fail to tender such Notes to you as provided above in this Section
3, or any of the conditions specified in Section 4 shall not have been fulfilled
to your satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to
you at the Closing is subject to the fulfillment to your satisfaction, prior to
or at the Closing, of the following conditions:
2
<PAGE>
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Guarantor and the
Company in this Agreement shall be correct when made and at the time of the
Closing.
4.2. PERFORMANCE; NO DEFAULT.
Each of the Guarantor and the Company shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be performed or complied with by it prior to or at the Closing and after
giving effect to the issue and sale of the Notes to be issued at the Closing
(and the application of the proceeds thereof as contemplated in Section 5.11) no
Default or Event of Default shall have occurred and be continuing. The Company
shall not have entered into any transaction since the date of its formation that
would have been prohibited by Section 10 hereof had such Section 10 applied
since such date.
4.3. COMPLIANCE CERTIFICATES.
(a) Officer's Certificate. The Guarantor and the Company shall
each have delivered to you an Officer's Certificate, dated the date of the
Closing, certifying that the conditions specified in Sections 4.1 and 4.2 have
been fulfilled and that the transactions contemplated by the LP Timberlands
Purchase Agreement have been consummated.
(b) Secretary's Certificate. The Guarantor, L-P Redwood and the
Company shall each have delivered to you a certificate certifying as to the
resolutions attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of the Notes, this Agreement, the
Collateral Documents and the Simpson Note Documents, as applicable.
4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Orrick, Herrington &
Sutcliffe LLP and Gary C. Wilkerson, counsel and general counsel, respectively,
for the Guarantor and the Company, in the form of in Exhibit 4.4(a)(i) and
Exhibit 4.4(b)(ii), respectively, and matters incident to the transactions
contemplated hereby as you or your counsel may reasonably request (and the
Guarantor and the Company hereby instruct their counsel to deliver such opinion
to you), (b) from O'Melveny & Myers LLP, your special counsel in connection with
such transactions, in the form of Exhibit 4.4(b) and covering such other matters
incident to such transactions as you may reasonably request and (c) from
Pillsbury, Madison & Sutro and Joseph R. Breed, counsel and general counsel,
respectively, for SIC and STC, in the form of Exhibit 4.4(a) and Exhibit 4.4(b),
respectively, to the Simpson Note Agreement and dated as of the date of the
Simpson Note Agreement, which opinion may be the same opinion delivered to L-P
Redwood upon the issuance of the Simpson Notes so long as such opinion includes
provisions allowing you to rely thereon.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions
3
<PAGE>
(such as Section 1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the character of
the particular investment, (ii) not violate any applicable law or regulation
(including, without limitation, Regulation T, U or X of the Board of Governors
of the Federal Reserve System) and (iii) not subject you to any tax, penalty or
liability under or pursuant to any applicable law or regulation, which law or
regulation was not in effect on the date hereof. If requested by you, you shall
have received an Officer's Certificate certifying as to such matters of fact as
you may reasonably specify to enable you to determine whether such purchase is
so permitted.
4.6. SALE OF OTHER NOTES.
Contemporaneously with the Closing, the Company shall sell to the
Other Purchasers, and the Other Purchasers shall purchase, the Notes to be
purchased by them at the Closing as specified in Schedule A.
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, STC and/or the
Company shall have paid on or before the Closing the fees, charges and
disbursements of your special counsel referred to in Section 4.4 to the extent
reflected in a statement of such counsel rendered to STC and/or the Company at
least one Business Day prior to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
each Series of the Notes.
4.9. EXECUTION OF COLLATERAL DOCUMENTS AND DELIVERY OF SIMPSON NOTES.
(a) The Company and the Collateral Agent shall have executed and
delivered the Pledge Agreement.
(b) The Collateral Agent, you and each Other Purchaser shall have
executed and delivered the Collateral Agency Agreement and the Company shall
have acknowledged and agreed to the Collateral Agency Agreement.
(c) STC, SIC and L-P Redwood shall have executed and delivered
the Simpson Note Agreement and all conditions to the issuance of the Simpson
Notes set forth in the Simpson Note Agreement shall have been satisfied. The
Simpson Notes shall have been issued pursuant to the Simpson Note Agreement, and
L-P Redwood shall have assigned the Simpson Notes to the Company pursuant to the
Simpson Note Assignment. You shall have received copies of all of the documents
executed and delivered in connection with the issuance of the Simpson Notes and
the closing of the transactions contemplated by the Simpson Note Agreement.
(d) The Simpson Notes shall have been registered and reissued in
the name of, and delivered to, the Collateral Agent.
4
<PAGE>
(e) The Company shall have provided irrevocable written direction
to STC and SIC (with copies thereof to you) to make payments in respect of the
Simpson Notes to the Collateral Agent, as provided in Section 6(a) of the Pledge
Agreement.
4.10. LP TIMBERLANDS PURCHASE AGREEMENT.
You shall have received a copy of the LP Timberlands Purchase
Agreement and other principal documents related thereto and evidence reasonably
satisfactory to you that the transactions contemplated by the LP Timberlands
Purchase Agreement have been consummated.
4.11. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
4.12. FUNDING OF RESTRICTED DEPOSIT ACCOUNT.
The Company shall have deposited into the Restricted Deposit
Account (as such term is defined in the Pledge Agreement) an amount equal to the
total interest payable pursuant to the Notes for a period of one month.
5. REPRESENTATIONS AND WARRANTIES OF THE GUARANTOR AND THE COMPANY.
Each of the Guarantor and the Company, jointly and severally,
represents and warrants to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
The Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified as a foreign limited liability company and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Each of the Guarantor and the
Company has the corporate or limited liability company (as the case may be)
power and authority to own or hold under lease the properties it purports to own
or hold under lease, to transact the business it transacts and proposes to
transact, to execute and deliver this Agreement, the Other Agreements, the
Collateral Documents and the Notes and to perform the provisions hereof and
thereof, as applicable.
5
<PAGE>
5.2. AUTHORIZATION, ETC.
This Agreement, the Other Agreements, the Collateral Documents
and the Notes have been duly authorized by all necessary action on the part of
the Company in accordance with its organizational documents, and this Agreement,
the Other Agreements and the Collateral Documents to which the Guarantor is a
party have been duly authorized by all necessary corporate action on the part of
the Guarantor. This Agreement, the Other Agreements and the Collateral Documents
constitute, and upon execution and delivery thereof each Note will constitute,
the legal, valid and binding obligation of the Company, and this Agreement, the
Other Agreements and the Collateral Documents to which the Guarantor is a party
constitute the legal, valid and binding obligation of the Guarantor, in each
case enforceable against the Company or the Guarantor, as the case may be, in
accordance with its terms, except as such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.3. DISCLOSURE.
The Company, through its agent, BancAmerica Robertson Stephens,
has delivered to you and each Other Purchaser a copy of a Private Placement
Memorandum, dated May 1998 (the "MEMORANDUM"), relating to the transactions
contemplated hereby. The Memorandum fairly describes, in all material respects,
the general nature of the business and principal properties of Guarantor and its
Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the
Memorandum (as it relates to the Guarantor and its Subsidiaries, this Agreement
and the Notes), the documents, certificates or other writings delivered to you
by or on behalf of the Guarantor and the Company in connection with the
transactions contemplated hereby and the financial statements referred to in
Section 5.5, taken as a whole, do not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading in light of the circumstances under which they were made. Except
as disclosed in the Memorandum (as it relates to the Guarantor and its
Subsidiaries, this Agreement and the Notes) or as expressly described in
Schedule 5.3, since December 31, 1997, there has been no change in the financial
condition, operations, business, properties or prospects of the Guarantor, the
Company or any other Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to the Guarantor or to the Company that could reasonably
be expected to have a Material Adverse Effect that has not been set forth herein
or in the Memorandum or in the other documents, certificates and other writings
delivered to you by or on behalf of the Guarantor and the Company specifically
for use in connection with the transactions contemplated hereby.
5.4. SUBSIDIARIES.
The Company has no Subsidiaries. The Company is an indirect
Wholly-Owned Subsidiary of the Guarantor and a direct Wholly-Owned Subsidiary of
L-P Redwood.
6
<PAGE>
5.5. FINANCIAL STATEMENTS.
The financial statements of the Guarantor and its Subsidiaries
contained in the Guarantor's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998 (the "MOST RECENT QUARTERLY REPORT") and the
Guarantor's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "MOST RECENT ANNUAL REPORT") (including in each case the related
schedules and notes) fairly present in all material respects the consolidated
financial position of the Guarantor and its Subsidiaries as of the respective
dates specified in such reports and the consolidated results of their operations
and cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods included except
as set forth in the notes thereto (subject, in the case of the Quarterly Report,
to normal year-end adjustments).
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Guarantor and the
Company of this Agreement and the Collateral Documents and, as to the Company,
the Notes will not, and the execution, delivery and performance by L-P Redwood
of the Simpson Note Agreement and the Simpson Note Assignment did not and will
not, (i) contravene, result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property of the Guarantor,
L-P Redwood, the Company or any other Subsidiary under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, organizational documents, or any other agreement or instrument to which
the Guarantor, L-P Redwood, the Company or any other Subsidiary is bound or by
which the Guarantor, L-P Redwood, the Company or any other Subsidiary or any of
their respective properties may be bound or affected, (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any court, arbitrator or Governmental Authority
applicable to the Guarantor, L-P Redwood, the Company or any other Subsidiary,
or (iii) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Guarantor, L-P Redwood, the Company or
any other Subsidiary.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing
or declaration with, any Governmental Authority is required in connection with
the execution, delivery or performance by the Company or the Guarantor of this
Agreement or the Collateral Documents or by the Company of the Notes. No
consent, approval or authorization of, or registration, filing or declaration
with, any Governmental Authority was required as of the date of the issuance of
the Simpson Notes or as of the date hereof in connection with the execution,
delivery or performance by L-P Redwood of the Simpson Note Agreement or the
Simpson Note Assignment.
5.8. LITIGATION.
Except as disclosed in the Most Recent Quarterly Report and Most
Recent Annual Report, there are no actions, suits or proceedings pending or, to
the knowledge of the Guarantor or the Company, threatened against or affecting
the Guarantor, L-P Redwood, the Company or any other Subsidiary or any property
of the Guarantor, L-P Redwood, the Company or any other
7
<PAGE>
Subsidiary in any court or before any arbitrator of any kind or before or by any
Governmental Authority that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect. Except as disclosed in the Most
Recent Quarterly Report and Most Recent Annual Report, there were, as of the
date of issuance of the Simpson Notes, no actions, suits or proceedings pending
or, to the knowledge of the Guarantor or the Company, threatened against or
affecting L-P Redwood or any property of L-P Redwood in any court or before any
arbitrator of any kind or before or by any Governmental Authority that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
5.9. COMPLIANCE WITH ERISA.
The execution and delivery of this Agreement and the Collateral
Documents and the issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Guarantor and the
Company in the first sentence of this Section 5.9 is made in reliance upon and
subject to the accuracy of your representation in Section 6.2 as to the sources
of the funds used to pay the purchase price of the Notes to be purchased by you.
5.10. PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has offered
the Notes or any similar securities for sale to, or solicited any offer to buy
any of the same from, or otherwise approached or negotiated in respect thereof
with, any person other than you, the Other Purchasers and not more than 77 other
Institutional Investors, each of which has been offered the Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of the
Notes to the registration requirements of Section 5 of the Securities Act.
5.11. USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes for
general corporate purposes. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR 221), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Guarantor or the Company in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220). Margin stock does not constitute more
than 5.0% of the value of the consolidated assets of the Guarantor and its
Subsidiaries and the Guarantor and its Subsidiaries do not have any present
intention that margin stock will constitute more than 5.0% of the value of such
assets. As used in this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING
OR CARRYING" shall have the meanings assigned to them in said Regulation U.
5.12. EXISTING BUSINESS AND INDEBTEDNESS; FUTURE LIENS.
(a) The Company has conducted no business activities and has no
outstanding Indebtedness as of the date hereof.
8
<PAGE>
(b) The Company has not agreed or consented to cause or permit in
the future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to any Lien not
permitted by Section 10.3.
5.13. NO EVENT OF DEFAULT.
No event has occurred and is continuing or would result from the
transactions contemplated hereby that constitutes or would constitute an Event
of Default or Default.
5.14. REPRESENTATIONS AS TO L-P REDWOOD
L-P Redwood is (and was as of the date of issuance of the Simpson
Notes): (i) a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware; and (ii) duly qualified
as a foreign company and in good standing in each jurisdiction in which such
qualification is (and was as of the date of issuance of the Simpson Notes)
required by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. L-P Redwood has (and
had as of the date of issuance of the Simpson Notes, as applicable) the limited
liability company power and authority to own or hold under lease the properties
it purports to own or hold under lease, to transact the business it transacts
and proposes to transact, to execute and deliver the Simpson Note Agreement and
the Simpson Note Assignment and to perform the provisions thereof. Each of the
Simpson Note Agreement and the Simpson Note Assignment has been duly authorized
by all necessary limited liability company action on the part of L-P Redwood and
duly executed and delivered by L-P Redwood, and constitutes a legal, valid and
binding obligation of L-P Redwood, enforceable against L-P Redwood in accordance
with its terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
6. REPRESENTATIONS OF THE PURCHASER.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own
account (or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds) and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Notes have not been registered under the Securities Act and may be resold only
if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes.
6.2. SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
9
<PAGE>
(a) the Source is an "insurance company general account" within
the meaning of Department of Labor Prohibited Transaction Exemption
("PTE") 95-60 (issued July 12, 1995) and there is no employee benefit
plan, treating as a single plan, all plans maintained by the same
employer or employee organization, with respect to which the amount of
the general account reserves and liabilities for all contracts held by
or on behalf of such plan, exceed ten percent (10%) of the total
reserves and liabilities of such general account (exclusive of separate
account liabilities) plus surplus, as set forth in the NAIC Annual
Statement filed with your state of domicile; for purposes of calculating
the percentage limitation above, the amount of the reserves and
liabilities for the general account contracts held by or on behalf of an
employee benefit plan shall be determined before reduction for credits
on account of any reinsurance ceded on a coinsurance basis; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of Prohibited Transaction Exemption ("PTE")
90-1 (issued January 29, 1990), or (ii) a bank collective investment
fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and,
except as you have disclosed to the Company in writing pursuant to this
paragraph (b), no employee benefit plan or group of plans maintained by
the same employer or employee organization beneficially owns more than
10% of all assets allocated to such pooled separate account or
collective investment fund; or
(c) the Source constitutes assets of an "investment fund" (within
the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of
the QPAM Exemption), no employee benefit plan's assets that are included
in such investment fund, when combined with the assets of all other
employee benefit plans established or maintained by the same employer or
by an affiliate (within the meaning of Section V(c)(1) of the QPAM
Exemption) of such employer or by the same employee organization and
managed by such QPAM, exceed 20% of the total client assets managed by
such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by
the QPAM (applying the definition of "control" in Section V(e) of the
QPAM Exemption) owns a 5% or more interest in the Company and (i) the
identity of such QPAM and (ii) the names of all employee benefit plans
whose assets are included in such investment fund have been disclosed to
the Company in writing pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee benefit
plans, each of which has been identified to the Company in writing
pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
If you or any subsequent transferee of the Notes indicates that
you or such transferee are relying on any representation contained in paragraph
(b), (c) or (e) above, the
10
<PAGE>
Company shall deliver on the date of Closing and, if it is legally able to do
so, on the date of any applicable transfer a certificate, which shall either
state that (i) it is neither a party in interest nor a "disqualified person" (as
defined in Section 4975(e)(2) of the Code), with respect to any plan identified
pursuant to paragraphs (b) or (e) above, or (ii) with respect to any plan
identified pursuant to paragraph (c) above, neither it nor any "affiliate" (as
defined in Section V(c) of the QPAM Exemption) has at such time, and during the
immediately preceding one year, exercised the authority to appoint or terminate
said QPAM as manager of any plan identified in writing pursuant to paragraph (c)
above or to negotiate the terms of said QPAM's management agreement on behalf of
any such identified plan. As used in this Section 6.2, the terms "EMPLOYEE
BENEFIT PLAN", "GOVERNMENTAL PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT"
shall have the respective meanings assigned to such terms in Section 3 of ERISA.
6.3. INVESTMENT COMPANY REPRESENTATION. You represent that you are a "qualified
purchaser" as such term is used in Section 3(c)(7) of the Investment Company Act
and defined in Section 2(a)(51) of the Investment Company Act. You further
represent that you are not an "investment company" as such term is defined in
Section 3 of the Investment Company Act and that you are not relying on the
exemptions set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment
Company Act to make the foregoing representation.
7. INFORMATION.
7.1. FINANCIAL AND BUSINESS INFORMATION.
The Guarantor shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Guarantor (other than
the last quarterly fiscal period of each such fiscal year), duplicate
copies of:
(i) a consolidated balance sheet of the Guarantor and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Guarantor and its
Subsidiaries, for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with
such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified
above of copies of the Guarantor's Quarterly Report on Form 10-Q
prepared in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(a);
11
<PAGE>
(b) Annual Statements -- within 90 days after the end of each
fiscal year of the Guarantor, duplicate copies of:
(i) a consolidated balance sheet of the Guarantor and its
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Guarantor and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by:
(A) an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall
state that such financial statements present fairly, in all
material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and
have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and
(B) a certificate of such accountants stating that they
have reviewed this Agreement and stating further whether, in
making their audit, they have become aware of any condition or
event that then constitutes a Default or an Event of Default,
and, if they are aware that any such condition or event then
exists, specifying the nature and period of the existence thereof
(it being understood that such accountants shall not be liable,
directly or indirectly, for any failure to obtain knowledge of
any Default or Event of Default unless such accountants should
have obtained knowledge thereof in making an audit in accordance
with generally accepted auditing standards or did not make such
an audit),
provided that the delivery within the time period specified above of the
Guarantor's Annual Report on Form 10-K for such fiscal year (together
with the Guarantor's annual report to shareholders, if any, prepared
pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance
with the requirements therefor and filed with the Securities and
Exchange Commission, together with the accountant's certificate
described in clause (B) above, shall be deemed to satisfy the
requirements of this Section 7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Guarantor to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement (without exhibits except as expressly requested by such
holder), and each prospectus and all amendments thereto filed by the
Guarantor with the Securities and Exchange Commission and of all press
releases and other statements made available generally by the Guarantor
to the public concerning developments that are Material;
12
<PAGE>
(d) Notice of Default or Event of Default -- promptly, and in any
event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has
given any notice or taken any action with respect to a claimed default
hereunder or that any Person has given any notice or taken any action
with respect to a claimed default of the type referred to in Section
11(f), a written notice specifying the nature and period of existence
thereof and what action the Guarantor and/or the Company is taking or
proposes to take with respect thereto;
(e) Notices from Governmental Authority -- promptly, and in any
event within 30 days of receipt thereof, copies of any notice to the
Guarantor, the Company or any other Subsidiary from any Federal or state
Governmental Authority relating to any order, ruling, statute or other
law or regulation that could reasonably be expected to have a Material
Adverse Effect; and
(f) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company and
the Guarantor relating to the ability of the Company or the Guarantor to
perform its obligations hereunder, under the Notes or under the
Collateral Documents, as the case may be, as from time to time may be
reasonably requested by any such holder of Notes, including without
limitation, such information as is required by Rule 144A to be delivered
to a prospective transferee of the Notes.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer stating that such officer has reviewed
the relevant terms hereof and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of the Guarantor, the
Company and the Guarantor's other Subsidiaries from the beginning of the
quarterly or annual period covered by the statements then being furnished to the
date of the certificate and that such review shall not have disclosed the
existence during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Company and/or the Guarantor shall have taken or proposes to take with
respect thereto.
7.3. INSPECTION.
If a Default or Event of Default then exists, the Guarantor and
the Company shall permit the representatives of each holder of Notes that is an
Institutional Investor, at the expense of the Company, to visit and inspect any
offices or properties of the Company and/or the Guarantor, to examine all their
respective books of account, records, reports and other papers, to make copies
and extracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective officers and independent public accountants (and
by this provision each of the Company and the Guarantor authorizes said
accountants to discuss the affairs, finances and accounts of the Guarantor and
the Company), all at such times and as often as may reasonably be requested.
13
<PAGE>
8. PREPAYMENT OF THE NOTES.
8.1. MANDATORY PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
In the event of a prepayment of any series of the Simpson Notes
pursuant to Section 8 of the Simpson Note Agreement, the Company shall use all
proceeds of such prepayment to immediately prepay the outstanding Notes of the
Series corresponding to the series of the Simpson Notes so prepaid (to the
extent that any amounts remain outstanding under the Notes of such Series),
together with accrued interest thereon and the applicable Make-Whole Amount.
Concurrently with such prepayment, the Company shall deliver to each holder of a
Note of such Series a notice of such prepayment, which notice will set forth the
principal amount of the Notes of such Series to be so prepaid, the amount of
accrued interest thereon being paid and the Make-Whole Amount due in connection
with such prepayment, setting forth the details of such computation. Any
prepayment of the Simpson Notes required by Section 10.9 of the Simpson Note
Agreement shall be deemed to be an optional prepayment thereunder and,
therefore, the provisions of this Section 8.1 shall apply thereto.
8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes in an amount
not less than $5,000,000 in the case of a partial prepayment, at 100% of the
principal amount so prepaid and accrued interest thereon, plus the Make-Whole
Amount determined for the prepayment date with respect to such principal amount;
provided that the date fixed for prepayment shall be a Business Day. The Company
will give each holder of Notes written notice of each optional prepayment under
this Section 8.2 not less than 30 days and not more than 60 days prior to the
date fixed for such prepayment. Each such notice shall specify such date, the
aggregate principal amount of the Notes to be prepaid on such date, the
principal amount of each Note held by such holder to be prepaid (determined in
accordance with Section 8.3), and the interest to be paid on the prepayment date
with respect to such principal amount being prepaid, and shall be accompanied by
a certificate of a Senior Financial Officer as to the estimated Make-Whole
Amount due in connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of such
computation. Two Business Days prior to such prepayment, the Company shall
deliver to each holder of Notes a certificate of a Senior Financial Officer
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
8.3. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of any Series of Notes
pursuant to Section 8.1, the principal amount of each Series of Notes to be
prepaid shall be allocated among all of the Notes of such Series at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts of such Notes. In the case of each partial prepayment of the
Notes pursuant to Section 8.2, the principal amount of the Notes to be prepaid
shall be allocated among all of the Notes of all Series at the time outstanding
in proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof not theretofore called for prepayment.
14
<PAGE>
8.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this Section
8, the principal amount of each Note to be prepaid shall mature and become due
and payable on the date fixed for such prepayment, together with interest on
such principal amount accrued to such date and the applicable Make-Whole Amount,
if any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and
Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall, at the request of the
Company, be surrendered to the Company and cancelled and shall not be reissued,
and no Note shall be issued in lieu of any prepaid principal amount of any Note.
8.5. PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
8.6. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to Section 8.1 or 8.2 or has
become or is declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal
of any Note, 0.50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business
Day preceding the Settlement Date with respect to such Called Principal,
on the display designated as "Page PX1" or other applicable "PX" page of
the Bloomberg Financial Markets Services Screen (or such other display
as may replace Page PX1 or such other page on the Bloomberg Financial
Markets Services Screen) for actively traded U.S. Treasury securities
having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or (ii) if
15
<PAGE>
such yields are not reported as of such time or the yields reported as
of such time are not ascertainable, the Treasury Constant Maturity
Series Yields reported, for the latest day for which such yields have
been so reported as of the second Business Day preceding the Settlement
Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication)
for actively traded U.S. Treasury securities having a constant maturity
equal to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield will be determined, if necessary, by
(a) converting U.S. Treasury bill quotations to bond-equivalent yields
in accordance with accepted financial practice and (b) interpolating
linearly between (1) the actively traded U.S. Treasury security with the
maturity closest to and greater than the Remaining Average Life and (2)
the actively traded U.S. Treasury security with the maturity closest to
and less than the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such Called
Principal and the scheduled due date of such Remaining Scheduled
Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on such
Settlement Date pursuant to Section 8.1, 8.2 or 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.1 or 8.2 or has become or is declared to be
immediately due and payable pursuant to Section 12.1, as the context
requires.
9. AFFIRMATIVE COVENANTS OF THE COMPANY.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. COMPLIANCE WITH LAW.
The Company will comply with all laws, ordinances or governmental
rules or regulations to which it is subject, and will obtain and maintain in
effect all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, to the extent necessary to ensure that non-compliance with such
laws, ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations
16
<PAGE>
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
9.2. PAYMENT OF TAXES AND CLAIMS.
The Company will file all tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable on
such returns and all other taxes, assessments, governmental charges, or levies
imposed on it or any of its properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent and all claims for which sums have become due and payable
that have or might become a Lien on properties or assets of the Company,
provided that the Company need not pay any such tax or assessment or claims if
(i) the amount, applicability or validity thereof is contested by the Company on
a timely basis in good faith and in appropriate proceedings, and the Company has
established adequate reserves therefor in accordance with GAAP on the books of
the Company or (ii) the nonpayment of all such taxes and assessments in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
9.3. CORPORATE EXISTENCE, ETC.
Subject to Section 10.2, the Company will at all times preserve
and keep in full force and effect its existence as a limited liability company.
10. NEGATIVE COVENANTS OF THE COMPANY.
The Company covenants that so long as any of the Notes are
outstanding:
10.1. TRANSACTIONS WITH AFFILIATES.
The Company will not enter into directly or indirectly any
transaction or group of related transactions (including without limitation the
purchase, lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate, except (i) in the ordinary course and pursuant
to the reasonable requirements of the Company's business and upon fair and
reasonable terms no less favorable to the Company than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate and (ii) the
distribution or the lending of the proceeds of the Notes to the Guarantor on or
about the date of the Closing.
10.2. MERGERS, CONSOLIDATIONS, ETC.
The Company will not consolidate with or merge with any other
Person or convey, transfer or lease substantially all of its assets to any
Person, provided that the Company may merge with another Wholly-Owned Subsidiary
of the Guarantor so long as such other Wholly-Owned Subsidiary shall be in
compliance with this Section 10 after giving effect to such merger.
10.3. LIMITATION ON LIENS.
The Company will not directly or indirectly create, assume, incur
or permit to exist (upon the happening of a contingency or otherwise) any Lien
on or with respect to any
17
<PAGE>
property or asset (including, without limitation, the Simpson Notes) of the
Company, whether now owned or hereafter acquired, or any income or profits
therefrom, or assign or otherwise convey any right to receive income or profits,
except for:
(a) Liens for taxes, assessments or other governmental charges
which are not yet due and payable or the payment of which is not at the
time required by Section 9.2; and
(b) the Lien in favor of the Collateral Agent created by the
Pledge Agreement.
10.4. TRANSFER OF SIMPSON NOTES.
Except as permitted by Section 10.3(b), the Company will not
Transfer the Simpson Notes.
10.5. BUSINESS ACTIVITIES.
The Company will not engage in any business activities other than
the ownership of the Simpson Notes and matters incidental thereto.
10.6. INDEBTEDNESS.
The Company will not, directly or indirectly, create, incur,
assume, guaranty or otherwise become or remain liable with respect to any
Indebtedness other than the Notes.
10.7. SUBSIDIARIES; STRUCTURE.
The Company will not form or own any Subsidiaries. The Company
shall at all times remain a direct or indirect Wholly-Owned Subsidiary of the
Guarantor.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or the
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and
payable; or
(c) the Company defaults in the performance of or compliance with
any term contained in Section 10 of this Agreement or Sections 7(a),
7(b) or 7(c) of the Pledge Agreement; or
(d) the Guarantor or the Company defaults in the performance of
or compliance with any term contained herein (other than those referred
to in paragraphs (a), (b) and (c) of this Section 11) or any term
contained in any Collateral Document (other
18
<PAGE>
than those referred to in paragraph (c) of this Section 11) and such
default is not remedied within 30 days after the earlier of (i) a
Responsible Officer obtaining actual knowledge of such default and (ii)
the Guarantor or the Company receiving written notice of such default
from any holder of a Note (any such written notice to be identified as a
"notice of default" and to refer specifically to this paragraph (d) of
Section 11); or
(e) any representation or warranty made in writing by or on
behalf of the Guarantor or the Company or by any officer of the
Guarantor or the Company in this Agreement or any Collateral Document or
in any writing furnished in connection with the transactions
contemplated hereby proves to have been false or incorrect in any
material respect on the date as of which made or the obligations of the
Guarantor set forth in Section 22 for any reason (other than payment in
full of all obligations under this Agreement, the Collateral Documents
and the Notes) shall cease to be in full force and effect or shall be
declared in whole or in part to be void or unenforceable; or
(f) (i) the Guarantor or any of its Subsidiaries is in default
(as principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of at
least $25,000,000 beyond any period of grace provided with respect
thereto, (ii) the Guarantor or any of its Subsidiaries is in default in
the performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least
$25,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such
default or condition such Indebtedness has become, or has been declared
(or one or more Persons are entitled to declare such Indebtedness to
be), due and payable before its stated maturity or before its regularly
scheduled dates of payment, or (iii) as a consequence of the occurrence
or continuation of any event or condition (other than the passage of
time or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), (x) the Guarantor or any of its
Subsidiaries has become obligated to purchase or repay Indebtedness
before its regular maturity or before its regularly scheduled dates of
payment in an aggregate outstanding principal amount of at least
$25,000,000, or (y) one or more Persons have the right to require the
Guarantor or any of its Subsidiaries so to purchase or repay such
Indebtedness; or
(g) the Guarantor or the Company (i) is generally not paying, or
admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it
of, a petition for relief or reorganization or arrangement or any other
petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other similar law
of any jurisdiction, (iii) makes an assignment for the benefit of its
creditors, (iv) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, (v) is adjudicated as
insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Guarantor or the
Company, as applicable, a custodian,
19
<PAGE>
receiver, trustee or other officer with similar powers with respect to
it or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or
to take advantage of any bankruptcy or insolvency law of any
jurisdiction, or ordering the dissolution, winding-up or liquidation of
the Guarantor or the Company, as applicable, or any such petition shall
be filed against the Guarantor the Company, as applicable, and such
petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $1,000,000 are rendered against the Company and
which judgments are not, within 60 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay; or
(j) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 are rendered against the Guarantor
and which judgments are not, within 60 days after entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay; provided that if a final
judgment by its terms provides that amounts shall be paid more than 60
days after entry thereof, then the entry thereof shall not constitute an
"Event of Default" hereunder unless and until the Guarantor fails to pay
any amounts required to be paid by the Guarantor in accordance to the
terms of such judgment for 60 days; or
(k) (x) any "Event of Default" (as such term is defined in the
Simpson Note Agreement) shall have occurred and be continuing for longer
than 21 days after the last day of any applicable grace period provided
in the Simpson Note Agreement and (y) the holders of more than 51% in
principal amount of the Notes at the time outstanding shall have
delivered written notice to the Company that such "Event of Default"
under the Simpson Note Agreement is an Event of Default under this
Agreement; or
(l) the Pledge Agreement shall for any reason cease to create a
perfected security interest in the Pledged Collateral (as defined in the
Pledge Agreement) or such security interest shall for any reason fail to
have priority over any other security interest that may be created under
the New York Uniform Commercial Code; or
(m) the Parent Guaranty shall, for any reason, cease to be
enforceable against the Guarantor or any successor thereto or the Parent
Guaranty shall be revoked or shall, for any reason, cease to be in full
force and effect or the enforceability of the Parent Guaranty shall be
challenged or contested in any judicial proceeding or the Guarantor
shall deny that it has any liability under the Parent Guaranty.
12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION.
(a) If an Event of Default described in paragraph (g) or (h) of
Section 11 (other than an Event of Default described in clause (i) of paragraph
(g) or described in clause (vi) of paragraph (g) by virtue of the fact that such
clause encompasses clause (i) of paragraph (g)) has
20
<PAGE>
occurred, all the Notes then outstanding shall automatically become immediately
due and payable.
(b) If any other Event of Default has occurred and is continuing,
any holder or holders of more than 51% in principal amount of the Notes at the
time outstanding may at any time at its or their option, by notice or notices to
the Company, declare all of the Notes then outstanding to be immediately due and
payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to the Company, declare all of the Notes held
by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. Each of the
Company and the Guarantor acknowledges, and the parties hereto agree, that each
holder of a Note has the right to maintain its investment in the Notes free from
repayment by the Company (except as herein specifically provided for) and that
the provision for payment of a Make-Whole Amount by the Company in the event
that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.
12.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein, in any
Note or in any Collateral Document, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law or otherwise.
12.3. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 66
2/3% in principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
that have become due solely by reason of such declaration, have
21
<PAGE>
been cured or have been waived pursuant to Section 17, and (c) no judgment or
decree has been entered for the payment of any monies due pursuant hereto or to
the Notes. No rescission and annulment under this Section 12.3 will extend to or
affect any subsequent Event of Default or Default or impair any right consequent
thereon.
12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement, by any Collateral Document
or by any Note upon any holder thereof shall be exclusive of any other right,
power or remedy referred to herein or therein or now or hereafter available at
law, in equity, by statute or otherwise. Without limiting the obligations of the
Company under Section 15, the Company will pay to the holder of each Note on
demand such further amount as shall be sufficient to cover all costs and
expenses of such holder incurred in any enforcement or collection under this
Section 12, including, without limitation, reasonable attorneys' fees, expenses
and disbursements.
13. REGISTRATION; EXCHANGE AND RESTRICTIONS ON TRANSFER; SUBSTITUTION OF
NOTES.
13.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2. TRANSFER AND EXCHANGE OF NOTES.
(a) No holder of Notes shall sell, transfer, assign or otherwise
dispose of the Notes held by it, or any interest in the Notes held by it,
without the prior written consent of SIC, which consent may be withheld only if
the prospective purchaser, transferee or assignee, or an Affiliate thereof, is,
in the reasonable judgment of SIC, a business competitor of SIC and its
Restricted Subsidiaries (as such term is defined in the Simpson Note Agreement)
(provided that SIC shall have promptly advised such holder of Notes whether such
proposed purchaser, transferee or assignee is, in the reasonable judgment of
SIC, such a competitor); provided that the consent of SIC to any such sale,
transfer, assignment or other disposition shall not be required if the
prospective purchaser, transferee or assignee is a Qualified Institutional Buyer
(as such term is defined in Rule 144A). Each party hereto acknowledges and
agrees that SIC and STC are intended third party beneficiaries of the provisions
contained in this Section 13.2(a). Notwithstanding anything contained in Section
17.1 to the contrary, this Section 13.2(a) shall not
22
<PAGE>
be amended, terminated, supplemented or modified in any way without the prior
written consent of SIC.
(b) Subject to Section 13.2(a), upon surrender of any Note at the
principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or his attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes (as requested by the holder
thereof) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and shall be substantially in
the form of Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, Exhibit 1-D, Exhibit 1-E,
Exhibit 1-F, Exhibit 1-G or Exhibit 1-H, as applicable. Each such new Note shall
be dated and bear interest from the date to which interest shall have been paid
on the surrendered Note or dated the date of the surrendered Note if no interest
shall have been paid thereon. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge imposed in respect of
any such transfer of Notes. Notes shall not be transferred in denominations of
less than $500,000, provided that if necessary to enable the registration of
transfer by a holder of its entire holding of Notes, one Note may be in a
denomination of less than $500,000. Any permitted transferee, by its acceptance
of a Note registered in its name (or the name of its nominee), shall be deemed
to have made the representations set forth in Section 6.2 and Section 6.3 and to
have become a party to the Intercreditor Agreement; provided that the Company
shall not be required to effect such transfer if the Company is legally unable
to deliver the certificate described in the last paragraph of Section 6.2.
13.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of any
Note (which evidence shall be, in the case of an Institutional Investor, notice
from such Institutional Investor of such ownership and such loss, theft,
destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note with a minimum net worth of at least the greater of (i) three times
the principal amount of the Notes owned by such holder and (ii)
$50,000,000, such Person's own unsecured agreement of indemnity shall be
deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
23
<PAGE>
14. PAYMENTS ON NOTES.
14.1. PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall be made
in the State of New York at the principal corporate trust office of the Paying
Agent in such jurisdiction. The Paying Agent may at any time, by notice to each
holder of a Note, change the place of payment of the Notes so long as such place
of payment shall be either the principal office of the Paying Agent in such
jurisdiction or the principal office of a bank or trust company in such
jurisdiction.
14.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note,
and notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company, through the Paying Agent, will pay all sums becoming due
on such Note for principal, Make-Whole Amount, if any, and interest by the
method and at the address specified for such purpose below your name in Schedule
A, or by such other method or at such other address as you shall have from time
to time specified to the Company and the Paying Agent in writing for such
purpose, without the presentation or surrender of such Note or the making of any
notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
any Note, you shall surrender such Note for cancellation, reasonably promptly
after any such request, to the Company at its principal executive office or at
the place of payment most recently designated by the Paying Agent pursuant to
Section 14.1. Prior to any sale or other disposition of any Note held by you or
your nominee, you will, at your election, either endorse thereon the amount of
principal paid thereon and the last date to which interest has been paid thereon
or surrender such Note to the Company in exchange for a new Note or Notes
pursuant to Section 13.2. The Company will afford the benefits of this Section
14.2 to any successor Collateral Agent and to any Institutional Investor that is
the direct or indirect transferee of any Note purchased by you under this
Agreement and that has made the same agreement relating to such Note as you have
made in this Section 14.2.
15. EXPENSES, ETC.
15.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of the special counsel referred to in Section 4.4 and, if
reasonably required and with prior notice to the Company, local or other
counsel) incurred by you, the Collateral Agent and each holder of a Note in
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement, the Collateral Documents or
the Notes (whether or not such amendment, waiver or consent becomes effective),
including, without limitation: (a) the costs and expenses incurred in enforcing
or defending (or determining whether or how to enforce or defend) any rights
under this Agreement, the Collateral Documents or the Notes or in responding to
any subpoena or other legal process or informal investigative demand issued in
connection with this Agreement, the Collateral Documents or the Notes, or by
reason of being a
24
<PAGE>
holder of any Note, and (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy of the
Guarantor or the Company or in connection with any work-out or restructuring of
the transactions contemplated hereby, by the Collateral Documents and by the
Notes. The Company will pay, and will save you and each other holder of a Note
harmless from, all claims in respect of any fees, costs or expenses if any, of
brokers and finders (other than those retained by you).
15.2. SURVIVAL.
The obligations of the Company under this Section 15 will survive
the payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement, the Collateral Documents or the Notes, and the
termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein and in the
Collateral Documents, and in any amendment hereto or thereto, shall survive the
execution and delivery of this Agreement, the Collateral Documents and the
Notes, the purchase or transfer by you of any Note or portion thereof or
interest therein and the payment of any Note, and may be relied upon by any
subsequent holder of a Note, regardless of any investigation made at any time by
or on behalf of you or any other holder of a Note. All statements contained in
any certificate or other instrument delivered by or on behalf of the Guarantor
or the Company pursuant to this Agreement shall be deemed representations and
warranties of the Guarantor or the Company, as the case may be, under this
Agreement. Subject to the preceding sentence, this Agreement, the Notes and the
Collateral Documents embody the entire agreement and understanding among you,
the Guarantor and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1. REQUIREMENTS.
Subject to the last sentence of Section 13.2(a), this Agreement
and the Notes may be amended, and the observance of any term hereof or of the
Notes may be waived (either retroactively or prospectively), with (and only
with) the written consent of the Guarantor, the Company and holders of 51% of
the principal amount of the Notes then outstanding (exclusive of Notes then
owned by the Company or any of its Affiliates), except that (a) no amendment or
waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any
defined term (as it is used therein), will be effective as to you unless
consented to by you in writing, and (b) no such amendment or waiver may, without
the written consent of the holder of each Note at the time outstanding affected
thereby, (i) subject to the provisions of Section 12 relating to acceleration or
rescission, change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage
of the principal amount of the Notes the holders of which are required to
consent to any such amendment or waiver, or (iii) amend any of Sections 8,
11(a), 11(b), 12, 17, 20 and 22.
25
<PAGE>
17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Guarantor and the Company will not directly or
indirectly pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or grant any security, to
any holder of Notes as consideration for or as an inducement to the entering
into by any holder of Notes or any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
17.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section
17 applies equally to all holders of Notes and is binding upon them and upon
each future holder of any Note and upon the Guarantor and the Company without
regard to whether such Note has been marked to indicate such amendment or
waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the
Guarantor or the Company and the holder of any Note nor any delay in exercising
any rights hereunder or under any Note shall operate as a waiver of any rights
of any holder of such Note. As used herein, the term "THIS AGREEMENT" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
17.4. NOTES HELD BY COMPANY, GUARANTOR, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Guarantor, the Company or
any of their Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail
26
<PAGE>
with return receipt requested (postage prepaid), or (c) by a recognized
overnight delivery service (with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other
address as you or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company or to the Guarantor, at the address set
forth on the first page of this Agreement to the attention of the Chief
Financial Officer, or at such other address as the Company or the
Guarantor, as the case may be, shall have specified to the holder of
each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. Each of
the Guarantor and the Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by you in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. This Section 19 shall not prohibit the
Guarantor or the Company or any other holder of Notes from contesting any such
reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION"
means information delivered to you by or on behalf of the Guarantor, the
Company, STC or SIC in connection with the transactions contemplated by or
otherwise pursuant to this Agreement or the Simpson Note Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by you as being confidential information of
the Guarantor, the Company, STC or SIC, provided that such term does not include
information that (a) was publicly known or otherwise known to you prior to the
time of such disclosure, (b) subsequently becomes publicly known through no act
or omission by you or any person acting on your behalf, (c) otherwise becomes
known to you other than through disclosure by the Guarantor, the Company, STC or
SIC, as the case may be, or (d) constitutes financial statements delivered to
you under Section 7.1 that are otherwise publicly available. You will maintain
the confidentiality of such Confidential Information in accordance with
procedures adopted by you
27
<PAGE>
in good faith to protect confidential information of third parties delivered to
you, provided that you may deliver or disclose Confidential Information to (i)
your directors, trustees, officers, employees, agents, attorneys and affiliates
(to the extent such disclosure reasonably relates to the administration of the
investment represented by your Notes), (ii) your financial advisors and other
professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section 20, (iii)
any other holder of any Note, (iv) any Institutional Investor to which you sell
or offer to sell such Note or any part thereof or any participation therein (if
such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (v) any Person
from which you offer to purchase any security of the Guarantor or the Company
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (vi) any federal
or state regulatory authority having jurisdiction over you, (vii) the National
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with any
law, rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to which
you are a party or (z) if an Event of Default has occurred and is continuing, to
the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. In accordance with the
provisions of this Section 20, you agree that, if you have an Affiliate that is
a business competitor of SIC or STC, you shall not furnish any such Affiliate
with, or provide access to any such Affiliate to, any Confidential Information.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 20 as
though it were a party to this Agreement. On reasonable request by the
Guarantor, the Company, SIC or STC in connection with the delivery to any holder
of a Note of information required to be delivered to such holder under this
Agreement or requested by such holder (other than a holder that is a party to
this Agreement or its nominee), such holder will enter into an agreement with
the Company, the Guarantor, STC or SIC, as the case may be, embodying the
provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates
as the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
21), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
28
<PAGE>
22. PARENT GUARANTY; PAYMENT OF EXPENSES, ETC.
(a) The Guarantor hereby unconditionally and irrevocably
guarantees to the holders of the Notes, acting through the Collateral Agent for
their ratable benefit, as primary obligor and not merely as a surety, subject to
the limitations contained in Section 22(c) below, the prompt payment when due of
all sums stated in this Agreement, the Collateral Documents or in the Notes (all
of said instruments being herein collectively called the "OPERATIVE
Instruments") to be payable (including, without limitation, amounts that would
become due but for the operation of the automatic stay under section 362(a) of
the Bankruptcy Code, 11 U.S.C. ss. 362(a)) including, without limitation, the
principal of, the interest, any Make-Whole Amount, any additional amounts and
any premium on, the Notes (including, without limitation, increases in the
amount of principal and interest rates), and all other obligations and
liabilities of the Company under the Operative Instruments, in accordance with
the provisions of the Operative Instruments, whether at maturity, or as a
prepayment or by acceleration or otherwise, all at the time and place and in the
amount and manner prescribed in, and otherwise in accordance with, the
applicable Operative Instrument and all other obligations, indebtedness or
liabilities now or hereafter incurred by the Company to the Collateral Agent or
to the holder of any of the Notes pursuant to any waiver, modification,
amendment or change of any provision of any of the Operative Instruments in
accordance with the terms of the applicable waiver, modification, amendment or
change.
(b) This is an unconditional and absolute guaranty of payment and
not a guaranty of collection, and if for any reason any amount payable under or
in connection with any Operative Instrument shall not be paid in full when the
same becomes due and payable, the Guarantor undertakes to pay forthwith, subject
to the limitations set forth in Section 22(c), each such amount to the person
entitled to receive the same, free and clear of any defense or set-off or
counterclaim which the Company or the Guarantor or any other person may have or
assert and regardless of whether or not the holder of any of the Notes or anyone
acting on behalf of such holder shall have instituted any suit, action or
proceeding or exhausted its remedies or taken any steps to enforce any rights
against the Company or any other person to compel any such performance or
observance or to collect all or part of any such amount, either pursuant to the
provisions of any Operative Instrument or at law or in equity, and regardless of
any other condition or contingency.
(c) Notwithstanding anything in Sections 22(a) and (b) to the
contrary, the Guarantor's maximum liability pursuant to the Parent Guaranty
shall not exceed the amount which is equal to (i) 10.0% of the aggregate
principal amount of the Notes outstanding at the time demand for payment under
the Parent Guaranty is first made by the Collateral Agent or any holder of Notes
in accordance with the terms of the Collateral Agency Agreement, plus (ii) the
costs and expenses set forth in Section 22(j). The limitation contained in this
Section 22(c) shall not affect: (A) the ability of the Collateral Agent and the
holders of the Notes to make multiple demands for payment under the Parent
Guaranty so long as the maximum amount of the Parent Guaranty (as limited by
this Section 22(c)) has not then been utilized, or (B) the Guarantor's direct
obligations pursuant to Section 22(j).
(d) The Guarantor hereby unconditionally: (i) waives any
requirement that, in the event of any default by the Company, the Collateral
Agent or the holder of any Note first
29
<PAGE>
make demand upon, or seek to enforce remedies against, the Company (under the
Agreement, the Notes, the Collateral Documents or otherwise) or any other person
before demanding payment under or seeking to enforce the Parent Guaranty; (ii)
covenants that the Parent Guaranty will not be discharged except by complete
performance of all obligations contained in every Operative Instrument or as
otherwise expressly agreed to in writing by each holder of the Notes, subject to
the limitations set forth in Section 22(c); (iii) agrees that the Parent
Guaranty shall remain in full force and effect without regard to, and shall not
be released, affected or impaired, without limitation, by, any invalidity,
irregularity or unenforceability in whole or in part of any Operative Instrument
or any limitation on the liability of the Company thereunder, or any
impossibility or illegality of performance on the part of the Company under any
of the Operative Instruments or any limitation on the method or terms of payment
thereunder which may now or hereafter be caused or imposed in any manner
whatsoever and (iv) waives diligence, presentment and protest with respect to,
and any notice of default in the payment of any amount at any time payable by
the Company under or in connection with, any Operative Instrument. The Guarantor
acknowledges its own responsibility to keep itself informed of the financial
condition of the Company, STC and SIC, and of all other circumstances bearing
upon the risk of nonpayment of such obligations or any part thereof, that
diligent inquiry would reveal. The Guarantor agrees that no holder of any of the
Notes shall have any duty to advise the Guarantor of information regarding such
condition or any such circumstance.
(e) The obligations, covenants, agreements and duties of the
Guarantor under the Parent Guaranty shall not be released, affected or impaired
by any assignment or transfer, in whole or in part, of any Operative Instrument,
although made without notice to or the consent of the Guarantor, or any waiver
or consent by the Collateral Agent or the holder of any Note to the amendment or
modification of any provision of the Notes or any of the Operative Instruments,
or by any Person, of the performance or observance by the Company of any of the
agreements, covenants, terms or conditions contained in any Operative
Instrument, or any indulgence in or the extension of the time for payment by the
Company of any amounts payable under or in connection with any Operative
Instrument or of the time for performance by the Company of any other
obligations under or arising out of any Operative Instrument or the extension or
renewal thereof, or the modification or amendment (whether material or
otherwise) of any duty, agreement or obligation of the Company set forth in any
Operative Instrument, or the voluntary or involuntary liquidation,
administration, sale or other disposition of all or substantially all of the
assets of the Company or the Guarantor, or any receivership, insolvency,
bankruptcy, reorganization, or other similar proceeding, affecting the Company
or the Guarantor or any assets of the Company or the Guarantor, or the release
of any property from any security for any Note, or the impairment of any such
property or security, or the release or discharge of the Company or the
Guarantor from the performance or observance of any agreement, covenant, term or
condition contained in any Operative Instrument by operation of law, or the
merger or consolidation of the Company or the Guarantor, or any other cause,
whether similar or dissimilar to the foregoing. The Guarantor agrees that no
holder of any of the Notes shall be under any obligation to marshall any assets
in favor of the Guarantor or otherwise in connection with obtaining payment of
any or all of the obligations under the Operative Instruments from any Person or
source.
(f) If the Guarantor shall be required to make any payments on
account of any Note or otherwise in accordance with any Operative Instrument and
pursuant to the Parent
30
<PAGE>
Guaranty, the Guarantor shall (subject to the prior indefeasible payment in full
in cash of all principal, interest and Make-Whole Amount, if any, due on all the
Notes and all amounts payable under the Operative Instruments) be subrogated to
the rights of the holder of such Note to receive payments or distributions of
assets of the Company payable or distributable to such holder until the
Guarantor shall have been repaid in full.
(g) If at any time any payment received by the Collateral Agent
or any holder of any of the Notes under any Operative Instrument is required to
be repaid by the Collateral Agent or such holder, the obligations, covenants,
agreements and duties of the Guarantor under the Parent Guaranty shall be
reinstated as if such payment had not been made.
(h) The obligations of the Guarantor under the Parent Guaranty
are continuing obligations and a fresh cause of action shall arise in respect of
each default hereunder. No failure on the part of the holder of any of the Notes
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law or by any of the Operative Instruments. The Parent
Guaranty is a continuing guaranty and shall (i) subject to the limitations set
forth in Section 22(c), remain in full force and effect until indefeasible
payment in full in cash of all the obligations under the Operative Instruments
and all other amounts payable under this Parent Guaranty, (ii) be binding upon
the Guarantor, its successors and assigns including, without limitation, a
receiver, trustee or debtor-in-possession of or for the Guarantor, and (iii)
inure to the benefit of and be enforceable by the Collateral Agent and each
holder of any of the Notes and their respective successors, transferees and
assigns. Without limiting the generality of the foregoing clause (iii), the
holder of any of the Notes may assign or otherwise transfer any Note to any
other Person, and such other Person shall thereupon become vested with all the
rights in respect thereof granted to such holder herein or otherwise with
respect to such Note so transferred or assigned.
(i) The Parent Guaranty constitutes a general unsecured
obligation of the Guarantor and ranks pari passu with all other unsecured senior
indebtedness of the Guarantor, and is senior in right of payment and rights upon
liquidation with respect to any debt or other obligation of the Guarantor that
is expressly or by applicable law subordinate to the Parent Guaranty.
(j) In addition to performance of its obligations under the
Parent Guaranty, (i) the Guarantor will, promptly after demand, pay to the
Collateral Agent and to each holder of any of the Notes the costs and expenses
incurred in connection with enforcing the rights of the Collateral Agent and
such holder against the Guarantor following any default in the due performance
or observance of any agreement, covenant or condition on the part of the Company
to be performed or observed under any of the Operative Instruments, including,
without limitation, the fees and expenses of counsel and including any fees and
expenses incurred in any insolvency or bankruptcy case or proceeding; and (ii)
the Guarantor will, promptly after demand, pay all costs and expenses referred
to in Section 15.1 of this Agreement (other than any such costs and expenses
which are also payable pursuant to Section 15.1 of the Simpson Note Agreement,
provided that the limitation in this parenthetical shall not affect the
Guarantor's obligations to pay such costs and expenses to the extent such costs
and expenses are covered by
31
<PAGE>
the Parent Guaranty and Section 22(c)(i)) to the extent such costs and expenses
have not been promptly paid by the Company.
(k) The Guarantor hereby certifies and warrants that all acts,
conditions, and things required to be done and performed and to have happened
precedent to the execution, delivery and performance of its obligations under
this Agreement, and to constitute the same the legal, valid, and binding
obligation of the Guarantor enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy or similar laws, have been done and
performed and have happened in due and strict compliance with all applicable
laws.
23. MISCELLANEOUS.
23.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by
or on behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.
23.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
23.3. SEVERABILITY.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
23.4. CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
23.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart
32
<PAGE>
may consist of a number of copies hereof, each signed by less than all, but
together signed by all, of the parties hereto.
23.6. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of New York excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
[Remainder of page intentionally Left blank.]
33
<PAGE>
If you are in agreement with the foregoing, please sign the form
of agreement on the accompanying counterpart of this Agreement and return it to
the Guarantor, whereupon the foregoing shall become a binding agreement among
you, the Guarantor and the Company.
Very truly yours,
L-P SPV2, LLC
By /s/ Curtis M. Stevens
Name: Curtis M. Stevens
Title: Treasurer
LOUISIANA-PACIFIC CORPORATION
By /s/ Curtis M. Stevens
Name: Curtis M. Stevens
Title: Vice President, Treasurer and
Chief Financial Officer
S-1
<PAGE>
SCHEDULE B
----------
DEFINED TERMS
-------------
As used herein, the following terms have the respective meanings
set forth below or set forth in the Section hereof following such term:
"AFFILIATE" means, at any time, and with respect to any Person,
any other Person that at such time: (i) directly or indirectly through one or
more intermediaries Controls, or is Controlled by, or is under common Control
with, such first Person, (ii) beneficially owns or holds, directly or
indirectly, 10% or more of any class of voting or equity interests of such first
Person, (iii) is a corporation of which 10% or more of the voting stock is
beneficially owned or held, in the aggregate, directly or indirectly, by the
Guarantor, or (iv) any senior officer or director of such first Person. As used
in this definition, "CONTROL" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. Unless the context otherwise clearly requires, any reference to an
"Affiliate" is a reference to an Affiliate of the Guarantor.
"BUSINESS DAY" means (i) for the purposes of Section 8.6 only,
any day other than a Saturday, a Sunday or a day on which commercial banks in
New York City are required or authorized to be closed, and (ii) for the purposes
of any other provision of this Agreement, any day other than a Saturday, a
Sunday or a day on which commercial banks in Seattle, Washington, Portland,
Oregon or New York, New York are required or authorized to be closed.
"CAPITALIZED LEASE" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder from time to
time.
"COLLATERAL AGENCY AGREEMENT" means the Collateral Agency and
Paying Agency Agreement dated as of even date herewith among the Company, the
Collateral Agent, you and each Other Purchaser substantially in the form of
Exhibit A to this Agreement, as the same may be amended from time to time.
"COLLATERAL AGENT" means The Bank of New York, acting in its
capacity as collateral agent under the Collateral Agency Agreement, together
with its successors and assigns.
"COLLATERAL DOCUMENTS" means the Pledge Agreement and the
Collateral Agency Agreement.
"COMPANY" means L-P SPV2, LLC, a Delaware limited liability
company.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
Schedule B-1
<PAGE>
"DEFAULT" means an event or condition the occurrence or existence
of which would, with the lapse of time or the giving of notice or both, become
an Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of
(i) 2.0% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 2.0% over the rate of interest publicly announced
by Bank of America National Trust and Savings Association in San Francisco,
California as its "base" or "prime" rate.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Guarantor, the Company
or any other Subsidiary conducts all or any part of its business,
or which asserts jurisdiction over any properties of the
Guarantor, the Company or any other Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTEE" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working capital
or other balance sheet condition or any income statement condition of
any other Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
Schedule B-2
<PAGE>
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guarantee, the indebtedness or other obligations that are the subject of
such Guarantee shall be assumed to be direct obligations of such obligor.
"GUARANTOR" means Louisiana-Pacific Corporation, a Delaware
corporation.
"HOLDER" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company pursuant
to Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the
ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement
with respect to any such property);
(c) all liabilities appearing on its balance sheet in accordance
with GAAP in respect of Capitalized Leases;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money); and
(f) any Guarantee of such Person with respect to liabilities of a
type described in any of clauses (a) through (e) hereof.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (f) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 5.0% of the aggregate principal
amount of any Series of the
Schedule B-3
<PAGE>
Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"INVESTMENT COMPANY ACT" means the Investment Company Act of
1940, as amended, together with the rules and regulations promulgated
thereunder.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capitalized Lease,
upon or with respect to any property or asset of such Person (including in the
case of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"L-P REDWOOD" means L-P Redwood, LLC, a Delaware limited
liability company and a Wholly-Owned Subsidiary of the Guarantor.
"LP TIMBERLANDS PURCHASE AGREEMENT" means the Purchase Agreement
dated as of May 1, 1998 among the Guarantor, L-P Redwood, Louisiana-Pacific
Samoa, Inc., an Oregon corporation, LPS Corporation, an Oregon corporation, SIC
and STC.
"MAKE-WHOLE AMOUNT" is defined in Section 8.6.
"MATERIAL" means material in relation to the business,
operations, affairs, financial condition, assets, properties or prospects of the
Guarantor and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or properties of
the Guarantor and its Subsidiaries taken as a whole, or (b) the ability of the
Company to perform its obligations under this Agreement, the Collateral
Documents and the Notes, (c) the ability of the Guarantor to perform its
obligations under this Agreement, or (d) the validity or enforceability of this
Agreement, the Collateral Documents or the Notes.
"MEMORANDUM" is defined in Section 5.3.
"MOST RECENT ANNUAL REPORT" is defined in Section 5.5.
"MOST RECENT QUARTERLY REPORT" is defined in Section 5.5.
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Guarantor or the Company, as the case may
be, whose responsibilities extend to the subject matter of such certificate.
"OTHER AGREEMENTS" is defined in Section 2.
Schedule B-4
<PAGE>
"PAYING AGENT" means The Bank of New York, acting in its capacity
as paying agent under the Collateral Agency Agreement, together with its
successors and assigns.
"PARENT GUARANTY" means the obligations of the Guarantor pursuant
to Sections 22(a) and (b).
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Guarantor or any ERISA
Affiliate or with respect to which the Guarantor or any ERISA Affiliate may have
any liability.
"PLEDGE AGREEMENT" means the Pledge Agreement dated as of even
date herewith between the Company and the Collateral Agent substantially in the
form of Exhibit B to this Agreement, as the same may be amended from time to
time.
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any
other officer of the Guarantor or the Company, as applicable, with
responsibility for the administration of the relevant portion of this Agreement.
"RULE 144A" means Rule 144A promulgated by the Securities and
Exchange Commission under the Securities Act, as the same may be amended from
time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Guarantor.
"SIC" means Simpson Investment Company, a Washington corporation.
"SIMPSON GUARANTY" means the Guaranty dated of even date herewith
executed by SIC in favor of L-P Redwood.
Schedule B-5
<PAGE>
"SIMPSON NOTE AGREEMENT" means the Note Agreement dated of even
date herewith among STC, SIC and L-P Redwood.
"SIMPSON NOTE ASSIGNMENT" means that certain Assignment Agreement
dated of even date herewith substantially in the form of Exhibit C to this
Agreement pursuant to which L-P Redwood assigned the Simpson Notes and its
rights under the Simpson Note Agreement and the Simpson Guaranty to the Company.
"SIMPSON NOTE DOCUMENTS" means the Simpson Note Agreement, the
Simpson Guaranty, the Simpson Note Assignment and the Simpson Notes, and any
other related documents.
"SIMPSON NOTES" means the senior notes in the aggregate principal
amount of $353,943,196.00 issued by STC to L-P Redwood pursuant to the Simpson
Note Agreement and assigned to the Company pursuant to the Simpson Note
Assignment.
"STC" means Simpson Timber Company, a Washington corporation and
a wholly-owned subsidiary of SIC.
"SUBSIDIARY" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital thereof is owned
by such Person or one or more of its Subsidiaries or such Person and one or more
of its Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Guarantor.
"TRANSFER" means, with respect to any Person, any transaction in
which such Person sells, conveys, transfers or leases (as lessor) any of its
property.
"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Guarantor and the Guarantor's other Wholly-Owned Subsidiaries at such time.
Schedule B-6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Summary Financial Statements and Notes included in this Form
10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 47,800
<SECURITIES> 385,200
<RECEIVABLES> 160,500
<ALLOWANCES> 0
<INVENTORY> 192,800
<CURRENT-ASSETS> 872,400
<PP&E> 2,254,200
<DEPRECIATION> (1,197,200)
<TOTAL-ASSETS> 2,948,400
<CURRENT-LIABILITIES> 405,500
<BONDS> 598,700
0
0
<COMMON> 117,000
<OTHER-SE> 1,331,400
<TOTAL-LIABILITY-AND-EQUITY> 2,948,400
<SALES> 1,171,500
<TOTAL-REVENUES> 1,171,500
<CGS> 1,002,200
<TOTAL-COSTS> 848,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,800
<INCOME-PRETAX> 302,900
<INCOME-TAX> 126,300
<INCOME-CONTINUING> 178,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178,800
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
</TABLE>
