<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1995
REGISTRATION NO. 33-60563
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
S-3 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
USG CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3275 36-3329400
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification No.)
Classification Code Number)
</TABLE>
125 SOUTH FRANKLIN STREET
CHICAGO, ILLINOIS 60606-4678
(312) 606-4000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
ARTHUR G. LEISTEN, ESQ.
SENIOR VICE PRESIDENT & GENERAL COUNSEL
125 SOUTH FRANKLIN STREET
CHICAGO, ILLINOIS 60606-4678
(312) 606-4000
(Name, address and telephone number of agent for service)
--------------------------
Copies to:
<TABLE>
<S> <C>
FRANCIS J. GERLITS, P.C. SETH A. KAPLAN, ESQ.
KIRKLAND & ELLIS WACHTELL, LIPTON, ROSEN & KATZ
200 EAST RANDOLPH DRIVE 51 WEST 52ND STREET
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10019
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
DATED JULY 24, 1995
PROSPECTUS
[LOGO]
$150,000,000
USG CORPORATION
% SENIOR NOTES DUE 2005
The % Senior Notes due 2005 (the "Notes") of USG Corporation ("USG" or the
"Corporation") will mature on , 2005. Interest on the Notes will be
payable semi-annually on and of each year, beginning
, 1996. The Notes are redeemable at the option of the Corporation, in
whole or in part at any time on or after , 2000 at the redemption
prices set forth herein plus accrued interest.
Upon issuance, the Notes will be senior obligations of the Corporation and will
rank pari passu with the Corporation's bank debt and all other existing and
future senior obligations of the Corporation. See "Description of Notes" and
"Risk Factors -- Holding Company Structure; Relative Priority of Debt Claims."
Such bank debt will be incurred under a new credit agreement (the "New Credit
Agreement") to be entered into by the Corporation and certain banks prior to the
closing of this offering. Borrowings under the New Credit Agreement and,
pursuant to negative pledge clauses, the Notes and substantially all other
public indebtedness of the Corporation will share in security interests in the
capital stock of certain of the Corporation's domestic subsidiaries to be
granted pursuant to a collateral trust arrangement. Upon repayment of such bank
debt and termination of the commitments of the banks to make advances under the
New Credit Agreement, or upon release of the collateral by the banks (which the
banks are required to do if the Corporation reaches Investment Grade Status),
the Notes and such other senior indebtedness will cease to be secured. The Notes
will be effectively subordinated to current and future indebtedness and
liabilities of the Corporation's subsidiaries.
The Corporation has the obligation, subject to certain conditions, to offer to
repurchase all of the Notes at 100% of the principal amount thereof plus accrued
interest to the date of repurchase (i) upon the occurrence of a Change of
Control or (ii) if the Corporation reaches Investment Grade Status, upon the
occurrence of both a Designated Event and a Rating Decline in connection
therewith. See "Description of Notes."
Application will be made to list the Notes on the New York Stock Exchange.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS DISCUSSED UNDER THE
CAPTION "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING THE
PUBLIC(1) DISCOUNT CORPORATION(1)(2)
<S> <C> <C> <C>
Per Note................................. % % %
Total.................................... $ $ $
- -------------------------------------------------------------------------------------
<FN>
(1) Plus accrued interest, if any, from , 1995 to the date of
delivery.
(2) Before deduction of expenses payable by the Corporation estimated to be
$ . See "Underwriting."
</TABLE>
The Notes are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Notes will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of the
Depository Trust Company, on or about , 1995.
SALOMON BROTHERS INC
BT SECURITIES CORPORATION
CITICORP SECURITIES, INC.
CHEMICAL SECURITIES INC.
The date of this Prospectus is , 1995
<PAGE>
Appearing here are five photographs depicting the Corporation's products.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) CONTAINED
ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. THE CLOSING UNDER THE
NEW CREDIT AGREEMENT IS EXPECTED TO OCCUR PRIOR TO THE CLOSING OF THIS OFFERING.
SEE "DESCRIPTION OF NEW CREDIT AGREEMENT." CERTAIN CAPITALIZED TERMS USED IN
THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, REFERENCES TO "USG" AND THE "CORPORATION" MEAN USG
CORPORATION, A DELAWARE CORPORATION, AND ITS SUBSIDIARIES. PROSPECTIVE INVESTORS
ARE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. SEE "RISK FACTORS" FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE NOTES.
THE CORPORATION
OVERVIEW
Through its subsidiaries, USG is a leading manufacturer of building
materials, producing a wide range of products for use in new residential and new
nonresidential construction, repair and remodel, as well as products used in
certain industrial processes. The Corporation's United States Gypsum Company
subsidiary ("U.S. Gypsum") is the largest producer of gypsum wallboard in the
United States and accounted for approximately one-third of total domestic gypsum
wallboard sales in 1994. USG Interiors Inc. ("USG Interiors") is a leading
supplier of interior ceiling grid and tile systems, interior wall systems and
other products used primarily in commercial applications. USG Interiors was the
largest producer of ceiling grid and the second largest producer of ceiling tile
in the United States in 1994, accounting for over one-half and approximately
one-third of total domestic sales of such products, respectively. L&W Supply
Corporation ("L&W Supply"), the Corporation's wholly-owned distribution
subsidiary, is the largest distributor of wallboard and related products in the
U.S. and distributed approximately 22% of U.S. Gypsum's 1994 wallboard sales. In
addition to its United States operations, the Corporation's 76% owned subsidiary
CGC Inc. ("CGC") is the largest manufacturer of gypsum products in eastern
Canada and USG International ("USG International") supplies interior systems and
gypsum products in Europe, Asia Pacific and Latin America. For the twelve months
ended December 31, 1994, the Corporation had net sales of $2,290 million and
generated EBITDA of $325 million. For the three months ended March 31, 1994 and
March 31, 1995, the Corporation had net sales of $506 million and $598 million,
respectively, and generated EBITDA of $66 million and $106 million,
respectively. See "Recent Developments."
The Corporation believes that its leading positions in its core businesses,
low cost structure, quality and breadth of its product lines, emphasis on
customer service and the distribution capabilities of L&W Supply provide
significant competitive advantages. USG's business strategy is to maintain and
enhance its leading positions in North America and expand its presence
internationally. USG is currently implementing this strategy by: (i) improving
its financial position and flexibility through approximately equal application
of free cash flow to debt reduction and capital expenditures, with an objective
of achieving investment grade status; (ii) enhancing its cost position through
process improvements such as increasing line speeds in existing manufacturing
facilities and implementing technology which allows the use of lower cost raw
materials; and (iii) growing its core gypsum and ceilings businesses by, among
other things, expanding its repair and remodel presence, increasing
manufacturing capacity in existing plants, continuing to introduce specialty
product applications, extending its penetration of international markets with
existing products and further leveraging L&W Supply's nationwide distribution
network.
USG's operations are organized into two core businesses. The North American
Gypsum business includes U.S. Gypsum and L&W Supply in the United States, the
gypsum business of CGC in Canada and the Corporation's Mexican gypsum operations
("North American Gypsum"). The Worldwide Ceilings business is composed of USG
Interiors, the international interior systems businesses in Europe, Asia Pacific
and Latin America managed as USG International and the interior systems business
of CGC ("Worldwide Ceilings").
3
<PAGE>
NORTH AMERICAN GYPSUM
U.S. Gypsum is a vertically integrated manufacturer of gypsum and related
products, including "SHEETROCK" brand wallboard, joint compound and industrial
gypsum cements and fillers. In 1994, U.S. Gypsum shipped approximately 7.7
billion square feet of wallboard, a record for the company. The Corporation's
gypsum operations include 41 manufacturing facilities, 14 gypsum quarries and
mines and seven paper plants located throughout North America, making the
Corporation virtually self sufficient in its two key raw materials, gypsum rock
and paper. Because of its vertical integration in key raw materials, technical
expertise and the proximity of plants to major metropolitan areas, the
Corporation believes that its wallboard has the lowest delivered cost of any
competitor in North America.
L&W Supply distributed approximately 9% of all gypsum wallboard sold in the
United States and distributed 22% of U.S. Gypsum's wallboard sales in 1994. L&W
Supply's 148 distribution centers located in 34 states offer a wide range of
building products to construction contractors, including wallboard, drywall
metal, ceiling tile and ceiling grid. L&W Supply is able to provide less than
truckload quantities of materials directly to job sites and place the materials
in areas where work is in progress (including the interior of homes under
construction), thereby reducing contractors' material handling and inventory
requirements.
For the twelve months ended December 31, 1994, North American Gypsum had net
sales of $1,780 million and generated EBITDA of $304 million before allocation
of corporate expenses. For the three months ended March 31, 1994 and March 31,
1995, North American Gypsum had net sales of $388 million and $470 million,
respectively, and generated EBITDA of $61 million and $98 million, respectively,
before allocation of corporate expenses. See "Recent Developments."
WORLDWIDE CEILINGS
USG Interiors manufactures and markets an integrated line of products used
primarily for commercial interiors. Products include ceiling grid, "ACOUSTONE"
and "AURATONE" brand ceiling tile, wall systems, mineral wool insulation and
soundproofing products. USG Interiors accounted for over one-half and
approximately one-third of 1994 total sales of ceiling grid and ceiling tile,
respectively, in the United States, and CGC is the largest producer of ceiling
grid and the second largest marketer of ceiling tile in Canada. The Corporation
believes its leading positions in ceiling grid and tile are attributable to its
emphasis on providing total product solutions through a broad product line as
well as its emphasis on marketing to key decision makers in the design
specification process, such as architects and interior designers. The
Corporation is focused on growing its interiors business through increased
penetration of retail channels and additional international sales. USG
International's net sales in Europe, Asia Pacific and Latin America accounted
for approximately 34% of the Worldwide Ceilings segment's net sales in 1994. For
the twelve months ended December 31, 1994, Worldwide Ceilings had net sales of
$594 million and generated EBITDA of $62 million before allocation of corporate
expenses. For the three months ended March 31, 1994 and March 31, 1995,
Worldwide Ceilings had net sales of $140 million and $149 million, respectively,
and generated EBITDA of $15 million and $18 million, respectively, before
allocation of corporate expenses. See "Recent Developments."
UNITED STATES INDUSTRY TRENDS
Demand for the Corporation's products in the United States reflects activity
in the three major components of the construction industry: new residential
construction (single and multi-family homes), new nonresidential construction
(offices, schools, stores and other institutions) and repair and remodel
activity. In recent years, changes in residential construction activity combined
with growth in the repair and remodel component have partially mitigated the
impact of cyclical demand for overall new construction. New residential
construction has shifted toward more single family housing, which typically
requires twice as much wallboard as a multi-family home, and the average single
family home size has increased by approximately 15% since 1986. In addition, the
repair and remodel component has become an increasing percentage of the
Corporation's business, accounting for approximately 35% of 1994 industry-wide
demand for gypsum wallboard and approximately half of industry-wide demand for
interior systems products.
4
<PAGE>
Largely as a result of these factors, United States industry shipments of gypsum
wallboard were 23.7 billion square feet in 1994, as compared to 21.3 billion in
1986, despite an approximate 19% decline in the number of housing starts from
1.806 million units in 1986 to 1.457 million units in 1994.
The Corporation's principal executive offices are located at 125 South
Franklin Street, Chicago, Illinois 60606. Its telephone number at that address
is 312-606-4000.
RECENT DEVELOPMENTS
On July 21, 1995, the Corporation reported second quarter 1995 net sales of
$615 million and EBITDA of $103 million. These results compare favorably to
second quarter 1994 net sales of $562 million and EBITDA of $87 million.
For the first six months of 1995, net sales and EBITDA amounted to $1,213
million and $209 million, respectively, up from net sales of $1,068 million and
EBITDA of $153 million reported for the first six months of 1994. See "Recent
Developments."
USE OF PROCEEDS
This offering is part of a refinancing which also includes the replacement
of the Corporation's existing bank credit facility with a seven year, $500
million bank revolving credit facility under a new credit agreement (the "New
Credit Agreement"). The Corporation intends to use approximately $192 million of
borrowings under the New Credit Agreement to repay all borrowings currently
outstanding under its existing bank facility. See "Description of New Credit
Agreement." The Corporation intends to use the net proceeds of this offering,
together with approximately $125 million of additional borrowings under the New
Credit Agreement, to redeem all of the Corporation's outstanding 10 1/4% Senior
Notes due 2002 (the "10 1/4% Senior Notes") and to pay call premiums, fees and
expenses associated with the refinancings. In June 1995, the Corporation
redeemed approximately $30 million principal amount of the 10 1/4% Senior Notes
using cash on hand. The Corporation believes that the refinancings will provide
significant benefits, including lowering the Corporation's funding costs,
extending approximately $460 million of debt maturities and simplifying its
capital structure through the elimination of subsidiary guarantees of
Corporation indebtedness. The Notes, along with the obligations under the New
Credit Agreement ("Bank Debt") and substantially all other public indebtedness
of the Corporation, will be secured by first priority security interests in the
capital stock of certain subsidiaries, pursuant to the Collateral Trust
Agreement and related pledge and security agreements. Holders of the Bank Debt
will primarily control the operation of the Collateral Trust. See "Description
of Collateral Trust."
DESCRIPTION OF NOTES
<TABLE>
<S> <C>
Issuer....................................... USG Corporation
Securities Offered........................... $150 million aggregate principal amount of
% Senior Notes due , 2005.
Interest Payment Dates....................... and of each year, commencing
1996.
Maturity Date................................ , 2005.
Optional Redemption.......................... The Notes are redeemable at the option of the
Corporation, on or after , 2000 in
whole or in part, at the redemption prices
set forth herein plus accrued interest to the
date of redemption. See "Description of Notes
-- Optional Redemption."
Sinking Fund................................. None.
Change of Control............................ The Corporation has the obligation, subject
to certain conditions, to offer to repurchase
all of the Notes at 100% of the principal
amount thereof plus
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
accrued interest to the date of repurchase
(i) upon the occurrence of a Change of
Control or (ii) if the Corporation reaches
Investment Grade Status, upon the occurrence
of both a Designated Event and a Rating
Decline in connection therewith. See
"Description of Notes." There can be no
assurance that the Corporation will be able
to fund any such repurchase of the Notes. See
"Description of Notes -- Change of Control."
Principal Covenants.......................... The Indenture will contain certain covenants
which restrict the ability of the Corporation
to pay dividends and make certain other
distributions in respect of its capital stock
and the ability of the Corporation and its
Restricted Subsidiaries to, among other
things, incur additional indebtedness, create
secured debt, enter into or permit sale and
leaseback transactions, sell assets, enter
into transactions with affiliates, merge or
sell all or substantially all of their
assets, and enter into contractual
restrictions on the ability of Restricted
Subsidiaries to pay dividends or make certain
other distributions. If the Corporation
reaches Investment Grade Status, the
foregoing principal covenants will cease to
be operative, except for those covenants that
restrict incurrence of indebtedness, the
creation of secured debt, sale and leaseback
transactions, and, with respect to the
Corporation, mergers and sales of all or
substantially all of its assets. However, all
of these restrictions are subject to a number
of important qualifications. See "Description
of Notes -- Certain Restrictive Covenants."
Ranking and Security......................... Upon issuance, the Notes will be senior
obligations of the Corporation and will rank
pari passu with the Corporation's Bank Debt
and all other existing and future senior
obligations of the Corporation. See
"Description of Notes" and "Risk Factors --
Holding Company Structure; Relative Priority
of Debt Claims." Borrowings under the New
Credit Agreement and, pursuant to negative
pledge clauses, the Notes and substantially
all other public indebtedness of the
Corporation will share in security interests
in the capital stock of certain of the
Corporation's domestic subsidiaries to be
granted pursuant to the Collateral Trust
Agreement.
Holders of the Bank Debt will primarily
control the operation of the Collateral
Trust. The Collateral Trust will be
terminated, and the Notes will become
unsecured, if the Corporation reaches
Investment Grade Status and will also be
terminated if the Bank Debt is repaid and the
commitments of the banks to make advances
under the New Credit Agreement
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
have terminated, or the collateral is
otherwise released by the holders of the Bank
Debt. See "Description of Collateral Trust."
The rights of the Corporation and its
creditors, including holders of the Notes, to
realize upon the assets of any subsidiary of
the Corporation upon the latter's liquidation
or reorganization will be subject to the
prior claims of such subsidiary's creditors,
except to the extent that the Corporation
itself may be a creditor with enforceable
claims against such subsidiary. Therefore,
the Notes will be effectively subordinated to
existing and future liabilities of the
Corporation's subsidiaries.
On a pro forma basis, as of March 31, 1995,
assuming consummation of the transactions
described under "Use of Proceeds," the
Corporation and its subsidiaries would have
had $1,027 million total principal amount of
debt (before unamortized reorganization
discount) on a consolidated basis and
subsidiaries of the Corporation would have
been directly liable for $151 million
principal amount of such debt.
Use of Proceeds.............................. Proceeds from the sale of the Notes will be
used, along with borrowings under the New
Credit Agreement, to redeem all of the
currently outstanding 10 1/4% Senior Notes
and to pay applicable call premiums, fees and
expenses. See "Use of Proceeds."
Risk Factors................................. An investment in the Notes involves a
significant degree of risk. See "Risk
Factors."
</TABLE>
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
(Dollars in millions, except gypsum wallboard prices)
The following table presents summary historical financial data and certain
other information of the Corporation. Due to the Restructuring, as defined in
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," and implementation of fresh start accounting, financial statements
for periods subsequent to May 6, 1993 are not comparable to financial statements
for periods prior to that date. Accordingly, a vertical line has been added to
separate such information. The information in the table should be read in
conjunction with "Selected Consolidated Financial Data" "Management's Discussion
and Analysis of Results of Operations and Financial Condition," and the
Corporation's Consolidated Financial Statements and notes thereto, all of which
are included elsewhere in this Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MAY 7 JANUARY 1 YEAR
MARCH 31, YEAR ENDED THROUGH THROUGH ENDED
---------------------- DECEMBER 31, DECEMBER 31, MAY 6, DECEMBER
1995 1994 1994 1993 1993 (a) 31, 1992
---------- --------- ------------ ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales.................................. $ 598 $ 506 $ 2,290 $1,325 $ 591 $1,777
Cost of products sold...................... 446 396 1,773 1,062 482 1,460
---------- --------- ------------ ------------ --------- --------
Gross profit............................... 152 110 517 263 109 317
Selling and administrative expenses........ 60 57 244 149 71 218
Amortization of Excess Reorganization
Value..................................... 42 42 169 113 -- --
---------- --------- ------------ ------------ --------- --------
Operating profit........................... 50 11 104 1 38 99
Interest expense........................... 27 37 149 92 86 334
Interest income............................ (2) (3) (10) (4) (2) (12)
Other (income)/expense, net................ -- 1 3 (8) 6 1
Reorganization items (b)................... -- -- -- -- (709) --
---------- --------- ------------ ------------ --------- --------
Earnings/(loss) from continuing operations
before taxes on income, extraordinary
gain/(loss) and changes in accounting
principles................................ 25 (24) (38) (79) 657 (224)
Taxes on income/(income tax benefit)....... 27 10 54 29 17 (33)
Extraordinary gain/(loss), net of taxes.... -- -- -- (21) 944 --
Cumulative effect of accounting changes.... -- -- -- -- (150) --
---------- --------- ------------ ------------ --------- --------
Net earnings/(loss) (c).................... $ (2) $ (34) $ (92) $ (129) $1,434 $ (191)
---------- --------- ------------ ------------ --------- --------
---------- --------- ------------ ------------ --------- --------
BALANCE SHEET DATA (end of the period):
Property, plant and equipment, net......... $ 770 $ 747 $ 755 $ 754 $ 767 $ 800
Total assets............................... 2,040 2,387 2,124 2,163 2,194 1,659
Total debt (d)............................. 1,050 1,439 1,149 1,531 1,556 2,711
Total stockholders' equity/(deficit)....... (2) 51 (8) (134) 4 (1,880)
OTHER INFORMATION:
EBITDA (e)................................. $ 106 $ 66 $ 325 $ 155 $ 63 $ 159
Depreciation, depletion and
amortization (f).......................... 17 18 84 44 22 66
Capital expenditures....................... 24 7 64 29 12 49
Gross margin % (g)......................... 25.4 21.7 22.6 19.8 18.4 17.8
EBITDA margin % (h)........................ 17.7 13.0 14.2 11.7 10.7 8.9
Pro forma cash interest expense (i)........ 22 -- 86 -- -- --
Ratio of EBITDA to pro forma cash interest
expense (i)............................... 4.8x -- 3.8x -- -- --
Ratio of pro forma total debt to
EBITDA (j)................................ -- -- 3.2 -- -- --
Gypsum wallboard shipments: (k)
Total U.S. Industry...................... 6.0 5.7 23.7 14.9 6.7 20.3
U.S. Gypsum.............................. 1.9 1.9 7.7 5.0 2.3 7.2
Capacity utilization %:
Total U.S. Industry...................... 93 92 94 91 83 83
U.S. Gypsum.............................. 96 98 97 96 91 93
Average U.S. Gypsum wallboard price (l).... $ 112.26 $ 89.53 $100.08 $80.58 $75.81 $71.58
<FN>
- ------------------------------
(a) Fresh start accounting adjustments were recorded on May 6, 1993 in
connection with the Restructuring.
(b) Reflects one-time gain from reorganization items, including an $851 million
gain from recording Excess Reorganization Value, partially offset by other
fresh start adjustments, fees and expenses associated with the
Restructuring and a write-off of deferred financing costs associated with
debt incurred in 1988.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
(c) Amortization of Excess Reorganization Value (as defined herein and shown
separately above) and amortization of non-cash reorganization debt discount
(included in interest expense) reduced reported net earnings by $43 million
and $46 million in the three months ended March 31, 1995 and 1994,
respectively, by $190 million in the year ended December 31, 1994 and by
$121 million in the period of May 7 through December 31, 1993.
(d) Reflects the principal amount of total debt. The carrying amounts (net of
unamortized reorganization debt discount) as reflected on the Corporation's
balance sheets were $1,026 million as of March 31, 1995, $1,388 million as
of March 31, 1994, $1,122 million as of December 31, 1994, $1,476 million
as of December 31, 1993 and $1,461 million as of May 6, 1993. Subsequent to
March 31, 1995, the Corporation redeemed approximately $30 million
principal amount of 10 1/4% Senior Notes using cash on hand.
(e) EBITDA represents earnings before interest, taxes, depreciation, depletion,
amortization, reorganization items, extraordinary items and changes in
accounting principles. The Corporation believes EBITDA is helpful in
understanding cash flow generated from operations that is available for
taxes, debt service and capital expenditures. In addition, EBITDA
facilitates the monitoring of covenants related to certain long-term debt.
EBITDA should not be considered by investors as an alternative to net
earnings as an indicator of the Corporation's operating performance or to
cash flows as a measure of its overall liquidity.
(f) Excludes Amortization of Excess Reorganization Value which is shown
separately under "Earnings Statement Data."
(g) Gross profit as a percentage of net sales.
(h) EBITDA as a percentage of net sales.
(i) Pro forma cash interest expense for the three months ended March 31, 1995
and the year ended December 31, 1994 assumes that the transactions
described under "Use of Proceeds" were consummated as of the beginning of
each period. The levels of Bank Debt, the Notes and 10 1/4% Senior Notes
used in the calculation of pro forma cash interest expense were the pro
forma levels of such debt as of March 31, 1995 as shown under
"Capitalization." In addition, pro forma cash interest expense excludes all
non-cash amortization of debt reorganization discount. For these reasons,
pro forma cash interest expense is not comparable to historical interest
expense.
(j) Reflects the principal amount of pro forma total debt of $1,035 million as
of December 31, 1994 as the numerator and EBITDA of $325 million for the
twelve months ended December 31, 1994 as the denominator.
(k) In billions of square feet.
(l) Represents average price per thousand square feet realized by U.S. Gypsum
during the periods shown.
</TABLE>
9
<PAGE>
RISK FACTORS
INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS
THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, PRIOR TO DECIDING WHETHER OR
NOT TO PURCHASE THE NOTES. CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE
DEFINED HAVE THE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROSPECTUS.
SUBSTANTIAL LEVERAGE
The Corporation will remain substantially leveraged upon completion of this
offering. As of March 31, 1995, the Corporation had $1,050 million principal
amount of total debt on a consolidated basis (which had a carrying amount of
$1,026 million on the Corporation's consolidated balance sheet after deducting
unamortized reorganization discount of $24 million) and a deficit in
stockholders' equity of $2 million. As adjusted to reflect consummation of the
transactions described under "Use of Proceeds," the Corporation's total
principal amount of debt on a consolidated basis and deficit in stockholders'
equity as of March 31, 1995 would have been $1,027 million and $5 million,
respectively. The Corporation is expected to have a deficit in stockholders'
equity at least through 1998 when reorganization value in excess of identifiable
assets ("Excess Reorganization Value") will be fully amortized. See "Risk
Factors -- Recent Losses," "Selected Consolidated Financial Data" and
"Capitalization."
The degree to which the Corporation is leveraged will pose risks to holders
of the Notes, including, but not limited to, the following: (i) a portion of the
Corporation's cash flow from operations will be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to the Corporation for its operations; (ii) the Corporation's ability to obtain
additional financing in the future for working capital, capital expenditures,
debt service requirements, acquisitions, general corporate or other purposes
will be restricted; (iii) certain of the Corporation's borrowings are and will
continue to carry variable rates of interest, which could result in higher
interest expense in the event of an increase in interest rates and (iv) the
Corporation may be adversely affected in the event of a downturn in its
business. These and other factors could have an adverse effect on the
marketability, price and future value of the Notes.
CYCLICAL BUSINESS
The Corporation's business is cyclical in nature and sensitive to changes in
general economic conditions, including, in particular, conditions in the housing
and construction-based businesses. These businesses are in turn influenced by a
variety of factors beyond the Corporation's control, including interest rates,
consumer confidence, household formation and general economic conditions. As a
result of this cyclicality, the Corporation has experienced, and in the future
could experience, reduced revenues and margins, which may affect the
Corporation's ability to satisfy its debt service obligations on a timely basis.
The Corporation has experienced a recovery in the businesses in which it
competes beginning in 1992, as evidenced by increases in housing starts and
wallboard pricing and shipments and improvement in sales of other construction
products. However, first quarter 1995 seasonally adjusted housing starts were
down 5% from the average reported for the first quarter of 1994. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- First Quarter Ended March 31, 1995 Compared With First Quarter
Ended March 31, 1994" and "Recent Developments." In addition, recently the
wallboard industry has experienced substantial increases in waste paper prices
which adversely affect operating profit. See "Recent Developments."
ASBESTOS LITIGATION
One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in
asbestos lawsuits alleging property damage (the "Property Damage Cases") and
personal injury (the "Personal Injury Cases"). Virtually all costs of the
Personal Injury Cases are being paid by insurance. However, many of U.S.
Gypsum's insurance carriers are denying coverage for the Property Damage Cases,
although U.S. Gypsum believes that substantial coverage exists and the trial
court and appellate courts in U.S. Gypsum's coverage action (the "Coverage
Action") have so ruled.
In view of the limited insurance funding currently available to U.S. Gypsum
for Property Damage Cases resulting from continued resistance by a number of its
insurers to providing coverage, the effect of the asbestos litigation on the
Corporation will depend upon a variety of factors, including the damages sought
in
10
<PAGE>
Property Damage Cases that reach trial prior to the resolution of the Coverage
Action, U.S. Gypsum's ability to successfully defend or settle such cases, and
the resolution of the Coverage Action. As a result, management is unable to
determine whether an adverse outcome in the asbestos litigation will have a
material adverse effect on the results of operations or the consolidated
financial position of the Corporation. The Corporation's independent public
accountants have also noted this uncertainty in their report with respect to the
financial statements of the Corporation.
RECENT LOSSES
For the year ended December 31, 1994, the Corporation reported a net loss of
$92 million after the amortization of $169 million of Excess Reorganization
Value. Amortization of Excess Reorganization Value is a non-cash item which is
not deductible for federal income tax purposes. See "Index to Consolidated
Financial Statements -- Restructured Company -- Notes to Financial Statements --
Financial Restructuring" for additional information regarding Excess
Reorganization Value. For the three months ended March 31, 1995, the Corporation
reported a net loss of $2 million after the amortization of $42 million of
Excess Reorganization Value. Amortization of Excess Reorganization Value will
continue at the rate of $169 million per year through 1997 and will amount to
approximately $64 million in 1998. Although the Corporation's recent net losses
are the result of non-cash items, there can be no assurance that the Corporation
will have net income in the future.
HOLDING COMPANY STRUCTURE; RELATIVE PRIORITY OF DEBT CLAIMS
The Corporation's operations are conducted through its subsidiaries. The
Corporation's ability to service its indebtedness is largely dependent upon the
receipt of funds from its subsidiaries by way of dividends, interest, loans or
otherwise. The rights of the Corporation and its creditors, including holders of
the Notes, to realize upon the assets of any subsidiary upon the latter's
liquidation or reorganization will be subject to the prior claims of such
subsidiary's creditors, except to the extent that the Corporation itself may be
a creditor with enforceable claims against such subsidiary. Therefore, the Notes
will be effectively subordinated to existing and future liabilities of the
Corporation's subsidiaries.
As of March 31, 1995, the Corporation and its subsidiaries had $1,050
million total principal amount of debt (before unamortized reorganization
discount) on a consolidated basis. As of March 31, 1995, subsidiaries of the
Corporation were directly liable for $151 million principal amount of such debt.
On a pro forma basis, as of March 31, 1995, assuming consummation of the
transactions described under "Use of Proceeds," the Corporation and its
subsidiaries would have had $1,027 million total principal amount of debt
(before unamortized reorganization discount) on a consolidated basis and
subsidiaries of the Corporation would have been directly liable for $151 million
principal amount of such debt. The $151 million of subsidiary debt is in
addition to trade obligations and other liabilities of the subsidiaries to which
the Notes are effectively subordinated.
There are no contractual restrictions on the payment of dividends by the
Corporation's domestic subsidiaries and the Indenture contains restrictions on
the ability of the Corporation to create, permit or suffer to exist any dividend
restrictions affecting Restricted Subsidiaries, subject to certain limited
exceptions. See "Description of Notes -- Certain Covenants -- Limitation on
Dividend and Other Payment Restrictions Affecting Subsidiaries." However,
certain of the Corporation's foreign subsidiaries are subject to loan covenants
or other contractual provisions which could limit their ability to pay dividends
to the Corporation.
NEW CREDIT AGREEMENT AND OTHER RESTRICTIONS
Under the New Credit Agreement, the Corporation will be required to maintain
minimum interest coverage and debt to EBITDA ratios. The New Credit Agreement,
as well as certain other debt instruments to which the Corporation is a party,
also contain certain restrictive covenants and events of default. See
"Description of New Credit Agreement" and "Description of Other Debt
Securities." Among other consequences, such provisions could limit the
Corporation's financial and business flexibility in the future. Furthermore, a
default under such provisions, if not cured or waived, could result in an
acceleration of some or all of the Corporation's indebtedness.
11
<PAGE>
CONTROL OF COLLATERAL TRUST AGREEMENT BY BANK GROUP
The Notes, together with the Bank Debt and approximately $431 million of
public indebtedness of the Corporation, will be secured by a pledge of all of
the shares of the Corporation's major domestic subsidiaries (the "Collateral")
under the Collateral Trust Agreement and certain related pledge and security
agreements. Holders of the Bank Debt will primarily control the operation of the
Collateral Trust. The Collateral Trust will be terminated, and the Notes will
become unsecured, if the Corporation reaches Investment Grade Status and will
also be terminated if the Bank Debt is repaid or the collateral is otherwise
released by the holders of the Bank Debt. In addition, the holders of a majority
of the Bank Debt may instruct the Collateral Trustee to release specified
portions of the Collateral provided that no Actionable Default has occurred and
is continuing. The holders of the Notes will not have any rights to authorize
(or prevent) the release of the Collateral. The Collateral will be released in
any event at such time as the Corporation reaches Investment Grade Status or at
such time as the obligations under the New Credit Agreement have been paid in
full, notwithstanding the fact that there may be outstanding obligations under
the Notes.
The holders of the Bank Debt also will have the exclusive right without
consent of the holders of the Notes to direct the Collateral Trustee to
exercise, or refrain from exercising, any rights or remedies with respect to the
Collateral following receipt of a Notice of Actionable Default. Consequently,
the holders of Notes will have no right to direct the Collateral Trustee to
foreclose upon the Collateral or take or refrain from taking any other actions
with respect thereto even at such times as the value of the Collateral may be
diminishing. See "Description of Collateral Trust Agreement."
CERTAIN TRADING CONSIDERATIONS
There is currently no trading market for the Notes. Although the Corporation
intends to cause the Notes to be authorized for listing on the New York Stock
Exchange, there can be no assurance, even if such authorization is obtained,
that an active market for the Notes will develop or, if any such market
develops, that it will continue to exist or as to the liquidity of such market.
In addition, no assurance can be given that a holder of the Notes will be able
to sell them in the future or that such sale will be at a price equal to or
higher than the initial public offering price. Furthermore, the Notes may trade
at a discount from their initial public offering prices depending upon
prevailing interest rates and other factors.
RECENT DEVELOPMENTS
On July 21,1995, the Corporation reported second quarter 1995 net sales of
$615 million and EBITDA of $103 million. These results compare favorably to
second quarter 1994 net sales of $562 million and EBITDA of $87 million.
For the first six months of 1995, net sales and EBITDA amounted to $1,213
million and $209 million, respectively, up from net sales of $1,068 million and
EBITDA of $153 million reported for the first six months of 1994.
Net losses of $3 million ($0.07 per share) and $17 million ($0.38 per share)
were reported for the second quarter of 1995 and 1994, respectively. However,
non-cash amortizations of excess reorganization value and reorganization debt
discount reduced net earnings by $43 million ($0.95 per share) and $45 million
($1.00 per share) in the respective periods. For the first six months of 1995
and 1994, net losses of $5 million ($0.12 per share) and $51 million ($1.23 per
share) were reported. Comparable amortizations in the six month periods amounted
to $86 million ($1.92 per share) and $91 million ($2.18 per share),
respectively.
12
<PAGE>
The following table presents USG's results of operations by core business
(dollars in millions):
<TABLE>
<CAPTION>
PERIODS ENDED JUNE 30 (UNAUDITED)
-----------------------------------------------------------
NET SALES
-------------------------- EBITDA
---------------------------
THREE
MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
---------- -------------- -------------- ----------
1995 1994 1995 1994 1995 1994 1995 1994
---- ---- ------ ------ ------ ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORE BUSINESS RESULTS:
U.S. Gypsum Company..................... $325 $290 $ 657 $ 559 $ 81 $66 $167 $119
L&W Supply Corporation.................. 191 166 365 305 7 5 11 6
CGC Inc. (gypsum)....................... 27 26 52 50 2 3 5 5
Other subsidiaries...................... 16 22 33 41 5 7 10 12
Eliminations............................ (76) (70) (154) (133) -- (1) -- (1)
---- ---- ------ ------ ------ ----- ---- ----
North American Gypsum................... 483 434 953 822 95 80 193 141
---- ---- ------ ------ ------ ----- ---- ----
USG Interiors, Inc...................... 95 102 190 198 15 14 30 27
USG International....................... 61 48 117 93 1 1 3 2
CGC Inc. (interiors).................... 6 7 14 15 1 1 2 2
Eliminations............................ (9) (9) (19) (18) -- -- -- --
---- ---- ------ ------ ------ ----- ---- ----
Worldwide Ceilings...................... 153 148 302 288 17 16 35 31
---- ---- ------ ------ ------ ----- ---- ----
Corporate............................... -- -- -- -- (9) (8) (19) (18)
Eliminations............................ (21) (20) (42) (42) -- (1) -- (1)
---- ---- ------ ------ ------ ----- ---- ----
Total USG Corporation................... $615 $562 $1,213 $1,068 $103 $87 $209 $153
---- ---- ------ ------ ------ ----- ---- ----
---- ---- ------ ------ ------ ----- ---- ----
</TABLE>
NORTH AMERICAN GYPSUM
Second quarter 1995 net sales of $483 million for USG's North American
Gypsum business represented an increase of $49 million, or 11.3%, while EBITDA
of $95 million improved $15 million, or 18.8%, compared with the second quarter
of 1994.
Results improved for U.S. Gypsum largely due to higher wallboard selling
prices, partially offset by higher unit manufacturing costs and slightly lower
wallboard volume. In addition, sales of non-wallboard products, such as joint
compound and DUROCK, also increased. U.S. Gypsum's average wallboard selling
price was $112.55 per thousand square feet, an increase of 14% compared with the
second quarter of 1994 and virtually unchanged from the first quarter of 1995.
Higher manufacturing costs reflect continuing increases in the cost of purchased
waste paper. Compared to the first quarter of 1995, rising waste paper costs
resulted in an approximate $3.00 per thousand square feet increase in wallboard
unit manufacturing costs, or an aggregate increase of $5.4 million in cost of
products sold. Second quarter 1995 shipments of U.S. Gypsum wallboard totalled
1.801 billion square feet, down 1% from the comparable 1994 period and down 6%
from the first quarter of 1995.
Based on preliminary data issued by the U.S. Bureau of the Census, second
quarter 1995 private and public housing starts (not seasonally adjusted) were up
approximately 36% over the level reported in the first quarter of 1995, but
approximately 13% below second quarter 1994 housing starts. Due to the lagged
effect on demand for wallboard, second quarter 1995 housing starts are expected
to favorably impact third quarter shipments as compared to the second quarter.
However, third quarter 1995 shipments are expected to be down somewhat from the
all-time quarterly record of 2.059 billion square feet posted in the third
quarter of 1994 as a result of the lower level of housing starts in 1995. See
"Risk Factors -- Cyclical Business."
Second quarter sales and EBITDA also improved for L&W Supply, reflecting
record sales of gypsum wallboard and non-gypsum products and gross profit
improvements for virtually all of L&W Supply's product lines.
13
<PAGE>
WORLDWIDE CEILINGS
Net sales for USG's Worldwide Ceilings business rose $5 million, or 3.4%, to
$153 million, while EBITDA of $17 million reflected an increase of $1 million,
or 6.3%, compared with the second quarter of 1994. Excluding results for the
domestic floors division, which was divested in December 1994, Worldwide
Ceilings net sales improved $12 million, or 8.5%, and EBITDA increased $1
million, or 6.3%, versus the second quarter of 1994.
For USG Interiors, net sales in the second quarter of 1995 benefited from
higher prices and favorable demand, while net sales in the prior-year quarter
were boosted by an announced price increase effective in early July 1994.
Consequently, net sales were unchanged quarter-on-quarter (after adjusting for
the divestiture of the floors division). EBITDA for USG Interiors improved
slightly reflecting the higher 1995 selling prices. For USG International, net
sales increased due to greater demand. However, EBITDA for USG International was
unchanged from the second quarter of 1994 primarily due to unfavorable currency
adjustments which offset improved gross profit resulting from the higher level
of net sales.
USE OF PROCEEDS
This offering is part of a refinancing which also includes the replacement
of the Corporation's existing bank credit facility with a seven year, $500
million bank revolving credit facility under the New Credit Agreement. The
Corporation intends to use approximately $192 million of borrowings under the
New Credit Agreement to repay all borrowings currently outstanding under its
existing bank facility. See "Description of New Credit Agreement." The
Corporation intends to use the net proceeds of this offering, together with
approximately $125 million of additional borrowings under the New Credit
Agreement, to redeem all of the Corporation's outstanding 10 1/4% Senior Notes
and to pay call premiums, fees and expenses associated with the refinancings. In
June 1995, the Corporation redeemed approximately $30 million principal amount
of the 10 1/4% Senior Notes using cash on hand. The Corporation believes that
the refinancings will provide significant benefits, including lowering the
Corporation's funding costs, extending approximately $460 million of debt
maturities and simplifying its capital structure through the elimination of
subsidiary guarantees of Corporation indebtedness. The Notes, along with the
Bank Debt and substantially all other public indebtedness of the Corporation,
will be secured by first priority security interests in the capital stock of
certain subsidiaries pursuant to the Collateral Trust Agreement and related
pledge and security agreements. Holders of the Bank Debt will primarily control
the operation of the Collateral Trust. See "Description of Collateral Trust."
The New Credit Agreement will be a seven year, $500 million revolving credit
facility which will mature in 2002. The New Credit Agreement will bear interest
at the London Interbank Offered Rate as determined from time to time ("LIBOR")
plus an applicable spread based on the Corporation's net debt to EBITDA ratio
(as defined) for the preceding four quarters. Based on the Corporation's pro
forma financial results for the twelve month period ending March 31, 1995, the
applicable spread under the New Credit Agreement would have been 0.875%.
Borrowings under the Corporation's existing credit agreement bear interest at a
rate of LIBOR plus 1.875%. The New Credit Agreement will be subject to permanent
commitment reductions totalling $100 million if certain financial tests are not
met in the year 2000. See "Description of New Credit Agreement."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in millions, except gypsum wallboard prices)
The following table presents selected historical consolidated financial
information of the Corporation. Due to the Restructuring and implementation of
fresh start accounting, financial statements for periods subsequent to May 6,
1993 are not comparable to financial statements for periods prior to that date.
Accordingly, a vertical line has been added to separate such information. The
information provided below has not been audited. However, the selected annual
historical consolidated financial information presented below has been derived
from the Consolidated Financial Statements of the Corporation which were
examined by Arthur Andersen LLP, whose report with respect to certain of such
financial statements is incorporated by reference in this Prospectus. The
following financial information should be read in conjunction with "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the Corporation's Consolidated Financial Statements and notes thereto, both of
which are included elsewhere in this Prospectus. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MAY 7 JANUARY 1
MARCH 31, YEAR ENDED THROUGH THROUGH
--------------------- DECEMBER 31, DECEMBER 31, MAY 6,
1995 1994 1994 1993 1993 (A)
--------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales........................ $ 598 $ 506 $ 2,290 $1,325 $ 591
Cost of products sold............ 446 396 1,773 1,062 482
--------- --------- ------------ ------------ ---------
Gross profit..................... 152 110 517 263 109
Selling and administrative
expenses........................ 60 57 244 149 71
Restructuring expenses........... -- -- -- -- --
Amortization of Excess
Reorganization Value............ 42 42 169 113 --
--------- --------- ------------ ------------ ---------
Operating profit................. 50 11 104 1 38
Interest expense................. 27 37 149 92 86
Interest income.................. (2) (3) (10) (4) (2)
Other (income)/expense, net...... -- 1 3 (8) 6
Reorganization items (b)......... -- -- -- -- (709)
Nonrecurring gain................ -- -- -- -- --
--------- --------- ------------ ------------ ---------
Earnings/(loss) from continuing
operations before taxes on
income, extraordinary
gain/(loss) and changes in
accounting principles........... 25 (24) (38) (79) 657
Taxes on income/(income tax
benefit)........................ 27 10 54 29 17
Extraordinary gain/(loss), net of
taxes........................... -- -- -- (21) 944
Cumulative effect of accounting
changes......................... -- -- -- -- (150)
Earnings/(loss) from discontinued
operations...................... -- -- -- -- --
--------- --------- ------------ ------------ ---------
Net earnings/(loss) (c).......... $ (2) $ (34) $ (92) $ (129) $1,434
--------- --------- ------------ ------------ ---------
--------- --------- ------------ ------------ ---------
BALANCE SHEET DATA (end of the
period):
Property, plant and equipment,
net............................. $ 770 $ 747 $ 755 $ 754 $ 767
Total assets..................... 2,040 2,387 2,124 2,163 2,194
Total debt (d)................... 1,050 1,439 1,149 1,531 1,556
Total stockholders'
equity/(deficit)................ (2) 51 (8) (134) 4
OTHER INFORMATION:
EBITDA (e)....................... $ 106 $ 66 $ 325 $ 155 $ 63
Depreciation, depletion and
amortization (f)................ 17 18 84 44 22
Capital expenditures............. 24 7 64 29 12
Gross margin % (g)............... 25.4 21.7 22.6 19.8 18.4
EBITDA margin % (h).............. 17.7 13.0 14.2 11.7 10.7
Pro forma cash interest
expense (i)..................... 22 -- 86 -- --
Ratio of EBITDA to pro forma cash
interest expense (i)............ 4.8x -- 3.8x -- --
Ratio of pro forma total debt to
EBITDA (j)...................... -- -- 3.2 -- --
Ratio of earnings to fixed
charges (k)..................... 1.9 --(l) --(l) --(l) 8.5(m)
Gypsum wallboard shipments: (o)
Total U.S. Industry............ 6.0 5.7 23.7 14.9 6.7
U.S. Gypsum.................... 1.9 1.9 7.7 5.0 2.3
Capacity utilization %:
Total U.S. Industry............ 93 92 94 91 83
U.S. Gypsum.................... 96 98 97 96 91
Average U.S. Gypsum wallboard
price (p)....................... $ 112.26 $89.53 $100.08 $80.58 $75.81
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1992 1991 1990
------ ------ ------
<S> <C> <C> <C>
EARNINGS STATEMENT DATA:
Net sales........................ $1,777 $1,712 $1,915
Cost of products sold............ 1,460 1,385 1,499
------ ------ ------
Gross profit..................... 317 327 416
Selling and administrative
expenses........................ 218 194 203
Restructuring expenses........... -- -- 18
Amortization of Excess
Reorganization Value............ -- -- --
------ ------ ------
Operating profit................. 99 133 195
Interest expense................. 334 333 292
Interest income.................. (12) (11) (8)
Other (income)/expense, net...... 1 5 5
Reorganization items (b)......... -- -- --
Nonrecurring gain................ -- -- (34)
Earnings/(loss) from continuing ------ ------ ------
operations before taxes on
income, extraordinary
gain/(loss) and changes in
accounting principles........... (224) (194) (60)
Taxes on income/(income tax
benefit)........................ (33) (53) (6)
Extraordinary gain/(loss), net of
taxes........................... -- -- --
Cumulative effect of accounting
changes......................... -- -- --
Earnings/(loss) from discontinued
operations...................... -- (20) (36)
------ ------ ------
Net earnings/(loss) (c).......... $ (191) $ (161) $ (90)
------ ------ ------
BALANCE SHEET DATA (end of the ------ ------ ------
period):
Property, plant and equipment,
net............................. $ 800 $ 819 $ 825
Total assets..................... 1,659 1,626 1,675
Total debt (d)................... 2,711 2,660 2,600
Total stockholders'
equity/(deficit)................ (1,880) (1,680) (1,518)
OTHER INFORMATION:
EBITDA (e)....................... $ 159 $ 194 $ 280
Depreciation, depletion and
amortization (f)................ 66 68 76
Capital expenditures............. 49 49 64
Gross margin % (g)............... 17.8 19.1 21.7
EBITDA margin % (h).............. 8.9 11.3 14.6
Pro forma cash interest
expense (i)..................... -- -- --
Ratio of EBITDA to pro forma cash
interest expense (i)............ -- -- --
Ratio of pro forma total debt to
EBITDA (j)...................... -- -- --
Ratio of earnings to fixed
charges (k)..................... --(n) -- --(n)
Gypsum wallboard shipments: (o)
Total U.S. Industry............ 20.3 18.4 20.7
U.S. Gypsum.................... 7.2 6.6 7.2
Capacity utilization %:
Total U.S. Industry............ 83 75 86
U.S. Gypsum.................... 93 88 95
Average U.S. Gypsum wallboard
price (p)....................... $71.58 $72.53 $79.08
<FN>
- ------------------------------
(a) Fresh start accounting adjustments were recorded on May 6, 1993 in
connection with the Restructuring.
(b) Reflects one-time gain from reorganization items, including an $851 million
gain from recording Excess Reorganization Value, partially offset by other
fresh start adjustments, fees and expenses associated with the
Restructuring and a write-off of deferred financing costs associated with
debt incurred in 1988.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
(c) Amortization of Excess Reorganization Value (as defined herein and shown
separately above) and non-cash reorganization debt discount (included in
interest expense) reduced reported net earnings by $43 million and $46
million in the three months ended March 31, 1995 and 1994, respectively, by
$190 million in the year ended December 31, 1994 and by $121 million in the
period of May 7 through December 31, 1993.
(d) Reflects the principal amount of total debt. The carrying amounts (net of
unamortized reorganization debt discount) as reflected on the Corporation's
balance sheets were $1,026 million as of March 31, 1995, $1,388 million as
of March 31, 1994, $1,122 million as of December 31, 1994, $1,476 million
as of December 31, 1993 and $1,461 million as of May 6, 1993. Subsequent to
March 31, 1995, the Corporation redeemed approximately $30 million
principal amount of 10 1/4% Senior Notes using cash on hand.
(e) EBITDA represents earnings before interest, taxes, depreciation, depletion,
amortization, reorganization items, extraordinary items, discontinued
operations and changes in accounting principles. The Corporation believes
EBITDA is helpful in understanding cash flow generated from operations that
is available for taxes, debt service and capital expenditures. In addition,
EBITDA facilitates the monitoring of covenants related to certain long-term
debt. EBITDA should not be considered by investors as an alternative to net
earnings as an indicator of the Corporation's operating performance or to
cash flows as a measure of its overall liquidity.
(f) Excludes Amortization of Excess Reorganization Value which is shown
separately under "Earnings Statement Data."
(g) Gross profit as a percentage of net sales.
(h) EBITDA as a percentage of net sales.
(i) Pro forma cash interest expense for the three months ended March 31, 1995
and the year ended December 31 1994 assumes that the transactions described
under "Use of Proceeds" were consummated as of the beginning of each
period. The levels of Bank Debt, the Notes and 10 1/4% Senior Notes used in
the calculation of pro forma cash interest expense were the pro forma
levels of such debt as of March 31, 1995 as shown under "Capitalization."
In addition, pro forma cash interest expense excludes all non-cash
amortization of debt reorganization discount. For these reasons, pro forma
cash interest expense is not comparable to historical interest expense.
(j) Reflects the principal amount of pro forma total debt of $1,035 million as
of December 31, 1994 as the numerator and EBITDA of $325 million for the
twelve months ended December 31, 1994 as the denominator.
(k) For purposes of computing the ratio of earnings from continuing operations
to fixed charges, earnings from continuing operations are defined as
earnings/(loss) from continuing operations before taxes on income, plus
interest expense, plus, for the years 1990 through 1993, amortization of
capitalized financing costs. Fixed charges are defined as interest expense
plus amortization of capitalized financing costs. The interest factor in
rental expense had an insignificant effect on the ratios.
(l) For the three months ended March 31, 1994, the year ended December 31, 1994
and the period of May 7 through December 31, 1993, earnings from continuing
operations were inadequate to cover fixed charges. The amounts of the
coverage deficiency were $24 million, $38 million and $79 million,
respectively. Included in earnings from continuing operations before taxes
for these periods were non-cash charges for amortization of Excess
Reorganization Value of $42 million, $169 million and $113 million,
respectively.
(m) Earnings from continuing operations for the period of January 1 through May
6, 1993 include a restructuring gain of $709 million. Without this gain,
earnings from continuing operations would have been inadequate to cover
fixed charges by $52 million.
(n) For the years ended December 31, 1992, 1991, and 1990, earnings from
continuing operations were inadequate to cover fixed charges by $224
million, $194 million, and $60 million, respectively.
(o) In billions of square feet.
(p) Represents average price per thousand square feet realized by U.S. Gypsum
during the periods shown.
</TABLE>
16
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Corporation and its subsidiaries as of March 31, 1995 and as adjusted to
give effect to the consummation of the transactions described under "Use of
Proceeds." This table should be read in conjunction with the Consolidated
Financial Statements contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1995
------------------------
HISTORICAL PRO FORMA
----------- -----------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C>
Total Debt:
Bank borrowings........................................................................ $ 192 $ 317
Accounts Receivable Facility........................................................... 80 80
8% Senior Notes due 1996............................................................... 28 28
8% Senior Notes due 1997............................................................... 41 41
9 1/4% Senior Notes due 2001........................................................... 150 150
10 1/4% Senior Notes due 2002.......................................................... 298 --
7 7/8% Sinking Fund Debentures due 2004................................................ 22 22
% Senior Notes due 2005............................................................. -- 150
8 3/4% Sinking Fund Debentures due 2017................................................ 190 190
Industrial revenue bonds and other debt................................................ 49 49
----------- -----------
Total principal amount of debt......................................................... 1,050 1,027
Less unamortized reorganization discount............................................... (24) (23)
----------- -----------
Total carrying amount of debt.......................................................... 1,026 1,004
Stockholders' Equity/(Deficit):
Preferred stock........................................................................ -- --
Common stock........................................................................... 5 5
Capital received in excess of par value................................................ 221 221
Deferred currency translation.......................................................... (5) (5)
Reinvested earnings/(deficit).......................................................... (223) (226)
----------- -----------
Total stockholders' equity/(deficit)................................................. (2) (5)
----------- -----------
Total capitalization............................................................... $ 1,024 $ 999
----------- -----------
----------- -----------
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FIRST QUARTER ENDED MARCH 31, 1995 COMPARED WITH FIRST QUARTER ENDED MARCH 31,
1994
RESULTS OF OPERATIONS
Comparing the first three months of 1995 and 1994, net sales increased $92
million, or 18.2%. Improved sales were reported for both of USG Corporation's
core businesses, North American Gypsum and Worldwide Ceilings, as a result of
strong housing starts in the fourth quarter of 1994, growth in repair and
remodel activity and improving commercial and institutional construction.
Gross profit as a percentage of net sales rose to 25.4% from 21.7% due to
higher selling prices for all major product lines.
Selling and administrative expenses increased $3 million, or 5.3%. However,
as a percentage of net sales, these expenses improved to 10.0% from 11.3%.
Amortization of excess reorganization value, which was established in
connection with the Restructuring and is being amortized over a five-year
period, reduced operating profit by $42 million in each first quarter period.
See "-- Liquidity and Capital Resources."
Because of the continuing amortization of excess reorganization value, USG
reports EBITDA (earnings before interest, taxes, depreciation, depletion and
amortization) to facilitate comparisons of current and historical results.
EBITDA amounted to $106 million in the first three months of 1995, an increase
of $40 million, or 60.6%, versus the corresponding 1994 period. As a percentage
of net sales, EBITDA increased to 17.7% from 13.0%. (Note: EBITDA should not be
considered as an alternative to net earnings as an indicator of operating
performance or to cash flows as a measure of overall liquidity.)
Interest expense in the first three months of 1995 declined $10 million, or
27.0%, compared with the first three months of 1994 primarily reflecting a $389
million net reduction of debt since March 31, 1994.
Income tax expense amounted to $27 million and $10 million for the three
months ended March 31, 1995 and 1994, respectively. The Corporation's income tax
expense is computed based on pre-tax earnings excluding the non-cash
amortization of excess reorganization value, which is not deductible for federal
income tax purposes. Further, under the principles of fresh-start accounting,
the benefits of the domestic net operating loss carryforwards are not reflected
in income tax expense. See "Index to Consolidated Financial Statements --
Restructured Company -- Notes to Financial Statements -- Taxes on Income and
Deferred Income Taxes." For 1995, the Corporation anticipates that its effective
tax rate, excluding amortization of excess reorganization value, will be similar
to its 1994 rate of approximately 41%.
Net losses of $2 million and $34 million were reported in the first three
months of 1995 and 1994, respectively. However, the non-cash amortization of
excess reorganization value and reorganization debt discount (included in
interest expense) reduced net earnings by $43 million, or $0.96 per share, and
$46 million, or $1.17 per share, in the respective quarters.
18
<PAGE>
The following is an analysis of USG's results of operations by core business
(dollars in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------
NET SALES EBITDA
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NORTH AMERICAN GYPSUM:
- -----------------------
U.S. Gypsum Company............................................................... $ 332 $ 269 $ 86 $ 53
L&W Supply Corporation............................................................ 174 139 4 1
CGC Inc. (gypsum)................................................................. 25 24 3 2
Other subsidiaries................................................................ 17 19 5 5
Eliminations...................................................................... (78) (63) -- --
--------- --------- --------- ---
Total North American Gypsum....................................................... $ 470 $ 388 $ 98 $ 61
--------- --------- --------- ---
WORLDWIDE CEILINGS:
- ------------------
USG Interiors, Inc................................................................ $ 95 $ 96 $ 15 $ 13
USG International................................................................. 56 45 2 1
CGC Inc. (interiors).............................................................. 8 8 1 1
Eliminations...................................................................... (10) (9) -- --
--------- --------- --------- ---
Total Worldwide Ceilings.......................................................... $ 149 $ 140 $ 18 $ 15
--------- --------- --------- ---
Corporate......................................................................... -- -- (10) (10)
Eliminations...................................................................... (21) (22) -- --
--------- --------- --------- ---
Total USG Corporation............................................................. $ 598 $ 506 $ 106 $ 66
--------- --------- --------- ---
--------- --------- --------- ---
</TABLE>
NORTH AMERICAN GYPSUM
Net sales of $470 million increased $82 million, or 21.1%, and EBITDA of $98
million increased $37 million, or 60.7%, over the first three months of 1994.
For U.S. Gypsum, improved results were driven by the continuing strong
demand for gypsum wallboard and related products. Despite unfavorable weather
conditions in several parts of the United States, wallboard shipments in the
first quarter of 1995 totalled 1.925 billion square feet, a first quarter record
and an increase of 3% over the prior-year period. U.S. Gypsum's wallboard plants
operated at 96% of capacity in the first three months of 1995 compared to an
industry average of 93%. Realized selling prices for wallboard averaged $112.26
per thousand square feet, up 25% and 5% compared to the first and fourth
quarters of 1994, respectively. However, improved wallboard margins resulting
from the higher selling prices were partially offset by continued increases in
unit manufacturing costs as a result of the rising cost of purchased waste
paper. Compared to the fourth quarter of 1994, rising waste paper costs resulted
in an approximate $2.50 per thousand square feet increase in wallboard unit
manufacturing costs or an aggregate increase of $4.8 million in cost of products
sold. Based on data issued by the U.S. Bureau of the Census, first quarter 1995
seasonally adjusted annual housing starts averaged 1.297 million privately owned
units, down 5% from the average reported for the first quarter of 1994. Due to
the lagged effect on demand for wallboard, first quarter 1995 housing starts
will impact second quarter shipments.
L&W Supply Corporation, USG's building products distribution business,
experienced the highest level of first quarter net sales in its history. This
performance resulted from record sales of gypsum products, which account for
approximately 50% of L&W Supply's total sales, and record sales of non-gypsum
products. Improved results for non-gypsum products were led by drywall metal,
ceiling products and insulation.
Results for CGC Inc.'s gypsum business reflect low levels of new residential
construction in eastern Canada, offset by export opportunities and growth in the
repair and remodel market. Consequently, CGC's net sales and EBITDA improved
slightly compared to the first three months of 1994 due to higher wallboard
selling prices and increased shipments of wallboard to the United States, offset
to a large extent by decreased shipments in eastern Canada.
19
<PAGE>
WORLDWIDE CEILINGS
Net sales of $149 million increased $9 million, or 6.4%, and EBITDA of $18
million increased $3 million, or 20.0%, over the first three months of 1994.
Slightly lower net sales for USG Interiors reflect the divestiture of the
floor division in December 1994. EBITDA for USG Interiors increased 15.4%.
Excluding floor division results in 1994, net sales and EBITDA for USG Interiors
increased 7.2% and 15.4%, respectively. These improvements reflect higher
average selling prices for ceiling tile and grid and record first quarter
ceiling tile shipments largely due to strong retail and export sales.
USG International reported increased sales in all three of its principal
geographic markets: Europe, Latin America and Asia Pacific. Results for ceiling
tile in Europe benefited from records in production volume, cost performance and
net sales.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEARS ENDED DECEMBER 31, 1993 AND
1992
RESULTS OF OPERATIONS
Due to the Restructuring, the Corporation's financial statements effective
May 7, 1993 are not comparable to financial statements for periods prior to that
date. The following information presents 1993 on an annual basis to facilitate a
meaningful year-to-year comparison. See "Index to Consolidated Financial
Statements -- Restructured Company -- Notes to Financial Statements -- Financial
Restructuring" for information on the Restructuring and implementation of fresh
start accounting.
CONSOLIDATED RESULTS (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net sales........................................................................... $ 2,290 $ 1,916 $ 1,777
--------- --------- ---------
Gross profit........................................................................ 517 372 317
% of net sales.................................................................... 22.6% 19.4% 17.8%
Selling and administrative expenses................................................. 244 220 218
% of net sales.................................................................... 10.7% 11.5% 12.3%
Amortization of excess reorganization value......................................... 169 113 --
--------- --------- ---------
Operating profit.................................................................... 104 39 99
--------- --------- ---------
--------- --------- ---------
Calculation of EBITDA:
Operating profit.................................................................. $ 104 $ 39 $ 99
Amortization of excess reorganization value....................................... 169 113 --
Depreciation and depletion........................................................ 53 54 58
Other............................................................................. (1) 12 2
--------- --------- ---------
EBITDA............................................................................ 325 218 159
% of net sales.................................................................. 14.2% 11.4% 8.9%
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1994, improved results in nearly all of the Corporation's businesses led
to increased net sales for the third consecutive year, up $374 million, or
19.5%, over 1993. In 1993, net sales increased $139 million, or 7.8%, over the
1992 level. EBITDA for 1994 increased $107 million, or 49.1%, over the 1993
level, which was up $59 million, or 37.1%, over 1992. Continued improvement in
gypsum wallboard prices and record shipments of gypsum wallboard, joint
compound, ceiling tile and cement board accounted for these results. These
trends reflect continued strength in building materials markets despite rising
interest rates in 1994. Based on information issued by the Bureau of Census,
housing starts in the United States amounted to 1.457 million units in 1994, up
13% over the 1993 level of 1.288 million units. The 1993 level of housing starts
was 7% above the 1992 amount of 1.200 million units. New nonresidential
construction also improved, the second consecutive year of such growth, and
demand from repair and remodel expenditures continued to grow.
20
<PAGE>
In the fourth quarter of 1994, U.S. Gypsum recorded a $30 million pre-tax
charge to cost of products sold ($17 million after-tax) primarily to cover the
cash portion of two asbestos litigation settlements. Approximately two-thirds of
this amount was paid in 1994 with the remainder payable in 1995 and 1996. See
"Index to Consolidated Financial Statements -- Restructured Company -- Notes to
Financial Statements -- Litigation" for information on these settlements.
Despite this charge, gross profit as a percentage of net sales increased to
22.6% in 1994 from 19.4% in 1993 and 17.8% in 1992 reflecting increased gypsum
wallboard prices.
Selling and administrative expenses in 1994 increased $24 million, or 10.9%,
over the prior year largely due to increased expenses related to compensation
and benefits and product and marketing programs. As a percent of net sales,
however, these expenses improved to 10.7% in 1994 compared to 11.5% in 1993 and
12.3% in 1992.
The Corporation began amortizing its excess reorganization value, which was
established in connection with the Restructuring, on May 7, 1993. This non-cash
amortization, which will continue through April 1998, amounted to $169 million
and $113 million in 1994 and 1993, respectively, with no counterpart in 1992.
Consequently, operating profit is not comparable for any of the three years
shown in the table above.
CORE BUSINESS RESULTS (DOLLAR IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------------
NET SALES EBITDA
------------------------------- -------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NORTH AMERICAN GYPSUM:
U.S. Gypsum........................................ $ 1,209 $ 970 $ 871 $ 248 $ 148 $ 101
L&W Supply......................................... 659 528 464 15 7 5
CGC (gypsum)....................................... 110 91 92 15 9 3
Other subsidiaries................................. 90 77 77 28 23 21
Eliminations....................................... (288) (223) (208) (2) -- --
--------- --------- --------- --------- --------- ---------
Total North American Gypsum.......................... 1,780 1,443 1,296 304 187 130
--------- --------- --------- --------- --------- ---------
WORLDWIDE CEILINGS:
USG Interiors...................................... 400 360 354 53 48 47
USG International.................................. 202 185 189 6 4 5
CGC (interiors).................................... 29 30 33 3 4 5
Eliminations....................................... (37) (35) (35) -- -- --
--------- --------- --------- --------- --------- ---------
Total Worldwide Ceilings............................. 594 540 541 62 56 57
--------- --------- --------- --------- --------- ---------
Corporate............................................ -- -- -- (41) (25) (28)
Eliminations......................................... (84) (67) (60) -- -- --
--------- --------- --------- --------- --------- ---------
Total USG Corporation................................ 2,290 1,916 1,777 325 218 159
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
NORTH AMERICAN GYPSUM
Net sales and EBITDA for North American Gypsum continued to increase in
1994. Net sales increased $337 million, or 23.4%, over the 1993 level, which was
up $147 million, or 11.3%, above 1992. EBITDA increased $117 million, or 62.6%,
in 1994 compared with 1993 after increasing $57 million, or 43.8%, from 1992 to
1993. The U.S. Gypsum component of EBITDA for 1994 includes the impact of the
aforementioned $30 million charge associated with asbestos litigation
settlements.
For U.S. Gypsum, continuing improvement in gypsum wallboard prices and
record shipments of gypsum wallboard, joint compound and DUROCK cement board led
to improved sales and profits. In 1994, net sales and EBITDA increased $239
million, or 24.6%, and $100 million, or 67.6%, over the respective 1993 amounts.
Comparing 1993 to 1992, net sales and EBITDA increased $99 million, or 11.4%,
and $47 million, or 46.5%, respectively. Gypsum wallboard prices continued to
rise from the 14-year low experienced in the
21
<PAGE>
first quarter of 1992. For 1994, the average price of wallboard rose 26.6% above
1993, after increasing 10.5% in 1993 from the 1992 average. U.S. Gypsum's
average gypsum wallboard prices per thousand square feet by quarter for 1992
through 1994 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
First Quarter............................................... $ 89.53 $ 74.97 $ 67.77
Second Quarter.............................................. 98.39 77.71 72.20
Third Quarter............................................... 104.65 80.70 73.03
Fourth Quarter.............................................. 106.92 82.46 73.35
--------- --------- ---------
Total Year.............................................. $ 100.08 $ 79.07 $ 71.58
</TABLE>
Shipments of gypsum wallboard in 1994 topped 7.7 billion square feet, the
highest level in the Corporation's history, and increased by 5% over the
previous record of 7.3 billion square feet in 1993. U.S. Gypsum's wallboard
manufacturing plants operated at 97% of capacity in 1994 compared with 94% in
1993.
In 1994, higher costs for purchased waste paper contributed to increased
unit manufacturing cost for gypsum wallboard. U.S. Gypsum's unit manufacturing
cost for wallboard in 1994 increased due to an increase of approximately $4.00
per thousand square feet, or a total increase of $30.8 million in cost of
products sold due to cost increases for purchased waste paper. Unit
manufacturing cost rose 3% in 1993 from the 1992 level primarily due to higher
levels of maintenance expenditures and energy cost.
L&W Supply reported its highest annual sales ever in 1994, up $131 million,
or 24.8%, from 1993. EBITDA for 1994 increased $8 million, or 114.3%, from the
prior year amount. Comparing 1993 to 1992, net sales and EBITDA increased $64
million, or 13.8%, and $2 million, or 40.0%, respectively. These improvements
reflect higher gypsum wallboard selling prices and increased volume, as well as
increased sales of other building materials product lines.
CGC's gypsum division experienced improved volume for gypsum wallboard,
particularly in shipments to the United States, and increased prices for
wallboard, primarily due to increased wallboard demand in North America as a
whole. Net sales in 1994 increased $19 million, or 20.9%, over the prior year,
while EBITDA increased $6 million, or 66.7%, in the same period. As a result of
the strengthened U.S. dollar compared with the Canadian dollar, net sales for
1993 decreased slightly from the 1992 level. EBITDA, however, tripled from 1992
to $9 million in 1993 due to higher selling prices for wallboard. Wallboard
prices in Canada were positively impacted in 1993 by the Canadian government's
ruling that dumping of U.S.-made wallboard had occurred and the resulting
imposition of duties on gypsum wallboard imported into Canada from the United
States at prices below certain levels. This ruling will be in effect until
January 1998.
WORLDWIDE CEILINGS
Net sales and EBITDA for Worldwide Ceilings in 1994 increased $54 million,
or 10.0%, and $6 million, or 10.7%, respectively, over 1993. These improvements
are in contrast to 1992 to 1993 results, when net sales and EBITDA each
decreased $1 million.
USG Interiors experienced record shipments and higher prices for ceiling
tile in 1994, primarily due to recovering nonresidential construction markets,
increased sales to retail markets and increased exports. Sales of ceiling
suspension grid also improved in 1994. Compared to the prior year, 1994 net
sales and EBITDA increased $40 million, or 11.1%, and $5 million, or 10.4%,
respectively. Net sales and EBITDA for 1993 increased $6 million, or 1.7%, and
$1 million, or 2.1%, respectively, above 1992. These results reflect increased
sales to retail markets, which offset a low level of nonresidential construction
in 1993.
USG International's results reflect improved sales in all regions as well as
continued cost improvements in European operations. In 1994, net sales and
EBITDA increased $17 million, or 9.2%, and $2 million, or 50.0%, over the
respective 1993 amounts. Comparing 1993 to 1992, net sales and EBITDA decreased
$4 million, or 2.1%, and $1 million, or 20.0%, respectively. The 1993 results
reflect the combined impact of a European recession and a strengthened U.S.
dollar compared with European currencies.
22
<PAGE>
OTHER EARNINGS INFORMATION
Interest expense continues to decline as a result of the Restructuring and
subsequent debt repayment and refinancing activities. Interest expense amounted
to $149 million in 1994, down $29 million, or 16.3%, from $178 million recorded
in 1993. In 1994, interest expense includes a fourth quarter non-cash pre-tax
charge of $16 million for the write-off of reorganization debt discount
primarily in conjunction with the Corporation's plan to accelerate the payment
of bank term loans issued under the existing credit agreement and $12 million of
amortization of reorganization debt discount. In 1993, interest expense included
$8 million of amortization of reorganization debt discount and $46 million of
interest expense that was forgiven or converted to equity as a result of the
Restructuring. Interest expense decreased $156 million in 1993 from the 1992
amount of $334 million due to the Restructuring.
The Corporation's income tax expense is computed based on pre-tax earnings
excluding the non-cash amortization of excess reorganization value, which is not
deductible for federal income tax purposes. In 1994, income tax expense amounted
to $54 million compared with $46 million in 1993. The Corporation's effective
tax rate for 1994 was negative 142.1%; however, excluding amortization of excess
reorganization value, the Corporation's 1994 effective tax rate was 41.2%. An
income tax benefit of $33 million was recorded in 1992. See "Index to
Consolidated Financial Statements -- Notes to Financial Statements -- Taxes on
Income and Deferred Income Taxes" for both the Restructured and Predecessor
Companies for additional information on income taxes.
A one-time after-tax net charge of $150 million was recorded in the first
quarter of 1993 representing the cumulative impact of the adoption of Statement
of Financial Accounting Standard ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for
Income Taxes." See "Financial Statements and Supplementary Data -- Predecessor
Company -- Notes to Financial Statements -- Taxes on Income and Deferred Income
Taxes and Postretirement Benefits" for information related to these accounting
changes.
A net loss of $92 million was recorded in 1994. However, this loss included
the: (i) non-cash amortization of excess reorganization value of $169 million;
(ii) non-cash amortization of reorganization debt discount of $12 million; (iii)
non-cash after-tax write-off of reorganization debt discount amounting to $9
million primarily associated with the Bank Term Loans; and (iv) after-tax charge
of $17 million associated with asbestos litigation settlements. Together, these
items reduced net earnings by $207 million, or $4.81 per common share. A net
loss of $129 million was recorded in the period of May 7 through December 31,
1993 after amortization of excess reorganization value of $113 million,
amortization of reorganization debt discount of $8 million, and the after-tax
extraordinary loss of $21 million. Net earnings of $1,434 million were recorded
in the period of January 1 through May 6, 1993, reflecting the reorganization
items gain of $709 million and the after-tax extraordinary gain of $944 million.
A net loss of $191 million was recorded in 1992 primarily due to high levels of
interest expense.
LIQUIDITY AND CAPITAL RESOURCES
On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt (the "Restructuring") through implementation of a "prepackaged" plan of
reorganization under the federal bankruptcy laws (the "Prepackaged Plan"). In
accordance with the terms of the Prepackaged Plan, $1.4 billion of debt and
accrued interest was converted into equity, interest expense was significantly
reduced and the maturities of a substantial portion of its remaining debt were
extended. The Corporation accounted for the Restructuring using the principles
of fresh start accounting. See "Index to Consolidated Financial Statements --
Predecessor Company -- Notes to Financial Statements -- Financial Restructuring"
for information on the Restructuring and implementation of fresh start
accounting.
Since May 1993, outstanding debt has been reduced by over $500 million and
all but approximately $100 million of scheduled maturities have been eliminated
until 2001. In addition, upon completion of the refinancing described under "Use
of Proceeds," the Corporation will have approximately $130 million of
23
<PAGE>
undrawn availability under the New Credit Agreement. In the absence of
significant unanticipated cash demands, the Corporation believes that cash
generated by operations and the estimated levels of liquidity available to it
will be sufficient to satisfy its debt service requirements and other capital
requirements.
The Corporation is currently pursuing a strategy of reducing debt and
growing its core gypsum and ceilings businesses through the approximately equal
application of free cash flow between debt reduction and capital expenditures,
with an objective of achieving investment grade status. The Corporation expects
that capital expenditures will exceed $100 million in 1995. Substantial capital
investments underway at North American Gypsum plants include various cost
reduction and capacity expansion projects, including the installation of stock
cleaning equipment to utilize lower grades of recycled paper, continued
implementation of technology which lowers wallboard weight and additional use of
synthetic gypsum at manufacturing facilities at which it is more economical than
natural sources of gypsum rock. Projects to enhance manufacturing efficiency
expected to be completed in 1995 are estimated to increase wallboard capacity by
600 million square feet. In the Worldwide Ceilings business, USG Interiors has
announced a $45 million expansion of its ceiling tile plant in Greenville,
Mississippi, scheduled for completion in 1996. As of March 31, 1995, capital
expenditure commitments for the replacement, modernization and expansion of
operations amounted to $102 million compared with $61 million as of December 31,
1994. The Corporation periodically evaluates possible acquisitions or
combinations involving other businesses related to its current operations but is
not actively pursuing any potential material acquisitions at the present time.
As of March 31, 1995, working capital (current assets less current
liabilities) amounted to $159 million and the ratio of current assets to current
liabilities was 1.38 to 1, versus December 31, 1994 when working capital
amounted to $189 million and the ratio of current assets to current liabilities
was 1.42 to 1. Receivables (net of reserves) increased $22 million, or 8.0%,
versus December 31, 1994, to $296 million, inventories increased $17 million, or
9.8% to $190 million and accounts payable increased $23 million, or 18.9% to
$145 million. These increases primarily reflect normal seasonal fluctuations.
In the fourth quarter of 1994, the Corporation entered into an accounts
receivable facility (the "Receivables Facility") in which USG Funding
Corporation ("USG Funding"), a special purpose subsidiary of the Corporation,
purchases trade receivables (excluding intercompany receivables owed by L&W
Supply) of U.S. Gypsum and USG Interiors as generated. The purchased receivables
are held in a master trust (the "Master Trust") for the benefit of certificate
holders in such trust. Under a supplement to the Master Trust, certificates
representing an ownership interest in the Master Trust of up to $130 million
were issued to Citicorp Securities, Inc. The interest rate on the debt issued
under the Receivables Facility is fixed at approximately 8.9% (including
facility costs) through a long-term interest rate swap. Debt issued under the
facility may be prepaid at any time. Pursuant to the applicable reserve and
eligibility requirements, the maximum amount of debt issuable under the
Receivables Facility as of December 31, 1994 (including $80 million outstanding
at such date) was $103 million. Under the relevant agreements and related
documentation, USG Funding is a separate corporate entity with its own separate
creditors which will be entitled to be satisfied out of USG Funding's assets
prior to distribution of any value to its shareholder. As of March 31, 1995, the
outstanding balance of receivables sold to USG Funding and held under the Master
Trust was $145 million and debt outstanding under the Receivables Facility was
$80 million. Receivables and debt outstanding in connection with the Receivables
Facility remain in receivables and long-term debt, respectively, on the
Corporation's consolidated balance sheet. See "Financial Statements and
Supplementary Data -- Restructured Company -- Notes to Financial Statements --
Accounts Receivable Facility and Indebtedness" notes for more information on
1994 refinancing activities.
In the first three months of 1995, cash and cash equivalents decreased to
$94 million from $197 million primarily due to a net reduction in debt of $99
million. First quarter debt repayments included $91 million of bank term loans,
$41 million of which satisfied the remaining 1994 cash sweep obligation in
accordance with the bank credit agreement as then in effect. The New Credit
Agreement will not contain a cash sweep mechanism. Subsequent to March 31, 1995,
the Corporation called $30 million face amount of 10 1/4% Senior Notes using
cash on hand.
24
<PAGE>
One of the Corporation's subsidiaries, U.S. Gypsum, is a defendant in
asbestos lawsuits alleging both property damage and personal injury. See
"Business -- General Information -- Asbestos Litigation Developments and Index
to Consolidated Financial Statements -- Restructured Company -- Notes to
Financial Statements -- Litigation."
The Corporation and certain of its subsidiaries have been notified by state
and federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. The Corporation believes that neither these matters
nor any other known governmental proceeding regarding environmental matters will
have a material adverse effect upon its earnings or consolidated financial
position.
BUSINESS
INTRODUCTION
OVERVIEW
Through its subsidiaries, USG is a leading manufacturer of building
materials, producing a wide range of products for use in new residential and new
nonresidential construction, repair and remodel, as well as products used in
certain industrial processes. U.S. Gypsum is the largest producer of gypsum
wallboard in the United States and accounted for approximately one-third of
total domestic gypsum wallboard sales in 1994. USG Interiors is a leading
supplier of interior ceiling tile and grid systems, interior wall systems and
other products used primarily in commercial applications. USG Interiors was the
largest producer of ceiling grid and the second largest producer of ceiling tile
in the United States in 1994, accounting for over one-half and approximately
one-third of total domestic sales of such products, respectively. L&W Supply is
the largest distributor of wallboard and related products in the U.S. and in
1994 distributed approximately 22% of U.S. Gypsum's wallboard sales. In addition
to its United States operations, the Corporation's 76% owned subsidiary CGC is
the largest manufacturer of gypsum products in eastern Canada and USG
International supplies interior systems and gypsum wallboard products in Europe,
Asia Pacific and Latin America. For the twelve months ended December 31, 1994,
the Corporation had net sales of $2,290 million and generated EBITDA of $325
million. For the three months ended March 31, 1994 and March 31, 1995, the
Corporation had net sales of $506 million and $598 million, respectively, and
generated EBITDA of $66 million and $106 million, respectively. See "Recent
Developments."
BUSINESS STRATEGY
The Corporation believes that its leading positions in its core businesses,
low cost structure, quality and breadth of its product lines, emphasis on
customer service and the distribution capabilities of L&W Supply provide
significant competitive advantages. USG's business strategy is to maintain and
enhance its leading positions in North America and expand its presence
internationally. USG is currently implementing this strategy by: (i) improving
its financial position and flexibility through approximately equal application
of free cash flow to debt reduction and capital expenditures, with an objective
of achieving investment grade status; (ii) enhancing its cost position through
process improvements such as increasing line speeds in existing manufacturing
facilities and implementing technology that allows the use of lower cost
materials; and (iii) growing its core gypsum and ceiling businesses by, among
other things, expanding its presence in the repair and remodel market,
increasing manufacturing capacity in existing plants, continuing to introduce
specialty product applications, extending its penetration of international
markets with existing products and further leveraging L&W Supply's nationwide
distribution network.
REDUCING DEBT AND IMPROVING FINANCIAL FLEXIBILITY. The Corporation's
present intention is to apply its projected annual free cash flow approximately
equally between debt reduction and capital expenditures with an objective of
reaching investment grade status. In addition, the Corporation has pursued
opportunities to reduce near term principal amortization requirements, either
through debt reduction or refinancings.
ENHANCING ITS COST POSITION. In 1994, the Corporation began an incremental
process improvement and capacity expansion program at strategically located
wallboard plants throughout the United States. This program is expected to lower
its unit manufacturing costs while at the same time increasing the wallboard
25
<PAGE>
manufacturing capacity of U.S. Gypsum's existing plants by approximately 600
million square feet in 1995. Among the cost reduction and capacity expansion
programs being implemented by North American Gypsum are the installment of stock
cleaning equipment to utilize lower grades of recycled paper, continued
implementation of technology which lowers wallboard weight, additional use of
synthetic gypsum at facilities at which it is more economical than natural
sources of gypsum and projects to enhance manufacturing efficiency.
GROWING THE CORE GYPSUM AND CEILINGS BUSINESSES. The Corporation believes
there are substantial opportunities to expand both its North American Gypsum and
Worldwide Ceilings businesses. In North American Gypsum, the Corporation seeks
to expand its presence in the growing repair and remodel business through, among
other things, additional penetration of retail channels and emphasizing
marketing strategies and product line extensions targeted to the retail customer
(including small contractors and do-it-yourselfers). North American Gypsum is
also leveraging L&W Supply's nationwide distribution network by expanding the
number of third party product offerings. Worldwide Ceilings seeks to increase
its product leadership in specialty ceilings through the introduction of new
products such as COMPASSO brand ceiling grid, which allows designers to create
suspended ceilings with curved edges, as well as increasing sales of its
existing products overseas, especially in the Asia Pacific region, in order to
capitalize on the evolution of international design specifications toward United
States/European standards. The Corporation also plans to lower costs and expand
capacity in its Worldwide Ceilings business, and has announced a $45 million
expansion of its Greenville, Mississippi ceiling tile manufacturing facility.
This expansion is in response to increasing domestic and worldwide demand for
its AURATONE brand ceiling tile product. The Corporation believes the Greenville
facility is among the lowest cost ceiling tile plants in the world, and after
completion of the expansion in 1996, will be the largest ceiling tile plant in
the world.
UNITED STATES INDUSTRY OVERVIEW
USG's consolidated financial performance is influenced by activity in the
three major components of the construction industry in the United States: new
residential construction, new nonresidential construction, and repair and
remodel. In recent years, changes in residential construction activity combined
with growth in the repair and remodel component have partially mitigated the
impact of the cyclical demand of the overall new construction components.
NEW RESIDENTIAL CONSTRUCTION
Demand for the Corporation's products has historically been influenced
primarily by new residential (single and multi-family homes) and new
nonresidential (offices, schools, stores, and other institutions) construction.
New residential construction remains the largest single source of demand for
gypsum wallboard in the United States, although it has declined significantly as
a percentage of gypsum wallboard demand since 1986 (a year in which total gypsum
wallboard shipments were comparable to 1994 levels). Residential construction
has a nominal impact on demand for interior systems products. The following
table sets forth demand for gypsum wallboard in the United States by end-use
segment as estimated by U.S. Gypsum based on publicly available data, internal
surveys and data from the Gypsum Association, an industry trade group.
Management estimates that the distribution of U.S. Gypsum's sales volume to
these four end-use segments is generally proportional to industry demand.
<TABLE>
<CAPTION>
1994 1986
----- -----
<S> <C> <C>
Residential construction....................................................... 49% 54%
Nonresidential construction.................................................... 9 10
Repair and remodel............................................................. 35 30
Export/other................................................................... 7 6
</TABLE>
Over recent economic cycles, demand for gypsum wallboard has been favorably
impacted by a shift toward more single family housing within the new residential
construction segment and an increase in the average single family home size. New
single family homes, which typically require twice as much wallboard as
multi-family homes, accounted for 82% of total housing starts in 1994, as
compared to 65% in 1986. Additionally, the size of the average single family
home in the United States increased approximately 15% to 2,100 square feet in
1994 from 1,825 square feet in 1986. Largely as a result of these factors,
United States
26
<PAGE>
industry shipments of gypsum wallboard were 23.7 billion square feet in 1994, as
compared to 21.3 billion in 1986, despite an approximate 19% decline in the
number of housing starts from 1.806 million units in 1986 to 1.457 million units
in 1994, as depicted in the following chart.
GYPSUM WALLBOARD INDUSTRY SHIPMENTS
AND TOTAL HOUSING STARTS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INDUSTRY SHIPMENTS HOUSING STARTS
<S> <C> <C>
1982 13.25 1062
1983 17.11 1703
1984 19.18 1750
1985 20.16 1742
1986 21.31 1805
1987 21.41 1621
1988 21.31 1488
1989 21.25 1376
1990 20.728 1193
1991 18.412 1014
1992 20.309 1200
1993 21.63 1288
1994 23.694 1457
</TABLE>
NEW NONRESIDENTIAL CONSTRUCTION
In recent years, demand for interior systems resulting from new
nonresidential construction, and particularly demand resulting from construction
of new office space, has declined as a percentage of total interior systems
demand. The Corporation believes that new nonresidential construction currently
accounts for approximately one-half of industry interior systems demand, down
from approximately two-thirds in 1986, and that construction of new office space
currently accounts for less than 15% of total interior systems demand. The
balance of interior systems demand is represented by repair and remodel,
including retail. Declining office vacancy rates have caused demand to shift to
the repair and remodel component in recent years, as existing office space is
finished prior to initial occupancy or as landlords refurbish older space as an
inducement to attract or retain tenants. In addition, non-office demand (which
includes stores, entertainment facilities, restaurant facilities and schools)
for interior systems has also increased as a percentage of total interior
systems demand.
Nonresidential construction demand has accounted for approximately 10% of
gypsum wallboard industry demand in the United States.
REPAIR AND REMODEL
Management estimates that repair and remodel demand for gypsum wallboard has
increased more than 22% since 1986 and, in 1994, accounted for 35% of total
industry demand for gypsum wallboard in the United States. The repair and
remodel business is relatively stable and management believes that the growth
rate is approximately 3% to 5% per year. The growth of repair and remodel is
primarily due to the aging of housing stock, remodeling of existing buildings
and tenant turnover in commercial space. The median age of housing stock was 27
years in 1990, and the National Association of Homebuilders forecasts
27
<PAGE>
that the median age will increase to 32 years by 2000. Management believes that
the continued aging of housing stock will contribute to further growth in the
repair and remodel business. Demand in the repair and remodel business tends to
be more stable than in new construction, although it does fluctuate somewhat in
response to general economic conditions.
Management believes that the increase in the number of commercial buildings
over the last decade provides a greater base for nonresidential repair and
remodel activity in the future, as building owners or tenants replace ceiling
and wall systems as part of the tenant turnover process. Management estimates
that approximately one-half of USG Interiors' 1994 sales were to the
nonresidential repair and remodel segment.
NORTH AMERICAN GYPSUM
BUSINESS
North American Gypsum includes U.S. Gypsum and L&W Supply in the United
States, the gypsum business of the Corporation's 76%-owned subsidiary, CGC, in
Canada and Yeso Panamericano S.A. de C.V. ("YPSA"), USG's operations in Mexico.
CGC is the largest manufacturer of gypsum wallboard in eastern Canada.
Management estimates that industry sales in eastern Canada, including the
Toronto and Montreal metropolitan areas, represent approximately two-thirds of
total Canadian sales volume. In 1994, CGC accounted for approximately 45% of
industry sales in eastern Canada.
PRODUCTS
North American Gypsum manufactures and markets building and industrial
products used in a variety of applications. Gypsum panel products are used to
finish the interior walls and ceilings in residential, commercial and mobile
home construction. These products provide aesthetic as well as sound dampening
and fire retarding value. The majority of these products are sold under the
"SHEETROCK" brand name. Also sold under the "SHEETROCK" brand name is a line of
joint compounds used for finishing wallboard joints. The "DUROCK" line of cement
board and accessories provides fire-resistant and water damage resistant
assemblies for both interior and exterior construction. The Corporation also
produces a variety of plaster products used to provide a custom finish for
residential and commercial interiors, as well as gypsum-based products sold to
agricultural and industrial customers for use in a number of applications,
including soil conditioning, road repair, fireproofing and ceramics.
FINANCIAL PERFORMANCE
Summary financial results of North American Gypsum are outlined in the table
below. Such results are not adjusted for intersegment sales eliminations and
corporate expenses.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994(a) 1993 1992
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales....................................................... $ 1,780 $ 1,443 $ 1,296
EBITDA.......................................................... 304 187 130
EBITDA margin................................................... 17.1% 13.0% 10.0%
Capital expenditures............................................ $ 49 $ 32 $ 34
<FN>
- ------------------------
(a) 1994 includes a $30 million pre-tax charge for asbestos settlements
relating to two major class actions. See "Index to Consolidated
Financial Statements -- Restructured Company -- Notes to Financial
Statements -- Litigation."
</TABLE>
For additional information on the Corporation's results by core business
segment, including intersegment sales eliminations and corporate expenses, see
"Index to Financial Statements -- Notes to Financial Statements -- Industry and
Geographic Segments."
28
<PAGE>
MANUFACTURING
Gypsum and related products are produced by the Corporation at 41 plants
located throughout the United States, eastern Canada and in central Mexico. The
geographic distribution of the Corporation's gypsum plants enhance its cost
position by minimizing transportation costs to major metropolitan areas, a
significant component of total delivered wallboard cost. In 1994, the
Corporation began an incremental process improvement and wallboard capacity
expansion at strategically located plants throughout the United States. This
program is expected to lower U.S. Gypsum's unit manufacturing costs while at the
same time increasing its wallboard capacity by approximately 600 million square
feet.
Gypsum rock is mined or quarried at 14 company-owned locations in the United
States and Canada. In 1994, these facilities provided approximately 95% of the
gypsum used by the Corporation's plants in North America, with most of the
remainder being synthetic gypsum. The Corporation's geologists estimate that
recoverable rock reserves are sufficient for more than 30 years of operation
based on the Corporation's average annual production of crude gypsum during the
past five years. Proven reserves contain approximately 232 million tons, of
which approximately 70% are located in the United States and 30% in Canada.
Additional reserves of approximately 153 million tons exist on three properties
not in operation. The Corporation's total average annual production of crude
gypsum in the United States and Canada during the past five years was 9.7
million tons. Synthetic gypsum, which the Corporation purchases under long-term
contracts from coal-fired power generation plants, is a by-product of the coal
desulferization process.
USG owns and operates seven paper mills located across the United States.
Vertical integration in this key raw material ensures a continuous supply of
high quality paper that is tailored to the specific needs of USG's wallboard
production process.
USG maintains the gypsum industry's largest research and development
facility, located in Libertyville, Illinois. This facility conducts fire,
structural and acoustical testing and product and process development. Research
and development activities involve technology related to gypsum, cellulosic
fiber and cement as the primary raw materials on which panel products and
systems, such as gypsum board, cement board and ceiling tile, are based. Related
technologies are those pertaining to joint compounds and textures for wallboard
finishing, specialty plaster products for both construction and industrial
applications, coatings and latex polymers. Product and process development
research from the Libertyville facility plays a significant role in the
Corporation's ongoing cost reduction efforts, as many potential improvements are
tested at Libertyville before implementation in manufacturing plants.
MARKETING AND DISTRIBUTION
Distribution is carried out through L&W Supply's 148 distribution centers in
34 states, as well as through home improvement centers and other retailers,
building material dealers, contractors and distributors. L&W Supply specializes
in delivering less than truckload quantities of construction materials to a job
site and places them in areas where work is being done (including the interior
of a home under construction), thereby reducing the need for handling by
contractors. Although L&W Supply specializes in distribution of gypsum wallboard
(which accounts for approximately 50% of its total net sales), joint compound
and other products manufactured primarily by U.S. Gypsum, it also distributes
products manufactured by USG Interiors such as acoustical ceiling tile and
ceiling grid and products of other manufacturers, including drywall metal,
insulation, roofing products and accessories.
COMPETITION
The Corporation competes in North America as the largest of 18 producers of
gypsum wallboard products and, in 1994, accounted for approximately one-third of
total gypsum wallboard sales in the United States. No new wallboard
manufacturing plants have been opened since 1990, and the Corporation is not
aware of plans to build any new plants. Total domestic industry shipments of
gypsum wallboard totalled 23.7 billion square feet in 1994, a record for the
industry, and US Gypsum's shipments of gypsum wallboard
29
<PAGE>
totaled 7.7 billion square feet, also a record level. The second largest
competitor in the gypsum wallboard industry, National Gypsum Company, shipped
approximately 5.5 billion square feet of wallboard in 1994 and has 18
manufacturing plants. Principal manufacturers of wallboard in the United States
are set forth below:
<TABLE>
<CAPTION>
WALLBOARD MANUFACTURER
- ---------------------------------------------------------- 1994 SHIPMENTS
--------------------
(BILLION SQ. FT.)
<S> <C>
U.S. Gypsum............................................... 7.7
National Gypsum Company................................... 5.5
Georgia Pacific........................................... 2.8
Domtar, Inc............................................... 1.9
Celotex Corporation....................................... 0.9
<FN>
Source: Public filings and U.S. Gypsum estimates
</TABLE>
Major competitors in eastern Canada include Domtar, Inc. and Westroc
Industries Ltd. In Mexico, the Corporation's major competitor is Panel Rey.
L&W Supply's largest competitor, Gypsum Management Supply, is an independent
distributor with approximately 70 locations in the southern, central and western
United States. There are several regional competitors, such as CSR/GDMA in the
southern United States and Strober Building Supply in the northeastern United
States. L&W Supply's many local competitors include lumber dealers, hardware
stores, home improvement centers, acoustical tile distributors and
manufacturers.
WORLDWIDE CEILINGS
BUSINESS
Worldwide Ceilings includes USG Interiors, the international interior
systems businesses in Europe, Asia Pacific and Latin America managed as USG
International and the interior systems business of CGC.
PRODUCTS
Worldwide Ceilings manufactures and markets ceiling grid and ceiling tile,
wall systems, mineral wool insulation and soundproofing products. USG's
integrated line of ceiling products provides qualities such as sound absorption,
fire retardation, and convenient access to the space above the ceiling for
electrical and mechanical systems, air distribution and maintenance. USG
Interiors' significant trade names include the "ACOUSTONE" and "AURATONE" brands
of ceiling tile and the "DX," "FINELINE," "CENTRICITEE" and "DONN" brands of
ceiling grid.
USG's wall systems provide the versatility of an open floor plan with the
privacy of floor-to-ceiling partitions which are compatible with leading office
equipment and furniture systems. Wall systems are designed to be installed
quickly and reconfigured easily.
FINANCIAL PERFORMANCE
Summary financial results of Worldwide Ceilings are outlined in the table
below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales............................................................. $ 594 $ 540 $ 541
EBITDA................................................................ 62 56 57
EBITDA margin......................................................... 10.4% 10.4% 10.5%
Capital expenditures.................................................. $ 15 $ 9 $ 14
</TABLE>
The results displayed above are not adjusted for intersegment sales
eliminations and corporate expenses. For additional information on the
Corporation's results by core business segment, including intersegment sales
eliminations and corporate expenses, see "Index to Financial Statements -- Notes
to Financial Statements -- Industry and Geographic Segments."
30
<PAGE>
MANUFACTURING
Worldwide Ceilings products are manufactured at 21 plants located in North
America, Europe, New Zealand and Malaysia, including 5 ceiling tile plants and 9
ceiling grid plants. The remaining plants produce other interior products and
raw materials for ceiling tile and grid. Principal raw materials used in the
production of Worldwide Ceilings products include mineral fiber, steel, aluminum
extrusions and high-pressure laminates. Certain of these raw materials are
produced internally, while others are obtained from various outside suppliers.
Shortages of raw materials used in this segment are not expected.
MARKETING AND DISTRIBUTION
Worldwide Ceilings products are sold primarily in markets related to the new
construction and renovation of commercial buildings as well as the retail market
for small commercial contractors. Marketing and distribution to large commercial
users is conducted through a network of distributors and installation
contractors as well as through L&W Supply. In recent years, Worldwide Ceilings
has increased its emphasis on retail customers, including both small contractors
and do-it-yourselfers, as well as increasing sales of existing products abroad.
In the domestic retail segment, Worldwide Ceilings has increased sales through
marketing strategies tailored to home improvement retailers which emphasize
increased inventory turn through the stocking of a selected product assortment
of USG Interiors' most popular offerings. In the international area, Worldwide
Ceilings is attempting to capitalize on the evolution of international design
specifications toward United States/European standards through selective
expansion of its international sales force, exploration of joint marketing
agreements with foreign-based companies where appropriate and increasing product
availability from its manufacturing base within each region.
USG Interiors maintains its own research and development facility in Avon,
Ohio, which provides product design, engineering and testing services in
addition to manufacturing development, primarily in metal forming, with tool and
machine design and construction services. Additional research and development is
carried out at the Corporation's research and development center in
Libertyville, Illinois and at its "Solutions Center"SM located near Chicago's
Merchandise Mart.
COMPETITION
The Corporation estimates that it is the world's largest manufacturer of
ceiling grid. USG's most significant competitor is Chicago Metallic Corporation,
which participates worldwide. Other competitors in ceiling grid include W.A.V.E.
(a joint venture of Armstrong World Industries, Inc. and Worthington Industries/
National Rolling Mills).
The Corporation estimates that it accounts for approximately one-third of
sales of acoustical ceiling tile to the U.S. market. Principal global
competitors include Armstrong World Industries, Inc. (the largest manufacturer),
OWA Faserplattenwerk GmbH (Odenwald) and The Celotex Corporation.
GENERAL INFORMATION
ASBESTOS LITIGATION DEVELOPMENTS
A discussion of the Corporation's pending asbestos litigation as of December
31, 1994 is contained in "Index to Financial Statements -- Notes to Financial
Statements -- Litigation". Subsequent to the date of those financial statements,
there have been several important developments with respect to U.S. Gypsum's
declaratory judgment action against its insurance carriers. First, on April 5,
1995, the Illinois Supreme Court denied the insurers' petition for leave to
appeal the November 4, 1994 ruling of the Illinois Appellate Court. In May 1995,
the Illinois Supreme Court denied the insurers' motion seeking reconsideration
of the denial of leave to appeal. In addition, during April 1995, one of the
defendant carriers, which provided both primary and excess policies to U.S.
Gypsum during the 1960's and 1970's, agreed to pay U.S. Gypsum a total of $38.4
million representing the aggregate face amount of the policy, plus certain legal
expenses and other costs. $25 million was paid in April 1995 with the rest to be
paid in three annual installments.
31
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(AS OF JUNE 1, 1995 EXCEPT AS SPECIFIED OTHERWISE)
DIRECTORS OF THE CORPORATION
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND HAS BEEN A
NAME AND AGE OTHER DIRECTORSHIPS DIRECTOR SINCE
- ------------------------------ ------------------------------------------------------------ ------------------
<S> <C> <C>
Eugene B. Connolly, 62 Chairman and Chief Executive Officer from January 1994; May 1988
President and Chief Executive Officer to May 1990; Chairman
of the Board and Chief Executive Officer to March 1993;
Chairman, President and Chief Executive Officer to January
1994; director, U.S. Can Corporation and The Pepper
Companies, Inc.
Robert L. Barnett, 54 Vice Chairman, Ameritech to 1992; President, Ameritech Bell May 1990
Group to 1992; President, Ameritech Enterprise Group to
1989; President and Chief Executive Officer to 1987, Vice
President of Operation to 1985, Wisconsin Bell Company;
President, Ameritech Mobile Communications Company to 1984;
director, Johnson Controls, Inc.; member, Advisory Council
of the Robert R. McCormick School of Engineering and
Computer Science at Northwestern University; member,
Northwestern University's Electrical Engineering and
Computer Science Industrial Advisory Board; affiliated with
the Institute of Electrical and Electronics Engineers.
Keith A. Brown, 43 President, Chimera Corporation from 1987; director, Adelphia May 1993
Incorporated from 1988; director, Global Film & Packaging
Corporation from 1988; director, Ashland Castings
Corporation from 1993; director, Mansfield Capital
Corporation from 1994; director, Poly Shapes Corporation
from 1994.
W. H. Clark, 62 Chairman of the Board and Chief Executive Officer to 1994 August 1985
and President to 1990, Nalco Chemical Company; director,
Northern Trust Corporation and The Northern Trust Bank;
director, Nicor Corporation; director, Bethlehem Steel
Corporation; director, James River Corporation; director,
Northern Illinois Gas Company; director, Diamond Shamrock
Corporation.
James C. Cotting, 61 Chairman of the Board, Navistar International Corporation October 1987
from 1987; Chief Executive Officer, Navistar International
Corporation to 1995; director, Asarco Incorporated;
director, Interlake Corporation; director, MIM Holdings
Limited; director, National Association of Manufacturers;
governor, Chicago Stock Exchange.
Lawrence M. Crutcher, 52 Managing Director, Veronis, Suhler & Associates from 1990; May 1993
President to 1989, Vice President for Financial Planning to
1984, Vice President -- Magazines to 1983, Vice
President-Circulation to 1980, Book-of-the-Month Club.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND HAS BEEN A
NAME AND AGE OTHER DIRECTORSHIPS DIRECTOR SINCE
- ------------------------------ ------------------------------------------------------------ ------------------
<S> <C> <C>
William C. Foote, 43 President and Chief Operating Officer from January 1994; March 1994
Senior Vice President and General Manager, Central
Construction Products Region, United States Gypsum Company
to November 1990; Executive Vice President and Chief
Operating Officer, L&W Supply Corporation to September 1991;
President and Chief Executive Officer, L&W Supply
Corporation from September 1991 to January 1994; President
and Chief Executive Officer, USG Interiors, Inc. from
January 1993 to January 1994; director, GATX Corporation.
David W. Fox, 63 Chairman, Northern Trust Corporation and The Northern Trust May 1987
Company from 1990; Chief Executive Officer to 1995; Senior
Vice President to 1978, Executive Vice President to 1981,
Vice Chairman to 1987, President to 1993, The Northern Trust
Company; director, The Federal Reserve Bank of Chicago;
director, Northern Trust of Florida Corp.; director, Banque
Rivaud (Paris, France); director, Chicago Central Area
Committee; Governor, Chicago Stock Exchange; Chairman,
Northwestern Memorial Hospital; trustee, Adler Planetarium;
trustee, The Orchestral Association; trustee, DePaul
University.
Philip C. Jackson, Jr., 66 Vice Chairman and director, Central Bank of the South and May 1979
its parent company, Central Bancshares of the South to 1989;
Adjunct Professor, Birmingham-Southern College, Birmingham,
Alabama from January 1989; member, Thrift Depositors
Protection Oversight Board to April 1993; Director, Saul
Centers, Inc.; member, Board of Governors of the Federal
Reserve System, Washington, D.C. to November 1978; Vice
President and director, Jackson Company to June 1975;
Trustee, Birmingham-Southern College, Birmingham, Alabama.
Marvin E. Lesser, 53 Managing Partner, Sigma Partners, L.P. from 1993; private May 1993
consultant from 1992; Managing Partner, Cilluffo Associates,
L.P. to 1994; director, Amdura Corporation to 1991; chair,
Seacoast Area Chapter (New Hampshire and Maine) of the
American Red Cross.
John B. Schwemm, 61 Chairman to 1989 and Chief Executive Officer to 1988, R. R. May 1988
Donnelley & Sons Company; former General Counsel and Group
Vice President -- Book Group, R. R. Donnelley & Sons
Company; director, Walgreen Company; director, William Blair
Mutual Funds; Trustee, Northwestern University.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND HAS BEEN A
NAME AND AGE OTHER DIRECTORSHIPS DIRECTOR SINCE
- ------------------------------ ------------------------------------------------------------ ------------------
<S> <C> <C>
Judith A. Sprieser, 41 Senior Vice President and Chief Financial Officer, Sara Lee February 1994
Corporation from November 1994; President and Chief
Executive Officer to 1994, Chief Financial Officer to 1993,
Assistant Treasurer -- Corporate Finance to 1990, Sara Lee
Bakery, North America.
</TABLE>
EXECUTIVE OFFICERS OF THE CORPORATION (WHO ARE NOT DIRECTORS)
<TABLE>
<CAPTION>
HAS HELD
NAME, AGE PRESENT
AND PRESENT POSITION PRIOR BUSINESS EXPERIENCE IN PAST FIVE YEARS POSITION SINCE
- ------------------------------ ------------------------------------------------------------ ------------------
<S> <C> <C>
J. Bradford James, 48 Director, Corporate Strategic Planning, USG Corporation and January 1995
Group Vice President, Vice President, Finance & Administration, USG Interiors,
Worldwide Ceilings & Inc. to January 1990; Vice President, Financial and
International; President and Strategic Planning, USG Corporation to January 1991; Vice
Chief Executive Officer, USG President and Chief Financial Officer, USG Corporation to
Interiors, Inc. March 1993; Senior Vice President and Chief Financial
Officer, USG Corporation to January 1994; Vice President,
USG Corporation, President and Chief Executive Officer, USG
Interiors, Inc. to January 1995.
Donald E. Roller, 57 President and Chief Executive Officer, USG Interiors, Inc. January 1995
Group Vice President, North to January 1993; Vice President, USG Corporation, President
American Gypsum; President and Chief Executive Officer, United States Gypsum Company to
and Chief Executive Officer, January 1995.
United States Gypsum Company
Richard H. Fleming, 47 Director, Corporate Finance, to January 1991; Vice President January 1995
Senior Vice President and and Treasurer to January 1994; Vice President and Chief
Chief Financial Officer Financial Officer to January 1995.
Arthur G. Leisten, 53 Vice President and General Counsel to January 1990; Senior February 1994
Senior Vice President and Vice President and General Counsel to March 1993; Senior
General Counsel Vice President, General Counsel and Secretary to February
1994.
P. Jack O'Bryan, 59 President and Chief Executive Officer, United States Gypsum August 1994
Senior Vice President, Company to January 1993; Senior Vice President and Chief
Worldwide Manufacturing and Technology Officer, USG Corporation to August 1994.
Technology
Harold E. Pendexter, Jr., 60 Vice President, Human Resources and Administration to January 1991
Senior Vice President and January 1990; Senior Vice President, Human Resources and
Chief Administrative Officer Administration to January 1991.
Raymond T. Belz, 54 Vice President Finance, United States Gypsum Company to January 1995
Vice President and November 1990; Vice President Financial Services and
Controller; Vice President Financial Administration, United States Gypsum Company to
and Chief Financial Officer, January 1994; Vice President and Controller, USG
North American Gypsum Corporation, Vice President Financial Services, United
States Gypsum Company to January 1995.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
HAS HELD
NAME, AGE PRESENT
AND PRESENT POSITION PRIOR BUSINESS EXPERIENCE IN PAST FIVE YEARS POSITION SINCE
- ------------------------------ ------------------------------------------------------------ ------------------
<S> <C> <C>
Brian W. Burrows, 55 Same position. March 1987
Vice President, Research and
Development
Matthew P. Gonring, 39 Director, Public Relations to January 1991; Director, March 1993
Vice President, Corporate Corporate Communications to March 1993.
Communications
John E. Malone, 51 Vice President and Controller, USG Corporation to December January 1994
Vice President and Treasurer 1993; Vice President -- Finance, USG International to April
1995.
James S. Phillips, 65 Vice President, National Accounts to December 1990; Vice January 1995
Vice President President, Corporate Accounts to January 1995.
Robert B. Sirgant, 54 Director, Marketing -- East Region, United States Gypsum January 1995
Vice President, Corporate Company to November 1992; Vice President, National Accounts
Accounts and Marketing -- East, United States Gypsum Company to July
1994; Vice President, National Accounts, United States
Gypsum Company to January 1995.
S. Gary Snodgrass, 43 Director, Corporate Human Resources Planning, USG February 1995
Vice President, Human Corporation and Vice President, Human Resources, USG
Resources -- Operations; Vice Interiors, Inc. to November 1990; Director, Human Resources,
President, Human Resources, USG Corporation to September 1992; Vice President,
Worldwide Ceilings Management Resources and Employee Relations to January 1994;
Vice President, Human Resources -- Operations to February
1995.
Frank R. Wall, 61 Senior Vice President and General Manager, Western March 1995
Vice President; President and Construction Products Region, United States Gypsum Company
Chief Executive Officer, L&W to January 1990; Senior Vice President, Operating Services,
Supply Corporation United States Gypsum Company to April 1993; Executive Vice
President and Chief Operating Officer, L&W Supply
Corporation to January 1994, President and Chief Executive
Officer, L&W Supply to March 1995.
Dean H. Goossen, 47 Vice President, General Counsel and Secretary, Xerox February 1994
Corporate Secretary Financial Services Life Insurance Company to February 1993;
Assistant Secretary, USG Corporation to February 1994.
Paul J. Vanderberg, 35 Director, Planning, United States Gypsum Company to February January 1995
President and Chief Executive 1990; General Manager, Materials Division, United States
Officer, CGC Inc. Gypsum Company to February 1992; General Manager, Durock,
United States Gypsum Company to March 1994; Director,
Marketing Services and Planning, United States Gypsum
Company from November 1992 to March 1994; Executive Vice
President and Chief Operating Officer, CGC Inc. to January
1995.
</TABLE>
35
<PAGE>
DESCRIPTION OF NEW CREDIT AGREEMENT
OVERVIEW
The Corporation has executed a commitment letter (the "Financing
Commitment") with Chemical Securities Inc. ("CSI"), under which CSI has agreed
to use its best efforts to arrange a new seven year $500 million secured
revolving credit facility (the "New Credit Facility") with a syndicate of banks
(the "Banks" or the "Bank Group") selected by the Corporation and CSI. Chemical
Bank ("Chemical") will serve as sole and exclusive agent. The Corporation
expects to enter into the New Credit Agreement prior to the closing of this
offering.
A copy of the form of New Credit Agreement is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
summary of the New Credit Agreement does not purport to be complete and is
qualified in its entirety by reference to the New Credit Agreement.
THE NEW CREDIT FACILITY
The New Credit Facility is a seven-year revolving credit facility in an
aggregate maximum amount of $500 million, including a letter of credit
subfacility of up to $125 million . The New Credit Facility will consist of
revolving loans ("Revolving Loans"), including an uncommitted bid option, and
letters of credit ("L/C's"). Except as described below, the New Credit Facility
will expire in 2002 and will not require amortization prior to maturity.
If the "Debt/EBITDA Ratio" (as defined below) exceeds 2.5 to 1.0 for the
fiscal quarter ended June 30, 2000, the New Credit Facility will be permanently
reduced by $100 million, $50 million of such reduction to be effective as of the
date the quarterly financial statements for such fiscal quarter are delivered to
the agent (or, if not delivered, effective as of the fifth day following the
date such financial statements were due) and $50 million of such reduction to be
effective 12 months thereafter. Any outstanding amounts which would exceed the
reduced commitment must be repaid together with any breakage costs, if
applicable.
INTEREST RATE
Interest on the Revolving Loans will be computed based on (i) Alternate Base
Rate or (ii) LIBOR plus the applicable spread (the "LIBOR Spread"). Until either
the Debt/EBITDA Ratio certificate or such certificate and financial statements
for the fiscal quarter ending September 30, 1995 have been delivered, the LIBOR
Spread will be 0.875%. Thereafter, the LIBOR Spread will be adjusted as set
forth below.
<TABLE>
<CAPTION>
LIBOR SPREAD COMMITMENT FEE
DEBT/EBITDA (IN BASIS POINTS) (IN BASIS POINTS)
----------------- ------------------ ------------------
<S> <C> <C>
greater than 4.00x 175 37.5
3.50x - 4.00x 150 37.5
3.00x - 3.50x 125 31.25
2.50x - 3.00x 87.5 25.0
2.00x - 2.50x 75 25.0
1.50x - 2.00x 62.5 22.5
less than 1.50x 50.0 20.0
</TABLE>
Changes, if any, to the LIBOR Spread and Commitment Fee will occur on the
earlier of (i) the date of delivery to the agent of the Debt/EBITDA Ratio
certificate for such fiscal quarter and (ii) the date of delivery of financial
statements relating to such fiscal quarter.
In addition to the interest rate mechanism described above, a bid option
("Bid Option") will be provided under the New Credit Agreement on an uncommitted
basis through a competitive auction mechanism. The Corporation will not be
obliged to accept any bids submitted. The Corporation will have the option of
inviting the Banks to submit bids (via Chemical) for advances ("Competitive Bid
Loans"). Bidding will be requested either on the basis of: (i) a margin relative
to LIBOR, or (ii) a fixed rate. Bids may be requested for periods of up to six
months but in no event later than the maturity date of the facility. The Bid
Option may result in additional interest expense savings to the Corporation.
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<PAGE>
"Alternate Base Rate" will be a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (i) the rate from
time to time publicly announced by Chemical in New York City as its prime rate,
(ii) the product of the secondary market rate for three-month certificates of
deposit from time to time and Statutory Reserves (as defined in the New Credit
Agreement) and the Assessment Rate (as defined in the New Credit Agreement) plus
1.0% and (iii) the federal funds rate from time to time plus 1/2 of 1.0%.
"LIBOR" will be an interest rate per annum determined by the agent to be the
arithmetic average of the rates designated as "LIBO" on Telerate screen number
3750 USD-LIBOR-BBA (rounded upwards, if necessary, to the nearest 1/16 of 1%)
for deposits with a maturity comparable to a 1-, 2-, 3- or 6- month interest
period offered in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, 2 business days prior to the commencement
of such interest period.
FEES
The Corporation will pay a commitment fee quarterly in arrears. The
commitment fee will be calculated based upon a rate per annum equal to the then
applicable number of basis ponts (expressed as a percentage) tied to the
Debt/EBITDA Ratio of the Corporation for the then most recently ended period of
four consecutive fiscal quarters.
SECURITY
The New Credit Facility will be secured by a pledge of the outstanding
capital stock of the Corporation's significant domestic subsidiaries, which
initially include U.S. Gypsum, USG Interiors, L&W Supply and USG Foreign
Investments, Ltd.. Such security will be permanently released once the
Corporation's senior public debt is rated "Investment Grade" (a rating of BBB-
or higher by Standard & Poor's Ratings Group and Baa3 or higher by Moody's
Investors Service, Inc.). See "Description of Collateral Trust."
NEGATIVE COVENANTS
The New Credit Agreement will contain material restrictions on the operation
of the Corporation's business, including, without limitation, covenants
pertaining to:(i) liens; (ii) sale and leaseback transactions; (iii)
investments, PROVIDED, that this covenant would no longer apply once the
Corporation's senior public debt rating is Investment Grade; (iv) mergers,
consolidations and sales of assets with respect to the Corporation and material
subsidiaries; (v) acquisitions of businesses not related to the building
materials industry; (vi) dividends, distributions and repurchases of stock and
subordinated debt; PROVIDED, that such covenant will cease to be applicable once
the Corporation's senior public debt is rated Investment Grade; (vii) use of
proceeds, PROVIDED, that the use of proceeds arising from the issuance of
additional debt and equity will be at the Corporation's discretion; (viii) debt
or guarantees thereof; (ix) restrictions in other agreements on ability of
subsidiaries to declare and pay dividends; and (x) financial covenants or events
of default in other debt agreements which are more restrictive than those
contained in the New Credit Agreement. The negative covenants will contain
certain exceptions to the restrictions imposed upon the operation of the
Corporation's business.
FINANCIAL COVENANTS
The New Credit Agreement will contain the following financial covenants:
- Debt/EBITDA Ratio will not exceed 4.50 to 1.0; and
- Interest Coverage Ratio will not be less than 2.25 to 1.0.
Compliance with these financial covenants must be demonstrated quarterly on a
trailing 12 month basis.
"DEBT" at any time, will mean, with respect to the Corporation and its
subsidiaries on a consolidated basis, without duplication, the sum of (i) the
aggregate outstanding principal balance of the Revolving Loans and Competitive
Bid Loans at such time, (ii) the aggregate principal amount of long-term
indebtedness of the Corporation and its consolidated subsidiaries at such time
(including the current portion thereof), (iii) the outstanding amount of capital
leases shown as a liability on the Corporation's consolidated balance sheet at
such time (iv) all reimbursement obligations and other liabilities of the
Corporation and its consolidated subsidiaries with respect to letters of credit,
other than letters of credit issued in connection with the
37
<PAGE>
incurrence of trade debt, (v) any indebtedness incurred other than in the
ordinary course of business, whether or not for borrowed money, secured by any
lien in respect of property owned by such person, whether or not such person has
assumed or become liable for the payment of such indebtedness, and (vi) any
indebtedness (other than trade debt incurred in the ordinary course of
business), whether or not for borrowed money, with respect to which such person
has become directly or indirectly liable and which represents or has been
incurred to finance the purchase price (or a portion thereof) of any property or
services or business acquired by the Corporation or any such consolidated
subsidiary, whether by purchase, consolidation, merger or otherwise, and (vii)
the aggregate amount of all guarantees with respect to indebtedness of third
parties of the type described in clauses (ii) through (vi) above at such time.
"EBITDA" for any period, will mean the consolidated operating earnings from
continuing operations of the Corporation and its subsidiaries before interest,
taxes, depreciation, amortization, other income and expense, minority interests,
the impact of fresh start accounting and other non-cash adjustments to income
for such period PROVIDED that, for purposes of the period ending September 30,
1995, operating earnings from continuing operations shall not be reduced by the
$30 million pre-tax charge which occurred in the fourth fiscal quarter of 1994
in connection with asbestos litigation settlements.
"DEBT/EBITDA RATIO" will mean the ratio, calculated as of the last day of
each fiscal quarter, of (i) Debt less the aggregate amount of cash and cash
equivalents held by the Corporation and its consolidated subsidiaries to (ii)
EBITDA for the four quarter period ending on the last day of such quarter (in
each case as reflected on the Corporation's consolidated financial statements
for such quarter).
"INTEREST COVERAGE RATIO" of the Corporation for any period will mean the
ratio of (a) EBITDA for such period to (b) the total net consolidated interest
expense of the Corporation and its subsidiaries during such period (as shown on
a consolidated income statement of the Corporation for such period prepared in
accordance with GAAP), excluding the impact of non-cash amortization resulting
from fresh start accounting during such period.
EVENTS OF DEFAULT
The New Credit Agreement will contain customary events of default including,
without limitation, (i) the failure to make payments when due, (ii) defaults
under other agreements or instruments of indebtedness in excess of specified
amounts, (iii) noncompliance with covenants, (iv) breaches of representations
and warranties, (v) bankruptcy, (vi) judgments in excess of specified amounts,
(vii) impairment of security interests in collateral, and (viii) certain changes
of control.
DESCRIPTION OF NOTES
The Notes will be issued under an indenture dated as of October 1, 1986 (the
"1986 Indenture"), between the Corporation and Harris Trust and Savings Bank, as
trustee (the "Indenture Trustee"), as supplemented by resolutions adopted by the
Board and an officer's certificate delivered in connection therewith. The 8%
Senior Notes due 1996 (the "Senior 1996 Notes"), the 8% Senior Notes due 1997
(the "Senior 1997 Notes"), the 9 1/4% Senior Notes due 2001 (the "Senior 2001
Notes") and the 8 3/4% Sinking Fund Debentures due 2017 (the "Senior 2017
Debentures," and, together with the Senior 1996 Notes, the Senior 1997 Notes,
the Senior 2001 Notes and the Notes, the "Indenture Securities") were also
issued under the Indenture, as supplemented by resolutions adopted by the Board
and officer's certificates delivered in connection therewith. The 1986
Indenture, as supplemented by such Board resolutions and related instruments, is
referred to herein as the "Indenture." Copies of the Indenture and related
instruments have been filed as exhibits to the Registration Statement and are
available as described under "Available Information." Whenever particular
provisions or defined terms of the Indenture Securities or the Indenture are
referred to, such provisions or defined terms are deemed incorporated herein by
reference and such statements are qualified in their entirety by such reference.
GENERAL
The Notes are a series of securities which are limited to $150.0 million
aggregate principal amount. The Notes will bear interest at % per annum and
will mature on , 2005. Interest on the Notes is
38
<PAGE>
payable semi-annually on and of each year, commencing
, 1996, to the persons in whose names the Notes are registered at the
close of business on the next preceding or , as the case may
be. Interest on the Notes shall accrue from , 1995.
Principal (and premium, if any) and interest is payable, and the transfer of
the Notes is registrable, at the office or agency of the Corporation maintained
for such purpose in the City of Chicago, State of Illinois, currently the
Corporate Trust Office of the Indenture Trustee, Harris Trust and Savings Bank,
311 West Monroe Street, Chicago, Illinois 60690; provided, however, that payment
of interest may be made at the option of the Corporation by check or draft
mailed to the person entitled thereto as such person's address appears in the
security register maintained for such purpose pursuant to the Indenture. No
service charge will be made for any transfer or exchange except the Corporation
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The Notes will be issued in fully registered form without coupons and in
denominations of $1,000 and integral multiples thereof.
RANKING AND SECURITY
Upon issuance, the Notes will be senior obligations of the Corporation and
will rank pari passu with the Bank Debt and all other existing and future senior
obligations of the Corporation. The Bank Debt will be incurred under the New
Credit Agreement to be entered into by the Corporation and certain banks prior
to the closing of this offering. Borrowings under the New Credit Agreement, and
pursuant to negative pledge clauses, the Notes and certain other senior
obligations of the Corporation, will share in security interests in the capital
stock of certain of the Corporation's domestic subsidiaries as provided in the
Collateral Trust Agreement. Upon repayment of the Bank Debt and termination of
the commitments of the banks to make advances under the New Credit Agreement, or
upon release of the collateral by the banks (which the banks are required to do
if the Corporation reaches Investment Grade Status), the Notes and such other
senior indebtedness will cease to be secured. The Notes will be effectively
subordinated to current and future indebtedness and liabilities of the
Corporation's subsidiaries. See "Risk Factors -- Holding Company Structure;
Relative Priority of Debt Claims."
Holders of the Bank Debt primarily control the operation of the Collateral
Trust. See "Description of Collateral Trust."
OPTIONAL REDEMPTION
The Notes are not subject to redemption by the Corporation prior to ,
2000. Thereafter, the Notes may, from time to time, be redeemed, in whole or in
part, at the option of the Corporation upon not less than 30 nor more than 60
days' prior notice to Holders, at the redemption prices set forth below
(expressed in percentages of the principal amount thereof), plus accrued and
unpaid interest thereon, up to the Redemption Date.
<TABLE>
<CAPTION>
REDEMPTION PERIOD PERCENTAGE
- ------------------------------------------- -------------
<S> <C>
2000 to 2001
2001 to 2002
2002 to 2003
After 2003 100%
</TABLE>
If less than all of the Notes are to be redeemed, the selection of the Notes
to be redeemed shall be made as provided in the Indenture.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require the Corporation to repurchase such Holder's Notes, in whole or in
part, in integral multiples of $1,000, pursuant to the Change of Control Offer
described in the next succeeding paragraph at the Repurchase Price in cash equal
to 100% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Change of Control Payment Date.
39
<PAGE>
Within 30 calendar days subsequent to the date of any Change of Control, the
Corporation will mail a notice to each Holder and to the Trustee stating, among
other things: (i) that a Change of Control has occurred and a Change of Control
Offer is being made as described in this paragraph, and that, although Holders
are not required to tender their Notes, all Notes that are timely tendered will
be accepted for payment; (ii) the Repurchase Price and the Change of Control
Payment Date, which will be a date occurring no earlier than 30 days and no
later than 60 days after the date on which such notice is mailed; (iii) that any
Notes (or any portion thereof) accepted for payment pursuant to the Change of
Control Offer (and duly paid on the Change of Control Payment Date) will cease
to accrue interest after the Change of Control Payment Date; and (iv) a
description of the transaction or transactions constituting the Change of
Control and the procedures that Holders must follow in order to tender their
Notes for payment.
In the event the Corporation reaches Investment Grade Status, the foregoing
Change of Control provisions shall no longer apply, and thereafter if both a
Designated Event with respect to the Corporation and a Rating Decline in
connection therewith shall occur, the Corporation will be obligated to offer to
repurchase any or all of the Notes at a price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. If the Corporation effects defeasance of the Notes under the
Indenture prior to the date notice of a Rating Decline in connection with a
Designated Event is required, the Corporation will not be obligated to make a
repurchase offer as a result of such Designated Event and Rating Decline.
There can be no assurance that the Corporation will be able to fund any such
repurchase of the Notes. The New Credit Agreement provides that certain change
of control events with respect to the Corporation would constitute a default
thereunder. Any future credit agreements or other agreements relating to
indebtedness to which the Corporation becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Corporation is prohibited from purchasing Notes, the Corporation could
seek the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Corporation does
not obtain such a consent or repay such borrowings, the Corporation will remain
prohibited from purchasing Notes. In such case, the Corporation's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture.
If an offer is made to repurchase Notes, the Corporation will comply with
all tender offer rules, including but not limited to Section 14(e) under the
Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer.
Except as described above, the Indenture does not contain provisions that
permit the Holders of the Notes to require that the Corporation repurchase or
redeem the Notes in the event of a takeover, recapitalization or restructuring.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
BOOK-ENTRY SYSTEM
The Notes will initially be issued in the form of one or more Global
Securities (as defined in the Indenture) held in book-entry form. Accordingly,
The Depository Trust Company ("DTC") or its nominees will be the sole registered
holder of the Notes for all purposes under the Indenture.
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of persons holding through it with the respective principal amounts of
the Notes represented by such Global Security purchased by such persons in the
offering. Such accounts shall be designated by the Underwriters with respect to
Notes placed by the Underwriters for the Corporation. Ownership of beneficial
interests in a Global Security will be limited to persons that have accounts
with DTC ("participants") or persons that may hold interests through
participants. Ownership of beneficial interest by participants in a Global
Security will be shown on, and the transfer of that ownership interest will be
effected only through, records maintained by DTC for such Global Security.
Ownership of beneficial interests in such Global Security by persons that hold
through participants will be shown on, and the transfer of that ownership
interest within such participant will
40
<PAGE>
be effected only through, records maintained by such participant. The laws of
some jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
Payment of principal and interest on Notes represented by any such Global
Security will be made to DTC or its nominee, as the case may be, as the sole
registered owner and the sole holder of the Notes represented thereby for all
purposes under the Indenture. None of the Corporation, the Trustee, any agent of
the Corporation, or the Underwriters will have any responsibility or liability
for any aspect of DTC's records relating to or payments made on account of
beneficial ownership interests in a Global Security representing any Notes or
for maintaining, supervising, or reviewing any of DTC's records relating to such
beneficial ownership interests.
The Corporation has been advised by DTC that upon receipt of any payment of
principal of or interest on any Global Security, DTC will immediately credit, on
its book-entry registration and transfer system, the accounts of participants
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Security as shown on the records of DTC.
Payments by participants to owners of beneficial interests in a Global Security
held through such participants will be governed by standing instructions and
customary practices as is now the case with securities held for customer
accounts registered in "street name" and will be the sole responsibility of such
participants.
A Global Security may not be transferred except as a whole by DTC to a
nominee of DTC. A Global Security is exchangeable for certificated Notes only if
(i) DTC notifies the Corporation that it is unwilling or unable to continue as a
Depository for such Global Security or if at any time DTC ceases to be a
clearing agency registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (ii) the Corporation executes and delivers to the Trustee
a notice that such Global Security shall be so transferable, registrable, and
exchangeable, and such transfers shall be registrable, or (iii) there shall have
occurred and be continuing an Event of Default or an event which, with the
giving of notice or lapse of time or both, would constitute an Event of Default
with respect to the Notes represented by such Global Security. Any Global
Security that is exchangeable for certificated Notes pursuant to the preceding
sentence will be transferred to, and registered and exchanged for, certificated
Notes in authorized denominations and registered in such names as the Depository
holding such Global Security may direct. Subject to the foregoing, a Global
Security is not exchangeable, except for a Global Security of like denomination
to be registered in the name of the Depository or its nominee. In the event that
a Global Security becomes exchangeable for certificated Notes, (i) certificated
Notes will be issued only in fully registered form in denominations of $1,000 or
integral multiples thereof, (ii) payment of principal, any repurchase price, and
interest on the certificated Notes will be payable, and the transfer of the
certificated Notes will be registerable at the office or agency of the
Corporation maintained for such purposes, and (iii) no service charge will be
made for any registration of transfer or exchange of the certificated Notes,
although the Corporation may require payment of a sum sufficient to cover any
tax or governmental charge imposed in connection therewith.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Notes
represented by such Global Security for the purposes of receiving payment of the
Notes, receiving notices, and for all other purposes under the Indenture and the
Notes. Beneficial interest in Notes will be evidenced only by, and transfers
thereof will be effected only through, records maintained by the Depository and
its participants. Cede & Co. has been appointed as the nominee of the
Depository. Except as provided above, owners of beneficial interest in a Global
Security will not be entitled to and will not be considered the holders thereof
for any purposes under the Indenture. Accordingly, each person owning a
beneficial interest in a Global Security must rely on the procedures of the
Depository, and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a holder under the Indenture. The Corporation understands that under existing
industry practice, in the event that the Corporation requests any action of
holders or that an owner of a beneficial interest in a Global Security desires
to give or take any action which a holder is entitled to give or take under the
Indenture, the Depository would authorize the participants holding the relevant
beneficial
41
<PAGE>
interest to give or take such action and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
DTC has advised the Corporation that DTC is a limited-purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered under the
Exchange Act. DTC was created to hold the securities of its participants and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations, and certain other organizations some of whom (and/or their
representatives) own DTC. Access to DTC's book-entry system is also available to
others, such as banks, brokers, dealers, and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
CERTAIN RESTRICTIVE COVENANTS
The Indenture will provide that the following restrictive covenants will be
applicable to the Corporation unless and until the Corporation reaches
Investment Grade Status. After the Corporation has reached Investment Grade
Status, and notwithstanding that the Corporation's Debt Rating may later cease
to be rated Investment Grade by either S&P or Moody's or both, the Corporation
will be released from its obligations to comply with each of the restrictive
covenants described below, except for "Limitation on Indebtedness," "Limitation
on Restricted Subsidiary Indebtedness and Preferred Stock," "Limitation on
Secured Indebtedness of the Corporation and its Restricted Subsidiaries" and
"Limitation on Sale and Leaseback Transactions." The Corporation will remain
obligated to comply with certain provisions described in "Restrictions on
Merger" and certain other covenants that are not described below upon reaching
Investment Grade Status. The Corporation will also remain obligated to comply
with certain provisions described under "Change of Control" above.
LIMITATION ON INDEBTEDNESS. The Corporation will not, directly or
indirectly, Incur any Indebtedness unless, immediately after the date of the
Incurrence of such Indebtedness and after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds thereof as if
such Indebtedness had been Incurred and the proceeds thereof applied on the
first day of the Determination Period, the Consolidated Interest Coverage Ratio
of the Corporation exceeds 2.0 to 1.
Notwithstanding the foregoing, the Corporation may Incur the following
Indebtedness (although any Indebtedness so Incurred shall be included, to the
extent outstanding at the Transaction Date, in any subsequent determination of
the Consolidated Interest Coverage Ratio): (i) Indebtedness under the New Credit
Facility; (ii) Indebtedness outstanding on the Issue Date; (iii) Indebtedness
outstanding under the Notes; (iv) Indebtedness of the Corporation in respect of
Capital Lease Obligations and Sale and Leaseback Transactions Incurred after the
Issue Date if after giving effect to the Incurrence of such Indebtedness the
aggregate amount of Priority Indebtedness outstanding would not exceed the
Priority Indebtedness Basket; (v) Indebtedness under Interest Rate Protection
Agreements, provided that the obligations under such agreements are related to
payment obligations on Indebtedness otherwise permitted by the terms of this
covenant; (vi) Indebtedness of the Corporation to any wholly owned Restricted
Subsidiary of the Corporation (but only so long as such debt is held by such
wholly owned Restricted Subsidiary); (vii) Permitted Refinancing Indebtedness;
(viii) Indebtedness incurred in connection with a prepayment of the Notes
pursuant to a Change of Control, provided that (A) the principal amount of such
Indebtedness does not exceed the principal amount of the Notes prepaid plus all
interest accrued thereon and all related fees, expenses and redemption and
repurchase premiums related thereto (including any payments made in connection
with procuring any required lender or similar consents); (B) such Indebtedness
has an Average Life equal to or greater than the remaining Average Life of the
Notes; and (C) such Indebtedness does not mature prior to the Stated Maturity of
the Notes; and (ix) Indebtedness not otherwise permitted to be Incurred pursuant
to this paragraph or the preceding paragraph in an aggregate principal amount at
any one time outstanding not to exceed $125 million.
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<PAGE>
LIMITATION ON RESTRICTED SUBSIDIARY INDEBTEDNESS AND PREFERRED STOCK. The
Corporation will not permit any of its Restricted Subsidiaries to Incur,
directly or indirectly, any Indebtedness or issue any Preferred Stock, except:
(i) Indebtedness outstanding on the Issue Date; (ii) Indebtedness or Preferred
Stock issued to and held by the Corporation or any wholly owned Restricted
Subsidiary of the Corporation (but only so long as such Indebtedness or
Preferred Stock is held or owned by the Corporation or any wholly owned
Restricted Subsidiary of the Corporation); (iii) Indebtedness of a Restricted
Subsidiary in respect of Capital Lease Obligations and Sale and Leaseback
Transactions if after giving effect to the Incurrence of such Indebtedness the
aggregate amount of Priority Indebtedness outstanding would not exceed the
Priority Indebtedness Basket; (iv) Indebtedness under Interest Rate Protection
Agreements, provided that the obligations under such agreements are related to
payment obligations on Indebtedness otherwise permitted by the terms of this
covenant; (v) Indebtedness Incurred as Project Financing by a Foreign Restricted
Subsidiary; (vi) Indebtedness not otherwise permitted to be Incurred or
Preferred Stock not otherwise permitted to be issued pursuant to this paragraph
if after giving effect to the Incurrence of such Indebtedness or the issuance of
such Preferred Stock the aggregate amount of Priority Indebtedness outstanding
would not exceed the Priority Indebtedness Basket; provided that the aggregate
amount of Indebtedness Incurred or Preferred Stock issued by Domestic Restricted
Subsidiaries pursuant to this clause (vi) shall not exceed $75 million at any
one time outstanding; and (vii) Indebtedness Incurred or Preferred Stock issued
in exchange for, or the proceeds of which are used to Refinance, Indebtedness
referred to in clause (i) of this paragraph, to the extent that (A) the
principal amount of such Indebtedness or the liquidation value of such Preferred
Stock so Incurred or issued does not exceed the principal amount or liquidation
value of the Indebtedness or Preferred Stock so exchanged or Refinanced plus all
interest or dividends accrued thereon and all related fees, expenses and
redemption and repurchase premiums (including any payments made in connection
with procuring any required lender or similar consents), (B) the Indebtedness so
Incurred or Preferred Stock so issued has a Stated Maturity or final redemption
date later than the Stated Maturity or final redemption date (if any) of, and an
Average Life that is longer than that of, the Indebtedness or Preferred Stock
being exchanged or Refinanced and (C) the Indebtedness so Incurred or Preferred
Stock so issued has no greater recourse to the Property of the Corporation or
its subsidiaries than that of the Indebtedness or Preferred Stock being
exchanged or refinanced.
Any Indebtedness Incurred or Preferred Stock issued pursuant to the
preceding paragraph will be included, to the extent outstanding at the
Transaction Date, in any subsequent determination of the Consolidated Interest
Coverage Ratio.
The Corporation will not, and will not permit any of its Restricted
Subsidiaries to, take any action or enter into any transaction or series of
transactions that would result in a Person becoming a Restricted Subsidiary
(whether through an acquisition, the redesignation of an Unrestricted Subsidiary
or otherwise) unless, after giving effect to such action, transaction or series
of transactions, on a pro forma basis, (i) the Corporation could Incur at least
$1.00 of additional Indebtedness pursuant to the first paragraph under the
"Limitation on Indebtedness" and (ii) such subsidiary could then Incur, pursuant
to clauses (ii) through (vi) of the first paragraph above, all Indebtedness as
to which it is obligated at such time.
LIMITATIONS ON RESTRICTED PAYMENTS. The Corporation will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment if, at the time of and after giving effect to the proposed
Restricted Payment (i) any Default or Event of Default has occurred and is
continuing, (ii) the Corporation could not incur at least $1.00 of additional
Indebtedness under the first paragraph of "-- Limitation on Indebtedness", or
(iii) the aggregate amount expended or declared for all Restricted Payments from
the Issue Date (the Fair Market Value of the amount so expended or committed, if
other than in cash, to be determined in good faith by the Board of Directors of
the Corporation) exceeds the sum of (A) 50% of the aggregate Consolidated Net
Income of the Corporation (or, if Consolidated Net Income shall be a deficit,
minus 100% of such deficit) commencing on the last day of the fiscal quarter
immediately preceding the Issue Date and ending on the last day of the fiscal
quarter immediately preceding the date of such Restricted Payment, (B) 100% of
the aggregate net proceeds, including cash and the Fair Market Value of Property
other than cash, received by the Corporation subsequent to the Issue Date from
capital contributions from its stockholders or from the issuance or sale (other
than to a Subsidiary) of Qualified
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Capital Stock of the Corporation or of any convertible securities or debt
obligations issued on or after the date of issuance of the Notes which have been
converted into, exchanged for or satisfied by the issuance of Qualified Capital
Stock and (C) $175.0 million (collectively, the "Restricted Payment Basket").
The foregoing limitations do not prevent the Corporation from (i) paying a
dividend on its Capital Stock within 60 days after declaration thereof if, on
the declaration date, the Corporation could have paid such dividend in
compliance with the Indenture; (ii) acquiring shares of its Capital Stock (1)
solely in exchange for other shares of its Capital Stock (other than Redeemable
Stock), (2) to eliminate fractional shares for up to an aggregate consideration
in any fiscal year of the Corporation not to exceed $10.0 million, (3) pursuant
to an order of a court of competent jurisdiction, or (4) from an employee or
director of the Corporation in connection with repurchase provisions under
employee or director stock option and stock purchase agreements or plans or
other agreements to compensate employees or directors of the Corporation, but in
no event may such acquisition of its shares by the Corporation be for a price
greater than the higher of fair market value and the price at which such
securities were sold to such employee or director by the Corporation; (iii)
purchasing or redeeming Indebtedness which is contractually subordinated to the
Notes in exchange for, or out of the proceeds of, the substantially concurrent
(1) sale or issuance of Capital Stock (other than Redeemable Stock) of the
Corporation, or (2) incurrence of Indebtedness of the Corporation that is at
least as contractually subordinated in right of payment to the Notes and has a
Stated Maturity later than the Stated Maturity of the Notes as the Indebtedness
so refinanced and an Average Life greater than the remaining Average Life of the
Notes; (iv) the distribution or redemption by the Corporation of any rights to
purchase capital stock of the Corporation or any other Person which rights are
or were issued as part of a shareholder rights plan; provided that any such
redemption will be at a price not to exceed $0.01 per right; (v) the making of
any payment required pursuant to the Corporation's 1988 plan of recapitalization
or the Corporation's 1993 plan of reorganization; provided that such payments
shall not exceed $5 million in the aggregate; and (vi) purchasing or redeeming
up to 25% of the stock of any Restricted Subsidiary to the extent the Restricted
Payment Basket is not exceeded. Further, (x) the foregoing restrictions do not
prevent CGC Inc. from paying ordinary dividends and (y) in the case of a
Qualified Receivables Transaction, the foregoing limitations do not prevent a
Receivables Subsidiary from acquiring equity interests of a trust or other
person established by such Receivables Subsidiary to effect such Qualified
Receivables Transaction.
The payments permitted to be made pursuant to clauses (ii)(1), (iii), (iv)
and (v) of the preceding paragraph shall be excluded for purposes of any future
calculations of the aggregate amount expended or declared for Restricted
Payments. The payments permitted to be made pursuant to clauses (i), (ii)(2),
(ii)(3), (ii)(4), and (vi) above, and payments of dividends permitted to be made
pursuant to clause (x) above by CGC Inc. (but only to the extent such payments
are made to a Person other than the Corporation or its wholly-owned Restricted
Subsidiaries), shall be included for purposes of any future calculations of the
aggregate amount expended or declared for Restricted Payments.
LIMITATION UPON SECURED INDEBTEDNESS OF THE CORPORATION AND ITS RESTRICTED
SUBSIDIARIES. So long as any of the Notes are outstanding, the Corporation will
not itself, and will not permit any Restricted Subsidiary to, Incur any
Indebtedness secured by a Lien on any Principal Operating Property or on any
shares of stock or Indebtedness of any Restricted Subsidiary, without
effectively providing that the Notes (together with, if the Corporation so
determines, any other Senior Indebtedness of the Corporation or Indebtedness of
such Restricted Subsidiary then existing or thereafter created) shall be secured
equally and ratably with (or, at the Corporation's option, prior to) such
secured Indebtedness so long as such secured Indebtedness shall be so secured,
unless, after giving effect thereto, Priority Indebtedness would not exceed the
Priority Indebtedness Basket. This restriction does not apply to, and there will
be excluded from secured Indebtedness in any computation under such restriction,
Indebtedness secured by (i) Liens on property of, or on any shares of stock or
Indebtedness of, any Person existing at the time such Person becomes a
Restricted Subsidiary; (ii) Liens in favor of the Corporation or a wholly owned
Restricted Subsidiary; (iii) Liens in favor of governmental bodies to secure
progress, advance or other payments pursuant to any contract or provision of any
statute; (iv) certain Liens created (A) in the ordinary course of business, (B)
in connection with taxes, assessments or other governmental charges or (C) in
connection with legal proceedings; (v) Liens on, and limited to, property
(including leasehold estates), shares of stock or Indebtedness existing at the
time of
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acquisition thereof (including acquisition through merger or consolidation and
not put in place in contemplation of the transaction); (vi) purchase money and
construction Liens which are entered into within specified time limits; (vii)
Liens on the assets of a Receivables Subsidiary in a Qualified Receivables
Transaction; and (viii) any extension, renewal, replacement or refunding of any
Lien referred to in the foregoing clauses (i) through (vii), inclusive.
LIMITATION UPON SALE AND LEASEBACK TRANSACTIONS. So long as any of the
Notes are outstanding, the Corporation will not itself, and will not permit any
Restricted Subsidiary to, enter into any Sale and Leaseback Transaction with
respect to any Principal Operating Property owned by them while the Notes are
outstanding.
This restriction does not apply to any Sale and Leaseback Transaction if:
(i) the Corporation or such Restricted Subsidiary could mortgage such Principal
Operating Property under the restrictions set forth under "-- Limitation Upon
Secured Debt of the Corporation and its Restricted Subsidiaries" above in an
amount equal to the Attributable Value with respect to such Sale and Leaseback
Transaction without equally and ratably securing the Indenture Securities; (ii)
within 120 days after the sale or transfer is completed, the Corporation or a
Restricted Subsidiary applies to the retirement of Senior Indebtedness of the
Corporation or Indebtedness of a Restricted Subsidiary an amount equal to the
greater of (A) the net proceeds of the sale of the Principal Operating Property
leased or (B) the fair market value of the Principal Operating Property leased
at the time of entering into such arrangement; or (iii) such arrangement is
between the Corporation and a wholly-owned Restricted Subsidiary or between
Restricted Subsidiaries.
TRANSACTIONS WITH AFFILIATES. Neither the Corporation nor any Restricted
Subsidiary will be permitted to: (i) sell, lease, transfer, or otherwise dispose
of any of its properties, assets, or securities to; (ii) purchase any property,
assets, or securities from; or (iii) enter into any contract or agreement with,
or for the benefit of, an Affiliate, within the meaning of Rule 405 promulgated
by the Commission under the Securities Act, of the Corporation or a subsidiary
of the Corporation (an "Affiliate Transaction"), other than Affiliate
Transactions (A) in the ordinary course of business with Affiliates which are
directly or indirectly controlled by the Corporation and are engaged in a
similar or complementary line of business, which Affiliate Transactions do not
exceed: (a) $25.0 million in any one Affiliate Transaction or series of related
Affiliate Transactions unless a majority of the disinterested members of the
Board of Directors of the Corporation determines that such Affiliate Transaction
or series of Affiliate Transactions is on terms not less favorable to the
Corporation or such Restricted Subsidiary than those that would apply to an
arms-length transaction with an unaffiliated party and (b) $100.0 million in any
one Affiliate Transaction or series of related Affiliate Transactions unless the
test set forth in clause (a) has been satisfied and the Board of Directors of
the Corporation shall have been advised by an independent financial advisor
that, in the opinion of such advisor, such Affiliate Transaction or series of
Affiliate Transactions is fair, from a financial point of view, to the
Corporation or such Restricted Subsidiary; and (B) with Affiliates other than
those described in clause (A) above, which in the aggregate do not exceed: (a)
$5.0 million in any one Affiliate Transaction or series of related Affiliate
Transactions unless an officer of the Corporation certifies in writing that such
Affiliate Transaction or series of Affiliate Transactions is on terms not less
favorable to the Corporation or such Restricted Subsidiary than those that would
apply to an arms-length transaction with an unaffiliated party; (b) $25.0
million in any one Affiliate Transaction or series of related Affiliate
Transactions unless a majority of the disinterested members of the Board of
Directors of the Corporation determines that such Affiliate Transaction or
series of Affiliate Transactions is on terms not less favorable to the
Corporation or such Restricted Subsidiary than those that would apply to an
arms-length transaction with an unaffiliated party and (c) $100.0 million in any
one Affiliate Transaction or series of related Affiliate Transactions unless the
test set forth in clause (b) has been satisfied and the Board of Directors of
the Corporation shall have been advised by an independent financial advisor
that, in the opinion of such advisor, such Affiliate Transaction or series of
Affiliate Transactions is fair, from a financial point of view, to the
Corporation or such Restricted Subsidiary; provided that (x) transactions
between or among the Corporation and/or its wholly owned Restricted Subsidiaries
will not be considered Affiliate Transactions and (y) transactions between a
Receivables Subsidiary and any Person in which the Receivables Subsidiary has an
investment as part of a Qualified Receivables Transaction will not be considered
an Affiliate Transaction, but only to the extent such transactions are solely in
connection with the
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Qualified Receivables Transaction. In addition, any other Affiliate Transactions
that are not covered by clause (A) or (B) of the preceding sentence by reason of
their size shall be on terms not less favorable to the Corporation or such
Restricted Subsidiary than those that would apply to an arms-length transaction
with an unaffiliated party.
The foregoing limitations do not apply to (i) certain transactions with an
officer or director of the Corporation or any Subsidiary of the Corporation
entered into in the ordinary course of business (including compensation or
employee benefit arrangements with any officer or director of the Corporation or
any Subsidiary of the Corporation) or (ii) transactions between the Corporation
and its wholly owned Restricted Subsidiaries or among its wholly owned
Restricted Subsidiaries or (iii) transactions in the ordinary course of business
consistent with past practice between the Corporation and CGC Inc., so long as
CGC Inc. remains a Restricted Subsidiary.
LIMITATION ON ASSET SALES. The Corporation will not, and will not permit
any Restricted Subsidiary to, consummate any Asset Sale unless: (i) the
Corporation or such Restricted Subsidiary, as the case may be, receives
consideration at least equal to the Fair Market Value of the Property disposed
of and (ii) at least 70% of the consideration received by the Corporation or
such Restricted Subsidiary for such Property is in the form of cash, cash
equivalents, Indebtedness assumed by the buyer with respect to which the
Corporation and its remaining Restricted Subsidiaries are no longer liable and
trade payables assumed by the buyer; provided that the Corporation must, within
270 days of such Asset Sale, at the Corporation's option, (1) reinvest (or cause
a Restricted Subsidiary to reinvest) an amount equal to the Net Cash Proceeds
(or any portion thereof) from such disposition in Additional Assets and/or (2)
apply an amount equal to such Net Cash Proceeds to the repayment of Senior
Indebtedness or Indebtedness of Restricted Subsidiaries and/or (3) offer to
apply an amount equal to such Net Cash Proceeds to the repayment of the Notes
and repurchase any Notes properly tendered in acceptance of such Prepayment
Offer on a pro rata basis at a purchase price at least equal to 100% of their
principal amount plus interest accrued to the date of such repurchase. In the
event the remaining Net Cash Proceeds resulting from any Asset Sale after giving
effect to the purchase of Additional Assets and/or the repayment of Senior
Indebtedness or Indebtedness of Restricted Subsidiaries, are less than $25.0
million, the application of an amount equal to such remaining Net Cash Proceeds
to a pro rata offer to repurchase the Notes may be deferred until such time as
such remaining Net Cash Proceeds, together with remaining Net Cash Proceeds from
any prior or subsequent Asset Sales not otherwise applied in accordance with
this paragraph, are at least equal to $25.0 million. To the extent that any
portion of the amount of Net Cash Proceeds remains after compliance with the
foregoing and provided that all Holders have been given the opportunity to
tender their Notes for repurchase as provided in clause (3) above, the
Corporation or such Restricted Subsidiary may use such remaining amount for
general corporate purposes.
Within five Business Days after 270 days from the date of an Asset Sale, the
Corporation shall, if it chooses (or is obligated) to apply an amount equal to
any remaining Net Cash Proceeds (or any portion thereof) to fund an offer to
repurchase the Notes, send a written Prepayment Offer Notice, by first-class
mail, to the Holders of the Notes. The Prepayment Offer Notice will also state
(i) that the Corporation is offering to purchase Notes pursuant to the
provisions of the Indenture described herein under "-- Limitation on Asset
Sales", (ii) that any Notes (or any portion thereof) accepted for payment (and
duly paid on the Purchase Date) pursuant to the Prepayment Offer will cease to
accrue interest after the Purchase Date, (iii) the Expiration Date of the
Prepayment Offer, which will be, subject to any contrary requirements of
applicable law, not less than 30 days nor more than 60 days after the date of
such Prepayment Offer, (iv) a Purchase Date (which shall be the settlement date
for the purchase of Notes and shall be within three business days after the
Expiration Date), (v) the aggregate principal amount of Notes to be purchased
and the purchase price thereof and (vi) a description of the procedure which a
Holder must follow and any other information necessary to tender all or any
portion of such Holder's Notes.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Corporation will not be permitted to, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist any encumbrance or restriction (other than pursuant to law or
regulation) on the ability of any Restricted Subsidiary to (i) pay any dividend
on, or make any other distribution on
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account of, its capital stock or pay any Indebtedness owed to the Corporation or
a Restricted Subsidiary; (ii) make loans or advances to the Corporation or a
Restricted Subsidiary; or (iii) transfer any of its property or assets to the
Corporation or any other Restricted Subsidiary, except for (a) restrictions in
agreements existing as of the date of issuance of the Notes; (b) restrictions in
the Collateral Trust Agreement; (c) restrictions on Foreign Restricted
Subsidiaries relating to Project Financings; (d) restrictions on Foreign Joint
Ventures; (e) restrictions on Domestic Joint Ventures, but only to the extent
that the amounts invested by the Corporation in the entities subject to such
restrictions do not exceed $25.0 million in the aggregate at any one time; (f)
Indebtedness or other contractual requirements of a Receivables Subsidiary
solely in connection with a Qualified Receivables Transaction, provided that
such restrictions apply only to such Receivables Subsidiary; (g) any encumbrance
or restriction pursuant to an agreement relating to an acquisition of Property,
so long as the encumbrances or restrictions in any such agreement relate solely
to the Property so acquired and were not created in connection with or in
anticipation of such acquisition; (h) any encumbrance or restriction relating to
any Indebtedness of any Restricted Subsidiary at the date on which such
Restricted Subsidiary was acquired by the Corporation or any Restricted
Subsidiary (other than Indebtedness issued by such Restricted Subsidiary in
connection with or in anticipation of its acquisition); (i) any encumbrance or
restriction pursuant to an agreement effecting a permitted refinancing of
Indebtedness issued pursuant to an agreement referred to in the foregoing
clauses (a), (b), (g) and (h), so long as the encumbrances and restrictions
contained in any such refinancing agreement are no more restrictive than the
encumbrances and restrictions contained in such agreements; (j) customary
provisions restricting subletting or assignment of leases and customary
provisions in other agreements that restrict assignment of such agreements or
rights thereunder; (k) any restriction on the sale or other disposition of
assets or Property securing debt as a result of a lien of the kind set forth in
clauses (i)-(vii) of "-- Limitation Upon Secured Indebtedness of the Corporation
and its Restricted Subsidiaries," (l) restrictions in agreements with Foreign
Restricted Subsidiaries taking the form of net worth maintenance tests and
similar financial covenants and (m) agreements for the purchase of synthetic
gypsum entered into in the ordinary course of business consistent with past
practice.
RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Corporation may designate a
subsidiary (including a newly formed or newly acquired subsidiary) of the
Corporation or any of its Restricted Subsidiaries as an Unrestricted Subsidiary
if (i) such subsidiary does not have any obligations which, if in Default, would
result in a cross default on Indebtedness of the Corporation and (a) such
subsidiary has total assets of $1,000 or less, or (b) such designation is
effective immediately upon such Person becoming a subsidiary of either the
Corporation or any of its Restricted Subsidiaries or (ii) such subsidiary is a
Receivables Subsidiary or a captive insurance company. Unless so designated as
an Unrestricted Subsidiary, any Person that becomes a subsidiary of the
Corporation or any of its Restricted Subsidiaries shall be classified as a
Restricted Subsidiary thereof. Except as provided in clause (i)(a) of this
paragraph, no Restricted Subsidiary may be redesignated as an Unrestricted
Subsidiary. An Unrestricted Subsidiary may be redesignated as a Restricted
Subsidiary. The designation of an Unrestricted Subsidiary or removal of such
designation shall be made by the Board of Directors of the Corporation or a
committee thereof pursuant to a certified resolution delivered to the Trustee
and shall be effective as of the date specified in the applicable certified
resolution, which shall not be prior to the date such certified resolution is
delivered to the Trustee.
RESTRICTIONS ON MERGER
So long as any Notes are outstanding, the Corporation will not, except as
described below, consolidate with or merge into any other Person or sell or
transfer all or substantially all of its properties and assets to another Person
unless (i) the surviving entity is a company organized and existing under the
laws of the United States of America or a state thereof and expressly assumes,
by supplemental indenture satisfactory to the Trustee, the due and punctual
payment of the principal of (and premium, if any) and interest on all the Notes
and the due and punctual performance and observance of all covenants and
conditions of the Corporation in the Indenture; (ii) immediately before and
after giving effect to such transaction or series of related transactions on a
pro forma basis, no Default or Event of Default (and no event that, after notice
or lapse of time, or both, would become an Event of Default), shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis
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(including, without limitation, any Indebtedness Incurred or anticipated to be
Incurred in connection with such transaction or series of transactions), the
Corporation (or the surviving entity if the Corporation is not continuing) would
be able to Incur at least $1.00 of additional Indebtedness under the first
paragraph of
"-- Limitation on Indebtedness"; and (iv) immediately after giving effect to
such transaction or series of transactions on a pro forma basis (including,
without limitation, any Indebtedness Incurred or anticipated to be Incurred in
connection with such transaction or series of transactions) as if such
transaction had occurred on the first day of the Determination Period, the
Corporation (or the surviving entity if the Corporation is not continuing) shall
have a Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of the Corporation immediately prior to the transaction or series of
transactions. The foregoing restriction will not apply to the merger or
consolidation of a Restricted Subsidiary of the Corporation with or into the
Corporation or the merger or consolidation of two or more Restricted
Subsidiaries of the Corporation. In the event the Corporation reaches Investment
Grade Status and notwithstanding that the Corporation's Debt Rating thereafter
ceases to be rated Investment Grade by either S&P or Moody's or both the
restrictions contained in clauses (iii) and (iv) above shall cease to apply.
Because the term "all or substantially all" may not have an established meaning
and may depend on the facts and circumstances of a particular transaction,
including the qualitative as well as the quantitative aspects of such
transaction, there may be an uncertainty in the ability of holders or the
Indenture Trustee to determine when a sale of all or substantially all of the
assets has occurred and thus an uncertainty of holders or the Indenture Trustee
to determine as to whether a breach of this covenant has occurred.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to the
Notes: (i) default in the payment of any principal or premium, if any, on the
Notes when the same becomes due and payable at maturity, upon redemption or upon
repurchase pursuant to a Prepayment Offer as described in "-- Certain
Restrictive Covenants -- Limitation on Asset Sales" above or pursuant to a
Change of Control or other Designated Event as described in "Change of Control"
above; (ii) default for 30 days in the payment of any interest on the Notes; or
(iii) default for 60 days after written notice thereof in the performance of any
covenant (other than those covered by clauses (i) and (ii) of this paragraph)
applicable to the Notes; (iv) acceleration of maturity of any Indebtedness of
the Corporation or any subsidiary in excess of $50 million principal amount in
the aggregate if such acceleration results from a default under the instruments
giving rise to such indebtedness and is not annulled within 10 days after
written notice of such default; (v) the entry by a court of competent
jurisdiction of one or more judgments or orders against the Corporation or any
of its Restricted Subsidiaries in an uninsured aggregate amount in excess of $50
million and such judgment or order is not discharged, waived, stayed or
satisfied for a period of 45 consecutive days; or (vi) certain events of
bankruptcy, insolvency or reorganization. In case an Event of Default (other
than an Event of Default under clause (vi)) shall occur and be continuing with
respect to the Notes, the Indenture Trustee or the holders of not less than 25%
in aggregate principal amount of the Notes then outstanding by notice to the
Corporation may declare the principal of the Notes to be due and payable
immediately and if an Event of Default under clause (vi) shall occur and be
continuing, all such Notes shall become due and payable immediately without any
further action or notice. Any Event of Default with respect to the Notes may be
waived, and a declaration of acceleration rescinded, by the holders of a
majority in aggregate principal amount of the Notes except in a case of failure
to pay principal or premium, if any, or interest in respect of the Notes or
failure to honor change of control provisions. The Indenture provides that the
Indenture Trustee may withhold notice to the security holders of any default
(except in payment of principal, premium, if any, or interest) if it determines
in good faith that it is in the interest of the security holders to do so. No
Event of Default with respect to a particular series of securities issued under
the Indenture necessarily constitutes an Event of Default with respect to any
other series of securities issued thereunder.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Event of Default occurs and is continuing, the
Indenture Trustee will be under no obligation to exercise any of its rights or
powers under the Indenture, at the request, order or direction of any of the
security holders, unless such security holders have offered to the Indenture
Trustee reasonable indemnity. Subject to such provisions for the indemnification
of the Indenture Trustee and to certain other limitations, the holders of a
majority
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in aggregate principal amount of the securities of all series affected (voting
as one class) at the time outstanding have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Indenture
Trustee, or exercising any trust or power conferred on the Indenture Trustee.
The Corporation is required to file with the Indenture Trustee annually an
officers' certificate as to the absence of certain defaults under the terms of
the Indenture.
DEFEASANCE
The Corporation, at its option, (i) will be discharged from any and all
obligations in respect of the Notes (except for certain obligations to register
the transfer or exchange of the Notes, replace stolen, lost, destroyed or
mutilated certificates for the Notes, maintain paying agencies and hold moneys
for payment in trust) or (ii) will not be under any obligation to comply with
certain covenants and provisions applicable to the Notes, including those
described above if the Corporation (A) irrevocably deposits with the Indenture
Trustee, in trust for the holders of the Notes, (1) money or (2) noncallable
obligations issued or fully guaranteed by the United States of America which
through the payment of interest and income thereon and principal thereof will
provide money, in each case in an amount sufficient to pay all the principal of
(and premium of, if any) and interest on the Notes on the dates such payments
are due in accordance with the terms of the Notes and (B) shall have paid or
caused to be paid all other sums payable with respect to the Notes. To exercise
either of the options described above, the Corporation is required, among other
things, to deliver to the Indenture Trustee an opinion of nationally recognized
tax counsel to the effect that holders of the Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
discharge and will be subject to federal income tax in the same amount and in
the same manner and at the same times as would have been the case if such
deposit and discharge had not occurred, and an officer's certificate and opinion
of counsel to the effect that all conditions precedent relating to such deposit
and discharge under the Indenture have been complied with, and that such deposit
and discharge will not cause any violation of the Investment Company Act of
1940, as amended, on the part of the Corporation, the trust, the trust funds
representing such deposit or the Indenture Trustee.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Corporation and the
Indenture Trustee to modify or otherwise amend the Indenture, or any
supplemental indenture thereto or the rights of the holders of the securities
issued thereunder, with the consent of the holders of not less than a majority
in principal amount of the securities of all series at the time outstanding
under the Indenture which are affected by such modification or amendment (voting
as one class); provided that no such modification or amendment shall (i) change
the fixed maturity of any securities, or reduce the principal amount thereof, or
premium, if any, or reduce the rate or extend the time of payment of interest
thereon, or reduce the amount due and payable upon the acceleration of the
maturity thereof or the amount provable in bankruptcy, or make the principal of,
or interest or premium on, any security payable in any coin or currency other
than that provided in such security; (ii) impair the right to institute suit for
the enforcement of any such payment on or after the stated maturity thereof;
(iii) reduce the aforesaid percentage in principal amount of securities, the
consent of the holders of which is required for any such modification or
amendment, or the percentage required for the consent of the holders to waive
defaults, without the consent of the holder of each security so affected; or
(iv) modify or eliminate any of the provisions of the Indenture relating to a
Change of Control or the obligation of the Corporation to offer to purchase
Notes as set forth in "-- Certain Restrictive Covenants -- Limitation on Asset
Sales," without, in the case of this clause (iv), the consent of holders of not
less than two-thirds in principal amount of securities so affected.
CERTAIN DEFINITIONS
"Additional Assets" means any Property (other than cash or cash equivalents)
used in or substantially related to the businesses engaged in by the Corporation
or its Restricted Subsidiaries as of the Issue Date.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or
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indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise), provided that, in any event, (a) any
Person which owns directly or indirectly 10% or more of the securities having
ordinary voting power for the election of directors or other governing body of a
company or 10% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such company or other Person and (b) each Unrestricted
Subsidiary shall be deemed to be an Affiliate of the Corporation and of each
other Restricted Subsidiary and Unrestricted Subsidiary. Notwithstanding the
foregoing, no Person (other than the Corporation or any subsidiary of the
Corporation) in whom a Receivables Subsidiary makes an investment solely in
connection with a Qualified Receivables Transaction shall be deemed to be an
Affiliate of the Corporation or any of its subsidiaries with respect to such
investment (but may be deemed an Affiliate with respect to other transactions,
if applicable).
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (an "Assignment") by such Person or any of its
Restricted Subsidiaries (including (x) issuances of Capital Stock by any
Restricted Subsidiary of such Person and (y) any consolidation, merger or other
sale of any such Restricted Subsidiary with, into or to another person in a
transaction in which such Restricted Subsidiary ceases to be a Restricted
Subsidiary, but excluding (z) any Sale and Leaseback Transaction) in any single
transaction or series of transactions of (i) shares of Capital Stock (other than
directors' shares of Qualified Capital Stock) or other ownership interests of a
subsidiary of such Person or (ii) any other Property (other than cash or cash
equivalents) of such Person or any of its Restricted Subsidiaries (other than
sales within the ordinary course of business) where the Fair Market Value of the
shares, ownership interests, or other Property being sold, leased, or otherwise
disposed of, in a single transaction or series of transactions, exceeds $25
million (except in the case of issuances of capital stock described in clause
(x) above, as to which the $25 million threshhold will not apply); provided that
the term "Asset Sale" shall not include (a) any Assignment permitted pursuant to
"-- Restrictions on Merger" which constitutes a disposition of all or
substantially all of the Corporation's assets or properties, (b) any Assignment,
consolidation or merger between or among such Person and its wholly-owned
Restricted Subsidiaries and any issuance of Capital Stock by a Restricted
Subsidiary of such Person to such Person or one or more of its wholly-owned
Restricted Subsidiaries, (c) any issuance of Capital Stock by CGC Inc. to
employees or directors pursuant to employee benefit plans or to stockholders
pursuant to dividend reinvestment plans, in each case approved by CGC Inc.'s
board of directors (d) sales of accounts receivable and related assets of the
type specified in the definition of "Qualified Receivables Transaction" to a
Receivables Subsidiary, (e) transfers of accounts receivable and related assets
of the type specified in the definition of "Qualified Receivables Transaction"
(or a fractional undivided interest therein) by a Receivables Subsidiary in a
Qualified Receivables Transaction, (f) the surrender or waiver of contract
rights or the settlement, release or surrender of contract, tort or other claims
of any kind, (g) the grant of any license of patents, trademarks, registrations
therefor and other similar intellectual property or (h) any Assignment of
Property to any Joint Venture if, at the time such Assignment is made, the total
of such Assignment and all Assignments previously made to Joint Ventures and not
returned to the Corporation or its Restricted Subsidiaries in cash or in kind do
not in the aggregate exceed 7.5% of the Corporation's consolidated Property,
Plant and Equipment as shown or reflected on the Corporation's consolidated
balance sheet most recently filed under the Exchange Act. In the case of clauses
(d) and (e) above, sales or transfers of accounts receivable and related assets
shall not be excluded from the definition of Asset Sale to the extent that the
Corporation records debt on its consolidated balance sheet in connection
therewith in excess of 90% of the consolidated net book value of the
Corporation's accounts receivable as shown or reflected on its books.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable, other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the greater of (i) the
Fair Market Value of the property subject to such lease, or (ii) the total net
amount of rent required to be paid by such Person under such lease during the
initial term thereof as determined in accordance with GAAP, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the interest rate borne by the Notes compounded semi-annually. The net
amount of rent required to be paid under any such lease for any such period
shall be the aggregate amount of rent payable by the lessee with respect to such
period after excluding amounts required to be paid on account of
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insurance, taxes, assessments, utility, operating and labor costs and similar
charges. In the case of any lease which is terminable by the lessee upon the
payment of a penalty, such net amount shall also include the amount of such
penalty, but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated.
"Average Life" means, as of any date, with respect to any debt security or
Redeemable Stock that is Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of (x) the number of years from such date to the date of
each scheduled principal or redemption payment (including any sinking fund or
mandatory redemption payment requirements) of such debt or equity security
multiplied in each case and (y) the amount of such principal or redemption
payment by (ii) the sum of all such principal or redemption payments.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP. The amount
of any such Capital Lease Obligation shall be the capitalized amount thereof,
determined in accordance with GAAP and as set forth or reflected in the
Corporation's financial statements most recently filed under the Exchange Act.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to subscribe for or to acquire an equity
interest in such Person.
"Change of Control" means an event or series of events by which (i)(A) the
Corporation consolidates with or merges into any other Person or conveys,
transfers or leases all or substantially all of its assets to any Person or
group of Persons or (B) any Person consolidates with or merges into the
Corporation, in the case of either (A) or (B) pursuant to a transaction or
series of transactions (other than a transaction or series of transactions
between the Corporation and a wholly owned Restricted Subsidiary of the
Corporation if permitted under "Restrictions on Merger") as a result of which
the existing shareholders of the Corporation immediately prior thereto would
hold less than 50% of the combined voting power of the Voting Stock of the
surviving Person, or (ii) any "person" or "group" (each as defined in Section
13(d)(3) and 13d-5 of the Exchange Act) becomes the "beneficial owner" (as
defined under Rule 13d-3 of the Exchange Act), directly or indirectly, of more
than 50% of the total voting power of all classes of Voting Stock of the
Corporation, or (iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors (together
with any new or replacement directors whose election by the Board of Directors
or whose nomination for election by the Corporation's stockholders was approved
by a vote of at least 66 2/3% of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the directors then in office; provided that in the event that a
Person or group that is beneficial owner of 50% or less of the Voting Stock of
the Corporation is able to elect a majority of the Board pursuant to an
agreement with another holder or group of holders, a Change of Control will be
deemed to have occurred.
"Company" includes corporations, associations, companies and business
trusts.
"Consolidated EBITDA" of any Person means, for any period, the Consolidated
Net Income of such Person, increased (to the extent deducted in determining
Consolidated Net Income) by the sum of (i) all income taxes of such Person and
its Restricted Subsidiaries paid or accrued in accordance with GAAP, (ii) the
Consolidated Interest Expense of such Person and its Restricted Subsidiaries for
such period, (iii) depletion, depreciation and amortization expenses of such
Person and its Restricted Subsidiaries for such period, (iv) other non-cash
items of such Person and its Restricted Subsidiaries for such period to the
extent such non-cash items reduced Consolidated Net Income, MINUS non-cash items
for such period to the extent such non-cash items increased the Consolidated Net
Income of such Person and its Restricted Subsidiaries; and (v) items shown as
"Other Expense" on the consolidated statement of earnings of such
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Person and its Restricted Subsidiaries for such period, but only to the extent
such items reduced Consolidated Net Income by $3 million or less individually
and by $6 million or less in the aggregate on an annualized basis during such
period.
"Consolidated Interest Coverage Ratio" means, as of the Transaction Date,
the ratio of (i) the aggregate amount of Consolidated EBITDA of such Person, to
(ii) the aggregate Consolidated Interest Expense of such Person, in each case
for the Determination Period assuming for the purposes of this measurement the
continuation of market interest rates prevailing on the Transaction Date and
base interest rates in respect of floating interest rate obligations equal to
the base interest rates on such obligations in effect as of the Transaction
Date; PROVIDED that if such Person or any of its Restricted Subsidiaries is a
party to any Interest Rate Protection Agreements which would have the effect of
changing the interest rate on any Indebtedness of such Person or any of its
subsidiaries for such Determination Period (or a portion thereof), the resulting
rate shall be used for such Determination Period or portion thereof; and
PROVIDED FURTHER that any Consolidated Interest Expense with respect to debt
Incurred or retired by such Person or any of its Restricted Subsidiaries during
theDetermination Period shall be calculated as if such debt was so Incurred or
retired on the first day of the Determination Period; and PROVIDED FURTHER that
if the transaction giving rise to the need to calculate the Consolidated
Interest Coverage Ratio would have the effect of increasing or decreasing
EBITDA, EBITDA shall be calculated on a pro forma basis as if such transaction
had occurred on the first day of the Determination Period and if, during the
same Determination Period (x) such Person or any of its subsidiaries shall have
engaged in any Asset Sale, EBITDA for such period shall be reduced by an amount
equal to the EBITDA (if positive), or increased by an amount equal to the EBITDA
(if negative), directly attributable to the assets which are the subject of such
Asset Sale for such period calculated on a pro forma basis as if such Asset Sale
and any related retirement of Indebtedness had occurred on the first day of such
period or (y) such Person or any of its Restricted Subsidiaries shall have
acquired any material assets or Person outside of the ordinary course of
business (including in a pooling of interests transaction), EBITDA shall be
calculated on a PRO FORMA BASIS as if such acquisition had occurred on the first
day of such period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication (i) the sum of (A) the aggregate amount of cash and
non-cash interest expense (including capitalized interest and the interest
component of any Capital Lease Obligation) of such Person and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP in respect of Indebtedness (including, without limitation, (x) any
amortization of debt discount (but excluding non-cash amortization of debt
discount associated with the implementation of the Restructuring), (y) net costs
associated with Interest Rate Protection Agreements (including any amortization
of discounts) and (z) all accrued interest; (B) Preferred Stock dividends of
such Person (and of its Restricted Subsidiaries if paid to a Person other than
such Person or its Restricted Subsidiaries) declared and payable in cash
multiplied by a fraction the numerator of which is one and the denominator of
which is one minus the Corporation's effective tax rate for such period; (C) the
portion of any rental obligation of such Person or its Restricted Subsidiaries
in respect of any Capital Lease Obligation allocable to interest expense in
accordance with GAAP; (D) the portion of any rental obligation of such Person or
its Restricted Subsidiaries in respect of any Sale and Leaseback Transaction
allocable to interest expense (determined as if such were treated as a Capital
Lease Obligation); and (E) to the extent any Indebtedness of any other Person is
Guaranteed by such Person or any of its Restricted Subsidiaries, the aggregate
amount of interest paid, accrued or scheduled to be paid or accrued, by such
other Person during such period attributable to any such Indebtedness, minus
(ii) to the extent included in (i) above, amortization or write-off of deferred
financing costs of such Person and its Restricted Subsidiaries during such
period and any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness of such Person and its Restricted
Subsidiaries prior to its Stated Maturity; and in the case of both (i) and (ii)
above, after elimination of intercompany accounts among such Person and its
Restricted Subsidiaries as determined in accordance with GAAP and excluding the
amortization of capitalized reorganization debt discount costs associated with
the revaluation of assets and liabilities with respect to the Restructuring as
determined in accordance with GAAP and as set forth or reflected in the
Corporation's financial statements most recently filed under the Exchange Act.
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"Consolidated Net Income" of any Person means, for any period, the aggregate
net income (or net loss) of such Person and its Restricted Subsidiaries for such
period on a consolidated basis determined in accordance with GAAP; provided that
there shall be excluded therefrom, without duplication, (i) all items classified
as extraordinary, (ii) any net loss or net income of any Person other than such
Person and its Restricted Subsidiaries, except to the extent of the amount of
dividends or other distributions actually paid to such Person or its Restricted
Subsidiaries by such other Person during such period, (iii) gains or losses in
respect of Asset Sales by such Person or its Restricted Subsidiaries, (iv) the
net income of any Restricted Subsidiary of such Person to the extent that the
payment of dividends or other distributions to such Person is restricted by
contract or otherwise, except for any dividends or distributions actually paid
by such Restricted Subsidiary to such Person; provided that the net income of
all such Restricted Subsidiaries shall be excluded from Consolidated Net Income
only to the extent it exceeds $2 million per annum and (v) amortization of
excess reorganization value and capitalized reorganization debt discount costs
associated with the revaluation of assets and liabilities with respect to the
Restructuring, in each case as set forth or reflected in the Corporation's
financial statements most recently filed under the Exchange Act.
"Consolidated Net Tangible Assets" means the aggregate amount of assets
(including investments in Unrestricted Subsidiaries, but less applicable
reserves and other properly deductible items) minus (i) all liabilities and
liability items except (a) indebtedness for money borrowed maturing on, or
extendable at the option of the obligor to, a date more than one year from the
date of determination thereof, (b) deferred income taxes and (c) stockholders'
equity and (ii) the asset value as reflected in the balance sheet of all
goodwill, trade names, trademarks, patents, unamortized excess reorganization
value, unamortized debt discount and expense and other like intangibles, in each
case as determined in accordance with GAAP and as set forth or reflected in the
Corporation's consolidated balance sheet most recently filed under the Exchange
Act.
"Consolidated Net Worth" of any Person means the stockholders' equity of
such Person and its Restricted Subsidiaries, as determined on a consolidated
basis in accordance with GAAP, less amounts attributable to Redeemable Stock of
such Person and its Restricted Subsidiaries.
"Credit Facility" means the bank credit facility entered into on July __,
1995 between the Corporation, on the one hand, and the banks signatory thereto
on the other, and all related notes, collateral documents, guarantees,
instruments and other agreements executed in connection therewith, as the same
may be amended, modified, supplemented, restated or Refinanced from time to
time, under which the Corporation is permitted to borrow up to $500 million.
"Debt Rating" means the actual rating assigned to the Notes by Moody's or
S&P, as the case may be. (The Indenture provides that the Corporation will use
its best efforts to cause both Moody's and S&P to make a rating of the Notes
publicly available, but in the event that either Moody's or S&P does not make a
rating of the Notes publicly available, the Indenture provides that the
Corporation shall select any other nationally recognized securities rating
agency to make such a rating. In such event, the terms "Moody's" and "S&P," as
the case may be, mean, for purposes of this definition, such other nationally
recognized securities rating agency.)
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Designated Event" shall be deemed to have occurred at such time as (a) a
Change of Control occurs or (b) a Designated Restricted Payment Event occurs.
"Designated Restricted Payment Event" means a (i) declaration or payment of
any dividend on, or the making of any distribution on account of, the
Corporation's capital stock or (ii) purchase, redemption, or acquisition or
retirement for value of any capital stock (including any option, warrant or
right to purchase capital stock) of the Corporation owned beneficially by a
Person other than a wholly owned Restricted Subsidiary of the Corporation, by
the Corporation or any subsidiary of the Corporation, if the aggregate dividends
and repurchases referred to in clauses (i) and (ii) above for the consecutive
twelve month period
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ending on the Transaction Date exceeds one half of the Consolidated Net Income
of the Corporation for the eight fiscal quarters immediately prior to the
Transaction Date for which consolidated financial statements are publicly
available.
"Determination Period" means the four consecutive fiscal quarters for which
consolidated financial statements in respect thereof are available immediately
prior to the applicable Transaction Date.
"Domestic Joint Ventures" means Joint Ventures having their primary business
operations inside the United States.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary having its
primary business operations inside the United States.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and the rules and regulations promulgated thereunder.
"Fair Market Value" means, with respect to the total consideration received
pursuant to any Asset Sale or any non-cash consideration received by any Person,
the fair market value of such consideration as determined in good faith by the
Board of Directors or a committee thereof.
"Fiscal Year" means, with respect to the Corporation, the twelve consecutive
months ending December 31.
"Foreign Joint Ventures" means Joint Ventures having their primary business
operations outside the United States.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary having its
primary business operations outside the United States.
"Full Rating Category" means (i) with respect to S&P, any of the following
categories: BB, B, CCC, CC, and C, and (ii) with respect to Moody's, any of the
following categories: Ba, B, Caa, Ca, and C. In determining whether the rating
of the Notes has decreased by the equivalent of one Full Rating Category,
gradation within Full Rating Categories (+ and - for S&P; 1, 2, and 3 for
Moody's) shall be taken into account (e.g., with respect to S&P, a decline in
rating from BB+ to BB-, or from BB to B+, will constitute a decrease of less
than one Full Rating Category.)
"GAAP" or "generally accepted accounting principles," with respect to any
computation required or permitted hereunder shall, except as otherwise
specifically provided, mean such accounting principles as are generally accepted
in the United States of America at the date of such computation.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of such
Person, (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term
"Guarantee" will not include endorsements for collection or deposit in the
ordinary course of business (and "Guaranteed", "Guaranteeing" and "Guarantor"
shall have meanings correlative to the foregoing).
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), extend,
assume, Guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," and "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); provided that the recording by the Corporation of
Indebtedness of a subsidiary as required in the preparation of consolidated
financial statements of the Corporation shall not constitute an "Incurrence" of
such Indebtedness by the Corporation for purposes of the covenant contained in
"-- Certain Restrictive Covenants
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- -- Limitation on Indebtedness;" and further provided that a change in GAAP that
results in an obligation of a Person that exists at such time becoming
Indebtedness shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for borrowed
money, (ii) any obligation of such Person evidenced by bonds, debentures, notes,
Guarantees or other similar instruments, (iii) any reimbursement obligation of
such Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person (other than obligations with
respect to letters of credit securing obligations entered into in the ordinary
course of business of such Person to the extent not drawn on or, if and to the
extent drawn on, such drawing is reimbursed promptly following receipt by such
Person of a demand for reimbursement following payment on the letter of credit),
(iv) any obligation of such Person issued or assumed as the deferred purchase
price of Property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business), (v) any Capital Lease
Obligation of such Person, (vi) the maximum fixed redemption or repurchase price
of Redeemable Stock of such Person at the time of determination, (vii) any
payment obligation of such Person under Interest Rate Protection Agreements at
the time of determination, (viii) the Attributable Value of any obligation of
such Person to pay rent or other amounts with respect to any Sale and Leaseback
Transaction to which such Person is a party, and (ix) any obligation of the type
referred to in clauses (i) through (viii) of this paragraph of another Person
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or asset or the amount of
the obligations so secured. Notwithstanding the foregoing, the following shall
not constitute Indebtedness: (w) obligations Incurred in connection with
currency hedges and energy hedges entered into in the ordinary course of
business and (x) Indebtedness of any Person existing at the time such Person
becomes a Restricted Subsidiary if such Indebtedness is defeased in accordance
with its terms or, in the event that defeasance is not provided for in the
instruments defining such Indebtedness, the Corporation irrevocably deposits in
trust for the holders of such Indebtedness money or noncallable obligations
issued or fully guaranteed by the United States of America which through the
payment of interest and income thereon and principal thereof will provide money,
in each case in an amount sufficient to pay all the principal of (and premium
on, if any) and interest on such Indebtedness on the dates such payments are due
in accordance with the terms thereof and shall pay or cause to be paid all other
sums payable with respect thereto. The maximum fixed repurchase price of any
Redeemable Stock that does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Redeemable Stock as if such Redeemable
Stock were repurchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture; provided, however, that if such
Redeemable Stock is not then permitted to be repurchased, the repurchase price
shall be the book value of such Redeemable Stock. The amount of Indebtedness
arising from any Guarantee shall be limited to the lesser of (y) the amount of
Indebtedness underlying such Guarantee or (z) the limit, if any, on recovery
against the Guarantor contained in such Guarantee. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
contingent obligations as described above at such date.
"Interest Rate Protection Agreement" means, with respect to any Person, any
interest rate swap agreement, interest rate cap agreement, currency swap
agreement or other financial agreement or arrangement designed to protect such
Person or its Restricted Subsidiaries against fluctuations in interest rate or
currency exchange rates, as in effect from time to time.
"Investment Grade" means a rating of at least BBB- (or the equivalent) or
higher by S&P and Baa3 (or the equivalent) or higher by Moody's.
"Investment Grade Status" shall be deemed to have been reached on the date
that the Debt Rating by both Moody's and S&P is Investment Grade.
"Issue Date" means the first day on which the Notes are issued.
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"Joint Ventures" means joint ventures or other risk sharing arrangements
(which may include partnerships or corporations) the purpose of which is to
engage in the same or complementary lines of business as the Corporation or a
Restricted Subsidiary or in businesses consistent with the fundamental nature of
the operating business of the Corporation or a Restricted Subsidiary.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, lien
(statutory or other), charge, encumbrance, preference, priority or other
security or similar agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including without limitation,
any conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Moody's" means Moody's Investors Service or any successor to the rating
agency business thereof.
"Net Cash Proceeds" from any Asset Sale by any Person or its Restricted
Subsidiaries means cash, cash equivalents or readily marketable securities
received, net of (i) all reasonable out-of-pocket expenses of such Person or
such Restricted Subsidiary incurred in connection therewith, including, without
limitation, all legal, title and recording tax expenses, commissions and other
fees and expenses (but excluding any finder's fee or broker's fee payable to any
Affiliate of such Person) and all federal, state, provincial, foreign and local
taxes arising in connection with such Asset Sale that are paid or required to be
accrued as a liability under GAAP by such Person or its Restricted Subsidiaries,
(ii) all payments made by such Person or its Restricted Subsidiaries on any
Indebtedness which is secured by such Properties in accordance with the terms of
any Lien upon or with respect to such Properties or which must, by the terms of
such Lien, or in order to obtain a necessary consent to such Asset Sale or by
applicable law, be repaid out of the proceeds from such Asset Sale, and (iii)
all distributions and other payments made to minority interest holders in
Restricted Subsidiaries of such Person as a result of such Asset Sale (except
for distributions under this clause (iii) made to Affiliates of such Person or
Restricted Subsidiaries); provided that, in the event that any consideration for
an Asset Sale (which would otherwise constitute Net Cash Proceeds) is required
to be held in escrow pending determination of whether a purchase price
adjustment will be made, such consideration (or any portion thereof) shall
become Net Cash Proceeds only at such time as it is released to such Person or
its Restricted Subsidiaries from escrow, and provided that any non-cash
consideration received in connection with an Asset Sale, which is within 90 days
converted to cash, shall be deemed to be Net Cash Proceeds at such time and
shall thereafter be applied in accordance with " -- Certain Restrictive
Covenants -- Limitation on Asset Sales."
"Permitted Refinancing Indebtedness" means Indebtedness of the Corporation,
the proceeds of which are used to Refinance outstanding Indebtedness of the
Corporation or any Restricted Subsidiary, provided that (i) if the Indebtedness
being Refinanced is pari passu with or subordinated in right of payment to the
Notes, then such Indebtedness is pari passu with or subordinated in right of
payment to, as the case may be, the Notes at least to the same extent as the
Indebtedness being Refinanced, (ii) such Indebtedness is scheduled to mature no
earlier than the Indebtedness being Refinanced and (iii) such Indebtedness has
an Average Life at the time such Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced, and (iv)
such Indebtedness is in an aggregate principal amount (or, if such Indebtedness
is issued at a price less than the principal amount thereof, has an aggregate
original issue price) not in excess of the aggregate principal amount then
outstanding of the Indebtedness being Refinanced (or if the Indebtedness being
Refinanced was issued at a price less than the principal amount thereof, then
not in excess of the amount of liability in respect thereof determined in
accordance with GAAP) plus all interest accrued thereon and all related fees,
expenses, and redemption and repurchase premiums (including any payments made in
connection with procuring any required lender or similar consents).
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
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"Principal Operating Property" means any manufacturing plant, or
distribution or research facility, and related facilities located in the United
States and owned and operated by the Corporation or any subsidiary for more than
90 days, other than any facility acquired for the control or abatement of
atmospheric pollutants or contaminants, water pollution, noise, odor or other
pollution.
"Priority Indebtedness" means (without duplication) (a) the Capital Lease
Obligations and Attributable Value of Sale and Leaseback Transactions of (x) the
Corporation Incurred pursuant to clause (iv) of "-- Certain Restrictive
Covenants -- Limitation on Indebtedness" or (y) any Restricted Subsidiary of the
Corporation Incurred pursuant to clause (iii) of " -- Certain Restrictive
Covenants -- Limitation on Restricted Subsidiary Indebtedness and Preferred
Stock," (b) Indebtedness or Preferred Stock of any Restricted Subsidiary of the
Corporation Incurred pursuant to clause (vi) of "-- Certain Restrictive
Covenants -- Limitation on Restricted Subsidiary Indebtedness and Preferred
Stock," (c) Indebtedness of the Corporation Incurred after the Issue Date which
is secured by a Lien of the type covered by "-- Certain Restrictive Covenants --
Limitation Upon Secured Indebtedness of the Corporation and its Restricted
Subsidiaries," but with respect to which the Notes are not equally and ratably
secured and (d) the Attributable Value of any Sale and Leaseback Transactions
referred to in clause (i) of the second paragraph of " -- Certain Restrictive
Covenants -- Limitation Upon Sale and Leaseback Transactions" to the extent
entered into after the Issue Date and not included under clause (a) above.
"Priority Indebtedness Basket" means the greater of (a) 5% of Consolidated
Net Tangible Assets of the Corporation and (b) $225 million.
"Project Financing" means Indebtedness incurred to finance the construction,
development or acquisition of property or assets, with respect to which
Indebtedness recourse is limited to (x) the property or assets constituting all
or a portion of the project being financed with the proceeds of such
Indebtedness and the funds generated from such project upon the completion of
such project, (y) the entity undertaking such project if such entity exists for
the primary purpose of operating such project, and/or (z) a Restricted or
Unrestricted Subsidiary to the extent it Guarantees such Indebtedness; provided
that Indebtedness associated with any Guarantee made by a Restricted Subsidiary
shall be charged against the Priority Indebtedness Basket (unless to do so would
be duplicative).
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including, without limitation, Capital Stock in any other Person.
"Qualified Capital Stock" means Capital Stock of the Corporation or any of
its Restricted Subsidiaries that does not by its terms require any dividends,
distributions, mandatory repayment or mandatory redemption prior to the first
anniversary following the Stated Maturity of the Notes.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Corporation or any of its
subsidiaries pursuant to which the Corporation or any of its subsidiaries may
sell, convey or otherwise transfer to (i) a Receivables Subsidiary (in the case
of a transfer by the Corporation or any of its subsidiaries) and (ii) any other
person (in the case of a transfer by a Receivables Subsidiary), or may grant a
security interest in, any accounts receivable (whether now existing or arising
in the future) of the Corporation or any of its subsidiaries, and any assets
related thereto including, without limitation, all collateral securing such
accounts receivable, all contacts and all guarantees or other obligations in
respect of such accounts receivable, proceeds of such accounts receivable and
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Rating Decline" means the occurrence of the following on or within 90
calendar days after the date of public disclosure of the occurrence of a
Designated Event (which period will be extended, for a period not to exceed 90
calendar days, so long as the Debt Rating is under publicly announced
consideration for possible downgrading by both Moody's and S&P): (i) in the
event the Notes are rated Investment Grade by Moody's or S&P on the earlier of
the date immediately preceding the date of the public disclosure of (w) the
occurrence of a Designated Event or (x) (if applicable) the intention of the
Corporation to effect a Designated
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Event, the Debt Rating by both Moody's and S&P shall be below Investment Grade;
or (ii) in the event the Notes are rated below Investment Grade by both Moody's
and S&P on the earlier of the date immediately preceding the date of the public
disclosure of (y) the occurrence of a Designated Event or (z) (if applicable)
the intention of the Corporation to effect a Designated Event, the Debt Rating
by each of Moody's and S&P shall be decreased by at least one Full Rating
Category.
"Receivables Subsidiary" means a wholly owned subsidiary of the Corporation
which engages in no activities other than in connection with the financing of
accounts receivable and which is designated by or pursuant to the authority of
the Board of Directors of the Corporation (as provided below) as a Receivables
Subsidiary (a) no portion of the Indebtedness or any other obligations
(contingent or otherwise) of which (i) is guaranteed by the Corporation or any
subsidiary of the Corporation (excluding guarantees of obligations (other than
the principal of, and interest on, Indebtedness) pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction), (ii) is
recourse to or obligates the Corporation or any subsidiary of the Corporation in
any way other than pursuant to representations, warranties, covenants and
indemnities entered into in connection with a Qualified Receivables Transaction
or (iii) subjects any property or asset of the Corporation or any subsidiary of
the Corporation, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction and (b) with which neither
the Corporation nor any subsidiary of the Corporation has any obligation to
maintain or preserve such subsidiary's financial condition (other than
restrictions on dividends and distributions by such subsidiary) or cause such
subsidiary to achieve certain levels of operating results. Any such designation
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the resolution of the Board of Directors of the Corporation giving effect to or
authorizing such designation and an officer's certificate certifying that such
designation complied with the foregoing conditions.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or otherwise, is required to be redeemed or is
redeemable at the option of the holder thereof, in whole or part, prior to the
Stated Maturity of the Notes, or is exchangeable for debt at any time, in whole
or part, prior to the Stated Maturity of the Notes.
"Redemption Date" means, when used with respect to any Note to be redeemed,
the date fixed for redemption of such Note pursuant to the Indenture.
"Refinance" means, with respect to any Indebtedness, to renew, extend,
refinance, refund, replace or repurchase, or be substituted for, such
Indebtedness and "Refinancing" means the renewal, extension, refinancing,
refunding, replacement or repurchasing of, or substitution for, such
Indebtedness.
"Restricted Payment" means (i) a dividend or other distribution declared or
paid on the Capital Stock of the Corporation or to the Corporation's
stockholders (in their capacity as such), or declared or paid to any Person
other than the Corporation or a Restricted Subsidiary of the Corporation on the
Capital Stock of any Restricted Subsidiary of the Corporation, in each case,
other than dividends, distributions or payments payable or made solely in
Qualified Capital Stock of the Corporation, (ii) a payment made by the
Corporation or any of its Restricted Subsidiaries (other than to the Corporation
or any Restricted Subsidiary of the Corporation) to purchase, redeem, acquire or
retire any Capital Stock of the Corporation or of a Restricted Subsidiary or
(iii) a payment made by the Corporation or any of its Restricted Subsidiaries to
redeem, repurchase, defease (including, but not limited to, insubstance or legal
defeasance) or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund or mandatory redemption
payment, Indebtedness of the Corporation which is subordinate (whether pursuant
to its terms or by operation of law) in right of payment to the Notes and which
was scheduled to mature (after giving effect to any and all options to extend
the maturity thereof) on or after the Stated Maturity of the Notes.
"Restricted Subsidiary" means (i) prior to the Corporation achieving
Investment Grade Status, any subsidiary of the Corporation which is not an
Unrestricted Subsidiary and (ii) following the Corporation achieving Investment
Grade Status, any subsidiary of the Corporation which owns any Principal
Operating
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Property; provided, however, that the definition of Restricted Subsidiary
contained in clause (i) above shall continue to apply for the purpose of
calculating the Consolidated Interest Coverage Ratio of the Corporation and for
the purpose of clause (vi) of the second paragraph under " -- Certain
Restrictive Covenants -- Limitation on Indebtedness."
"S&P" means Standard & Poor's Rating Group, a division of McGraw-Hill, Inc.,
or any successor to the rating agency business thereof.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Restricted Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Restricted Subsidiaries.
"Senior Indebtedness" means, at any date, any outstanding Indebtedness of
the Corporation that is pari passu in right of payment with the Notes.
"Stated Maturity" means, when used with respect to any security, the date
specified in such security as the fixed date on which the principal or
redemption price of such security is due and payable and, when used with respect
to any installment of interest on a security, the fixed date on which such
installment of interest is due and payable. The Stated Maturity of a Capital
Lease Obligation shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Transaction Date" means the date of any transaction giving rise to the need
to calculate the Consolidated Interest Coverage Ratio or to determine whether
there has been a Designated Event.
"Unrestricted Subsidiary" means (a) USG Funding Corporation and (b) any
subsidiary of the Corporation that the Corporation has classified pursuant to
"Restricted and Unrestricted Subsidiaries" as an Unrestricted Subsidiary and
that has not been reclassified as a Restricted Subsidiary.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only as long as no
senior class of securities has such voting power by reason of any contingency.
DESCRIPTION OF OTHER DEBT OBLIGATIONS
The Senior 1996 Notes, the Senior 1997 Notes, the Senior 2001 Notes and the
Senior 2017 Debentures were issued under the Indenture (the "Other Indenture
Securities"). The Senior 1996 Notes bear interest at 8% per annum and will
mature on December 15, 1996. The Senior 1997 Notes bear interest at 8% per annum
and will mature on March 15, 1997. The Senior 2017 Debentures bear interest at
8.75% per annum and will mature on March 1, 2017. The Other Indenture Securities
rank pari passu with the Notes and with all other senior indebtedness of the
Corporation. The Other Indenture Securities will be secured by security
interests in capital stock of certain of the Corporation's subsidiaries under
the Collateral Trust Agreement. See "Capitalization" and "Description of
Collateral Trust."
The Senior 1996 Notes, the Senior 1997 Notes and the Senior 2001 Notes may
not be redeemed at the option of the Corporation prior to maturity.
The Senior 2017 Debentures may be redeemed at the option of the Corporation
at face amount plus a premium in whole or in part from time to time on at least
30 and not more than 90 days' notice by mail to registered holders thereof.
Notwithstanding the foregoing provision, the Corporation may not redeem any
of the Senior 2017 Debentures prior to March 1, 1997, directly or indirectly,
from or in anticipation of moneys borrowed by or for the account of the
Corporation or any of its Subsidiaries at an interest cost of less than 8.77%
per annum.
As a mandatory sinking fund for the Senior 2017 Debentures, the Corporation
will pay to the Indenture Trustee before March 1, in each of the years 1998 to
2016, inclusive, an amount in cash sufficient to redeem,
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at the Sinking Fund Redemption Price, $10,000,000 aggregate principal amount of
the Senior 2017 Debentures. At its option, the Corporation may pay to the
Indenture Trustee before each mandatory sinking fund payment date an additional
amount in cash sufficient to redeem at the Sinking Fund Redemption Price up to
an additional $15,000,000 aggregate principal amount of the Senior 2017
Debentures. The right to make such optional sinking fund payments is not
cumulative, but any optional sinking fund payment may be used to reduce the
amount of any subsequent mandatory sinking fund payment.
The Other Indenture Securities are entitled to the benefit of covenants
limiting the ability of the Corporation and certain restricted subsidiaries to
(i) incur certain secured debt without equally and ratably securing the Other
Indenture Securities, (ii) entering into certain sale and leaseback transactions
involving principal operating properties and (iii) enter into merger
transactions unless certain conditions are satisfied. The provisions described
above under "Description of Notes" concerning defeasance also apply to the Other
Indenture Securities.
The Corporation and U.S. Gypsum are co-obligors with respect to the 7 7/8%
Sinking Fund Debentures due 2004 (the "Senior 2004 Debentures"). The Senior 2004
Debentures will also be secured by security interests in capital stock of
certain of the Corporation's domestic subsidiaries under the Collateral Trust
Agreement. See "Capitalization" and "Description of Collateral Trust."
DESCRIPTION OF COLLATERAL TRUST
In connection with entering into the New Credit Agreement, the Corporation
will establish a collateral trust pursuant to the Collateral Trust Agreement
(the "Collateral Trust Agreement"), among the Corporation and its significant
subsidiaries (collectively, the "Grantors") and Wilmington Trust Company and
William J. Wade (collectively, the "Collateral Trustee"). Under the Collateral
Trust Agreement, the Grantors will grant a security interest in all of the
capital stock (and associated rights and proceeds thereof) of the Corporation's
significant subsidiaries which presently include U. S. Gypsum, USG Interiors,
L&W Supply and USG Foreign Investments, Ltd. (collectively, the "Collateral").
The Collateral will be held in trust for the equal and ratable benefit of the
holders of (i) the Bank Debt, (ii) the Notes, (iii) the Other Indenture
Securities, (iv) the Senior 2004 Debentures, (v) the 10 1/4% Senior Notes, and
(vi) any indebtedness that arises from the refinancing of the foregoing (the
"Senior Secured Obligations").
Under the Collateral Trust Agreement, an "Actionable Default" occurs upon
the acceleration of any of the Senior Secured Obligations. A "Notice of
Actionable Default" may be given (i) in the case of acceleration of the Bank
Debt, automatically or by the agent under the New Credit Agreement at the
request or with the consent of the holders of a majority of the Bank Debt (the
"Requisite Bank Lenders"); or (ii) in the case of an acceleration of any series
of securities or other refinancing instrument by the trustee or other
representative under the indenture or refinancing instrument or, if provided
under the terms of such indenture or refinancing instrument, by the requisite
holders of such debt. A Notice of Actionable Default may be withdrawn by the
party which gave it (i) at any time before the Collateral Trustee has exercised
any remedies with respect to the Collateral as a result thereof or (ii) after
the Collateral Trustee has exercised remedies if (a) the Corporation indemnifies
the holders of the Senior Secured Obligations with respect to the costs and
expenses incurred by them in connection with reversing all actions that the
Collateral Trustee has taken to exercise any remedy or remedies with respect to
the Collateral and (b) the Requisite Bank Lenders consent to such withdrawal. In
addition, a Notice of Actionable Default is deemed withdrawn when the party
giving such Notice has acknowledged payment in full of the Senior Secured
Obligations owing to it. Until such time as any Notice of Actionable Default is
given (and after the time when any such Notice has been withdrawn), the pledgor
thereof may vote any securities comprising Collateral. At any time when a Notice
of Actionable Default has been given and not withdrawn, the Collateral Trustee
may, upon written notice to the Corporation, vote any securities comprising
Collateral.
All of the Collateral will be released (i) once the Corporation's senior
public debt is rated "Investment Grade" (a rating of BBB- or higher by Standard
& Poor's Ratings Group and Baa3 or higher by Moody's Investors Service, Inc.)
and all accrued and unpaid Collateral Trustee's fees have been paid in full,
(ii) upon the consent and direction of all holders of Bank Debt and all accrued
and unpaid Collateral Trustee's fees
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have been paid in full, or (iii) at such time as the Bank Debt has been repaid
in full and the commitments of the Bank Group to made advances under the New
Credit Agreement have terminated and all accrued and unpaid Collateral Trustee's
fees have been paid in full. In addition, the Requisite Bank Lenders may
instruct the Collateral Trustee to release specified portions of the Collateral
(e.g., in the case of asset sales approved by the holders of the Bank Debt under
the New Credit Agreement) provided that no Actionable Default has occurred. The
holders of the Notes do not have any similar rights to authorize release of the
Collateral. Under the terms of the Collateral Trust Agreement, the Collateral so
released revert to the Grantors and are not required to be distributed into the
Collateral Account (defined below). For a description of the rights of
the holders of the Bank Debt under the New Credit Agreement, see "Description of
New Credit Agreement."
Following receipt of a Notice of Actionable Default and during such time as
such Notice of Actionable Default shall not have been withdrawn, the Requisite
Bank Lenders have the right to direct the Collateral Trustee to exercise, or
refrain from exercising, any rights or remedies with respect to the Collateral.
The holders of the Notes do not have any similar right to direct the actions of
the Collateral Trustee. See "Risk Factors - Control of Collateral Trust
Agreement by Bank Group." At any time when a Notice of Actionable Default has
been given and not withdrawn, the Collateral Trustee may, and at the direction
of the Requisite Bank Lenders shall, among other things, sell the Collateral for
the benefit of the holders of the Senior Secured Obligations. Funds derived from
any sale of Collateral and (at all times after a Notice of Actionable Default
has been given and not withdrawn) dividends and distributions received on the
Collateral are to be deposited to the collateral account established under the
Collateral Trust Agreement (the "Collateral Account"). The Collateral Trustee
shall distribute all moneys in the Collateral Account as follows: (i) first, to
the Collateral Trustee for unpaid fees; (ii) second, to the holders of the
Senior Secured Obligations ratably (on the basis of unpaid amounts) to (a) pay
the portion of the Senior Secured Obligations which is then due and payable and
(b) provide cash collateral (on a dollar-for-dollar basis) for the portion of
the Senior Secured Obligations which is not then due and payable; and (iii)
third, to the Grantors.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Corporation has agreed to sell to each of the Underwriters named below, and
each of the Underwriters has severally agreed to purchase, the aggregate
principal amount of Notes set forth opposite the name of such Underwriter:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Salomon Brothers Inc............................................................ $
BT Securities Corporation....................................................... $
Citicorp Securities, Inc........................................................ $
Chemical Securities Inc......................................................... $
Total....................................................................... $
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase the entire amount of
the Notes offered hereby if any Notes are purchased. The Underwriters have
advised the Corporation that they propose initially to offer the Notes to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such offering price less a concession not
in excess of % principal amount of the Notes. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of % of the principal
amount of the Notes to certain other dealers. After the offering of the Notes
commences, the public offering price or such concessions may be changed. In the
event of a default by any one or more of the Underwriters, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitment of
the nondefaulting Underwriters may be increased or the Underwriting Agreement
terminated.
The Underwriting Agreement provides that the Corporation will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Underwriters may be
required to make in respect thereof.
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The Underwriters have advised the Corporation that they currently intend to
make a market in the Notes; however, they are not obligated to do so and any
market making may be discontinued at any time without notice. No assurance can
be given as to the development or liquidity of any trading market in the Notes.
If an active market does not develop, the market price and liquidity of the
Notes may be adversely effected.
The Underwriters and their affiliates from time to time engage in investment
banking and commercial banking transactions with the Corporation in the ordinary
course of business. Chemical Securities Inc. is acting as arranger of the New
Credit Agreement, and its affiliate, Chemical Bank, is agent bank under the New
Credit Agreement. Bankers Trust Company and Citibank, N.A., which are affiliates
of BT Securities Corporation and Citicorp Securities, Inc., respectively, are
acting as managing agents under the New Credit Agreement. Salomon Brothers Inc
("Salomon") has provided financial advisory and investment banking services to
the Corporation from time to time for which it has received customary fees and
reimbursement of expenses including, advising the Corporation from April 1991 to
May 1993 in connection with the development and implementation of the
Restructuring. Salomon also acted as an underwriter in the Corporation's public
offering of its Common Stock in March 1994.
LEGAL MATTERS
The validity of the Notes will be passed upon by Kirkland & Ellis, Chicago,
Illinois. Certain legal matters will be passed upon for the Underwriters by
Wachtell, Lipton, Rosen & Katz, New York, New York.
EXPERTS
The consolidated financial statements and supplemental schedules of the
Corporation and its subsidiaries, included and incorporated in this prospectus
by reference have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included and incorporated herein in reliance upon the authority of said firm as
experts in giving said reports. Reference is made to said reports, which (1) for
the Restructured Company, includes an explanatory paragraph with respect to the
asbestos litigation as discussed in Notes to the Financial Statements --
"Litigation" note and an explanatory paragraph with respect to the change in the
method of accounting for asbestos-related matters also as discussed in Notes to
the Financial Statements -- "Litigation" note; and (2) for the Predecessor
Company, includes an explanatory paragraph with respect to the asbestos
litigation as discussed in Notes to the Financial Statements --"Litigation" note
and an explanatory paragraph with respect to the changes in the methods of
accounting for post retirement benefits other than pensions and accounting for
income taxes as discussed in Notes to Financial Statements -- "Cumulative Effect
of Changes in Accounting Principles" note.
AVAILABLE INFORMATION
The Corporation has filed with the Securities and Exchange Commission (the
"Commission" or the "SEC") a Registration Statement on Form S-3 (the
"Registration Statement") (which term shall encompass all amendments, exhibits
and schedules thereto) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made. Such
additional information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices of
the Commission: Northwestern Atrium Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661; and Seven World Trade Center, New York, New York 10048.
Copies of such material can be obtained by mail from the public reference
section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Statements made in this Prospectus
as to the contents of any contract, agreement or other document referred to are
not necessarily complete but such statements are complete in all material
respects for the purposes herein made. With respect to each such contract,
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agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files periodic reports and other information with the
Commission. Such reports and other information filed with the Commission, as
well as the Registration Statement, can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
Seven World Trade Center, New York, New York 10048. Copies of such material can
also be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
reports and other information with respect to the Corporation are available for
inspection at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005 and the Chicago Stock Exchange, Inc., One Financial
Place, 440 South LaSalle Street, Chicago, Illinois 60605.
INFORMATION INCORPORATED BY REFERENCE
The Corporation's Annual Report on Form 10-K for the year ended December 31,
1994, its Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 and
its Report on Form 8-K dated May 24, 1995 have been filed by the Corporation
with the Commission (File No. 1-8864) and are specifically incorporated herein
by reference.
All documents filed by the Corporation with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination or completion of this offering
shall be deemed to be incorporated by reference in this Prospectus and to be
part of this Prospectus from the date of the filing of such document. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Corporation hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, upon the written or oral
request of such person, a copy of any or all of the information filed by it that
has been incorporated by reference in this Prospectus (not including exhibits to
the information that is incorporated by reference herein unless such exhibits
are specifically incorporated by reference in such information). Requests for
such information should be directed to USG Corporation, 125 South Franklin
Street, Chicago, Illinois 60606-4678, Attention: Investor Relations (telephone
number: (312) 606-4000).
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USG CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
On May 6, 1993, the Corporation completed the Restructuring through
implementation of the Prepackaged Plan as described in the notes to financial
statements. The consolidated financial statements and notes thereto for the
interim periods ended March 31, 1995 and 1994, presented on pages F-2 through
F-12, and the year ended December 31, 1994 and period of May 7 through December
31, 1993, presented on pages F-13 through F-44, report financial data for the
restructured USG Corporation. As a result of the Restructuring and
implementation of fresh start accounting, these restructured company financial
results are not comparable to results reported in the periods prior to May 7,
1993 for the predecessor USG Corporation which are presented separately for the
period of January 1 through May 6, 1993 and the year ended December 31, 1992 on
pages F-47 through F-73. Because the Restructuring was implemented on May 6,
1993, the Restructuring transaction and accounting adjustments associated with
the implementation of fresh start accounting are reflected in the results of the
predecessor company. All historical financial information presented on pages F-2
through F-77 should be read in conjunction with the information included in this
Prospectus under "Capitalization," and "Management's Discussion and Analysis of
"Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
RESTRUCTURED COMPANY:
CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Statements of Earnings -- Three months ended March 31, 1995 and 1994...................... F-2
Consolidated Balance Sheet -- As of March 31, 1995 and December 31, 1994............................... F-3
Consolidated Statement of Cash Flows -- Three months ended March 31, 1995 and 1994..................... F-4
Notes to Interim Financial Statements.................................................................. F-5
Consolidated Statement of Earnings -- Year ended December 31, 1994 and May 7 through December 31, 1993... F-13
Consolidated Balance Sheet -- As of December 31, 1994 and December 31, 1993.............................. F-14
Consolidated Statement of Cash Flows -- Year ended December 31, 1994 and May 7 through December 31,
1993.................................................................................................... F-15
Notes to Financial Statements............................................................................ F-16
Report of Independent Public Accountants................................................................. F-46
PREDECESSOR COMPANY:
Consolidated Statement of Earnings -- January 1 through May 6, 1993 and year ended December 31, 1992..... F-47
Consolidated Balance Sheet -- As of May 6, 1993.......................................................... F-48
Consolidated Statement of Cash Flows -- January 1 through May 6, 1993 and year ended December 31, 1992... F-49
Notes to Financial Statements............................................................................ F-50
Report of Independent Public Accountants................................................................. F-75
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED).............................................................. F-76
</TABLE>
All other schedules have been omitted because they are not applicable, are not
required, or the information is included in the financial statements or notes
thereto.
F-1
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Net Sales......................................................................... $ 598 $ 506
Cost of products sold............................................................. 446 396
-------------- --------------
Gross Profit...................................................................... 152 110
Selling and administrative expenses............................................... 60 57
Amortization of excess reorganization value....................................... 42 42
-------------- --------------
Operating Profit.................................................................. 50 11
Interest expense.................................................................. 27 37
Interest income................................................................... (2) (3)
Other expense/(income), net....................................................... -- 1
-------------- --------------
Earnings/(Loss) Before Taxes on Income............................................ 25 (24)
Taxes on income................................................................... 27 10
-------------- --------------
Net Loss.......................................................................... (2) (34)
-------------- --------------
-------------- --------------
Net Loss Per Common Share......................................................... (0.05) (0.87)
-------------- --------------
-------------- --------------
Dividends paid per common share................................................... -- --
Average number of common shares................................................... 45,085,540 39,134,246
</TABLE>
SEE ACCOMPANYING NOTES TO INTERIM FINANCIAL STATEMENTS.
F-2
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1995 1994
----------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................................................... $ 94 $ 197
Receivables (net of reserves -- $16 and $14)................................... 296 274
Inventories.................................................................... 190 173
------ ------
Total current assets......................................................... 580 644
------ ------
Property, Plant and Equipment (net of reserves for depreciation and depletion
-- $90 and $80)............................................................... 770 755
Excess Reorganization Value (net of accumulated amortization -- $324 and
$282)......................................................................... 519 561
Other Assets................................................................... 171 164
------ ------
Total Assets................................................................. 2,040 2,124
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................................... 145 122
Accrued expenses............................................................... 217 253
Notes payable.................................................................. 5 1
Long-term debt maturing within one year........................................ 3 44
Taxes on income................................................................ 51 35
------ ------
Total current liabilities.................................................... 421 455
------ ------
Long-Term Debt................................................................. 1,018 1,077
Deferred Income Taxes.......................................................... 177 179
Other Liabilities.............................................................. 426 421
Stockholders' Equity/(Deficit):
Preferred stock................................................................ -- --
Common stock................................................................... 5 5
Capital received in excess of par value........................................ 221 221
Deferred currency translation.................................................. (5) (13)
Reinvested earnings/(deficit).................................................. (223) (221)
------ ------
Total stockholders' equity/(deficit)......................................... (2) (8)
------ ------
Total Liabilities and Stockholders' Equity................................... 2,040 2,124
------ ------
------ ------
</TABLE>
SEE ACCOMPANYING NOTES TO INTERIM FINANCIAL STATEMENTS.
F-3
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss........................................................................................ $ (2) $ (34)
Adjustments to reconcile net loss to net cash:
Amortization of excess reorganization value................................................... 42 42
Depreciation, depletion and other amortization................................................ 17 18
Deferred income taxes......................................................................... (2) 7
Net (gain)/loss on asset dispositions......................................................... (3) --
(Increase)/decrease in working capital:
Receivables................................................................................... (22) (25)
Inventories................................................................................... (17) (21)
Payables...................................................................................... 39 15
Accrued expenses.............................................................................. (36) 2
Increase in other assets........................................................................ (7) (9)
Increase in other liabilities................................................................... 5 4
--------- ---------
Net cash flows (to)/from operating activities................................................. 14 (1)
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures............................................................................ (24) (7)
Net proceeds from asset dispositions............................................................ 6 --
--------- ---------
Net cash flows to investing activities........................................................ (18) (7)
--------- ---------
Cash Flows from Financing Activities:
Issuance of debt................................................................................ 6 114
Repayment of debt............................................................................... (105) (207)
Proceeds from public offering of common stock................................................... -- 224
--------- ---------
Net cash flows (to)/from financing activities................................................. (99) 131
--------- ---------
Net Increase/(Decrease) in Cash & Cash Equivalents.............................................. (103) 123
--------- ---------
Cash & cash equivalents at beginning of period.................................................. 197 211
--------- ---------
Cash & cash equivalents at end of period........................................................ 94 334
--------- ---------
--------- ---------
Supplemental Cash Flow Disclosures:
Interest paid................................................................................... $ 25 $ 22
Income taxes paid............................................................................... 13 4
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO INTERIM FINANCIAL STATEMENTS.
F-4
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(1) The consolidated financial statements of USG Corporation and its
subsidiaries ("USG" or the "Corporation") included herein have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the statements reflect
all adjustments, which are of a normal recurring nature, necessary to
present fairly the Corporation's financial position as of March 31, 1995
and December 31, 1994; and results of operations and cash flows for the
three months ended March 31, 1995 and 1994. While these interim financial
statements and accompanying notes are unaudited, they have been reviewed by
Arthur Andersen LLP, the Corporation's independent public accountants.
These financial statements and notes are to be read in conjunction with the
financial statements and notes included in the Corporation's 1994 Annual
Report on Form 10-K dated March 8, 1995.
(2) In the fourth quarter of 1994, the Corporation established a revolving
accounts receivable facility. Under this new financing program, the trade
receivables of United States Gypsum Company ("U.S. Gypsum") and USG
Interiors, Inc. ("USG Interiors") are being purchased by USG Funding
Corporation ("USG Funding") and transferred to a trust administered by
Chemical Bank as trustee. Certificates representing an ownership interest
of up to $130 million in the trust have been issued to an affiliate of
Citicorp North America, Inc. USG Funding, a special purpose subsidiary of
USG Corporation, is a separate corporate entity with its own separate
creditors which will be entitled to be satisfied out of USG Funding's
assets prior to any value in USG Funding becoming available to its
shareholder. Receivables and debt outstanding in connection with the
receivables facility remain in receivables and long-term debt,
respectively, on the Corporation's consolidated balance sheet.
(3) On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt through implementation of a "prepackaged" plan of reorganization
under United States bankruptcy law. The Corporation accounted for the
restructuring using the principles of fresh start accounting as required by
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7" ). Pursuant to such
principles, individual assets and liabilities were adjusted to fair market
value. Excess reorganization value, the portion of the reorganization value
not attributable to specific assets, is being amortized over a five-year
period, effective May 7, 1993.
(4) Income tax expense amounted to $27 million and $10 million for the three
months ended March 31, 1995 and 1994, respectively. The Corporation's
income tax expense is computed based on pre-tax earnings excluding the
non-cash amortization of excess reorganization value, which is not
deductible for federal income tax purposes. Further, under the provisions
of SOP 90-7, the benefits of the domestic net operating loss carryforwards
("NOL Carryforwards") discussed below are not reflected in income tax
expense.
The Corporation has NOL Carryforwards of $49 million remaining from 1992.
These NOL Carryforwards may be used to offset U.S. taxable income through
2007. The Internal Revenue Code limits the Corporation's annual use of its
NOL Carryforwards to the lesser of its taxable income or approximately $30
million plus any unused limit from prior years. Furthermore, due to the
uncertainty regarding the application of the Internal Revenue Code to the
exchange of stock for debt, the Corporation's NOL Carryforwards to 1994 and
later years could be reduced or eliminated. The Corporation has a $4 million
minimum tax credit which may be used to offset U.S. regular tax liability in
future years.
(5) As of March 31, 1995, 2,750,555 common shares were reserved for future
issuance in conjunction with existing stock option grants. An additional
11,105 common shares were reserved for future grants.
(6) One of the Corporation's operating subsidiaries, U.S. Gypsum, is a
defendant in asbestos lawsuits alleging both property damage and personal
injury. Virtually all costs of the Personal Injury Cases are
F-5
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
being paid by insurance. However, many of U.S. Gypsum's insurance carriers
are denying coverage for the Property Damage Cases, although U.S. Gypsum
believes that substantial coverage exists and the trial court and an
appellate court in U.S. Gypsum's Coverage Action have so ruled. The
carriers are seeking reconsideration of the Illinois Supreme Court's
refusal to review the appellate court's ruling. In view of the limited
insurance funding currently available to U.S. Gypsum for Property Damage
Cases resulting from continued resistance by a number of U.S. Gypsum's
insurers to providing coverage, the effect of the asbestos litigation on
the Corporation will depend upon a variety of factors, including the
damages sought in Property Damage Cases that reach trial prior to the
completion of the Coverage Action, U.S. Gypsum's ability to successfully
defend or settle such cases, and the resolution of the Coverage Action. As
a result, management is unable to determine whether an adverse outcome in
the asbestos litigation will have a material adverse effect on the results
of operations or the consolidated financial position of the Corporation.
The Corporation and certain of its subsidiaries have been notified by state
and federal environmental protection agencies of possible involvement as one
of numerous "potentially responsible parties" in a number of so-called
"Superfund" sites in the United States. The Corporation believes that
neither these matters nor any other known governmental proceeding regarding
environmental matters will have a material adverse effect upon its earnings
or consolidated financial position.
(7) On January 1, 1985, all of the issued and outstanding shares of stock of
U.S. Gypsum were converted into shares of USG Corporation and the holding
company became a joint and several obligor for certain debentures
originally issued by U.S. Gypsum. Debentures totaling $22 million and $33
million were recorded on the holding company's books of account as of March
31, 1995 and December 31, 1994, respectively. Summary financial results for
U.S. Gypsum are presented below (dollars in millions):
SUMMARY STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Net sales........................................................... $ 332 $ 269
Cost and expenses................................................... 255 224
Amortization of excess reorganization value......................... 15 15
--------- ---------
Operating profit.................................................... 62 30
Interest expense, net............................................... -- --
Corporate charges................................................... 22 24
--------- ---------
Earnings before taxes on income..................................... 40 6
Taxes on income..................................................... 21 9
--------- ---------
Net earnings/(loss)................................................. 19 (3)
--------- ---------
--------- ---------
</TABLE>
F-6
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUMMARY BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH AS OF
31, DEC. 31,
1995 1994
----------- -----------
<S> <C> <C>
Current assets............................................... $ 381 $ 345
Property, plant and equipment, net........................... 503 491
Excess reorganization value, net............................. 189 204
Other assets................................................. 106 103
----------- -----------
Total assets................................................. 1,179 1,143
----------- -----------
----------- -----------
Current liabilities.......................................... 212 197
Other liabilities and obligations............................ 256 256
Stockholder's equity......................................... 711 690
----------- -----------
Total liabilities and stockholder's equity................... 1,179 1,143
----------- -----------
----------- -----------
</TABLE>
(8) As of March 31, 1995, $298 million aggregate principal amount of 10 1/4%
senior notes due 2002 were outstanding. Each of U.S. Gypsum, USG
Industries, Inc., USG Interiors, USG Foreign Investments, Ltd., L&W Supply
Corporation, Westbank Planting Company, USG Interiors International, Inc.,
American Metals Corporation and La Mirada Products Co., Inc. (together, the
"Combined Guarantors") guaranteed, in the manner described below, the
obligations of the Corporation under its bank term loans' credit agreement
and 10 1/4% senior notes. The Combined Guarantors are jointly and severally
liable under the guarantees. Holders of the bank term loans have the right
to: (i) determine whether, when and to what extent the guarantees will be
enforced (provided that each guarantee payment will be applied to the bank
term loans and 10 1/4% senior notes pro rata based on the respective
amounts owed thereon); and (ii) amend or eliminate the guarantees. The
guarantees will terminate when the bank term loans are retired regardless
of whether any such 10 1/4% senior notes remain unpaid. The liability of
each of the Combined Guarantors on its guarantee is limited to the greater
of: (i) 95% of the lowest amount, calculated as of July 13, 1988,
sufficient to render the guarantor insolvent, leave the guarantor with
unreasonably small capital or leave the guarantor unable to pay its debts
as they become due (each as defined under applicable law); and (ii) the
same amount, calculated as of the date any demand for payment under such
guarantee is made, in each case plus collection costs. The guarantees are
senior obligations of the applicable guarantor and rank PARI PASSU with all
unsubordinated obligations of the guarantor.
Subsidiaries other than the Combined Guarantors (the "Combined
Non-Guarantors"), substantially all of which are subsidiaries of Guarantors,
primarily include CGC Inc., Gypsum Transportation Limited, USG Canadian
Mining Ltd. and the Corporation's Mexican, European and Pacific
subsidiaries. USG Funding is also a Non-Guarantor. The long-term debt of the
Combined Non-Guarantors of $84 million as of March 31, 1995 and December 31,
1994, has restrictive covenants that restrict, among other things, the
payment of dividends.
The following condensed consolidating information presents:
(i) Condensed financial statements as of March 31, 1995 and December 31,
1994 and for the three months ended March 31, 1995 and 1994 of (a) the
Corporation on a parent company only basis, (b) the Combined
Guarantors, (c) the Combined Non-Guarantors and (d) the Corporation on
a consolidated basis. Except for the following condensed financial
statements, separate financial information with respect to the Combined
Guarantors is not deemed material to investors and is omitted.)
(ii) The Parent Company and Combined Guarantors shown with their
investments in their subsidiaries accounted for on the equity method.
(iii) Elimination entries necessary to consolidate the Parent Company and
its subsidiaries.
F-7
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THREE MONTHS ENDED 3/31/95
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ -- $ 530 $ 97 $ (29) $ 598
--- ----- --- --- -----
Gross profit/(loss).......................... -- 132 20 -- 152
--- ----- --- --- -----
Operating profit/(loss)...................... (10) 59 1 -- 50
Equity in net (earnings)/loss of the
subsidiaries................................ 4 -- -- (4) --
Interest expense, net........................ 23 -- 2 -- 25
Corporate service charge..................... (38) 41 (3) -- --
Other expense/(income), net.................. (1) 3 (2) -- --
--- ----- --- --- -----
Earnings/(loss) before taxes on income....... 2 15 4 4 25
Taxes on income.............................. 4 20 3 -- 27
--- ----- --- --- -----
Net earnings/(loss).......................... (2) (5) 1 4 (2)
--- ----- --- --- -----
--- ----- --- --- -----
</TABLE>
F-8
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
THREE MONTHS ENDED 3/31/94
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ -- $ 443 $ 88 $ (25) $ 506
--- ----- --- --- -----
Gross profit/(loss).......................... -- 92 18 -- 110
--- ----- --- --- -----
Operating profit/(loss)...................... (9) 21 (1) -- 11
Equity in net (earnings)/loss of the
subsidiaries................................ 32 4 -- (36) --
Interest expense, net........................ 33 -- 1 -- 34
Corporate service charge..................... (42) 42 -- -- --
Other expense/(income), net.................. 1 -- -- -- 1
Earnings/(loss) before taxes on income....... (33) (25) (2) 36 (24)
Taxes on income.............................. 1 7 2 -- 10
--- ----- --- --- -----
Net earnings/(loss).......................... (34) (32) (4) 36 (34)
--- ----- --- --- -----
--- ----- --- --- -----
</TABLE>
F-9
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
USG CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 79 $ (9) $ 24 $ -- $ 94
Receivables, net............................. 1 138 194 (37) 296
Inventories.................................. -- 144 50 (4) 190
----------- ----------- --- ------------ -------------
Total current assets....................... 80 273 268 (41) 580
Property, plant and equipment, net........... 15 633 122 -- 770
Investment in subsidiaries................... 1,441 268 -- (1,709) --
Excess reorganization value, net............. -- 414 105 -- 519
Other assets................................. (241) 440 (30) 2 171
----------- ----------- --- ------------ -------------
Total assets............................... 1,295 2,028 465 (1,748) 2,040
----------- ----------- --- ------------ -------------
----------- ----------- --- ------------ -------------
Accounts payable and accrued expenses........ 77 307 65 (36) 413
Notes payable and LTD maturing within one
year........................................ -- 2 6 -- 8
----------- ----------- --- ------------ -------------
Total current liabilities.................. 77 309 71 (36) 421
Long-term debt............................... 897 37 84 -- 1,018
Deferred income taxes........................ 6 154 16 1 177
Other liabilities............................ 312 109 4 1 426
Common stock................................. 5 1 6 (7) 5
Capital received in excess of par value...... 221 1,438 364 (1,802) 221
Deferred currency translation................ -- -- (5) -- (5)
Reinvested earnings/(deficit)................ (223) (20) (75) 95 (223)
----------- ----------- --- ------------ -------------
Total stockholders' equity/(deficit)....... 3 1,419 290 (1,714) (2)
----------- ----------- --- ------------ -------------
Total liabilities and stockholders'
equity.................................... 1,295 2,028 465 (1,748) 2,040
----------- ----------- --- ------------ -------------
----------- ----------- --- ------------ -------------
</TABLE>
F-10
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
USG CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 178 $ (11) $ 30 $ -- $ 197
Receivables, net............................. -- 135 173 (34) 274
Inventories.................................. -- 136 43 (6) 173
----------- ----------- --- ------------ -------------
Total current assets....................... 178 260 246 (40) 644
Property, plant and equipment, net........... 15 623 117 -- 755
Investment in subsidiaries................... 1,436 261 -- (1,697) --
Excess reorganization value, net............. -- 447 114 -- 561
Other assets................................. (227) 426 (28) (7) 164
----------- ----------- --- ------------ -------------
Total assets............................... 1,402 2,017 449 (1,774) 2,124
----------- ----------- --- ------------ -------------
----------- ----------- --- ------------ -------------
Accounts payable and accrued expenses........ 83 298 63 (34) 410
Notes payable and LTD maturing within one
year........................................ 41 2 2 -- 45
----------- ----------- --- ------------ -------------
Total current liabilities.................. 124 300 65 (34) 455
Long-term debt............................... 956 37 84 -- 1,077
Deferred income taxes........................ 9 155 15 -- 179
Other liabilities............................ 308 109 4 -- 421
Common stock................................. 5 1 6 (7) 5
Capital received in excess of par value...... 221 1,438 364 (1,802) 221
Deferred currency translation................ -- -- (13) -- (13)
Reinvested earnings/(deficit)................ (221) (23) (76) 99 (221)
----------- ----------- --- ------------ -------------
Total stockholders' equity/(deficit)....... 5 1,416 281 (1,710) (8)
----------- ----------- --- ------------ -------------
Total liabilities and stockholders'
equity.................................... 1,402 2,017 449 (1,744) 2,124
----------- ----------- --- ------------ -------------
----------- ----------- --- ------------ -------------
</TABLE>
F-11
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS (CONCLUDED)
(UNAUDITED)
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMPANY COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (TO)/FROM OPERATING
ACTIVITIES.................................. $ (42) $ 67 $ (11) $ -- $ 14
----- --- --- ----- -----
Capital expenditures....................... -- (21) (3) -- (24)
Net proceeds from asset dispositions....... -- -- 6 -- 6
----- --- --- ----- -----
NET CASH FLOWS (TO)/FROM INVESTING
ACTIVITIES.................................. -- (21) 3 -- (18)
----- --- --- ----- -----
Issuance of debt........................... -- -- 6 -- 6
Repayment of debt.......................... (102) -- (3) -- (105)
Cash dividends (paid)/received............. -- 1 (1) -- --
Net cash transfers (to)/from corporate..... 45 (45) -- -- --
----- --- --- ----- -----
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES.................................. (57) (44) 2 -- (99)
----- --- --- ----- -----
NET INCREASE/(DECREASE) IN CASH & CASH
EQUIVALENTS................................. (99) 2 (6) -- (103)
Cash & cash equivalents -- beginning......... 178 (11) 30 -- 197
----- --- --- ----- -----
Cash & cash equivalents -- end............... 79 (9) 24 -- 94
----- --- --- ----- -----
----- --- --- ----- -----
</TABLE>
USG CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (TO)/FROM OPERATING
ACTIVITIES......................... $ (23) $ 17 $ 5 $ -- $ (1)
----- --- --- ----- -----
Capital expenditures.............. -- (6) (1) -- (7)
Net proceeds from asset
dispositions..................... -- -- -- -- --
----- --- --- ----- -----
NET CASH FLOWS (TO)/FROM INVESTING
ACTIVITIES......................... -- (6) (1) -- (7)
----- --- --- ----- -----
Issuance of debt.................. 85 -- 29 -- 114
Repayment of debt................. (189) -- (18) -- (207)
Proceeds from stock offering...... 224 -- -- -- 224
Cash dividends (paid)/received.... -- 11 (11) -- --
Net cash transfers (to)/from
corporate........................ 26 (26) -- -- --
----- --- --- ----- -----
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES......................... 146 (15) -- -- 131
----- --- --- ----- -----
NET INCREASE/(DECREASE) IN CASH &
CASH EQUIVALENTS................... 123 (4) 4 -- 123
Cash & cash equivalents --
beginning.......................... 187 (8) 32 -- 211
----- --- --- ----- -----
Cash & cash equivalents -- end...... 310 (12) 36 -- 334
----- --- --- ----- -----
----- --- --- ----- -----
</TABLE>
F-12
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MAY 7 THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
Net Sales......................................................................... $ 2,290 $ 1,325
Cost of products sold............................................................. 1,773 1,062
------ ------
Gross Profit...................................................................... 517 263
Selling and administrative expenses............................................... 244 149
Amortization of excess reorganization value....................................... 169 113
------ ------
Operating Profit.................................................................. 104 1
Interest expense.................................................................. 149 92
Interest income................................................................... (10) (4)
Other (income)/expense, net....................................................... 3 (8)
------ ------
Loss Before Taxes on Income and Extraordinary Loss................................ (38) (79)
Taxes on income................................................................... 54 29
------ ------
Loss Before Extraordinary Loss.................................................... (92) (108)
Extraordinary loss, net of taxes.................................................. -- (21)
------ ------
Net Loss.......................................................................... (92) (129)
------ ------
------ ------
Loss Per Common Share:
Before extraordinary loss....................................................... $ (2.14) $ (2.90)
Extraordinary loss.............................................................. -- (0.56)
------ ------
Net Loss Per Common Share......................................................... (2.14) (3.46)
------ ------
------ ------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
F-13
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (primarily time deposits)........................................... $ 197 $ 211
Receivables (net of reserves of $14 and $13).................................................. 274 264
Inventories................................................................................... 173 145
--------- ---------
Total current assets........................................................................ 644 620
Property, Plant and Equipment, Net............................................................ 755 754
Excess Reorganization Value (net of accumulated amortization of $282 and $113)................ 561 735
Other Assets.................................................................................. 164 54
--------- ---------
Total assets................................................................................ 2,124 2,163
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................................................. $ 122 $ 104
Accrued expenses.............................................................................. 253 208
Notes payable................................................................................. 1 2
Long-term debt maturing within one year....................................................... 44 165
Taxes on income............................................................................... 35 20
--------- ---------
Total current liabilities................................................................... 455 499
--------- ---------
Long-Term Debt................................................................................ 1,077 1,309
Deferred Income Taxes......................................................................... 179 180
Other Liabilities............................................................................. 421 309
Stockholders' Equity/(Deficit):
Preferred stock -- $1 par value; authorized 36,000,000 shares; $1.80 convertible preferred
stock (initial series); outstanding -- none................................ -- --
Common stock -- $0.10 par value; authorized 200,000,000 shares; outstanding 45,083,211 and
37,158,085 shares (after deducting 33,988 and 27,876 shares held in
treasury)..................................................................... 5 4
Capital received in excess of par value....................................................... 221 --
Deferred currency translation................................................................. (13) (9)
Reinvested earnings/(deficit)................................................................. (221) (129)
--------- ---------
Total stockholders' equity/(deficit)........................................................ (8) (134)
--------- ---------
Total liabilities and stockholders' equity.................................................. 2,124 2,163
--------- ---------
--------- ---------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
F-14
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED MAY 7 THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................................................... $ (92) $ (129)
Adjustments to reconcile net loss to net cash:
Amortization of excess reorganization value..................................... 169 113
Extraordinary loss.............................................................. -- 21
Depreciation, depletion and amortization........................................ 84 44
Deferred income taxes........................................................... (1) 22
Net gain on asset dispositions.................................................. (2) (9)
(Increase)/decrease in working capital:
Receivables..................................................................... (10) 51
Inventories..................................................................... (28) 4
Payables........................................................................ 33 14
Accrued expenses................................................................ 45 37
(Increase)/decrease in other assets............................................... (9) 7
Increase in other liabilities..................................................... 12 12
Other, net........................................................................ (3) (4)
----- -----
Net cash flows from operating activities........................................ 198 183
----- -----
Cash Flows from Investing Activities:
Capital expenditures.............................................................. (64) (29)
Net proceeds from asset dispositions.............................................. 16 29
----- -----
Net cash flows to investing activities.......................................... (48) --
----- -----
Cash Flows from Financing Activities:
Issuance of debt.................................................................. 262 36
Repayment of debt................................................................. (650) (57)
Proceeds from public offering of common stock..................................... 224 --
----- -----
Net cash flows to financing activities.......................................... (164) (21)
----- -----
Net Increase/(Decrease) in Cash and Cash Equivalents.............................. (14) 162
Cash and cash equivalents as of beginning of period............................... 211 49
----- -----
Cash and cash equivalents as of end of period..................................... 197 211
----- -----
----- -----
Supplemental Cash Flow Disclosures:
Interest paid..................................................................... $ 115 $ 73
Income taxes paid................................................................. 38 5
----- -----
----- -----
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
F-15
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS
(TERMS IN INITIAL CAPITAL LETTERS ARE DEFINED ELSEWHERE IN THIS PROSPECTUS)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries after elimination of intercompany accounts and
transactions. Revenue is recognized upon the shipment of products. Net currency
translation gains or losses on foreign subsidiaries are included in deferred
currency translation, a component of stockholders' equity.
Excess reorganization value, which was recorded as a result of the
implementation of fresh start accounting, is being amortized through April 1998.
The Corporation continues to evaluate whether events and circumstances have
occurred that indicate the remaining estimated useful life of excess
reorganization value may warrant revision or that the remaining balances may not
be recoverable. The Corporation uses an estimate of its undiscounted cash flows
over the remaining life of the excess reorganization value in measuring whether
the asset is recoverable. See "Financial Restructuring" note below for more
information on the implementation of fresh start accounting.
For purposes of the Consolidated Balance Sheet and Consolidated Statement of
Cash Flows, all highly liquid investments with a maturity of three months or
less at the time of purchase are considered to be cash equivalents.
FINANCIAL RESTRUCTURING
On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt (the "Restructuring") through implementation of a "prepackaged" plan of
reorganization under United States bankruptcy law (the "Prepackaged Plan"). In
accordance with the terms of the Prepackaged Plan, $1.4 billion of debt and
accrued interest was converted into equity, interest expense was significantly
reduced and the maturities of a substantial portion of its remaining debt were
extended. The Corporation accounted for the Restructuring using the principles
of fresh start accounting as required by AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
("SOP 90-7"). Pursuant to such principles, individual assets and liabilities
were adjusted to fair market value as of May 6, 1993. Excess reorganization
value, the portion of the reorganization value not attributable to specific
assets, is being amortized over a five-year period, effective May 7, 1993.
The following unaudited Pro Forma Condensed Consolidated Statement of
Earnings for the year ended December 31, 1993 has been prepared giving effect to
the consummation of the Restructuring, including the implementation of fresh
start accounting, as if the consummation had occurred on January 1, 1993. Due to
the Restructuring and implementation of fresh start accounting, financial
statements effective May 7, 1993 for the Restructured Company are not comparable
to financial statements prior to that date for the Predecessor Company. However,
for presentation of this statement, total results for 1993 are shown under the
caption "Total Before Adjustments." The adjustments set forth under the caption
"Pro Forma Adjustments" reflect the implementation of the Prepackaged Plan and
the adoption of fresh start accounting as if they had occurred on January 1,
1993.
F-16
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USG CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
TOTAL
BEFORE PRO FORMA
ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- --------------- -----------
<S> <C> <C> <C>
Net sales............................................................... $ 1,916 $ -- $ 1,916
Cost of products sold................................................... 1,544 -- 1,544
------ --- -----------
Gross profit............................................................ 372 -- 372
Selling and administrative expense...................................... 220 -- 220
Amortization of excess reorganization value............................. 113 57 (a) 170
------ --- -----------
Operating profit/(loss)................................................. 39 (57) (18)
Interest expense........................................................ 178 (42)(b) 136
Interest income......................................................... (6) -- (6)
Other (income)/expense, net............................................. (2) (1)(c) (3)
Reorganization items.................................................... (709) 709 (d) --
------ --- -----------
Earnings/(loss) before taxes on income, extraordinary gain and changes
in accounting principles............................................... 578 (723) (145)
Taxes on income......................................................... 46 (16) 30
------ --- -----------
Earnings/(loss) before extraordinary gain and changes in accounting
principles............................................................. 532 (707) (175)
------ --- -----------
------ --- -----------
<FN>
- ------------------------
(a) Reflects amortization of excess reorganization value which would have been
recorded during the period of January 1 through May 6, 1993.
(b) Reflects the adjustment to restate interest expense for the period of
January 1 through May 6, 1993 to the amount that would have been recorded.
(c) Represents the reversal of first quarter 1993 amortization of historical
capitalized financing costs which were written off in connection with the
Restructuring.
(d) Represents the reversal of actual reorganization items incurred in
connection with the Restructuring and implementation of fresh start
accounting. This gain would have been recorded in 1992 had the
Restructuring occurred on January 1, 1993.
</TABLE>
ACCOUNTS RECEIVABLE FACILITY
In the fourth quarter of 1994, the Corporation entered into an accounts
receivable facility (the "Receivables Facility") in which USG Funding, a special
purpose subsidiary of the Corporation, formed under Delaware law, entered into
agreements with U.S. Gypsum and USG Interiors. These agreements provide that USG
Funding will purchase trade receivables (excluding intercompany receivables owed
by L&W Supply) of U.S. Gypsum and USG Interiors as generated, in a transaction
designed to be a "true sale" under applicable law. USG Funding is a party to a
Master Trust arrangement (the "Master Trust") under which the purchased
receivables are then transferred to Chemical Bank as Trustee to be held for the
benefit of certificate holders in such trust. A residual interest in the Master
Trust is owned by USG Funding through subordinated certificates. Under a
supplement to the Master Trust, certificates representing an ownership interest
in the Master Trust of up to $100 million were issued to Citicorp Securities,
Inc. The interest rate on the debt issued under the Receivables Facility is
fixed at approximately 8.9% (including facility costs)
F-17
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
through a long-term interest rate swap. Under a pending amendment to the
Receivables Facility, debt issued under such facility will have a final maturity
in 2004 and the Corporation will have the option to expand such facility up to
$130 million. Debt issued under the Receivables Facility may be prepaid at any
time. Pursuant to the applicable reserve and eligibility requirements, the
maximum amount of debt issuable under the Receivables Facility as of December
31, 1994 (including the $80 million outstanding at such date) was $103 million.
Under the foregoing agreements and related documentation, USG Funding is a
separate corporate entity with its own separate creditors which will be entitled
to be satisfied out of USG Funding's assets prior to distribution of any value
to its shareholder.
As of December 31, 1994, the outstanding balance of receivables sold to USG
Funding and held under the Master Trust was $151 million and debt outstanding
under the Receivables Facility was $80 million. Receivables and debt outstanding
in connection with the Receivables Facility remain in receivables and long-term
debt, respectively, on the Corporation's consolidated balance sheet.
EXTRAORDINARY LOSS
In December 1993, the Corporation recorded an extraordinary loss of $21
million, net of related income tax benefit of $11 million, reflecting the
write-off of the reorganization discount associated with debt issues prepaid,
redeemed or purchased in 1994 in connection with the Equity Offering and Note
Placement. See "Indebtedness" and "Stockholders' Equity" notes for more
information on the Equity Offering and Note Placement.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to earnings as incurred
and amounted to $17 million in the year ended December 31, 1994 and $10 million
in the period of May 7 through December 31, 1993.
TAXES ON INCOME AND DEFERRED INCOME TAXES
Earnings/(loss) before taxes on income and extraordinary loss consisted of
the following (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED MAY 7 THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
U.S..................................................................... $ (42) $ (72)
Foreign................................................................. 4 (7)
--- ---
Total................................................................... (38) (79)
--- ---
--- ---
</TABLE>
F-18
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Taxes on income consisted of the following (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED MAY 7 THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Current:
U.S. Federal.......................................................... $ 39 $ 12
Foreign............................................................... 12 5
State................................................................. 10 1
--- ---
61 18
--- ---
Deferred:
U.S. Federal.......................................................... (7) 11
Foreign............................................................... -- --
State................................................................. -- --
--- ---
(7) 11
--- ---
Total................................................................... 54 29
--- ---
--- ---
</TABLE>
The difference between the statutory U.S. Federal income tax/(benefit) rate
and the Corporation's effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
MAY 7
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Statutory U.S. Federal income tax/(benefit) rate.................................................... (35.0)% (35.0)%
Excess reorganization value amortization............................................................ 154.8 49.6
Foreign tax rate differential....................................................................... 10.6 11.4
Statutory rate adjustment to historical deferred taxes.............................................. -- 4.0
Valuation allowance adjustment...................................................................... -- 3.3
State income taxes.................................................................................. 16.7 --
Depletion........................................................................................... (7.5) --
Other, net.......................................................................................... 2.5 3.4
----- -----
Effective income tax rate........................................................................... 142.1 36.7
----- -----
----- -----
</TABLE>
F-19
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Temporary differences and carryforwards which give rise to current and
long-term deferred tax (assets)/liabilities as of December 31, 1994 and 1993
were as follows (dollars in millions):
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Property, plant and equipment......................................................... $ 164 $ 164
Debt discount......................................................................... 11 19
Deferred tax liabilities.............................................................. 175 183
--------- ---------
Pension and retiree medical benefits.................................................. (94) (90)
Reserves not deductible until paid.................................................... (71) (61)
Other................................................................................. (6) (8)
--------- ---------
Deferred tax assets before valuation allowance........................................ (171) (159)
Valuation allowance................................................................... 90 90
--------- ---------
Deferred tax assets................................................................... (81) (69)
--------- ---------
Net deferred tax liabilities.......................................................... 94 114
--------- ---------
--------- ---------
</TABLE>
A valuation allowance has been provided for deferred tax assets relating to
pension and retiree medical benefits due to the long-term nature of their
realization. Because of the uncertainty regarding the application of the
Internal Revenue Code to the Corporation's net operating loss carryforwards (the
"NOL Carryforwards") as a result of the Prepackaged Plan, no deferred tax asset
is recorded. Under fresh start accounting rules, any benefit realized from
utilizing predecessor company NOL Carryforwards will not impact net earnings.
The Corporation has NOL Carryforwards of $49 million remaining from 1992
after using approximately $50 million to offset U.S. taxable income in 1994.
These NOL Carryforwards may be used to offset U.S. taxable income through 2007.
The Internal Revenue Code limits the Corporation's annual use of its NOL
Carryforwards to the lesser of its taxable income or approximately $30 million
plus any unused limit from prior years. Furthermore, due to the uncertainty
regarding the application of the Code to the exchange of stock for debt, the
Corporation's NOL Carryforwards to 1994 and later years could be reduced or
eliminated. The Corporation has a $4 million minimum tax credit which may be
used to offset U.S. regular tax liability in future years.
The Corporation does not provide for U.S. Federal income taxes on the
portion of undistributed earnings of foreign subsidiaries which are intended to
be permanently reinvested. The cumulative amount of such undistributed earnings
totaled approximately $93 million as of December 31, 1994. Any future
repatriation of undistributed earnings would not, in the opinion of management,
result in significant additional taxes.
INVENTORIES
Most of the Corporation's domestic inventories are valued under the last-in,
first-out ("LIFO") method. In accordance with the implementation of fresh start
accounting, inventories were stated at fair market value as of May 6, 1993. As
of December 31, 1994, the LIFO values of these inventories were $121 million and
would have been $5 million higher if they were valued under the first-in,
first-out ("FIFO") and average production cost methods. As of December 31, 1993,
inventories valued under the LIFO method totaled $103 million and would have
been the same if they were valued under the FIFO and average production cost
F-20
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
methods. The remaining inventories are stated at the lower of cost or market,
under the FIFO or average production cost methods. Inventories include material,
labor and applicable factory overhead costs. Inventory classifications were as
follows (dollars in millions):
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Finished goods and work-in-process............................................ $ 102 $ 84
Raw materials................................................................. 62 53
Supplies...................................................................... 9 8
--------- ---------
Total......................................................................... 173 145
--------- ---------
--------- ---------
</TABLE>
The LIFO value of U.S. domestic inventories under fresh start accounting
exceeded that computed for U.S. Federal income tax purposes by $30 million and
$25 million as of December 31, 1994 and 1993, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were stated at fair market value as of May 6,
1993 in accordance with fresh start accounting. Provisions for depreciation are
determined principally on a straight-line basis over the expected average useful
lives of composite asset groups. Depletion is computed on a basis calculated to
spread the cost of gypsum and other applicable resources over the estimated
quantities of material recoverable. Interest during construction is capitalized
on major property additions. Property, plant and equipment classifications were
as follows (dollars in millions):
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Land and mineral deposits..................................................... $ 56 $ 61
Buildings and realty improvements............................................. 230 233
Machinery and equipment....................................................... 549 496
--------- ---------
835 790
Reserves for depreciation and depletion....................................... (80) (36)
--------- ---------
Total......................................................................... 755 754
--------- ---------
--------- ---------
</TABLE>
LEASES
The Corporation leases certain of its offices, buildings, machinery and
equipment, and autos under noncancellable operating leases. These leases have
various terms and renewal options. Lease expense amounted to $37 million and $22
million in the year ended December 31, 1994 and the period of May 7
F-21
<PAGE>
USG CORPORATION
(Restructured Company)
Notes to Financial Statements (Continued)
through December 31, 1993, respectively. Future minimum lease payments, by year
and in the aggregate, under operating leases with initial or remaining
noncancellable terms in excess of one year as of December 31, 1994 were as
follows (dollars in millions):
<TABLE>
<CAPTION>
MINIMUM
LEASE
PAYMENTS
-----------
<S> <C>
1995.............................................................................. $ 28
1996.............................................................................. 24
1997.............................................................................. 19
1998.............................................................................. 15
1999.............................................................................. 12
Thereafter........................................................................ 30
-----
Aggregate minimum payments........................................................ 128
-----
-----
</TABLE>
INDEBTEDNESS
Total debt, including currently maturing debt, consisted of the following
(dollars in millions):
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1994 1993
--------- ---------
<S> <C> <C>
SECURED DEBT:
Bank Term Loans, installments due 1997 through 2000................................. $ 283 $ 448
Receivables Facility, due 2003 and 2004............................................. 80 --
Senior notes and debentures:
8% Senior Notes due 1995.......................................................... -- 75
8% Senior Notes due 1996.......................................................... 28 90
8% Senior Notes due 1997.......................................................... 41 100
9% Senior Notes due 1998.......................................................... -- 35
9 1/4% Senior Notes, due 2001..................................................... 150 --
10 1/4% Senior Notes due 2002..................................................... 298 478
7 7/8% Sinking Fund Debentures due 2004........................................... 33 36
8 3/4% Sinking Fund Debentures due 2017........................................... 190 200
Other secured debt, average interest rate 9.4% and 8.0%, varying payments through
1999............................................................................... 7 31
UNSECURED DEBT:
Industrial revenue bonds, 5.9% ranging to 8.0%, due through 2019.................... 39 38
--------- ---------
Total principal amount of debt...................................................... 1,149 1,531
Less unamortized reorganization discount............................................ (27) (55)
--------- ---------
Total carrying amount of debt....................................................... 1,122 1,476
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1994, the Corporation and its subsidiaries had $1,149
million total principal amount of debt (before unamortized reorganization
discount) on a consolidated basis. Of such total debt, $159 million represented
direct borrowings by the subsidiaries, including $80 million borrowed under the
Receivables Facility, $39 million of industrial revenue bonds, $33 million of
7 7/8% sinking fund debentures issued by U.S. Gypsum in 1974 and subsequently
assumed by the Corporation on a joint and several basis in 1985, and $7 million
of debt incurred by the Corporation's foreign subsidiaries.
The Bank Term Loans and most other senior debt are secured by a pledge of
all of the shares of the Corporation's major domestic subsidiaries and 65% of
the shares of certain of its foreign subsidiaries
F-22
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
including CGC, pursuant to a collateral trust arrangement controlled primarily
by holders of the Bank Term Loans. The rights of the Corporation and its
creditors to the assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Corporation may itself be a creditor
with enforceable claims against such subsidiary.
The fair market value of debt outstanding as of December 31, 1994 was $1,109
million, based on indicative bond prices as of that date, excluding other
secured debt, which was not practicable to estimate. As of December 31, 1993,
the fair market value of debt was $1,481 million, based on indicative bond
prices as of that date, excluding other secured debt, primarily representing
financing for construction of the Aubange plant, which was not practicable to
estimate.
The "other secured debt" category shown in the table above primarily
includes short-term and long-term borrowings from several foreign banks. As of
December 31, 1993, this category primarily included borrowings by USG
International used principally to finance construction of the Aubange, Belgium
ceiling tile plant. This debt, which was repaid in 1994, was secured by a lien
on the assets of the Aubange plant and had restrictive covenants that
restricted, among other things, the payment of dividends. Foreign borrowings
made by the Corporation's international operations are generally allowed, within
certain limits, under provisions of the Credit Agreement.
The weighted average interest rate on outstanding short-term borrowings was
9.2% and 6.6% as of December 31, 1994 and 1993, respectively.
As of December 31, 1994, aggregate scheduled maturities of long-term debt,
excluding amounts classified as current liabilities, were $37 million, $45
million, $4 million and $73 million for the years 1996 through 1999,
respectively.
THE CREDIT AGREEMENT
The Bank Term Loans were issued in connection with the Credit Agreement. In
general, the Credit Agreement restricts, among other things, the incurrence of
additional indebtedness, mergers, asset dispositions, investments, prepayment of
other debt, dealings with affiliates, capital expenditures, payment of dividends
and lease commitments and requires the Corporation, beginning January 1, 1995,
to satisfy certain financial covenants. An agreement with Water Street also
requires the Corporation to satisfy certain financial covenants.
The average rate of interest on the Bank Term Loans was 6.2% and 5.3% in the
year ended December 31, 1994 and the period of May 7 through December 31, 1993,
respectively.
The Credit Agreement provides for a revolving credit facility (the
"Revolving Credit Facility"). As of December 31, 1994, the Revolving Credit
Facility amounted to $245 million, including a $115 million letter of credit
subfacility and $70 million available solely for the purchase or repayment of
Senior 1996 Notes and Senior 1997 Notes. As of December 31, 1993, the Revolving
Credit Facility amounted to $175 million, including the aforementioned $115
million letter of credit subfacility. Amounts committed and undrawn under such
letter of credit subfacility were $58 million and $60 million as of December 31,
1994 and 1993, respectively. There were no amounts outstanding under the
Revolving Credit Facility as of December 31, 1994 and 1993.
Under the Cash Sweep provision of the Credit Agreement, a portion of excess
cash as of the end of any year, calculated in accordance with the Credit
Agreement, must be used to pay Bank Term Loans. As of December 31, 1994, the
Cash Sweep amounted to $132 million, of which 50%, or $66 million was required
to be used to pay Bank Term Loans while the remaining 50% was retained by the
Corporation for general corporate purposes. The portion of the Cash Sweep
required to be used to pay Bank Term Loans included $25 million which was
prepaid in the third quarter of 1994 and $41 million which was reclassified to
currently
F-23
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
maturing long-term debt as of December 31, 1994 and paid in January 1995. In
February 1995, the Corporation made a further payment of $50 million to reduce
Bank Term Loans outstanding. This additional payment was applied to the 1999
maturity of the Bank Term Loans thereby reducing the 1999 aggregate scheduled
maturity shown above.
DEBT REFINANCING
In the fourth quarter of 1994, the Corporation entered into the Receivables
Facility. As of December 31, 1994, debt issued in connection with the
Receivables Facility totaled $80 million and accounts receivable held in the
Master Trust totaled $151 million. See "Accounts Receivable Facility" note for
more information on the Receivables Facility.
Also during the fourth quarter of 1994, the Corporation decided to pursue
various refinancing alternatives related to its Bank Term Loans. The Corporation
intends to accelerate the payment of such loans in 1995 through a combination of
excess cash flow and proceeds from a potential refinancing. As a result, the
Corporation recorded a non-cash pre-tax charge of $16 million to interest
expense reflecting the write-off of reorganization debt discount primarily
associated with the Bank Term Loans.
In the third quarter of 1994, the Third Amendment to the Credit Agreement
was consummated. In connection with such amendment, the Corporation made the
aforementioned $25 million prepayment of the Cash Sweep. Major revisions to the
Credit Agreement provided by the Third Amendment included modification of the
Cash Sweep provision, authorization for the Corporation to immediately prepay
certain debt, authorization for the Corporation to enter into a revolving
accounts receivable sale facility and certain other changes to increase the
Corporation's operating flexibility.
In the first quarter of 1994, the Corporation implemented a refinancing plan
which included (i) a public offering of 14,375,000 shares of common stock (the
"Equity Offering"), of which 7,900,000 shares, yielding net proceeds to the
Corporation of $224 million, were newly issued by the Corporation and 6,475,000
were sold by Water Street Corporate Recovery Fund I, L.P. ("Water Street"), a
stockholder; (ii) the issuance of $150 million of Senior 2001 Notes to certain
institutional investors (the "Note Placement") in exchange for $30 million
aggregate principal amount of its outstanding Senior 1996 Notes, $35 million
aggregate principal amount of its outstanding Senior 1997 Notes and $85 million
in cash; and (iii) amendment of the Credit Agreement for the second time since
the Restructuring. This amendment, (together with the Equity Offering and the
Note Placement, the "Transactions") increased the size of the Corporation's
revolving credit facility by $70 million (solely for the purchase or repayment
of Senior 1996 Notes and Senior 1997 Notes) and amended the Cash Sweep provision
to allow the Corporation, upon the achievement of certain financial tests, to
retain additional free cash flow for capital expenditures and repayment of its
public debt.
In August, 1993, the Corporation issued $138 million of Senior 2002 Notes in
exchange for Bank Term Loans and other debt then outstanding under the Credit
Agreement. The Corporation did not receive any cash proceeds from the issuance
of these securities. In connection with this transaction, an amendment to the
Credit Agreement provided for the elimination of scheduled Bank Term Loans
payments through 1996, prepayment of $9 million of other debt outstanding under
the Credit Agreement and modification of the Cash Sweep provision.
PENSION PLANS
The Corporation and most of its subsidiaries have defined benefit retirement
plans for all eligible employees. Benefits of the plans are generally based on
years of service and employees' compensation
F-24
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
during the last years of employment. The Corporation's contributions are made in
accordance with independent actuarial reports which, for most plans, required
minimal funding in the year ended December 31, 1994 and the period of May 7
through December 31, 1993. Net pension expense included the following components
(dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED MAY 7 THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Service cost-benefits earned during the period.......................... $ 11 $ 7
Interest cost on projected benefit obligation........................... 31 21
Actual (return)/loss on plan assets..................................... 1 (37)
Net amortization/(deferral)............................................. (35) 16
--- ---
Net pension expense..................................................... 8 7
--- ---
--- ---
</TABLE>
The pension plan assets, which consist primarily of publicly traded common
stocks and debt securities, had an estimated fair market value that was lower
than the projected benefit obligation as of December 31, 1994 and 1993.
The following table presents a reconciliation of the total assets of the
pension plans to the projected benefit obligation (dollars in millions):
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Amount of assets available for benefits:
Funded assets of the plans at fair market value....................................... $ 370 $ 400
Accrued pension expense............................................................... 29 25
--------- ---------
Total assets of the plans............................................................... 399 425
--------- ---------
Present value of estimated pension obligation:
Vested benefits....................................................................... 300 329
Nonvested benefits.................................................................... 25 27
--------- ---------
Accumulated benefit obligation.......................................................... 325 356
Additional benefits based on projected future salary increases.......................... 79 85
--------- ---------
Projected benefit obligation............................................................ 404 441
--------- ---------
Projected benefit obligation in excess of assets........................................ (5) (16)
--------- ---------
--------- ---------
</TABLE>
The projected benefit obligation in excess of assets consisted of an
unrecognized net loss in each period due to changes in assumptions and
differences between actual and estimated experience.
The expected long-term rate of return on plan assets was 9% for the year
ended December 31, 1994 and the period of May 7 through December 31, 1993. The
assumed weighted average discount rate used in determining the accumulated
benefit obligation was 8.25% and 7% as December 31, 1994 and 1993, respectively.
The rate of increases in projected future compensation levels was 5% for both
periods.
POSTRETIREMENT BENEFITS
The Corporation maintains plans that provide retiree health care and life
insurance benefits for all eligible employees. Employees generally become
eligible for the retiree benefit plans when they meet minimum retirement age and
service requirements. The cost of providing most of these benefits is shared
with retirees.
F-25
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the components of net periodic postretirement
benefit cost for the year ended December 31, 1994 and the period of May 7
through December 31, 1993 (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED MAY 7 THROUGH
DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- -----------------
<S> <C> <C>
Service cost of benefits earned......................................... $ 6 $ 4
Interest on accumulated postretirement benefit obligation............... 12 9
--- ---
Net periodic postretirement benefit cost................................ 18 13
--- ---
--- ---
</TABLE>
The status of the Corporation's accrued postretirement benefit cost as of
December 31, 1994 and 1993 were as follows (dollars in millions):
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................................. $ 81 $ 123
Fully eligible active participants........................................................ 11 14
Other active participants................................................................. 59 66
--------- ---------
151 203
Unrecognized net gain/(loss)................................................................ 42 (2)
--------- ---------
Accrued postretirement benefit cost liability recognized on the Consolidated Balance
Sheet...................................................................................... 193 201
--------- ---------
--------- ---------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10% and 11% as of December 31, 1994 and
1993, respectively, with a gradually declining rate to 5% by the year 2000 and
remaining at that level thereafter. A one-percentage-point increase in the
assumed health care cost trend rate for each year would increase the accumulated
postretirement benefit obligation by $20 million and $22 million as of December
31, 1994 and 1993, respectively, and increase the net periodic postretirement
benefit cost by $3 million and $2 million for the year ended December 31, 1994
and the period of May 7 through December 31, 1993, respectively. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 8.25% and 7% as of December 31, 1994 and 1993, respectively.
COMMITMENTS AND CONTINGENCIES
The Corporation has limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used primarily
to manage well-defined interest rate and energy cost risks as well as occasional
foreign currency exchange exposure. The following table presents the carrying
amounts and estimated fair value of the Corporation's derivative portfolio as of
December 31, 1994 (dollars in millions):
<TABLE>
<CAPTION>
NOTIONAL CARRYING
AMOUNT AMOUNT FAIR VALUE
----------- ------------- -----------
<S> <C> <C> <C>
Interest rate contracts....................................................... $ 545 $ 5 $ 8
Energy price swaps............................................................ 23 -- (1)
</TABLE>
The amounts reported as fair value represent the market value as obtained
from broker quotations. The negative fair value of the energy price swaps is an
estimate of the amounts the Corporation would need to pay as of December 31,
1994 to cancel the contracts or transfer them to other parties.
F-26
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1993, the Corporation had approximately $455 million
notional amount of interest rate contracts outstanding, extending up to three
years, and approximately $42 million notional amount and $11 million notional
amount of energy price and foreign currency exchange contracts outstanding,
respectively, extending one year or less. The difference in the value of all of
the aforementioned contracts and the December 31, 1993 market value was not
material.
The Corporation is exposed to credit losses in the event of nonperformance
by the counterparties on all its derivative contracts but has no off-balance
sheet credit risk of accounting loss. All counterparties have investment grade
credit standing and accordingly, the Corporation anticipates that these
counterparties will be able to fully satisfy their obligation under the
contracts. The Corporation does not obtain collateral or other security to
support financial instruments subject to credit risk but monitors the credit
standing of counterparties.
INTEREST RATE RISK MANAGEMENT
The Corporation purchased prepaid interest rate caps and swap options to
manage the impact of interest rate changes on LIBOR-based bank debt. As of
December 31, 1994, such instruments owned by the Corporation totaled $445
million, which capped the Corporation's expected LIBOR-based bank debt payments
at 5.2% for 1995 ($250 million notional amount), 7% for 1996 ($120 million
notional amount) and 7% for 1997 ($75 million notional amount). In addition, as
of December 31, 1994, the Corporation had entered into $100 million of interest
rate swap and collar agreements to hedge its Receivables Facility, under which
$80 million was outstanding as of December 31, 1994. In January 1995, such
interest rate swap and collar agreements were terminated at par and replaced
with $80 million of new interest rate swap agreements. Under the interest rate
swap agreements, the Corporation pays a fixed rate of approximately 8.9%
(including facility costs) in exchange for the monthly commercial paper-based
payments due on the Receivables Facility until its final maturity.
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the term of the caps. Unamortized premiums are included in
other assets on the consolidated balance sheet. Amounts receivable under cap
agreements and receivables or payables under swap agreements are accrued as an
increase or decrease to interest expense as appropriate.
ENERGY COST RISK MANAGEMENT
The Corporation uses energy price swap agreements to hedge anticipated
purchases of fuel to be utilized in the manufacturing process for gypsum
wallboard. Under these swap agreements, the Corporation receives or makes
payments based on the differential between a specified price and the actual
closing price for the current month's energy price contract. As of December 31,
1994, the Corporation had over-the-counter swap agreements to exchange monthly
payments on notional amounts of energy amounting to $23 million, all extending
one year or less.
Upon settlement of energy price contracts, the resulting gain or loss is
included in cost of products sold, along with the actual spot energy cost of the
corresponding underlying hedged transaction, the combination of which amounts to
the predetermined specified contract price.
FOREIGN EXCHANGE RISK MANAGEMENT
The Corporation had no foreign currency exchange contracts as of December
31, 1994.
MANAGEMENT PERFORMANCE PLAN
On May 6, 1993, all outstanding stock options were cancelled without
consideration and all shares of restricted and deferred stock were cashed-out
pursuant to "change in control" provisions contained in the Management
Performance Plan except for 25,580 shares of restricted stock and awards for
deferred stock yet to be issued which remained outstanding as a consequence of
certain waivers of the change in control
F-27
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
event by senior members of management. Those shares which remained outstanding
on May 6, 1993 were freed of restrictions in 1994, an acceleration from the
original terms which freed the restrictions on incremental portions of the
shares through 1998.
As permitted by the Prepackaged Plan, a certain number of common shares were
reserved for future issuance in conjunction with stock options. Options were
granted in 1993 and 1994 at an exercise price equal to the mean of the high and
low sales prices for a share of the Corporation's common stock (the "Common
Stock") as reported on the NYSE composite tape on the grant dates. These options
become exercisable at the rate of one-third of the aggregate grant on each of
the first three anniversaries of the date of the grant and expire on the tenth
anniversary of the date of grant except in the case of retirement, death or
disability in which case they expire on the earlier of the fifth anniversary of
such event or the expiration of the original option term. Stock option activity
for the year ended December 31, 1994 and the period of May 7 through December
31, 1993 was as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 7 THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
Outstanding at beginning of period.......................................... 1,673,000 --
Granted..................................................................... 1,161,500 1,673,000
Exercised (at a price of $10.3125 per share)................................ (23,800) --
Canceled.................................................................... (46,200) --
-------------- --------------
Outstanding at end of period (at prices ranging from $10.3125 to $32.5625
per share)................................................................. 2,764,500 1,673,000
-------------- --------------
-------------- --------------
Exercisable at end of period................................................ 578,020 --
Available for grant at end of period........................................ 50 1,115,350
</TABLE>
PREFERRED SHARE PURCHASE RIGHTS
On May 6, 1993, a rights plan (the "Rights Agreement") was adopted pursuant
to which the Corporation declared a distribution of one right (the "Rights")
upon each share of Common Stock. The Rights, which are intended to protect
stockholders in the event of an unsolicited attempt to acquire the Corporation,
generally become exercisable 10 days following the announcement of the
acquisition of 20% or more of the outstanding Common Stock by someone other than
the Corporation or one of its employee benefit plans (10% in the case of an
acquisition which the Corporation's Board of Directors determines to represent a
threat of acquisition not in the best interests of the Corporation's
stockholders). When exercisable, each of the Rights entitles the registered
holder to purchase one-hundredth of a share of a junior participating preferred
stock, series C, $1.00 par value per share, at a price of $35.00 per
one-hundredth of a preferred share, subject to adjustment. The Rights also
provide for a so-called "flip-in" feature and exchange feature and certain
exemptions permitting certain acquisitions and the continued holding of common
shares by Water Street and its affiliates in excess of the otherwise specified
thresholds.
In the event that the Corporation is the surviving corporation and the
Common Stock remains outstanding and unchanged in a merger or other business
combination with such acquiring party or the acquiring party engages in one of a
number of self-dealing transactions specified in the Rights Agreement, each
holder of a Right other than the acquiring party will thereafter have the right,
subject to the exchange feature, to receive upon exercise thereof that number of
shares of Common Stock having a market value at the time of such transaction of
two times the exercise price of the Right.
WARRANTS
On May 6, 1993, a total of 2,602,566 warrants, each to purchase a share of
Common Stock at an exercise price of $16.14 per share (the "Warrants"), in
addition to Common Stock, were issued to holders of
F-28
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
certain debt which was converted to equity in the Restructuring. Upon issuance,
each of the Warrants entitled the holder to purchase one share of Common Stock
at a purchase price of $16.14 per share, subject to adjustment under certain
events.
The Warrants are exercisable, subject to applicable securities laws, at any
time prior to May 6, 1998. Each share of Common Stock issued upon exercise of a
Warrant prior to the Distribution Date (as defined in the Rights Agreement) and
prior to the redemption or expiration of the Rights will be accompanied by an
attached Right issued under the terms and subject to the conditions of the
Rights Agreement as it may then be in effect. As of December 31, 1994 and 1993,
outstanding Warrants amounted to 2,594,181 and 2,601,619, respectively.
STOCKHOLDERS' EQUITY
Changes in stockholders' equity are summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
YEAR ENDED MAY 7 THROUGH
DECEMBER 31, DECEMBER 31,
1994 1993
--------------- ---------------
<S> <C> <C>
COMMON STOCK:
Beginning Balance........................................................... $ 4 $ 4
Public offering of common stock............................................. 1 --
----- -----
Ending Balance.............................................................. 5 4
----- -----
CAPITAL RECEIVED IN EXCESS OF PAR VALUE:
Beginning Balance........................................................... -- --
Public offering of common stock............................................. 223 --
Other, net.................................................................. (2) --
----- -----
Ending Balance.............................................................. 221 --
----- -----
DEFERRED CURRENCY TRANSLATION:
Beginning Balance........................................................... (9) --
Change during the period.................................................... (4) (9)
----- -----
Ending Balance.............................................................. (13) (9)
----- -----
REINVESTED EARNINGS/(DEFICIT):
Beginning Balance........................................................... (129) --
Net loss.................................................................... (92) (129)
----- -----
Ending Balance.............................................................. (221) (129)
----- -----
Total stockholders' equity/(deficit)........................................ (8) (134)
----- -----
----- -----
</TABLE>
There were 33,988 and 27,876 shares of $0.10 par value Common Stock held in
treasury as of December 31, 1994 and 1993, respectively. These shares were
acquired through the forfeiture of restricted stock and the surrender of shares
in settlement of tax withholding obligations.
In the first quarter of 1994, the Corporation completed the Equity Offering
under which 14,375,000 shares of Common Stock was sold to the public, consisting
of 7,900,000 shares newly issued by the Corporation and 6,475,000 sold by Water
Street. Net proceeds to the Corporation from the newly issued shares amounted to
$224 million. The Corporation did not receive any proceeds from the sale of
shares by Water Street. See "Indebtedness" note for more information on the
Equity Offering.
F-29
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LITIGATION
One of the Corporation's subsidiaries, U.S. Gypsum, is among numerous
defendants in lawsuits arising out of the manufacture and sale of
asbestos-containing building materials. U.S. Gypsum sold certain
asbestos-containing products beginning in the 1930's; in most cases the products
were discontinued or asbestos was removed from the product formula by 1972, and
no asbestos-containing products were sold after 1977. Some of these lawsuits
seek to recover compensatory and in many cases punitive damages for costs
associated with maintenance or removal and replacement of products containing
asbestos (the "Property Damage Cases"). Others of these suits (the "Personal
Injury Cases") seek to recover compensatory and in many cases punitive damages
for personal injury allegedly resulting from exposure to asbestos and
asbestos-containing products. It is anticipated that additional personal injury
and property damage cases containing similar allegations will be filed.
As discussed below, U.S. Gypsum has substantial personal injury and property
damage insurance for the years involved in the asbestos litigation. Prior to
1985, when an asbestos exclusion was added to U.S. Gypsum's policies, U.S.
Gypsum purchased comprehensive general liability insurance policies covering
personal injury and property damage in an aggregate face amount of approximately
$850 million. Insurers that issued approximately $106 million of these policies
are presently insolvent. After deducting insolvencies and exhaustion of
policies, approximately $550 million of insurance remains potentially available.
Because U.S. Gypsum's insurance carriers initially responded to its claims for
defense and indemnification with various theories denying or limiting coverage
and the applicability of their policies, U.S. Gypsum filed a declaratory
judgment action against them in the Circuit Court of Cook County, Illinois on
December 29, 1983. (U. S. GYPSUM CO. V. ADMIRAL INSURANCE CO., ET AL.) (the
"Coverage Action"). U.S. Gypsum alleges in the Coverage Action that the carriers
are obligated to provide indemnification for settlements and judgments and, in
some cases, defense costs incurred by U.S. Gypsum in property damage and
personal injury claims in which it is a defendant. The current defendants are
ten insurance carriers that provided comprehensive general liability insurance
coverage to U.S. Gypsum between the 1940's and 1984. As discussed below, several
carriers have settled all or a portion of the claims in the Coverage Action.
U.S. Gypsum's aggregate out-of-pocket cash expenditures for all
asbestos-related matters, including property damage, personal injury, insurance
coverage litigation and related expenses, exceeded aggregate insurance payments
by $25.8 million in 1992, $8.2 million in 1993 and $33.4 million in 1994. For
the same periods, the Corporation has charged $18 million to earnings annually
for all asbestos-related matters, excluding the $30 million charge described in
"Property Damage Cases" below.
PROPERTY DAMAGE CASES
The Property Damage Cases have been brought against U.S. Gypsum by a variety
of plaintiffs, including school districts, state and local governments, colleges
and universities, hospitals and private property owners. As of December 31,
1994, 41 Property Damage Cases were pending against U.S. Gypsum; however, the
number of buildings involved is greater than the number of cases because many of
these cases, including the class actions referred to below, involve multiple
buildings. In addition, approximately 37 property damage claims have been
threatened against U.S. Gypsum. U.S. Gypsum has denied the substantive
allegations of each of the Property Damage Cases and intends to defend them
vigorously except when advantageous settlements are possible.
U.S. Gypsum is one of many defendants in three pending cases that have been
certified as class actions and others that request such certification. On April
10, 1992, a state court in Philadelphia certified a class consisting of all
owners of buildings leased to the federal government. (PRINCE GEORGE CENTER,
INC. V. U.S. GYPSUM CO., ET AL., Court of Common Pleas, Philadelphia, Pa.) On
September 4, 1992, a Federal district
F-30
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
court in South Carolina conditionally certified a class comprised of all
colleges and universities in the United States, which certification is presently
limited to the resolution of certain allegedly "common" liability issues.
(CENTRAL WESLEYAN COLLEGE V. W.R. GRACE & CO., ET AL, U.S.D.C. S.C.).
In October 1994, U.S. Gypsum executed agreements to settle two other class
actions (one of which has now been closed), subject to court approval following
notice to the respective classes. One suit was brought on behalf of owners and
operators of all elementary and secondary schools in the United States that
contain or contained friable asbestos-containing material. (IN RE ASBESTOS
SCHOOL LITIGATION, U.S.D.C, E.D. Pa.) Approximately 1,350 school districts opted
out of the class, some of which have filed or may file separate lawsuits. The
other class action settlement involved approximately 333 school districts in
Michigan that had opted out of the nationwide class action. (BOARD OF EDUCATION
OF THE CITY OF DETROIT, ET AL. V. THE CELOTEX CORP., ET AL., Circuit Court for
Wayne County, MI.) The Corporation took a $30 million pre-tax charge to earnings
in the fourth quarter of 1994 primarily to cover the cash payments,
approximately two-thirds of which was paid in 1994 with the rest payable over
the next two years. In addition, U.S. Gypsum will also issue discount coupons to
the school districts in the nationwide class action for the purchase of plaster
products. The coupons, which will be redeemable over ten years subject to annual
"caps," will have an aggregate face amount of $50 million. No charge against
earnings was recorded for future coupon redemptions. Such redemptions will
reduce margins when redeemed, and although the amount of redemptions cannot be
estimated, the impact on results of operations is expected to be immaterial. The
Michigan settlement was approved by the Court on December 2, 1994, and no appeal
was filed. The settlement of the nationwide class action has not yet been
presented to the Court for approval.
A case pending in state court in South Carolina, which has not been
certified as a class action, purports to be a "voluntary" class action on behalf
of owners of all buildings containing certain types of asbestos-containing
products manufactured by the nine named defendants, including U.S. Gypsum, other
than buildings owned by the federal or state governments, single family
residences, or buildings at issue in the other described class actions.
(ANDERSON COUNTY HOSPITAL V. W.R. GRACE & CO., ET AL., Court of Common Pleas,
Hampton Co., S.C. (the "Anderson Case")). The Anderson Case also names the
Corporation as a defendant, alleging, among other things, that the guarantees
executed by U.S. Gypsum in connection with the 1988 Recapitalization, as well as
subsequent distributions of cash from U.S. Gypsum to the Corporation, rendered
U.S. Gypsum insolvent and constitute a fraudulent conveyance. In July 1994, the
court in the Anderson Case ruled that claims involving building owners outside
South Carolina cannot be included in the suit. A case which has yet to be
certified as a class action was filed in federal court in the Eastern District
of Texas on August 8, 1994. (KIRBYVILLE INDEPENDENT SCHOOL DISTRICT V. U.S.
GYPSUM, ET AL., United States District Court for the Eastern District of Texas,
Beaumont Division). The case purports to be a class action on behalf of all
public building owners and political subdivisions of the State of Texas,
including all cities, counties and municipalities. The damages claimed against
U.S. Gypsum in the class action cases are unspecified.
In total, U.S. Gypsum has settled approximately 93 property damage cases,
involving 209 plaintiffs, in addition to the two school class action settlements
referred to above. Twenty-four cases have been tried to verdict, 15 of which
were won by U.S. Gypsum and 5 lost; three other cases, one won at the trial
level and two lost, were settled during appeals. Another case that was lost at
the trial court level was reversed on appeal and remanded to the trial court,
which has now entered judgment for U.S. Gypsum. Appeals are pending in 3 of the
tried cases. In the cases lost, compensatory damage awards against U.S. Gypsum
have totaled $11.5 million. Punitive damages totalling $5.5 million were entered
against U.S. Gypsum in four trials. Two of the punitive damage awards, totalling
$1.45 million, were paid after appeals were exhausted; and two were settled
during the appellate process.
In 1992, 7 new Property Damage Cases were filed against U.S. Gypsum, 10 were
dismissed before trial, 18 were settled, 3 were closed following trial or
appeal, and 76 were pending at year-end. U.S. Gypsum expended $34.9 million for
the defense and resolution of Property Damage Cases and received insurance
F-31
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
payments of $10.2 million in 1992. During 1993, 5 new Property Damage Cases were
filed against U.S. Gypsum, 7 were dismissed before trial, 11 were settled, 1 was
closed following trial or appeal, 2 were consolidated into 1, and 61 were
pending at year end; U. S Gypsum expended $13.9 million for the defense and
resolution of Property Damage Cases and received insurance payments of $7.6
million in 1993. In 1994, 5 new Property Damage Cases were filed against U.S.
Gypsum, 5 were dismissed before trial, 19 were settled, 1 was closed following
trial or appeal, and 41 were pending at year-end. U.S. Gypsum expended $40.6
million for the defense and resolution of Property Damage Cases (excluding
payments not yet due and future credits for coupon redemption under a 1994 class
action settlement) and received insurance payments of $9 million in 1994.
In the Property Damage Cases litigated to date, a defendant's liability for
compensatory damages, if any, has been limited to damages associated with the
presence and quantity of asbestos-containing products manufactured by that
defendant which are identified in the buildings at issue, although plaintiffs in
some cases have argued that principles of joint and several liability should
apply. Because of the unique factors inherent in each of the Property Damage
Cases, including the lack of reliable information as to product identification
and the amount of damages claimed against U.S. Gypsum in many cases, including
the class actions described above, management is unable to make a reasonable
estimate of the cost of disposing of pending Property Damage Cases.
PERSONAL INJURY CASES
U.S. Gypsum was among numerous defendants in asbestos personal injury suits
and administrative claims involving approximately 54,000 claimants pending as of
December 31, 1994 although, as discussed below, approximately 22,000 of such
claims are settled but not yet closed. All asbestos bodily injury claims pending
in the federal courts, including approximately one-third of the Personal Injury
Cases pending against U.S. Gypsum, have been consolidated in the United States
District Court for the Eastern District of Pennsylvania.
U.S. Gypsum is a member, together with 19 other former producers of
asbestos-containing products, of the Center for Claims Resolution (the
"Center"). The Center has assumed the handling, including the defense and
settlement, of all Personal Injury Cases pending against U.S. Gypsum and the
other members of the Center. Each member of the Center is assessed a portion of
the liability and defense costs of the Center for the Personal Injury Cases
handled by the Center, according to predetermined allocation formulas. Five of
U.S. Gypsum's insurance carriers that in 1985 signed an Agreement Concerning
Asbestos-Related Claims (the "Wellington Agreement") are supporting insurers
(the "Supporting Insurers") of the Center. The Supporting Insurers are obligated
to provide coverage for the defense and indemnity costs of the Center's members
pursuant to the coverage provisions in the Wellington Agreement. Claims for
punitive damages are defended but not paid by the Center; if punitive damages
are recovered, insurance coverage may be available under the Wellington
Agreement depending on the terms of particular policies and applicable state
law. Punitive damages have not been awarded against U.S. Gypsum in any of the
Personal Injury Cases. Virtually all of U.S. Gypsum's personal injury liability
and defense costs are paid by those of its insurance carriers that are
Supporting Insurers. The Supporting Insurers provided approximately $350 million
of the total coverage referred to above, of which approximately $222 million
remains unexhausted.
On January 15, 1993, U.S. Gypsum and the other members of the Center entered
into a class action settlement in the U. S. District Court for the Eastern
District of Pennsylvania. (GEORGINE ET AL. V. AMCHEM PRODUCTS INC., ET AL., Case
No. 93-CV-0215; hereinafter "Georgine.") The class of plaintiffs includes all
persons who have been occupationally exposed to asbestos-containing products
manufactured by the defendants, who had not filed an asbestos personal injury
suit as of the date of the filing of the class action. The settlement has been
approved by the trial court, and if upheld on appeal will implement for all
future Personal Injury Cases, except as noted below, an administrative
compensation system to replace judicial
F-32
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
claims against the defendants, and will provide fair and adequate compensation
to future claimants who can demonstrate exposure to asbestos-containing products
manufactured by the defendants and the presence of an asbestos-related disease.
Approximately 250,000 purported class members "opted out," or elected to be
excluded from the settlement, although a substantial portion of such "opt outs"
had previously filed claims or are in groups considered unlikely to generate
significant numbers of future claims. As of December 31, 1994, approximately
10,000 claims naming U.S. Gypsum as a defendant had been filed by "opt outs." In
addition, in each year a limited number of class members will have certain
rights to prosecute their claims for compensatory (but not punitive) damages in
court in the event they reject the compensation offered by the administrative
processing of their claim.
The Center members, including U.S. Gypsum, have instituted proceedings
against those of their insurance carriers that had not consented to support the
settlement, seeking a declaratory judgment that the settlement is reasonable
and, therefore, that the carriers are obligated to fund their portion of it.
Consummation of the settlement is contingent upon, among other things, court
approval of the settlement and a favorable ruling in the declaratory judgment
proceedings against the non-consenting insurers.
Each of the defendants has committed to fund a defined portion of the
settlement, up to a stated maximum amount, over the initial ten year period of
the agreement (which is automatically extended unless terminated by the
defendants). Taking into account the provisions of the settlement agreement
concerning the maximum number of claims that must be processed in each year and
the total amount to be made available to the claimants, the Center estimates
that U.S. Gypsum will be obligated to fund a maximum of approximately $125
million of the class action settlement, exclusive of expenses, with a maximum
payment of less than $18 million in any single year; of the total amount of U.S.
Gypsum's obligation, all but approximately $7 million is expected to be paid by
U.S. Gypsum's insurance carriers.
During 1992, approximately 20,100 Personal Injury Cases were filed against
U.S. Gypsum and approximately 10,600 were settled or dismissed. U.S. Gypsum
incurred expenses of $21.6 million in 1992 with respect to Personal Injury Cases
of which $21.5 million was paid by insurance. During 1993, approximately 26,900
Personal Injury Cases were filed against U.S. Gypsum and approximately 22,900
were settled or dismissed. U.S. Gypsum incurred expenses of $34.9 million in
1993 with respect to Personal Injury Cases of which $34.0 million was paid by
insurance. During 1994, approximately 14,000 Personal Injury Cases were filed
against U.S. Gypsum, U.S. Gypsum was added as a defendant in approximately 4,000
cases that had been previously filed, and approximately 23,000 were settled or
dismissed. U.S. Gypsum incurred expenses of $38 million in 1994 with respect to
Personal Injury Cases of which $37.3 million was paid by insurance. As of
December 31, 1994, 1993, and 1992, 54,000, 59,000, and 54,000 Personal Injury
Cases were outstanding against U.S. Gypsum, respectively.
U.S. Gypsum's average settlement cost for Personal Injury Cases over the
past three years has been approximately $1,600 per claim, exclusive of defense
costs. Management anticipates that its average settlement cost may increase due
to such factors as the possible insolvency of co-defendants, although this
increase may be offset to some extent by other factors, including the
possibility for block settlements of large numbers of cases and the apparent
increase in the percentage of asbestos personal injury cases that appear to have
been brought by individuals with little or no physical impairment. Through the
Center, U.S. Gypsum had reached settlements on approximately 22,000 Personal
Injury Cases pending on December 31, 1994 for amounts totalling approximately
$32 million, to be expended over a three to five year period. In management's
opinion, based primarily upon U.S. Gypsum's experience in the Personal Injury
Cases disposed of to date and taking into consideration a number of
uncertainties, it is probable that all asbestos-related Personal Injury Cases
pending against U.S. Gypsum as of December 31, 1994, can be disposed of for a
total amount, including both indemnity costs and legal fees and expenses,
estimated to be between $90 million and $100 million (of which all but less than
$5 million is expected to be paid by insurance). The estimated cost of resolving
pending claims takes into account, among other factors, (i) the number of
F-33
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
pending claims; (ii) the settlements of certain large blocks of claims for
higher per-case averages than have historically been paid; (iii) the committed
but unconsummated settlements described above; and (iv) a small increase in U.S.
Gypsum's historical settlement average.
Assuming that the Georgine class action settlement referred to above is
approved substantially in its current form, management estimates, based on
assumptions supplied by the Center, U.S. Gypsum's maximum total exposure in
Personal Injury Cases during the next ten years (the initial term of the
agreement), including liability for pending claims and claims resolved as part
of the class action settlement, as well as defense costs and other expenses, at
approximately $250 million, of which approximately $235 million is expected to
be paid by insurance. U.S. Gypsum's additional exposure for claims filed by
persons who have opted out of Georgine would depend on the number and severity
of such claims that are filed, which cannot presently be determined.
COVERAGE ACTION
As indicated above, all of U.S. Gypsum's carriers initially denied coverage
for the Property Damage Cases and the Personal Injury Cases, and U.S. Gypsum
initiated the Coverage Action to establish its right to such coverage. U.S.
Gypsum has voluntarily dismissed the Supporting Insurers referred to above from
the personal injury portion of the Coverage Action because they committed to
providing personal injury coverage in accordance with the Wellington Agreement.
U.S. Gypsum's claims against the remaining carriers for coverage for the
Personal Injury Cases have been stayed since 1984.
On January 7, 1991, the trial court in the Coverage Action ruled on the
applicability of U.S. Gypsum's insurance policies to settlements and one adverse
judgment in eight Property Damage Cases. The court ruled that the eight cases
were generally covered, and imposed coverage obligations on particular policy
years based upon the dates when the presence of asbestos-containing material was
"first discovered" by the plaintiff in each case. The court awarded
reimbursement of approximately $6.2 million spent by U.S. Gypsum to resolve the
eight cases. U.S. Gypsum appealed the court's ruling with respect to the policy
years available to cover particular claims, and the carriers appealed most other
aspects of the court's ruling.
On November 4, 1994, the Illinois Appellate Court issued a ruling affirming
the trial court's finding that the eight cases were covered, but expanding the
years of coverage available by holding that all insurance policies in effect
from the date of installation to the date of removal of asbestos-containing
products are obligated to provide coverage (known as the "continuous trigger" of
coverage). The defendant carriers' rehearing petition was denied by the
Appellate Court in January 1995. The defendant carriers have indicated their
intention to seek review by the Illinois Supreme Court, which is discretionary
with the Court. If the Supreme Court accepts the appeal, the appeal will
continue for a year or more. Once the appellate process has concluded, further
proceedings will be necessary in the trial court with respect to the application
of the appellate ruling to all Property Damage Cases other than the eight cases
involved in the earlier trial, as well as resolution of certain other issues.
The Appellate Court's ruling, if applied to the Property Damage Cases
generally, will allow U.S. Gypsum to access all of its available insurance
coverage for Property Damage Cases, subject to reduction for amounts that are
spent on Personal Injury Cases. Under the ruling, all Property Damage Cases
would be covered by insurance unless or until such insurance becomes exhausted.
U.S. Gypsum is evaluating the impact of the ruling on past property damage
expenditures and, if the ruling is applied to such expenditures, U.S. Gypsum
should be able to recover a substantial portion, subject to the allocation of
costs to insolvent carriers, excess carriers with no defense cost obligations,
and carriers that have previously settled. The Company is not yet able to
estimate the amount of its past property damage expenditures that it could
recover or when such recoveries would occur.
Eight carriers, including two of the Supporting Insurers, have settled U.S.
Gypsum's claims for both property damage and personal injury coverage and have
been dismissed from the Coverage Action entirely.
F-34
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Four of these carriers agreed to pay all or a substantial portion of their
policy limits to U.S. Gypsum beginning in 1991 and continuing over the following
four years. Three other excess carriers, including the two settling Supporting
Insurers, have agreed to provide coverage for the Property Damage Cases and the
Personal Injury Cases subject to certain limitations and conditions, when and if
underlying primary and excess coverage is exhausted. Taking into account the
above settlements, including participation of certain of the settling carriers
in the Wellington Agreement, and consumption through December 31, 1994, carriers
providing a total of approximately $81 million of unexhausted insurance have
agreed, subject to the terms of the various settlement agreements, to cover both
Personal Injury Cases and Property Damage Cases. Carriers providing an
additional $210 million of coverage that was unexhausted as of December 31, 1994
have agreed to cover Personal Injury Cases under the Wellington Agreement, but
continue to contest coverage for Property Damage Cases and remain defendants in
the Coverage Action. U.S. Gypsum continues to seek negotiated resolutions with
its carriers in order to minimize the expense and delays of litigation.
Insolvency proceedings have been instituted against four of U. S. Gypsum's
insurance carriers. Midland Insurance Company, declared insolvent in 1986,
provided excess insurance ($4 million excess of $1 million excess of $500,000
primary in each policy year) from February 15, 1975 to February 15, 1978;
Transit Casualty Company, declared insolvent in 1985, provided excess insurance
($15 million excess of $1 million primary in each policy year) from August 1,
1980 to December 31, 1985; Integrity Insurance Company, declared insolvent in
1986, provided excess insurance ($10 million quota share of $25 million excess
of $90 million) from August 1, 1983 to July 31, 1984; and American Mutual
Insurance Company, declared insolvent in 1989, provided the primary layer of
insurance ($500,000 per year) from February 1, 1963 to April 15, 1971. It is
possible that U.S. Gypsum will be required to pay a presently indeterminable
portion of the costs that would otherwise have been covered by these policies.
In addition, portions of various policies issued by Lloyd's and other London
market companies between 1966 and 1979 have also become insolvent; under the
Wellington Agreement, U.S. Gypsum must pay these amounts, which total
approximately $12 million.
It is not possible to predict the number of additional lawsuits alleging
asbestos-related claims that may be filed against U.S. Gypsum. Many Property
Damage Cases are still at an early stage and the potential liability therefrom
is consequently uncertain. In view of the limited insurance funding currently
available for the Property Damage Cases resulting from the continued resistance
by a number of U.S. Gypsum's insurers to providing coverage, the effect of the
asbestos litigation on the Corporation will depend upon a variety of factors,
including the damages sought in the Property Damage Cases that reach trial prior
to the completion of the Coverage Action, U.S. Gypsum's ability to successfully
defend or settle such cases, and the resolution of the Coverage Action. As a
result, management is unable to determine whether an adverse outcome in the
asbestos litigation will have a material adverse effect on the results of
operations or the consolidated financial position of the Corporation.
ACCOUNTING CHANGE
Effective January 1, 1994, the Corporation adopted the requirements of
Financial Accounting Standards Board Interpretation No. 39 ("Interpretation
39"). In accordance with Interpretation 39, U.S. Gypsum recorded an accrual for
its liabilities for asbestos-related matters which are deemed probable and can
be reasonably estimated, and separately recorded an asset equal to the amount of
such liabilities that is expected to be paid by uncontested insurance. Due to
management's inability to reasonably estimate U.S. Gypsum's liability for
Property Damage Cases and (until the implementation of Georgine is deemed
probable) future Personal Injury Cases, the liability and asset recorded in 1994
relate only to pending Personal Injury Cases. As of December 31, 1994, the
liability (which is included in other liabilities on the
F-35
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
consolidated balance sheet) and the asset (which is included in other assets on
the consolidated balance sheet) for pending Personal Injury Cases each amounted
to $100 million. This implementation of Interpretation 39 did not impact
earnings, cash flow or net assets.
ENVIRONMENTAL LITIGATION
The Corporation and certain of its subsidiaries have been notified by state
and federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. In substantially all of these sites, the involvement
of the Corporation or its subsidiaries is expected to be minimal. The
Corporation believes that appropriate reserves have been established for its
potential liability in connection with all Superfund sites but is continuing to
review its accruals as additional information becomes available. Such reserves
take into account all known or estimable costs associated with these sites
including site investigations and feasibility costs, site cleanup and
remediation, legal costs, and fines and penalties, if any. In addition,
environmental costs connected with site cleanups on USG-owned property are also
covered by reserves established in accordance with the foregoing. The
Corporation believes that neither these matters nor any other known governmental
proceeding regarding environmental matters will have a material adverse effect
upon its earnings or consolidated financial position.
INDUSTRY AND GEOGRAPHIC SEGMENTS
Transactions between geographic areas are accounted for on an "arm's-length"
basis. No single customer accounted for 4% or more of consolidated net sales.
Export sales to foreign unaffiliated customers represent less than 10% of
consolidated net sales.
Intrasegment and intersegment eliminations largely reflect intercompany
sales. Segment operating profit/(loss) includes all costs and expenses directly
related to the segment involved and an allocation of expenses which benefit more
than one segment. Segment operating profit/(loss) also includes the non-cash
amortization of excess reorganization value which had the impact of reducing
operating profit. Assets for USG Funding, which was established in 1994,
represent the outstanding balance of receivables purchased from U.S. Gypsum and
USG Interiors, net of reserves, and are included in "corporate identifiable
assets" in the table below. As of December 31, 1994, such receivables, net of
reserves, amounted to $123 million, including $84 million purchased from U.S.
Gypsum and $39 million purchased from USG Interiors. Information for the period
of May 7 through December 31, 1993, shown in the following tables has been
restated to conform to the Corporation's current industry segment organization.
F-36
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZATION OF
OPERATING EXCESS DEPRECIATION
YEAR ENDED DECEMBER 31, 1994 PROFIT/ REORGANIZATION DEPLETION AND CAPITAL IDENTIFIABLE
INDUSTRY SEGMENTS NET SALES (LOSS) VALUE AMORTIZATION EXPENDITURES ASSETS
- -------------------------------- --------- ------------- ------------------- ----------------- ----------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum................... $ 1,209 $ 158 $ 61 $ 29 $ 37 $ 887
CGC (gypsum division)......... 110 (6) 18 3 4 120
Other subsidiaries............ 90 24 -- 4 5 56
Eliminations.................. (84) -- -- -- -- 1
--------- ----- ----- --- ----- ------
Total Gypsum Products......... 1,325 176 79 36 46 1,064
Building Products
Distribution................. 659 10 3 2 3 147
Eliminations.................. (204) (2) -- -- -- (33)
--------- ----- ----- --- ----- ------
Total North American Gypsum... 1,780 184 82 38 49 1,178
--------- ----- ----- --- ----- ------
Worldwide Ceilings:
USG Interiors................. 400 (28) 71 10 12 403
USG International............. 202 (13) 16 3 3 189
CGC (interiors division)...... 29 3 -- -- -- 8
Eliminations.................. (37) -- -- -- -- --
--------- ----- ----- --- ----- ------
Total Worldwide Ceilings...... 594 (38) 87 13 15 600
--------- ----- ----- --- ----- ------
Corporate....................... -- (42) -- 33 -- 352
Eliminations.................... (84) -- -- -- -- (6)
--------- ----- ----- --- ----- ------
Total USG Corporation........... 2,290 104 169 84 64 2,124
--------- ----- ----- --- ----- ------
--------- ----- ----- --- ----- ------
GEOGRAPHIC SEGMENTS
- --------------------------------
United States................... $ 2,008 $ 94 $ 135 $ 74 $ 52 $ 1,770
Canada.......................... 164 2 18 5 9 153
Other Foreign................... 228 8 16 5 3 200
Transfers between geographic
areas.......................... (110) -- -- -- -- 1
--------- ----- ----- --- ----- ------
Total USG Corporation........... 2,290 104 169 84 64 2,124
--------- ----- ----- --- ----- ------
--------- ----- ----- --- ----- ------
</TABLE>
F-37
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZATION OF
OPERATING EXCESS DEPRECIATION
YEAR ENDED DECEMBER 31, 1993 PROFIT/ REORGANIZATION DEPLETION AND CAPITAL IDENTIFIABLE
INDUSTRY SEGMENTS NET SALES (LOSS) VALUE AMORTIZATION EXPENDITURES ASSETS
- -------------------------------- --------- ------------- ------------------- ----------------- ----------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum................... $ 673 $ 48 $ 41 $ 20 $ 17 $ 912
CGC (gypsum division)......... 61 (8) 12 2 2 145
Other subsidiaries............ 53 13 -- 2 4 61
Eliminations.................. (43) -- -- -- -- --
--------- ----- ----- --- ----- ------
Total Gypsum Products......... 744 53 53 24 23 1,118
Building Products
Distribution................. 372 4 2 1 1 125
Eliminations.................. (111) -- -- -- -- (25)
--------- ----- ----- --- ----- ------
Total North American Gypsum... 1,005 57 55 25 24 1,218
--------- ----- ----- --- ----- ------
Worldwide Ceilings:
USG Interiors................. 245 (20) 47 6 2 507
USG International............. 126 (11) 11 2 3 181
CGC (interiors division)...... 19 1 -- 1 -- 9
Eliminations.................. (23) -- -- -- -- --
--------- ----- ----- --- ----- ------
Total Worldwide Ceilings...... 367 (30) 58 9 5 697
--------- ----- ----- --- ----- ------
Corporate....................... -- (26) -- 10 -- 251
Eliminations.................... (47) -- -- -- -- (3)
--------- ----- ----- --- ----- ------
Total USG Corporation........... 1,325 1 113 44 29 2,163
--------- ----- ----- --- ----- ------
--------- ----- ----- --- ----- ------
GEOGRAPHIC SEGMENTS
- --------------------------------
United States................... $ 1,147 $ 3 $ 90 $ 36 $ 20 $ 1,789
Canada.......................... 95 (6) 12 5 6 178
Other Foreign................... 143 4 11 3 3 197
Transfers between geographic
areas.......................... (60) -- -- -- -- (1)
--------- ----- ----- --- ----- ------
Total USG Corporation........... 1,325 1 113 44 29 2,163
--------- ----- ----- --- ----- ------
--------- ----- ----- --- ----- ------
</TABLE>
<TABLE>
<CAPTION>
MAY 7 THROUGH
YEAR ENDED DECEMBER 31,
DECEMBER 31, 1994 1993
----------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
TRANSFERS BETWEEN GEOGRAPHIC AREAS
- ----------------------------------------------------------------------------------
United States .................................................................... $ 44 $ 25
Canada ........................................................................... 36 16
Other Foreign .................................................................... 30 19
----- ------
Total ............................................................................ 110 60
----- ------
----- ------
</TABLE>
F-38
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SUBSIDIARY DEBT GUARANTEES
The Corporation had $298 million and $478 million aggregate principal amount
of Senior 2002 Notes outstanding as of December 31, 1994 and 1993, respectively.
Each of U.S. Gypsum, USG Industries, Inc., USG Interiors, USG Foreign
Investments, Ltd., L&W Supply, Westbank Planting Company, USG Interiors
International, Inc., American Metals Corporation and La Mirada Products Co.,
Inc. (together, the "Combined Guarantors") guaranteed, in the manner described
below, both the obligations of the Corporation under the Credit Agreement and
the Senior 2002 Notes. The Combined Guarantors are jointly and severally liable
under these guarantees (the "Subsidiary Guarantees"). Holders of the Bank Debt
have the right to (i) determine whether, when and to what extent the guarantees
will be enforced (provided that each guarantee payment will be applied to the
Bank Debt and Senior 2002 Notes pro rata based on the respective amounts owed
thereon) and (ii) amend or eliminate the guarantees. The guarantees will
terminate when the Bank Debt is retired regardless of whether any Senior 2002
Notes remain unpaid. The liability of each of the Combined Guarantors on its
guarantee is limited to the greater of (i) 95% of the lowest amount, calculated
as of July 13, 1988, sufficient to render the guarantor insolvent, leave the
guarantor with unreasonably small capital or leave the guarantor unable to pay
its debts as they become due (each as defined under applicable law) and (ii) the
same amount, calculated as of the date any demand for payment under such
guarantee is made, in each case plus collection costs. The guarantees are senior
obligations of the applicable guarantor and rank PARI PASSU with all
unsubordinated obligations of the guarantor.
Subsidiaries other than the Combined Guarantors (the "Combined
Non-Guarantors"), substantially all of which are subsidiaries of guarantors,
primarily include CGC, Gypsum Transportation Limited, USG Canadian Mining Ltd.,
and the Corporation's Mexican, European and Pacific subsidiaries. USG Funding is
also a Non-Guarantor. The long-term debt of the Combined Non-Guarantors of $84
million and $24 million as of December 31, 1994 and 1993, respectively, has
restrictive covenants that restrict, among other things, the payment of
dividends.
The following condensed consolidating information presents:
(i) Condensed financial statements as of December 31, 1994 and 1993, for the
year ended December 31, 1994 and for the period of May 7 through December
31, 1993 of: (a) the Corporation on a parent company only basis (the "Parent
Company," which was the only entity of the Corporation included in the
bankruptcy proceeding); (b) the Combined Guarantors; (c) the Combined
Non-Guarantors; and (d) the Corporation on a consolidated basis. Due to the
Restructuring and implementation of fresh start accounting, the financial
statements for the restructured company (periods after May 6, 1993) are not
comparable to those of the predecessor company. Except for the following
condensed financial statements, separate financial information with respect
to the Combined Guarantors is omitted as such separate financial information
is not deemed material to investors.
(ii) The Parent Company and Combined Guarantors shown with their investments in
their subsidiaries accounted for on the equity method.
(iii) Elimination entries necessary to consolidate the Parent Company and its
subsidiaries.
F-39
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USG CORPORATION
(RESTRUCTURED COMPANY)
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ -- $ 2,008 $ 391 $ (109) $ 2,290
----------- ----------- ----- ------------ ------
Gross profit................................. (2) 432 87 -- 517
----------- ----------- ----- ------------ ------
Operating profit/(loss)...................... (43) 137 10 -- 104
Equity in net loss of the subsidiaries....... 34 6 -- (40) --
Interest expense, net........................ 134 2 3 -- 139
Corporate service charge..................... (164) 164 -- -- --
Other expense/(income)....................... 45 (41) (1) -- 3
----------- ----------- ----- ------------ ------
Earnings/(loss) before taxes on income....... (92) 6 8 40 (38)
Taxes on income.............................. -- 40 14 -- 54
----------- ----------- ----- ------------ ------
Net loss..................................... (92) (34) (6) 40 (92)
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
</TABLE>
USG CORPORATION
(RESTRUCTURED COMPANY)
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
MAY 7 THROUGH DECEMBER 31, 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ -- $ 1,153 $ 238 $ (66) $ 1,325
----------- ----------- ----- ------------ ------
Gross profit................................. -- 216 47 -- 263
----------- ----------- ----- ------------ ------
Operating profit/(loss)...................... (27) 30 (2) -- 1
Equity in net loss of the subsidiaries....... 291 11 -- (302) --
Interest expense, net........................ 84 2 2 -- 88
Corporate service charge..................... (106) 106 -- --
Other expense/(income)....................... (197) 188 1 -- (8)
----------- ----------- ----- ------------ ------
Loss before taxes on income and extraordinary
loss........................................ (99) (277) (5) 302 (79)
Taxes on income.............................. 9 14 6 -- 29
----------- ----------- ----- ------------ ------
Loss before extraordinary loss............... (108) (291) (11) 302 (108)
Extraordinary loss, net of taxes............. (21) -- -- -- (21)
----------- ----------- ----- ------------ ------
Net loss..................................... (129) (291) (11) 302 (129)
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
</TABLE>
F-40
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USG CORPORATION
(RESTRUCTURED COMPANY)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 178 $ (11) $ 30 $ -- $ 197
Receivables, net............................. -- 135 173 (34) 274
Inventories.................................. -- 136 43 (6) 173
----------- ----------- ----- ------------ ------
Total current assets....................... 178 260 246 (40) 644
Property, plant and equipment, net........... 15 623 117 -- 755
Investment in subsidiaries................... 1,436 261 -- (1,697) --
Excess reorganization value, net............. -- 447 114 -- 561
Other assets................................. (227) 426 (28) (7) 164
----------- ----------- ----- ------------ ------
Total assets............................... 1,402 2,017 449 (1,744) 2,124
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
Accounts payable and accrued expenses........ $ 83 $ 298 $ 63 $ (34) $ 410
Notes payable and long-term debt maturing
within one year............................. 41 2 2 -- 45
----------- ----------- ----- ------------ ------
Total current liabilities.................. 124 300 65 (34) 455
Long-Term Debt............................... 956 37 84 -- 1,077
Deferred Income Taxes........................ 9 155 15 -- 179
Other Liabilities............................ 308 109 4 -- 421
Common stock................................. 5 1 6 (7) 5
Capital received in excess of par value...... 221 1,438 364 (1,802) 221
Deferred currency translation................ -- -- (13) -- (13)
Reinvested earnings/(deficit)................ (221) (23) (76) 99 (221)
----------- ----------- ----- ------------ ------
Total stockholders' equity/(deficit)....... 5 1,416 281 (1,710) (8)
----------- ----------- ----- ------------ ------
Total liabilities and stockholders'
equity.................................... 1,402 2,017 449 (1,744) 2,124
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
</TABLE>
F-41
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USG CORPORATION
(RESTRUCTURED COMPANY)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 187 $ (8) $ 32 $ -- $ 211
Receivables, net............................. 8 240 44 (28) 264
Inventories.................................. -- 114 34 (3) 145
----------- ----------- ----- ------------ ------
Total current assets....................... 195 346 110 (31) 620
Property, plant and equipment, net........... 21 620 113 -- 754
Investment in subsidiaries................... 1,511 277 -- (1,788) --
Excess reorganization value, net............. -- 582 153 -- 735
Other assets................................. (35) 91 3 (5) 54
----------- ----------- ----- ------------ ------
Total assets............................... 1,692 1,916 379 (1,824) 2,163
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
Accounts payable and accrued expenses........ $ 100 $ 207 $ 52 $ (27) $ 332
Notes payable and long-term debt maturing
within one year............................. 158 3 6 -- 167
----------- ----------- ----- ------------ ------
Total current liabilities.................. 258 210 58 (27) 499
Long-Term Debt............................... 1,249 36 24 -- 1,309
Deferred Income Taxes........................ 14 151 15 -- 180
Other Liabilities............................ 296 8 5 -- 309
Common stock................................. 4 1 6 (7) 4
Capital received in excess of par value...... -- 1,472 310 (1,782) --
Deferred currency translation................ -- -- (9) -- (9)
Reinvested earnings/(deficit)................ (129) 38 (30) (8) (129)
----------- ----------- ----- ------------ ------
Total stockholders' equity/(deficit)....... (125) 1,511 277 (1,797) (134)
----------- ----------- ----- ------------ ------
Total liabilities and stockholders'
equity.................................... 1,692 1,916 379 (1,824) 2,163
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
</TABLE>
F-42
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USG CORPORATION
(RESTRUCTURED COMPANY)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net cash flows (to)/from operating
activities.................................. $ (187) $ 296 $ 89 $ -- $ 198
----------- ----------- ----- ------------ ------
Capital expenditures....................... (1) (51) (12) -- (64)
Net proceeds from asset dispositions....... 4 12 -- -- 16
----------- ----------- ----- ------------ ------
Net cash flows (to)/from investing
activities.................................. 3 (39) (12) -- (48)
----------- ----------- ----- ------------ ------
Issuance of debt........................... 85 4 173 -- 262
Repayment of debt.......................... (524) (3) (123) -- (650)
Public offering of common stock............ 224 -- -- -- 224
Cash dividends (paid)/received............. 21 28 (49) -- --
Net cash transfers (to)/from Corporate..... 369 (289) (80) -- --
----------- ----------- ----- ------------ ------
Net cash flows (to)/from financing
activities.................................. 175 (260) (79) -- (164)
----------- ----------- ----- ------------ ------
Net decrease in cash & equivalents........... (9) (3) (2) -- (14)
----------- ----------- ----- ------------ ------
Cash and cash equivalents -- beginning....... 187 (8) 32 -- 211
----------- ----------- ----- ------------ ------
Cash and cash equivalents -- end............. 178 (11) 30 -- 197
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
</TABLE>
F-43
<PAGE>
USG CORPORATION
(RESTRUCTURED COMPANY)
NOTED TO FINANCIAL STATEMENTS (CONCLUDED)
USG CORPORATION
(RESTRUCTURED COMPANY)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
MAY 7 THROUGH DECEMBER 31, 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMBINED COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net cash flows (to)/from operating
activities.................................. $ (27) $ 185 $ 25 $ -- $ 183
----------- ----------- ----- ------------ ------
Capital expenditures....................... -- (20) (9) -- (29)
Net proceeds from asset dispositions....... 16 13 -- -- 29
----------- ----------- ----- ------------ ------
Net cash flows (to)/from investing
activities.................................. 16 (7) (9) -- --
----------- ----------- ----- ------------ ------
Issuance of debt........................... -- -- 36 -- 36
Repayment of debt.......................... (8) (9) (40) -- (57)
Cash dividends (paid)/received............. -- 12 (12) -- --
Net cash transfers (to)/from Corporate..... 182 (182) -- -- --
----------- ----------- ----- ------------ ------
Net cash flows (to)/from financing
activities.................................. 174 (179) (16) -- (21)
----------- ----------- ----- ------------ ------
Net increase/(decrease) in cash &
equivalents................................. 163 (1) -- -- 162
----------- ----------- ----- ------------ ------
Cash and cash equivalents -- beginning....... 24 (7) 32 -- 49
----------- ----------- ----- ------------ ------
Cash and cash equivalents -- end............. 187 (8) 32 -- 211
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
</TABLE>
F-44
<PAGE>
USG CORPORATION
MANAGEMENT REPORT
Management is responsible for the preparation and integrity of the financial
statements and related notes included herein. These statements have been
prepared in accordance with generally accepted accounting principles and, of
necessity, include some amounts that are based on management's best estimates
and judgments.
The Corporation's accounting systems include internal controls designed to
provide reasonable assurance of the reliability of its financial records and the
proper safeguarding and use of its assets. Such controls are based on
established policies and procedures, are implemented by trained personnel, and
are monitored through an internal audit program. The Corporation's policies and
procedures prescribe that the Corporation and its subsidiaries are to maintain
ethical standards and that its business practices are to be consistent with
those standards.
The Audit Committee of the Board, consisting solely of outside Directors of
the Corporation, maintains an ongoing appraisal, on behalf of the stockholders,
of the effectiveness of the independent auditors and management with respect to
the preparation of financial statements, the adequacy of internal controls and
the Corporation's accounting policies.
F-45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board
of Directors of USG Corporation:
We have audited the accompanying consolidated balance sheets of USG Corporation
(Restructured Company), a Delaware corporation, and subsidiaries as of December
31, 1994 and 1993 and the related consolidated statements of earnings and cash
flows for the year ended December 31, 1994 and the period of May 7 through
December 31, 1993. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Notes to Financial Statements -- "Financial Restructuring" note,
on May 6, 1993, the Corporation completed a comprehensive financial
restructuring through the implementation of a prepackaged plan of reorganization
under Chapter 11 of the United States Bankruptcy Code and applied fresh start
accounting. As such, results of operations through May 6, 1993 (Predecessor
Company) are not comparable with results of operations subsequent to that date.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USG Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for the year ended December 31, 1994 and the
period of May 7 through December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in Notes to Financial Statements -- "Litigation" note, in view of
the limited insurance funding currently available for property damage cases
resulting from the continued resistance by a number of U.S. Gypsum's insurers to
providing coverage, the effect of the asbestos litigation on the Corporation
will depend upon a variety of factors, including the damages sought in property
damage cases that reach trial prior to the completion of the coverage action,
U.S. Gypsum's ability to successfully defend or settle such cases, and the
resolution of the coverage action. As a result, management is unable to
determine whether an adverse outcome in the asbestos litigation will have a
material adverse effect on the consolidated results of operations or the
consolidated financial position of the Corporation.
As discussed in Notes to Financial Statements -- "Litigation" note, on January
1, 1994, the Corporation changed its method of accounting for asbestos-related
matters.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 26, 1995
F-46
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENT OF EARNINGS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 1 YEAR
THROUGH ENDED
MAY 6, DECEMBER 31,
1993 1992
----------- --------------
<S> <C> <C>
Net Sales............................................................................. $ 591 $ 1,777
Cost of products sold................................................................. 482 1,460
----------- ------
Gross Profit.......................................................................... 109 317
Selling and administrative expenses................................................... 71 218
----------- ------
Operating Profit...................................................................... 38 99
Interest expense...................................................................... 86 334
Interest income....................................................................... (2) (12)
Other expense, net.................................................................... 6 1
Reorganization items.................................................................. (709) --
----------- ------
Earnings/(Loss) Before Taxes on Income, Extraordinary Gain and Changes in Accounting
Principles........................................................................... 657 (224)
Taxes on income/(income tax benefit).................................................. 17 (33)
----------- ------
Earnings/(Loss) Before Extraordinary Gain and Changes in Accounting Principles........ 640 (191)
Extraordinary gain, net of taxes...................................................... 944 --
Cumulative effect of changes in accounting principles, net............................ (150) --
----------- ------
Net Earnings/(Loss)................................................................... 1,434 (191)
----------- ------
----------- ------
</TABLE>
PER-SHARE INFORMATION IS OMITTED BECAUSE, DUE TO THE RESTRUCTURING AND
IMPLEMENTATION OF FRESH START ACCOUNTING, IT IS NOT MEANINGFUL.
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
F-47
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
AS OF
MAY 6,
1993
---------
<S> <C>
Current Assets:
Cash and cash equivalents (primarily time deposits)..................................................... $ 49
Receivables (net of reserves of $13).................................................................... 315
Inventories............................................................................................. 148
---------
Total current assets.................................................................................. 512
---------
Property, Plant and Equipment, Net...................................................................... 767
Excess Reorganization Value............................................................................. 851
Other Assets............................................................................................ 64
---------
Total assets.......................................................................................... 2,194
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................................................................ $ 96
Accrued expenses........................................................................................ 171
Notes payable........................................................................................... 6
Long-term debt maturing within one year................................................................. 9
Taxes on income......................................................................................... 13
---------
Total current liabilities............................................................................. 295
---------
Long-Term Debt.......................................................................................... 1,446
Deferred Income Taxes................................................................................... 170
Other Liabilities....................................................................................... 279
Stockholders' Equity:
Preferred stock -- $1 par value; authorized 36,000,000 shares; $1.80 convertible preferred stock
(initial series); outstanding -- none................................................ --
Common stock -- $0.10 par value; authorized 200,000,000 shares; outstanding 37,157,458 shares (after
deducting 27,556 shares held in treasury)............................................... 4
Capital received in excess of par value................................................................. --
Deferred currency translation........................................................................... --
Reinvested earnings..................................................................................... --
---------
Total stockholders' equity............................................................................ 4
---------
Total liabilities and stockholders' equity............................................................ 2,194
---------
---------
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
F-48
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
JANUARY 1 YEAR
THROUGH ENDED
MAY 6, DECEMBER 31,
1993 1992
----------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings/(loss)................................................................... $ 1,434 $ (191)
Adjustments to reconcile net earnings/(loss) to net cash:
Cumulative effect of accounting changes............................................. 150 --
Depreciation, depletion and amortization............................................ 22 66
Interest expense on pay-in-kind debentures.......................................... 17 74
Deferred income taxes............................................................... (13) (25)
Net (gain)/loss on asset dispositions............................................... 4 (5)
(Increase)/decrease in working capital:
Receivables......................................................................... 18 (1)
Inventories......................................................................... (8) (3)
Payables............................................................................ 3 (4)
Accrued expenses.................................................................... 15 213
Increase in other assets.............................................................. (12) (23)
Changes due to reorganization items:
Increase in reorganization items.................................................... 65 --
Net adjustments to fair market value................................................ (759) --
Gain on discharge of prepetition liabilities........................................ (944) --
Payment of liabilities net of collection of letters of credit....................... (7) --
Increase/(decrease) in other liabilities.............................................. 4 (2)
Other, net............................................................................ (3) (9)
----------- -----
Net cash flows (to)/from operating activities....................................... (14) 90
----------- -----
Cash Flows from Investing Activities:
Capital expenditures.................................................................. (12) (49)
Net proceeds from asset dispositions.................................................. -- 6
----------- -----
Net cash flows to investing activities.............................................. (12) (43)
----------- -----
Cash Flows from Financing Activities:
Issuance of debt...................................................................... 5 57
Repayment of debt..................................................................... (142) (75)
(Increase)/decrease in restricted assets.............................................. 32 (4)
----------- -----
Net cash flows to financing activities.............................................. (105) (22)
----------- -----
Net Increase/(Decrease) in Cash and Cash Equivalents.................................. (131) 25
----------- -----
Cash and cash equivalents as of beginning of period................................... 180 155
----------- -----
Cash and cash equivalents as of end of period......................................... 49 180
----------- -----
----------- -----
Supplemental Cash Flow Disclosures:
Interest paid......................................................................... $ 58 $ 52
Income taxes paid..................................................................... 3 13
----------- -----
----------- -----
</TABLE>
THE NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT.
F-49
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS
(TERMS IN INITIAL CAPITAL LETTERS ARE DEFINED ELSEWHERE IN THIS PROSPECTUS)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its subsidiaries after elimination of intercompany accounts and
transactions. Revenue is recognized upon the shipment of products. For the
period of January 1 through May 6, 1993, net currency translation gains or
losses on foreign subsidiaries are included in deferred currency translation, a
component of stockholders' equity. For the year ended December 31, 1992, Mexican
currency translation losses were charged to earnings. Purchased goodwill, which
was written off in accordance with the implementation of fresh start accounting,
was previously being amortized over a period of 40 years.
For purposes of the Consolidated Balance Sheet and Consolidated Statement of
Cash Flows, all highly liquid investments with a maturity of three months or
less at the time of purchase are considered to be cash equivalents.
FINANCIAL RESTRUCTURING
On May 6, 1993, the Corporation completed a comprehensive restructuring of
its debt (the "RESTRUCTURING") through implementation of a "prepackaged" plan of
reorganization under United States bankruptcy law (the "PREPACKAGED PLAN"). In
accordance with the terms of the Prepackaged Plan, $1.4 billion of debt and
accrued interest was converted into equity, interest expense was significantly
reduced and the maturities of a substantial portion of the Corporation's
remaining debt were extended. The Corporation accounted for the Restructuring
using the principles of fresh start accounting as required by AICPA Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"). Pursuant to such principles, individual assets
and liabilities were adjusted to fair market value as of May 6, 1993. Excess
reorganization value, the portion of the reorganization value not attributable
to specific assets, is being amortized over a five-year period, effective May 7,
1993.
The following balance sheet details the adjustments that were made as of May
6, 1993 to record the Restructuring and implement fresh start accounting:
F-50
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USG CORPORATION
(PREDECESSOR COMPANY)
CONSOLIDATED BALANCE SHEET
AS OF MAY 6, 1993
(DOLLARS IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
PRE- POST-
RESTRUCTURING (A) (B) RESTRUCTURING
AND RESTRUCTURING FRESH START AND
FRESH START ADJUSTMENTS ADJUSTMENTS FRESH START
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 153 $ (104) $ -- $ 49
Receivables, net.................................... 281 35 (1) 315
Inventories......................................... 122 -- 26 148
Restricted cash..................................... 99 (99) -- --
------------- ------------- ------ ------
Total current assets.............................. 655 (168) 25 512
Property, Plant and Equipment, Net.................. 792 -- (25) 767
Purchased Goodwill, Net............................. 69 -- (69) --
Excess Reorganization Value......................... -- -- 851 851
Other Assets........................................ 65 (1) -- 64
------------- ------------- ------ ------
Total assets...................................... 1,581 (169) 782 2,194
------------- ------------- ------ ------
------------- ------------- ------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................... $ 96 $ -- $ -- $ 96
Accrued expenses.................................... 203 (28) (4) 171
Notes payable....................................... 6 -- -- 6
Revolving Credit Facility........................... 140 (140) -- --
Long-term debt maturing within one year............. 9 -- -- 9
Long-term debt classified as current................ 427 (427) -- --
Taxes on income..................................... 17 -- (4) 13
------------- ------------- ------ ------
Total current liabilities......................... 898 (595) (8) 295
------------- ------------- ------ ------
Long-Term Debt...................................... 67 1,473 (94) 1,446
Deferred Income Taxes............................... 111 24 35 170
Other Liabilities................................... 194 -- 85 279
Liabilities Subject to Compromise................... 2,458 (2,458) -- --
Stockholders' Equity/(Deficit):
Preferred stock..................................... -- -- -- --
Common stock........................................ 5 (1) -- 4
Capital received in excess of par value............. 23 444 (467) --
Deferred currency translation....................... (7) -- 7 --
Reinvested earnings/(deficit)....................... (2,168) 944 1,224 --
------------- ------------- ------ ------
Total stockholders' equity/(deficit).............. (2,147) 1,387 764 4
------------- ------------- ------ ------
Total liabilities and stockholders' equity........ 1,581 (169) 782 2,194
------------- ------------- ------ ------
------------- ------------- ------ ------
<FN>
- --------------------------
(a) To record the consummation of the Prepackaged Plan.
(b) To record the adjustments to state assets and liabilities at their
estimated fair market value, including establishment of Excess
Reorganization Value.
</TABLE>
F-51
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REORGANIZATION ITEMS
In connection with the Restructuring, the Corporation recorded a one-time
reorganization items gain of $709 million in the period of January 1 through May
6, 1993. The (income)/expense components of this gain are as follows (dollars in
millions):
<TABLE>
<CAPTION>
JANUARY 1
THROUGH MAY
6, 1993
-----------
<S> <C>
Excess reorganization value....................................................... $ (851)
Other fresh start adjustments..................................................... 63
Restructuring fees and expenses................................................... 57
Write-off of 1988 capitalized financing costs..................................... 22
-----
Total reorganization items...................................................... (709)
-----
-----
</TABLE>
EXTRAORDINARY GAIN
Also in connection with the Restructuring, the Corporation recorded a
one-time after-tax extraordinary gain of $944 million in the period of January 1
through May 6, 1993. The income/(expense) components of this gain are as follows
(dollars in millions):
<TABLE>
<CAPTION>
JANUARY 1
THROUGH MAY
6, 1993
-------------
<S> <C>
Gain on exchange of the Old Senior Subordinated Debentures for stock.............. $ 477
Gain on exchange of the Old Junior Subordinated Debentures for stock and
warrants......................................................................... 456
Write-off of bank debt default interest........................................... 49
Tax provision..................................................................... (24)
Management incentive compensation................................................. (13)
Other............................................................................. (1)
-----
Total extraordinary items....................................................... 944
-----
-----
</TABLE>
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
A one-time after-tax charge of $150 million was recorded in the first
quarter of 1993 representing the adoption of Statement of Financial Accounting
Standard ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," -- $180 million, partially offset by the adoption of SFAS
No. 109, "Accounting for Income Taxes," -- $30 million. See "Postretirement
Benefits" and "Taxes on Income and Deferred Taxes" notes for information on the
adoption of these standards. Neither of these standards impact cash flow.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to earnings as incurred
and amounted to $4 million and $14 million in the period of January 1 through
May 6, 1993 and the year ended December 31, 1992, respectively.
F-52
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
TAXES ON INCOME AND DEFERRED INCOME TAXES
Effective January 1, 1993, the Corporation adopted SFAS No. 109, "Accounting
for Income Taxes." The cumulative effect as of January 1, 1993 of adopting SFAS
No. 109 was a one-time benefit to first quarter 1993 net earnings of $30
million, primarily due to adjusting deferred taxes from historical to current
tax rates. Financial statements for periods prior to January 1, 1993 have not
been restated to reflect the adoption of this standard.
Earnings/(loss) before taxes on income, extraordinary gain and changes in
accounting principles consisted of the following (dollars in millions):
<TABLE>
<CAPTION>
JANUARY 1 YEAR ENDED
THROUGH MAY DECEMBER 31,
6, 1993 1992
------------- ---------------
<S> <C> <C>
U.S............................................................... $ 483 $ (246)
Foreign........................................................... 174 22
----- -----
Total........................................................... 657 (224)
----- -----
----- -----
</TABLE>
Taxes on income/(income tax benefit) consisted of the following (dollars in
millions):
<TABLE>
<CAPTION>
JANUARY 1
THROUGH MAY YEAR ENDED
6, 1993 DECEMBER 31, 1992
------------- -----------------
<S> <C> <C>
Current:
U.S. Federal................................................... $ 13 $ (12)
Foreign........................................................ 2 6
--- ---
15 (6)
--- ---
Deferred:
U.S. Federal................................................... -- (27)
Foreign........................................................ 2 --
--- ---
2 (27)
--- ---
Total........................................................ 17 (33)
--- ---
--- ---
</TABLE>
The difference between the statutory U.S. Federal income tax/(benefit) rate
and the Corporation's effective income tax/(benefit) rate is summarized as
follows:
<TABLE>
<CAPTION>
JANUARY 1 YEAR ENDED
THROUGH MAY DECEMBER 31,
6, 1993 1992
------------- ---------------
<S> <C> <C>
Statutory U.S. Federal income tax/(benefit) rate................. 34.0% (34.0)%
Nontaxable effects of adopting fresh start accounting............ (41.4) --
Capitalized restructuring fees................................... 2.0 --
Foreign tax rate differential.................................... 1.3 7.7
Valuation allowance adjustment................................... 2.3 --
Unbenefited NOL Carryforward..................................... 2.3 12.6
Other, net....................................................... 2.1 (1.3)
----- -----
Effective income tax/(benefit) rate.............................. 2.6 (15.0)
----- -----
----- -----
</TABLE>
F-53
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Temporary differences and carryforwards which give rise to current and
long-term deferred tax (assets)/ liabilities as of May 6, 1993 were as follows
(dollars in millions):
<TABLE>
<CAPTION>
AS OF MAY
6, 1993
-----------
<S> <C>
Property, plant and equipment........................................................ $ 148
Debt discount........................................................................ 32
-----
Deferred tax liabilities............................................................. 180
-----
Pension and retiree medical benefits................................................. (85)
Reserves not deductible until paid................................................... (47)
Other................................................................................ (2)
-----
Deferred tax assets before valuation allowance....................................... (134)
Valuation allowance.................................................................. 85
-----
Deferred tax assets.................................................................. (49)
-----
Net deferred tax liabilities......................................................... 131
-----
-----
</TABLE>
A valuation allowance has been provided for deferred tax assets relating to
pension and retiree medical benefits due to the long-term nature of their
realization. Because of the uncertainty regarding the application of the Code to
the Corporation's NOL Carryforwards as a result of the Prepackaged Plan, no
deferred tax asset is recorded.
The Corporation has NOL Carryforwards of $113 million remaining from 1992
after a reduction due to cancellation of indebtedness from the Prepackaged Plan.
These NOL Carryforwards may be used to offset U.S. taxable income through 2007.
The Code will limit the Corporation's annual use of its NOL Carryforwards to the
lesser of its taxable income or approximately $30 million plus any unused limit
from prior years. Furthermore, due to the uncertainty regarding the application
of the Code to the exchange of stock for debt, the Corporation's NOL
Carryforwards could be further reduced or eliminated. The Corporation has a $3
million minimum tax credit which may be used to offset U.S. regular tax
liability in future years.
During 1992, deferred income taxes resulted from certain items being treated
differently for financial reporting purposes than for income tax purposes. The
tax effect of such differences is summarized as follows (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1992
-----------------
<S> <C>
Tax benefit carryforwards..................................................... $ (19)
Accelerated tax depreciation.................................................. (5)
Other, net.................................................................... (3)
---
Total deferred provision.................................................... (27)
Classification adjustment of prior years' deferrals........................... 2
---
Decrease in deferred taxes.................................................. (25)
---
---
</TABLE>
The Corporation does not provide for U.S. Federal income taxes on the
portion of undistributed earnings of foreign subsidiaries which are intended to
be permanently reinvested. The cumulative amount of such undistributed earnings
totaled approximately $75 million as of May 6, 1993. Any future repatriation of
undistributed earnings would not, in the opinion of management, result in
significant additional taxes.
F-54
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INVENTORIES
In accordance with the implementation of fresh start accounting, inventories
were stated at fair market value as of May 6, 1993. Most of the Corporation's
domestic and Mexican inventories are valued under the LIFO method. As of May 6,
1993, the LIFO values of these inventories were $103 million and would have been
the same if they were valued under the FIFO and average production cost methods.
Inventories include material, labor and applicable factory overhead costs.
Inventory classifications were as follows (dollars in millions):
<TABLE>
<CAPTION>
AS OF
MAY 6,
1993
-----------
<S> <C>
Finished goods and work-in-process............................................................. $ 87
Raw materials.................................................................................. 54
Supplies....................................................................................... 7
-----
Total........................................................................................ 148
-----
-----
</TABLE>
The LIFO value of U.S. domestic inventories under fresh start accounting
exceeded that computed for U.S. Federal income tax purposes by $26 million as of
May 6, 1993.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were stated at fair market value as of May 6,
1993 in accordance with fresh start accounting. Provisions for depreciation are
determined principally on a straight-line basis over the expected average useful
lives of composite asset groups. Depletion is computed on a basis calculated to
spread the cost of gypsum and other applicable resources over the estimated
quantities of material recoverable. Interest during construction is capitalized
on major property additions. Property, plant and equipment classifications were
as follows (dollars in millions):
<TABLE>
<CAPTION>
AS OF
MAY 6,
1993
-----------
<S> <C>
Land and mineral deposits...................................................................... $ 61
Buildings and realty improvements.............................................................. 228
Machinery and equipment........................................................................ 478
-----
767
Reserves for depreciation and depletion........................................................ --
-----
Total........................................................................................ 767
-----
-----
</TABLE>
LEASES
The Corporation leases certain of its offices, buildings, machinery and
equipment, and autos under noncancellable operating leases. These leases have
various terms and renewal options. Lease expense amounted to $11 million and $31
million in the period of January 1 through May 6, 1993 and the year ended
December 31, 1992, respectively.
F-55
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INDEBTEDNESS
Total debt, including currently maturing debt, consisted of the following
(dollars in millions):
<TABLE>
<CAPTION>
AS OF
MAY 6,
1993
---------
<S> <C>
SECURED DEBT:
Bank Debt:
Bank Term Loans, installments due through 2000.................................... $ 540
Capitalized Interest Notes, due through 2000...................................... 56
Senior notes and debentures:
8% Senior Notes due 1995.......................................................... 75
8% Senior Notes due 1996.......................................................... 90
8% Senior Notes due 1997.......................................................... 100
9% Senior Notes due 1998.......................................................... 35
10 1/4% Senior Notes due 2002..................................................... 340
7 7/8% Sinking Fund Debentures due 2004........................................... 41
8 3/4% Sinking Fund Debentures due 2017........................................... 200
Other secured debt, average interest rates 10.5%, varying payments through 1999..... 40
UNSECURED DEBT:
Industrial revenue bonds, 5.9% ranging to 10.25%, due through 2014.................. 39
---------
Total principal amount of debt...................................................... 1,556
Less unamortized reorganization discount............................................ (95)
---------
Total carrying amount of debt....................................................... 1,461
---------
---------
</TABLE>
As of May 6, 1993, the Corporation and its subsidiaries had $1,556 million
total principal amount of debt (before unamortized reorganization discount) on a
consolidated basis. Of such total debt, $118 million represented direct
borrowings by the subsidiaries, including $38 million of industrial revenue
bonds, $41 million of 7 7/8% sinking fund debentures issued by U.S. Gypsum in
1974 and subsequently assumed by the Corporation on a joint and several basis in
1985, $33 million of debt (primarily project financing) incurred by the
Corporation's foreign subsidiaries other than CGC, $4 million of working capital
borrowings by CGC, and $3 million of other long-term borrowings by CGC.
The Bank Debt and most other senior debt are secured by a pledge of all of
the shares of the Corporation's major domestic subsidiaries and 65% of the
shares of certain of its foreign subsidiaries, including CGC, pursuant to a
collateral trust arrangement controlled primarily by holders of the Bank Term
Loans. The rights of the Corporation and its creditors to the assets of any
subsidiary upon the latter's liquidation or reorganization will be subject to
the prior claims of such subsidiary's creditors, except to the extent that the
Corporation may itself be a creditor with enforceable claims against such
subsidiary. The average rate of interest on the Bank Term Loans, excluding
default interest which was cured or waived in accordance with the Prepackaged
Plan, was 6.5% in the period of January 1 through May 6, 1993. The rate of
interest on certain capitalized interest notes issued under the Credit Agreement
on May 6, 1993 in connection with the provisions of the Prepackaged Plan was
5.4% based on LIBOR plus 2 1/4%.
The "other secured debt" category shown in the table above primarily
includes short-term and long-term borrowings from several foreign banks by USG
International used principally to finance construction of the Aubange, Belgium
ceiling tile plant. This debt is secured by a lien on the assets of the Aubange
plant and has restrictive covenants that restrict, among other things, the
payment of dividends. Foreign borrowings made by the Corporation's international
operations are generally allowed, within certain limits, under provisions of the
Credit Agreement.
F-56
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In general, the Credit Agreement restricts, among other things, the
incurrence of additional indebtedness, mergers, asset dispositions, investments,
prepayment of other debt, dealings with affiliates, capital expenditures,
payment of dividends and lease commitments.
The fair market value of debt as of May 6, 1993 was $1,421 million, based on
estimates of fair market value calculated in connection with implementation of
fresh start accounting, excluding other secured debt, primarily representing
financing for construction of the Aubange plant that is secured by a direct lien
on its assets, which was not practicable to estimate.
The weighted average interest rate on outstanding short-term borrowings was
7.3% as of May 6, 1993.
PENSION PLANS
The Corporation and most of its subsidiaries have defined benefit retirement
plans for all eligible employees. Benefits of the plans are generally based on
years of service and employees' compensation during the last years of
employment. The Corporation's contributions are made in accordance with
independent actuarial reports which, for most plans, required minimal funding in
the period of January 1 through May 6, 1993 and the year ended December 31,
1992. Net pension expense included the following components (dollars in
millions):
<TABLE>
<CAPTION>
JANUARY 1 YEAR
THROUGH ENDED
MAY 6, DECEMBER 31,
1993 1992
------------- -----------------
<S> <C> <C>
Service cost-benefits earned during the period.............................. $ 3 $ 9
Interest cost on projected benefit obligation............................... 11 29
Actual return on plan assets................................................ (15) (14)
Unrecognized prior service cost............................................. 1 2
Net amortization/(deferral)................................................. 2 (25)
--- ---
Net pension expense......................................................... 2 1
--- ---
--- ---
</TABLE>
The pension plan assets, which consist primarily of publicly traded common
stocks and debt securities, had an estimated fair market value that equaled the
projected benefit obligation as of May 6, 1993. The following table presents a
reconciliation of the total assets of the pension plans to the projected benefit
obligation (dollars in millions):
<TABLE>
<CAPTION>
AS OF
MAY 6,
1993
-----------
<S> <C>
Amount of assets available for benefits:
Funded assets of the plans at fair market value............................................... $ 379
Accrued pension expense....................................................................... 25
-----
Total assets of the plans....................................................................... 404
-----
Present value of estimated pension obligation:
Vested benefits............................................................................... 298
Nonvested benefits............................................................................ 24
-----
Accumulated benefit obligation.................................................................. 322
Additional benefits based on projected future salary increases.................................. 82
-----
Projected benefit obligation.................................................................... 404
-----
Assets in excess of projected benefit obligation................................................ --
-----
-----
</TABLE>
For the period of January 1 through May 6, 1993, the expected long-term rate
of return on plan assets was 9%, the assumed weighted average discount rate used
in determining the accumulated benefit obligation was 8% and the rate of
increases in projected future compensation levels was 5.5%.
F-57
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
POSTRETIREMENT BENEFITS
The Corporation maintains plans that provide retiree health care and life
insurance benefits for all eligible employees. Employees generally become
eligible for the retiree benefit plans when they meet minimum retirement age and
service requirements. The cost of providing most of these benefits is shared
with retirees.
Effective January 1, 1993, the Corporation adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," for its retiree
benefit plans. Under this accounting standard, the Corporation is required to
accrue the estimated cost of retiree benefit payments during employees' active
service period. The Corporation elected to recognize this change in accounting
principle on the immediate recognition basis. The cumulative effect as of
January 1, 1993 of adopting SFAS No. 106 was a one-time after-tax charge to
first quarter 1993 net earnings of $180 million. The Corporation previously
expensed the cost of these benefits, which principally relate to health care, as
claims were incurred. These costs were $8 million in the year ended December 31,
1992.
The following table summarizes the components of net periodic postretirement
benefit cost for the period of January 1 through May 6, 1993 (dollars in
millions):
<TABLE>
<CAPTION>
JANUARY 1
THROUGH
MAY 6,
1993
-------------
<S> <C>
Service cost of benefits earned............................................................. $ 1
Interest on accumulated postretirement benefit obligation................................... 5
-----
Net periodic postretirement benefit cost.................................................... 6
-----
-----
</TABLE>
The status of the Corporation's accrued postretirement benefit cost as of
May 6, 1993 was as follows (dollars in millions):
<TABLE>
<CAPTION>
AS OF MAY 6,
1993
-------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................................. $ 118
Fully eligible active participants........................................................ 13
Other active participants................................................................. 62
-----
Accrued postretirement benefit cost liability recognized on the Consolidated Balance
Sheet...................................................................................... 193
-----
-----
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 13% as of May 6, 1993 with a gradually
declining rate to 6% by the year 2000 and remaining at that level thereafter. A
one-percentage-point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation as of
May 6, 1993 by $18 million and increase the net periodic postretirement benefit
cost for the period of January 1 through May 6, 1993 by $1 million. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 8%.
MANAGEMENT PERFORMANCE PLAN
The Management Performance Plan reserved 8,600,000 shares of Common Stock
for issuance in connection with grants of incentive stock options, nonqualified
stock options, stock appreciation rights, restricted stock, deferred stock,
performance shares and performance units.
F-58
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In accordance with the Prepackaged Plan, all outstanding stock options (for
3,786,575 shares) were cancelled without consideration, 1,016,090 shares of
restricted and deferred stock were cashed-out pursuant to "change in control"
provisions contained in the Management Performance Plan, and 25,580 shares of
restricted stock and awards for deferred stock yet to be issued remained
outstanding as a consequence of certain waivers of the change in control event
by senior members of management.
The Prepackaged Plan limited future awards under the Management Performance
Plan without stockholder approval to options to purchase a number of shares not
to exceed 7.5% of the number of shares of Common Stock outstanding immediately
after implementation of the Prepackaged Plan (2,788,350 shares), of which
options for 4.5% of such number of outstanding shares may be granted immediately
upon consummation of the Prepackaged Plan.
PREFERRED SHARE PURCHASE RIGHTS
On June 6, 1988, the Corporation adopted a Preferred Share Purchase Rights
Plan and pursuant to its provisions declared, subject to the consummation of the
1988 Recapitalization, the distribution of one Right upon each new share of
Common Stock issued in the 1988 Recapitalization. The 1988 Recapitalization
became effective July 13, 1988 and the distribution occurred immediately
thereafter. The Rights contain provisions which are intended to protect
stockholders in the event of an unsolicited attempt to acquire the Corporation.
The Preferred Share Purchase Rights Plan was terminated in connection with
implementation of the Prepackaged Plan. On May 6, 1993, the Rights Agreement was
adopted with provisions substantially similar to the old rights except that: (i)
the purchase price of the Rights was reset; (ii) the expiration of the Rights
was extended; (iii) a so-called "flip-in" feature and exchange feature was
added; (iv) certain exemptions were added permitting certain acquisitions and
the continued holding of common shares by Water Street and its affiliates in
excess of the otherwise specified thresholds; (v) the redemption price was
reduced; and (vi) the amendment provision was liberalized.
The Rights generally become exercisable 10 days following the announcement
of the acquisition of 20% or more of the outstanding Common Stock by someone
other than the Corporation or one of its employee benefit plans (10% in the case
of an acquisition which the Corporation's Board of Directors determines to
represent a threat of acquisition not in the best interests of the Corporation's
stockholders). When exercisable, each of the Rights entitles the registered
holder to purchase one-hundredth of a share of a junior participating preferred
stock, series C, $1.00 par value per share, at a price of $35.00 per one-
hundredth of a preferred share, subject to adjustment.
In the event that the Corporation is the surviving corporation and the
Common Stock remains outstanding and unchanged in a merger or other business
combination such acquiring party or the acquiring party engages in one of a
number of self-dealing transactions specified in the Rights Agreement, each
holder of a Right other than the acquiring party will thereafter have the right
to receive upon exercise thereof that number of shares of Common Stock having a
market value at the time of such transaction of two times the exercise price of
the Right.
WARRANTS
On May 6, 1993, a total of 2,602,566 Warrants, in addition to Common Stock,
were issued to holders of certain debt which was converted to equity in the
Restructuring. Upon issuance, each of the Warrants entitled the holder to
purchase one share of Common Stock at a purchase price of $16.14 per share,
subject to adjustment under certain events.
The Warrants are exercisable, subject to applicable securities laws, at any
time prior to May 6, 1998. Each share of Common Stock issued upon exercise of a
Warrant prior to the distribution date as defined in
F-59
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the Rights Agreement and prior to the redemption or expiration of the Rights
will be accompanied by an attached Right issued under the terms and subject to
the conditions of the Rights Agreement as it may then be in effect.
STOCKHOLDERS' EQUITY
Changes in stockholders' equity are summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
JANUARY 1 YEAR ENDED
THROUGH MAY DECEMBER 31,
6, 1993 1992
----------- --------------
<S> <C> <C>
COMMON STOCK:
Beginning Balance........................................................... $ 5 $ 5
Reverse Stock Split......................................................... (4) --
Issuance of New Common Stock................................................ 3 --
----------- -------
Ending Balance.............................................................. 4 5
----------- -------
----------- -------
CAPITAL RECEIVED IN EXCESS OF PAR VALUE:
Beginning Balance........................................................... 23 24
Restructuring adjustments................................................... 444 --
Fresh start accounting adjustment........................................... (467) --
Other, net.................................................................. -- (1)
----------- -------
Ending Balance.............................................................. -- 23
----------- -------
DEFERRED CURRENCY TRANSLATION:
Beginning Balance........................................................... (8) --
Change during the period.................................................... 1 (8)
Fresh start accounting adjustment........................................... 7 --
----------- -------
Ending Balance.............................................................. -- (8)
----------- -------
REINVESTED EARNINGS/(DEFICIT):
Beginning Balance........................................................... (1,900) (1,709)
Net earnings/(loss)......................................................... 1,434 (191)
Fresh start accounting adjustment........................................... 467 --
Other, net.................................................................. (1) --
----------- -------
Ending Balance.............................................................. -- (1,900)
----------- -------
Total stockholders' equity/(deficit)........................................ 4 (1,880)
----------- -------
----------- -------
</TABLE>
As of May 6, 1993, the Corporation held 27,556 shares of $0.10 par value
common stock in treasury. The treasury shares were acquired through the
forfeiture of restricted stock.
LITIGATION
INFORMATION IN THE FOLLOWING "LITIGATION" NOTE IS AS OF MAY 6, 1993. SEE
"RESTRUCTURED COMPANY -- NOTES TO FINANCIAL STATEMENTS -- LITIGATION" NOTE FOR
CURRENT LITIGATION INFORMATION.
One of the Corporation's subsidiaries, U.S. Gypsum, is among numerous
defendants in lawsuits arising out of the manufacture and sale of
asbestos-containing building materials. U.S. Gypsum sold certain
asbestos-containing products beginning in the 1930's; in most cases the products
were discontinued or asbestos was removed from the product formula by 1972, and
no asbestos-containing products were sold after 1977. Some of these lawsuits
seek to recover compensatory and in many cases punitive damages for costs
associated with maintenance or removal and replacement of products containing
asbestos (the
F-60
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
"Property Damage Cases"). Others of these suits (the "Personal Injury Cases")
seek to recover compensatory and in many cases punitive damages for personal
injury allegedly resulting from exposure to asbestos and asbestos-containing
products. It is anticipated that additional personal injury and property damage
cases containing similar allegations will be filed.
As discussed below, U.S. Gypsum has substantial personal injury and property
damage insurance for the years involved in the asbestos litigation. Prior to
1985, when an asbestos exclusion was added to U.S. Gypsum's policies, U.S.
Gypsum purchased comprehensive general liability insurance policies covering
personal injury and property damage in an aggregate face amount of approximately
$850 million. As of May 6, 1993, insurers that issued approximately $100 million
of these policies were insolvent. Because U.S. Gypsum's insurance carriers
initially responded to its claims for defense and indemnification with various
theories denying or limiting coverage and the applicability of their policies,
U.S. Gypsum filed a declaratory judgment action against them in the Circuit
Court of Cook County, Illinois on December 29, 1983. (U.S. GYPSUM CO. V. ADMIRAL
INSURANCE CO., ET AL.) (the "Coverage Action"). U.S. Gypsum alleges in the
Coverage Action that the carriers are obligated to provide indemnification for
settlements and judgments and, in some cases, defense costs incurred by U.S.
Gypsum in personal injury and property damage cases in which it is a defendant.
The current defendants are ten insurance carriers that provided comprehensive
general liability insurance coverage to U.S. Gypsum between the 1940's and 1984.
As discussed below, several carriers have settled all or a portion of the claims
in the Coverage Action.
U.S. Gypsum's aggregate expenditures for all asbestos-related matters,
including property damage, personal injury, insurance coverage litigation and
related expenses, exceeded aggregate insurance payments by $25.8 million in the
year ended December 31, 1992, and by $3.8 million in the period of January 1
through May 6, 1993.
PROPERTY DAMAGE CASES
The Property Damage Cases have been brought against U.S. Gypsum by a variety
of plaintiffs, including school districts, state and local governments, colleges
and universities, hospitals, and private property owners. As of May 6, 1993,
U.S. Gypsum was one of many defendants in four cases that had been certified as
class actions and others that requested such certification. One class action
suit is brought on behalf of owners and operators of all elementary and
secondary schools in the United States that contain or contained friable
asbestos-containing material. (IN RE ASBESTOS SCHOOL LITIGATION, U.S.D.C., E.D.
Pa.) Approximately 1,350 school districts opted out of the class, some of which
have filed or may file separate lawsuits or are participants in a state court
class action involving approximately 333 school districts in Michigan. (BOARD OF
EDUCATION OF THE CITY OF DETROIT, ET AL. V. THE CELOTEX CORP., et al., Cir. Ct.
for Wayne County, Mich.) On April 10, 1992, a state court in Philadelphia
certified a class consisting of all owners of buildings leased to the federal
government. (PRINCE GEORGE CENTER, INC. V. U.S. GYPSUM CO., ET AL., Ct. of
Common Pleas, Philadelphia, Pa.) On September 4, 1992, a Federal district court
in South Carolina conditionally certified a class comprised of all colleges and
universities in the United States, which certification is presently limited to
the resolution of certain allegedly "common" liability issues. (CENTRAL WESLEYAN
COLLEGE, V. W.R. GRACE & CO., ET AL., U.S.D.C., S.C.). On December 23, 1992, a
case was filed in state court in South Carolina purporting to be a "voluntary"
class action on behalf of owners of all buildings containing certain types of
asbestos-containing products manufactured by the nine named defendants,
including U.S. Gypsum, other than buildings owned by the federal or state
governments, single family residences, or buildings at issue in the four above
described class actions (ANDERSON COUNTY HOSPITAL V. W.R. GRACE & CO., ET AL.,
Court of Common Pleas, Hampton Co., S.C. (the "Anderson Case"). On January 14,
1993, the plaintiff filed an amended complaint that added a number of
defendants, including the Corporation. The amended complaint alleges, among
other things, that the guarantees executed by U.S. Gypsum in connection with the
1988 Recapitalization, as well as subsequent distributions of cash from U.S.
Gypsum to the Corporation, rendered U.S. Gypsum insolvent and constitute a
fraudulent conveyance. The suit seeks to set aside the guarantees and
F-61
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
recover the value of the cash flow "diverted" from U.S. Gypsum to the
Corporation in an amount to be determined. This case has not been certified as a
class action and no other threshold issues, including whether the South Carolina
Courts have personal jurisdiction over the Corporation, had been decided as of
May 6, 1993. The damages claimed against U.S. Gypsum in the class action cases
are unspecified. U.S. Gypsum has denied the substantive allegations of each of
the Property Damage Cases and intends to defend them vigorously except when
advantageous settlements are possible.
As of May 6, 1993, 67 Property Damage Cases were pending against U.S.
Gypsum; however, the number of buildings involved is greater than the number of
cases because many of these cases, including the class actions referred to
above, involve multiple buildings. Approximately 40 property damage claims were
threatened against U.S. Gypsum.
In total, as of May 6, 1993, U.S. Gypsum had settled property damage claims
of approximately 187 plaintiffs involved in approximately 71 cases. Twenty-two
cases had been tried to verdict, 13 of which were won by U.S. Gypsum and 7 lost;
two other cases, one won at the trial level and one lost, were settled after
appeals. Appeals were pending in 4 of the tried cases. In the cases lost,
compensatory damage awards against U.S. Gypsum totaled $12.5 million. Punitive
damages totaling $5.5 million were entered against U.S. Gypsum in four trials.
Two of the punitive damage awards, totaling $1.45 million, were paid after
appeals were exhausted; a third was settled after the verdict was reversed on
appeal. As of May 6, 1993, the remaining punitive award was on appeal.
In 1991, 13 new Property Damage Cases were filed against U.S. Gypsum, 11
were dismissed before trial, 8 were settled, 2 were closed following trial or
appeal, and 100 were pending at year end; U.S. Gypsum expended $22.2 million for
the defense and resolution of Property Damage Cases and received insurance
payments of $13.8 million in 1991. In 1992, 7 new Property Damage Cases were
filed against U.S. Gypsum, 10 were dismissed before trial, 18 were settled, 3
were closed following trial or appeal, and 76 were pending at year end. U.S.
Gypsum expended $34.9 million for the defense and resolution of Property Damage
Cases and received insurance payments of $10.2 million in 1992. In the period of
January 1 through May 6, 1993, no new Property Damage Cases were filed against
U.S. Gypsum, 2 were dismissed before trial, 7 were settled, and 67 were pending
at the end of the period. U.S. Gypsum expended $7.0 million for the defense and
resolution of Property Damage Cases and received insurance payments of $3.7
million in the period.
In the Property Damage Cases litigated to date, a defendant's liability for
compensatory damages, if any, has been limited to damages associated with the
presence and quantity of asbestos-containing products manufactured by that
defendant which are identified in the buildings at issue, although plaintiffs in
some cases have argued that principles of joint and several liability should
apply. Because of the unique factors inherent in each of the Property Damage
Cases, including the lack of reliable information as to product identification
and the amount of damages claimed against U.S. Gypsum in many cases, including
the class actions described above, management is unable to make a reasonable
estimate of the cost of disposing of pending Property Damage Cases.
PERSONAL INJURY CASES
U.S. Gypsum was among numerous defendants in asbestos personal injury suits
and administrative claims involving 57,645 claimants pending as of May 6, 1993.
All asbestos bodily injury claims pending in the federal courts, including
approximately one-third of the Personal Injury Cases pending against U.S.
Gypsum, have been consolidated in the United States District Court for the
Eastern District of Pennsylvania.
U.S. Gypsum is a member, together with 19 other former producers of
asbestos-containing products, of the Center for Claims Resolution (the
"Center"). The Center has assumed the handling, including the defense and
settlement, of all Personal Injury Cases pending against U.S. Gypsum and the
other members of the Center. Each member of the Center is assessed a portion of
the liability and defense costs of the
F-62
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Center for the Personal Injury Cases handled by the Center, according to
predetermined allocation formulas. Five of U.S. Gypsum's insurance carriers that
in 1985 signed an Agreement Concerning Asbestos-Related Claims (the "Wellington
Agreement") are supporting insurers (the "Supporting Insurers") of the Center.
The Supporting Insurers are obligated to provide coverage for the defense and
indemnity costs of the Center's members pursuant to the coverage provisions in
the Wellington Agreement. Claims for punitive damages are defended but not paid
by the Center; if punitive damages are recovered, insurance coverage may be
available under the Wellington Agreement depending on the terms of particular
policies and applicable state law. Punitive damages have not been awarded
against U.S. Gypsum in any of the Personal Injury Cases. Virtually all of U.S.
Gypsum's personal injury liability and defense costs are paid by those of its
insurance carriers that are Supporting Insurers. The Supporting Insurers
provided approximately $350 million of the total coverage referred to above.
On January 15, 1993, U.S. Gypsum and the other members of the Center were
named as defendants in a class action filed in the U.S. District Court for the
Eastern District Pennsylvania (GEORGINE ET AL. V. AMCHEM PRODUCTS INC., ET AL.,
Case No. 93-CV-0215) (hereinafter "Georgine,"). The complaint generally defines
the class of plaintiffs as all persons who have been occupationally exposed to
asbestos-containing products manufactured by the defendants and who had not
filed an asbestos personal injury suit as of the date of the filing of the class
action. Simultaneously with the filing of the class action, the parties filed a
settlement agreement in which the named plaintiffs, proposed class counsel, and
the defendants agreed to settle and compromise the claims of the proposed class.
The settlement, which was awaiting court approval as of May 6, 1993, will
implement for all future Personal Injury Cases, except as noted below, an
administrative compensation system to replace judicial claims against the
defendants, and will provide fair and adequate compensation to future claimants
who can demonstrate exposure to asbestos-containing products manufactured by the
defendants and the presence of an asbestos-related disease. Class members will
be given the opportunity to "opt out," or elect to be excluded from the
settlement, although the defendants reserve the right to withdraw from the
settlement if the number of opt outs is, in their sole judgment, excessive. In
addition, in each year a limited number of claimants will have certain rights to
prosecute their claims for compensatory (but not punitive) damages in court in
the event they reject compensation offered by the administrative processing of
their claim.
The Center members, including U.S. Gypsum, have instituted proceedings
against those of their insurance carriers that had not consented to support the
settlement, seeking a declaratory judgment that the settlement is reasonable
and, therefore, that the carriers are obligated to fund their portion of it.
Consummation of the settlement is contingent upon, among other things, court
approval of the settlement and a favorable ruling in the declaratory judgment
proceedings against the non-consenting insurers. It is anticipated that appeals
will follow the district court's ruling on the fairness and reasonableness of
the settlement.
Each of the defendants has committed to fund a defined portion of the
settlement, up to a stated maximum amount, over the initial ten-year period of
the agreement (which is automatically extended unless terminated by the
defendants). Taking into account the provisions of the settlement agreement
concerning the maximum number of claims that must be processed in each year and
the total amount to be made available to the claimants, the Center estimates
that U.S. Gypsum will be obligated to fund a maximum of approximately $125
million of the class action settlement, exclusive of expenses, with a maximum
payment of less than $18 million in any single year; of the total amount of U.S.
Gypsum's obligation, all but approximately $13 million or less is expected to be
paid by U.S. Gypsum's insurance carriers.
During 1992, approximately 20,100 Personal Injury Cases were filed against
U.S. Gypsum and approximately 10,600 were settled or dismissed. U.S. Gypsum
incurred expenses of $21.6 million in 1992 with respect to Personal Injury Cases
of which $21.5 million was paid by insurance. In the period of January 1 through
May 6, 1993, approximately 8,700 Personal Injury Cases were filed against U.S.
Gypsum and
F-63
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
approximately 5,300 were settled or dismissed. U.S. Gypsum incurred expenses of
$10.9 million in the period with respect to Personal Injury Cases of which $10.8
million was paid by insurance. As of May 6, 1993, December 31, 1992 and December
31, 1991, approximately 58,000, 54,000 and 43,000 Personal Injury Cases were
outstanding against U.S. Gypsum, respectively.
As of May 6, 1993, U.S. Gypsum's average settlement cost for Personal Injury
Cases over the past three years was approximately $1,350 per claim, exclusive of
defense costs. Management anticipated that its average settlement cost was
likely to increase due to such factors as the possible insolvency of co-
defendants, although this increase might be offset to some extent by other
factors, including the possibility for block settlements of large numbers of
cases and the apparent increase in the percentage of asbestos personal injury
cases that appear to have been brought by individuals with little or no physical
impairment. In management's opinion, based primarily upon U.S. Gypsum's
experience in the Personal Injury Cases disposed of and taking into
consideration a number of uncertainties, it was probable that asbestos-related
Personal Injury Cases pending against U.S. Gypsum as of December 31, 1992, could
have been disposed of for an amount estimated to be between $80 million and $100
million, including both indemnity costs and legal fees and expenses. The
estimated cost of resolving pending claims takes into account, among other
factors, (i) an increase in the number of pending claims; (ii) the settlements
of certain large blocks of claims for higher per-case averages than have
historically been paid; and (iii) a slight increase in U.S. Gypsum's historical
settlement average. No accrual was recorded for this amount because, pursuant to
the Wellington Agreement, U.S. Gypsum's Supporting Insurers are obligated to pay
these costs.
Assuming that the Georgine class action settlement referred to above is
approved substantially in its current form, management estimated, based on
assumptions supplied by the Center, U.S. Gypsum's maximum total exposure as of
May 6, 1993 in Personal Injury Cases during the next ten years (the initial term
of the agreement), including liability for pending claims, claims resolved as
part of the class action settlement, and opt out claims, as well as defense
costs and other expenses, at approximately $271 million, of which at least $254
million was expected to be paid by insurance. U.S. Gypsum's additional exposure
for claims filed by persons who have opted out of Georgine would depend on the
number of such claims that are filed, which could not be determined.
COVERAGE ACTION
As indicated above, all of U.S. Gypsum's carriers initially denied coverage
for the Property Damage Cases and the Personal Injury Cases, and U.S. Gypsum
initiated the Coverage Action to establish its right to such coverage. U.S.
Gypsum has voluntarily dismissed the Supporting Insurers referred to above from
the personal injury portion of the Coverage Action because they are committed to
providing personal injury coverage in accordance with the Wellington Agreement.
U.S. Gypsum's claims against the remaining carriers for coverage for the
Personal Injury Cases have been stayed since 1984.
On January 7, 1991, the trial court in the Coverage Action ruled on the
applicability of U.S. Gypsum's insurance policies to settlements and one adverse
judgment in eight Property Damage Cases. The court ruled that the eight cases
were generally covered, and imposed coverage obligations on particular policy
years based upon the dates when the presence of asbestos-containing material was
"first discovered" by the plaintiff in each case. The court awarded
reimbursement of approximately $6.2 million spent by U.S. Gypsum to resolve the
eight cases. U.S. Gypsum appealed the court's ruling with respect to the policy
years available to cover particular claims, and the carriers appealed most other
aspects of the court's ruling.
U.S. Gypsum's experience in the Property Damage Cases suggests that "first
discovery" dates in the eight cases referred to above (1978 through 1985) are
likely to be typical of most pending cases. U.S. Gypsum's total insurance
coverage for the years 1978 through 1984 totals approximately $350 million
(after subtracting insolvencies and discounts given to settling carriers).
However, some pending cases, as well as some cases filed in the future, may be
found to have first discovery dates later than August 1, 1984, after
F-64
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
which U.S. Gypsum's insurance policies did not provide coverage for
asbestos-related claims. In addition, as described below, the first layer excess
carrier for the years 1980 through 1984 is insolvent and U.S. Gypsum may be
required to pay amounts otherwise covered by those and other insolvent policies.
Accordingly, if the court's ruling is affirmed, U.S. Gypsum will likely be
required to bear a portion of the cost of the property damage litigation.
Eight carriers, including two of the Supporting Insurers, settled U.S.
Gypsum's claims for both property damage and personal injury coverage and were
dismissed from the Coverage Action entirely. Four of these carriers agreed to
pay all or a substantial portion of their policy limits to U.S. Gypsum beginning
in 1991 and continuing over the next four years. Three other excess carriers,
including the two settling Supporting Insurers, agreed to provide coverage for
the Property Damage Cases and the Personal Injury Cases subject to certain
limitations and conditions, when and if underlying primary and excess coverage
is exhausted. It cannot presently be determined when such coverage might be
reached. Taking into account the above settlements, including participation of
certain of the settling carriers in the Wellington Agreement, and consumption
through December 31, 1992, carriers providing a total of approximately $97
million of unexhausted insurance had agreed, subject to the terms of the various
settlement agreements, to cover both Personal Injury Cases and Property Damage
Cases. Carriers providing an additional $276 million of coverage that was
unexhausted as of December 31, 1992 had agreed to cover Personal Injury Cases
under the Wellington Agreement, but continued to contest coverage for Property
Damage Cases and remained defendants in the Coverage Action. U.S. Gypsum will
continue to seek negotiated resolutions with its carriers in order to minimize
the expense and delays of litigation.
As of May 6, 1993, insolvency proceedings had been instituted against four
of U.S. Gypsum's insurance carriers. Midland Insurance Company, declared
insolvent in 1986, provided excess insurance ($4 million excess of $1 million
excess of $500,000 primary in each policy year) from February 15, 1975 to
February 15, 1978; Transit Casualty Company, declared insolvent in 1985,
provided excess insurance ($15 million excess of $1 million primary in each
policy year) from August 1, 1980 to December 31, 1985; Integrity Insurance
Company, declared insolvent in 1986, provided excess insurance ($10 million
quota share of $25 million excess of $90 million) from August 1, 1983 to July
31, 1984; and American Mutual Insurance Company, declared insolvent in 1989,
provided the primary layer of insurance ($500,000 per year) from February 1,
1963 to April 15, 1971. It is possible that U.S. Gypsum will be required to pay
a presently indeterminable portion of the costs that would otherwise have been
covered by these policies.
It is not possible to predict the number of additional lawsuits alleging
asbestos-related claims that may be filed against U.S. Gypsum. The number of
Personal Injury Claims pending against U.S. Gypsum has increased in each of the
last several years. In addition, many Property Damage Cases are still at an
early stage and the potential liability therefrom is consequently uncertain. In
view of the limited insurance funding currently available for the Property
Damage Cases resulting from the continued resistance by a number of U.S.
Gypsum's insurers to providing coverage, the effect of the asbestos litigation
on the Corporation will depend upon a variety of factors, including the damages
sought in the Property Damage Cases that reach trial prior to the completion of
the Coverage Action, U.S. Gypsum's ability to successfully defend or settle such
cases, and the resolution of the Coverage Action. As a result, as of May 6,
1993, management was unable to determine whether an adverse outcome in the
asbestos litigation would have a material adverse effect on the results of
operations or the consolidated financial position of the Corporation.
ENVIRONMENTAL LITIGATION
The Corporation and certain of its subsidiaries had been notified by state
and federal environmental protection agencies of possible involvement as one of
numerous "potentially responsible parties" in a number of so-called "Superfund"
sites in the United States. In substantially all of these sites, the involvement
of the Corporation or its subsidiaries is expected to be minimal. The
Corporation believes that
F-65
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
appropriate reserves have been established for its potential liability in
connection with all Superfund sites but is continuing to review its accruals as
additional information becomes available. Such reserves take into account all
known or estimable costs associated with these sites including site
investigations and feasibility costs, site cleanup and remediation, legal costs,
and fines and penalties, if any. In addition, environmental costs connected with
site cleanups on USG-owned property are also covered by reserves established in
accordance with the foregoing. The Corporation believes that neither these
matters nor any other known governmental proceeding regarding environmental
matters will have a material adverse effect upon its earnings or consolidated
financial position.
INDUSTRY AND GEOGRAPHIC SEGMENTS
Transactions between geographic areas are accounted for on an "arm's-length"
basis. No single customer accounted for 4% or more of consolidated net sales.
Export sales to foreign unaffiliated customers represent less than 10% of
consolidated net sales.
Intrasegment and intersegment eliminations largely reflect intercompany
sales. Segment operating profit/(loss) includes all costs and expenses directly
related to the segment involved and an allocation of expenses which benefit more
than one segment.
Variations in the levels of corporate identifiable assets primarily reflect
fluctuations in the levels of cash and cash equivalents. Restricted cash of $88
million, which represents the proceeds from the 1991 sale of DAP Inc., formerly
a wholly owned subsidiary of the Corporation, is included in corporate
identifiable assets for 1992. Information shown in the following tables has been
restated to conform to the Corporation's current industry segment organization.
<TABLE>
<CAPTION>
OPERATING DEPLETION
JANUARY 1 THROUGH MAY 6, 1993 NET PROFIT/ DEPRECIATION AND CAPITAL IDENTIFIABLE
INDUSTRY SEGMENTS SALES (LOSS) AMORTIZATION EXPENDITURES ASSETS
- ------------------------------------------------------------ ------ ---------- ---------------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum............................................... $ 297 $ 29 $10 $ 6 $ 964
CGC (gypsum division)..................................... 30 2 1 1 165
Other subsidiaries........................................ 24 6 2 -- 60
Eliminations.............................................. (20) -- -- -- --
------ --- --- --- ------
Total Gypsum Products..................................... 331 37 13 7 1,189
Building Products Distribution............................ 156 (1) 1 1 118
Eliminations.............................................. (49) -- -- -- (22)
------ --- --- --- ------
Total North American Gypsum............................... 438 36 14 8 1,285
------ --- --- --- ------
Worldwide Ceilings:
USG Interiors............................................. 115 10 5 2 558
USG International......................................... 59 1 1 2 204
CGC (interiors division).................................. 11 2 -- -- 9
Eliminations.............................................. (12) -- -- -- --
------ --- --- --- ------
Total Worldwide Ceilings.................................. 173 13 6 4 771
------ --- --- --- ------
Corporate................................................... -- (11) 2 -- 139
Eliminations................................................ (20) -- -- -- (1)
------ --- --- --- ------
Total USG Corporation....................................... 591 38 22 12 2,194
------ --- --- --- ------
------ --- --- --- ------
</TABLE>
F-66
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
OPERATING DEPLETION
NET PROFIT/ DEPRECIATION AND CAPITAL IDENTIFIABLE
GEOGRAPHIC SEGMENTS SALES (LOSS) AMORTIZATION EXPENDITURES ASSETS
- ------------------------------------------------------------ ------ ---------- ---------------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
United States............................................... $ 507 $ 28 $18 $ 9 $1,776
Canada...................................................... 48 4 2 1 198
Other Foreign............................................... 65 6 2 2 221
Transfers between geographic areas.......................... (29) -- -- -- (1)
------ --- --- --- ------
Total USG Corporation....................................... 591 38 22 12 2,194
------ --- --- --- ------
------ --- --- --- ------
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
INDUSTRY SEGMENTS
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
North American Gypsum:
U.S. Gypsum............................................... $ 871 $ 70 $31 $25 $ 653
CGC (gypsum division)..................................... 92 -- 3 3 67
Other subsidiaries........................................ 77 17 4 3 57
Eliminations.............................................. (66) -- -- -- --
------ --- --- --- ------
Total Gypsum Products..................................... 974 87 38 31 777
Building Products Distribution............................ 464 3 2 3 98
Eliminations.............................................. (142) -- -- -- (22)
------ --- --- --- ------
Total North American Gypsum............................... 1,296 90 40 34 853
------ --- --- --- ------
Worldwide Ceilings:
USG Interiors............................................. 354 35 12 11 256
USG International......................................... 189 -- 5 3 125
CGC (interiors division).................................. 33 4 1 -- 8
Eliminations.............................................. (35) -- -- -- --
------ --- --- --- ------
Total Worldwide Ceilings.................................. 541 39 18 14 389
------ --- --- --- ------
Corporate................................................... -- (30) 8 1 423
Eliminations................................................ (60) -- -- -- (6)
------ --- --- --- ------
Total USG Corporation....................................... 1,777 99 66 49 1,659
------ --- --- --- ------
------ --- --- --- ------
<CAPTION>
GEOGRAPHIC SEGMENTS
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
United States............................................... $1,505 $ 76 $53 $40 $1,423
Canada...................................................... 149 7 7 6 96
Other Foreign............................................... 208 16 6 3 140
Transfers between geographic areas.......................... (85) -- -- -- --
------ --- --- --- ------
Total USG Corporation....................................... 1,777 99 66 49 1,659
------ --- --- --- ------
------ --- --- --- ------
</TABLE>
<TABLE>
<CAPTION>
JANUARY 1
THROUGH MAY 6 YEAR ENDED DECEMBER
TRANSFERS BETWEEN GEOGRAPHIC AREAS 1993 31, 1992
- -------------------------------------------------------------------------------------- --------------- -------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
United States......................................................................... $ 13 $ 35
Canada................................................................................ 8 23
Other Foreign......................................................................... 8 27
--- ---
Total................................................................................. 29 85
--- ---
--- ---
</TABLE>
SUBSIDIARY DEBT GUARANTEES
As of May 6, 1993, $340 million aggregate principal amount of Senior 2002
Notes were outstanding. Each of U.S. Gypsum, USG Industries, Inc., USG
Interiors, USG Foreign Investments, Ltd., L&W Supply, Westbank Planting Company,
USG Interiors International, Inc., American Metals Corporation and La Mirada
Products Co., Inc. (together, the "Combined Guarantors") guaranteed, in the
manner described below, both the obligations of the Corporation under the Credit
Agreement and the Senior 2002 Notes. The Combined
F-67
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Guarantors are jointly and severally liable under these guarantees (the
"Subsidiary Guarantees"). Holders of the Bank Debt have the right to (i)
determine whether, when and to what extent the guarantees will be enforced
(provided that each guarantee payment will be applied to the Bank Debt and
Senior 2002 Notes pro rata based on the respective amounts owed thereon) and
(ii) amend or eliminate the guarantees. The guarantees will terminate when the
Bank Debt is retired regardless of whether any Senior 2002 Notes remain unpaid.
The liability of each of the Combined Guarantors on its guarantee is limited to
the greater of (i) 95% of the lowest amount, calculated as of July 13, 1988,
sufficient to render the guarantor insolvent, leave the guarantor with
unreasonably small capital or leave the guarantor unable to pay its debts as
they become due (each as defined under applicable law) and (ii) the same amount,
calculated as of the date any demand for payment under such guarantee is made,
in each case plus collection costs. The guarantees are senior obligations of the
applicable guarantor and rank PARI PASSU with all unsubordinated obligations of
the guarantor.
Subsidiaries other than the Combined Guarantors (the "Combined
Non-Guarantors"), substantially all of which are subsidiaries of Guarantors,
primarily included, as of May 6, 1993, CGC, Gypsum Transportation Limited, USG
Canadian Mining Ltd. and the Corporation's Mexican, European and Pacific
subsidiaries. The long-term debt of the Combined Non-Guarantors of $28 million
as of May 6, 1993 has restrictive covenants that restrict, among other things,
the payment of dividends.
The following condensed consolidating information presents:
(i) Condensed financial statements as of May 6, 1993 and for the period of
January 1 through May 6, 1993, and the year ended December 31, 1992: (a) the
Corporation on a parent company only basis (the "Parent Company," which was
the only entity of the Corporation included in the bankruptcy proceeding);
(b) the Combined Guarantors; (c) the Combined Non-Guarantors; and (d) the
Corporation on a consolidated basis. Due to the Restructuring and
implementation of fresh start accounting, the financial statements for the
restructured company (periods after May 6, 1993) are not comparable to those
of the predecessor company. Except for the following condensed financial
statements, separate financial information with respect to the Combined
Guarantors is omitted as such separate financial information is not deemed
material to investors.
(ii) The Parent Company and Combined Guarantors shown with their investments in
their subsidiaries accounted for on the equity method.
(iii) Elimination entries necessary to consolidate the Parent Company and its
subsidiaries.
F-68
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USG CORPORATION
(PREDECESSOR COMPANY)
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
JANUARY 1 THROUGH MAY 6, 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ -- $ 501 $ 113 $ (23) $ 591
----- ----------- ----- ----- ------
Gross profit................................. 1 84 24 -- 109
----- ----------- ----- ----- ------
Operating profit/(loss)...................... (11) 39 10 -- 38
Equity in net earnings of the Subsidiaries... (751) (169) -- 920 --
Interest expense, net........................ 80 3 1 -- 84
Corporate service charge..................... (92) 92 -- -- --
Other expense................................ 1 5 -- -- 6
Reorganization items......................... 53 (597) (165) -- (709)
----- ----------- ----- ----- ------
Earnings before taxes on income,
extraordinary gain and changes in accounting
principles.................................. 698 705 174 (920) 657
Taxes on income/(income tax benefit)......... 37 (24) 4 -- 17
----- ----------- ----- ----- ------
Earnings before extraordinary gain and
changes in accounting principles............ 661 729 170 (920) 640
Extraordinary gain, net of taxes............. 944 -- -- -- 944
Cumulative effect of changes in accounting
principles.................................. (171) 22 (1) -- (150)
----- ----------- ----- ----- ------
Net earnings................................. 1,434 751 169 (920) 1,434
----- ----------- ----- ----- ------
----- ----------- ----- ----- ------
</TABLE>
F-69
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USG CORPORATION
(PREDECESSOR COMPANY)
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1992
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMBINED
PARENT COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales.................................... $ -- $ 1,503 $ 359 $ (85) $ 1,777
----- ----------- ----- ----- ------
Gross profit/(loss).......................... (2) 251 68 -- 317
----- ----------- ----- ----- ------
Operating profit/(loss)...................... (30) 105 24 -- 99
Equity in net (earnings)/loss of the
Subsidiaries................................ 230 (17) -- (213) --
Interest expense, net........................ 310 10 2 -- 322
Corporate service charge (340) 340 -- -- --
Other expense/(income)....................... (73) 75 (1) -- 1
----- ----------- ----- ----- ------
Earnings/(loss) before taxes on income....... (157) (303) 23 213 (224)
Taxes on income/(income tax benefit)......... 34 (73) 6 -- (33)
----- ----------- ----- ----- ------
Net earnings/(loss).......................... (191) (230) 17 213 (191)
----- ----------- ----- ----- ------
----- ----------- ----- ----- ------
</TABLE>
F-70
<PAGE>
USG CORPORATION
(Predecessor Company)
NOTES TO FINANCIAL STATEMENTS (Continued)
USG CORPORATION
(PREDECESSOR COMPANY)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 6, 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMPANY COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 24 $ (7) $ 32 $ -- $ 49
Receivables, net............................. 55 236 49 (25) 315
Inventories.................................. -- 111 39 (2) 148
----------- ----------- ----- ------------ ------
Total current assets....................... 79 340 120 (27) 512
Property, plant and equipment, net........... 22 628 117 -- 767
Investment in subsidiaries................... 1,823 312 -- (2,135) --
Excess reorganization value.................. -- 671 180 -- 851
Other assets................................. (103) 159 5 3 64
----------- ----------- ----- ------------ ------
Total assets............................... 1,821 2,110 422 (2,159) 2,194
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
Accounts payable and accrued expenses........ $ 176 $ 76 $ 52 $ (24) $ 280
Notes payable and long-term debt maturing
within one year............................. 3 1 11 -- 15
----------- ----------- ----- ------------ ------
Total current liabilities.................. 179 77 63 (24) 295
Long-term debt............................... 1,371 47 28 -- 1,446
Deferred income taxes........................ -- 155 15 -- 170
Other liabilities............................ 267 8 4 -- 279
Common stock................................. 4 1 6 (7) 4
Capital received in excess of par value...... -- 1,678 306 (1,984) --
Deferred currency translation................ -- -- -- -- --
Reinvested earnings.......................... -- 144 -- (144) --
----------- ----------- ----- ------------ ------
Total stockholders' equity................. 4 1,823 312 (2,135) 4
----------- ----------- ----- ------------ ------
Total liabilities and stockholders'
equity.................................... 1,821 2,110 422 (2,159) 2,194
----------- ----------- ----- ------------ ------
----------- ----------- ----- ------------ ------
</TABLE>
F-71
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
USG CORPORATION
(PREDECESSOR COMPANY)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
JANUARY 1 THROUGH MAY 6, 1993
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMPANY COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (TO)/FROM OPERATING
ACTIVITIES.................................. $ (90) $ 76 $ -- $ -- $ (14)
----- ----- --- ----- -----
Capital expenditures....................... -- (9) (3) -- (12)
Net proceeds from asset dispositions....... -- -- -- -- --
----- ----- --- ----- -----
NET CASH FLOWS TO INVESTING ACTIVITIES....... -- (9) (3) -- (12)
----- ----- --- ----- -----
Issuance of debt........................... -- -- 5 -- 5
Repayment of debt.......................... -- (140) (2) -- (142)
Cash dividends (paid)/received............. 2 -- (2) -- --
(Increase)/decrease in restricted assets... 44 (12) -- -- 32
Net cash transfers (to)/from Corporate..... 9 (9) -- -- --
----- ----- --- ----- -----
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES.................................. 55 (161) 1 -- (105)
----- ----- --- ----- -----
NET DECREASE IN CASH & EQUIVALENTS........... (35) (94) (2) -- (131)
----- ----- --- ----- -----
Cash and cash equivalents -- beginning....... 59 87 34 -- 180
----- ----- --- ----- -----
Cash and cash equivalents -- end............. 24 (7) 32 -- 49
----- ----- --- ----- -----
----- ----- --- ----- -----
</TABLE>
F-72
<PAGE>
USG CORPORATION
(PREDECESSOR COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
USG CORPORATION
(PREDECESSOR COMPANY)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1992
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PARENT COMPANY COMBINED NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (TO)/FROM OPERATING
ACTIVITIES.................................. $ (93) $ 117 $ 66 $ -- $ 90
----- ----- --- ----- -----
Capital expenditures....................... (1) (39) (9) -- (49)
Net proceeds from asset dispositions....... -- 2 4 -- 6
----- ----- --- ----- -----
NET CASH FLOWS TO INVESTING ACTIVITIES....... (1) (37) (5) -- (43)
----- ----- --- ----- -----
Issuance of debt........................... -- -- 57 -- 57
Repayment of debt.......................... (4) (2) (69) -- (75)
Cash dividends (paid)/received............. -- 56 (56) -- --
Increase in restricted assets.............. -- (4) -- -- (4)
Net cash transfers (to)/from Corporate..... 121 (121) -- -- --
----- ----- --- ----- -----
NET CASH FLOWS (TO)/FROM FINANCING
ACTIVITIES.................................. 117 (71) (68) -- (22)
----- ----- --- ----- -----
NET INCREASE/(DECREASE) IN CASH &
EQUIVALENTS................................. 23 9 (7) -- 25
----- ----- --- ----- -----
Cash and cash equivalents -- beginning....... 36 78 41 -- 155
----- ----- --- ----- -----
Cash and cash equivalents -- end............. 59 87 34 -- 180
----- ----- --- ----- -----
----- ----- --- ----- -----
</TABLE>
F-73
<PAGE>
USG CORPORATION
MANAGEMENT REPORT
Management is responsible for the preparation and integrity of the financial
statements and related notes included herein. These statements have been
prepared in accordance with generally accepted accounting principles and, of
necessity, include some amounts that are based on management's best estimates
and judgments.
The Corporation's accounting systems include internal controls designed to
provide reasonable assurance of the reliability of its financial records and the
proper safeguarding and use of its assets. Such controls are based on
established policies and procedures, are implemented by trained personnel, and
are monitored through an internal audit program. The Corporation's policies and
procedures prescribe that the Corporation and its subsidiaries are to maintain
ethical standards and that its business practices are to be consistent with
those standards.
The Audit Committee of the Board, consisting solely of outside Directors of
the Corporation, maintains an ongoing appraisal, on behalf of the stockholders,
of the effectiveness of the independent auditors and management with respect to
the preparation of financial statements, the adequacy of internal controls and
the Corporation's accounting policies.
F-74
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board
of Directors of USG Corporation:
We have audited the accompanying consolidated balance sheet of USG Corporation
(Predecessor Company), a Delaware corporation, and subsidiaries as of May 6,
1993 and the related consolidated statements of earnings and cash flows for the
period of January 1 through May 6, 1993 and for the year ended December 31,
1992. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Notes to Financial Statements -- "Financial Restructuring" note,
on May 6, 1993, the Corporation completed a comprehensive financial
restructuring through the implementation of a prepackaged plan of reorganization
under Chapter 11 of the United States Bankruptcy Code and applied fresh start
accounting. The restructuring resulted in an extraordinary gain of $944 million,
primarily from the exchange of debt, and fresh start accounting resulted in a
$709 million gain, primarily from revaluing assets and liabilities to reflect
reorganization value. These one-time credits to income were recorded as of May
6, 1993 by the Predecessor Company. As such, results of operations through May
6, 1993 (Predecessor Company) are not comparable with results of operations
subsequent to that date.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USG Corporation and
subsidiaries as of May 6, 1993 and the results of their operations and their
cash flows for the period of January 1 through May 6, 1993 and for the year
ended December 31, 1992, in conformity with generally accepted accounting
principles.
As discussed in Notes to Financial Statements -- "Litigation" note, in view of
the limited insurance funding currently available for property damage cases
resulting from the continued resistance by a number of U.S. Gypsum's insurers to
providing coverage, the effect of the asbestos litigation on the Corporation
will depend upon a variety of factors, including the damages sought in property
damage cases that reach trial prior to the completion of the coverage action,
U.S. Gypsum's ability to successfully defend or settle such cases, and the
resolution of the coverage action. As a result, management is unable to
determine whether an adverse outcome in the asbestos litigation will have a
material adverse effect on the consolidated results of operations or the
consolidated financial position of the Corporation.
As discussed in Notes to Financial Statements -- "Cumulative Effect of Changes
in Accounting Principles" note, on January 1, 1993 the Corporation changed its
method of accounting for postretirement benefits other than pensions and
accounting for income taxes.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 31, 1994
F-75
<PAGE>
USG CORPORATION
SELECTED QUARTERLY FINANCIAL DATA (A) (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1994
Net sales............................... $ 506 $ 562 $ 621 $ 601 $ 2,290
Gross profit (b)........................ 110 133 153 121 517
Operating profit (b) (c)................ 11 32 47 14 104
Net (loss)(b) (c)....................... (34) (17) (6) (35) (92)
Per common share:
Net loss (d).......................... (0.87) (0.38) (0.13) (0.79) (2.14)
Price range (e) -- high............... 36 32 1/4 24 1/2 21 3/4 36
low................ 27 1/2 17 3/4 18 3/8 17 1/4 17 1/4
EBITDA.................................. 66 87 105 67 325
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
APRIL 1 MAY 7
FIRST THROUGH THROUGH THIRD FOURTH
QUARTER MAY 6 JUNE 30 QUARTER QUARTER
-------- --------- ------- ------- -------
1993
Net sales............................... $ 436 $ 155 $ 315 $ 514 $ 496
Gross profit............................ 79 30 63 105 95
Operating profit/(loss)(c).............. 27 11 (1 ) 6 (4 )
Net earnings/(loss)(c) (f).............. (279) 1,713 (21 ) (25 ) (83 )
Per common share (g):
Net loss.............................. -- -- (0.57 ) (0.66 ) (2.23 )
Price range (e) -- high............... -- -- 14 22 5/8 30 1/2
low................ -- -- 9 5/8 13 20 1/4
EBITDA.................................. 46 17 37 65 53
<FN>
- ------------------------
(a) Due to the Restructuring and implementation of fresh start accounting, the
financial statements effective May 7, 1993 for the Restructured Company are
not comparable to financial statements prior to that date for the
Predecessor Company.
(b) Fourth quarter 1994 gross profit, operating profit and net loss reflect a
$30 million pre-tax charge ($17 million after-tax) to cost of sales for
asbestos litigation settlements. Fourth quarter 1994 net loss also reflects
a $16 million pre-tax charge ($9 million after-tax) for the write-off of
reorganization debt discount.
(c) Effective May 7, 1993, the Corporation began amortizing its excess
reorganization value which reduced operating profit and net earnings. This
non-cash amortization amounted to $42 million, $42 million, $43 million and
$42 million in the first through fourth quarters of 1994, respectively. For
the period of May 7 through June 30 and the third and fourth quarters of
1993, amortization of excess reorganization value amounted to $28 million,
$43 million and $42 million, respectively.
(d) As a result of common shares issued in the first quarter of 1994, the sum
of the losses per common share for the four quarters of 1994, which are
based on average shares outstanding during each quarter, does not equal the
loss per common share for the year ended December 31, 1994, which is based
on the average shares outstanding during the year.
(e) Stock price ranges are for transactions on the New York Stock Exchange
(trading symbol USG), which is the principal market for these securities.
Stockholders of record as of January 31, 1995: Common -- 6,072; Preferred
-- none.
</TABLE>
F-76
<PAGE>
<TABLE>
<S> <C>
(f) First quarter 1993 net loss reflects a one-time after-tax net charge of
$150 million for the cumulative effect of changes in accounting principles
and a pre-tax reorganization items expense of $69 million. Net earnings in
the period of April 1 through May 6, 1993 include a one-time pre-tax
reorganization items gain of $778 million and a one-time after-tax
extraordinary gain of $944 million, both of which were associated with the
Restructuring. Net loss in the fourth quarter of 1993 includes an after-tax
extraordinary loss of $21 million related to the Corporation's 1994 Equity
Offering and Note Placement.
(g) Per-share information for periods prior to May 7, 1993 is omitted because,
due to the Restructuring and implementation of fresh start accounting, it
is not meaningful.
</TABLE>
F-77
<PAGE>
Appearing here are four photographs depicting the Corporation's products.
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
CORPORATION OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CORPORATION
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
NOTES OFFERED HEREBY OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
Recent Developments............................ 12
Use of Proceeds................................ 14
Selected Consolidated Financial Data........... 15
Capitalization................................. 17
Management's Discussion and Analysis of Results
of Operations and Financial Condition......... 18
Business....................................... 25
Management..................................... 32
Description of New Credit Agreement............ 36
Description of Notes........................... 38
Description of Other Debt Obligations.......... 59
Description of Collateral Trust................ 60
Underwriting................................... 61
Legal Matters.................................. 62
Experts........................................ 62
Available Information.......................... 62
Information Incorporated by Reference.......... 63
Index to Consolidated Financial Statements..... F-1
</TABLE>
$150,000,000
USG CORPORATION
% SENIOR NOTES DUE 2005
[LOGO]
SALOMON BROTHERS INC
BT SECURITIES CORPORATION
CITICORP SECURITIES, INC.
CHEMICAL SECURITIES INC.
PROSPECTUS
DATED , 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses of the issuance and distribution of
the securities being registered, including fees and expenses previously incurred
by the Corporation, other than any underwriting compensation.
<TABLE>
<CAPTION>
ITEM AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
SEC Registration Fees........................................................... $ 51,724
Printing and Mailing Expenses................................................... 200,000
Legal Fees and Expenses......................................................... 200,000
Accountants' Fees and Expenses.................................................. 100,000
Miscellaneous Expenses.......................................................... 500,000
------------
Total....................................................................... $ 1,051,724
------------
------------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145") (a)
gives Delaware corporations broad powers to indemnify their present and former
directors and officers and those of affiliated corporations against expenses
incurred in the defense of any lawsuit to which they are made parties by reason
of being or having been such directors or officers, subject to specified
conditions and exclusions, (b) gives a director or officer who successfully
defends an action the right to be so indemnified and (c) authorizes the
corporation to buy directors' and officers' liability insurance. Such
indemnification is not exclusive of any other right to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or otherwise.
A bylaw provides that the Corporation (a) shall indemnify every person who
is or was a director or officer of the Corporation or is or was serving at the
Corporation's request as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise and (b) shall, if the
board of directors so directs, indemnify any person who is or was an employee or
agent of the Corporation or is or was serving at the Corporation's request as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, to the extent, in the manner, and subject to compliance with
the applicable standards of conduct, provided by Section 145 as the same (or any
substitute provision therefor) may be in effect from time to time.
Any such indemnification shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Corporation has procured insurance for the purpose of substantially
covering its future potential liability for indemnification under Section 145 as
discussed above and certain future potential liability of individual officers or
directors incurred in their capacity as such which is not subject to
indemnification.
The Corporation has entered into Indemnification Agreements with each of its
officers and directors. The Indemnification Agreements provide that the
Corporation shall indemnify and keep indemnified the indemnitee to the fullest
extent authorized by Section 145 as it may be in effect from time to time from
and against any expenses (including expenses of investigation and preparation
and reasonable fees and disbursements of legal counsel, accountants and other
experts), judgments, fines and amounts paid in settlement by the indemnitee in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and whether or not the
cause of action, suit or proceeding incurred before or after the date of the
Indemnification Agreement. The Indemnification Agreements further provide for
advancement of amounts to cover expenses incurred by the indemnitee in defending
any such action, suit or proceeding subject to an undertaking by the indemnitee
to repay any expenses advanced which it is later determined he or she was not
entitled to receive.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a complete list of Exhibits filed as a part of this
Registration Statement:
See Exhibit Index
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1)_For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be the initial bona
fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois on July 24, 1995.
USG CORPORATION
By: Richard H. Fleming
--------------------------------------
Richard H. Fleming
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed on July 24, 1995, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------- ---------------------------------------
<C> <S>
* Chairman of the Board, Chief Executive
- --------------------------------------- Officer and Director (Principal
Eugene B. Connolly Executive Officer)
*
- --------------------------------------- President, Chief Operating Officer and
William C. Foote Director
Richard H. Fleming Senior Vice President and Chief
- --------------------------------------- Financial Officer (Principal Financial
Richard H. Fleming Officer)
Raymond T. Belz
- --------------------------------------- Vice President and Controller
Raymond T. Belz (Principal Accounting Officer)
*
- --------------------------------------- Director
Robert L. Barnett
*
- --------------------------------------- Director
Keith A. Brown
*
- --------------------------------------- Director
W.H. Clark
- --------------------------------------- Director
James C. Cotting
*
- --------------------------------------- Director
Lawrence M. Crutcher
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------- ---------------------------------------
<C> <S>
*
- --------------------------------------- Director
David W. Fox
- --------------------------------------- Director
Philip C. Jackson, Jr.
*
- --------------------------------------- Director
Marvin E. Lesser
*
- --------------------------------------- Director
John B. Schwemm
*
- --------------------------------------- Director
Judith A. Sprieser
*By:
Richard H. Fleming
--------------------------------------
Richard H. Fleming
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
The following documents are the exhibits to this Amendment No. 2 to
Registration Statement on Form S-3. For convenient reference, each exhibit is
listed according to the Exhibit Table of Regulation S-K. The page number, if
any, listed opposite an exhibit indicates the page number in the sequential
numbering system in the manually signed original of this Amendment No. 2 to
Registration Statement on Form S-3 where such exhibit can be found.
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ----------- -----
<S> <C> <C> <C>
1. Form of Underwriting Agreement.
4. Instruments defining the rights of security holders, including indentures:
(a) Indenture dated as of October 1, 1986 between USG Corporation and Harris Trust and Savings
Bank, Trustee (incorporated by reference to Exhibit 4(a) of USG Corporation's Registration
Statement No. 33-9294 on Form S-3, dated October 7, 1986).
(e) Consent Resolution adopted by a Special Committee created by the Board of Directors of USG
Corporation relating to USG Corporation's % Senior Notes due 2005.*
5. Opinions of counsel as to the legality of the securities being registered.
12. Statement recomputation of ratio of earnings to fixed charges.**
23. Consents of experts and counsel.
(a) Consent of Arthur Andersen LLP.
(b) Consents of counsel (included in Exhibit 5).
24. Power of attorney.**
25. Statement of eligibility of trustee.**
99. Additional Exhibits.
(a) Form of Credit Agreement dated as of July , 1995, among USG Corporation and the Banks
listed on the signature page thereto and Chemical Bank as Administrative Agent.
(b) Form of Collateral Trust Agreement dated as of July , 1995 between USG Corporation, certain
of its subsidiaries and Wilmington Trust Company and William J. Wade, as Trustee.
(c) Form of Company Pledge Agreement dated as of July , 1995, among USG Corporation, as Pledgor,
and Wilmington Trust Company and William J. Wade, as Trustee.
<FN>
- ------------------------
*To be filed by Amendment.
** Previously filed.
</TABLE>
<PAGE>
EXHIBIT 1
FORM OF
USG Corporation
$
% Senior Notes due 2005
Underwriting Agreement
New York, New York
, 1995
Salomon Brothers Inc.
BT Securities Corporation
Citicorp Securities, Inc.
Chemical Securities Inc.
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
USG Corporation, a Delaware corporation (the "Company"), proposes to
sell to you (the "Underwriters"), $150,000,000 principal amount of its %
Senior Notes due 2005 (the "Securities"), to be issued under an indenture (the
"Base Indenture") dated as of November 1, 1986, between the Company and Harris
Trust and Savings Bank, as trustee (the "Trustee"). The Base Indenture will be
supplemented by resolutions adopted by the Board and officer's certificates,
delivered in connection therewith (collectively with the Base Indenture, the
"Indenture").
The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "the Effective Date" shall mean each date that the
Registration Statement and any post-effective amendment or amendments thereto
became or become effective. "Execution Time" shall mean the date and time that
this Agreement is executed and delivered by the parties hereto. "Preliminary
Prospectus" shall mean any preliminary prospectus with respect to the offering
of the Securities referred to in Section 1(a) below and any preliminary prospec-
tus included in the Registration Statement at the Effective Date that omits Rule
430A Information. "Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the Execution Time
or, if no filing pursuant to Rule 424(b) is made, shall mean the form of final
prospectus relating to the Securities included in the Registration Statement at
the Effective Date. "Registration Statement" shall mean the registration
statement referred to in Section 1(a) below, including incorporated documents,
exhibits and financial statements, as amended at the Execution Time (or, if not
effective at the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto becomes effective prior
to the Closing Date (as hereinafter defined), shall also mean such registration
statement as so amended. Such term shall include any Rule 430A Information
deemed to be included therein at the Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Regulation S-K" refer to such rules or regulations
under the Act. "Rule 430A Information" means information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A. Any
reference herein to the Registration Statement, a Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 which were filed under the
Exchange Act on or before the Effective Date of the Registration Statement or
the issue date of such Preliminary Prospectus or the Prospectus, as the case may
be; and any reference herein to the terms "amend", "amendment" or "supplement"
with respect to the Registration Statement, any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include the filing of any document
under the Exchange Act after the Effective Date of the Registration Statement,
or the issue date of any Preliminary Prospectus or the Prospectus, as the case
may be, deemed to be incorporated therein by reference.
<PAGE>
1. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to, and agrees with, each Underwriter as set forth below in this
Section 1.
(a) The Company meets the requirements for use of Form S-3 under
the Securities Act of 1933 (the "Act") and has filed with the Securities
and Exchange Commission (the "Commission") a registration statement (file
number 33- ) on such Form, including a related preliminary prospectus, for
the registration under the Act of the offering and sale of the Securities.
The Company may have filed one or more amendments thereto, including the
related preliminary prospectus, each of which has previously been furnished
to you. The Company will next file with the Commission one of the
following: (i) prior to effectiveness of such registration statement, a
further amendment to such registration statement, including the form of
final prospectus, or (ii) after the effectiveness of such registration
statement, a final prospectus in accordance with Rules 430A and 424(b)(1)
or (4). In the case of clause (ii), the Company has included in such
registration statement, as amended at the Effective Date, all information
(other than Rule 430A Information) required by the Act and the rules
thereunder to be included in the Prospectus with respect to the Securities
and the offering thereof. As filed, such amendment and form of final pro-
spectus, or such final prospectus, shall contain all Rule 430A Information,
together with all other such required information, with respect to the
Securities and the offering thereof and, except to the extent the
Underwriters shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall contain
only such specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company has advised
you, prior to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will,
and when the Prospectus is first filed (if required) in accordance with
Rule 424(b) and on the Closing Date (as defined in Section 3 hereof), the
Prospectus (and any supplements thereto) will, comply in all material
respects with the applicable requirements of the Act, the Securities
Exchange Act of 1934 (the "Exchange Act") and the Trust Indenture Act of
1939 (the "Trust Indenture Act") and the respective rules thereunder; on
the Effective Date, the Registration Statement did not or will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; on the Effective Date and on the Closing Date the
Indenture did or will comply in all material respects with the requirements
of the Trust Indenture Act and the rules thereunder; and, on the Effective
Date, the Prospectus, if not filed pursuant to Rule 424(b), did not or will
not, and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date, the Prospectus (together with any supplement thereto) will
not, include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, that the Company makes no representations or warranties
as to (i) that part of the Registration Statement which shall constitute
the Statement of Eligibility and Qualification (Form T-1) under the Trust
Indenture Act of the Trustee or (ii) the information contained in or omit-
ted from the Registration Statement or the Prospectus (or any supplement
thereto) in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of any Underwriter through the
Underwriters specifically for inclusion in the Registration Statement or
the Prospectus (or any supplement thereto).
(c) Each of the Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; all of the issued shares of capital
stock of each subsidiary have been duly and validly authorized and issued,
are fully paid and nonassessable, and (except for directors' qualifying
shares and those shares not held by the Company or any of its Affiliates)
are owned
2
<PAGE>
directly or indirectly by the Corporation, free and clear of all liens,
encumbrances, equities or claims, except for the shares of capital stock of
USG Interiors (Europe) SA, CGC and except as provided under the Collateral
Trust Agreement (as such term is defined in the Prospectus). Each of the
Company and its subsidiaries has the requisite corporate power and
authority to own or lease and operate its properties and to carry on its
business as described in the Prospectus except where the failure to have
such power and authority would not reasonably be expected to result in a
material adverse change in the financial condition, assets or operations of
the Company and its subsidiaries taken as a whole (a "MAC"). The Company
has the requisite power and authority to authorize the offering of the Se-
curities to be sold by it, and to issue, sell and deliver the Securities to
be sold by it. The Company has the requisite power and authority to enter
into this Agreement and to perform its obligations hereunder. It is under-
stood and agreed that the Company will have to deliver good standing
certificates and similar documentation only with respect to United States
Gypsum Company, USG Interiors, Inc., L&W Supply Corporation,
and USG Foreign Investments, Ltd. (individually a "Major
Subsidiary" and collectively the "Major Subsidiaries").
(d) Each of the Company and its subsidiaries is duly qualified or
licensed and in good standing as a foreign corporation duly authorized to
do business in each jurisdiction in which it owns or leases properties, or
conducts any business so as to require such qualification or licensure,
except where the failure to be so qualified and authorized would not
reasonably be expected to result in a MAC.
(e) Except as may be disclosed in the Registration Statement and the
Prospectus (including the documents incorporated therein), there are no
actions, proceedings or investigations pending or to the best of the
Company's knowledge threatened (solely in the case of such actions,
proceedings or investigations which would result in a MAC, in writing)
which question the validity of this Agreement or any action taken or to be
taken pursuant hereto or thereto which would result in a MAC, or which is
required to be disclosed in the Registration Statement or Prospectus which
is not adequately disclosed in the Registration Statement or Prospectus, as
the case may be, and, to the Company's knowledge, there is no franchise,
contract or other document required to be described in the Registration
Statement or Prospectus, or required to be filed as an exhibit to the
Registration Statement, which is not so described or filed.
(f) The Company and its subsidiaries are not in breach or violation
of any term or provision of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation, domestic or foreign,
applicable to the Company or its subsidiaries or to any of their respective
properties or assets, which breach, breaches, violation or violations would
reasonably be expected to individually or in the aggregate result in a MAC,
and the Company and its subsidiaries are not in violation of any term of
their respective charters or by-laws. The compliance by the Company with
all of the provisions of this Agreement, and the performance of the
transactions contemplated by this Agreement will not result in any such
violation or be in conflict with or constitute a default under any such
term, which conflict or default would result in a MAC or result in the
creation of any mortgage, lien, charge or encumbrance upon any of the
properties or assets of the Company pursuant to any such term which would
reasonably be expected to result in a MAC. No consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation by the Company and the subsidiaries of the
transactions contemplated herein, except such as have been obtained under
the Act and such as may be required under the Blue Sky Laws of any
jurisdiction in connection with the distribution of the Securities and such
other approvals as have been obtained.
(g) Each of the Company and its subsidiaries has all certificates,
consents, exemptions, orders, permits, licenses, authorizations, or other
3
<PAGE>
approvals (each, an "Authorization") of and from, and has made all declara-
tions and filings with, all Federal, state, local and other governmental
authorities, all self-regulatory organizations and all courts and other
tribunals, necessary or required to own, lease, license and use its
properties and assets and to conduct its business in the manner described
in the Prospectus, except to the extent that the failure to obtain or file
any such Authorizations would not, singly or in the aggregate, reasonably
be expected to result in a MAC. All such Authorizations are in full force
and effect with respect to the Company and subsidiaries, and the Company
and its subsidiaries are in compliance in all material respects with the
terms and conditions of all such Authorizations and with the rules and
regulations of the regulatory authorities and governing bodies having
jurisdiction with respect thereto other than such instances which singly or
in the aggregate would not reasonably be expected to result in a MAC.
(h) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, nor is it subject to
regulation under the Interstate Commerce Act or any federal or state
statute or regulation limiting its ability to incur indebtedness for
borrowed money.
(i) The Company has not taken, directly or indirectly, any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale
of the Securities.
(j) The Securities to be issued and sold by the Company to the
Underwriters have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and will conform in all material respects to
the description of the Securities contained in the Prospectus.
(k) The Indenture has been duly authorized, executed and delivered,
has been duly qualified under the Trust Indenture Act, and constitutes a
legal, valid and binding instrument enforceable against the Company in
accordance with its terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting creditors' rights generally from time to time in effect and to
general principles of equity); and the Securities have been duly authorized
and, when executed and authenticated in accordance with the provisions of
the Indenture and delivered to and paid for by the Underwriter pursuant to
this Agreement, will constitute legal, valid and binding obligations of the
Company entitled to the benefits of the Indenture.
(l) This Agreement has been duly authorized and validly executed and
delivered by the Company and constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms (assuming the due execution and delivery by the parties
thereto other than the Company) subject to the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent conveyance
and other similar laws relating to or affecting the enforcement of rights
of secured or unsecured creditors generally.
(m) None of the transactions contemplated by this Agreement or the
Indenture (including, without limitation, the use of the proceeds from the
sale of the Securities) will violate or result in a violation of Section 7
of the Exchange Act, or any regulation promulgated thereunder, including,
without limitation, Regulations G, T, U and X of the Board of Governors of
the Federal Reserve System.
2. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of % of the
principal amount
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thereof, plus accrued interest on the Securities from , 1995, to the
Closing Date, the principal amount of the Securities set forth opposite such
Underwriter's name in Schedule I hereto.
3. DELIVERY AND PAYMENT. Delivery of and payment for the Securities
shall be made at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd
Street (or such other place as mutually may be agreed upon), New York, New York
at 10:00 a.m., New York time, on , 1995, or such later date (not later
than , 1995) as the Underwriters shall designate, which date and time
may be postponed by agreement between the Underwriters and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for the
Securities being herein called the "Closing Date"). Delivery of the Securities
shall be made to the Underwriters for the respective accounts of the several
Underwriters against payment by the several Underwriters of the purchase price
thereof to or upon the order of the Company by certified or official bank check
or checks drawn on or by a New York Clearing House Bank and payable in next day
funds. Certificates for the Securities shall be registered in such names and
in such denominations as the Underwriters may request not less than three full
business days in advance of the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Underwriters in New York, New York, not later than
1:00 p.m. on the business day prior to the Closing Date.
4. OFFERING BY UNDERWRITERS. After the Registration Statement
becomes effective the Underwriters will offer the Securities for sale to the
public on the terms and conditions as set forth in the Prospectus. The
Underwriters agree to advise the Corporation promptly following the completion
of the distribution of the Securities.
5. AGREEMENTS. The Company agrees with the several Underwriters
that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereof, to become effective. Prior to the termination of the offering of
the Securities, the Company will not file any amendment of the Registration
Statement or supplement to the Prospectus unless the Company has furnished
you a copy for your review prior to filing and will not file any such
proposed amendment or supplement without your prior written consent, which
consent shall not be unreasonably withheld. Subject to the foregoing
sentence, if the Registration Statement has become or becomes effective
pursuant to Rule 430A, or filing of the Prospectus is otherwise required
under Rule 424(b), the Company will cause the Prospectus, properly com-
pleted, and any supplement thereto, to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the Underwriters of
such timely filing. The Company will promptly advise the Underwriters (i)
when the Registration Statement, if not effective at the Execution Time,
and any amendment thereto, shall have become effective, (ii) when the Pro-
spectus, and any supplement thereto, shall have been filed (if required)
with the Commission pursuant to Rule 424(b), (iii) when, prior to
termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (iv) of
any request by the Commission for any amendment of the Registration
Statement or supplement to the Prospectus or for any additional informa-
tion, (v) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose, and (vi) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. The Company
will use its best efforts to prevent the issuance of any such stop order
and, if issued, to obtain as soon as possible the withdrawal thereof.
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(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectus to comply with the
Act or the Exchange Act or the respective rules thereunder, the Company
promptly will (i) prepare and file with the Commission, subject to the
second sentence of paragraph (a) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (ii) supply any supplemented Prospectus to you in such
quantities as you may reasonably request.
(c) As soon as practicable, but in any event not later than sixteen
(16) months after the Effective Date, the Company will make generally
available to its security holders and to the Underwriters an earnings
statement or statements of the Company and its subsidiaries which will
satisfy the provisions of Section 11(a) of the Act and Rule 158 under the
Act. Filing reports under Section 13 of the Securities Exchange Act of
1934 on a timely basis shall constitute compliance with this paragraph
(iii), provided that the provisions of Section 11(a) of the Act and Rule
158 are thereby satisfied.
(d) The Company will furnish to the Underwriters and counsel for the
Underwriters, without charge, two signed copies of the Registration
Statement (including exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Act, as many
copies of each Preliminary Prospectus and the Prospectus and any supplement
thereto as the Underwriters may reasonably request. The Company will pay
the expenses of printing or other production of all documents relating to
the offering.
(e) The Company will cooperate with you and your counsel in
connection with endeavoring to obtain qualification of the Securities for
sale under the laws of such jurisdictions as the Underwriters may
designate, will maintain such qualifications in effect so long as required
for the distribution of the Securities and will pay the fee of the National
Association of Securities Dealers Inc., in connection with the review of
the offering; provided, however, that the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any
jurisdiction in which it shall not then be qualified but for the
requirements of this Section 5(e), to subject itself to taxation in any
such jurisdiction to which it shall not then be so subject or to consent to
general service of process in any such jurisdiction to which it shall not
then be so subject.
(f) For a period beginning at the time of execution hereof and ending
one business day after the Closing Date, the Company will not, without the
prior consent of the Underwriters, offer, sell, contract to sell or
otherwise dispose of any publicly sold (including pursuant to Rule 144A of
the Securities Act) United States dollar-denominated debt securities issued
or guaranteed by the Company and having a maturity of more than one year
from the date of issue.
(g) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-
198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Securities and Exchange Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if the
information reported in the Prospectus, if any, concerning the Company's
business with Cuba or with any person or affiliate located in Cuba changes
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in any material way, the Company will provide the Department notice of such
business or change, as appropriate, in a form acceptable to the Department.
(h) The Company will apply, in all material respects, the net
proceeds of the offering and the sale of the Securities in the manner set
forth in the Prospectus under the caption "Use of Proceeds."
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters to purchase the Securities shall be subject to
the accuracy of the representations and warranties on the part of the Company
contained herein as of the Execution Time and as of the Closing Date (as if made
at the Closing Date), to the accuracy of the statements of the Company made in
any certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to
the Execution Time, unless the Underwriters agree in writing to a later
time, the Registration Statement will become effective not later than (i)
6:00 p.m. New York time, on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 p.m. New
York time on such date or (ii) 12:00 Noon on the business day following the
day on which the public offering price was determined, if such deter-
mination occurred after 3:00 p.m. New York time on such date; if filing of
the Prospectus, or any supplement thereto, is required pursuant to Rule
424(b), the Prospectus, and any such supplement, will be filed in the
manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted
or threatened.
(b) The Company shall have furnished to the Underwriters the opinion
of Kirkland & Ellis, counsel for the Company as to paragraphs (i), (iv),
(v), (vii), (viii), (ix) and (x), and of the General Counsel or the
Assistant General Counsel of the Company with respect to paragraphs (ii),
(iii), (vi), (xi) and (xii), each dated as of the Closing Date, to
the effect that:
(i) The Company has been duly incorporated and the Company is
validly existing as a corporation under the laws of the State of
Delaware, with full corporate power and authority to own its
properties and conduct its businesses as described in the Prospectus;
(ii) Each of the Major Subsidiaries has been duly incorporated
and all the Major Subsidiaries are validly existing as corporations
under the laws of their respective jurisdictions of incorporation,
with full corporate power and authority to own their respective
properties and conduct their respective businesses as described in the
Prospectus, and the Company and each of the Major Subsidiaries are
duly qualified to do business as foreign corporations under the laws
of each jurisdiction in which the character of the business conducted
or the location of the properties owned or leased make such qualifi-
cations necessary and in which the consequences of a failure to so
qualify would have a material adverse effect on the properties or
businesses of the Company and its subsidiaries taken as whole;
(iii) all the outstanding shares of capital stock of each Major
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and have not been issued and are not
owned or held in violation of any statutory preemptive right of
stockholders; to the knowledge of such counsel after due inquiry, such
shares are not held in violation of any other preemptive right of
stockholders and, except as otherwise set forth in the Registration
Statement, all outstanding shares of capital stock of the Major
Subsidiaries are owned by the Company either directly or through
wholly
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<PAGE>
owned subsidiaries free and clear of any perfected security interest
and, to the knowledge of such counsel, after due inquiry, any other
material security interests, stockholders agreements or voting trusts;
(iv) the Company's authorized capital stock is as set forth in
the Prospectus; and the Securities conform to the description thereof
contained in the Prospectus in all material respects;
(v) the Indenture has been duly authorized, executed and
delivered, has been duly qualified under the Trust Indenture Act, and
constitutes a legal, valid and binding instrument enforceable against
the Company in accordance with its terms (subject, as to enforcement
of remedies, to applicable bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium or other laws affecting creditors'
rights generally from time to time in effect); and the Securities
have been duly authorized and, when executed and authenticated in
accordance with the provisions of the Indenture and delivered to and
paid for by the Underwriters pursuant to this Agreement, will
constitute legal, valid and binding obligations of the Company
entitled to the benefits of the Indenture;
(vi) there is no pending or threatened action, suit or
proceeding before any court or governmental agency, authority or body
or any arbitrator involving the Company or any of its subsidiaries of
a character required to be disclosed in the Registration Statement
which is not adequately disclosed in the Prospectus, and there is no
franchise, contract or other document of a character required to be
described in the Registration Statement or Prospectus, or to be filed
as an exhibit, which is not described or filed as required;
(vii) the Registration Statement and all post-effective
amendments thereto have become effective under the Act; any required
filing of the Prospectus, and any supplements thereto, pursuant to
Rule 424(b) and Rule 430A have been made in the manner and within the
time period required by such rules; to the best knowledge of such
counsel no stop order suspending the effectiveness of the Registration
Statement has been issued, no proceedings for that purpose have been
instituted or threatened and the Registration Statement and the
Prospectus (other than the financial statements and other financial
and statistical information contained therein as to which such counsel
need express no opinion) comply as to form in all material respects
with the applicable requirements of the Act and the Trust Indenture
Act and the respective rules thereunder;
(viii) this Agreement has been duly authorized, executed and
delivered by the Company;
(ix) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters as to which such counsel need not
opine and such other approvals as have been obtained;
(x) neither the execution and delivery of this Agreement nor the
issue and sale of the Securities, nor the consummation of any other of
the transactions contemplated herein or therein nor the fulfillment of
the terms hereof or thereof will conflict with, result in a breach of,
or constitute a default under the charter or by-laws of the Company
or the terms of any agreement listed on Exhibit A attached hereto;
(xi) neither the execution and delivery of this Agreement nor
the issue and sale of the Securities, nor the consummation of any
8
<PAGE>
other of the transactions contemplated herein or therein nor the
fulfillment of the terms hereof or thereof will conflict with, result
in a breach of, or constitute a default under any agreement listed
in Exhibit 10 of the Company's Annual Report on Form 10-K for the
year ended 1994 or under any judgment, order or regulation known
to such counsel to be applicable to the Company or any of its
subsidiaries of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the
Company or any of its subsidiaries; and
(xii) no holders of securities of the Company have rights to the
registration of such securities under the Registration Statement.
Each of such counsel shall state that it has participated in
conferences with representatives of the Company, at which conferences the
contents of the Registration Statement, the Prospectus, each amendment thereof
and supplement thereto and related matters were discussed, and, although such
counsel has not independently checked or verified and is not passing upon and
assumes no responsibility for the factual accuracy, completeness or fairness of
the statements contained in the Registration Statement, the Prospectus, any
amendment thereof or supplement thereto, no facts have come to the attention of
such counsel to cause such counsel to believe (A) that either the Registration
Statement or any amendment thereto (other than the financial statements and
related schedules and other financial and statistical information contained
therein, or omitted therefrom), at the time the Registration Statement became
effective contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein not misleading or (B)
that the Prospectus, as amended and supplemented (other than the financial
statements and related schedules and other financial and statistical information
contained therein, or omitted therefrom), at the time the Registration Statement
became effective or on each Closing Date contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
In rendering such opinions, each such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
States of Illinois and Delaware or the United States, to the extent they deem
proper and specified in such opinions, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials. Reference to the Prospectus in this paragraph (b) include any sup-
plements thereto at the Closing Date.
(c) The Underwriters shall have received from Wachtell, Lipton, Rosen
& Katz, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to the issuance and sale of the Securities, the
Indenture, the Registration Statement, the Prospectus (together with any
supplement thereto) and other related matters as the Underwriters may
reasonably require, and the Company shall have furnished to such counsel
such documents as they reasonably request for the purpose of enabling them
to pass upon such matters.
(d) The Company shall have furnished to the Underwriters a
certificate of the Company, signed by the Chief Financial Officer and the
Vice President Controller, each in his official capacity as an officer of
the Company and not as an individual, dated the Closing Date, to the effect
that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus, any supplement to the Prospectus
and this Agreement and that:
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<PAGE>
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge, threat-
ened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto),
there has been no MAC, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
(e) At the Execution Time and at the Closing Date, Arthur Andersen
LLP shall have furnished to the Underwriters a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Underwriters, stating in effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules examined by them and
included in the Prospectus or the Registration Statement comply as to
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have
been furnished to the Underwriters;
(iii) The unaudited summary, condensed and selected financial
information with respect to the consolidated results of operations and
financial position of the Company for the _______ most recent fiscal
years (or such shorter period as applicable) included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
such period; and the pro forma financial information complies in all
material respects as to form with all applicable accounting
requirements of the Act;
(iv) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and
other information referred to below, a reading of the latest
available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and
its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe
that:
(A) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
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<PAGE>
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations
thereunder, or are not in conformity with generally accepted ac-
counting principles applied on a basis substantially consistent
with the basis for the audited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items, if any, were not determined on a
basis substantially consistent with the basis for the cor-
responding amounts in the audited consolidated financial
statements included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause A
and any unaudited income statement data and balance sheet items
included in the Prospectus and referred to in Clause B were not
determined on a basis substantially consistent with the basis for
the audited consolidated financial statements included in the
Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock or any increase in the consolidated
total debt of the Company and its Subsidiaries, or any
decreases in consolidated net current assets or net assets or
other items specified prior to the Execution Time by the
Underwriters, or any increases in any items specified prior to
the Execution Time by the Underwriters, in each case as compared
with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in Clause E there were any decreases in consolidated
net sales, operating profit data as compared to the preceding
period or other items specified by the Underwriters, or any in-
creases in any items specified prior to the Execution Time by the
Underwriters, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified prior to the Execution Time by the Underwriters,
except in each case for decreases or increases which the Pro-
spectus discloses have occurred or may occur or which are
described in such letter; and
(v) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (ii) and (iv) above, they have carried out certain
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specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified prior to the
Execution Time by the Underwriters, which are derived from the general
accounting records of the Company and its Subsidiaries, which appear
in the Prospectus, or in Part II of, or in exhibits and schedules to,
the Registration Statement specified prior to the Execution Time by
the Underwriters, and have compared certain of such amounts, percent-
ages and financial information with the accounting records of the
Company and the Subsidiaries and have found them to be in agreement.
References to the Prospectus in this paragraph (e) include any
supplement thereto at the date of the letter.
(f) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in
the letter or letters referred to in paragraph (e) of this Section 6 or
(ii) any change, or any development involving a prospective change, in or
affecting the business or properties of the Company and its subsidiaries
the effect of which, in any case referred to in clause (i) or (ii) above,
is, in the judgment of the Underwriters, so material and adverse as to make
it impractical or inadvisable to proceed with the public offering or
delivery of the Securities as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto).
(g) Subsequent to the Execution Time, there shall not have been any
decrease in the rating of any of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act) or any notice given of any intended
or potential decrease in any such rating or of a possible change in any
such rating that does not indicate the direction of the possible change.
(h) Prior to the Closing Date, the Company shall have furnished to
the Underwriters such further information, certificates and documents as
the Underwriters may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriters and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Underwriters. Notice of such
cancellation shall be given to the Company in writing or by telephone or
telegraph confirmed in writing.
7. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale of the
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied
(other than conditions specified in Sections 6(c) and, if the Underwriters shall
not have exercised their judgment reasonably, 6(f)), because of any termination
pursuant to Section 10 hereof or because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all out-
of-pocket expenses (including reasonable fees and disbursements of counsel) that
shall have been incurred by them in connection with the proposed purchase and
sale of the Securities.
8. INDEMNIFICATION AND CONTRIBUTION. A. The Company agrees to
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person who controls any Underwriter
within the meaning of either the Act or the Securities Exchange Act of 1934 (the
"Exchange Act")
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against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that (i) the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter specifically for use in
connection with the preparation thereof, (ii) the Company will not be liable for
the amount paid in settlement of any litigation commenced or threatened or of
any claim whatsoever arising out of or based upon any (actual or alleged) untrue
statement or omission unless such settlement is effected with the written
consent of the Company and (iii) such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of an Underwriter (or any person
controlling such Underwriter) from whom the person asserting any such loss,
claim, damage or liability purchased the Securities which are the subject
thereof if such person did not receive a copy of the Prospectus (or the Pro-
spectus as supplemented) excluding documents incorporated therein by reference
at or prior to the confirmation of the sale of such Securities to such person in
any case where such delivery is required by the Act and the untrue statement or
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as supplemented). This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signs the Registration
Statement, and each person who controls the Company within the meaning of either
the Act or the Exchange Act, to the same extent as the foregoing indemnity in
paragraph (a) of this Section from the Company to each Underwriter, but only
with reference to written information relating to such Underwriter furnished to
the Company by or on behalf of such Underwriter through the Underwriters
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that the
statements set forth in the last paragraph of the cover page and under the
heading "Underwriting" in any Preliminary Prospectus and the Prospectus
constitute the only information furnished in writing by or on behalf of the
several Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus, and you, as the Underwriters, confirm that such statements are
correct.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of any material right or defense and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); PROVIDED, HOWEVER, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding
13
<PAGE>
the indemnifying party's election to appoint counsel to represent the indemni-
fied party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel in its reasonable judgment with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. It being understood and agreed that the indemnifying
party shall bear the fees, costs and expenses of only one counsel pursuant to
this paragraph. An indemnifying party will not, without the prior written
consent of the indemnified parties, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding. No indemnifying party
shall be liable for any settlement of any commenced or threatened action or
proceeding effected without its written consent.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Underwriters may be subject in such proportion as is appropriate to reflect
the relative fault of the indemnifying party on the one hand and the indemnified
party on the other hand; PROVIDED, HOWEVER, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any amount in ex-
cess of the underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, or if such
allocation provides a lesser sum to the indemnified party than the amount
hereinafter calculated then the Company and the Underwriters shall contribute in
such proportion as is appropriate to reflect not only such relative fault but
also the relative benefits of the indemnifying party and the indemnified party
as well as any other equitable considerations. Benefits received by the Company
shall be deemed to be equal to the net proceeds from the offering (before
deducting expenses) received by the Company and benefits received by the
Underwriters shall be deemed to be equal to the total underwriting discounts and
commissions, in each case as set forth on the cover page of the Prospectus.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company or the
Underwriters. The Company and the Underwriters agree that it would not be just
and equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8(d) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 8, each person who controls the Underwriter within the meaning of
either the Act or the Exchange Act and each director, officer, employee and
agent of the Underwriter shall have the same rights to contribution as the Un-
derwriter and each person who controls the Company within the meaning of either
the Act or the Exchange Act, each officer of the Company who shall have signed
the Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the applicable
terms and provisions of this Section 8(d).
14
<PAGE>
9. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the principal amount of Securi-
ties set forth opposite their names in Schedule I hereto bears to the aggregate
principal amount of Securities set forth opposite the names of all the remaining
Underwriters) the Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase; PROVIDED, HOWEVER, that in the event that the
aggregate principal amount of Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase shall exceed 10% of the aggregate
principal amount of Securities set forth in Schedule I hereto, the remaining
Underwriters shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the Securities, and if such nondefaulting Un-
derwriters do not purchase all the Securities, this Agreement will terminate
without liability to any nondefaulting Underwriter or the Company. In the event
of a default by any Underwriter as set forth in this Section 9, the Closing Date
shall be postponed for such period, not exceeding seven days, as the
Underwriters shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall relieve
any defaulting Underwriter of its liability, if any, to the Company and any
nondefaulting Underwriter for damages occasioned by its default hereunder.
10. TERMINATION. This Agreement shall be subject to termination in
the absolute discretion of the Underwriters, by notice given to the Company
prior to delivery of and payment for the Securities, if prior to such time (i)
trading in the common stock of Company shall have been suspended by the Secu-
rities and Exchange Commission or the New York Stock Exchange or trading in
securities generally on the New York Stock Exchange shall have been suspended or
limited or minimum prices shall have been established on such Exchange, (ii) a
banking moratorium shall have been declared either by Federal or New York State
authorities or (iii) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of war or other calamity or crisis
the effect of which on the financial markets in the United States is such as to
make it, in the judgment of the Underwriters, impracticable to market the
Securities.
11. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any inves-
tigation made by or on behalf of any Underwriter or the Company or any of the
officers, directors or controlling persons referred to in Section 8 hereof, and
will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Underwriters, will be mailed,
delivered or telecopied and confirmed to them at Salomon Brothers Inc, at 7
World Trade Center, New York, New York 10048, attn: Scott W. Stearns; or, if
sent to the Company, will be mailed, delivered or telecopied and confirmed to it
at USG Corporation, 125 S. Franklin Street, Chicago, Illinois 60606, attn:
Secretary, with a copy to Kirkland & Ellis, 200 E. Randolph Drive, Chicago,
Illinois 60601, attn: Francis J. Gerlits, P.C.
13. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. APPLICABLE LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of New York, without giving affect to
the conflicts of laws principles thereof.
15
<PAGE>
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
16. ENTIRE AGREEMENT. This Agreement and the Water Street Agreement
constitute the entire agreement among the parties hereto with respect to the
transactions contemplated hereby.
16
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
USG CORPORATION
By:___________________________
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
BT Securities Corporation
Citicorp Securities, Inc.
Chemical Securities Inc.
By: Salomon Brothers Inc
By:_____________________________
Vice President
17
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount
of Securities to
Underwriters be Purchased
------------ ----------------
<S> <C>
Salomon Brothers Inc . . . . . . . . . . . . . $
BT Securities Corporation. . . . . . . . . . .
Citicorp Securities, Inc.. . . . . . . . . . .
Chemical Securities Inc. . . . . . . . . . . .
------------
Total. . . . . . . . $150,000,000
</TABLE>
1
<PAGE>
EXHIBIT A
AGREEMENTS
Credit Agreement dated as of July __, 1995 between USG
Corporation, the Financial Institutions listed on the signature pages thereof,
as lenders and Chemical Bank, as agent.
Indenture, dated October 1, 1986, between USG Corporation and
Harris Trust and Savings Bank, as supplemented.
Indenture, dated as of April 26, 1993, among USG Corporation,
certain guarantors and State Street Bank and Trust Company, as Trustee.
Indenture, dated as of August 10, 1993, among USG Corporation,
certain guarantors and State Street Bank and Trust Company, as Trustee.
Collateral Trust Agreement, dated as of July __, 1995 between USG
Corporation and Wilmington Trust Company and William J. Wade, as trustees.
1
<PAGE>
EXHIBIT 5
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
TO CALL WRITER DIRECT: FACSIMILE
(312) 861-2000 (312) 861-2200
July 24, 1995
USG Corporation
125 South Franklin
Chicago, IL 60606-4678
Ladies and Gentlemen:
We have acted as special counsel to USG Corporation, a Delaware corporation
(the "Corporation"), in connection with the registration by the Corporation of
$150 million aggregate principal amount of senior notes (the "Notes")
pursuant to a Registration Statement on Form S-3 (File No. 33-60563) filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
subsequently amended or supplemented (the Registration Statement, as amended or
supplemented is hereinafter referred to as the "Registration Statement").
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the Restated Certificate of Incorporation of the
Corporation; (ii) the Amended and Restated By-laws of the Corporation; (iii)
minutes and records of the corporate proceedings of the Corporation with respect
to the issuance of the Notes; (iv) the Registration Statement and exhibits
thereto; and (v) originals, or copies certified or otherwise identified to our
satisfaction, of such other documents, corporate records and other instruments
as we have deemed necessary for the purpose of this opinion and such other
matters of fact and law which we have deemed necessary in order to render this
opinion.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies, and the authenticity of the originals of
all documents submitted to us as copies. We have also assumed the genuineness
of the signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Corporation, and the due authorization, execution
and delivery of all documents by the parties thereto other than the Corporation.
<PAGE>
Based on the foregoing, we are of the opinion that:
(1) The Corporation is a corporation validly existing under the laws
of the State of Delaware.
(2) When the Board of Directors of the Company, or the Special
Committee authorized by the Board, has designated the type, terms and
amount of the Notes to be issued as contemplated by the Registration
Statement, the sale and issuance of the Notes will be validly authorized.
(3) When the Notes have been duly executed and authenticated on
behalf of the Corporation, duly authenticated and delivered by the Trustee
under the Indenture and issued and paid for in accordance with the terms
set forth in the Prospectus forming a part of the Registration
Statement, they will constitute legal, valid and binding instruments
enforceable in accordance with their terms, except that (a) our opinion
is subject to the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance and other similar laws, and
(b) the binding effect and enforceability of agreements and the
availability of injunctive relief or other equitable remedies thereunder
are subject to public policy considerations and the effect of general
principles of equity (regardless of whether enforcement is considered in
proceedings at law or in equity).
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to the
reference to this firm under the caption "Legal Matters" in the Prospectus
forming a part of such Registration Statement.
We do not find it necessary for purposes of this opinion, and
accordingly do not purport to cover herein, the application of the securities or
"Blue Sky" laws of the various states to issuance of the Notes. We render no
opinion as to the laws of any jurisdiction other than the internal law of the
State of Illinois and the United States of America and the internal corporate
law of the State of Delaware.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
KIRKLAND & ELLIS
<PAGE>
EXHIBIT 23 (A)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion and
incorporation by reference in this registration statement of our reports dated
January 26, 1995 included in USG Corporation's Form 10-K for the year ended
December 31, 1994 and to all references to our Firm included in this
registration statement.
Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois,
July 21, 1995
<PAGE>
EXHIBIT 99(a)
FORM OF CREDIT AGREEMENT
This CREDIT AGREEMENT dated as of July [__], 1995 (as the same may be
amended, restated, supplemented or otherwise modified from time to time, this
"AGREEMENT") among USG CORPORATION, a Delaware corporation (the "BORROWER"), the
"LENDERS" and "ISSUING BANKS" (each as defined herein), and CHEMICAL BANK, in
its separate capacity as agent for the Lenders and Issuing Banks (the "AGENT").
In accordance with the terms and subject to the conditions set forth
in this Agreement, the Borrower has requested the Lenders to provide to the
Borrower the Aggregate Revolving Credit Commitments to enable the Borrower to
borrow Loans on a revolving basis and to obtain Letters of Credit, at any time
and from time to time from and including the Closing Date until the Termination
Date.
Accordingly, the Borrower, the Lenders, the Issuing Banks and the
Agent agree as follows:
ARTICLE I. DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used above and elsewhere in this
Agreement, the following terms shall have the meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of ABR Loans.
"ABR LOAN" shall mean any Loan bearing interest at a rate determined
by reference to the Alternate Base Rate in accordance with the provisions of
ARTICLE II.
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative
Questionnaire in the form of EXHIBIT A.
"AFFILIATE" shall mean, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"AGENT" shall have the meaning given to such term in the preamble to
this Agreement, or such successor as shall be appointed pursuant to SECTION
8.04.
"AGENT FEE LETTER" shall mean the Fee Letter dated June 19, 1995, from
the Borrower to the Agent.
"AGGREGATE LC COMMITMENTS" shall mean the aggregate amount of the LC
Commitments of all Lenders, which as of the date hereof is $125,000,000.
"AGGREGATE REVOLVING CREDIT COMMITMENTS" shall mean the aggregate
amount of the Revolving Credit Commitments of all Lenders, which as of the date
hereof is $500,000,000 and which may be reduced from time to time pursuant to
SECTION 2.11.
"AGREEMENT" shall have the meaning given to such term in the preamble
hereto.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such
day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus
1/2 of 1%. "BASE CD RATE" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
<PAGE>
Assessment Rate. "ASSESSMENT RATE" shall mean for any date the annual rate
(rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated
by Chemical Bank as the then current net annual assessment rate that will be
employed in determining amounts payable by the Agent to the Federal Deposit
Insurance Corporation (or any successor) for insurance by such Corporation (or
such successor) of time deposits made in dollars at Chemical Bank's domestic
offices. "STATUTORY RESERVES" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority to which Chemical Bank
is subject for new negotiable nonpersonal time deposits in dollars of over
$100,000 with maturities approximately equal to three months. Such reserve
percentages shall include those imposed pursuant to Regulation D of the Board.
Statutory Reserves shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage. "THREE-MONTH SECONDARY CD RATE"
shall mean, for any day, the secondary market rate for three-month certificates
of deposit reported as being in effect on such day (or, if such day shall not be
a Business Day, the next preceding Business Day) by the Board through the public
information telephone line of the Federal Reserve Bank of New York (which rate
will, under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if such
rate shall not be so reported on such day or such next preceding Business Day,
the average of the secondary market quotations for three-month certificates of
deposit of major money center banks in New York City received at approximately
10:00 a.m., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the Agent from three New
York City negotiable certificate of deposit dealers of recognized standing
selected by it. "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by the
Agent from three Federal funds brokers of recognized standing selected by it.
If for any reason the Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Base CD
Rate or the Federal Funds Effective Rate or both for any reason, including the
inability or failure of the Agent to obtain sufficient quotations in accordance
with the terms thereof, the Alternate Base Rate shall be determined without
regard to CLAUSE (b) or (c), or both, of the first sentence of this definition,
as appropriate, until the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a change in the Prime Rate,
the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be
effective on the effective date of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively.
"APPLICABLE COMMITMENT FEE" shall mean, for any date, the applicable
number of basis points (expressed as a percentage) set forth below based on the
Debt/EBITDA Ratio as of the last day of the Borrower's most recently ended
period of four consecutive fiscal quarters:
Debt/EBITDA Ratio Applicable Commitment Fee
----------------- -------------------------
(in basis points)
greater than 3.50 to 1.00 37.50
greater than 3.00 to 1.0 but less
than or equal to 3.50 to 1.0 31.25
greater than 2.00 to 1.0 but less
than or equal to 3.00 to 1.0 25.00
greater than 1.50 to 1.0 but less
<PAGE>
than or equal to 2.00 to 1.0 22.50
less than or equal to 1.50 to 1.0 20.00
For purposes of the foregoing, the Applicable Commitment Fee at any
time shall be determined by reference to the Debt/EBITDA Ratio as of the last
day of the Borrower's most recently ended fiscal quarter, PROVIDED, that, in
calculating the Debt/EBITDA Ratio for purposes of this definition, Debt shall
not include obligations with respect to letters of credit (including Letters of
Credit issued hereunder) entered into in the ordinary course of business and
having an aggregate outstanding face amount of up to $50,000,000 to the extent
such letters of credit are not drawn on or, if and to the extent drawn on, such
drawing is promptly reimbursed following receipt by the applicable account party
of a demand for reimbursement following payment on the letter of credit.
Following the end of any such fiscal quarter, any change in the Applicable
Commitment Fee shall become effective for all purposes on and after the earlier
of (i) the date of delivery to the Agent of the Debt/EBITDA Ratio Certificate
for such fiscal quarter and (ii) the date of delivery to the Agent of the
Financial Officer's certificate and applicable financial statements described in
SECTIONS 5.07(a), (b) and (c) relating to such fiscal quarter; PROVIDED,
HOWEVER, that until either the DEBT/EBITDA Ratio Certificate or such certificate
and financial statements for the fiscal quarter ending September 30, 1995 have
been delivered to the Agent, the Applicable Commitment Fee shall be 25.0 basis
points. Notwithstanding the foregoing, at any time during which the Borrower
has failed to deliver the Financial Officer's certificate and applicable
financial statements described in SECTIONS 5.07(a), (b) and (c) with respect to
a fiscal quarter in accordance with the provisions thereof for more than five
days after such certificate and the applicable financial statements are due, and
until such time as such financial statements are so delivered, the Applicable
Commitment Fee shall be 37.50 basis points.
"APPLICABLE EURODOLLAR MARGIN" shall mean, for any date, with respect
to the Revolving Loans comprising any Eurodollar Borrowing, the applicable
margin set forth below based on the Debt/EBITDA Ratio as of the last day of the
Borrower's most recently ended period of four consecutive fiscal quarters:
Debt/EBITDA Ratio Applicable Eurodollar Margin
----------------- ----------------------------
(in basis points)
greater than 4.00 to 1.00 175.0
greater than 3.50 to 1.0 but less
than or equal to 4.00 to 1.0 150.0
greater than 3.00 to 1.0 but less
than or equal to 3.50 to 1.0 125.0
greater than 2.50 to 1.0 but less
than or equal to 3.00 to 1.0 87.5
greater than 2.00 to 1.0 but less
than or equal to 2.50 to 1.0 75.0
greater than 1.50 to 1.0 but less
than or equal to 2.00 to 1.0 62.5
less than or equal to 1.50 to 1.0 50.0
For purposes of the foregoing, the Applicable Eurodollar Margin at any
time shall be determined by reference to the Debt/EBITDA Ratio as of the last
day of the Borrower's most recently ended fiscal quarter, PROVIDED, that, in
calculating the Debt/EBITDA Ratio for purposes of this definition, Debt shall
not include obligations with respect to letters of credit (including Letters of
Credit issued hereunder) entered into in the ordinary course of
<PAGE>
business and having an aggregate outstanding face amount of up to $50,000,000 to
the extent such letters of credit are not drawn on or, if and to the extent
drawn on, such drawing is promptly reimbursed following receipt by the
applicable account party of a demand for reimbursement following payment on the
letter of credit. Following the end of any such fiscal quarter, any change in
the Applicable Eurodollar Margin shall become effective for all purposes on and
after the earlier of (i) the date of delivery to the Agent of the Debt/EBITDA
Ratio Certificate and (ii) the date of delivery to the Agent of the Financial
Officer's certificate and applicable financial statements described in SECTIONS
5.07(a), (b) and (c) relating to such fiscal quarter; PROVIDED, HOWEVER, that
until either the Debt/EBITDA Ratio Certificate or such certificate and financial
statements for the fiscal quarter ending September 30, 1995 have been delivered
to the Agent, the Applicable Eurodollar Margin shall be 87.50 basis points.
Notwithstanding the foregoing, at any time during which the Borrower has failed
to deliver the Financial Officer's certificate and applicable financial
statements described in SECTIONS 5.07(a), (b) and (c) with respect to a fiscal
quarter in accordance with the provisions thereof for more than five days after
such certificate and the applicable financial statements are due, and until such
time as such financial statements are so delivered, the Applicable Eurodollar
Margin shall be 175.00 basis points.
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance
entered into by a Lender and an Eligible Assignee, approved in accordance with
SECTION 9.04 and accepted by the Agent, in the form of EXHIBIT B or such other
form as shall be approved by the Agent.
"AVERAGE LIFE" means, as of any date, with respect to any debt or
redeemable equity security, the quotient obtained by dividing (1) the sum of the
products of (x) the number of years from such date to the date of each scheduled
principal or redemption payment (including any sinking fund or mandatory
redemption payment requirements) of such debt or equity security multiplied in
each case by (y) the amount of such principal or redemption payments by (ii) the
sum of all such principal or redemption payments.
"BANKRUPTCY CODE" shall mean Title 11 of the United States Code (11
U.S.C. Secitons 101 et seq.), as amended from time to time, or any successor
statute.
"BENEFIT PLAN" shall mean a defined benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which the
Borrower or an ERISA Affiliate is, or within the immediately preceding five (5)
years was, an "employer" as defined in Section 3(5) of ERISA.
"BOARD" shall mean the Board of Governors of the Federal Reserve
System of the United States of America.
"BORROWING" shall mean a Revolving Loan Borrowing or a Competitive Bid
Borrowing.
"BUSINESS DAY" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; PROVIDED, HOWEVER, that, when used in
connection with a Eurodollar Loan, the term "BUSINESS DAY" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"CAPITAL LEASE" shall mean any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
the obligations with respect to which are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP.
"CASH EQUIVALENTS" shall mean (i) marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued by an
agency or instrumentality thereof and backed by the full faith and
<PAGE>
credit of the United States Government, in each case maturing within 180 days
after the date of acquisition thereof; (ii) marketable direct obligations issued
by any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof maturing within 180 days after
the date of acquisition thereof and, at the time of acquisition, having a rating
of at least A-1 or the equivalent thereof from S&P or a rating of at least P-1
or the equivalent thereof from Moody's (or, if at any time neither S&P nor
Moody's shall be rating such obligations, then an equivalent rating from such
other nationally recognized rating services acceptable to the Agent) and not
listed in Credit Watch published by S&P; (iii) with respect to CGC (A)
marketable direct obligations issued or unconditionally guaranteed by the
Canadian Government or issued by an agency thereof and backed by the full faith
and credit of Canada, in each case maturing within 180 days after the date of
acquisition thereof, and (B) domestic and eurodollar certificates of deposit or
time deposits or bankers' acceptances maturing within 180 days after the date of
acquisition thereof issued by any commercial bank organized under the laws of
Canada or any province thereof having combined capital and surplus of not less
than $250,000,000; (iv) commercial paper (other than commercial paper issued by
the Borrower or any of its Affiliates) and variable or fixed rate notes maturing
no more than 180 days after the date of acquisition thereof and, at the time of
acquisition, having a rating of at least A-1 or P-1 from either S&P or Moody's,
respectively (or, if at any time neither S&P nor Moody's shall be rating such
obligations, then an equivalent rating from such other nationally recognized
rating services acceptable to the Agent); (v) domestic and eurocurrency
certificates of deposit or time deposits or bankers' acceptances issued by (a)
any commercial bank organized under the laws of the United States of America or
any state thereof or the District of Columbia having combined capital and
surplus of not less than $250,000,000 or (b) any bank with a short-term
commercial paper rating from S&P of at least A-1 or the equivalent thereof, or
from Moody's of at least P-1 or the equivalent thereof, in each case maturing no
more than 180 days from the acquisition thereof; (vi) repurchase agreements with
a term of not more than fifteen (15) days with a bank or trust company or
recognized securities dealer having capital and surplus in excess of
$250,000,000 for direct obligations issued by or fully guaranteed by the United
States of America; and (vii) investments in money market funds substantially all
of the assets of which are comprised of securities described in (I)-(vi) above.
"CGC" shall mean, collectively, CGC Inc., Donn Canada Limited and
C.N.G. Distribution Limited, each a corporation organized under the laws of
Canada.
"CLOSING DATE" shall mean July [__], 1995.
"COLLATERAL DOCUMENTS" shall mean the Pledge Agreement, and the
Collateral Trust Agreement.
"COLLATERAL TRUST AGREEMENT" shall mean that certain Collateral Trust
Agreement of even date herewith by and between the Collateral Trustee and the
Borrower, for the benefit of the Senior Secured Creditors, as the same may be
amended, restated, supplemented or otherwise modified from time to time.
"COLLATERAL TRUSTEE" shall mean collectively, Wilmington Trust
Company, a Delaware banking corporation, its successors and assigns, as
corporate trustee, and William J. Wade, as individual trustee, under the
Collateral Trust Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission and any
Person succeeding to the functions thereof.
"COMMITMENT" shall mean each Lender's Revolving Credit Commitment or
LC Commitment, and "COMMITMENTS", when used in respect of any Lender, shall mean
such Lender's Revolving Credit Commitment and LC Commitment.
<PAGE>
"COMMITMENT FEE" shall have the meaning given to such term in SECTION
2.07.
"COMPETITIVE BID" shall mean an offer by a Lender to make a
Competitive Bid Loan pursuant to SECTION 2.04.
"COMPETITIVE BID ACCEPT/REJECT LETTER" shall mean a notification made
by the Borrower pursuant to SECTION 2.04 in the form of EXHIBIT C.
"COMPETITIVE BID BORROWING" shall mean a borrowing consisting of a
Competitive Bid Loan or concurrent Competitive Bid Loans from the Lender or
Lenders whose Competitive Bids for such Borrowing have been accepted by the
Borrower under the bidding procedure described in SECTION 2.04.
"COMPETITIVE BID LOAN" shall mean a Loan from a Lender to the Borrower
made pursuant to the bidding procedures set forth in SECTION 2.04. Each
Competitive Bid Loan shall be a Eurodollar Loan bearing interest at the LIBO
Rate plus the Spread applicable thereto or a Fixed Rate Loan.
"COMPETITIVE BID NOTE" shall have the meaning given to such term in
SECTION 2.05.
"COMPETITIVE BID RATE" shall mean, as to any Competitive Bid made by a
Lender pursuant to SECTION 2.04 (i) in the case of a Eurodollar Loan, the LIBO
Rate plus the Spread, and (ii) in the case of a Fixed Rate Loan, the fixed rate
of interest offered by the Lender making such Competitive Bid.
"CONSOLIDATED NET INCOME" shall mean, for any period, the aggregate
net income or net loss of the Borrower and its Subsidiaries for such period
computed on a consolidated basis in accordance with GAAP; PROVIDED, that there
shall be excluded therefrom, without duplication, (a) all items classified as
extraordinary; (b) any net loss or net income of any Person other than the
Borrower and its Subsidiaries, except to the extent of the amount of dividends
or other distributions actually paid to the Borrower or any of its Subsidiaries
by such other Person during such period, (c) the net income of any Subsidiary of
the Borrower to the extent that the payment of dividends or other distributions
actually paid to the Borrower is restricted by contract or otherwise, except for
any dividends or distributions actually paid by such Subsidiaries; PROVIDED that
the net income of all such Subsidiaries shall be excluded from Consolidated Net
Income only to the extent that it exceeds $2,000,000 per annum, and (d)
amortization of excess reorganization value and capitalized reorganization debt
discount costs associated with the revaluation of assets and liabilities with
respect to the prepackaged plan of reorganization implemented on May 6, 1993, in
each case as set forth or reflected in the Borrower's financial statements most
recently filed under the Securities Exchange Act.
"CONTAMINANT" shall mean any waste, pollutant (as that term is defined
in 42 U.S.C. 9601(33) or in 33 U.S.C. 1362(13)), hazardous substance (as that
term is defined in 42 U.S.C. 9601(14)), hazardous chemical (as that term is
defined by 29 CFR Sections 1910.1200(c)), toxic substance, hazardous waste (as
that term is defined in 42 U.S.C. 6901), radioactive material, special waste,
petroleum, including crude oil or any petroleum-derived substance, waste, or
breakdown or decomposition product thereof, or any constituent of any such
substance or waste, including but not limited to polychlorinated biphenyls.
"CONTRACTUAL OBLIGATION", as applied to any Person, shall mean any
provision of any Securities issued by that Person or any indenture, mortgage,
deed of trust, contract, undertaking, document, instrument or other agreement or
instrument to which that Person is a party or by which it or any of its
properties is bound, or to which it or any of its properties is subject
(including, without limitation, any restrictive covenant affecting such Person
or any of its properties).
<PAGE>
"CONTROL" shall mean the direct or indirect possession of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, and
"Controlling" and "Controlled" shall have meanings correlative thereto.
"CREDIT EVENT" shall have the meaning given such term in ARTICLE IV.
"CUSTOMARY PERMITTED LIENS" shall mean:
(i) Liens (other than Environmental Liens and any Lien imposed under
ERISA) for taxes, assessments or charges of any Governmental Authority for
claims not yet due or which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than any Lien
imposed under ERISA) imposed by law, created in the ordinary course of
business and for amounts not yet due or which are being contested in good
faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance
with GAAP;
(iii) Liens (other than any Lien imposed under ERISA) incurred or
deposits made in the ordinary course of business (including, without
limitation, security deposits for leases, surety bonds and appeal bonds) in
connection with workers' compensation, liability insurance or self-
insurance, unemployment insurance and other types of social security
benefits or to secure the performance of tenders, bids, contracts (other
than for the repayment or guarantee of borrowed money or purchase money
obligations), statutory obligations and other similar obligations or
arising as a result of progress payments under government contracts;
(iv) easements (including, without limitation, reciprocal easement
agreements and utility agreements), rights-of-way, liens with respect to
municipal and zoning ordinances, covenants, consents, reservations,
encroachments, minor defects or irregularities in title, variations and
other restrictions, charges or encumbrances (whether or not recorded)
affecting the use of real property, which individually or in the aggregate
do not or are not reasonably likely to have a Material Adverse Effect;
(v) Liens incurred with respect to rights of agents for collection
for the Borrower and its Subsidiaries under assignments of chattel paper,
accounts, instruments, or general intangibles for purposes of collection in
the ordinary course of business;
(vi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(vii) purchase money security interests of suppliers with respect to
goods supplied, which security interests have not been perfected by filing
or by the taking of possession of collateral and which have not been in
existence more than ninety (90) days; and
(viii) extensions, renewals or replacements of any Lien referred to
in CLAUSES (i) through (vii) above; PROVIDED, that (A) in the case of
PARAGRAPHS (i) through (iii) above, the principal amount of the obligation
secured thereby is not increased and (B) any such extension, renewal or
replacement is limited to the property originally encumbered thereby.
<PAGE>
"DEBT" at any time, shall mean, with respect to the Borrower and its
Subsidiaries on a consolidated basis, without duplication, the sum of (i) the
aggregate outstanding principal balance of all Revolving Loans and all
Competitive Bid Loans at such time, (ii) the aggregate principal amount of long-
term indebtedness of the Borrower and its consolidated Subsidiaries at such time
(including the current portion thereof), (iii) the outstanding principal amount
of capital leases shown as a liability on the Borrower's consolidated balance
sheet at such time, (iv) all reimbursement obligations and other liabilities of
the Borrower and its consolidated Subsidiaries with respect to letters of
credit, other than letters of credit issued in connection with the incurrence of
trade debt, (v) any indebtedness incurred other than in the ordinary course of
business, whether or not for borrowed money, secured by any Lien in respect of
property owned by such Person, whether or not such Person has assumed or become
liable for the payment of such indebtedness, (vi) any indebtedness (other than
trade debt incurred in the ordinary course of business), whether or not for
borrowed money, with respect to which such Person has become directly or
indirectly liable and which represents or has been incurred to finance the
purchase price (or a portion thereof) of any property or services or business
acquired by the Borrower or any such consolidated Subsidiary, whether by
purchase, consolidation, merger or otherwise, and (vii) the aggregate amount of
all Guarantees with respect to indebtedness of third parties of the type
described in CLAUSES (ii) through (vi) above at such time.
"DEBT/EBITDA RATIO" shall mean the ratio, calculated as of the last
day of each of the Borrower's fiscal quarters, of (i) Debt less the aggregate
amount of cash and Cash Equivalents held by the Borrower and its consolidated
Subsidiaries to (ii) EBITDA for the four quarter period ending on the last day
of such fiscal quarter (in each case as reflected on the Borrower's consolidated
financial statements for such fiscal quarter).
"DEBT/EBITDA RATIO CERTIFICATE" shall mean a Debt/EBITDA Ratio
Certificate substantially in the form of EXHIBIT J attached hereto, duly
executed and delivered by a Financial Officer.
"DOL" shall mean the Department of Labor and any Person succeeding to
the functions thereof.
"DOLLARS" or "$" shall mean lawful money of the United States of
America.
"EBITDA" for any period, shall mean the consolidated operating
earnings from continuing operations of the Borrower and its Subsidiaries before
interest, taxes, depreciation, amortization, other income and expense, minority
interests, the impact of fresh start accounting and other non-cash adjustments
to operating earnings for such period, PROVIDED, that, for purposes of the
period ending September 30, 1995, operating earnings from continuing operations
shall not be reduced by the $30,000,000 pre-tax charge which occurred in the
fourth fiscal quarter of 1994 in connection with asbestos litigation
settlements.
"ELIGIBLE ASSIGNEE" shall mean (a) a commercial bank having total
assets in excess of $2,000,000,000, (b) a savings and loan association or a
savings bank organized under the laws of the United States of America or any
state thereof and having a net worth of at least $300,000,000 computed in
accordance with GAAP, (c) a finance company, insurance company or other
financial institution or fund that is regularly engaged in making, purchasing or
investing in loans and has total assets in excess of $300,000,000 or (d) an
Affiliate of any Lender.
"ENVIRONMENTAL LIEN" shall mean a Lien in favor of any Governmental
Authority for (i) any liability under Federal or state environmental laws or
regulations, or (ii) damages arising from, or costs incurred by such Govern-
mental Authority in response to, a Release or threatened Release of a
Contaminant into the environment.
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time, and the regulations
promulgated and the rulings issued thereunder.
"ERISA AFFILIATE" shall mean each person (as defined in Section 3(9)
of ERISA) that is a member of a group of which the Borrower is a member and
which is treated as a single employer under Section 414 of the Internal Revenue
Code, excluding any foreign Subsidiary of the Borrower which is not subject to
ERISA.
"EURODOLLAR BORROWING" shall mean a Borrowing comprised of Eurodollar
Loans.
"EURODOLLAR LOAN" shall mean any Loan bearing interest at a rate
determined by reference to the LIBO Rate in accordance with the provisions of
ARTICLE II.
"EVENT OF DEFAULT" shall have the meaning given to such term in
ARTICLE VII.
"EXISTING CREDIT AGREEMENT" shall mean the Amended and Restated Credit
Agreement dated as of May 6, 1993 among the Borrower, USG Interiors, Inc., the
financial institutions party thereto, Bankers Trust Company, Chemical Bank and
Citibank, N.A., as Agents, and Citibank, N.A., as Administrative Agent, as the
same was amended, supplemented or otherwise modified from time to time through
the date hereof.
"FEDERAL FUNDS EFFECTIVE RATE" shall have the meaning given to such
term in the definition of "Alternate Base Rate".
"FEES" shall mean the Commitment Fees, the Issuing Bank Feesand the
LC Fees.
"FINANCIAL OFFICER" shall mean the chief financial officer, the
controller, the assistant controller, the treasurer or the assistant treasurer
of the Borrower.
"FISCAL YEAR" shall mean the fiscal year of the Borrower, which shall
be the twelve (12) month period ending on December 31 in each year or such other
period as the Borrower may designate and the Agent may approve in writing.
"FIXED RATE LOAN" shall mean any Competitive Bid Loan bearing interest
at a fixed percentage rate per annum (expressed in the form of a decimal to no
more than four decimal places) specified by the Lender making such Loan in its
Competitive Bid.
"GAAP" shall mean generally accepted accounting principles, applied on
a consistent basis.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
Federal, state, local or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GUARANTEE" when used with respect to any Person shall mean the
incurrence of any obligation, contingent or otherwise, of such Person
guaranteeing or having the economic effect of guaranteeing any Debt of any other
Person (the "primary obligor") in any manner, whether directly or indirectly,
and including any obligation of such Person, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such Debt or
to purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Debt, (b) to purchase property or securities for the purpose
of assuring the owner of such Debt of the payment of such Debt or (c) to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to
<PAGE>
enable the primary obligor to pay such Debt; PROVIDED, HOWEVER, that the term
"Guarantee" shall not include endorsements of items by any Person for collection
or deposit in the ordinary course of business.
"INDEMNITEE" shall have the meaning given to such term in SECTION
9.05(b).
"INTEREST COVERAGE RATIO" of the Borrower for any period shall mean
the ratio of (a) EBITDA for such period to (b) the total net consolidated
interest expense of the Borrower and its Subsidiaries during such period (as
shown on a consolidated income statement of the Borrower for such period),
excluding the impact of non-cash amortization resulting from fresh start
accounting during such period.
"INTEREST PAYMENT DATE" shall mean, with respect to any Loan, the last
day of the Interest Period applicable to such Loan and, in the case of a
Eurodollar Loan with an Interest Period of more than three months' duration,
each day that would have been an Interest Payment Date had successive Interest
Periods of three months' duration been applicable to such Eurodollar Loan.
"INTEREST PERIOD" shall mean (a) as to any Eurodollar Loan, the period
commencing on the date of such Eurodollar Loan or on the last day of the
immediately preceding Interest Period applicable to such Eurodollar Loan, as the
case may be, and ending on the numerically corresponding day (or, if there is no
numerically corresponding day, on the last day) in the calendar month that is 1,
2, 3 or 6 months thereafter, as the Borrower may elect (or as the Borrower may
be deemed to elect), (b) as to any ABR Loan, the period commencing on the date
of such ABR Loan or on the last day of the immediately preceding Interest Period
applicable to such ABR Loan, as the case may be, and ending on the earlier of
(i) the next succeeding March 31, June 30, September 30 or December 31, and (ii)
the Maturity Date, and (c) in the case of a Fixed Rate Loan, a period commencing
on the date of such Fixed Rate Loan and ending on the date specified in the
Competitive Bid in which the offer to make such Fixed Rate Loan was extended and
accepted pursuant to SECTION 2.04, which shall not be earlier than 7 days after
the date, or later than 180 days after the date, that such Fixed Rate Loan was
made (but in no event after the Maturity Date); PROVIDED, HOWEVER, that if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the case
of a Eurodollar Loan only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day. Interest shall accrue from and including the first day
of an Interest Period to but excluding the last day of such Interest Period.
"INTEREST RATE CONTRACTS" shall mean interest rate exchange, swap,
collar, cap or similar hedging agreements providing interest rate protection.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended from time to time, and any successor statute, and the regulations
promulgated and rulings issued thereunder.
"INVESTMENT" shall mean, as applied to any Person, any direct or
indirect purchase or other acquisition by that Person of Securities, or of a
beneficial interest in Securities, of any other Person, and any direct or
indirect loan, advance (other than accounts arising in the ordinary course of
business (including, but not limited to, amounts received in compromise of
accounts receivable in connection with collection or settlement) and deposits
with financial institutions available for withdrawal on demand, prepaid
expenses, advances to employees, directors, officers, agents, customers or
suppliers, deposits made in connection with the purchase of equipment or other
assets, and similar items made or incurred in the ordinary course of business),
or capital contribution by such Person to any other Person, including all Debt
owed by that other Person which did not arise from sales of goods or services to
that Person in the ordinary course of business; PROVIDED, HOWEVER, that
"Investment", when applied to the Borrower, shall not include
<PAGE>
the Obligations under this Agreement. The amount of any Investment shall be
determined in conformity with GAAP.
"INVESTMENT GRADE", shall mean, with respect to any security, that
such security has been rated BBB- or better by S&P and Baa3 or better by
Moody's; PROVIDED, that if such security has been rated by only one of Moody's
and S&P, then "Investment Grade" shall mean that such security has been rated
BBB- or better by S&P or Baa3 or better by Moody's.
"IRS" shall mean the Internal Revenue Service and any Person
succeeding to the functions thereof.
"ISSUING BANK" shall mean any Lender designated as an Issuing Bank in
an Issuing Bank Agreement executed by such Lender, the Borrower and the Agent.
"ISSUING BANK AGREEMENT" shall mean, with respect to an Issuing Bank,
the collective documents and agreements between the Borrower and such Issuing
Bank providing for (I) the commitment of such Issuing Bank to issue Letters of
Credit and (ii) such other terms and conditions as such Issuing Bank may
require, including provisions respecting reimbursement, with such modifications
thereto as may be agreed upon by such Issuing Bank and the Borrower and as are
consistent with the provisions hereof; PROVIDED, HOWEVER, in the event of any
conflict between the terms of any Issuing Bank Agreement and this Agreement, the
terms of this Agreement shall control.
"ISSUING BANK FEES" shall mean, as to any Issuing Bank, the fees set
forth in the applicable Issuing Bank Agreement or any letter agreement executed
in connection therewith.
"LC COMMITMENT" shall mean, with respect to each Lender, the
commitment of such Lender to acquire participations in Letters of Credit
hereunder, which commitment shall be determined by multiplying such Lender's Pro
Rata Share by the Aggregate LC Commitments, as the same may be modified from
time to time pursuant to SECTION 9.04 or reduced from time to time pursuant to
SECTION 2.11.
"LC DISBURSEMENT" shall mean any payment or disbursement made by an
Issuing Bank under or pursuant to a Letter of Credit.
"LC EXPOSURE" shall mean, at any time, the sum of (a) the aggregate
undrawn amount of all Letters of Credit outstanding at such time plus (b) the
aggregate amount which has been drawn under Letters of Credit but for which the
applicable Issuing Bank or the Lenders, as the case may be, have not been
reimbursed by the Borrower at such time.
"LC FEE" shall have the meaning given to such term in SECTION 2.07(b).
"LENDER" shall mean, at any time, a financial institution that is
either set forth on the signature pages hereof or that has become a lender
pursuant to SECTION 9.04 and that, as of such time, remains a party hereto.
"LETTERS OF CREDIT" shall mean letters of credit issued by an Issuing
Bank for the account of the Borrower pursuant to SECTION 2.15.
"LIABILITIES AND COSTS" shall mean all liabilities, obligations,
responsibilities, losses, damages, punitive damages, consequential damages,
treble damages, costs and expenses (including, without limitation, attorneys',
experts' and consulting fees and costs of investigation and feasibility
studies), fines, penalties, monetary sanctions and interest, whether direct or
indirect, known or unknown, absolute or contingent, past, present or future.
"LIBO RATE" shall mean, with respect to any Eurodollar Loan for any
Interest Period, an interest rate per annum determined by the Agent to be the
arithmetic average of the rates designated as "LIBO" on Telerate screen
<PAGE>
number 3750 USD-LIBOR-BBA (rounded upwards, if necessary, to the nearest 1/16 of
1%) for deposits with a maturity comparable to a 1-, 2-, 3- or 6- month Interest
Period offered in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period; PROVIDED, HOWEVER, that if such screen is
canceled or becomes otherwise unavailable, the "LIBO Rate" shall be determined
by some other reference to be agreed upon by the Borrower and the Agent.
"LIEN" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, collateral deposit arrangement, security interest, encumbrance
(including, but not limited to, easements, rights of way, zoning restrictions,
restrictive covenants and the like), lien (statutory or other), preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever, including, without limitation, any conditional sale or other
title retention agreement, the interest of a lessor under a Capital Lease, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement (other than a financing
statement filed by a "true" lessor pursuant to 9-408 of the Uniform Commercial
Code) naming the Borrower or any Material Subsidiary as owner of the collateral
to which such Lien relates as debtor, under the Uniform Commercial Code or other
comparable law of any jurisdiction; PROVIDED, that any financing statement or
similar statement filed without the consent of the Borrower or any of its
Subsidiaries shall not constitute a Lien if such statement does not secure an
obligation due and owing by the Borrower or any such Subsidiary and the Borrower
or such Subsidiary, as appropriate, shall take prompt action to have the
statement terminated or otherwise removed.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Collateral
Trust Agreement, the Pledge Agreement, each Issuing Bank Agreement and the Agent
Fee Letter.
"LOANS" shall mean Competitive Bid Loans and/or Revolving Loans.
"MARGIN STOCK" shall have the meaning given such term under Regulation
U.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect, or any
event which is reasonably likely to have a material adverse effect, upon (I) the
financial condition, operations, or properties of the Borrower and its
Subsidiaries, taken as a whole and taking into account the cyclical nature of
the business of the Borrower and its Subsidiaries or (ii) the ability of the
Borrower and its Subsidiaries, taken as a whole, to perform under, or the
ability of the Lenders to enforce repayment of the Loans and the other
Obligations under, the Loan Documents.
"MATERIAL SUBSIDIARY" shall mean, at any time, any one of (I) United
States Gypsum Company, a Delaware corporation, (ii) USG Interiors, Inc., a
Delaware corporation, (iii) L&W Supply Corporation, a Delaware corporation, (iv)
USG Foreign Investments, Ltd., a Delaware corporation, (v) any other Subsidiary
of the Borrower with revenues for the four fiscal quarter period ending on the
last day of the most recently ended fiscal quarter of the Borrower greater than
or equal to 10% of the total revenues of the Borrower and its Subsidiaries on a
consolidated basis for such period, or (vi) any other Subsidiary of the Borrower
with assets as of the last day of the Borrower's most recently ended fiscal
quarter greater than or equal to 10% of the total assets of the Borrower and its
Subsidiaries on a consolidated basis on such date, in each case computed in
accordance with GAAP; and "MATERIAL SUBSIDIARIES" shall mean all of the
foregoing.
"MATURITY DATE" shall mean the seventh anniversary of the Closing
Date.
"MOODY'S" shall mean Moody's Investors Service, Inc., and any
successor thereof.
<PAGE>
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Internal Revenue Code) is making or accruing an obligation to
make contributions, or has within any of the preceding five (5) plan years made
or accrued an obligation to make contributions.
"NOTE" shall mean a Competitive Bid Note or a Revolving Loan Note.
"NOTICE OF COMPETITIVE BID BORROWING" shall have the meaning given to
such term in SECTION 2.04(a).
"NOTICE OF COMPETITIVE BID REQUEST" shall have the meaning given to
such term in SECTION 2.04(a).
"OBLIGATIONS" shall mean the principal of and all interest on all
Loans and Letters of Credit, all fees, expense reimbursements, taxes,
compensation and indemnities payable by the Borrower to the Agent, any Lender or
any Issuing Bank pursuant to this Agreement or any other Loan Document
(including liabilities arising under Interest Rate Contracts to which any Lender
is a party) of the Borrower owing to the Agent, any Lender, any Issuing Bank or
any Person entitled to indemnification pursuant to SECTION 9.05(b), or any of
their respective successors, transferees or assigns, of every type and
description, arising under this Agreement, any Note or any other Loan Document,
whether or not for the payment of money, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due and at any time
existing.
"OPERATING LEASE" shall mean, as applied to any Person, any lease of
any property (whether real, personal or mixed) by that Person as lessee which is
not a Capital Lease.
"OUTSTANDINGS" shall mean, at any given time, the aggregate
outstanding principal balance of Revolving Loans and Competitive Bid Loans and
the LC Exposure.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA, or any successor thereto.
"PERMIT" shall mean any permit, approval, authorization, license,
variance, or permission required from a Governmental Authority under an
applicable Requirement of Law.
"PERMITTED LIENS" shall have the meaning given to such term in SECTION
6.03.
"PERMITTED REFINANCING DEBT" means Debt of the Borrower, the proceeds
of which are used to Refinance outstanding Debt of the Borrower or any
Subsidiary, provided that (I) if the Debt being Refinanced is pari passu with or
subordinated in right of payment to the Obligations, then such Debt is pari
passu or subordinated in right of payment to, as the case may be, the
Obligations at least to the same extent as the Debt being Refinanced, (ii) such
Debt is scheduled to mature (as determined under GAAP) no earlier than the
earlier of (A) the maturity date of the Debt being Refinanced and (B) the
Maturity Date, (iii) such Debt has an Average Life at the time such Debt is
incurred that is equal to or greater than the lesser of (A) the Average Life of
the Debt being Refinanced and (B) the period from the date such Debt is incurred
to the Maturity Date, and (iv) such Debt is in an aggregate principal amount
(or, if such Debt is issued at a price less than the principal amount thereof,
has an aggregate original issue price) not in excess of the aggregate principal
amount then outstanding of the Debt being Refinanced (or if the Debt being
Refinanced was issued at a price less than the principal amount thereof, then
not in excess of the amount of liability in respect thereof determined in
accordance with GAAP) plus all interest accrued thereon and all related fees,
expenses, and redemption or repurchase premiums (including any payments made in
connection with procuring any required lender or similar consents).
<PAGE>
"PERSON" shall mean any natural person, employee, corporation, limited
partnership, general partnership, joint stock company, joint venture,
association, limited liability company, limited liability partnership, company,
trust, bank, trust company, land trust, business trust or other organization,
whether or not a legal entity, or any other non-governmental entity, or any
Governmental Authority.
"PLAN" shall mean any pension plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the Internal
Revenue Code which is maintained for employees of the Borrower or any ERISA
Affiliate.
"PLEDGE AGREEMENT" shall mean that certain Pledge Agreement, of even
date herewith, executed by the Borrower in favor of the Collateral Trustee for
the benefit of the Senior Secured Creditors, pursuant to which the Borrower
shall pledge to the Collateral Trustee the capital stock of its domestic
Material Subsidiaries.
"POOLING AND SERVICING AGREEMENT" shall mean that certain Pooling and
Servicing Agreement dated as of December 20, 1994, as the same has been amended,
restated, supplemented or otherwise modified from time to time through the date
hereof, among the Borrower, USG Funding Corporation, a Delaware corporation and
a Subsidiary of the Borrower, and Chemical Bank, in its capacity as trustee.
"POTENTIAL EVENT OF DEFAULT" shall mean any event or condition which
upon notice, lapse of time or both would constitute an Event of Default.
"PRIME RATE" shall mean the rate of interest per annum publicly
announced from time to time by Chemical Bank as its prime rate in effect at its
principal office in New York City.
"PRO RATA SHARE" shall mean, at any particular time and with respect
to any Lender, a fraction (expressed as a percentage), the numerator of which
shall be such Lender's Revolving Credit Commitment and the denominator of which
shall be the Aggregate Revolving Credit Commitments, as adjusted from time to
time pursuant to the terms of this Agreement; PROVIDED, that if all of the
Revolving Credit Commitments are terminated or reduced to zero hereunder, "Pro
Rata Share" shall mean, at any particular time and with respect to any Lender, a
fraction (expressed as a percentage), the numerator of which shall be the then
amount of such Lender's outstanding Revolving Loans and the denominator of which
shall be the then aggregate amount of all Revolving Loans outstanding hereunder.
"PROPERTY" shall mean any real or personal property, plant, building,
facility, structure, equipment or unit, or other asset owned, leased or operated
by the Borrower or any of its Subsidiaries.
"RECEIVABLES PURCHASE AGREEMENT" shall have the meaning given to such
term in the Pooling and Servicing Agreement.
"REFINANCE" shall mean, with respect to any Debt, to renew, extend,
refinance, refund, replace or repurchase, or be substituted for, such Debt and
"Refinancing" means the renewal, extension, refinancing, refunding, replacement
or repurchasing of, or substitution for, such Debt.
"REGISTER" shall have the meaning given to such term in SECTION
9.04(d).
"REGULATION D" shall mean Regulation D of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"REGULATION G" shall mean Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
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"REGULATION U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"REGULATION X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"RELEASE" shall mean significant release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment or into or upon any land, water
or air, including the movement of Contaminants through or in the air, soil,
surface water or groundwater.
"REMEDIAL ACTION" shall have the meaning given to such term in SECTION
7.01(n).
"REPORTABLE EVENT" shall mean any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued thereunder, with respect to
which the notice requirements to the PBGC have not been waived.
"REQUIREMENTS OF LAW" shall mean, as to any Person, the charter and
by-laws or other organizational or governing documents of such Person, and any
law, rule or regulation, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject, including, without limitation, the Securities Act, the Securities
Exchange Act, Regulations G, U and X, and any certificate of occupancy, zoning
ordinance, building, environmental or land use requirement, approval, Permit or
license or occupational safety or health law, rule or regulation.
"REQUISITE LENDERS" shall mean, except as otherwise provided in
SECTION 9.18(v), Lenders whose Pro Rata Shares, in the aggregate, are greater
than fifty-one percent (51%); PROVIDED, HOWEVER, that for purposes of this
definition only, the term "Revolving Loans" that appears twice in the proviso to
the definition of the term "Pro Rata Share" shall be replaced with the term
"Loans".
"RESTRICTED PAYMENTS" shall have the meaning given to such term in
SECTION 6.08.
"REVOLVING CREDIT AVAILABILITY" shall mean, as of any particular date
of determination, the amount by which Aggregate Revolving Credit Commitments
exceed Outstandings. For purposes of calculating Revolving Credit Availability
as at any date, all Revolving Loans requested but not yet advanced and
Competitive Bid Loans accepted but not yet advanced will be treated as advanced
in calculating Outstandings unless the Borrower has directed that the requested
advance be disbursed to repay the Loans.
"REVOLVING CREDIT COMMITMENT" shall mean, with respect to each Lender,
the commitment of such Lender to make Revolving Loans, which Revolving Credit
Commitments as of the Closing Date are set forth in SCHEDULE 2.01, as the same
may be reduced from time to time pursuant to SECTION 2.11 or modified from time
to time pursuant to SECTION 9.04.
"REVOLVING LOAN BORROWING" shall mean a group of Revolving Loans of
the same Type made by the Lenders on a single date and as to which a single
Interest Period is in effect.
"REVOLVING LOAN NOTE" shall have the meaning given to such term in
SECTION 2.05.
"REVOLVING LOANS" shall mean the revolving loans made by the Lenders
to the Borrower pursuant to SECTION 2.02. Each Revolving Loan shall be a
Eurodollar Loan or an ABR Loan.
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"SALE AND LEASE-BACK TRANSACTION" shall have the meaning given to such
term in SECTION 6.06.
"SECURITIES" shall mean any stock, shares, voting trust certificates,
bonds, debentures, notes or other evidences of Debt, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities," or any certificates of interest, shares, or
participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire any of the
foregoing, but shall not include any evidence of the Obligations.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended to
the date hereof and from time to time hereafter, and any successor statute.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended to the date hereof and from time to time hereafter, and any
successor statute.
"SENIOR SECURED CREDITORS" shall mean, collectively, the Agent, the
Lenders, the Issuing Banks and any trustee with respect to the "Public Debt" and
the "Public Lenders" (as such terms are defined in the Collateral Trust
Agreement).
"S&P" shall mean Standard & Poor's Ratings Group, and any successor
thereof.
"SPREAD" shall mean, as to any Competitive Bid Loan bearing interest
at a rate based upon the LIBO Rate, the margin (expressed as a percentage rate
per annum in the form of a decimal to no more than four decimal places) to be
added to or subtracted from the LIBO Rate in order to determine the interest
rate applicable to such Competitive Bid Loan, as specified in the Competitive
Bid relating to such Competitive Bid Loan.
"SUBSIDIARY" of a Person shall mean any corporation, partnership
(limited or general), trust or other entity of which a majority of the stock (or
equivalent ownership or controlling interest) having voting power to elect a
majority of the Board of Directors (if a corporation) or to select the trustee
or equivalent controlling interest, shall, at the time such reference becomes
operative, be directly or indirectly owned or controlled by such Person or one
or more of the other subsidiaries of such Person or any combination thereof.
Except as otherwise provided herein, all references herein to "Subsidiary" shall
mean a Subsidiary of the Borrower.
"TERMINATION DATE" shall mean the earlier of (a) the Maturity Date and
(b) the date of termination of the Commitments pursuant to ARTICLE VII or the
reduction of the Revolving Credit Commitments to zero pursuant to SECTION 2.11.
"TERMINATION EVENT" shall mean (i) any Reportable Event with respect
to any Benefit Plan, (ii) the withdrawal of the Borrower, or an ERISA Affiliate
from a Benefit Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, (iii) the occurrence of an obligation
arising under Section 4041 of ERISA of either the Borrower or an ERISA Affiliate
to provide affected parties with a written notice of an intent to terminate a
Benefit Plan in a distress termination described in Section 4041(c) of ERISA,
(iv) the institution by the PBGC of proceedings to terminate any Benefit Plan,
(v) any event or condition which constitutes grounds under Section 4042 of ERISA
for the appointment of a Trustee to administer a Benefit Plan, or (vi) the
partial or complete withdrawal (within the meaning of Section 4203 and 4205,
respectively, of ERISA) of the Borrower or any ERISA Affiliate from a
Multiemployer Plan.
"THIRD PARTY CLAIM" shall have the meaning given to such term in
SECTION 9.05(b).
<PAGE>
"TRANSFEREE" shall have the meaning given to such term in SECTION
2.22(a).
"TRUSTEE'S FEES" shall mean all fees, costs and expenses of the
Collateral Trustee of the types described in Sections 5.3, 5.4, 5.5 and 5.6 of
the Collateral Trust Agreement.
"TYPE" when used in respect of any Loan or Borrowing, shall refer to
the interest rate (i.e. the LIBO Rate, the Alternate Base Rate, or a fixed rate)
by reference to which interest on such Loan or portion thereof or on the Loans
comprising such Borrowing is determined.
SECTION 1.02. TERMS GENERALLY. The definitions in SECTION 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; PROVIDED,
HOWEVER, that if there are any changes in GAAP from those in effect on and as of
the Closing Date, which changes are adopted by the Borrower with the agreement
of its independent certified public accountants and such changes result in a
change in the method of calculation of any of the financial covenants contained
SECTION 6.09, the parties hereto agree to enter into negotiations in order to
amend such provisions so as to equitably reflect such changes with the desired
result that the criteria for evaluating the Borrower's financial condition shall
be the same after such changes as if such changes had not been made; PROVIDED,
HOWEVER, that no change in GAAP that would affect the method of calculation of
any of the financial covenants, standards or terms shall be given effect in such
calculations until such provisions are amended to so reflect such change in
accounting principles in a manner satisfactory to the Requisite Lenders. In
making any calculation required by this Agreement, for the purpose of
determining the net income or deficit or item of expense of or for any
Subsidiary of the Borrower, notwithstanding any reference herein to any period,
the income, deficit or expense included in such calculation with respect to such
Subsidiary shall be included only from the date such Person became a Subsidiary
of the Borrower.
ARTICLE II. THE FACILITY
SECTION 2.01. THE REVOLVING CREDIT FACILITY.
(a) Subject to the terms and conditions set forth in this Agreement,
each Lender hereby severally and not jointly agrees to make Revolving Loans, in
dollars, to the Borrower from time to time during the period from the Closing
Date to the Business Day immediately preceding the Termination Date, in an
amount which shall not exceed the product of such Lender's Pro Rata Share and
the Revolving Credit Availability at such time. The Revolving Credit Commitment
of each Lender as of the Closing Date is set forth on SCHEDULE 2.01. Subject
to, and upon the satisfaction of, the terms and conditions herein set forth,
each Lender severally agrees that the Borrower may incur a Competitive Bid Loan
or Competitive Bid Loans pursuant to a Competitive Bid Borrowing from time to
time during the period from the Closing Date to the Business Day immediately
preceding the Termination Date, provided that such Competitive Bid Borrowing
shall not exceed the Revolving Credit Availability at such time.
(b) The Borrower shall not use the proceeds of the Loans for any
purpose other than for general corporate purposes, including, without
limitation, the refinancing of the indebtedness under the Existing Credit
Agreement on the Closing Date.
<PAGE>
SECTION 2.02. REVOLVING LOANS. (a) All Revolving Loans comprising the
same Borrowing under this Agreement shall be made by the Lenders simultaneously
and proportionately to their respective Pro Rata Shares, it being understood
that no Lender shall be responsible for any failure by any other Lender to
perform its obligation to make a Revolving Loan hereunder and that the Revolving
Credit Commitment of any Lender shall not be increased or decreased without the
prior written consent of such Lender as a result of the failure by any other
Lender to perform its obligation to make a Revolving Loan. The failure of any
Lender to make available to the Agent its Pro Rata Share of any Borrowing shall
not relieve any other Lender of its obligation hereunder to make available to
the Agent such other Lender's Pro Rata Share of such Borrowing on the date such
funds are to be made available pursuant to the terms of this Agreement.
(b) Each Revolving Loan Borrowing shall be in a minimum principal
amount of $5,000,000 and in multiples of $1,000,000 in excess thereof or in an
aggregate principal amount equal to the Revolving Credit Availability. Each
Revolving Loan Borrowing shall be comprised entirely of ABR Loans or Eurodollar
Loans, as the Borrower may request pursuant to SECTION 2.03. Each Lender may at
its option fulfill its commitment with respect to any Eurodollar Loan by causing
any domestic or foreign branch or Affiliate of such Lender to make such
Eurodollar Loan; PROVIDED that any exercise of such option shall not affect the
obligation of the Borrower to repay such Eurodollar Loan in accordance with the
terms of this Agreement, and PROVIDED, FURTHER, that the Borrower shall not be
responsible for any costs or expenses associated with such Lender's exercise of
such option. Borrowings of more than one Type may be outstanding at the same
time; PROVIDED, HOWEVER, that the Borrower shall not be entitled to request any
Borrowing which, if made, would result in an aggregate of more than ten separate
Borrowings of Revolving Loans which are Eurodollar Loans being outstanding
hereunder at any one time.
(c) Subject to PARAGRAPH (e) below, each Lender shall make a
Revolving Loan in the amount of its Pro Rata Share of the amount of each
Revolving Loan Borrowing hereunder on the proposed date thereof by wire transfer
of immediately available funds to the Agent in New York, New York, not later
than 11:00 a.m., New York City time, and the Agent shall, promptly upon receipt
of such amounts but in any event not later than 2:00 p.m. on the same Business
Day, New York City time, credit the amounts so received to the general deposit
account of the Borrower with the Agent or, if a Revolving Loan Borrowing shall
not occur on such date because any condition precedent herein specified shall
not have been met, return the amounts so received to the respective Lenders.
Unless the Agent shall have received notice from a Lender prior to the date of
any Revolving Loan Borrowing that such Lender will not make available to the
Agent such Lender's portion of such Borrowing, the Agent may assume that such
Lender has made such portion available to the Agent on the date of such
Borrowing in accordance with this PARAGRAPH (c) and the Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have made
such portion available to the Agent, such Lender and the Borrower severally
agree to repay to the Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the Agent at
(i) in the case of the Borrower, the interest rate applicable at the time to the
Revolving Loans comprising such Borrowing and (ii) in the case of such Lender,
the Federal Funds Effective Rate. If such Lender shall repay to the Agent such
corresponding amount, such amount shall constitute such Lender's Revolving Loan
as part of such Borrowing for purposes of this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Revolving Loan Borrowing if the
Interest Period requested with respect thereto would end after the Maturity
Date.
(e) The Borrower may refinance all or any part of any Revolving Loan
Borrowing with a Borrowing of the same or a different Type, subject to
<PAGE>
the conditions and limitations set forth in this Agreement. Any Borrowing or
part thereof so refinanced shall be deemed to be repaid or prepaid in accordance
with SECTION 2.06 or 2.13, as applicable, with the proceeds of a new Borrowing,
and the proceeds of the new Borrowing, to the extent they do not exceed the
principal amount of the Borrowing being refinanced, shall not be paid by the
Lenders to the Agent or by the Agent to the Borrower pursuant to PARAGRAPH (c)
above.
SECTION 2.03. NOTICE OF BORROWINGS OF REVOLVING LOANS. The Borrower
shall give the Agent written or telecopy notice (or telephone notice promptly
confirmed in writing or by telecopy) (a) in the case of a Eurodollar Borrowing
consisting of Revolving Loans, not later than 12:00 (noon), New York City time,
three Business Days before a proposed Borrowing and (b) in the case of an ABR
Borrowing consisting of Revolving Loans, not later than 12:00 (noon), New York
City time, one Business Day before a proposed Borrowing. Each such notice shall
be in substantially the form of EXHIBIT D. Such notice shall be irrevocable
(except as expressly set forth herein) and shall in each case refer to this
Agreement and specify (i) whether the Revolving Loan Borrowing then being
requested is to be a Eurodollar Borrowing or an ABR Borrowing; (ii) the date of
such Borrowing (which shall be a Business Day) and the amount thereof; and (iii)
if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with
respect thereto. If no election as to the Type of Borrowing is specified in any
such notice, then the requested Borrowing shall be an ABR Borrowing. If no
Interest Period with respect to any Eurodollar Borrowing is specified in any
such notice, then the Borrower shall be deemed to have selected an Interest
Period of one month's duration. If the Borrower shall not have given notice in
accordance with this SECTION 2.03 of its election to refinance a Revolving Loan
Borrowing prior to the end of the Interest Period in effect for such Borrowing,
then the Borrower shall (unless such Borrowing is repaid at the end of such
Interest Period) be deemed to have given notice of an election to refinance such
Borrowing with an ABR Borrowing. The Agent shall promptly advise the Lenders of
any notice given pursuant to this SECTION 2.03 and of each such Lender's portion
of the requested Borrowing.
SECTION 2.04. COMPETITIVE BID PROCEDURES. (a) Whenever the Borrower
desires to solicit Competitive Bids, it shall give the Agent at least one
Business Day's prior written notice with respect to each proposed Competitive
Bid Borrowing of Fixed Rate Loans and at least four Business Days' prior written
notice of each proposed Competitive Bid Borrowing of Eurodollar Loans to be made
hereunder; PROVIDED, that any such notice shall be deemed to have been given on
a certain day only if given before 12:00 noon (New York City time) on such day.
Each such notice (a "NOTICE OF COMPETITIVE BID BORROWING") shall be in the form
of EXHIBIT E and shall be appropriately completed by the Borrower to specify
(i) the aggregate principal amount of the proposed Competitive Bid Loans to be
made pursuant to such Borrowing (which shall be in a minimum principal amount of
$10,000,000 and in integral multiples of $1,000,000 in excess thereof), (ii) the
date of such Borrowing (which shall be a Business Day) and (iii) whether the
Competitive Bid Loans proposed to be made pursuant to such Borrowing are to be
Fixed Rate Loans or Eurodollar Loans and (iv) the Interest Period relating
thereto. The maturity date for repayment of each Competitive Bid Loan to be
made as part of such Competitive Bid Borrowing shall be the earlier of (x) the
last day of the Interest Period relating thereto and (y) the Termination Date.
The Agent, in its sole discretion, may reject a Notice of Competitive Bid
Borrowing that does not conform substantially to the format of EXHIBIT E, and
the Agent shall promptly notify the Borrower of such rejection. The Agent shall
promptly (but in any event on the same Business Day on which such notice was
tendered) notify each Lender of each such request for a Competitive Bid
Borrowing that it has received from the Borrower and has not rejected by
telecopying such Lender a notice in the form of EXHIBIT F (a "NOTICE OF
COMPETITIVE BID REQUEST").
(b) Each Lender (or any branch, office or Affiliate of such Lender on
behalf of such Lender as such Lender may designate by written notice to the
Agent) may, in its sole discretion, make one or more Competitive Bids via
<PAGE>
telecopier to the Borrower in response to a Notice of Competitive Bid Request.
Each Competitive Bid by or on behalf of a Lender must be received by the Agent
via telecopier, in the form of EXHIBIT G, (i) in the case of a proposed
Competitive Bid Borrowing of Eurodollar Loans, not later than 10:00 a.m., New
York City time, three Business Days before a proposed Competitive Bid Borrowing
and (ii) in the case of a proposed Competitive Bid Borrowing of Fixed Rate
Loans, not later than 10:00 a.m., New York City time, on the day of a proposed
Competitive Bid Borrowing. Any Lender may submit more than one Competitive Bid
in response to any Competitive Bid Request. Competitive Bids that do not
conform substantially to the format of EXHIBIT G may be rejected by the Agent
after conferring with, and upon the instruction of, the Borrower, and the Agent
shall notify the Lender making such nonconforming Competitive Bid, or the Lender
on behalf of which such nonconforming Competitive Bid has been made, of such
rejection as soon as practicable. Each Competitive Bid shall refer to this
Agreement and shall specify (x) the principal amount (which shall be in a
minimum principal amount of $5,000,000 and in a integral multiple of $1,000,000
in excess thereof and which may equal the entire principal amount of the
Competitive Bid Borrowing requested by the Borrower) of each Competitive Bid
Loan that the applicable Lender is willing to make to the Borrower, (y) with
respect to each requested Fixed Rate Loan, the Competitive Bid Rate, or with
respect to each requested Eurodollar Loan, the Spread, at which such Lender is
prepared to make such Competitive Bid Loan and (z) the Interest Period (which
shall be the Interest Period set forth in the applicable Competitive Bid
Request) and the last day thereof. If any Lender shall elect not to make a
Competitive Bid, such Lender shall so notify the Agent via telecopier (I) in the
case of Eurodollar Loans, not later than 10:00 a.m., New York City time, three
Business Days before a proposed Competitive Bid Borrowing, and (II) in the case
of Fixed Rate Loans, not later than 10:00 a.m., New York City time, on the day
of a proposed Competitive Bid Borrowing; PROVIDED, HOWEVER, that any Lender's
failure to give such notice shall not cause such Lender to be obligated to make
any Competitive Bid Loan as part of such Competitive Bid Borrowing. A
Competitive Bid submitted by or on behalf of a Lender pursuant to this SECTION
2.04 shall be irrevocable.
(c) The Agent shall promptly notify the Borrower by telephone and
telecopier of all the Competitive Bids made, the Competitive Bid Rate and the
principal amount of each Competitive Bid Loan in respect of which a Competitive
Bid was made and the identity of the Lender that made each Competitive Bid. The
Agent shall send a copy of all Competitive Bids to the Borrower for its records
as soon as practicable (but in any event within one Business Day) after
completion of the bidding process set forth in this SECTION 2.04.
(d) The Borrower may in its sole and absolute discretion, subject
only to the provisions of this SECTION 2.04, accept or reject any Competitive
Bid referred to in SECTION 2.04(b). The Borrower shall notify the Agent by
telephone, confirmed by telecopier in the form of a Competitive Bid Accept/
Reject Letter, whether and to what extent it has decided to accept or reject any
of or all the Competitive Bids referred to in SECTION 2.04(b), (x) in the case
of a Competitive Bid Borrowing of Eurodollar Loans, not later than 11:00 a.m.,
New York City time, three Business Days before a proposed Competitive Bid
Borrowing, and (y) in the case of a Borrowing of Fixed Rate Loans, not later
than 11:00 a.m., New York City time, on the day of a proposed Competitive Bid
Borrowing; PROVIDED, HOWEVER, that (i) the Borrower's failure to give such
notice shall be deemed to be a rejection of all the Competitive Bids referred to
in SECTION 2.04(b), (ii) the Borrower shall not accept a Competitive Bid made at
a particular Competitive Bid Rate if the Borrower has decided to reject a
Competitive Bid made at a lower Competitive Bid Rate, (iii) the aggregate amount
of the Competitive Bids accepted by the Borrower shall not exceed the principal
amount specified in the Notice of Competitive Bid Borrowing, (iv) if the
Borrower shall accept a Competitive Bid or Competitive Bids made at a particular
Competitive Bid Rate but the amount of such Competitive Bid or Competitive Bids
shall cause the total amount of Competitive Bids to be accepted by the Borrower
to exceed the amount specified in the Notice of Competitive Bid Borrowing, then
the Borrower shall accept a portion of such Competitive Bid or Competitive Bids
in an amount equal to the
<PAGE>
amount specified in the Competitive Bids accepted with respect to such Notice of
Competitive Bid Borrowing, which acceptance, in the case of multiple Competitive
Bids at the highest Competitive Bid Rate accepted by the Borrower, shall be made
pro rata in accordance with the amount of each such Competitive Bid at such
Competitive Bid Rate, and (v) except pursuant to CLAUSE (iv) above, no
Competitive Bid shall be accepted for a Competitive Bid Loan unless such
Competitive Bid Loan is in a minimum principal amount of $5,000,000 or an
integral multiple of $1,000,000 in excess thereof; PROVIDED FURTHER, however,
that if a Competitive Bid Loan must be in an amount less than $5,000,000 because
of the provisions of CLAUSE (iv) above, such Competitive Bid Loan may be for a
minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to CLAUSE (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner which shall be in the
discretion of the Borrower. A notice given by the Borrower pursuant to this
SECTION 2.04 shall be irrevocable.
(e) The Agent shall promptly notify each Lender that submitted a
Competitive Bid, or on behalf of which a Competitive Bid was submitted, as the
case may be, whether or not such Competitive Bid has been accepted (and if so,
in what amount and at what Competitive Bid Rate) by telecopy. Upon the
Borrower's acceptance of any Competitive Bid, the Lender that made such
Competitive Bid, or the Lender on behalf of which such Competitive Bid was made,
as the case may be, will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Bid Loan in respect of which such
Competitive Bid has been accepted.
(f) If the Agent shall elect to submit a Competitive Bid in its
capacity as a Lender, it shall submit such Competitive Bid directly to the
Borrower one quarter of an hour earlier than the latest time at which the other
Lenders are required to submit their Competitive Bids to the Agent pursuant to
SECTION 2.04(b).
SECTION 2.05. NOTES. (a) The Borrower shall execute and deliver to
each Lender (or to the Agent on behalf of each Lender) on or before the Closing
Date a promissory note substantially in the form of EXHIBIT H-1 (each a
"REVOLVING LOAN NOTE" and collectively, the "REVOLVING LOAN NOTES") to evidence
the aggregate amount of that Lender's Revolving Loans and with other appropriate
insertions. Each Revolving Loan Note shall be dated the Closing Date and shall
be stated to mature on the Termination Date. The Revolving Loan Note executed
in favor of any Lender shall be in a principal amount equal to such Lender's
Revolving Credit Commitment.
(b) The Borrower's obligation to pay the principal of and interest on
all Competitive Bid Loans made to it by a Lender shall be evidenced by its
promissory note substantially in the form of EXHIBIT H-2 (each a "COMPETITIVE
BID NOTE" and collectively, the "COMPETITIVE BID NOTES"). Each Competitive Bid
Note issued to each Lender (i) shall be payable to the order of such Lender and
be dated the Closing Date, (ii) shall be in a stated principal amount equal to
the Aggregate Revolving Credit Commitments and be payable in the outstanding
principal amount of Competitive Bid Loans owing to such Lender evidenced thereby
from time to time, (iii) shall mature with respect to each Competitive Bid Loan
evidenced thereby on the earlier of (x) the last day of the Interest Period
applicable thereto and (y) the Termination Date, (iv) shall bear interest as
provided in SECTION 2.08 in respect of Fixed Rate Loans or Eurodollar Loans, as
the case may be, evidenced thereby and (v) shall be entitled to the benefits of
this Agreement and the other Loan Documents.
(c) Each Lender is hereby authorized to, and prior to any transfer of
any Note issued to it, each Lender shall, endorse the date and amount of each
Loan made by such Lender and each payment or prepayment of principal of the
Loans evidenced thereby on the schedule annexed to and constituting a part of
such Note, which endorsement shall constitute PRIMA FACIE evidence, absent
manifest error, of the accuracy of the information so endorsed; provided that
failure by any such Lender to make such endorsement
<PAGE>
shall not affect the obligations of the Borrower hereunder or under such Note.
In lieu of endorsing such schedule as hereinabove provided, prior to any
transfer of such Note, each Lender is hereby authorized, at its option, to
record such Loans and such payments or prepayments in its books and records,
such books and records constituting PRIMA FACIE evidence, absent manifest error,
of the accuracy of the information contained therein.
SECTION 2.06. REPAYMENT OF LOANS. (a) The Borrower agrees to pay the
outstanding principal balance of each Revolving Loan on the Termination Date and
each Competitive Bid Loan as provided in SECTION 2.04(a). Each Loan shall bear
interest from the date of the Borrowing of which such Loan is a part on the
outstanding principal balance thereof as set forth in SECTION 2.08.
(b) Each Lender shall, and is hereby authorized by the Borrower to,
maintain in accordance with its usual practices records evidencing the
indebtedness of the Borrower to such Lender hereunder from time to time,
including the amounts and Types of and Interest Periods applicable to the Loans
made by such Lender from time to time and the amounts of principal and interest
paid to such Lender from time to time in respect of such Loans.
(c) The entries made in the records maintained pursuant to PARAGRAPH
(b) of this SECTION 2.06 and in the Register maintained by the Agent pursuant to
SECTION 9.04 shall be PRIMA FACIE evidence of the existence and amounts of the
Borrower's obligations to which such entries relate; PROVIDED, HOWEVER, that the
failure of any Lender or the Agent to maintain or to make any entry in such
records or the Register, as applicable, or any error therein, shall not in any
manner affect the Borrower's obligation to repay the Loans in accordance with
the terms of this Agreement.
SECTION 2.07. FEES. (a) The Borrower agrees to pay to the Lenders,
through the Agent, on the last day of March, June, September and December in
each year and on the date on which the last of the Commitments shall expire or
be terminated as provided herein, a commitment fee (a "COMMITMENT FEE") accruing
at an annual rate equal to the Applicable Commitment Fee on the average daily
excess of the Aggregate Revolving Credit Commitments over the sum of (i) the
aggregate outstanding principal balance of all Revolving Loans and (ii) the LC
Exposure. The Commitment Fee shall be payable to the Lenders pro rata in
arrears from the Closing Date until the date on which the last of the Revolving
Credit Commitments of such Lenders shall expire or be terminated as provided
herein. All Commitment Fees shall be computed on the basis of the actual number
of days elapsed in a year of 360 days.
(b) The Borrower agrees to pay to each Lender, through the Agent, on
the last day of March, June, September and December in each year, and on the
date on which the LC Commitment of such Lender shall have been terminated or
reduced to zero as provided herein and all Letters of Credit issued pursuant to
such LC Commitment shall have expired, a letter of credit fee (an "LC FEE")
equal to the Applicable Eurodollar Margin on the average daily undrawn face
amount of all outstanding Letters of Credit, payable to the Lenders pro rata in
arrears. All LC Fees shall be computed on the basis of the actual number of
days elapsed in a year of 360 days, as the case may be.
(c) The Borrower agrees to pay to each Issuing Bank, for its own
account, the applicable Issuing Bank Fees.
(d) All Fees shall be paid on the dates due in immediately available
funds. All Fees, other than the Issuing Bank Fees, shall be paid to the Agent
for distribution, if and as appropriate, among the Lenders and to the Issuing
Banks. Once paid, none of the Fees shall be refundable under any circumstances,
except in the case of overpayment, inadvertent or otherwise.
SECTION 2.08. INTEREST ON LOANS. (a) Subject to the provisions of
SECTION 2.09, the Revolving Loans comprising each ABR Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed over a year
of 365 or 366 days, as the case may be, when determined by reference to
<PAGE>
the Prime Rate and over a year of 360 days at all other times) at a rate per
annum equal to the Alternate Base Rate.
(b) Subject to the provisions of SECTION 2.09, the Revolving Loans
comprising each Eurodollar Borrowing shall bear interest (computed on the basis
of the actual number of days elapsed over a year of 360 days) at a rate per
annum equal to the LIBO Rate in effect for such Borrowing plus the Applicable
Eurodollar Margin.
(c) Subject to the provisions of SECTION 2.09, each Fixed Rate Loan
shall bear interest (computed on the basis of the actual number of days elapsed
over a year of 360 days) at the rate offered by the Lender making such Loan and
accepted by the Borrower pursuant to SECTION 2.04(d).
(d) Subject to the provisions of SECTION 2.09, each Eurodollar Loan
comprising any Competitive Bid Borrowing shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 360 days) at the LIBO
Rate plus the applicable Spread offered by the Lender making such Loan and
accepted by the Borrower pursuant to SECTION 2.04(d) above.
(e) Interest on each Loan shall be payable on the Interest Payment
Dates applicable to such Loan except as otherwise provided in this Agreement.
The applicable Alternate Base Rate or LIBO Rate for each Interest Period or day
within an Interest Period, as the case may be, shall be determined by the Agent,
and such determination shall be conclusive absent manifest error.
SECTION 2.09. DEFAULT INTEREST. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, the Borrower shall on demand from
time to time pay interest, to the extent permitted by law, on such defaulted
amount up to (but not including) the date of actual payment (after as well as
before judgment) at a rate per annum (computed on the basis of the actual number
of days elapsed over a year of 365 or 366 days, as the case may be, in the case
of amounts bearing interest computed by reference to the Prime Rate and a year
of 360 days in all other cases) equal to (a) in the case of any Loan, the rate
applicable to such Loan under SECTION 2.08 plus 2% per annum and (b) in the case
of any other amount, the rate that would at the time be applicable to an ABR
Loan under SECTION 2.08 plus 2% per annum.
SECTION 2.10. ALTERNATE RATE OF INTEREST. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for any Borrowing constituting Eurodollar Loans, the Agent shall
have determined that dollar deposits in the principal amounts of Loans
constituting such Eurodollar Loans are not generally available in the London
interbank market, or that the rates at which such dollar deposits are being
offered will not adequately and fairly reflect the cost to any Lender of making
or maintaining its Eurodollar Loan during such Interest Period, or that
reasonable means do not exist for ascertaining the LIBO Rate, the Agent shall,
as soon as practicable thereafter, give written or telecopy notice of such
determination to the Borrower and the Lenders. In the event of any such
determination, any request by the Borrower for Eurodollar Loans pursuant to
SECTION 2.03 or 2.12 shall, until the Agent shall have advised the Borrower and
the Lenders that the circumstances giving rise to such notice no longer exist,
be deemed to be a request for ABR Loans; PROVIDED, HOWEVER, that the Borrower
may revoke any such deemed request for ABR Loans by providing written or
telecopy notice to the Agent no later than the end of the Business Day before
the day such ABR Loans are to be made. Each determination by the Agent
hereunder shall be conclusive absent manifest error.
SECTION 2.11. REDUCTION OR CANCELLATION OF COMMITMENTS. (a) The
Revolving Credit Commitments and the LC Commitments shall be automatically
terminated on the Maturity Date.
(b) If the Debt/EBITDA Ratio exceeds 2.5 to 1.0 as of the fiscal
quarter ended June 30, 2000, the Revolving Credit Commitments shall be
<PAGE>
permanently reduced (i) by $50,000,000 effective upon the date the financial
statements for such quarter are delivered to the Agent (or, if such financial
statements are not delivered within five days following the due date therefor,
the Debt/EBITDA Ratio shall be deemed for purposes of this PARAGRAPH (b) to
exceed 2.5 to 1.0 for such quarter, and such reduction to the Revolving Credit
Commitments shall be effective as of such fifth day following the date such
financial statements were due) and (ii) by an additional $50,000,000 effective
one year following the date of such initial reduction.
(c) Upon at least ten days prior irrevocable written or telecopy
notice to the Agent, which shall promptly notify the Lenders, the Borrower may
at any time and from time to time permanently reduce all or a portion of the
Aggregate Revolving Credit Commitments; PROVIDED, that any partial reduction of
the Aggregate Revolving Credit Commitments shall be in minimum amounts of
$10,000,000 and in $1,000,000 increments in excess thereof.
(d) Each reduction in the Revolving Credit Commitments hereunder
shall be made ratably among the Lenders in accordance with their respective Pro
Rata Shares.
(e) If at any time the Aggregate Revolving Credit Commitments are
reduced below the Aggregate LC Commitments, then the Aggregate LC Commitments
will be automatically and immediately reduced to the amount of the Aggregate
Revolving Credit Commitments.
SECTION 2.12. CONVERSION AND CONTINUATION OF BORROWINGS OF REVOLVING
LOANS. The Borrower shall have the right, with respect to any Revolving Loan
Borrowing, at any time upon prior irrevocable notice to the Agent (i) not later
than 12:00 (noon), New York City time, one Business Day prior to conversion, to
convert any Eurodollar Borrowing into an ABR Borrowing, (ii) not later than
12:00 noon, New York City time, three Business Days prior to conversion or
continuation, to convert any ABR Borrowing into a Eurodollar Borrowing or to
continue any Eurodollar Borrowing as a Eurodollar Borrowing at the end of the
Interest Period relating thereto for an additional Interest Period, and (iii)
not later than 12:00 noon, New York City time, three Business Days prior to
conversion, to convert the Interest Period with respect to any Eurodollar
Borrowing to another permissible Interest Period, subject in each case to the
following:
(a) each conversion or continuation shall be made pro rata among the
Lenders in accordance with their respective Pro Rata Shares;
(b) if less than all the outstanding principal amount of any
Revolving Loan Borrowing shall be converted or continued, the aggregate
principal amount of such Borrowing converted or continued shall be an
integral multiple of $1,000,000 (and not less than $5,000,000 in the case
of a conversion into, or a continuation of, a Eurodollar Borrowing);
(c) each conversion shall be effected by each Lender by applying the
proceeds of the new Revolving Loan of such Lender resulting from such
conversion to the Revolving Loan (or portion thereof) of such Lender being
converted;
(d) if any Eurodollar Borrowing (or the Interest Period with respect
thereto) is converted at a time other than the end of the Interest Period
applicable thereto, the Borrower shall pay, upon demand, any amounts due to
the Lenders pursuant to SECTION 2.18;
Each notice pursuant to this SECTION 2.12 shall be in substantially
the form of EXHIBIT I. Such notice shall be irrevocable and shall refer to this
Agreement and specify (i) the identity and amount of the Revolving Loan
Borrowing that the Borrower requests be converted or continued, (ii) whether
such Borrowing is to be converted to or continued as a Eurodollar Borrowing or
an ABR Borrowing, (iii) if such notice requests a conversion, the date of such
conversion (which shall be a Business Day) and (iv) if such
<PAGE>
Borrowing is to be converted to or continued as a Eurodollar Borrowing, the
Interest Period with respect thereto. If no Interest Period is specified in any
such notice with respect to any conversion to or continuation as a Eurodollar
Borrowing, the Borrower shall be deemed to have selected an Interest Period of
one month's duration. The Agent shall advise the other Lenders of any notice
given pursuant to this SECTION 2.12 and of each such Lender's portion of any
converted or continued Revolving Loan Borrowing. If the Borrower shall not have
given notice in accordance with this SECTION 2.12 to continue any Revolving Loan
Borrowing of Eurodollar Loans into a subsequent Interest Period (and shall not
otherwise have given notice in accordance with this SECTION 2.12 to convert such
Borrowing), such Borrowing shall, at the end of the Interest Period applicable
thereto (unless repaid pursuant to the terms hereof), automatically be continued
into a new Interest Period as an ABR Borrowing.
SECTION 2.13. VOLUNTARY PREPAYMENTS. (a) The Borrower shall have
the right at any time and from time to time to prepay Revolving Loans, in whole
or in part, upon prior written or telecopy notice (or telephone notice promptly
confirmed by written or telecopy notice) to the Agent before 12:00 noon, New
York City time, (i) three Business Days prior to prepayment, in the case of
Eurodollar Loans; and (ii) one Business Day prior to prepayment, in the case of
ABR Loans; PROVIDED, HOWEVER, that each partial prepayment shall be in an amount
which is an integral multiple of $1,000,000. Competitive Bid Borrowings may not
be prepaid unless so required pursuant to the terms hereof.
(b) Each notice of an optional prepayment shall specify the
prepayment date and the principal amount of Revolving Loans to be prepaid, shall
be irrevocable and shall commit the Borrower to prepay such Revolving Loans by
the amount stated therein on the date stated therein. All optional prepayments
under this SECTION 2.13 shall be subject to SECTION 2.18 but otherwise without
premium or penalty. All prepayments of Eurodollar Loans under this SECTION 2.13
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
SECTION 2.14. MANDATORY PREPAYMENTS OF REVOLVING LOANS. On the date
of any termination or reduction of the Revolving Credit Commitments pursuant to
SECTION 2.11, the Borrower shall pay or prepay so much of the Revolving Loans as
shall be necessary in order that (a) the sum of (i) the aggregate principal
amount of the Loans outstanding and (ii) the LC Exposure will not exceed (b) the
Aggregate Revolving Credit Commitments after giving effect to such termination
or reduction. Any such prepayment shall be subject to the provisions of SECTION
2.18. All prepayments of Eurodollar Loans under this SECTION 2.14 shall be
accompanied by accrued interest on the principal amount being prepaid to the
date of payment.
SECTION 2.15. LETTERS OF CREDIT. (a) Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Issuing Bank agrees, at any time and from time to time on or after the
Closing Date until the earlier of the Maturity Date and the termination of the
LC Commitments in accordance with the terms hereof, to issue and deliver or to
extend the expiry date of Letters of Credit for the account of the Borrower in
an aggregate undrawn amount at any one time outstanding which, together with the
aggregate undrawn amount at such time outstanding of Letters of Credit issued by
other Issuing Banks, does not exceed the Aggregate LC Commitments; PROVIDED,
HOWEVER, that no Issuing Bank shall issue or extend the expiry of any Letter of
Credit if, immediately after giving effect to such issuance or extension (i) the
aggregate LC Exposure at such time would exceed the Aggregate LC Commitments or
(ii) the sum of the aggregate outstanding principal balance of the Loans and the
LC Exposure would exceed the Aggregate Revolving Credit Commitments. Each
Letter of Credit (x) shall be in a form approved in writing by the Borrower, the
Agent and the applicable Issuing Bank and (y) shall permit drawings upon the
presentation of one or more sight drafts and such other documents as shall be
specified by the Borrower in the applicable notice delivered pursuant to
PARAGRAPH (c) below.
<PAGE>
(b) Each Letter of Credit shall by its terms expire not later than
the earlier of (i) the first anniversary of the date of issuance or the date of
the most recent extension (subject to extension for additional one-year periods
by the applicable Issuing Bank as contemplated by PARAGRAPH (a) above) and (ii)
the Maturity Date. Each Letter of Credit shall by its terms provide for payment
of drawings in dollars.
(c) The Borrower shall give the applicable Issuing Bank irrevocable
written or telecopy notice not later than 12:00 noon, New York City time, three
Business Days (or such shorter period as shall be acceptable to such Issuing
Bank and the Agent) prior to any proposed issuance or proposed extension of the
expiry date of a Letter of Credit. Each such notice shall refer to this
Agreement and shall specify (I) the date on which such Letter of Credit is to be
issued (which shall be a Business Day), the face amount of such Letter of Credit
(which shall be an amount in dollars), (ii) the name and address of the
beneficiary, (iii) whether such Letter of Credit shall permit a single drawing
or multiple drawings, (iv) the form of the sight draft and any other documents
required to be presented at the time of any drawing (together with the exact
wording of such documents or copies thereof) and (v) the expiry date of such
Letter of Credit (which shall conform to the provisions of PARAGRAPH (b) above).
Each Issuing Bank shall give the Agent, which shall in turn give to each other
Issuing Bank and to each Lender, prompt written or telecopy advice of any notice
received from the Borrower pursuant to this paragraph.
(d) By the issuance of a Letter of Credit and without any further
action on the part of the applicable Issuing Bank or the Lenders in respect of
such Letter of Credit, the applicable Issuing Bank hereby grants to each Lender,
and each Lender hereby agrees to and does acquire from such Issuing Bank, a
participation in such Letter of Credit equal to such Lender's Pro Rata Share of
any drawing thereunder, of the face amount of such Letter of Credit, effective
upon the issuance of such Letter of Credit; PROVIDED, HOWEVER, that no Lender
shall be required to acquire participations in Letters of Credit that would
result in its Pro Rata Share of the LC Exposure exceeding its LC Commitment. In
consideration and in furtherance of the foregoing, each Lender hereby absolutely
and unconditionally agrees to pay to the Agent, on behalf of each Issuing Bank,
in accordance with PARAGRAPH (f) below, such Lender's Pro Rata Share of each
unreimbursed LC Disbursement made by such Issuing Bank; PROVIDED, HOWEVER, that
the Lenders shall not be obligated to make any such payment with respect to any
wrongful payment or disbursement made under any Letter of Credit as a result of
the gross negligence or willful misconduct of such Issuing Bank.
(e) Each Lender acknowledges and agrees that its acquisition of
participations pursuant to PARAGRAPH (d) above in respect of Letters of Credit
is absolute and unconditional and shall not be affected by any circumstance
whatsoever, including the occurrence and continuance of any Potential Event of
Default or Event of Default, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(f) Promptly after it shall have ascertained that any draft and any
accompanying documents presented under a Letter of Credit appear to be in
conformity with the terms and conditions of such Letter of Credit, the
applicable Issuing Bank shall give written or telecopy notice to the Borrower
and the Agent of the receipt and amount of such draft and the date on which
payment thereon will be made. If the Agent shall not have received from the
Borrower the payment required pursuant to PARAGRAPH (g) below by 12:00 noon, New
York City time, one Business Day after the date on which payment of a draft
presented under any Letter of Credit has been made, the Agent shall promptly so
notify the applicable Issuing Bank and each Lender, specifying in the notice to
each Lender its Pro Rata Share on the date of such notice, of such LC
Disbursement. Each Lender shall pay to the Agent, not later than 2:00 p.m., New
York City time, on such date, such Lender's Pro Rata Share of such LC
Disbursement, which the Agent shall promptly pay to the applicable Issuing Bank.
Each such payment by a Lender pursuant to this PARAGRAPH (f) in respect of any
LC Disbursement shall be deemed to be a Revolving Loan made to the
<PAGE>
Borrower, and all such Revolving Loans made in respect of any one LC
Disbursement shall be deemed to be a Revolving Loan Borrowing. The Revolving
Loans constituting such Borrowing initially shall accrue interest at the
Alternate Base Rate. The Borrower hereby irrevocably authorizes the Lenders to
make such Revolving Loans for the purpose of paying an Issuing Bank for any LC
Disbursements which the Borrower fails to pay (together with any interest on the
LC Disbursement for the period prior to the making of such Revolving Loans) and
agrees that all such Loans so made shall be deemed to have been requested by the
Borrower.
(g) If an Issuing Bank shall pay any draft presented under a Letter
of Credit under circumstances entitling it to reimbursement under succeeding
provisions of this PARAGRAPH (g), the Borrower shall pay to such Issuing Bank or
to the Agent for the account of such Issuing Bank or, if the Agent shall have
received the payments provided in PARAGRAPH (f) above with respect to such
drawing, for the accounts of the Lenders, an amount equal to the amount of such
draft before 12:00 noon, New York City time, on the Business Day immediately
following the date of payment of such draft, together with interest on such
amount at a rate per annum equal to the interest rate in effect for ABR
Borrowings from (and including) the date of payment of such draft to (but
excluding) the date of such payment by the Borrower. The obligation of the
Borrower to pay the amounts referred to above in this PARAGRAPH (g) shall be
absolute, unconditional and irrevocable and shall be satisfied strictly in
accordance with their terms irrespective of:
(I) any lack of validity or enforceability of any Letter of Credit;
(ii) the existence of any claim, setoff, defense or other right which
the Borrower or any other Person may at any time have against the
beneficiary under any Letter of Credit, the Agent, any Issuing Bank, any
confirming bank or any Lender (other than the defense of payment in
accordance with the terms of this Agreement or a defense based on gross
negligence or willful misconduct of the applicable Issuing Bank or
confirming bank) or any other Person in connection with this Agreement or
any other transaction;
(iii) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent or invalid in any respect or any statement
therein being untrue or inaccurate in any respect; PROVIDED that payment by
the applicable Issuing Bank or confirming bank under such Letter of Credit
against presentation of such draft or document shall not have constituted
gross negligence or willful misconduct by such Person;
(iv) payment by the applicable Issuing Bank under a Letter of Credit
against presentation of a draft or other document which does not comply in
any immaterial respect with the terms of such Letter of Credit; PROVIDED
that such payment shall not have constituted gross negligence or willful
misconduct; or
(v) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing; PROVIDED that such other circumstance or
event shall not have been the result of gross negligence or willful
misconduct of the applicable Issuing Bank.
It is understood that in making any payment under a Letter of Credit
(x) the applicable Issuing Bank's exclusive reliance on the documents presented
to it under such Letter of Credit as to any and all matters set forth therein,
including, without limitation, reliance on the amount of any draft presented
under such Letter of Credit, whether or not the amount due to the beneficiary
equals the amount of such draft and whether or not any document presented
pursuant to such Letter of Credit proves to be forged, fraudulent or invalid in
any respect, if such document on its face appears to be in order, and whether or
not any other statement or any other document presented pursuant to such Letter
of Credit proves to be forged or invalid or
<PAGE>
any statement therein proves to be inaccurate or untrue in any respect
whatsoever, and (y) any noncompliance in any immaterial respect of the documents
presented under a Letter of Credit with the terms thereof shall, in either case,
not be deemed willful misconduct or gross negligence of such Issuing Bank.
(h) TRANSITIONAL PROVISIONS. SCHEDULE 2.15 contains a schedule of
certain letters of credit issued for the account of the Borrower or an Affiliate
thereof and outstanding as of the Closing Date by one or more of the Issuing
Banks (the "EXISTING FACILITY LETTERS OF CREDIT"). On the Closing Date, (I)
such Existing Facility Letters of Credit shall be deemed to be Letters of Credit
issued pursuant to and in compliance with this SECTION 2.15, (ii) the face
amount of such Existing Facility Letters of Credit shall be included in the
calculation of the available LC Commitment and the LC Exposure, (iii) the
provisions of this SECTION 2.15 shall apply thereto, and the Borrower and the
Lenders hereunder hereby expressly assume all obligations with respect to such
Letters of Credit and (iv) all liabilities of the Borrower with respect to such
Existing Facility Letters of Credit shall constitute Obligations.
SECTION 2.16. ADDITIONAL INTEREST ON EURODOLLAR LOANS; RESERVE
REQUIREMENTS; CHANGE IN CIRCUMSTANCES. (a) The Borrower shall pay to the Agent
for the account of each Lender, so long as such Lender shall be required under
regulations of the Board to maintain reserves with respect to liabilities or
assets consisting of or including "Eurocurrency Liabilities" (as such term is
defined in Regulation D), additional interest on the unpaid principal amount of
each Eurodollar Loan of such Lender, from the date of such Loan until such Loan
ceases to be a Eurodollar Loan, at an interest rate per annum equal to all times
to the remainder obtained by subtracting (I) the LIBO Rate for the Interest
Period for such Loan from (ii) the rate obtained by dividing such LIBO Rate by a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such
Lender for such Interest Period, payable on each date on which interest is
payable on such Loan. Such additional interest shall be determined by such
Lender and notified to the Borrower through the Agent. For purposes of this
Section, "EURODOLLAR RATE RESERVE PERCENTAGE" of any Lender for the Interest
Period for any Eurodollar Loan means the reserve percentage applicable during
such Interest Period and actually required to be maintained by such Lender as a
result of the funding of Eurodollar Loans made by such Lender to the Borrower
hereunder (or if more than one such percentage shall be so applicable, the daily
average of such percentages for those days in such Interest Period during which
any such percentage shall be so applicable) under regulations issued from time
to time by the Board (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for such Lender with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities having a term equal
to such Interest Period.
(b) Notwithstanding any other provision herein, if after the Closing
Date any change in applicable law or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender of the
principal of or interest on any of such Lender's Loans or any other amounts
payable hereunder (other than taxes imposed on the overall net income of such
Lender) or shall impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of, deposits with or for the account of,
or credit extended by, such Lender or shall impose on such Lender or the London
interbank market any other condition affecting this Agreement or such Lender's
Loans, and the result of any of the foregoing shall be to increase the cost to
such Lender of making or maintaining any Loan or to reduce the amount of any sum
received or receivable by such Lender hereunder (whether of principal, interest
or otherwise) in respect thereof by an amount deemed by such Lender to be
material, then such additional amount or amounts as will compensate such Lender
for such additional costs or reduction will be paid to such Lender by the
Borrower upon demand by such Lender.
<PAGE>
(c) If any Lender or Issuing Bank shall have determined that the
applicability of any law, rule, regulation, agreement or guideline adopted
pursuant to or arising out of the July 1988 report of the Basle Committee on
Banking Regulations and Supervisory Practices entitled "International
Convergence of Capital Measurement and Capital Standards", or the adoption after
the date hereof of any other law, rule, regulation, agreement or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any lending office of
such Lender) or Issuing Bank or any Lender's or Issuing Bank's holding company
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
had the effect of reducing the rate of return on such Lender's or Issuing Bank's
capital or on the capital of such Lender's or Issuing Bank's holding company, if
any, as a consequence of this Agreement or the Loans made by such Lender or the
Letters of Credit issued by such Issuing Bank pursuant hereto (or the
participations of the Lenders therein) to a level below that which such Lender
or Issuing Bank or such Lender's or Issuing Bank's holding company could have
achieved but for such applicability, adoption, change or compliance (taking into
consideration such Lender's or Issuing Bank's policies and the policies of such
Lender's or Issuing Bank's holding company with respect to capital adequacy) by
an amount deemed by such Lender or Issuing Bank to be material, then from time
to time the Borrower shall pay to such Lender or Issuing Bank such additional
amount or amounts as will compensate such Lender or Issuing Bank or such
Lender's or Issuing Bank's holding company on an after-tax basis for any such
reduction suffered. Notwithstanding the foregoing, no Lender shall be entitled
to compensation under this SECTION 2.16 with respect to any Competitive Bid Loan
if it knew or should have known of the change giving rise to such request and of
the impact of such change on the cost of making such Competitive Bid Loans at
the time of submission of the Competitive Bid pursuant to which such Competitive
Bid Loan shall have been made.
(d) A certificate of each Lender or Issuing Bank setting forth such
amount or amounts as shall be necessary to compensate such Lender or Issuing
Bank or its holding company as specified in PARAGRAPH (a), (b) or (c) above, as
the case may be, shall be delivered to the Borrower, which certificate shall be
rebuttably presumptive evidence of such costs or reductions. The Borrower shall
pay each such Lender, Issuing Bank and holding company the amount shown as due
on any such certificate delivered by it within 10 Business Days after the
Borrower's receipt of the same; PROVIDED, that the Borrower shall have no
obligation to pay such costs or reductions to the extent such costs or
reductions were incurred by any such Lender, Issuing Bank or holding company
more than ninety (90) days prior to the date of the certificate in which such
costs or reductions were set forth.
(e) Except as otherwise expressly provided in this paragraph, failure
on the part of any Lender or Issuing Bank to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's or Issuing Bank's right to demand compensation with respect to
such period or any other period. The protection of this SECTION 2.16 shall be
available to each Lender and Issuing Bank regardless of any possible contention
of the invalidity or inapplicability of the law, rule, regulation, guideline or
other change or condition which shall have occurred or been imposed. No Lender
or Issuing Bank shall be entitled to compensation under this SECTION 2.16 for
any costs incurred or reductions suffered with respect to any date unless it
shall have notified the Borrower that it will demand compensation for such costs
or reductions under PARAGRAPH (c) above not more than six months after the later
of (I) such date and (ii) the date on which it shall have become aware of such
costs or reductions.
SECTION 2.17. CHANGE IN LEGALITY. (a) Notwithstanding any other
provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
<PAGE>
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Borrower and to the Agent, such Lender may:
(I) declare that Eurodollar Loans will not thereafter be made or
maintained by such Lender hereunder, whereupon (y) any request by the
Borrower for Eurodollar Loans shall, as to such Lender only, be deemed a
request for an ABR Loan; and (z) any request by the Borrower to continue
Eurodollar Loans or to convert into Eurodollar Loans shall, as to such
Lender only, be deemed a request to convert into or continue as an ABR
Loan; in either case unless such declaration shall be subsequently
withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans, in which event all such Eurodollar Loans shall be
automatically converted to ABR Loans as of the effective date of such
notice as provided in PARAGRAPH (b) below.
In the event any Lender shall exercise its rights under (I) or (ii) above, all
payments and prepayments of principal which would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans. Notwithstanding the foregoing, no Lender shall be
entitled to compensation under this SECTION 2.17 with respect to any Competitive
Bid Loan and no Competitive Bid Loan shall be deemed converted to an ABR Loan if
such Lender knew or should have known of the change giving rise to such request
and of the impact of such change on the cost of making such Competitive Bid
Loans at the time of submission of the Competitive Bid pursuant to which such
Competitive Bid Loan shall have been made.
(b) For purposes of this SECTION 2.17, a notice to the Borrower by
any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last
day of the Interest Period currently applicable to such Eurodollar Loan; in all
other cases such notice shall be effective on the date of receipt by the
Borrower.
(c) In the event that such Lender determines at any time following
its giving of the notice referred to in SECTION 2.17(a) that such Lender may
lawfully make Eurodollar Loans, such Lender shall promptly give notice (by
telephone confirmed in writing) to the Borrower and the Agent (which notice the
Agent shall promptly transmit to each Lender) of that determination, whereupon
the right of the Borrower to request of such Lender and such Lender's obligation
to make Eurodollar Loans shall be restored.
(d) Each Lender agrees (to the extent consistent with internal
policies) to designate a different lending office for Eurodollar Loans if such
designation would avoid the illegality described in SECTION 2.17(a); PROVIDED,
HOWEVER, that such designation need not be made if it would result in any
additional costs, expenses or risks to such Lender that are not reimbursed by
the Borrower pursuant hereto or would, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender.
SECTION 2.18. INDEMNITY. The Borrower shall indemnify each Lender
against any loss or expense which such Lender may sustain or incur as a
consequence of (a) any failure by the Borrower to borrow or to refinance,
convert or continue any Loan hereunder after irrevocable notice of such
borrowing, refinancing, conversion or continuation has been given pursuant to
SECTION 2.03, 2.04 or 2.12 (b) any payment, prepayment or conversion of a
Eurodollar Loan required by any other provision of this Agreement or otherwise
made or deemed made on a date other than the last day of the Interest Period
applicable thereto, (c) any default in payment or prepayment of the principal
amount of any Loan or any part thereof or interest accrued thereon, as and when
due and payable (at the due date thereof, whether by scheduled maturity,
acceleration, irrevocable notice of prepayment or otherwise) or (d) the
<PAGE>
occurrence of any Event of Default, including, in each such case, any loss or
reasonable expense sustained or incurred or to be sustained or incurred in
liquidating or employing deposits from third parties acquired to effect or
maintain such Loan or any part thereof as a Eurodollar Loan. Such loss or
reasonable expense shall be an amount equal to the excess, if any, as reasonably
determined by such Lender, of (I) its cost of obtaining the funds for the Loan
being paid, prepaid, converted or not borrowed, converted, continued,
refinanced, paid or prepaid (assumed to be the LIBO Rate applicable thereto) for
the period from the date of such payment, prepayment, conversion or failure to
borrow, convert, continue, refinance, pay or prepay to the last day of the
Interest Period for such Loan (or, in the case of a failure to borrow, convert,
continue or refinance, the Interest Period for such Loan which would have
commenced on the date of such failure) over (ii) the amount of interest (as
reasonably determined by such Lender) that would be realized by such Lender in
reemploying the funds so paid, prepaid, converted or not borrowed, converted,
continued, refinanced, paid or prepaid for such period or Interest Period, as
the case may be. A certificate of any Lender setting forth any amount or
amounts which such Lender is entitled to receive pursuant to this Section shall
be delivered to the Borrower and shall be conclusive absent manifest error.
SECTION 2.19. PRO RATA TREATMENT. (a) Except as required under
SECTION 2.17 and SECTION 9.18, each Revolving Loan Borrowing, each payment or
prepayment of principal of any Revolving Loans, each payment of interest on the
Revolving Loans, each payment of the Commitment Fees and LC Fees, each reduction
of the Revolving Credit Commitments or the LC Commitments, and each refinancing
of any Revolving Loan Borrowing with, conversion of any Revolving Loan Borrowing
to or continuation of any Revolving Loan Borrowing as a Borrowing of any Type
(other than with respect to Competitive Bid Borrowings) shall be allocated among
the Lenders in accordance with their respective Pro Rata Shares. Each Lender
agrees that in computing such Lender's portion of any Revolving Loan Borrowing
to be made hereunder, the Agent may, in its discretion, round each Lender's
percentage of such Borrowing, computed in accordance with SECTION 2.01, to the
next higher or lower whole dollar amount.
(b) All payments of principal of any Competitive Bid Borrowing shall
be allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective principal amounts of their outstanding
Competitive Bid Loans comprising such Borrowing. All payments of interest on
any Competitive Bid Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective amounts of
accrued and unpaid interest on their outstanding Competitive Bid Loans
comprising such Borrowing.
(c) So long as the Loans have not become due and payable in full
pursuant to SECTION 7.02, and subject to the terms and conditions of this
Agreement, the Borrower shall designate whether any payment hereunder is to be
applied to a Revolving Loan Borrowing or a Competitive Bid Borrowing. After the
Loans have become due and payable in full pursuant to SECTION 7.02, all amounts
remitted to the Agent shall be applied, subject to the provisions of this
Agreement, (I) first, to pay Obligations in respect of any fees, expense
reimbursements or indemnities then due to the Agent from the Borrower under this
Agreement or any other Loan Document; (ii) second, to pay Obligations in respect
of any fees, expense reimbursements or indemnities then due to the Lenders and
the Issuing Banks from the Borrower; (iii) third, to pay interest due in respect
of the Loans (ratably, in respect of Revolving Loans and Competitive Bid Loans);
(iv) fourth, to pay or prepay principal of Loans and Letters of Credit (ratably,
in respect of Revolving Loans, Competitive Bid Loans and Letters of Credit); (v)
fifth, to provide cash collateral in respect of Letters of Credit; and (vi)
sixth, to the ratable payment of all other Obligations.
SECTION 2.20. SHARING OF SETOFFS. Each Lender agrees that if it
shall, through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, or pursuant to a secured claim under Section 506 of Title
11 of the United States Code or other security or
<PAGE>
interest arising from, or in lieu of, such secured claim, received by such
Lender under any applicable bankruptcy, insolvency or other similar law or
otherwise (except pursuant to SECTION 2.24 or 9.04), or by any other means,
obtain payment (voluntary or involuntary) in respect of any Loan or Loans
(which, for purposes of this SECTION 2.20, shall include reimbursement
obligations with respect to LC Disbursements) as a result of which the unpaid
principal portion of its Loans shall be proportionately less than the unpaid
principal portion of the Loans of any other Lender, it shall be deemed
simultaneously to have purchased from such other Lender at face value, and shall
promptly pay to such other Lender the purchase price for, a participation in the
Loans of such other Lender, so that the aggregate unpaid principal amount of the
Loans and participations in Loans held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Loans then
outstanding as the principal amount of its Loans prior to such exercise of
banker's lien, setoff or counterclaim or other event was to the principal amount
of all Loans outstanding prior to such exercise of banker's lien, setoff or
counterclaim or other event; PROVIDED, HOWEVER, that, if any such purchase or
purchases or adjustments shall be made pursuant to this SECTION 2.20 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest. The
Borrower expressly consents to the foregoing arrangements and agrees that any
Lender holding a participation in a Loan deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan directly to the Borrower in
the amount of such participation.
SECTION 2.21. PAYMENTS. (a) The Borrower shall make each payment
(including principal of or interest on the Loans, any Fees other than Issuing
Bank Fees or other amounts) hereunder and under any other Loan Document not
later than 12:00 noon, New York City time, on the date when due in dollars to
the Agent at its offices at 270 Park Avenue, New York, New York, in immediately
available funds. Any payment received after 12:00 noon, New York City time, on
any date shall be deemed to have been received on the next succeeding Business
Day.
(b) Whenever any payment (including principal of or interest on any
Loans or any Fees or other amounts) hereunder or under any other Loan Document
shall become due, or otherwise would occur, on a day that is not a Business Day,
such payment may be made on the next succeeding Business Day, and such extension
of time shall in such case be included in the computation of interest or Fees,
if applicable, unless, in the case of a Eurodollar Loan only, such next
succeeding Business Day would fall in the next calendar month, in which case
such payment shall be made on the next preceding Business Day.
SECTION 2.22. TAXES. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with SECTION 2.21, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
EXCLUDING (I) taxes imposed on the net income of the Agent, any Issuing Bank or
any Lender (or any transferee or assignee thereof that is permitted by SECTION
9.04, including a participation holder (any such entity being called a
"TRANSFEREE")), (ii) franchise or similar taxes imposed on the Agent, any
Issuing Bank or any Lender (or Transferee) by the United States of America or
any jurisdiction under the laws of which the Agent, such Issuing Bank or any
such Lender (or Transferee) is organized or in which the applicable lending
office is situated, or subject to such tax other than solely as a result of the
transactions provided for herein or any political subdivision thereof and (iii)
all taxes not imposed by the United States of America, the states or a political
subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "TAXES").
For purposes of this provision, taxes imposed on net income include United
States of America withholding taxes imposed upon the payment of interest unless
such taxes are imposed as a result of a change in the laws, treaties,
regulations or interpretations in existence
<PAGE>
on the Closing Date. If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to the Lenders (or any
Transferee), any Issuing Bank or the Agent, (i) the sum payable shall be
increased by the amount necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this SECTION
2.22) such Lender (or Transferee), such Issuing Bank or the Agent (as the case
may be) shall receive an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with applicable law;
PROVIDED, HOWEVER, that no Transferee of any Lender shall be entitled to receive
any greater payment under this PARAGRAPH (a) than such Lender would have been
entitled to receive with respect to the rights assigned, participated or
otherwise transferred.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "OTHER TAXES").
(c) The Borrower will indemnify each Lender (or Transferee), the
Agent and each Issuing Bank for the full amount of Taxes and Other Taxes paid by
such Lender (or Transferee), the Agent or such Issuing Bank as the case may be,
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted by the relevant taxing authority or other Governmental
Authority. Such indemnification shall be made within 30 Business Days after the
date any Lender (or Transferee), the Agent or any Issuing Bank, as the case may
be, makes written demand therefor. If a Lender (or Transferee), the Agent or an
Issuing Bank shall become aware that it is entitled to receive a refund in
respect of Taxes or Other Taxes as to which it has been indemnified by the
Borrower pursuant to this SECTION 2.22 or a credit in respect of any Taxes or
Other Taxes paid by the Borrower pursuant to this SECTION 2.22 against taxes it
would otherwise have owed that are not Taxes or Other Taxes, it shall promptly
notify the Borrower of the availability of such refund or credit and shall apply
for such refund or credit at the Borrower's expense. If any Lender (or
Transferee), the Agent or any Issuing Bank receives a refund or it becomes
entitled to take a credit in respect of any Taxes or Other Taxes as to which it
has been indemnified by the Borrower pursuant to this SECTION 2.22, it shall
promptly notify the Borrower of such refund or credit and shall promptly repay
such refund or pay the amount of such credit, as the case may be, to the
Borrower (to the extent of amounts that have been paid by the Borrower under
this SECTION 2.22 with respect to such refund or credit), net of all
out-of-pocket expenses of such Lender, the Agent or such Issuing Bank; PROVIDED
that the Borrower, upon the request of such Lender (or Transferee), the Agent or
such Issuing Bank agrees to return such refund or the amount of such credit
(plus penalties, interest or other charges) to such Lender (or Transferee), the
Agent or such Issuing Bank in the event such Lender (or Transferee), the Agent
or such Issuing Bank is required to repay such refund or is prohibited from
taking such credit against taxes that are not Taxes or Other Taxes. Nothing
contained in this PARAGRAPH (c) shall require any Lender (or Transferee), the
Agent or any Issuing Bank to make available any of its tax returns (or any other
information relating to its taxes which it deems to be confidential).
(d) Within 30 Business Days after the date of any payment of Taxes or
Other Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee), the Agent or any Issuing Bank, the Borrower will furnish to the
Agent, at its address referred to in SECTION 9.01, the original or a certified
copy of a receipt evidencing payment thereof to the extent that the relevant
taxing authority delivers such receipts.
<PAGE>
(e) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this SECTION 2.22
shall survive the payment in full of the Obligations hereunder.
(f) Each Lender and Issuing Bank represents to the Agent and the
Borrower that under applicable laws, treaties, regulations and interpretations
in existence on the Closing Date, no Taxes imposed by the United States of
America will be required to be withheld with respect to interest on the Loans.
Each Lender, the Agent and each Issuing Bank that is organized under the laws of
a jurisdiction outside the United States of America shall, on the Closing Date
and, if legally able to do so, at the beginning of each of its tax years
thereafter, deliver to the Borrower such certificates, documents or other
evidence, as required by the Internal Revenue Code or Treasury Regulations
issued pursuant thereto, including Internal Revenue Service Form 1001 or Form
4224 and any other certificate or statement of exemption required by Treasury
Regulation Section 1.1441-1, 1.1441-4 or 1.1441-6(c) or any subsequent version
thereof or successors thereto, properly completed and duly executed by such
Lender (or Transferee), the Agent or such Issuing Bank establishing that
payments made pursuant to this Agreement to such Lender (i) are not subject to
United States Federal withholding tax under the Internal Revenue Code because
such payment is effectively connected with the conduct by such Lender (or
Transferee), the Agent or such Issuing Bank of a trade or business in the United
States of America or (ii) are totally exempt from United States Federal
withholding tax, or are subject to a rate of such tax that has been reduced to
zero under a provision of an applicable tax treaty. Unless the Borrower and the
Agent have received forms or other documents satisfactory to them indicating
that such payments hereunder are not subject to United States Federal
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the Borrower or the Agent shall withhold taxes from such payments at
the applicable statutory rate.
(g) The Borrower shall not be required to pay any additional amounts
to any Lender (or Transferee), the Agent or any Issuing Bank in respect of
United States Federal withholding tax pursuant to PARAGRAPH (a) above if the
obligation to pay such additional amounts does not result from a change in laws,
treaties, regulations or interpretations in existence on the Closing Date. Thus
the Borrower shall not reimburse for Taxes or Other Taxes arising from a failure
by the Lender (or Transferee), the Agent or such Issuing Bank (if required to do
so) to comply with the provisions of PARAGRAPH (f) above or from a transfer of
the Loans to another Applicable Lending Office; PROVIDED, HOWEVER, that the
Borrower shall be required to pay those amounts to any Lender (or Transferee),
the Agent or any Issuing Bank that it was required to pay hereunder prior to the
failure of such Lender (or Transferee), the Agent or such Issuing Bank to comply
with the provisions of PARAGRAPH (f).
SECTION 2.23. DUTY TO MITIGATE ADDITIONAL COSTS, REDUCTIONS IN RATE
OF RETURN AND TAXES. Any Lender (or Transferee), the Agent or any Issuing Bank
claiming any amounts pursuant to SECTION 2.16 or 2.22 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to avoid any costs,
reductions, Taxes or Other Taxes in respect of which such amounts are claimed,
including the filing of any certificate or document reasonably requested by the
Borrower or the changing of the jurisdiction of its lending office if such
efforts would avoid the need for or reduce the amount of any such amounts which
would thereafter accrue and would not, in the sole determination of such Lender
(or Transferee), the Agent or such Issuing Bank, result in any additional costs,
expenses or risks to such Lender (or Transferee), the Agent or such Issuing Bank
or would be otherwise disadvantageous to such Lender (or Transferee), the Agent
or such Issuing Bank.
SECTION 2.24. ASSIGNMENT OF COMMITMENTS UNDER CERTAIN CIRCUMSTANCES.
In the event a Lender (an "AFFECTED LENDER") shall have: (i) failed to
either fund its Pro Rata Share of any Revolving Loan Borrowing
<PAGE>
requested by the Borrower which such Lender is obligated to fund under the terms
of SECTION 2.03 or its Competitive Bid Loan which such Lender is obligated to
fund under the terms of SECTION 2.04, and in either case such failure has not
been cured within five (5) Business Days, (ii) failed to fund its Pro Rata Share
of a payment to the Agent on behalf of an Issuing Bank which such Lender is
obligated to fund under the terms of SECTION 2.15 and such failure has not been
cured within five (5) Business Days, (iii) either repudiated its obligations
under this Agreement or failed to reaffirm such obligations in writing within
five (5) Business Days of a written request therefor from the Agent or any
Issuing Bank, (iv) delivered to the Borrower a notice described in the last
sentence of this SECTION 2.24, or (v) made demand for additional amounts
pursuant to SECTION 2.16 or 2.22, as a result of any condition described in any
such Section, then, unless such Affected Lender has theretofore taken steps to
remove or cure, and has removed or cured within five (5) Business Days, such
failure or the circumstances described in such notice or the conditions creating
the cause for such demand for such additional amounts, as the case may be, the
Borrower may require the Affected Lender to transfer and assign without recourse
(in accordance with and subject to the restrictions contained in SECTION 9.04)
all its interests, rights and obligations under this Agreement to a bank
designated by the Borrower and which is reasonably acceptable to the Agent (such
bank being herein called a "REPLACEMENT LENDER"); PROVIDED, that (i) no such
assignment shall conflict with any law, rule or regulation or order of any
Governmental Authority and (ii) the Replacement Lender shall pay to the Affected
Lender in immediately available funds on the date of such termination or
assignment the principal of and interest accrued to the date of payment on the
Loans made by it hereunder and all other amounts accrued for its account or owed
to it hereunder. Each Lender agrees to use its best efforts to notify the
Borrower as promptly as practicable upon such Lender's becoming aware that
circumstances exist which would cause the Borrower to become obligated to pay
additional amounts to such Lender pursuant to SECTION 2.16 or 2.22; PROVIDED,
that the failure by any Lender to give such notice shall not affect the
obligations of the Borrower under such Sections.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders, the Issuing Banks and the Agent to
enter into this Agreement and to make and/or maintain Loans and provide Letters
of Credit hereunder, the Borrower hereby represents and warrants to the Lenders,
the Issuing Banks, and the Agent that the following statements are true, correct
and complete:
SECTION 3.01. ORGANIZATION; CORPORATE POWERS. Each of the Borrower
and its Subsidiaries (i) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation,
(ii) is duly qualified to do business as a foreign corporation and in good
standing under the laws of each jurisdiction in which it owns or leases real
property or in which the nature of its business requires it to be so qualified,
except for those jurisdictions (other than Alabama, Arkansas, Mississippi and
Vermont) where failure to so qualify and be in good standing does not have a
Material Adverse Effect and (iii) has all requisite corporate power and
authority to own, operate and encumber its property and assets and to conduct
its business as presently conducted.
SECTION 3.02. AUTHORITY.
(i) The Borrower has the requisite corporate power and authority
to execute, deliver and perform each of the Loan Documents.
(ii) The execution, delivery and performance of each of the Loan
Documents and the consummation of the transactions contemplated thereby
have been duly approved by the Board of Directors of the Borrower, and no
other corporate proceedings on the part of the Borrower is necessary to
consummate such transactions.
<PAGE>
(iii) The Borrower has duly executed and delivered each of the
Loan Documents to which it is party, and each such Loan Document consti-
tutes the Borrower's legal, valid and binding obligation, enforceable
against it in accordance with its terms, and is in full force and effect
subject to the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance, voidable preference or
similar laws and the application of equitable principles generally.
SECTION 3.03. SUBSIDIARIES; OWNERSHIP OF CAPITAL STOCK. As of the
Closing Date, SCHEDULE 3.03 sets forth all of its Subsidiaries and the identity
of the holders (other than the public holders of the capital stock of CGC) of
all shares of each class of capital stock of each of its Subsidiaries.
SECTION 3.04. NO CONFLICT. The Borrower's execution, delivery and
performance of each Loan Document, and each of the transactions contemplated
thereby, do not (i) constitute a tortious interference with any of the
Borrower's or any of its Subsidiaries' Contractual Obligations, or (ii) violate
the Borrower's certificate of incorporation or by-laws, or other organizational
documents, as the case may be, or (iii) result in a breach of or constitute
(with or without notice or lapse of time or both) a default under any material
Requirement of Law or material Contractual Obligation of the Borrower or any of
its Subsidiaries, or require termination of any material Contractual Obligation,
or (iv) result in or require the creation or imposition of any material Lien
whatsoever upon any of the properties or assets of the Borrower or of any of its
Subsidiaries (other than Liens in favor of the Collateral Trustee arising
pursuant to the Loan Documents or Liens permitted pursuant to SECTION 6.03) or
(v) require any approval of stockholders or any approval or consent of any
Person under any Contractual Obligation of the Borrower or any of its
Subsidiaries, which have not been obtained on or before the Closing Date.
SECTION 3.05. GOVERNMENTAL CONSENTS. The Borrower's execution,
delivery and performance of each Loan Document and the transactions contemplated
thereby do not require any registration with, consent or approval of, or notice
to, or other action to, with or by any Governmental Authority.
SECTION 3.06. GOVERNMENTAL REGULATION. As of the Closing Date,
neither the Borrower nor any of its Subsidiaries is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940.
SECTION 3.07. DEBT. Set forth on SCHEDULE 3.07 hereto is a complete
and correct list of all Debt of the Borrower and each of its Subsidiaries
outstanding as of the Closing Date having an outstanding principal amount in
excess of $1,000,000 (other than Debt incurred pursuant to the Loan Documents
and Debt permitted under SECTION 6.01), which SCHEDULE 3.07 specifies the
aggregate principal amount thereof outstanding as of the Closing Date.
SECTION 3.08. LITIGATION; MATERIAL ADVERSE EFFECTS. As of the
Closing Date:
(a) except as set forth in SCHEDULE 3.08 hereto, there exists no
action, suit, proceeding, governmental investigation or arbitration, at law
or in equity, or before or by any Governmental Authority, pending, or to
the knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries or any property of any of them which would have a Material
Adverse Effect; and
(b) neither the Borrower nor any of its Subsidiaries is (A) in
violation of any applicable law which violation would have a Material
Adverse Effect, or (B) subject to or in default with respect to any final
judgment, writ, order, injunction, decree, rule or regulation of any court
or Governmental Authority which would have a Material Adverse Effect.
<PAGE>
SECTION 3.09. PAYMENT OF TAXES. As of the Closing Date: (i) all
federal tax returns and reports of the Borrower and each of its Subsidiaries
and, to the Borrower's knowledge, all other tax returns and reports of the
Borrower and each such Subsidiary, required to be filed, have been timely filed,
and all taxes, assessments, fees and other governmental charges thereupon and
upon their respective properties, assets, income and franchises which are shown
on such returns, or have been assessed by any Governmental Authority, as being
due and payable, have been paid when due and payable, except such taxes, if any,
that are reserved against in accordance with GAAP, such taxes as are being
contested in good faith by appropriate proceedings or such taxes the failure to
make payment of which when due and payable would not have, in the aggregate, a
Material Adverse Effect; and (ii) the Borrower has no knowledge of any proposed
tax assessment against the Borrower or any of its Subsidiaries that would have a
Material Adverse Effect, which is not being contested in good faith by such
Person.
SECTION 3.10. MARGIN STOCK. Neither the Borrower nor any of its
Subsidiaries is engaged principally in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock.
SECTION 3.11. NO MATERIAL MISSTATEMENTS. As of the Closing Date: (i)
the schedules, certificates and other written statements and information (taken
as a whole) furnished by or on behalf of the Borrower and/or its Subsidiaries to
the Agent and the Lenders, do not contain any material misstatement of fact or
omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading, and (ii) neither the Borrower nor any of its Subsidiaries has inten-
tionally withheld any fact known to it which would have a Material Adverse
Effect which has not been set forth or referred to in this Agreement or the
other Loan Documents.
SECTION 3.12. REQUIREMENTS OF LAW. As of the Closing Date, the
Borrower, each of its Subsidiaries and each Person acting on behalf of any of
them is in compliance with all Requirements of Law (including, without
limitation, the Securities Act and the Securities Exchange Act, and the
applicable rules and regulations thereunder, the Bankruptcy Code, state
securities law and "Blue Sky" law) applicable to them and their respective
businesses, in each case, except to the extent that the failure to so comply
would have a Material Adverse Effect.
SECTION 3.13. ENVIRONMENTAL MATTERS. Except as disclosed in the
report attached as SCHEDULE 3.13:
(a) neither the Borrower nor any of its Subsidiaries have received or
are aware of any of the following: (i) notice or claim to the effect that the
Borrower or any of its domestic Subsidiaries is or may be liable to any Person
as a result of the Release or threatened Release of any Contaminant into the
environment; (ii) notice that the Borrower or any of its domestic Subsidiaries
has been identified as potentially responsible for, or is subject to
investigation by any Governmental Authority relating to, the Release or
threatened Release of any Contaminant into the environment; (iv) notice that any
Property of the Borrower or any of its domestic Subsidiaries is subject to an
Environmental Lien; (iv) notice of violation to the Borrower or any of its
domestic Subsidiaries or awareness by the Borrower or any of its domestic
Subsidiaries of a condition which might reasonably result in a notice of
violation of any environmental, health or safety Requirement of Law, which would
have a Material Adverse Effect; (v) commencement or threat of any judicial or
administrative proceeding alleging a violation of any environmental Requirement
of Law; (vi) commencement of any judicial proceeding alleging a violation of any
health or safety Requirement of Law; or (vii) any proposed acquisition of stock,
assets, real estate, or leasing of Property, or any other action by the Borrower
or any of its Subsidiaries that could subject the Borrower or any of its
Subsidiaries to environmental, health or safety Liabilities and Costs that would
have a Material Adverse Effect; and
<PAGE>
(b) neither the Borrower nor any of its Subsidiaries have made any
filing or report with any Governmental Authority with respect to (i) the
violation of any environmental, health or safety Requirement of Law, (ii) any
unpermitted Release or threatened Release of a Contaminant or (iii) any unsafe
or unhealthful condition at any Property of the Borrower or any of its
Subsidiaries, any of which would have a Material Adverse Effect.
SECTION 3.14. ERISA. Neither the Borrower nor any ERISA Affiliate
maintains or contributes to any Benefit Plan other than a Benefit Plan listed on
SCHEDULE 3.14 annexed hereto. Except as otherwise provided on SCHEDULE 3.14,
each Plan which is intended to be a qualified plan has been determined by the
IRS to be qualified under Section 401(a) of the Internal Revenue Code, and each
trust related to any such Plan has been determined to be exempt from federal
income tax under Section 501(a) of the Internal Revenue Code prior to its
amendment by the Tax Reform Act of 1986, and such Plan and trust are being
operated in all material respects in compliance with the Tax Reform Act of 1986
and all other amendments to the Internal Revenue Code and ERISA as interpreted
by the regulations promulgated thereunder. Except as otherwise provided on
SCHEDULE 3.14, neither the Borrower nor any ERISA Affiliate maintains or
contributes to any employee welfare benefit plan within the meaning of Section
3(1) of ERISA which provides lifetime benefits to retirees. The Borrower and
all of its ERISA Affiliates are in compliance in all material respects with the
responsibilities, obligations and duties imposed on them by ERISA or regulations
promulgated thereunder with respect to all Plans. No accumulated funding
deficiency (as defined in Section 302(a)(2) of ERISA and Section 412(a) of the
Internal Revenue Code) exists with respect to any Benefit Plan. Except as
otherwise provided on SCHEDULE 3.14, neither the Borrower nor any ERISA
Affiliate nor any fiduciary of any Plan which is not a Multiemployer Plan
(i) has engaged in a nonexempt "prohibited transaction" described in Sections
406 and 408 of ERISA or Section 4975 of the Internal Revenue Code or (ii) has
taken any action which would constitute or result in a Termination Event with
respect to any Plan which would result in a material liability to the Borrower.
Neither the Borrower nor any ERISA Affiliate has incurred any material liability
to the PBGC that has not been paid within the applicable period permitted by
law. Schedule B to the most recent annual report filed with the Internal
Revenue Service with respect to each Benefit Plan and furnished to the Lenders
is complete and accurate. Except as provided on SCHEDULE 3.14, since the date
of each such Schedule B, there has been no material adverse change in the
funding status or financial condition of the Benefit Plan relating to such
Schedule B which would result in a Material Adverse Effect. Neither the
Borrower nor any ERISA Affiliate has failed to make a required contribution or
payment to a Multiemployer Plan on or before the required due date for such
contribution or installment which failure would have a Material Adverse Effect.
Neither the Borrower nor any ERISA Affiliate has failed to make a required
installment under subsection (m) of Section 412 of the Internal Revenue Code or
any other payment required under Section 412 of the Internal Revenue Code on or
before the due date for such installment or other payment, which failure would
have a Material Adverse Effect. Neither the Borrower nor any ERISA Affiliate is
required to provide security to a Plan under Section 401(a)(29) of the Internal
Revenue Code due to a Benefit Plan amendment that results in an increase in
current liability for the plan year.
SECTION 3.15. ASSETS AND PROPERTIES. As of the Closing Date: (i) the
Borrower and each of its Subsidiaries has good and marketable title to all of
its assets (tangible and intangible) owned by it, and all such assets are free
and clear of all Liens except as specifically permitted or contemplated by the
terms and provisions of this Agreement; and (ii) substantially all of the assets
and properties owned by, leased to or used by the Borrower and/or each such
Subsidiary are in adequate operating condition and repair, ordinary wear and
tear excepted, are free and clear of any known defects except such defects as do
not substantially interfere with the continued use thereof in the conduct of
normal operations, and are able to serve the function for which they are
currently being used, except in each case where the failure of such asset to
meet such requirements would not have a Material Adverse Effect.
<PAGE>
SECTION 3.16. AGREEMENTS. Neither the Borrower nor any of its
Subsidiaries is in default in any manner under any provision of any indenture or
other agreement or instrument evidencing Debt, or any other material agreement
or instrument to which it is a party or by which it or any of its properties or
assets is or may be bound, where such default would result in a Material Adverse
Effect.
SECTION 3.18. FINANCIAL STATEMENTS. The Borrower has heretofore
furnished to the Lenders consolidated financial statements (i) as of December
31, 1994, audited by and accompanied by the opinion of Arthur Andersen & Co. or
other independent certified public accountants of recognized national standing
satisfactory to the Agent and (ii) as of March 31, 1995. Such financial
statements present fairly in all material respects the financial condition and
results of operations of the Borrower and each of its consolidated Subsidiaries
and as of such dates and for such periods. Such balance sheets and the notes
thereto disclose all material liabilities, direct or contingent, of the Borrower
and its consolidated Subsidiaries (including the Borrower) as of the dates
thereof that are required to be disclosed under GAAP. Such financial statements
were prepared in accordance with GAAP applied on a consistent basis, except as
set forth in the notes to such financial statements. There has been no material
adverse change in the business, assets, operations or financial condition of the
Borrower and its Subsidiaries since December 31, 1994.
ARTICLE IV. CONDITIONS PRECEDENT
The obligations of the Lenders to make Loans and the obligation of the
Issuing Banks to issue or extend the expiry date of Letters of Credit (each of
the foregoing events being called a "CREDIT EVENT") from and after the Closing
Date, are subject to the satisfaction of all of the applicable conditions set
forth below:
SECTION 4.01. ALL CREDIT EVENTS. On the date of each Credit Event:
(a) NOTICE OF BORROWING. The Agent and, where applicable, an Issuing
Bank shall have received a notice of such Credit Event as required by
SECTION 2.03, SECTION 2.04 or SECTION 2.15(c).
(b) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in SECTIONS 3.01,
3.02, 3.04 and 3.10 shall be true and correct in all material respects on
and as of the date of such Credit Event with the same effect as though made
on and as of such date.
(c) NO DEFAULT. The Borrower shall be in compliance with all the
terms and provisions set forth herein and in each other Loan Document on
its part to be observed or performed, and at the time of and immediately
after such Credit Event no Potential Event of Default or Event of Default
shall have occurred and be continuing.
(d) NO INJUNCTION. No law or regulation shall prohibit, and no
order, judgment or decree of any Governmental Authority shall enjoin,
prohibit or restrain, any Lender from making the requested Loan or any
Lender or Issuing Bank from issuing, renewing, extending or increasing the
face amount of or participating in the Letter of Credit requested to be
issued, renewed, extended or increased.
(e) NO MATERIAL ADVERSE EFFECT. Since December 31, 1994, no event
has occurred which has had or would have a Material Adverse Effect;
PROVIDED, HOWEVER, that the foregoing condition precedent shall not apply
in the case of (i) a continuation of a Loan as either an ABR Loan or a
Eurodollar Loan, (ii) a conversion of ABR Loans into Eurodollar Loans or
Eurodollar Loans into ABR Loans, (iii) a refinancing
<PAGE>
of any Borrowing that does not increase the aggregate outstanding principal
amount of any Revolving Loan or Competitive Bid Loan, or (iv) the extension
of an outstanding Letter of Credit.
Each Credit Event shall be deemed to constitute a representation and
warranty by the Borrower on the date of such Credit Event as to the matters
specified in PARAGRAPHS (b), (c) and (d) of this SECTION 4.01.
SECTION 4.02. FIRST CREDIT EVENT. The obligations of the Lenders and
the Issuing Banks hereunder, including, without limitation, the obligation to
make the initial Loans and other extensions of credit, shall be of no force or
effect until all of the following conditions precedent are satisfied:
(a) DOCUMENTATION. The Agent shall have received all of the
following, each in form and substance satisfactory to the Lenders (as indicated
by each Lender's signature hereto) and, in the case of item (1) below, in
sufficient copies for each of the Lenders:
(1) This Agreement, executed by the Borrower, together with all
Schedules hereto;
(2) A Revolving Loan Note, with appropriate insertions, executed by
the Borrower and payable to the order of each Lender;
(3) A Competitive Bid Note, with appropriate insertions, executed by
the Borrower and payable to the order of each Lender;
(4) The Pledge Agreement, executed by the Borrower in favor of the
Collateral Trustee, together with stock certificates and appropriate stock
powers endorsed in blank;
(5) The Collateral Trust Agreement, executed by all parties thereto;
(6) The opinion of Kirkland & Ellis, counsel to the Borrower, and the
opinion of the assistant general counsel of the Borrower, in each case
relating to such matters as the Agent deems appropriate, in form and
substance reasonably satisfactory to the Agent and the Lenders;
(7) The Borrower's Restated Certificate of Incorporation, as
amended, modified or supplemented to the Closing Date, certified to be
true, correct and complete by the Secretary of State of Delaware,
together with good standing certificates from the Secretaries of State
of Delaware and Illinois, each to be dated a date at most ten (10)
days prior to the Closing Date;
(8) A certificate of the Secretary or Assistant Secretary of the
Borrower certifying (A) the names and true signatures of the Borrower's
incumbent officers who are authorized to sign this Agreement and all other
Loan Documents to be executed by the Borrower, (B) the Borrower's By-Laws
as in effect on the date of such certification, (c) the resolutions of the
Borrower's Board of Directors approving and authorizing the execution,
delivery and performance of this Agreement and all other Loan Documents
executed by the Borrower, (D) that there have been no changes in the
Restated Certificate of Incorporation of the Borrower since the date of the
most recent certification thereof by the Secretary of State of Delaware;
and
(9) An opinion of Richards, Layton & Finger, counsel to the
Collateral Trustee, relating to such matters as the Agent deems
appropriate, which opinion is in form and substance reasonably satisfactory
to the Agent and the Lenders.
(b) PAY DOWN OF EXISTING CREDIT AGREEMENT. The Existing Credit
Agreement (except for those provisions which survive termination of such
arrangement) shall have been or shall simultaneously with the Credit Events
<PAGE>
occurring on the Closing Date be terminated, all loans outstanding and other
amounts owed to the lenders thereunder shall have been or shall simultaneously
with such Credit Events be paid in full and all letters of credit outstanding
thereunder shall have been or shall simultaneously with such Credit Events
become subject to the provisions of this Agreement.
(c) PAYMENT OF FEES. The Agent, the Issuing Banks and the Lenders
shall have received all Fees and other amounts due and payable hereunder or
under the other Loan Documents on or prior to the Closing Date.
ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, on and after the Closing Date
and so long as any Lender shall have any Commitment hereunder and until payment
in full of all of the Obligations (other than any contingent indemnity
Obligations arising pursuant to SECTION 2.16, 2.18, 2.22 or 9.05), unless the
Requisite Lenders shall otherwise give prior written consent:
SECTION 5.01. CORPORATE EXISTENCE; CORPORATE POWERS; ETC. The
Borrower shall, and shall cause each Material Subsidiary to, at all times
maintain its corporate existence and preserve and keep in full force and effect
its rights and franchises unless the failure to maintain such rights and
franchises would not have a Material Adverse Effect. The Borrower shall
promptly provide the Agent with a complete list of its Subsidiaries upon the
occurrence of any change in the list of such Subsidiaries as set forth on SCHED-
ULE 5.01 hereto. The Borrower shall, and shall cause each Material Subsidiary
to, qualify and remain qualified to do business in each jurisdiction in which
the nature of its business requires it to be so qualified except for those
jurisdictions (other than Alabama, Arkansas, Mississippi and Vermont) where the
failure to so qualify would not have a Material Adverse Effect.
SECTION 5.02. COMPLIANCE WITH LAWS, ETC. The Borrower shall, and
shall cause each Material Subsidiary to, (a) comply with all Requirements of
Law, and all restrictive covenants affecting such Person or the business,
properties, assets or operations of such Person, and (b) obtain as needed all
Permits necessary for its operations and maintain such in good standing, except
where the failure to comply with either of CLAUSES (a) or (b) above would not
have a Material Adverse Effect.
SECTION 5.03. MAINTENANCE OF PROPERTIES; INSURANCE. The Borrower
shall, and shall cause each Material Subsidiary to, maintain or cause to be
maintained in good repair, working order and condition, excepting ordinary wear
and tear and damage due to casualty or condemnation, all of its properties
material to its operations and will make or cause to be made all appropriate
repairs, renewals and replacements thereof, consistent with past practice. The
Borrower and each Material Subsidiary shall maintain or cause to be maintained,
with financially sound and reputable insurers reasonably acceptable to the
Agent, the insurance policies and programs listed on SCHEDULE 5.03 hereto
(including liability insurance) or substantially similar programs or policies
and amounts or other programs, policies and amounts reasonably acceptable to the
Agent. With respect to the renewal, replacement or material modification of any
policy or program, the Borrower shall deliver or cause to be delivered to the
Lenders, concurrently with the delivery of the financial statements required to
be delivered pursuant to SECTION 5.07(b) a detailed schedule setting forth for
each such policy or program: (I) the amount of such policy, (ii) the risks
insured against by such policy, (iii) the name of the insurer and each insured
party under such policy, and (iv) the policy number of such policy.
SECTION 5.04. PAYMENT OF TAXES AND CLAIMS. The Borrower shall pay or
cause to be paid, and shall cause each Material Subsidiary to pay, (a) all
material taxes, assessments and other governmental charges imposed upon it or on
any of its properties or assets or in respect of any of its franchises, busi-
ness, income or property when finally due and payable, and
<PAGE>
(b) all material claims (including, without limitation, claims for labor,
services, materials and supplies) for sums, material in the aggregate to the
Borrower or any such Subsidiary, as the case may be, which have become due and
payable and which by law have or may become a Lien (other than a Customary
Permitted Lien) upon any of the Borrower's or such Subsidiary's properties or
assets, prior to the time when any penalty or fine shall be incurred with
respect thereto; PROVIDED that no such taxes, assessments and governmental
charges referred to in CLAUSE (a) above or claims referred to in CLAUSE (b)
above need be paid if being contested in good faith by appropriate proceedings
and if adequate reserves, if required, shall have been accrued therefor in
accordance with GAAP.
SECTION 5.05. INSPECTION OF PROPERTY; BOOKS AND RECORDS. The
Borrower shall permit, and shall cause each of its Material Subsidiaries to
permit, any authorized representative(s) designated by the Agent or any Lender
to visit and inspect any of its properties or the properties of any of its
Subsidiaries, including their financial and accounting records, and to make
copies and take extracts therefrom, and to discuss their affairs, finances and
accounts with their officers, employees, representatives, agents or independent
certified public accountants, all at such times during normal business hours and
as often as may be reasonably requested. Each such visitation and inspection by
or on behalf of the Agent shall be at the Borrower's expense. The Borrower
will, and will cause each of its Subsidiaries to, keep proper books of record
and account in which entries in conformity with GAAP shall be made of all
dealings and transactions in relation to their businesses and activities.
SECTION 5.06. ERISA. The Borrower shall comply in all material
respects with the applicable provisions of ERISA and (b) furnish to the Agent
and each Lender (I) as soon as possible, and in any event within 30 days after
any Responsible Officer of the Borrower or any ERISA Affiliate either knows or
has reason to know that any Reportable Event has occurred that alone or together
with any other Reportable Event could reasonably be expected to result in
liability of the Borrower to the PBGC in an aggregate amount exceeding
$5,000,000, a statement of a Financial Officer of the Borrower setting forth
details as to such Reportable Event and the action proposed to be taken with
respect thereto, together with a copy of the notice, if any, of such Reportable
Event given to the PBGC, (ii) promptly after receipt thereof, a copy of any
notice the Borrower or any ERISA Affiliate may receive from the PBGC relating to
the intention of the PBGC to terminate any Plan or Plans (other than a Plan
maintained by an ERISA Affiliate which is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint a
trustee to administer any Plan or Plans, (iii) within 10 Business Days after the
due date for filing with the PBGC pursuant to Section 412(n) of the Code of a
notice of failure to make a required installment or other payment with respect
to a Plan, a statement of a Financial Officer of the Borrower setting forth
details as to such failure and the action proposed to be taken with respect
thereto, together with a copy of such notice given to the PBGC and (iv) promptly
and in any event within 30 days after receipt thereof by the Borrower or any
ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice
received by the Borrower or any ERISA Affiliate concerning (A) the imposition of
Withdrawal Liability or (B) a determination that a Multiemployer Plan is, or is
expected to be, terminated or in reorganization, in each case within the meaning
of Title IV of ERISA.
SECTION 5.07. FINANCIAL STATEMENTS. The Borrower and each of its
Material Subsidiaries shall maintain or cause to be maintained a system of
accounting established and administered in accordance with sound business
practices and consistent with past practice to permit preparation of financial
statements in conformity with GAAP, and each of the financial statements
described below shall be prepared from such system and records. The Borrower
shall deliver or cause to be delivered to each of the Lenders, the items
described below:
(a) As soon as practicable, and in any event within forty-five (45)
days after the end of each fiscal quarter in each Fiscal Year, the
<PAGE>
consolidated balance sheet, consolidated statement of income and consolidated
statement of cash flow for such fiscal quarter. The Borrower shall also provide
at such times the consolidating balance sheet of the Borrower and its
Subsidiaries as at the end of such fiscal quarter and the consolidating
statement of income of the Borrower and its Subsidiaries for such fiscal quarter
and for the period from the beginning of the current Fiscal Year to the end of
such fiscal quarter. These statements shall all be in reasonable detail and
certified by a Financial Officer that they fairly present in all material
respects the financial condition and results of operations of, and changes in
financial position for, the Borrower and its Subsidiaries as at the dates and
for the periods indicated, subject to changes resulting from audit and normal
year-end adjustment;
(b) As soon as practicable, and in any event within ninety (90) days
after the end of each Fiscal Year, the same consolidated and consolidating
balance sheet and statement of income, and the same consolidated statement of
cash flow of the Borrower and its Subsidiaries as described in CLAUSE (a) above.
These statements shall all be in reasonable detail and accompanied by a report
thereon of Arthur Andersen & Co. or other independent certified public
accountants of recognized national standing satisfactory to the Requisite
Lenders, which report shall be unqualified and shall state that such
consolidated financial statements present fairly in all material respects the
financial position of the Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and changes in their financial
position for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years (or, in the event of a change in accounting
principles, such accountants' concurrence with such change) and that the
examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards;
(c) Simultaneously with the delivery of the financial statements
referred to in CLAUSE (b) above, a statement of the firm of independent
certified public accountants which reported on the financial statements included
therein that nothing has come to their attention to cause such independent
certified public accountants to believe that such financial statements are
inaccurate, and simultaneously with the delivery of the financial statements
referred to in CLAUSES (a) and (b) above, a certificate of a Financial Officer
of the Borrower (A) certifying that no Event of Default or Potential Event of
Default has occurred or, if such an Event of Default or Potential Event of
Default has occurred, specifying the nature and extent thereof and any
corrective action taken or proposed to be taken with respect thereto, and (B)
setting forth computations in reasonable detail satisfactory to the Agent
demonstrating compliance with the covenants contained in SECTIONS 6.01 through
6.04, 6.06, and 6.08 through 6.10;
(d) As soon as available, copies of any management reports prepared
by the Borrower's independent certified public accountants in connection with
the annual audit;
(e) As soon as available, copies of (i) all reports, proxy statements
and other statements or schedules that have been filed with the Commission under
the Securities Exchange Act by the Borrower or any of its Subsidiaries (except
reports filed pursuant to Section 16(a) of the Securities Exchange Act), (ii)
all registration statements and prospectuses that have been filed by the
Borrower or any of its Subsidiaries with the Commission under the Securities
Act, except those on Form S-8 and Form 11-K, (iii) all reports and other
information that has been disseminated generally to holders of any class of the
Borrower's publicly traded equity or debt securities, and (iv) all press
releases made available generally by the Borrower or any of its Subsidiaries to
the public concerning material developments in the business of the Borrower or
any such Subsidiary; and
(f) Such other information respecting the Borrower's or any of its
Subsidiaries' business or condition (financial or otherwise), operations,
performance or properties as any Lender (through the Agent) may, from time to
<PAGE>
time, reasonably request. The Borrower authorizes the Agent to communicate
directly with its independent certified public accountants and authorizes such
accountants, in accordance with procedures reasonably satisfactory to such
accountants, to disclose to the Agent any and all financial statements and other
information of any kind, including copies of any management letter or the
substance of any oral information, that such accountants may have with respect
to the Borrower's or any such Subsidiary's condition (financial or otherwise),
operations, properties and performance. The Agent shall provide the Borrower
with a copy of any written request for information submitted to such
accountants. The Agent and the Lenders shall treat any non-public information
so obtained as confidential. Prior to the Closing Date, the Borrower shall have
delivered a letter addressed to such accountants instructing them to disclose
such information in compliance with this SECTION 5.07(f), and the Borrower prior
to the end of each Fiscal Year shall deliver a letter addressed to such
accountants notifying them that the Lenders will be relying on the financial
statements audited by such accountants and delivered to the Lenders pursuant to
SECTION 5.07(b).
SECTION 5.08. DEFAULT AND MATERIAL ADVERSE EFFECT. Promptly upon the
Borrower obtaining knowledge of (i) any condition or event which constitutes an
Event of Default or Potential Event of Default, or becoming aware that any
Lender has given any notice with respect to a claimed Event of Default or
Potential Event of Default under this Agreement, or (ii) any condition or event
which would have a Material Adverse Effect, a certificate of a Financial Officer
specifying the nature and period of existence of any such condition or event, or
specifying the notice given by such Lender and the nature of such claimed
default, Event of Default, Potential Event of Default, event or condition, and
what action the Borrower and/or any of its Subsidiaries have taken, are taking
and propose to take with respect thereto.
SECTION 5.09. PLEDGE OF STOCK OF DOMESTIC MATERIAL SUBSIDIARY. The
Borrower agrees that until such time as the its senior public debt is rated
Investment Grade, it will immediately pledge, or cause to be pledged, to the
Collateral Trustee all shares of stock of any direct or indirect domestic
Subsidiary of the Borrower, whether formed or acquired after the Closing Date or
otherwise, at the time such Subsidiary becomes a Material Subsidiary.
ARTICLE VI
NEGATIVE COVENANTS
The Borrower covenants and agrees that, on and after the Closing Date
and so long as any Lender shall have any Commitment hereunder and until payment
in full of all of the Obligations (other than any contingent indemnity
Obligations arising pursuant to SECTION 2.16, 2.18, 2.22 or 9.05), unless the
Requisite Lenders (except as otherwise provided below) shall otherwise give
prior written consent:
SECTION 6.01. DEBT. (a) Neither the Borrower nor any of its
Subsidiaries shall directly or indirectly create, incur, assume or otherwise
become or remain directly or indirectly liable with respect to, any Debt, the
incurrence of which would cause the Borrower to violate the financial covenants
set forth in SECTION 6.09.
(b) Neither the Borrower nor any of its domestic Subsidiaries shall at
any time permit the sum of (i) all Debt secured by Liens PLUS, without
duplication, (ii) all Debt of all of its domestic Subsidiaries to exceed
$125,000,000.
(c) Until such time as the Borrower's senior public debt is rated
Investment Grade, neither the Borrower nor any of its Subsidiaries shall at any
time permit the sum of (i) all Debt secured by Liens PLUS, without duplication,
(ii) all Debt of all of its Subsidiaries to exceed $225,000,000.
(d) Notwithstanding anything to the contrary contained in PARAGRAPHS
(b) and (c) of this SECTION 6.01, the following Debt of the Borrower and its
Subsidiaries shall not be prohibited and shall not be
<PAGE>
included in calculating the levels of permitted Debt under such PARAGRAPHS (b)
AND (c):
(i) Debt incurred under this Agreement and Debt existing on the
Closing Date identified on SCHEDULE 6.01;
(ii) Permitted Refinancing Debt;
(iii) Debt which is outstanding under Investor Certificates (as such
term is defined in the Pooling and Servicing Agreement) up to an aggregate
principal balance of $175,000,000 (it being understood that the portion of
any such Investor Certificates having an aggregate principal amount in
excess of $175,000,000 shall be subject to the limitation described in
PARAGRAPH (b) above); and
(iv) Debt of the Borrower to any of its Subsidiaries, Debt of any
Subsidiary to the Borrower and Debt of any Subsidiary to any other
Subsidiary.
SECTION 6.02. SALES OF ASSETS. Neither the Borrower nor any of its
Material Subsidiaries shall sell, assign, transfer, lease, convey or otherwise
dispose of any properties or assets or any group of properties or assets,
whether now owned or hereafter acquired, or any income or profits therefrom,
except:
(I) any sales of assets occurring in the ordinary course of
business of the Borrower and its Material Subsidiaries;
(ii) the sale of equipment by the Borrower or any of its
Material Subsidiaries to the extent that such equipment is traded in
for credit against the purchase price of similar replacement equipment
or that the proceeds of such sale are reasonably promptly applied to
the purchase price of such replacement equipment;
(iii) the sale by the Borrower or any of its Material
Subsidiaries of obsolete equipment;
(iv) any Sale and Lease-Back Transaction permitted under SECTION
6.06;
(v) the transfer of accounts and related assets pursuant to the
Receivables Purchase Agreements and the Pooling and Servicing Agreement;
(vi) any sale of any assets by the Borrower or any of its Material
Subsidiaries not described in clauses (I) through (v) above, PROVIDED, that
at least 70% of the proceeds of any such sale shall consist of cash, Cash
Equivalents, and/or the assumption by the purchaser of liabilities;
PROVIDED, FURTHER, that the proceeds of any such sale received by the
Borrower or any Material Subsidiary (x) from any such individual sale or
related group of sales does not exceed $25,000,000 and (y) from all such
sales in any Fiscal Year of the Company does not exceed an aggregate amount
of $50,000,000;
(vii) any sale of assets described on SCHEDULE 6.02 attached hereto;
(viii) any sale or license of patents, trademarks, registrations
therefor and other similar intellectual property occurring outside the
ordinary course of business; and
(ix) any sale or other transfer of assets between the Borrower and any
of its Subsidiaries, or between any of the Borrower's Subsidiaries;
PROVIDED, HOWEVER, that no Material Subsidiary may sell or otherwise
transfer all or a substantial part of its assets, whether in one
transaction or in a series of related transactions, to any other
<PAGE>
Subsidiary, unless after giving effect to such sale or transfer the
transferee of such assets constitutes a Material Subsidiary.
SECTION 6.03. LIENS. Neither the Borrower nor any of its Material
Subsidiaries shall directly or indirectly create, incur, assume or permit to
exist any Lien on or with respect to any of their Property or assets except the
following (each, a "PERMITTED LIEN):
(i) Liens governed by the Collateral Trust Agreement;
(ii) any interest or title of a lessor or secured by a lessor's
interest under any lease permitted by this Agreement (including any
related precautionary UCC financing statements filed in connection
therewith);
(iii) to the extent any Operating Lease existing on the Closing
Date is reclassified as a Capital Lease;
(iv) Liens existing on the Closing Date and identified in
SCHEDULE 6.03;
(v) Customary Permitted Liens;
(vi) Liens with respect to judgments or attachments or arising
in connection with court proceedings which do not result in an Event
of Default or Potential Event of Default hereunder;
(vii) Liens securing Debt permitted pursuant to SECTION 6.01;
(viii) Liens arising under Section 302(f) of ERISA or Section
412(n) of the Internal Revenue Code where the delinquent contribution
which gave rise to the Lien is paid within thirty (30) days of its
original due date;
(ix) Liens securing the reimbursement obligations under any Letter of
Credit which is drawable upon presentation of documents evidencing the sale
or shipment of goods purchased by the Borrower or any of its Subsidiaries
in the ordinary course of its business (a "COMMERCIAL LETTER OF CREDIT"),
if such Lien attaches only to (A) cash collateral or (B) the goods acquired
through the issuance of such Commercial Letter of Credit;
(x) Liens consisting of purchase money security interests of
suppliers with respect to office equipment supplied in the ordinary course
of business, which Liens have not been perfected by the taking of
possession of collateral and, unless the applicable Debt has been paid in
full, which have not been in existence more than ninety (90) days.
(xi) Liens arising in connection with the the transfer of accounts and
related assets pursuant to the Pooling and Servicing Agreement and the
Receivables Purchase Agreements.
SECTION 6.04. INVESTMENTS. Until such time as the Borrower's senior
public debt is rated Investment Grade, neither the Borrower nor any of its
Material Subsidiaries shall directly or indirectly make or own any Investment in
any Person except:
(i) Investments in Cash Equivalents;
(ii) Investments existing on the Closing Date and identified on
SCHEDULE 6.04;
(iii) Investments in its domestic Material Subsidiaries;
<PAGE>
(iv) Investments in its Subsidiaries in existence on the Closing
Date (other than its Material Subsidiaries); PROVIDED, HOWEVER, that
from and after the Closing Date, neither the Borrower nor any of its
Material Subsidiaries shall make any Investment pursuant to this
CLAUSE (iv) in any such Subsidiary which involves a transfer by the
Borrower or such Material Subsidiary, as the case may be, of cash or
other property of the Borrower or such Material Subsidiary;
(v) Investments which constitute Debt permitted pursuant to SECTION
6.01 and SECTION 6.08;
(vi) Investments in any Person made with the proceeds of any dividend
or other distribution from such Person to the Borrower or Material
Subsidiary making such Investment; and
(vii) other Investments in an aggregate amount not to exceed
$175,000,000 MINUS the aggregate amount paid by CGC for the purchase of its
publicly-traded capital stock.
SECTION 6.05. RESTRICTION ON FUNDAMENTAL CHANGES. Neither the
Borrower nor any of its Material Subsidiaries shall enter into any merger or
consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or
dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one
transaction or in a series of related transactions, all or any substantial part
(to the extent not otherwise permitted in this Agreement) of its business,
property or assets, whether now existing or hereafter acquired; unless: (i) the
Borrower shall be the surviving corporation, or (ii) the successor entity which
acquires the Borrower or its assets shall expressly assume all obligations of
the Borrower hereunder and, in either case, (iii) after such merger,
consolidation, sale, lease or conveyance, (x) the Borrower or such successor
entity shall not be in default hereunder and (y) on a consolidated pro forma
basis giving effect to such transaction, any Person of which the Borrower shall
be a subsidiary (A) would have been in compliance with SECTION 6.09 as of the
most recent fiscal quarter end and (B) would be permitted to incur an additional
$1 of Debt under Section 6.01, in each case with all references to the Borrower
in SECTION 6.01 or 6.09 or in the definitions of the terms employed therein
being deemed references to such other Person, as the case may be; PROVIDED,
HOWEVER, that notwithstanding the foregoing, at any time a Subsidiary of the
Borrower may merge with and into the Borrower, or merge with and into or
consolidate with another of the Borrower's Subsidiaries.
SECTION 6.06. SALES AND LEASE-BACK. Neither the Borrower nor any of
its Material Subsidiaries shall become liable, directly or by way of a
Guarantee, with respect to any lease, whether or not such lease is a Capital
Lease, of any property (whether real or personal or mixed) whether now owned or
hereafter acquired, which the Borrower or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (a "SALE AND LEASE-
BACK TRANSACTION"); PROVIDED that the Borrower or a Subsidiary may enter into
any Sale and Lease-Back Transaction if (a) at the time of such Sale and Lease-
Back Transaction no Event of Default shall have occurred and be continuing, and
(b) the proceeds from the sale of the subject property shall be at least equal
to 80% of its fair market value.
SECTION 6.07. RESTRICTIONS ON ABILITY OF MATERIAL SUBSIDIARIES TO
DECLARE DIVIDENDS. The Borrower shall not permit any of its Material
Subsidiaries to enter into any agreements (other than the Collateral Trust
Agreement) with any other Person or Persons the effect of which would be to
restrict, directly or indirectly, the ability of such Material Subsidiary to
declare and pay dividends, other than any agreement that indirectly restricts
the declaration and payment of dividends solely through the inclusion of a net
worth covenant.
SECTION 6.08. DIVIDENDS, DISTRIBUTIONS AND PREPAYMENTS. Until such
time as the Borrower's senior public debt is rated Investment Grade, neither the
Borrower nor any of its Material Subsidiaries shall (i) declare or
<PAGE>
pay, directly or indirectly, any dividend, repurchase or redeem any shares of
its capital stock, or make any other distribution (by reduction of capital or
otherwise), whether in cash, property, securities or a combination thereof, with
respect to any shares of its capital stock, or (ii) prepay, defease, acquire for
value or exchange for any subordinated Debt, except as otherwise required
pursuant to the terms of the agreements governing such subordinated Debt as in
existence on and as of the Closing Date (except that the foregoing shall not
prohibit prepayment of Obligations to the extent permitted by this Agreement)
(the foregoing transactions being collectively called "RESTRICTED PAYMENTS");
PROVIDED, that (a) the Borrower may declare and pay dividends payable solely in
shares of its common stock, (b) any Subsidiary of the Borrower may make
Restricted Payments to the Borrower or another Subsidiary of the Borrower, (c)
the Borrower may make Restricted Payments under employee equity incentive plans
and (d) the Borrower may make additional Restricted Payments of cash and
securities of the Borrower (each, an "ADDITIONAL RESTRICTED PAYMENT") so long as
immediately after giving effect to any such proposed Additional Restricted
Payment, (x) no Event of Default shall have occurred and be continuing and (y)
the aggregate amount of all such Additional Restricted Payments made on or after
the Closing Date shall not exceed the sum of (i) $175,000,000 MINUS the
aggregate amount invested by the Borrower and all of its Material Subsidiaries
(other than CGC, if CGC is a Material Subsidiary) from and after the Closing
Date in connection with the purchase of CGC's publicly-traded capital stock,
(ii) 100% of the proceeds received by the Borrower from and after the Closing
Date from capital contributions or from the issuance or sale of stock,
convertible securities or convertible debt, and (iii) 50% of Consolidated Net
Income (or, if Consolidated Net Income shall be a deficit, minus 100% of such
deficit) for the period beginning on the first day following the end of the
fiscal quarter during which the Closing Date occurs, and ending on the last day
of the most recent fiscal quarter for which financial statements shall have been
delivered pursuant to SECTION 5.07 (taken as a single accounting period). For
purposes of CLAUSE (d) above, each Additional Restricted Payment made in
securities of the Borrower shall be valued at the fair market value of such
securities at the time such Additional Restricted Payment is made.
SECTION 6.09. FINANCIAL COVENANTS. The Borrower shall not permit:
(a) MAXIMUM DEBT/EBITDA RATIO. The Debt/EBITDA Ratio for the twelve-
month period ending with the last day of any fiscal quarter in any Fiscal Year
to exceed 4.50 to 1.00.
(b) MINIMUM INTEREST COVERAGE RATIO. The Interest Coverage Ratio for
the twelve-month period ending with the last day of any fiscal quarter in any
Fiscal Year to be less than 2.25 to 1.00.
SECTION 6.10. NO MORE RESTRICTIVE COVENANTS. Neither the Borrower
nor any Material Subsidiary of the Borrower shall permit the financial covenants
(which require the maintenance or satisfaction of financial performance tests
and are of the nature that, if breached, would result in an event of default) or
events of default (excluding a breach of a covenant which is not a financial
covenant as described above) contained in any debt agreement relating to a
principal amount in excess of $25,000,000, as the same may be amended, restated,
supplemented or otherwise modified at any time and from time to time, in the
reasonable and good faith determination of the Borrower, to be more restrictive
than the financial covenants contained in this Agreement, unless the Lenders are
afforded the benefit of such more restrictive covenant or event of default;
PROVIDED, that if the Lenders shall be afforded the benefit of any such more
restrictive covenant or event of default, such benefit shall cease upon the
termination of the debt agreement containing such more restrictive covenant or
event of default.
SECTION 6.11. ACQUISITIONS. From and after the Closing Date, neither
the Borrower nor any Material Subsidiary of the Borrower shall purchase or
otherwise acquire, directly or indirectly, (I) a controlling interest of the
issued and outstanding shares of capital stock or other equity
<PAGE>
interest of any Person or (ii) all or substantially all of the assets of such
Person, unless the primary business of such Person, its Subsidiaries and its
controlled Affiliates (taken as a whole) is within or is related to the building
materials industry.
ARTICLE VII
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
SECTION 7.01. EVENTS OF DEFAULT. Each of the following occurrences
shall constitute an Event of Default under this Agreement:
(a) FAILURE TO MAKE PRINCIPAL PAYMENTS WHEN DUE. The Borrower shall
fail to pay when due any principal on any Loan.
(b) FAILURE TO MAKE OTHER PAYMENTS WHEN DUE. The Borrower shall fail
to pay when due any interest, fee or other amount payable under this Agreement
(other than principal on any Loan) and, with respect to which such failure shall
continue unremedied for five (5) Business Days.
(c) BREACH OF REPRESENTATION OR WARRANTY. Any representation or
warranty made or deemed made by the Borrower to the Agent, any Issuing Bank or
any Lender herein or in any of the other Loan Documents or in any statement or
certificate at any time given by the Borrower or any of its Subsidiaries
pursuant to any of the Loan Documents shall be untrue in any material respect on
the date as of which made or deemed made.
(d) BREACH OF FINANCIAL COVENANTS. The Borrower shall fail to
perform or observe the financial covenants contained in SECTION 6.09.
(e) BREACH OF OTHER TERMS. The Borrower or any Material Subsidiary
of the Borrower shall default in the performance of or compliance with any
material term contained in this Agreement or in any of the Loan Documents or any
default or event of default shall occur under any of the Collateral Documents
(other than as covered by subsection (a) through (d) above or by subsection (k)
below), and such default or event of default shall continue for twenty (20) days
after the Borrower receives written notice from the Agent of the occurrence of
such default or event of default.
(f) DEFAULT AS TO OTHER INDEBTEDNESS. The Borrower or any Material
Subsidiary of the Borrower shall fail to make any payment when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) on
any Debt, other than with respect to the Obligations, if the aggregate amount of
such Debt is twenty-five million dollars ($25,000,000) or more; or any breach,
default or event of default shall occur, or any other event shall occur or
condition shall exist, under any instrument, agreement or indenture pertaining
thereto, and shall continue after the applicable grace period, if any, specified
in such instrument, agreement or indenture, if the aggregate amount of such Debt
is twenty-five million dollars ($25,000,000) or more and if the effect thereof
(with or without the giving of notice or lapse of time or both) is to
accelerate, or permit the holder(s) of such Debt (or any Person on behalf of
such holders) to accelerate, the maturity of any such Debt; or any such Debt
shall be declared in accordance with the terms of the underlying agreement to be
due and payable or required to be prepaid (other than by a regularly scheduled
required prepayment prior to the stated maturity thereof).
(g) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(I) An involuntary case shall be commenced against the Borrower
or any of its Material Subsidiaries, and the petition shall not be
dismissed within sixty (60) days after commencement of the case, or a court
having jurisdiction in the premises shall enter a decree or order for
relief in respect of the Borrower or any of its Material Subsidiaries, in
an involuntary case, under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect; or any other
<PAGE>
similar relief shall be granted under any applicable federal, state or
foreign law.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the Borrower
or any of its Material Subsidiaries, or over all or a substantial part of
the property of the Borrower or any of its Material Subsidiaries, shall be
entered; or an interim receiver, trustee or other custodian of the Borrower
or any of its Material Subsidiaries or of all or a substantial part of the
property of the Borrower or any of its Material Subsidiaries shall be
appointed or a warrant of attachment, execution or similar process against
any substantial part of the property of the Borrower or any of its Material
Subsidiaries shall be issued and any such event shall not be stayed,
vacated, dismissed, bonded or discharged within sixty (60) days of entry,
appointment or issuance.
(h) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Borrower
or any of its Material Subsidiaries shall have an order for relief entered with
respect to it or commence a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or shall consent to
the entry of an order for relief in an involuntary case, or to the conversion of
an involuntary case to a voluntary case, under any such law, or shall consent to
the appointment of or taking of possession by a receiver, trustee or other
custodian for it or for all or a substantial part of its property; the Borrower
or any of its Material Subsidiaries shall make any assignment for the benefit of
creditors; or the board of directors (or any committee thereof) of the Borrower
or any of the Material Subsidiaries adopts any resolution or otherwise
authorizes any action to approve any of the foregoing.
(I) JUDGMENTS AND ATTACHMENTS. Any money judgment (other than a
money judgment to the extent covered by insurance, but only if the insurer has
not denied coverage with respect to such money judgment), writ or warrant of
attachment, or similar process involving in any case an amount in excess of
twenty-five million dollars ($25,000,000) shall be entered or filed against the
Borrower or any of its Material Subsidiaries, or any of their respective assets
by a court of competent jurisdiction and shall remain undischarged, unvacated,
unbonded or unstayed for a period ending on the first to occur of (I) the last
day on which such order, judgment or decree becomes final and unappealable or
(ii) sixty (60) days.
(j) DISSOLUTION. Any order, judgment or decree shall be entered
against the Borrower or any of its Material Subsidiaries decreeing its
involuntary dissolution or split up and such order shall remain undischarged and
unstayed for a period in excess of thirty (30) days.
(k) COLLATERAL DOCUMENTS; FAILURE OF SECURITY. For any reason other
than in connection with the release of the Collateral Trustee's Lien on the
capital stock of the domestic Material Subsidiaries as contemplated by SECTION
9.07, (I) any Collateral Document ceases to be in full force and effect or any
Lien intended to be created thereby ceases to be or is not valid and perfected;
or any Lien in favor of the Collateral Trustee; (ii) any Obligations
contemplated by this Agreement or any Collateral Document shall, at any time, be
invalidated or otherwise cease to be in full force and effect; (iii) any such
Lien or any Obligation shall be subordinated or shall not have the priority
contemplated by this Agreement or the Collateral Documents for any reason other
than as set forth in this PARAGRAPH (k); or (iv) the Borrower or any Subsidiary
of the Borrower shall institute any action seeking a determination of any of the
foregoing.
(l) CHANGE IN CONTROL. Any Person (other than the Borrower or any
Subsidiary of the Borrower) shall purchase or otherwise acquire directly or
indirectly beneficial ownership of the common stock on or after the Closing
Date, and immediately after such purchase or acquisition such Person and its
<PAGE>
Affiliates and "Associates" (as defined below) shall directly or indirectly
beneficially own in the aggregate 50% or more of the common stock then
outstanding. For purposes of this SECTION 7.01(l), (I) "beneficial ownership"
shall be determined in accordance with Rule 13d-3 (or any successor rule) of the
Commission under the Securities Exchange Act; PROVIDED, HOWEVER, that any
employee benefit plan of the Borrower or a trustee or other Person holding
common stock for or pursuant to the terms of any such plan shall not be deemed
to have beneficial ownership of such common stock so long as each participant in
such plan has the right to direct the trustee or other Person (A) to vote the
common stock held by such plan for his or her benefit and (B) to tender such
common stock in the event of a tender offer for common stock; and (ii)
"ASSOCIATE" shall mean, with respect to any Person, (A) an officer, employee or
partner of such Person, (B) a trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, or (c) a relative or spouse of such Person, or
a relative of such spouse, who has the same home as such Person.
(m) ERISA LIABILITIES. Any Termination Event occurs which will or is
reasonably likely to subject either the Borrower or an ERISA Affiliate to a
liability which would have a Material Adverse Effect, or, the plan administrator
of any Benefit Plan applies for and receives approval under Section 412(d) of
the Internal Revenue Code for a waiver of the minimum funding standards of
Section 412(a) of the Internal Revenue Code and the business hardship upon which
the Section 412(d) waiver was based will or is reasonably likely to subject
either the Borrower or an ERISA Affiliate to a liability which would have a
Material Adverse Effect.
(n) ENVIRONMENTAL LIABILITIES. The Borrower or any of its
Subsidiaries shall become subject to any Liabilities and Costs arising out of or
related to (a) the Release or threatened Release at any location of any
Contaminant into the environment, or any Remedial Action in response thereto, or
(b) any violation of any environmental, health or safety Requirements of Law,
which Liabilities and Costs, individually or in the aggregate, would have a
Material Adverse Effect. "REMEDIAL ACTION" shall mean any action required to
(I) clean up, remove or treat or in any other way address Contaminants in the
indoor or outdoor environment; (ii) prevent a Release or threat of Release or
minimize the further Release of Contaminants so they do not migrate or endanger
or seriously threaten to endanger public health or welfare or the indoor or
outdoor environment; or (iii) perform pre-remedial studies and investigations or
post-remedial monitoring and care.
An Event of Default shall be deemed "continuing" until cured or waived in
writing in accordance with SECTION 9.09.
7.02. RIGHTS AND REMEDIES.
(a) ACCELERATION. Upon the occurrence of any Event of Default
described in the foregoing SECTION 7.01(g) or 7.01(h), all Commitments shall
automatically and immediately terminate and the unpaid principal amount of and
any and all accrued interest on the Loans, all Obligations in respect of LC
Exposure and all accrued Commitment Fees and all other fees payable hereunder
shall automatically become immediately due and payable by the Borrower, with all
additional interest from time to time accrued thereon and without presentment,
demand, or protest or other requirements of any kind (including, without
limitation, valuation or appraisal, diligence, presentment or notice of intent
to demand or accelerate or of acceleration), all of which are hereby expressly
waived by the Borrower, and the obligation of each Lender to make any Revolving
Loan hereunder or each Issuing Bank to issue or each Lender to participate in
any additional Letter of Credit shall thereupon terminate; and upon the
occurrence and during the continuance of any other Event of Default, by written
notice to the Borrower, the Agent shall, at the request, or may with the
consent, of the Requisite Lenders, (I) declare that the Commitments are termi-
nated, whereupon the Commitments and the obligation of each Lender to make any
Revolving Loan hereunder, or each Issuing Bank to issue or each Lender to
participate in any additional Letter of Credit shall immediately
<PAGE>
terminate, and/or (ii) declare the unpaid principal amount of and any and all
accrued and unpaid interest on the Loans to be, and the same shall thereupon be,
immediately due and payable with all additional interest from time to time
accrued thereon and without presentment, demand, or protest or other
requirements of any kind (including, without limitation, valuation or appraisal,
diligence, presentment or notice of intent to demand or accelerate or of
acceleration), all of which are hereby expressly waived by the Borrower.
(b) CASH COLLATERAL. In addition, following the occurrence of any
Event of Default, the Borrower shall, upon the request of an Issuing Bank,
promptly deposit with the Agent for the benefit of the Lenders and such Issuing
Bank, in connection with an extension of the expiry date of any Letters of
Credit issued by such Issuing Bank, cash or Cash Equivalents in an amount up to
the greatest amount for which such Letters of Credit may be drawn. Such deposit
shall be held by the Agent for the benefit of the Lenders and the Issuing Banks,
as security for, and to provide for the payment of, LC Obligations. The
Borrower hereby grants to the Agent, for the benefit of the Lenders and the
Issuing Banks, a lien and security interest in all such sums held by the Agent.
(c) RESCISSION. If at any time after acceleration of the maturity of
the Loans, the Borrower shall pay all arrears of interest and all payments on
account of principal of the Loans and LC Obligations which shall have become due
otherwise than by acceleration (with interest on principal and, to the extent
permitted by law, on overdue interest, at the rates specified in this Agreement)
and all Events of Default and Potential Events of Default (other than nonpayment
of principal of and accrued interest on the Loans and the Notes and with respect
to Letters of Credit, due and payable solely by virtue of acceleration) shall be
remedied or waived pursuant to SECTION 9.09, then by written notice to the
Borrower, the Requisite Lenders may elect, in the sole discretion of such
Requisite Lenders, to rescind and annul the acceleration and its consequences;
but such action shall not affect any subsequent Event of Default or Potential
Event of Default or impair any right or remedy consequent thereon. The
provisions of the preceding sentence are intended merely to bind the Lenders to
a decision which may be made at the election of the Requisite Lenders; they are
not intended to benefit the Borrower and do not give the Borrower the right to
require the Lenders to rescind or annul any acceleration hereunder, even if the
conditions set forth herein are met.
ARTICLE VIII. THE AGENT
SECTION 8.01. APPOINTMENT. In order to expedite the transactions
contemplated by this Agreement, Chemical Bank is hereby appointed to act as
Agent on behalf of the Lenders and the Issuing Banks. Each of the Lenders and
the Issuing Banks hereby irrevocably authorizes the Agent to take such actions
on its behalf and to exercise such powers as are specifically delegated to the
Agent by the terms and provisions hereof and of the other Loan Documents,
together with such actions and powers as are reasonably incidental thereto. The
Agent is hereby expressly authorized by the Lenders and the Issuing Banks,
without hereby limiting any implied authority, and the Agent hereby agrees, (a)
to receive on behalf of the Lenders and the Issuing Banks all payments of
principal of and interest on the Loans and the LC Disbursements and all other
amounts due to the Lenders and the Issuing Banks hereunder, and promptly to
distribute to each Lender and Issuing Bank its proper share of each payment so
received; (b) to give notice on behalf of each of the Lenders to the Borrower of
any Event of Default specified in this Agreement of which the Agent has actual
knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender and Issuing Bank copies of all notices, financial
statements and other materials delivered by the Borrower pursuant to this
Agreement as received by the Agent.
SECTION 8.02. NATURE OF DUTIES. The Agent shall not have any duties
or responsibilities except those expressly set forth in this Agreement or in the
other Loan Documents. The Agent's duties shall be mechanical and
<PAGE>
administrative in nature. The Agent shall not have by reason of this Agreement
a fiduciary relationship in respect of any Lender or any Issuing Bank. Nothing
in this Agreement or any of the other Loan Documents, expressed or implied, is
intended to or shall be construed to impose upon the Agent any obligations in
respect of this Agreement or any of the other Loan Documents except as expressly
set forth herein or therein. With respect to the taking or refraining from
taking any action hereunder, if the Agent seeks the consent or approval of the
Requisite Lenders, the Agent shall send notice thereof to each Lender. The
Agent shall promptly notify each Lender at any time that the Requisite Lenders
or, where expressly required, all of the Lenders, have instructed the Agent to
act or refrain from acting pursuant hereto.
SECTION 8.03. RIGHTS, EXCULPATION, ETC. Neither the Agent nor any of
its directors, officers, employees, Affiliates or agents shall be liable as such
for any action taken or omitted by any of them except for its or his own gross
negligence or willful misconduct, or be responsible for any statement, warranty
or representation herein or the contents of any document delivered in connection
herewith, or be required to ascertain or to make any inquiry concerning the
performance or observance by the Borrower of any of the terms, conditions,
covenants or agreements contained in any Loan Document. The Agent shall not be
responsible to the Lenders for the due execution, genuineness, validity,
enforceability or effectiveness of this Agreement or any other Loan Documents or
other instruments or agreements. The Agent shall in all cases be fully
protected in acting, or refraining from acting, in accordance with written
instructions signed by the Requisite Lenders or all of the Lenders, as
appropriate, and, except as otherwise specifically provided herein, such
instructions and any action or inaction pursuant thereto shall be binding on all
the Lenders and the Issuing Banks. The Agent shall, in the absence of knowledge
to the contrary, be entitled to rely on any instrument or document believed by
it in good faith to be genuine and correct and to have been signed or sent by
the proper Person or Persons. Neither the Agent nor any of its directors,
officers, employees or agents shall have any responsibility to the Borrower on
account of the failure of or delay in performance or breach by any Lender or
Issuing Bank of any of its obligations hereunder or to any Lender or Issuing
Bank on account of the failure of or delay in performance or breach by any other
Lender or Issuing Bank or the Borrower of any of their respective obligations
hereunder or under any other Loan Document or in connection herewith or
therewith. The Agent may execute any and all duties hereunder by or through
agents or employees and shall be entitled to rely upon the advice of legal
counsel selected by it with respect to all matters arising hereunder and shall
not be liable for any action taken or suffered in good faith by it in accordance
with the advice of such counsel.
The Lenders and the Issuing Banks hereby acknowledge that the Agent
shall be under no duty to take any discretionary action permitted to be taken by
it pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Requisite Lenders.
SECTION 8.04. SUCCESSOR AGENT; RESIGNATION OF THE AGENT. Subject to
the appointment and acceptance of a successor Agent as provided below, the Agent
may resign at any time by notifying the Lenders, the Issuing Banks and the
Borrower. Upon any such resignation, the Requisite Lenders shall have the right
to appoint a successor acceptable to the Borrower. If no successor shall have
been so appointed by the Requisite Lenders and shall have accepted such
appointment within 30 days after the retiring Agent gives notice of its
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent which shall be a United States of America bank with an office in
New York, New York, having a combined capital and surplus of at least
$500,000,000 or an Affiliate of any such bank, and which shall be reasonably
acceptable to the Borrower. Upon the acceptance of any appointment as Agent
hereunder by a successor bank, such successor shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Agent and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After the Agent's resignation hereunder, the provisions of this ARTICLE and
SECTION 9.05 shall continue in effect for its
<PAGE>
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
SECTION 8.05. THE AGENT INDIVIDUALLY. With respect to the Loans made
by it hereunder, Chemical Bank, in its individual capacity and not as Agent,
shall have the same rights and powers as any other Lender and may exercise the
same as though it was not the Agent, and Chemical Bank and its Affiliates may
accept deposits from, lend money to and generally engage in any kind of business
with the Borrower, or any Subsidiary or any other Affiliate thereof, as if it
was not the Agent.
SECTION 8.06. INDEMNIFICATION. Each Lender agrees (I) to reimburse
the Agent, on demand, in the amount of its Pro Rata Share of any expenses
incurred for the benefit of the Lenders or the Issuing Banks by the Agent,
including counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders or the Issuing Banks, which shall not
have been reimbursed by the Borrower and (ii) to indemnify and hold harmless the
Agent and any of its directors, officers, employees or agents, on demand, in the
amount of such Pro Rata Share, from and against any and all liabilities, taxes,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against it in its capacity as the Agent or any of
them in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by it or any of them under this
Agreement or any other Loan Document, to the extent the same shall not have been
reimbursed by the Borrower; PROVIDED that no Lender shall be liable to the Agent
under CLAUSE (I) or (ii) above for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the gross negligence or willful misconduct of the
Agent or any of its directors, officers, employees or agents.
SECTION 8.07. INDEPENDENT CREDIT ANALYSIS. Each Lender and Issuing
Bank acknowledges that it has, independently and without reliance upon the Agent
or any other Lender or Issuing Bank and based on such documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender and Issuing Bank also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender or
Issuing Bank and based on such documents and information as it shall from time
to time deem appropriate, make its own credit analysis and decision to make
Loans hereunder from and after the Closing Date and continue to make its own
decisions in taking or not taking action under or based upon this Agreement or
any other Loan Document, any related agreement or any document furnished
hereunder or thereunder.
SECTION 8.08. RELATIONS AMONG LENDERS. Each Lender and each Issuing
Bank agrees that it will not take any action, nor institute any actions or
proceedings, against the Borrower with respect to this Agreement or any other
Loan Document without the prior written consent of the Requisite Lenders.
ARTICLE IX. MISCELLANEOUS
SECTION 9.01. NOTICES. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed or sent by telecopy, as follows:
(a) if to the Borrower, to it at 125 South Franklin Street, Chicago,
Illinois 60606, Attention of John E. Malone, Vice President and Treasurer,
Telecopy No. (312) 606-3883;
(b) if to Chemical Bank, to it at 270 Park Avenue, New York, New
York 10017, Attention of Christopher C. Wardell, Managing Director,
Telecopy No. (212) 270-6125, with a copy to Chemical Securities Inc., 10
South LaSalle, Chicago, Illinois 60603, Attention of Steven J. Faliski,
Vice President, Telecopy No. (312) 443-1964;
<PAGE>
(c) if to any Issuing Bank, to it at the address for notices
specified in the applicable Issuing Bank Agreement; and
(d) if to a Lender, to it at its address (or telecopy number) set
forth in SCHEDULE 2.01 or in the Assignment and Acceptance pursuant to
which such Lender shall have become a party hereto;
in each case, or to such other address as such Person may from time to time
direct in writing to the Agent and the Borrower.
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt if delivered by hand or overnight courier service
or sent by telecopy, or on the date five Business Days after dispatch by
certified or registered mail if mailed, in each case delivered, sent or mailed
(properly addressed) to such party as provided in this SECTION 9.01 or in
accordance with the latest unrevoked direction from such party given in
accordance with this SECTION 9.01.
SECTION 9.02. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made by the Borrower herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Lenders and the Issuing Banks and shall survive the making by the Lenders of the
Loans and the issuance by the Issuing Banks of Letters of Credit, regardless of
any investigation made by the Lenders or the Issuing Banks or on their behalf,
and shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any Fee or any other amount payable under this
Agreement (other than any contingent indemnity Obligations arising pursuant to
SECTION 2.16, 2.18, 2.22 or 9.05) or any other Loan Document is outstanding and
unpaid and so long as the Commitments have not been terminated.
SECTION 9.03. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agent and when the
Agent shall have received copies hereof which, when taken together, bear the
signatures of each Lender, and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Agent, each Lender and Issuing Bank and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights or obligations hereunder or any interest herein
without the prior consent of the Issuing Banks and all the Lenders.
SECTION 9.04. SUCCESSORS AND ASSIGNS. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Borrower, the Agent, the Issuing
Banks or the Lenders that are contained in this Agreement shall bind and inure
to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more Eligible Assignees all or a
percentage of such assigning Lender's interests, rights and obligations under
this Agreement and the other Loan Documents (including all or a portion of the
Loans owing to it, the Notes held by it and its Commitments); PROVIDED, HOWEVER,
that (I) except in the case of an assignment to a Lender or an Affiliate of a
Lender, the Agent, the Borrower and the Issuing Banks must give their prior
written consent to such assignment (which consent of the Agent, the Borrower and
the Issuing Banks shall not be unreasonably withheld), (ii) the aggregate amount
of the Revolving Credit Commitments of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Agent) shall not be less than $5,000,000
or, if less, the full amount of the assigning Lender's Revolving Credit
Commitments, (iii) the parties to each such assignment shall execute and deliver
to the Agent an Assignment and Acceptance, and such Eligible Assignee shall
deliver to the Agent a processing and recordation fee of $3500 and (iv) such
Eligible Assignee, if it shall not
<PAGE>
be a Lender, shall deliver to the Agent an Administrative Questionnaire. Upon
acceptance and recording pursuant to PARAGRAPH (e) of this SECTION 9.04, from
and after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days (except as otherwise agreed
by the assignor, the assignee and the Agent) after the execution thereof, (A)
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and the other Loan Documents and
(B) the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of SECTIONS 2.16, 2.18, 2.22 and 9.05,
as well as to any interest and Fees accrued for its account and not yet paid).
Notwithstanding the foregoing, any Lender assigning rights and
obligations under this Agreement may retain any Competitive Bid Loans made by it
outstanding at such time and in such case shall retain its rights hereunder in
respect of any Loans so retained until such Loans have been repaid in full in
accordance with this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(I) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Commitments and/or the outstanding balances of its Loans, in each case
without giving effect to assignments thereof which have not become effective,
are as set forth in such Assignment and Acceptance, (ii) except as set forth in
CLAUSE (I) above, such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, any other Loan
Document, or any other instrument or document furnished pursuant hereto or
thereto, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto or thereto, or the financial
condition of the Borrower or any Subsidiary of the Borrower or the performance
or observance by the Borrower or any Subsidiary of the Borrower of any of its
obligations under this Agreement, any other Loan Document or any other
instrument or document furnished pursuant hereto or thereto; (iii) such assignee
represents and warrants that it is legally authorized to enter into such
Assignment and Acceptance and that it is an Eligible Assignee; (iv) such
assignee confirms that it has received a copy of this Agreement, together with
copies of the most recent financial statements delivered pursuant to SECTION
5.07 and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such Assignment and
Acceptance; (v) such assignee will independently and without reliance upon the
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (vi) such
assignee appoints and authorizes the Agent to take such action as Agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) The Agent shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitments
of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the "REGISTER"). The entries in the Register
shall be conclusive in the absence of manifest error and the
<PAGE>
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower and any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in PARAGRAPH
(b) above and, if required, the written consent of the Borrower, the Agent, and
the Issuing Banks to such assignment, the Agent shall (I) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Borrower, the Lenders and the
Issuing Banks.
(f) Upon the acceptance by the Agent of any Assignment and Acceptance,
the parties to such Assignment and Acceptance may at any time request that a new
Revolving Loan Note and a new Competitive Bid Note be issued to the Lender
assignee by (I) providing written notice of such request to the Agent and the
Borrower and (ii) delivering to the Borrower such assigning Lender's Revolving
Loan Note and Competitive Bid Note for cancellation and substitution; PROVIDED
that the Competitive Bid Note shall only be so delivered if the assignor is
assigning all of its Revolving Credit Commitment; PROVIDED, FURTHER, that if the
Lender is assigning all of its Revolving Credit Commitment, and such Lender is
retaining any outstanding Competitive Bid Loans, the Competitive Bid Note shall
be delivered when such Competitive Bid Loans have been paid in full. With
respect to each such Note so delivered, promptly following receipt by the
Borrower of any such notice and such Note, and verification from the Agent that
the applicable Assignment and Acceptance shall have been accepted by the Agent,
the Borrower forthwith shall cause to be executed, and shall deliver to the
Lender assignee, a new Note to the order of the assignee and, if applicable, a
replacement Note to the order of the Lender assignor, and such Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of the assigning Lender's surrendered Note issued by the Borrower
immediately prior to the acceptance by the Agent of the applicable Assignment
and Acceptance; PROVIDED, HOWEVER, that each Competitive Bid Note shall be in
the principal amount of the Aggregate Revolving Credit Commitments. The
Borrower shall, immediately upon delivery of such new Note(s), cancel the
original Note or Notes delivered by the Lender assignor to the Borrower.
(g) Each Lender, without the consent of the Borrower, the Agent or
any Issuing Bank, may sell participations to one or more banks or other entities
in all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitments and the Loans owing to it);
PROVIDED, HOWEVER, that (I) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) the participating
banks or other entities shall be entitled to the benefit of the cost protection
and indemnity provisions contained in SECTIONS 2.16, 2.18, 2.22 and 9.05 to the
same extent as if they were Lenders (except that no participant shall be
entitled to claim any amount greater than its pro rata share of the amount that
could have been claimed by the Lender from which it acquired its participation)
and (iv) the Borrower, the Agent, the Issuing Banks and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to the
Loans and to approve any amendment, modification or waiver of any provision of
this Agreement (other than amendments, modifications or waivers decreasing any
fees payable hereunder (other than Issuing Bank Fees) or the amount of principal
of or the rate at which interest is payable on the Loans or LC Disbursements,
extending the final maturity of the Loans or any date fixed for the payment of
interest on the Loans or LC Disbursements or any Fees (other than Issuing Bank
Fees) or extending the Commitments).
<PAGE>
(h) Any Lender or participant may, in connection with any assignment
or participation or proposed assignment or participation pursuant to this
SECTION 9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower and its Subsidiaries
furnished to such Lender by or on behalf of the Borrower; PROVIDED that, prior
to any such disclosure of information designated by the Borrower as
confidential, each such assignee or participant or proposed assignee or
participant shall execute an agreement substantially in the form of that
executed in connection with the syndication of the Revolving Credit Commitments
by those Lenders party hereto as of the Closing Date, whereby such assignee or
participant shall agree (subject to customary exceptions) to preserve the
confidentiality of such confidential information.
(I) Any Lender may at any time pledge or assign all or any portion of
its rights under this Agreement and the Notes issued to it to a Federal Reserve
Bank; PROVIDED that no such assignment shall release a Lender from any of its
obligations hereunder.
(j) The Borrower shall not assign or delegate any of its rights or
duties hereunder without the consent of each Lender.
SECTION 9.05. EXPENSES; INDEMNITY. (a) The Borrower agrees to pay
all reasonable out-of-pocket expenses incurred by the Agent in connection with
the preparation of this Agreement and the other Loan Documents or in connection
with any amendments, modifications or waivers of the provisions hereof or
thereof requested by the Borrower or incurred by the Agent, any Issuing Bank or
any Lender following an Event of Default or Potential Event of Default in
connection with the enforcement or protection of their rights in connection with
this Agreement and the other Loan Documents or in connection with the Loans made
or Letters of Credit issued hereunder, including in each case the reasonable
fees, charges and disbursements of counsel for the Agent, and, in connection
with any such enforcement or protection, the reasonable fees, charges and
disbursements of any other counsel for the Agent, any Issuing Bank or any
Lender. The Borrower further agrees that it shall indemnify the Agent, the
Issuing Banks and the Lenders from and hold them harmless against any
documentary taxes, assessments or charges made by any Governmental Authority by
reason of the execution and delivery or enforcement of this Agreement or any of
the other Loan Documents.
(b) The Borrower agrees to indemnify the Agent, each Issuing Bank,
each Lender and each of their respective directors, officers, employees,
Affiliates, attorneys and agents (each such Person being called an "INDEMNITEE")
against, and to hold each Indemnitee harmless from, any and all liabilities,
damages, obligations, losses, penalties, actions, judgments, suits, costs and
expenses which (if such liabilities, damages, obligations, losses, penalties,
actions, judgments, suits, costs and expenses arise in a judicial forum) are
found in a final judgment by a court of competent jurisdiction, including
reasonable counsel fees, charges and disbursements, incurred by or asserted
against any Indemnitee arising out of any third party claim, litigation,
investigation or proceeding (whether or not any Indemnitee shall be party
thereto) relating to, in any way connected with, or as a result of (I) the
execution or delivery of this Agreement or any other Loan Document or any
agreement or instrument contemplated hereby or thereby, or (ii) the use of the
Letters of Credit or the proceeds of the Loans (a "THIRD PARTY CLAIM"); PROVIDED
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such liabilities, damages, obligations, losses, penalties, actions,
judgments, suits, costs and expenses are found in a final judgment by a court of
competent jurisdiction to have resulted from the gross negligence, bad faith or
willful misconduct of such Indemnitee; PROVIDED FURTHER that (A) each Indemnitee
shall promptly (but in any event within ten (10) Business Days) notify the
Borrower in writing upon becoming aware of the initiation of any Third Party
Claim against it, (B) the Borrower shall be entitled to participate in the
defense of any such Third Party Claim and, if the Borrower so chooses, to assume
the defense, at the Borrower's expense, of any such Third Party Claim with
counsel selected by the Borrower (it being understood that any Indemnitee shall
have the right to participate in such defense and
<PAGE>
employ counsel separate from the counsel employed by the Borrower, and that such
counsel shall be at the expense of such Indemnitee unless such Indemnitee shall
have been advised by counsel that there may be legal defenses available to it
that are inconsistent with or in addition to those available to the Borrower, in
which case such counsel shall be at the expense of the Borrower) and (c) no
Indemnitee shall settle any Third Party Claim without the prior written consent
of the Borrower (which consent shall not be unreasonably withheld).
(c) None of the Agent, any Lender, any Issuing Bank, the Borrower or
any of their respective directors, officers, employees, Affiliates, attorneys
and agents shall be responsible or liable to any other party hereto or any other
Person or entity for consequential damages which may be alleged as a result of
the transactions contemplated hereby, except to the extent specifically set
forth in this Agreement.
(d) The provisions of this SECTION 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Agent, any Issuing Bank or any Lender. All amounts
due under this SECTION 9.05 shall be payable within ten Business Days after
written demand therefor.
SECTION 9.06. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
Obligations now or hereafter existing under this Agreement and other Loan
Documents to such Lender, irrespective of whether or not such Lender shall have
made any demand under this Agreement or such other Loan Document and although
such obligations may be unmatured. The rights of each Lender under this SECTION
9.06 are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
SECTION 9.07. CONCERNING THE COLLATERAL DOCUMENTS; ACTIONS BY THE
LENDERS; TRUSTEE'S FEES; RELEASE OF COLLATERAL. (a) Each Lender and each
Issuing Bank hereby consents and agrees to the terms of the Collateral Documents
and authorizes and directs the Collateral Trustee to execute the Collateral
Documents. Each Lender and each Issuing Bank hereby agrees, and each holder of
any Note by the acceptance thereof will be deemed to agree, that any action
taken by the Requisite Lenders or the Agent (as appropriate), in accordance with
the provisions of this Agreement or the Collateral Documents, and the exercise
by the Requisite Lenders or the Agent (as appropriate) of the powers set forth
herein or therein, together with such other powers as are reasonably incidental
thereto, shall be authorized and binding upon all of the Lenders, Issuing Banks
and the holders of any Note.
(b) If the Borrower fails to pay any amount of Trustee's Fees owed by
it to the Collateral Trustee pursuant to the Collateral Trust Agreement, the
Lenders agree to pay to the Collateral Trustee such unpaid Trustee's Fees,
apportioned among the Lenders ratably in accordance with each Lender's Pro Rata
Share (and no Lender shall have any obligation to pay any other Lender's Pro
Rata Share of such fees). Any such Trustee's Fees paid by the Lenders pursuant
to this SECTION 9.07 shall be deemed to be a Revolving Loan hereunder made to
the Borrower, which Loan (together with all interest thereon) shall be payable
upon demand by the Agent and shall accrue interest for the period during which
it is outstanding at a rate equal to two percent (2.0%) per annum above the
Alternate Base Rate as in effect during such period. The Borrower hereby
irrevocably authorizes the Lenders to make such Revolving Loans for the purpose
of paying any Trustee's Fees which the Borrower fails to pay and agrees that all
such Loans so made shall be deemed to have been requested by the Borrower.
<PAGE>
(c) Prior to the satisfaction of the condition specified in Section
7.1(a) of the Collateral Trust Agreement (without limiting PARAGRAPH (d) below,
the release of the capital stock of any Material Subsidiary from the Lien
granted to the Collateral Trustee may occur only as follows:
(I) the Agent, on behalf of the Lenders, shall direct the Collateral
Trustee to release the Lien on the capital stock of any Material Subsidiary
if such Material Subsidiary is sold with the consent of the Requisite
Lenders; and
(ii) in addition, the Requisite Lenders may direct the Collateral
Trustee to release the Lien on the capital stock of any Material
Subsidiary; PROVIDED, that all of the Lenders shall be required to direct
the Collateral Trustee to release all or substantially all of the
Collateral as provided in Section 7 of the Collateral Trust Agreement.
(d) Prior to the satisfaction of the condition specified in Section
7.1(a) of the Collateral Trust Agreement, the Agent shall direct the Collateral
Trustee to release its Lien on the capital stock of all of the domestic Material
Subsidiaries if the Borrower's senior public debt is rated Investment Grade.
SECTION 9.08. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 9.09. WAIVERS; AMENDMENT. (a) No failure or delay of the
Agent, any Issuing Bank or any Lender in exercising any power or right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the Agent,
the Issuing Banks and the Lenders hereunder and under the other Loan Documents
are cumulative and are not exclusive of any rights or remedies which they would
otherwise have. No waiver of any provision of this Agreement or any other Loan
Document or consent to any departure by the Borrower therefrom shall in any
event be effective unless the same shall be permitted by PARAGRAPH (b) below,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No notice or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Requisite Lenders; PROVIDED, HOWEVER, that
no such agreement shall (I) decrease the principal amount of, or extend the
maturity of, any scheduled principal payment date or date for the payment of any
interest on any Loan or LC Disbursement, or waive or excuse any such payment or
any part thereof, or decrease the rate of interest on any Loan or LC
Disbursement, without the prior written consent of each Lender affected thereby,
(ii) change or extend any Commitment or decrease the amount or extend the time
of payment of the Commitment Fees or LC Fees of any Lender without the prior
written consent of such Lender, or (iii) amend or modify the provisions of
SECTION 2.19, the provisions of this SECTION 9.09 or the definitions of
"Requisite Lenders" or "Pro Rata Share" without the prior written consent of
each Lender; PROVIDED FURTHER that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Agent or the Issuing Banks
hereunder without the prior written consent of the Agent or the Issuing Banks,
as the case may be.
SECTION 9.10. INTEREST RATE LIMITATION. Notwithstanding anything
herein to the contrary, if at any time the applicable interest rate, together
with all fees and charges which are treated as interest under applicable law
(collectively the "CHARGES"), as provided for herein or in any other document
<PAGE>
executed in connection herewith, or otherwise contracted for, charged, received,
taken or reserved by any Lender, shall exceed the maximum lawful rate (the
"MAXIMUM RATE") which may be contracted for, charged, taken, received or
reserved by such Lender in accordance with applicable law, the rate of interest
payable on such Lender's Loans, together with all Charges payable to such
Lender, shall be limited to the Maximum Rate.
SECTION 9.11. CONFIDENTIALITY. Each of the Agent and the Lenders
shall hold all non-public information obtained pursuant to this Agreement (which
has been reasonably identified as such by the Borrower) in accordance with its
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and will use such information
only in connection with the transactions contemplated by the Loan Documents, and
in any event may make disclosure of any such information (I) to any Agent, or
any Lender, (ii) to the extent required by law (including statute, rule,
regulation or judicial process), (iii) to counsel for any Lender or the Agent or
to their respective accountants, each of whom shall also be bound by the confi-
dentiality obligations set forth herein, (iv) to bank examiners and auditors and
appropriate government examining authorities, (v) to the extent necessary or
appropriate in connection with any litigation to which any Lender or the Agent
is a party, or (vi) subject to SECTION 9.04, to any actual or prospective
participant in or assignee of any Loan owing to or Note held by such Lender.
SECTION 9.12. ENTIRE AGREEMENT. This Agreement, including the
exhibits and schedules hereto, and the other Loan Documents constitute the
entire contract between the parties relative to the subject matter hereof and
thereof. Any previous agreement among the parties with respect to the subject
matter hereof or thereof is superseded by this Agreement and the other Loan
Documents. Nothing in this Agreement or in the other Loan Documents, expressed
or implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.
SECTION 9.13. WAIVER OF JURY TRIAL. Each party hereto hereby waives,
to the fullest extent permitted by applicable law, any right it may have to a
trial by jury in respect of any litigation directly or indirectly arising out
of, under or in connection with this Agreement or any of the other Loan
Documents. Each party hereto (a) certifies that no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver and (b) acknowledges that it and the other parties hereto have been
induced to enter into this Agreement and the other Loan Documents, as
applicable, by, among other things, the mutual waivers and certifications in
this SECTION 9.13.
SECTION 9.14. SEVERABILITY. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 9.15. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract, and shall become effec-
tive as provided in SECTION 9.03.
SECTION 9.16. HEADINGS. Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
<PAGE>
SECTION 9.17. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) THE
BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS
PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR
FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY, AND ANY
APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT
PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE BORROWER IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PRECEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO ITS NOTICE ADDRESS SPECIFIED IN SECTION 9.01, SUCH NOTICE TO
BECOME EFFECTIVE TEN (10) DAYS AFTER ITS MAILING. EACH OF THE PARTIES HERETO
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY
RIGHT THAT ANY PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY
JURISDICTION.
(b) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE
OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT.
SECTION 9.18. DEFAULTING LENDER. If any Lender fails to fund its Pro
Rata Share of any Revolving Loan Borrowing requested or deemed requested by the
Borrower (the funded portion of such Borrowing being hereinafter referred to as
a "NON PRO RATA LOAN"), then until the earlier of such Lender's cure of such
failure or the termination of the Commitments, upon the Borrower's request, the
proceeds of all amounts thereafter repaid to the Agent by the Borrower and
otherwise required to be applied to such Lender's share of all other Obligations
pursuant to the terms of this Agreement shall be advanced to the Borrower by the
Agent on behalf of such Lender to cure, in full or in part, such failure by such
Lender, but shall nevertheless be deemed to have been paid to such Lender in
satisfaction of such other Obligations. Notwithstanding anything in this
Agreement to the contrary:
(I) the foregoing provisions of this SECTION 9.18 shall apply only
with respect to the proceeds of payments of Obligations and shall not
affect the conversion or continuation of Loans pursuant to SECTION 2.12;
(ii) any such Lender shall be deemed to have cured its failure to fund
its Pro Rata Share of any Revolving Loan Borrowing at such time as an
amount equal to such Lender's original Pro Rata Share of the requested
principal portion of such Borrowing is fully funded to the Borrower,
whether made by such Lender itself or by operation of the terms of this
SECTION 9.18, and whether or not the Non Pro Rata Loan with respect thereto
has been converted or continued;
(iii) amounts advanced to the Borrower under this SECTION 9.18 to
cure, in full or in part, any such Lender's failure to fund its Pro Rata
Share of any Revolving Loan Borrowing ("CURE LOANs") shall bear interest at
the rate applicable to ABR Loans under SECTION 2.08 in effect from time to
time, and for all other purposes of this Agreement shall be treated as if
they were ABR Loans;
(iv) regardless of whether or not an Event of Default has occurred or
is continuing, and notwithstanding the instructions of the Borrower as to
its desired application, all repayments of principal
<PAGE>
which would be applied to the outstanding ABR Loans shall be applied FIRST,
ratably to all ABR Loans constituting Non Pro Rata Loans, SECOND, ratably
to ABR Loans other than those constituting Non Pro Rata Loans or Cure Loans
and, THIRD, ratably to ABR Loans constituting Cure Loans;
(v) unless and until the earlier of any such Lender's cure of the
failure to fund its Pro Rata Share of any Revolving Loan Borrowing and the
termination of the Commitments, the term "Requisite Lenders" for all
purposes of this Agreement shall exclude all Lenders whose failure to fund
their respective Pro Rata Shares of such Revolving Loan Borrowing have not
been so cured; and
(vi) unless and until any such Lender's failure to fund its Pro Rata
Share of any Revolving Loan Borrowing is cured in accordance with this
SECTION 9.18, such Lender shall not be entitled to any Commitment Fees with
respect to its Revolving Credit Commitment, and such Lender shall be
required to refund to the Borrower any portion of the Commitment Fees
attributable to the period beginning on the day of such Lender's failure to
fund and ending on the day the Commitments are terminated or such default
has been cured.
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent, and the Lenders have
caused this Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
USG CORPORATION
By_____________________________
Name:__________________________
Title:_________________________
-S-1-
<PAGE>
EXHIBIT 99(b)
FORM OF
COLLATERAL TRUST AGREEMENT
by and among
USG CORPORATION,
THE OTHER GRANTORS FROM TIME TO TIME
PARTY HERETO
and
WILMINGTON TRUST COMPANY AND WILLIAM J. WADE, TRUSTEE
Dated as of July 26, 1995
<PAGE>
TABLE OF CONTENTS
Page
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PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DECLARATION OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. DEFINITIONS AND OTHER MATTERS. . . . . . . . . . . . . . . . 3
SECTION 2. CERTAIN OBLIGATIONS AND DUTIES OF
THE TRUSTEE AND THE COMPANY;
POWERS OF ATTORNEY. . . . . . . . . . . . . . . . . . . 8
Section 2.1 Authorization to Execute
Security Documents . . . . . . . . . . . . . . . . 8
Section 2.2 Certain Representations
and Warranties . . . . . . . . . . . . . . . . . . 8
Section 2.3 Actions . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.4 Additional Security Documents . . . . . . . . . . . . 10
Section 2.5 Powers of Attorney. . . . . . . . . . . . . . . . . . 11
SECTION 3. ACTIONABLE DEFAULTS; REMEDIES. . . . . . . . . . . . . . . . 11
Section 3.1 Actionable Default . . . . . . . . . . . . . . . . . 11
Section 3.2 Remedies . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.3 Right to Initiate Judicial
Proceedings, etc. . . . . . . . . . . . . . . . . 13
Section 3.4 Appointment of a Receiver. . . . . . . . . . . . . . 13
Section 3.5 Exercise of Powers . . . . . . . . . . . . . . . . . 13
Section 3.6 Control by Requisite Lenders . . . . . . . . . . . . 13
Section 3.7 Remedies Not Exclusive . . . . . . . . . . . . . . . 14
Section 3.8 Waiver of Certain Rights . . . . . . . . . . . . . . 15
Section 3.9 Limitation on Trustee's Duties
in Respect of Collateral. . . . . . . . . . . . . 15
Section 3.10 Limitation by Law. . . . . . . . . . . . . . . . . . 15
Section 3.11 Absolute Rights of Holders . . . . . . . . . . . . . 15
Section 3.12 Equal and Ratable Security . . . . . . . . . . . . . 16
SECTION 4. COLLATERAL ACCOUNT; APPLICATION OF
MONEYS. . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.1 The Collateral Account. . . . . . . . . . . . . . . . 16
Section 4.2 Grant of Security Interests
Control of Collateral Account. . . . . . . . . . . 17
Section 4.3 Investment of Funds Deposited
in Collateral Account. . . . . . . . . . . . . . . 18
Section 4.4 Application of Moneys . . . . . . . . . . . . . . . . 19
Section 4.5 Application of Moneys Distributable
to Holders of Public Debt. . . . . . . . . . . . . 21
SECTION 5. AGREEMENTS WITH TRUSTEE. . . . . . . . . . . . . . . . . . . 21
Section 5.1 Delivery of Debt Instruments. . . . . . . . . . . . . 21
Section 5.2 Information as to Holders . . . . . . . . . . . . . . 22
Section 5.3 Compensation and Expenses . . . . . . . . . . . . . . 22
Section 5.4 Stamp and Other Similar Taxes . . . . . . . . . . . . 22
Section 5.5 Filing Fees, Excise Taxes, etc. . . . . . . . . . . . 23
Section 5.6 Indemnification . . . . . . . . . . . . . . . . . . . 23
-i-
<PAGE>
Page
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Section 5.7 Further Assurances. . . . . . . . . . . . . . . . . . 24
SECTION 6. THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.1 Acceptance of Trust . . . . . . . . . . . . . . . . . 24
Section 6.2 Exculpatory Provisions. . . . . . . . . . . . . . . . 24
Section 6.3 Delegation of Duties. . . . . . . . . . . . . . . . . 25
Section 6.4 Reliance by Trustee . . . . . . . . . . . . . . . . . 26
Section 6.5 Limitations on Duties of Trustee. . . . . . . . . . . 27
Section 6.6 Moneys To Be Held in Trust. . . . . . . . . . . . . . 27
Section 6.7 Resignation and Removal of
the Trustee . . . . . . . . . . . . . . . . . . . 28
Section 6.8 Status of Successors to the
Corporate Trustee . . . . . . . . . . . . . . . . 29
Section 6.9 Merger of the Corporate Trustee . . . . . . . . . . . 29
Section 6.10 Additional Co-Trustees;
Separate Trustees . . . . . . . . . . . . . . . . 29
SECTION 7. RELEASE OF COLLATERAL. . . . . . . . . . . . . . . . . . . . 31
Section 7.1 Conditions to Release . . . . . . . . . . . . . . . . 31
Section 7.2 Procedure for Release . . . . . . . . . . . . . . . . 32
Section 7.3 Effective Time of Release . . . . . . . . . . . . . . 32
Section 7.4 Release of Certain Collateral . . . . . . . . . . . . 33
SECTION 8. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.1 Amendments, Supplements and
Waivers . . . . . . . . . . . . . . . . . . . . . 33
Section 8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.3 Headings. . . . . . . . . . . . . . . . . . . . . . . 36
Section 8.4 Severability. . . . . . . . . . . . . . . . . . . . . 36
Section 8.5 Treatment of Payee or Indorsee
by Trustee. . . . . . . . . . . . . . . . . . . . 36
Section 8.6 Dealings with the Company . . . . . . . . . . . . . . 36
Section 8.7 Claims Against the Trustee. . . . . . . . . . . . . . 37
Section 8.8 Binding Effect. . . . . . . . . . . . . . . . . . . . 37
Section 8.9 Conflict with Other Agreements. . . . . . . . . . . . 37
Section 8.10 Governing Law . . . . . . . . . . . . . . . . . . . . 37
Section 8.11 Counterparts. . . . . . . . . . . . . . . . . . . . . 37
Section 8.12 Company as Agent for Grantors . . . . . . . . . . . . 37
SIGNATURES 39
SCHEDULES
Schedule 1 Public Indentures
-ii-
<PAGE>
COLLATERAL TRUST AGREEMENT
This COLLATERAL TRUST AGREEMENT ("AGREEMENT") dated as of July 26,
1995 by and among USG CORPORATION, a Delaware corporation (the "COMPANY"), each
of the Company's direct and indirect Subsidiaries that from time to time becomes
a party hereto (the foregoing Subsidiaries, together with the Company, collec-
tively referred to herein as the "GRANTORS" and individually as a "GRANTOR"),
and WILMINGTON TRUST COMPANY, a Delaware banking corporation, and WILLIAM J.
WADE acting, except to the extent expressly stated otherwise in SECTIONS 2.2(a)
and 6.2(c) of this Agreement, not in their individual capacities but solely as
trustee (in such capacities, Wilmington Trust Company being herein referred to
as the "CORPORATE TRUSTEE," William J. Wade being herein referred to as the
"INDIVIDUAL TRUSTEE," and the Corporate Trustee and the Individual Trustee being
herein referred to collectively as the "TRUSTEE") under this Agreement for the
Holders of the Secured Debt referred to below.
W I T N E S S E T H:
WHEREAS, the Company, the Lenders, the Issuing Banks, and the Agent
have entered into the Credit Agreement;
WHEREAS, to induce the Lenders to enter into the Credit Agreement, the
Borrower has agreed to secure, subject to the terms and conditions of this
Agreement and the Security Documents, the payment of the Secured Debt; and
WHEREAS, the extension of the credit facilities contemplated by the
Credit Agreement is conditioned upon this Agreement and the Pledge Agreements
having been duly executed and delivered and not terminated;
DECLARATION OF TRUST:
NOW, THEREFORE, to secure equally and ratably the payment, observance
and performance of the Secured Debt and in consideration of the premises and the
mutual agreements set forth herein, the Trustee does hereby declare that it
holds as trustee in trust under this Agreement all of its right, title and
interest in, to and under all the following (and the Grantors hereby consent
thereto):
(A) the Pledge Agreements and the Collateral granted to the
Trustee thereunder;
(B) the share certificates evidencing the Pledged Stock
delivered or to be delivered to the Trustee pursuant to the Pledge
Agreements;
(C) each agreement entered into and delivered, from time to
time, pursuant to SECTION 2.4, SECTION 5.7 or SECTION 8.1 of this
Agreement or pursuant to the terms of the Pledge Agreements, and the
Collateral granted to the Trustee in each case thereunder;
(D) the "TRUST AGREEMENT COLLATERAL" (as defined in SECTION 4.2
of this Agreement); and
(E) the Proceeds of each of the foregoing.
TO HAVE AND TO HOLD the foregoing Security Documents and the
Collateral and the Proceeds of any and all thereof (the right, title and
interest of the Trustee in the Security Documents and the Collateral and such
Proceeds being hereinafter referred to as the "TRUST ESTATE") unto the Trustee
and its successors in trust under this Agreement and its assigns and the assigns
of its successors in trust forever.
IN TRUST NEVERTHELESS, under and subject to the terms and
<PAGE>
conditions set forth herein and in the Security Documents, and for the benefit
of the Secured Parties and for the enforcement of the payment of all Secured
Debt, and for the performance of and compliance with the covenants and con-
ditions of this Agreement, the Credit Agreement, the Public Indentures, the
Refinancing Instruments and each of the Security Documents.
PROVIDED, HOWEVER, that these presents are upon the condition that if
the Grantors, or their respective successors or assigns, shall satisfy all of
the conditions set forth in SECTION 7 of this Agreement with respect to all or
any part of the Collateral, as the case may be, then (if with respect to all of
the Collateral) this Agreement, and the estates and rights assigned in the
Security Documents, shall cease, terminate and be void or (if with respect to
part of the Collateral) this Agreement, and the estates and rights assigned in
the Security Documents, shall cease, terminate and be void with respect to such
part of the Collateral; otherwise they shall remain and be in full force and
effect.
IT IS HEREBY FURTHER COVENANTED AND DECLARED that the Trust Estate is
to be held and applied by the Trustee, subject to the further covenants,
conditions and trust hereinafter set forth.
SECTION 1
DEFINITIONS AND OTHER MATTERS
(a) As used in this Agreement, including the introductory provisions
hereof, the following terms shall have the following meanings:
"ACTIONABLE DEFAULT" means an Event of Default shall have occurred
under the Credit Agreement, any of the Public Indentures or Refinancing
Instruments and the Holders thereunder shall have accelerated the Secured Debt
thereunder.
"AFFILIATE" means any Person (a) that directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under common
control with the Company, (b) that directly or beneficially owns or holds 5% or
more of any class of the voting stock of the Company or (c) 5% or more of the
voting stock (or in the case of a person which is not a corporation, 5% or more
of the equity interest) of which is owned directly or beneficially or held by
the Company.
"AGENT" means the "Agent" as defined in the Credit Agreement.
"AUTHORIZED OFFICER" means, with respect to any Person, the chief
executive officer, the chief financial officer, the controller, the assistant
controller, the treasurer, the assistant treasurer or the chief accounting
officer of such Person.
"BANKRUPTCY CODE" means Title 11 of the United States Code, 11 U.S.C.
Section 101 ET SEQ., as the same may be amended from time to time, and any
successor statute thereto.
"BUSINESS DAY" means any day other than Saturdays, Sundays, days which
are legal holidays under the law of the States of New York, Illinois or
Delaware, and days on which banking institutions located in any of such States
are required or authorized by law or other governmental action to close or the
Corporate Trustee is required or authorized by law or other governmental action
to close.
"COLLATERAL" means all property in which the Trustee has, or
purportedly has, an interest (including, without limitation, a Lien) from time
to time under this Agreement or one or more of the Security Documents.
"COLLATERAL ACCOUNT" means the "Collateral Account" as defined in
-2-
<PAGE>
SECTION 4.1 of this Agreement.
"COMPANY PLEDGE AGREEMENT" means the "Pledge Agreement" as defined in
the Credit Agreement.
"CREDIT AGREEMENT" means that certain Credit Agreement dated as of
July 26, 1995 by and among the Borrower, the financial institutions from time to
time party thereto, and Chemical Bank, as Agent, as the same may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof.
"DEBT INSTRUMENTS" means the Credit Agreement, the Public Indentures,
the Refinancing Instruments, the notes or other instruments or securities issued
pursuant thereto and the other agreements, documents and instruments executed in
connection therewith.
"DISCHARGE NOTICE" means a written notice, signed by an Authorized
Officer of the Company, which requests a discharge of the Security Documents in
accordance with the provisions of SECTION 7.2 of this Agreement and which certi-
fies to the Trustee that:
(i) one of the events enumerated in SECTION 7.1 of this
Agreement has occurred (specifying which event), and
(ii) all Trustee's Fees have been paid in full.
"DISTRIBUTION DATES" means the Business Days fixed by the Trustee for
the distribution of all moneys held by the Trustee in the Collateral Account,
the first of which shall occur within ninety (90) days after the giving of a
Notice of Actionable Default which has not theretofore been withdrawn and the
balance of which shall, so long as such Notice of Actionable Default shall not
have been withdrawn, be on the corresponding date or, if the corresponding date
is not a Business Day, the next succeeding Business Day, in each calendar month
thereafter.
"EVENT OF DEFAULT" means (i) an "Event of Default" as defined in the
Credit Agreement or (ii) the occurrence of an event which would result in the
acceleration of, or permit the Public Lenders or Refinancing Lenders to
accelerate, the Public Debt or the Refinancing Debt, respectively, under any
Public Indenture or Refinancing Instruments, respectively; PROVIDED, that in
each case any required notice thereof has been given and any grace periods
provided for therein have expired.
"GOVERNMENTAL AUTHORITY" means "Governmental Authority" as defined in
the Credit Agreement.
"HOLDERS" means, as of any date, (i) any holder of Secured Debt on
such date and (ii) any Lender having a Revolving Credit Commitment in effect on
such date or to which any Obligations are owing on such date.
"ISSUING BANK" means "Issuing Bank" as defined in the Credit
Agreement.
"LENDER" means "Lender" as defined in the Credit Agreement.
"LETTERS OF CREDIT" means "Letters of Credit" as defined in the Credit
Agreement.
"LIEN" means "Lien" as defined in the Credit Agreement.
"MATERIAL SUBSIDIARY" means "Material Subsidiary" as defined in the
Credit Agreement.
-3-
<PAGE>
"NOTICE OF ACTIONABLE DEFAULT" means a written certification to the
Trustee and the Company (i) from the Agent or from or on behalf of the Requisite
Lenders certifying that an Actionable Default has occurred with respect to the
Obligations or (ii) from any Public Trustee or Representative or the requisite
Public Lenders or Refinancing Lenders under any Public Indenture or Refinancing
Instrument, respectively (to be determined by reference to such Public Indenture
or Refinancing Instrument) certifying that an Actionable Default has occurred
with respect to the Public Debt or Refinancing Debt under such Public Indenture
or Refinancing Instrument.
"OBLIGATIONS" means "Obligations" as defined in the Credit Agreement.
"PERSON" means "Person" as defined in the Credit Agreement.
"PLEDGE AGREEMENTS" means, collectively, the Company Pledge Agreement
and each other pledge agreement that may be entered into from time to time by a
Subsidiary of the Borrower in accordance with SECTION 5.09 of the Credit
Agreement.
"PLEDGED STOCK" means any and all "Pledged Shares" as defined in the
Pledge Agreements.
"PROCEEDS" means "proceeds" as defined in Section 9-306(1) of the UCC
and, whether or not the following constitute proceeds under such Section, any
and all amounts from time to time paid or payable to any of the Grantors upon
the sale, exchange, collection or other disposition of any part of the
Collateral.
"PUBLIC DEBT" means, as of any date, the indebtedness outstanding on
such date under the Public Indentures.
"PUBLIC INDENTURES" means the Trust Indentures listed and described on
SCHEDULE 2 attached hereto and made a part hereof.
"PUBLIC LENDERS" means, as of any date, the holders of the Public
Debt.
"PUBLIC TRUSTEES" means, as of any date, the trustees under the Public
Indentures.
"REFINANCING DEBT" means, as of any date, the indebtedness outstanding
on such date under the Refinancing Instruments.
"REFINANCING INSTRUMENTS" means those instruments, indentures,
documents or agreements pursuant to which indebtedness is incurred to refinance,
replace, extend, renew, refund, restate, modify, defer, substitute, supplement,
re-issue or resell any Secured Debt.
"REFINANCING LENDERS" means, as of any date, the holders of
Refinancing Debt.
"REPRESENTATIVE" means any Person acting in a fiduciary, trust or
custodial capacity under the Refinancing Instruments for the holders of
Refinancing Debt.
"REQUISITE LENDERS" means the "Requisite Lenders" as defined in the
Credit Agreement.
"REVOLVING CREDIT COMMITMENTS" means the "Revolving Credit
Commitments" as defined in the Credit Agreement.
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"SECURED DEBT" means, as of any date, the Obligations, the Public
Debt and the Refinancing Debt, regardless of whether such obligations and
liabilities are absolute or contingent, due or not due, liquidated or
unliquidated and whether or not for the payment of money or the performance or
nonperformance of any act, arising under any Debt Instrument, this Agreement or
any Security Document.
"SECURED PARTY" means the Trustee, any Lender, any Issuing Bank, the
Agent, any Public Lender, and Refinancing Lender, any Public Trustee or any
Representative.
"SECURITY DOCUMENTS" means each Pledge Agreement existing as of the
date hereof or entered into from time to time, any additional documents executed
to reflect the grant to the Trustee of any interest (including, without
limitation, a Lien) in any Collateral, any Uniform Commercial Code financing
statements executed and filed to perfect the grant of such interest, and any
other agreement or document referred to in SECTION 2.4, SECTION 5.7 or SECTION
8.1 of this Agreement or in the Pledge Agreements, as the same may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with their respective terms.
"SUBSIDIARY" means "Subsidiary" as defined in the Credit Agreement.
"TRUST AGREEMENT COLLATERAL" means "Trust Agreement Collateral" as
defined in SECTION 4.2(a) of this Agreement.
"TRUSTEE'S FEES" means all fees, costs and expenses of the Trustee of
the types described in SECTIONS 5.3, 5.4, 5.5 and 5.6 of this Agreement.
"TRUSTEE'S LIENS" means all Liens against the Trust Estate which
result from (i) claims against the Trustee (whether in its or his individual
capacity or its or his capacity as Trustee) unrelated to the transactions
contemplated by this Agreement and the Security Documents or (ii) affirmative
acts by the Trustee (whether in its or his individual or trust capacity)
creating a Lien other than as contemplated by this Agreement.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York, as the same may be amended from time to time.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement and all section references
herein are to this Agreement unless otherwise specified.
(c) Subject to SECTION 4.5 of this Agreement, in each case herein
where any payment or distribution is to be made or notice is to be given to
"Secured Parties", such payments, distributions and notices shall be made to the
Public Trustees, and the Representatives for their benefit and for the benefit
of the Public Lenders and the Refinancing Lenders and to the Agent for its
benefit and for the benefit of the Lenders, the Issuing Banks and their
respective successors and assigns.
(d) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
specified.
(e) Terms not otherwise defined herein which are defined in or used
in Article 9 of the UCC on the date hereof shall herein have the meanings given
to them in such Article 9.
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SECTION 2
CERTAIN OBLIGATIONS AND DUTIES OF THE TRUSTEE
AND THE COMPANY; POWERS OF ATTORNEY
Section 2.1. AUTHORIZATION TO EXECUTE SECURITY DOCUMENTS. The
Trustee shall execute and deliver each of the Security Documents requiring
execution and delivery by it and shall accept delivery from the Grantors of
those Security Documents which do not require the Trustee's execution.
Section 2.2. CERTAIN REPRESENTATIONS AND WARRANTIES. (a) The
Corporate Trustee, in its capacity as trustee hereunder, and Wilmington Trust
Company, in its individual capacity, each represent and warrant to the Holders
as follows:
(i) Wilmington Trust Company is a banking corporation duly
incorporated, validly existing and in good standing under the laws of
its jurisdiction of incorporation and has all required corporate power
and authority to enter into and perform its obligations under this
Agreement and the Security Documents to which it is a party.
(ii) The execution, delivery and performance by the Corporate
Trustee of this Agreement and the Security Documents to which it is a
party have been duly authorized by all necessary corporate action on
the part of Wilmington Trust Company.
(iii) There are no Trustee's Liens and Wilmington Trust Company,
in its individual capacity, has no Liens against any portion of the
Trust Estate.
(iv) There are no actions or proceedings pending or, to the
actual knowledge of any officers of Wilmington Trust Company's
Corporate Trust Administration, threatened against it before any
Governmental Authority (A) which question the validity or
enforceability of this Agreement or any Security Documents to which it
is a party or any other actions or proceedings before any Governmental
Authority; or (B) which relate to the banking or trust powers of
Wilmington Trust Company and which, if determined adversely to the
position of Wilmington Trust Company, would materially and adversely
affect the ability of Wilmington Trust Company, the Corporate Trustee,
William J. Wade or the Individual Trustee to perform their respective
obligations under this Agreement or any of the Security Documents to
which any one or more of them is a party.
(v) This Agreement and all of the Security Documents to which
the Corporate Trustee is a party have been duly executed and delivered
by it.
(vi) No Uniform Commercial Code financing statements or other
filings or recordations executed by or on behalf of Wilmington Trust
Company (in its individual capacity) have been filed by or against it
with respect to any of the Collateral.
(b) The Individual Trustee, in his capacity as trustee hereunder, and
William J. Wade, in his individual capacity, each represent and warrant to the
Holders as follows:
(i) William J. Wade has full capacity to enter into and perform
his obligations under this Agreement and the Security Documents to
which he is a party.
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(ii) This Agreement and the Security Documents to which the
Individual Trustee is a party have been duly executed and delivered by
him.
(iii) No Uniform Commercial Code financing statements or other
filings or recordations executed by or on behalf of William J. Wade
(in his individual capacity) have been filed by or against him with
respect to any of the Collateral.
(iv) There are no actions or proceedings pending, or, to the
knowledge of William J. Wade, threatened against William J. Wade
before any Governmental Authority which question the validity or
enforceability of this Agreement or any Security Document to which he
is a party.
(v) There are no Trustee's Liens resulting from claims against
or acts or breaches by the Individual Trustee, and William J. Wade, in
his individual capacity, has no Liens against any portion of the Trust
Estate.
Section 2.3. ACTIONS. The Trustee shall take any action with respect
to the Collateral and the Security Documents requested in writing by the
Requisite Lenders, including, without limitation, the release in accordance with
SECTION 7.4 of any portion of the Collateral from the Liens created under the
Security Documents, and shall release all of the Collateral when required by
SECTION 7.3 hereof from the Liens created under the Security Documents,
PROVIDED, HOWEVER, that the Trustee shall not be obligated to take any such
action which is in conflict with any provisions of law or of this Agreement or
the Security Documents or with respect to which the Trustee has not received
adequate security or indemnity as provided in SECTION 6.4(d). The Trustee, prior
to its receipt of a Notice of Actionable Default, shall with reasonable
promptness give notice to the Company of any such request from the Lenders or
from the Agent on behalf of the Lenders, but it is hereby expressly agreed that
the Trustee's failure to give such notice to the Company shall not affect the
validity of the Lenders' or the Agent's request to the Trustee.
Section 2.4. ADDITIONAL SECURITY DOCUMENTS. The Company shall
immediately notify the Trustee in the event that any Grantor or any other
Subsidiary of the Company becomes obligated to grant a Lien in any property to
the Trustee under the terms of the Credit Agreement or the Pledge Agreements but
which is not covered by a Security Document in a manner which will perfect the
Lien on such property in favor of the Trustee without further act or deed of the
Trustee, such Grantors or such Subsidiary and, to the extent that such security
interest may be perfected by the execution and/or filing of Security Documents,
such Grantor or other Subsidiary of the Company shall immediately prepare,
execute and deliver to the Trustee such Security Documents (including, without
limitation, a Pledge Agreement), in form and substance satisfactory to the
Requisite Lenders, as are necessary to perfect the Lien on such property in
favor of the Trustee. If the signature of the Trustee is required on any such
Security Document, the applicable Grantor shall present such Security Document
to the Trustee for signature and the Trustee shall execute such Security
Document and such Grantor shall file such Security Document with appropriate
public filing and/or recording offices if such filing and/or recording is
required or advisable to perfect or protect the Lien upon and security interest
in such property in favor of the Trustee. Such Grantor shall supply the Trustee
with an executed copy of each such Security Document and satisfactory proof that
each such Security Document has been properly filed or recorded, if filing or
recording is required under this SECTION 2.4.
2.5. POWERS OF ATTORNEY. The Grantors hereby irrevocably constitute
and appoint the Trustee and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full power
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and authority in the name of the Grantors or any of them or the name of such
attorney-in-fact, from time to time in the Trustee's discretion, for the purpose
of signing documents and taking other action to perfect, preserve and protect
the Liens and security interests of the Trustee in the Collateral. This power
of attorney is a power coupled with an interest, shall be irrevocable and shall
not be subject to the limitations of SECTION 3.2(a) of this Agreement.
SECTION 3
ACTIONABLE DEFAULTS; REMEDIES
Section 3.1. ACTIONABLE DEFAULT. (a) Upon receipt of a Notice of
Actionable Default, the Trustee shall, within five (5) days thereafter, notify
each Holder and the Company in the manner provided in SECTION 8.2 of this Agree-
ment that an Actionable Default exists. Upon receipt of any written directions
pursuant to SECTION 3.6(a) of this Agreement, the Trustee shall, within five (5)
Business Days thereafter, send a copy thereof to each Lender, each Public
Trustee and each Representative.
(b) The party or parties giving a Notice of Actionable Default (or
successors in interest thereto) shall be entitled to withdraw it by delivering
written notice of withdrawal to the Trustee (i) before the Trustee takes any
action to exercise any remedy with respect to the Collateral, or (ii)
thereafter, if (A) the Company otherwise indemnifies the Secured Parties (in a
manner satisfactory to the Secured Parties in their sole discretion) with
respect to all costs and expenses incurred by the Secured Parties in connection
with reversing all actions the Trustee has taken to exercise any remedy or
remedies with respect to the Collateral, and (B) the Requisite Lenders shall
have consented in writing to such reversal. The Trustee shall immediately
notify the Company as to the receipt and contents of any such notice of
withdrawal and shall promptly notify each Holder, in the manner provided in
SECTION 8.2 of this Agreement, of the withdrawal of any Notice of Actionable
Default. A party giving a Notice of Actionable Default shall be deemed to have
delivered a written notice of withdrawal as provided in the first sentence of
this SECTION 3.1(b) upon the Trustee's receipt of confirmation in writing from
such party that it has been paid in full the Secured Debt owing to it.
(c) To the extent that any Notice of Actionable Default shall give
rise to any of the rights and remedies provided in this SECTION 3 and the rights
and remedies provided in any of the Security Documents or shall prohibit the
Company or any Grantor from taking certain actions as specified herein, such
rights and remedies shall be suspended, and any exercise thereof by the Trustee
shall cease, and such prohibitions on the Company shall not remain in effect,
upon the withdrawal of such Notice of Actionable Default pursuant to the terms
and provisions of SECTION 3.1(b) of this Agreement, PROVIDED, that such rights
and remedies, and such prohibitions, shall be reinstated upon the giving of any
later Notice of Actionable Default.
Section 3.2. REMEDIES. (a) If and only if the Trustee shall have
received a Notice of Actionable Default, and during such time as such Notice of
Actionable Default shall not have been withdrawn in accordance with the
provisions of SECTION 3.1(b) hereof, the Trustee may, and upon the written
direction of the Requisite Lenders shall, exercise the rights and remedies
provided in this SECTION 3 and the rights and remedies provided in any of the
Security Documents.
(b) The Grantors hereby waive presentment, demand, protest or any
notice (to the extent permitted by applicable law and except as otherwise
expressly provided in this Agreement or the Credit Agreement) of any kind in
connection with this Agreement, any Collateral or any Security Document.
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(c) Each of the Grantors hereby irrevocably constitute and appoint
the Trustee and any officer or agent thereof, with full power of substitution,
as its true and lawful attorney-in-fact with full power and authority in the
name of the Grantors, or any of them, or in its own name, from time to time in
the Trustee's discretion, upon the occurrence and during the continuance of any
Actionable Default, for the purpose of carrying out the terms of this Agreement
and any of the Security Documents, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes hereof and thereof and, without limiting
the generality of the foregoing, hereby give the Trustee the power and right on
behalf of the Grantors, or any of them, without notice to or assent by any of
the Grantors, to the extent permitted by applicable law, to do the following:
(i) to ask for, demand, sue for, collect, receive and give
acquittance for any and all moneys due or to become due with respect
to the Collateral,
(ii) to receive, take, endorse, assign and deliver any and all
checks, notes, drafts, acceptances, documents and other negotiable and
nonnegotiable instruments, documents and chattel paper taken or
received by the Trustee in connection with this Agreement or any of
the Security Documents,
(iii) to commence, file, prosecute, defend, settle, compromise
or adjust any claim, suit, action or proceeding with respect to the
Collateral,
(iv) to sell, transfer, assign or otherwise deal in or with the
Collateral or any part thereof pursuant to the terms and conditions of
this Agreement and the Security Documents, and
(v) to do, at its option and at the expense and for the account
of any or all of the Grantors, at any time or from time to time, all
acts and things which the Trustee deems reasonably necessary to
protect or preserve the Collateral or the Trust Estate and to realize
upon the Collateral.
Section 3.3. RIGHT TO INITIATE JUDICIAL PROCEEDINGS, ETC. If and
only if the Trustee shall have received a Notice of Actionable Default and
during such time as such Notice of Actionable Default shall not have been
withdrawn in accordance with the provisions of SECTION 3.1(b) hereof, (i) the
Trustee shall have the right and power to institute and maintain such suits and
proceedings as it may deem appropriate to protect and enforce the rights vested
in it by this Agreement and the Security Documents, and (ii) the Trustee may
proceed by suit or suits at law or in equity to enforce such rights and to
foreclose upon the Collateral or any portion thereof and to sell all or, from
time to time, any of the Trust Estate under the judgment or decree of a court of
competent jurisdiction.
Section 3.4. APPOINTMENT OF A RECEIVER. If a receiver of the Trust
Estate shall be appointed in judicial proceedings, Wilmington Trust Company may
be appointed as such receiver. Notwithstanding the appointment of a receiver,
the Trustee shall, to the extent permitted by law, be entitled to retain
possession and control of all cash held by or deposited with it or its agents or
co-trustees pursuant to any provision of this Agreement or any Security
Document.
Section 3.5. EXERCISE OF POWERS. All of the powers, remedies and
rights of the Trustee as set forth in this Agreement may be exercised by the
Trustee in respect of any Security Document as though set forth at length
therein and all the powers, remedies and rights of the Trustee as set forth in
any Security Document may be exercised from time to time as herein and therein
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provided.
Section 3.6. CONTROL BY THE REQUISITE LENDERS. (a) Subject to
SECTION 3.6(b) of this Agreement, if the Trustee shall have received a Notice of
Actionable Default and during the period from such receipt until such Notice of
Actionable Default is withdrawn in accordance with the provisions of SECTION
3.1(b) hereof, the Requisite Lenders shall have the right, by an instrument in
writing executed and delivered to the Trustee, to direct the Trustee to
exercise, or to refrain from exercising, any right, remedy, trust or power
available to or conferred upon the Trustee hereunder, and in connection
therewith, to direct the time, method and place of conducting any proceeding for
any right or remedy available to the Trustee, or of exercising any trust or
power conferred on the Trustee, or for the appointment of a receiver, or for the
taking of any other action authorized by this SECTION 3, provided that the
Trustee shall have received adequate security or indemnity as provided in
SECTION 6.4(d) of this Agreement.
(b) The Trustee shall not be obligated to follow any written
directions received pursuant to SECTION 3.6(a) or SECTION 2.3 of this Agreement
to the extent the Trustee has received a written opinion of Richards, Layton &
Finger or other counsel reasonably satisfactory to the Requisite Lenders to the
effect that such written directions are in conflict with any provisions of law
or this Agreement; PROVIDED, HOWEVER, under no circumstances shall the Trustee
be liable for following the written instructions of the Requisite Lenders.
(c) Nothing in this SECTION 3.6 shall impair the right of the Trustee
in its discretion to take or omit to take any action which action or omission is
deemed proper by the Trustee and which is not inconsistent with any direction of
the Requisite Lenders; PROVIDED, HOWEVER, the Trustee shall not be under any
obligation, as a result of this SECTION 3.6, to take any action which is
discretionary with the Trustee under the provisions hereof or under any Security
Document unless so directed by the Requisite Lenders.
Section 3.7. REMEDIES NOT EXCLUSIVE. (a) No remedy conferred upon
or reserved to the Trustee herein or in the Security Documents is intended to be
exclusive of any other remedy or remedies, but every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or in
any of the Security Documents or now or hereafter existing at law or in equity
or by statute.
(b) No delay or omission by the Trustee in the exercise of any right,
remedy or power accruing upon any Actionable Default shall impair any such
right, remedy or power or shall be construed to be a waiver of any such
Actionable Default or an acquiescence therein; and every right, power and remedy
given by this Agreement or any Security Document to the Trustee may be exercised
from time to time and as often as may be deemed expedient by the Trustee.
(c) In case the Trustee shall have proceeded to enforce any right,
remedy or power under this Agreement or any Security Document and the proceeding
for the enforcement thereof shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Trustee, then, and in
every such case, subject to any effect of or determination in such proceeding,
(i) the Grantors, the Trustee and the Holders shall severally and respectively
be restored to their former positions and rights hereunder and under such
Security Document with respect to the Trust Estate and in all other respects,
and (ii) thereafter all rights, remedies and powers of the Trustee shall
continue in all other respects as though no such proceeding had been taken.
(d) All rights of action and rights to assert claims upon or under
this Agreement and the Security Documents may be enforced by the Trustee
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without the possession of any Debt Instrument or the production thereof in any
trial or other proceeding relative thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in its name as Trustee and any
recovery of judgment shall be held as part of the Trust Estate.
Section 3.8. WAIVER OF CERTAIN RIGHTS. The Grantors, to the extent
they may lawfully do so, on behalf of themselves and all who may claim through
or under them, including, without limitation, any and all subsequent creditors,
vendees, assignees and lienors, expressly waive and release any, every and all
rights to demand or to have any marshalling of the Trust Estate upon any sale,
whether made under any power of sale granted under the Security Documents,
pursuant to judicial proceedings, or upon any foreclosure or any enforcement of
this Agreement or the Security Documents, and consent and agree that the Trust
Estate may at any such sale be offered and sold as an entirety or in part.
Section 3.9. LIMITATION ON TRUSTEE'S DUTIES IN RESPECT OF COLLATERAL.
Other than the Trustee's duties set forth in this Agreement and the Security
Documents as to the custody of moneys, stock certificates and stock powers
received by the Trustee hereunder and the accounting to the Grantors and the
Holders therefor, the Trustee shall have no duty to the Grantors or the Holders
with respect to any Collateral in its possession or control or in the possession
or control of its agent or nominee, any income thereon, or the preservation of
rights against prior parties or any other rights pertaining thereto.
Section 3.10. LIMITATION BY LAW. All the provisions of this SECTION
3 are intended to be subject to all applicable mandatory provisions of law which
may be controlling in the premises and to be limited to the extent necessary so
that they will not render this Agreement invalid or unenforceable in whole or in
part.
Section 3.11. ABSOLUTE RIGHTS OF HOLDERS. Notwithstanding any other
provision of this Agreement or any provision of any Security Document, but
subject in all cases to the rights of the Requisite Lenders under SECTION 3.6
hereof, neither the right of each Holder, which is absolute and unconditional,
to receive payments of the Secured Debt held by such Holder on or after the due
date thereof as therein expressed, to institute suit for the enforcement of such
payment on or after such due date, or to assert its position and views as a
secured creditor in, and to otherwise exercise any right (other than the right
to enforce any Lien on the Collateral, which shall in all circumstances be
exercisable only by the Trustee at the direction of the Requisite Lenders) it
may have in connection with, a case under the Bankruptcy Code in which any of
the Grantors is a debtor, nor the obligation of any of the Grantors, which is
also absolute and unconditional, to pay the Secured Debt owing by the Company,
to each Holder at the time and place expressed in the Debt Instruments, shall be
impaired or affected without the consent of such Holder.
Section 3.12. EQUAL AND RATABLE SECURITY. This Agreement and the
Security Documents are intended to secure the unpaid principal of and accrued
interest and premium, if any, on the Public Debt and the Refinancing Debt,
together with all expenses, charges or other amounts arising under the Public
Indentures and the Refinancing Instruments, respectively, equally and ratably
with all other Secured Debt to the extent required by the Public Indentures and
the Refinancing Instruments, respectively, and shall be construed and enforced
to give effect to such intention.
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SECTION 4
COLLATERAL ACCOUNT; APPLICATION OF MONEYS
Section 4.1. THE COLLATERAL ACCOUNT. Until the trusts created by
this Agreement shall have terminated, there shall be maintained with the
Corporate Trustee an account which shall be entitled the "Collateral Account"
(herein called the "COLLATERAL ACCOUNT"). The Collateral Account shall be
established and maintained by the Corporate Trustee at the principal office of
the Corporate Trustee at which the corporate trust activities of the Corporate
Trustee are administered. After a Notice of Actionable Default has been
received by the Trustee and prior to its withdrawal, the Requisite Lenders may
give a notice to the Grantors (with a copy to the Trustee) directing the
Grantors to pay, or cause to be paid, all dividends and distributions payable
with respect to the Collateral (until such time as such Notice of Actionable
Default is withdrawn) directly to the Trustee for deposit into the Collateral
Account. All moneys which are received by the Trustee with respect to the
Collateral after the Trustee shall have received a Notice of Actionable Default
which shall not have been withdrawn in accordance with the terms of SECTION
3.1(b) hereof shall be deposited in the Collateral Account and thereafter shall
be held, applied and/or disbursed by the Corporate Trustee in accordance with
the terms of this Agreement. All moneys received by the Trustee with respect to
all or any part of the Collateral EITHER (i) prior to Trustee's receipt of a
Notice of Actionable Default, OR (ii) after the withdrawal of all pending
Notices of Actionable Default in accordance with the terms of SECTION 3.1(b)
hereof and prior to Trustee's receipt of any additional Notice of Actionable
Default, shall be delivered to the Company, the Grantors or any other Person
entitled thereto at such Person's instruction. All moneys received by the
Trustee with respect to all or any part of the Collateral between the receipt by
the Trustee of any Notice of Actionable Default and the withdrawal of all
pending Notices of Actionable Default in accordance with the terms of SECTION
3.1(b) hereof shall, to the extent not distributed pursuant to the terms of
SECTION 4.4 of this Agreement, be delivered to the Company or any other Person
entitled thereto at such Person's instruction following the withdrawal of all
pending Notices of Actionable Default in accordance with SECTION 3.1(b).
Section 4.2. GRANT OF SECURITY INTEREST; CONTROL OF COLLATERAL
ACCOUNT. (a) To secure the prompt and complete payment, when due, of the
Secured Debt and all amounts owing to the Secured Parties hereunder and under
the Security Documents, and the performance by the Grantors of their respective
covenants and obligations to be performed by them pursuant to the Debt
Instruments, this Agreement and the Security Documents, the Grantors hereby
assign and pledge to the Trustee and grant to the Trustee a security interest in
all of the right, title and interest of the Grantors, or any of them, in and to
the following, whether presently existing or hereafter arising or acquired (the
"TRUST AGREEMENT COLLATERAL"): the Collateral Account, all cash deposited
therein, all certificates and instruments, if any, from time to time
representing the Collateral Account; all investments from time to time made
pursuant to SECTION 4.3 hereof; all notes, certificates of deposit and other
instruments from time to time hereafter delivered to or otherwise possessed by
the Trustee in substitution for, or in addition to, any or all of the then
existing Trust Agreement Collateral; all interest, dividends, cash, instruments
and other property from time to time received in respect of or in exchange for
any or all of the then existing Trust Agreement Collateral so long as they are
required to be deposited in the Collateral Account; and to the extent not
covered above, all Proceeds of any and all collections, earnings and accruals
with respect to any or all of the foregoing (whether the same are acquired
before or after the commencement of a case under the Bankruptcy Code by or
against any of the Grantors as a debtor).
(b) All right, title and interest in and to the Collateral Account
shall vest in the Corporate Trustee, and funds on deposit in the Collateral
Account and other Trust Agreement Collateral shall constitute part
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of the Trust Estate. The Collateral Account shall be subject to the exclusive
dominion and control of the Corporate Trustee.
Section 4.3. INVESTMENT OF FUNDS DEPOSITED IN COLLATERAL ACCOUNT.
The Corporate Trustee shall invest and reinvest moneys on deposit in the
Collateral Account at any time in:
(i) marketable obligations of the United States having a
maturity not exceeding the date one year from the date of acquisition;
(ii) marketable obligations directly and fully guaranteed by the
United States having a maturity not exceeding the date one year from
the date of acquisition;
(iii) bankers' acceptances and certificates of deposit and other
interest-bearing obligations issued by Wilmington Trust Company or any
bank organized under the laws of the United States or any state
thereof (PROVIDED, HOWEVER, that such bank has capital, surplus and
undivided profits aggregating at least $100,000,000), in each case
having a maturity not exceeding the date one year from the date of
acquisition;
(iv) commercial paper (except for commercial paper issued by the
Company or any of its Affiliates) rated A-1 or the equivalent thereof
by Standard & Poor's Ratings Group or P-1 or the equivalent thereof by
Moody's Investors Service, Inc., and having a maturity not exceeding
the date two hundred and seventy (270) days from the date of
acquisition; and
(v) repurchase obligations entered into with Wilmington Trust
Company or any bank (PROVIDED, HOWEVER, that such bank meets the
requirements set forth in SECTION 4.3(iii) above), having a maturity
not exceeding the earlier of the Distribution Date next following the
date of acquisition or the date thirty (30) days from the date of
acquisition, and collateralized by investments described in SECTIONS
4.3(i) and 4.3(ii) hereof, provided that the Trustee takes immediate
physical possession of such collateral;
PROVIDED, HOWEVER, that in order to provide the Holders with a perfected
security interest therein, each such investment shall be either:
(A) evidenced, or deemed under applicable federal regulations to
be evidenced, by negotiable certificates or instruments or
nonnegotiable certificates or instruments issued in the name of the
Corporate Trustee, which (together with any appropriate instruments of
transfer) are delivered to, and held by, the Corporate Trustee or an
agent thereof (which shall not be the Company or any of its
Affiliates) in New York; or
(B) in book-entry form and issued in the State of New York and
in which (in the opinion of independent counsel to the Trustee) the
Trustee shall have a perfected ownership or security interest which
under applicable law shall not be subject to any other ownership or
security interest;
and PROVIDED FURTHER that the maximum amount of the funds held in the Collateral
Account which may be invested in obligations of the types described in clauses
(iii), (iv) and (v) above of any one issuer shall not exceed the lesser of five
percent (5.0%) of such funds or $10,000,000. All such investments and the
interest and income received thereon and therefrom and the net proceeds realized
on the sale thereof shall be held in the Collateral Account as part of the Trust
Estate.
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Section 4.4. APPLICATION OF MONEYS. (a) Subject to SECTION 4.1 and
SECTION 4.5 hereof, all moneys held by the Corporate Trustee in the Collateral
Account shall, to the extent available for distribution, be distributed (or
deposited in separate accounts for the benefit of any Public Trustee or
Representative pursuant to SECTION 4.5) by the Corporate Trustee on the first
and each succeeding Distribution Date as follows:
FIRST: To the Trustee in an amount equal to the Trustee's Fees
which are unpaid as of such Distribution Date, and to any Secured
Party which has theretofore advanced or paid any such Trustee's Fees
in an amount equal to the amount thereof so advanced or paid by such
Secured Party prior to such Distribution Date; PROVIDED, HOWEVER, that
nothing herein is intended to relieve any of the Grantors of their
respective obligations to pay such costs, fees, expenses and
liabilities from funds outside of the Collateral Account;
SECOND: To the Secured Parties in an amount equal to the unpaid
Secured Debt which is then due and payable and to secure unpaid
Secured Debt which is not yet due and payable as provided in SECTION
4.4(b) below; PROVIDED, if such moneys shall be insufficient to pay
and/or secure in full such amounts, then to the payment and/or
security thereof ratably (without priority of any one over any other,
except in accordance with applicable subordination provisions, if any,
contained in the Debt Instruments) in proportion to the unpaid amounts
thereof on the relevant Distribution Date; and
THIRD: Any surplus then remaining shall be paid to the Grantors
or their respective successors or assigns, or to whomever may be
lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct, PROVIDED, HOWEVER, that if any Secured Party
shall have notified the Trustee in writing that a claim is pending for
which such Secured Party is entitled to the benefits of an
indemnification, reimbursement or similar provision under which
amounts are not yet due but with respect to which any of the Grantors
continue to be contingently liable, and amounts payable by such
Grantor with respect thereto are secured by the Trust Estate, the
Trustee shall continue to hold the amount specified in such notice in
the Collateral Account until such Grantor's liability with respect
thereto is discharged or released to the satisfaction of such Secured
Party.
(b) In the event any of the Obligations, Public Debt or Refinancing
Debt consisting of principal is not due and payable on any Distribution Date,
the Grantors shall be deemed for purposes of the distribution made on such
Distribution Date to have an obligation to provide cash collateral in the amount
of such principal, and the amount distributed with respect to such obligation to
provide cash collateral shall be held by the Agent (if with respect to the
Obligations) or the applicable Public Trustee or Representative (if with respect
to the Public Debt or Refinancing Debt), subject to the provisions of this
SECTION 4.4(b), as cash collateral for such Secured Debt. In the event any
Obligations with respect to Letters of Credit (other than fees or unincurred
costs and expenses) are not due and payable on any Distribution Date, the
Grantors shall be deemed for purposes of the distribution made on such
Distribution Date to have an obligation to provide cash collateral in an amount
equal to the maximum amount of such Obligations, and the amount distributable
with respect to such obligation to provide cash collateral shall be held by the
Agent, subject to the provisions of this SECTION 4.4(b), as cash collateral for
such Obligations. Amounts held by the Agent, any Public Trustee, any
Representative or the Trustee as cash collateral under this SECTION 4.4(b) shall
be invested in investments of the kinds referred to in SECTION 4.3(i) or 4.3(ii)
of this Agreement having
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maturities of ninety (90) days or less, and interest earned on such investments
shall be (i) first, applied to interest accruing on the Secured Debt with
respect to which such cash collateral is held and (ii) second, deposited in the
Collateral Account. The amount of any Secured Debt secured by such cash
collateral shall be reduced by the amount of such cash collateral for purposes
of calculating the amount of subsequent distributions under SECTION 4.4(a).
When any Secured Debt secured by cash collateral as provided above becomes due
and payable, the amount due and payable shall be paid out of such cash collat-
eral, up to but not in excess of the percentage of the principal amount of other
Secured Debt theretofore paid out of distributions from the Collateral Account.
The balance of such cash collateral, if any, shall be deposited in the
Collateral Account.
Section 4.5. APPLICATION OF MONEYS DISTRIBUTABLE TO HOLDERS OF PUBLIC
DEBT AND REFINANCING DEBT. If at any time any moneys collected or received by
the Trustee pursuant to this Agreement or any of the Security Documents are
distributable pursuant to SECTIONS 4.4(a) or 4.4(b) of this Agreement to any
Public Trustee or Representative, and if such Public Trustee or Representative
shall notify the Trustee that no provision is made under the applicable Public
Indenture or Refinancing Instrument (i) for the application by such Public
Trustee or Representative of such amounts so distributable (whether by virtue of
the Public Debt or Refinancing Debt not having become due and payable or
otherwise), or (ii) for the receipt and the holding by such Public Trustee or
Representative of such amounts pending the application thereof, then the Trustee
shall invest such amounts in investments of the kinds referred to in SECTIONS
4.3(i) or 4.3(ii) of this Agreement having maturities of ninety (90) days or
less, and shall hold all such amounts so distributable, and all such investments
and the proceeds thereof, in lieu of such Public Trustee or Representative if
such amounts are distributable as cash collateral pursuant to SECTION 4.4(b), or
otherwise in trust solely for such Public Trustee or Representative (in its
capacity as trustee) and for no other purpose, until such time as such Public
Trustee or Representative shall request the delivery thereof by the Trustee to
such Public Trustee or Representative for application by it pursuant to the
Public Debt or Refinancing Debt (to the extent such application is permitted
hereunder).
SECTION 5
AGREEMENTS WITH TRUSTEE
Section 5.1. DELIVERY OF DEBT INSTRUMENTS. On the date of this
Agreement the Company will deliver to the Trustee true and complete copies of
the Debt Instruments and the Security Documents. The Grantors agree that,
promptly upon the execution thereof, the Grantors will deliver to the Trustee a
true and complete copy of any and all other Debt Instruments, Security Documents
and all amendments, restatements, modifications or supplements to any Debt
Instrument or any Security Documents entered into by the Grantors subsequent to
the date of this Agreement.
Section 5.2. INFORMATION AS TO HOLDERS. The Company agrees that it
shall deliver to the Trustee, upon the Trustee's request, a list setting forth,
by each Debt Instrument, (i) the aggregate principal amount outstanding
thereunder, (ii) with respect to the Obligations, to the extent known to the
Company, the names of the Holders of the Obligations, the unpaid principal
amount thereof owing to each Lender and whether any amount of Obligations
outstanding is subordinated to any extent to any of the other Secured Debt,
(iii) with respect to the Public Debt, the name of the Public Trustee appointed
under each Public Indenture and whether any amount of Public Debt outstanding
under each Public Indenture is subordinated to any extent to any of the other
Secured Debt, and (iv) with respect to the Refinancing Debt, the name of the
Representative appointed under each Refinancing Instrument and whether any
amount of Refinancing Debt outstanding under each Refinancing Instrument is
subordinated to any extent to any other Secured Debt. The
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Company agrees, from time to time, to furnish the Trustee with any information
necessary to update the foregoing list. The Company will furnish to the Trustee
on the date of this Agreement a list setting forth the name and address of each
party to whom notices must be sent under the Debt Instruments, and the Company
agrees to furnish promptly to the Trustee any changes or additions to such list.
Section 5.3. COMPENSATION AND EXPENSES. The Grantors jointly and
severally agree to pay to the Trustee the Trustee's customary fees as
compensation for the Trustee's services hereunder and under the Security
Documents and for administering the Trust Estate, and from time to time
following notice thereof and 10 Business Days, all of the fees, costs and
expenses of the Trustee (including, without limitation, the reasonable fees and
disbursements of its counsel and such special counsel, accountants or other
experts as the Trustee elects to retain) (i) arising in connection with the
preparation, execution, delivery, modification (requested by the Company),
restatement, amendment (requested by the Company) or termination of this
Agreement and each Security Document or the enforcement (whether in the context
of a civil action, adversary proceeding, workout or otherwise) of any of the
provisions hereof or thereof, or (ii) incurred or required to be advanced in
connection with the administration of the Trust Estate, the sale or other
disposition or the custody, preservation or protection of Collateral pursuant to
any Security Document and the exercise or enforcement of the Trustee's rights
under this Agreement and in and to the Collateral and the Trust Estate. As
security for such payment, the Trustee shall have a Lien prior to the Secured
Debt upon all Collateral and other property and funds held or collected by the
Trustee as part of the Trust Estate.
Section 5.4. STAMP AND OTHER SIMILAR TAXES. The Grantors jointly and
severally agree to indemnify and hold harmless the Trustee and each Holder from,
and shall reimburse the Trustee and each Holder for, any present or future claim
for liability for any stamp or other similar tax and any penalties or interest
with respect thereto, which may be assessed, levied or collected by any
jurisdiction in connection with this Agreement, any Security Document, the Trust
Estate, or the attachment or perfection of the security interest granted to the
Trustee in any Collateral. The obligations of the Grantors under this SECTION
5.4 shall survive the termination of the other provisions of this Agreement.
Section 5.5. FILING FEES, EXCISE TAXES, ETC. The Grantors jointly
and severally agree to pay or to reimburse the Trustee for any and all amounts
in respect of all search, filing, recording and registration fees, taxes, excise
taxes and other similar imposts which may be payable or determined to be payable
in respect of the execution, delivery, performance and enforcement of this
Agreement and each Security Document and agree to save the Trustee harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes and fees. The obligations of the
Grantors under this SECTION 5.5 shall survive the termination of the other
provisions of this Agreement.
Section 5.6. INDEMNIFICATION. (a) The Grantors jointly and
severally agree to pay, indemnify and hold the Trustee and each of its agents
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement and the Security Documents,
unless arising from the gross negligence, bad faith or willful misconduct of
such of the Trustee or the agents that are seeking indemnification. As security
for such payment, the Trustee shall have a Lien prior to the Secured Debt upon
all Collateral and other property and funds held or collected by the Trustee as
part of the Trust Estate.
(b) In any suit, proceeding or action brought by the Trustee
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under or with respect to the Collateral for any sum owing thereunder, or to
enforce any provisions thereof, or of any of the Security Documents or this
Agreement, the Grantors jointly and severally agree to save, indemnify and keep
the Trustee and the Holders harmless from and against all expense, loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by the Company or any of the Grantors of any of their respective
obligations hereunder or thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to, or in favor of, such obligor or
its successors from the Company or Grantors, and all such obligations of the
Company or the Grantors shall be and remain enforceable against and only against
the Company and the Grantors and shall not be enforceable against the Trustee or
any Holder.
(c) The agreements in this SECTION 5.6 shall survive the termination
of the other provisions of this Agreement.
Section 5.7. FURTHER ASSURANCES. At any time and from time to time,
upon the written request of the Trustee, and at the expense of the applicable
Grantor, each Grantor will promptly execute and deliver any and all such further
instruments and documents and take such further action as the Trustee may
reasonably deem necessary or desirable in obtaining the full benefits of this
Agreement and the Security Documents and of the rights and powers herein and
therein granted, including, without limitation, the filing of any financing or
continuation statements or other instruments to perfect the Liens and security
interests granted thereby. The Grantors shall, not later than thirty (30) days
after the Requisite Lenders' or the Trustee's request therefor, deliver to the
Trustee an opinion of independent counsel, addressed to the Trustee for the
benefit of the Holders, concerning the continued perfection and priority of the
Liens and security interests created by the Security Documents (excluding,
however, those Liens and security interests which, in accordance with the terms
of this Agreement and the Security Documents, have been released); PROVIDED,
HOWEVER, that the Trustee shall have no obligation to request such opinion from
any of the Grantors. The Grantors shall, in all of their published financial
statements customarily prepared with footnotes or filed with the Securities and
Exchange Commission, indicate by footnote or otherwise that the Secured Debt is
secured pursuant to this Agreement and the Security Documents.
SECTION 6
THE TRUSTEE
Section 6.1. ACCEPTANCE OF TRUST. The Trustee, for itself and its
successors, hereby accepts the trusts created by this Agreement upon the terms
and conditions hereof, including those contained in this SECTION 6.
Section 6.2. EXCULPATORY PROVISIONS. (a) The Trustee shall not be
responsible in any manner whatsoever for the correctness of any recitals,
statements, representations or warranties contained herein or in the Security
Documents, except for those made by the Trustee. The Trustee makes no
representations as to the value or condition of the Trust Estate or any part
thereof, or as to the title of the Grantors thereto or as to the security
afforded by the Security Documents or this Agreement or, except as set forth in
SECTION 2.2 of this Agreement, as to the validity, execution, enforceability,
legality or sufficiency of this Agreement, any Security Document or of the
Secured Debt secured hereby and thereby, and the Trustee shall incur no
liability or responsibility in respect of any such matters. The Trustee shall
not be responsible for insuring the Trust Estate or for the payment of taxes,
charges, assessments or Liens upon the Trust Estate or otherwise as to the
maintenance of the Trust Estate, except that (i) in the event the Trustee enters
into possession of a part or all of the Trust Estate, the Trustee shall preserve
the part in its possession, and (ii) the Trustee
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will promptly, and at its own expense, take such action as may be necessary duly
to remove and discharge (by bonding or otherwise) any Trustee's Lien on any part
of the Trust Estate or any other Lien on any part of the Trust Estate resulting
from claims against it (whether individually or as Trustee) not related to the
administration of the Trust Estate or (if so related) resulting from gross
negligence, bad faith or willful misconduct on its part.
(b) The Trustee shall not be required to ascertain or inquire as to
the performance by any of the Grantors of any of the covenants or agreements
contained herein, in any Security Document or in any Debt Instrument. Whenever
it is necessary, or in the opinion of the Trustee advisable, for the Trustee to
ascertain the amount of Secured Debt then held by a Holder, the Trustee may rely
on a certificate of such Holder as to such amount.
(c) Wilmington Trust Company shall, in its individual capacity and at
its own cost and expense, promptly take all action as may be necessary to
discharge any Trustee's Liens or any other Lien resulting from claims against it
or William J. Wade (whether individually or as Trustee) not related to the
administration of the Trust Estate or (if so related) resulting from gross
negligence, bad faith or willful misconduct on its or his part.
(d) Subject to the provisions of the Pledge Agreements concerning the
Trustee's duty of care with respect to certificates evidencing the Pledged Stock
in the Trustee's possession, the Trustee shall not be personally liable for any
acts, omissions, errors of judgment or mistakes of fact or law made, taken or
omitted to be made or taken by it in accordance with this Agreement or any
Security Document (including, without limitation, acts, omissions, errors or
mistakes with respect to the Collateral), except for those arising out of or in
connection with the Trustee's gross negligence, bad faith or willful misconduct.
Notwithstanding anything set forth herein to the contrary, the Trustee shall
have a duty of reasonable care with respect to any "instruments" (as defined in
the UCC) which are delivered to the Trustee or its designated representatives as
part of the Collateral and are in the Trustee's or its designated
representatives' possession and control.
Section 6.3. DELEGATION OF DUTIES. The Trustee may execute any of
the trusts or powers hereof and perform any duty hereunder either directly or by
or through agents, nominees or attorneys-in-fact, which (except with respect to
the Trustee's duties to maintain possession of any Collateral or any other
portion of the Trust Estate as expressly set forth herein or in the Security
Documents) may include employees or officers of the Company, PROVIDED, that the
Trustee shall obtain a written acknowledgment from such agents, nominees or
attorneys-in-fact that they shall be liable to the Holders for losses or damages
incurred by any such Holder as a result of such agent's, nominee's or
attorneys'-in-fact gross negligence, bad faith or willful misconduct as and to
the extent the Trustee would be liable for such losses or damages if the actions
or omissions of such agents, nominees or attorneys-in-fact constituting such
gross negligence, bad faith or willful misconduct had been actions or omissions
of the Trustee. The Trustee shall be entitled to advice of counsel concerning
all matters pertaining to such trusts, powers and duties. The Trustee shall not
be responsible for the negligence or misconduct of any agents, nominees or
attorneys-in-fact selected by it without gross negligence, bad faith or willful
misconduct.
Section 6.4. RELIANCE BY TRUSTEE. (a) Whenever in the
administration of the trusts of this Agreement the Trustee shall deem it
necessary or desirable that a matter be proved or established with respect to
any of the Grantors in connection with the taking, suffering or omitting of any
action hereunder by the Trustee, such matter (unless other evidence in respect
thereof is herein specifically prescribed) may be deemed to be conclusively
provided or established by a certificate of an Authorized Officer of the Company
delivered to the Trustee, and such certificate shall be full
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warranty to the Trustee for any action taken, suffered or omitted in reliance
thereon, subject, however, to the provisions of SECTION 6.5 of this Agreement.
(b) The Trustee may consult with Richards, Layton & Finger or other
counsel reasonably satisfactory to the Requisite Lenders, accountants or other
experts in connection with the fulfillment of its duties hereunder, and the
Trustee shall be entitled to rely on the opinion of such counsel, accountants or
other experts in connection with any action taken, omitted to be taken or
suffered by the Trustee in fulfilling its duties hereunder. The Trustee shall
have the right at any time to seek instructions concerning the administration of
the Trust Estate from any court of competent jurisdiction.
(c) The Trustee may rely, and shall be fully protected in relying,
upon any resolution, statement, certificate, instrument, opinion, report,
notice, request, consent, order, bond or other paper or document which it has no
reason to believe to be other than genuine and to have been signed or presented
by the proper party or parties or, in the case of cables, telecopies and
telexes, to have been sent by the proper party or parties, PROVIDED, HOWEVER,
that for the purpose of identifying the Requisite Lenders and the amounts of
their Revolving Credit Commitments and of Secured Debt held by them, the
information provided by the Company to the Trustee pursuant to SECTION 5.2 of
this Agreement must be confirmed in writing by the Agent. In the absence of its
gross negligence, bad faith or willful misconduct, the Trustee may conclusively
rely, except as provided above, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of this Agreement or
any Security Document.
(d) If the Trustee has been requested to take action pursuant to
SECTION 2.3 or SECTION 3.6 of this Agreement, the Trustee shall not be under any
obligation to exercise any of the rights or powers vested in the Trustee by this
Agreement or any Security Document unless the Trustee shall have been provided
adequate security and indemnity against the costs, expenses and liabilities
which may be incurred by it in compliance with such request or direction,
including such reasonable advances as may be requested by the Trustee.
Section 6.5. LIMITATIONS ON DUTIES OF TRUSTEE. (a) The Trustee
shall be obliged to perform such duties and only such duties as are specifically
set forth in this Agreement or in any Security Document, and no implied
covenants or obligations shall be read into this Agreement or any Security
Document against the Trustee. The Trustee shall, upon receipt of a Notice of
Actionable Default and during such time as such Notice of Actionable Default
shall not have been withdrawn in accordance with the provisions of SECTION
3.1(b) hereof, exercise the rights and powers vested in it by this Agreement or
by any Security Document, and the Trustee shall not be liable with respect to
any action taken or omitted by it in accordance with the direction of the
Requisite Lenders pursuant to SECTION 3.6 of this Agreement.
(b) Except as herein otherwise expressly provided, including, without
limitation, upon the written request of the Requisite Lenders pursuant to
SECTION 3.6 of this Agreement, the Trustee shall not be under any obligation to
take any action which is discretionary with the Trustee under the provisions
hereof or under any Security Document. The Trustee shall furnish to each Holder
promptly upon receipt thereof a copy of each certificate or other paper
furnished to the Trustee by any of the Grantors under or in respect of this
Agreement, any Security Document or any of the Trust Estate, unless by the
express terms of any Security Document a copy of the same is required to be
furnished by some other Person directly to the Holders, or the Trustee shall
have determined that the same has already been so furnished.
Section 6.6. MONEYS TO BE HELD IN TRUST. All moneys received by
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the Trustee under or pursuant to any provision of this Agreement or any Security
Document shall be held in trust for the purposes for which they were paid or are
held.
Section 6.7. RESIGNATION AND REMOVAL OF THE TRUSTEE. (a) The
Corporate Trustee or Individual Trustee may at any time, by giving sixty (60)
days' prior written notice to the Company and the Holders, resign and be dis-
charged of the responsibilities hereby created, such resignation to become
effective upon the appointment of a successor Trustee by the Requisite Lenders
with the consent of the Company, such consent not to be unreasonably withheld,
and the acceptance of such appointment by such successor Trustee. The Corporate
Trustee or Individual Trustee may be removed at any time and a successor Trustee
appointed by the affirmative vote of the Requisite Lenders; PROVIDED THAT the
Corporate Trustee or Individual Trustee shall be entitled to its or his fees and
expenses to the date of removal. If no successor Trustee shall be appointed and
approved within sixty (60) days from the date of the giving of the aforesaid
notice of resignation or within sixty (60) days from the date of such removal,
the Corporate Trustee or Individual Trustee, as applicable, shall, or any Holder
may, apply to any court of competent jurisdiction to appoint a successor trustee
or trustees to act until such time, if any, as a successor trustee or trustees
shall have been appointed as above provided. Any successor trustee or trustees
so appointed by such court shall immediately and without further act be
superseded by any successor trustee or trustees approved by the Requisite
Lenders with the consent of the Company, such consent not to be unreasonably
withheld, as above provided.
(b) If at any time the Corporate Trustee or Individual Trustee shall
resign, be removed or otherwise become incapable of acting, or if at any time a
vacancy shall occur in the office of the Corporate Trustee or Individual Trustee
for any other cause, a successor trustee or trustees may be appointed by the
Requisite Lenders, with the consent of the Company, such consent not to be
unreasonably withheld, and the powers, duties, authority and title of the
predecessor trustee or trustees terminated and canceled without procuring the
resignation of such predecessor trustee or trustees, and without any other
formality (except as may be required by applicable law) than the appointment and
designation of a successor trustee or trustees in writing, duly acknowledged,
delivered to the predecessor trustee or trustees and the Company, and filed for
record in each public office, if any, in which this Agreement is required to be
filed.
(c) The appointment and designation referred to in SECTION 6.7(b) of
this Agreement shall, after any required filing, be full evidence of the right
and authority to make the same and all of the facts therein recited, and this
Agreement shall vest in such successor trustee or trustees, without any further
act, deed or conveyance, all of the estate and title of its predecessor or their
predecessors, and upon any required filing for record the successor trustee or
trustees shall become fully vested with all the estates, properties, rights,
powers, trusts, duties, authority and title of its predecessor or their
predecessors; but such predecessor or predecessors shall, nevertheless, on the
written request of the Requisite Lenders, the Company, or any successor trustee
or trustees, execute and deliver an instrument transferring to such successor or
successors all the estates, properties, rights, powers, trusts, duties,
authority and title of such predecessor or predecessors hereunder and shall
deliver all securities and moneys held by it or them to such successor trustee
or trustees. Should any deed, conveyance or other instrument in writing from
any of the Grantors be required by any successor trustee or trustees for more
fully and certainly vesting in such successor trustee or trustees the estates,
properties, rights, powers, trusts, duties, authority and title vested or
intended to be vested in the predecessor trustee or trustees, any and all such
deeds, conveyances and other instruments in writing shall, on request of such
successor trustee or trustees, be so executed, acknowledged and delivered.
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(d) Any required filing for record of the instrument appointing a
successor trustee or trustees as hereinabove provided shall be at the expense of
the Company. The resignation of any trustee or trustees and the instrument or
instruments removing any trustee or trustees, together with all other
instruments, deeds and conveyances provided for in this SECTION 6 shall, if
required by law, be forthwith recorded, registered and filed by and at the
expense of the Company, wherever this Agreement is recorded, registered and
filed.
Section 6.8. STATUS OF SUCCESSORS TO THE CORPORATE TRUSTEE. Every
successor to Wilmington Trust Company appointed pursuant to SECTION 6.7 of this
Agreement and every corporation resulting from a merger or consolidation
pursuant to SECTION 6.9 of this Agreement shall be a bank or trust company in
good standing and having power so to act, incorporated under the laws of the
United States or any State thereof or the District of Columbia, and having its
principal corporate trust office within the forty-eight (48) contiguous States,
and shall also have capital, surplus and undivided profits of not less than
$100,000,000.
Section 6.9. MERGER OF THE CORPORATE TRUSTEE. Any corporation into
which the Corporate Trustee shall be merged, or with which it shall be
consolidated, or any corporation resulting from any merger or consolidation to
which the Corporate Trustee shall be a party, shall be the Corporate Trustee
under this Agreement without the execution or filing of any paper or any further
act on the part of the parties hereto.
Section 6.10. ADDITIONAL CO-TRUSTEES; SEPARATE TRUSTEES. (a) If at
any time or times it shall be necessary or prudent in order to conform to any
law of any jurisdiction in which any of the Collateral shall be located, or the
Trustee shall be advised by counsel, satisfactory to it, that it is necessary or
prudent in the interest of the Holders, or the Requisite Lenders shall in
writing so request, or the Trustee shall deem it desirable for its own
protection in the performance of its duties hereunder, the Trustee and the
Grantors shall execute and deliver all instruments and agreements necessary or
proper to constitute another bank or trust company, or one or more persons
approved by the Trustee and the Grantors either to act as co-trustee or
co-trustees of all or any of the Collateral, jointly with the Trustee originally
named herein or any successor or successors, or to act as separate trustee or
trustees of any such property. In the event the Grantors shall not have joined
in the execution of such instruments and agreements within ten (10) days after
the receipt of a written request from the Trustee so to do, or in case an
Actionable Default shall have occurred and be continuing, the Trustee may act
under the foregoing provisions of this SECTION 6.10 without the concurrence of
the Grantors, and the Grantors hereby irrevocably appoint the Trustee as their
agent and attorney to act for them under the foregoing provisions of this
SECTION 6.10 in either of such contingencies.
(b) Every separate trustee and every co-trustee, other than any
trustee which may be appointed as successor to Wilmington Trust Company or
William J. Wade, shall, to the extent permitted by law, be appointed and act and
be such, subject to the following provisions and conditions, namely:
(i) all rights, powers, duties and obligations conferred upon
the Trustee in respect of the custody, control and management of
moneys, papers or securities shall be exercised solely by Wilmington
Trust Company, or its successors as Trustee hereunder;
(ii) all rights, powers, duties and obligations conferred or
imposed upon the Trustee hereunder shall be conferred or imposed and
exercised or performed by the Trustee and such separate trustee or
separate trustees or co-trustee or co-trustees, jointly, as shall be
provided in the instrument appointing such separate trustee or
separate trustees or
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co-trustee or co-trustees, except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed, the
Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations shall be exercised
and performed by such separate trustee or separate trustees or co-trustee
or co-trustees;
(iii) no power given hereby to, or which it is provided hereby
may be exercised by, any such co-trustee or co-trustees or separate
trustee or separate trustees, shall be exercised hereunder by such
co-trustee or co-trustees or separate trustee or separate trustees,
except jointly with, or with the consent in writing of, the Trustee,
anything herein contained to the contrary notwithstanding;
(iv) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and
(v) the Grantors and Trustee, at any time by an instrument in
writing, executed by them jointly, may accept the resignation of or
remove any such separate trustee or co-trustee, and in that case, by
an instrument in writing executed by the Grantors and the Trustee
jointly, may appoint a successor to such separate trustee or
co-trustee, as the case may be, anything herein contained to the
contrary notwithstanding. In the event that the Grantors shall not
have joined in the execution of any instrument within ten (10) days
after the receipt of a written request from the Trustee so to do, or
in case an Actionable Default shall have occurred and be continuing,
the Trustee shall have the power to accept the resignation of or
remove any such separate trustee or co-trustee and to appoint a
successor without the concurrence of the Grantors, the Grantors hereby
irrevocably appointing the Trustee their agent and attorney to act for
them in such connection in either of such contingencies. In the event
that the Trustee shall have appointed a separate trustee or separate
trustees or co-trustee or co-trustees as above provided, it may at any
time, by an instrument in writing, accept the resignation of or remove
any such separate trustee or co-trustee, the successor to any such
separate trustee or co-trustee to be appointed by the Grantors and the
Trustee, or by the Trustee alone, as hereinabove provided in this
SECTION 6.10.
SECTION 7
RELEASE OF COLLATERAL
Section 7.1. CONDITIONS TO RELEASE. Subject to this SECTION 7.1, all
the Collateral shall be released on the earliest of:
(a) the date on which (i) all the Obligations shall have been
paid to, or in the case of any Obligations which shall then not be due
and payable, secured to the satisfaction of, the Lenders and the
Revolving Credit Commitments of the Lenders shall have been terminated
pursuant to the terms of the Credit Agreement and (ii) all accrued and
unpaid Trustee's Fees shall have been paid in full;
(b) the date on which (i) the Company shall have received
written instructions from all of the Lenders instructing the Company
to direct the Trustee to release the Collateral, and (ii) all accrued
and unpaid Trustee's Fees shall have been paid in full; or
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(c) the date on which (i) the Company shall have received from the
Agent written instructions to direct the Trustee to release the Collateral
in accordance with the provisions of SECTION 9.07(d) of the Credit
Agreement and (ii) all accrued and unpaid Trustee's Fees shall have been
paid in full.
Section 7.2. PROCEDURE FOR RELEASE. Upon the occurrence of the
events specified in either SECTION 7.1(a), 7.1(b) or 7.1(c), the Company, on
behalf of the Grantors, shall deliver a Discharge Notice to the Trustee (with a
copy thereof given to the Agent, each Public Trustee and each Representative).
Upon receipt by the Trustee of a Discharge Notice certifying that events set
forth in SECTION 7.1(a), 7.1(b) or 7.1(c) above have occurred, the Trustee shall
request the Agent to confirm in writing that the event described in SECTION
7.1(a)(i), 7.1(b)(i) or 7.1(c)(i) of this Agreement has occurred.
Section 7.3. EFFECTIVE TIME OF RELEASE. (a) The Trustee shall
release the Collateral upon receipt by the
Trustee of (i) a Discharge Notice and (ii) the written confirmation from the
Agent specified in SECTION 7.2 of this Agreement. The Trustee shall promptly
notify the Company, the Agent and the Holders, in the manner specified in
SECTION 8.2 of this Agreement, when the release of the Collateral is effective.
(b) When the release of the Collateral is effective, all right, title
and interest of the Trustee in, to and under the Trust Estate, the Collateral
and the Security Documents shall terminate and shall revert to the Grantors or
their respective successors and assigns, and the estate, right, title and
interest of the Trustee therein shall thereupon cease, terminate and become
void. In such case, the Grantors shall deliver to the Trustee one or more
instruments of discharge, satisfaction and release in form reasonably
satisfactory to the Trustee, and, upon the written request of the Company or its
successors or assigns, and at the cost and expense of the Company or its
successors or assigns, the Trustee shall execute a satisfaction of the Security
Documents and such instruments as are necessary or desirable to terminate and
remove of record any documents constituting public notice of the Security
Documents and the Liens and assignments granted thereunder and shall assign and
transfer, or cause to be assigned and transferred, and shall deliver or cause to
be delivered to each of the Grantors, all property, including all moneys,
instruments and securities of each Grantor, then held by the Trustee. The
cancellation and satisfaction of the Security Documents shall be without
prejudice to the rights of the Trustee or any successor trustee to charge and be
reimbursed for any expenditures which it may thereafter incur in connection
therewith.
Section 7.4. RELEASE OF CERTAIN COLLATERAL. To the extent that the
Requisite Lenders or the Agent, on behalf of the Requisite Lenders, at the
request of any of the Grantors, instruct the Trustee to release specified
portions of the Collateral pursuant to SECTION 2.3 of this Agreement and in
accordance with SECTION 9.07(c) of the Credit Agreement, all right, title and
interest of the Trustee in, to and under such Collateral and the security
interest of the Trustee therein shall terminate and shall revert to the
applicable Grantor or its successors and assigns, and the estate, right, title
and interest of the Trustee therein shall thereupon cease, terminate and become
void. Any Grantor's request for any such release shall be accompanied by a
written certification by such Grantor, in form reasonably satisfactory to the
Trustee, that, as of the date of such release, no Actionable Default has
occurred and is continuing. Following such instructions, the Trustee shall,
upon the written request of such Grantor, its successors or assigns and at the
cost and expense of such Grantor or its successors or assigns, execute such
instruments and take such other actions as are necessary or desirable to
terminate any such security interest and otherwise effectuate the release of the
specified portions of the Collateral from the Lien of such security
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interest. Such termination and release shall be without prejudice to the rights
of the Trustee or any successor trustee to charge and be reimbursed for any
expenditures which it may thereafter incur in connection therewith.
SECTION 8
MISCELLANEOUS
Section 8.1. AMENDMENTS, SUPPLEMENTS, AND WAIVERS. (a) With the
prior written consent of the Requisite Lenders, the Trustee and the Grantors
may, from time to time, enter into written agreements supplemental hereto for
the purpose of adding to or waiving any provision of this Agreement or any of
the Security Documents or amending the definition of any capitalized term used
herein or therein, as such capitalized term is used herein or therein, or
changing in any manner the rights of the Trustee, the Holders or the Grantors
hereunder or thereunder; PROVIDED, HOWEVER, that no such supplemental agreement
shall:
(i) modify the definition of Requisite Lenders without the
written consent of all Lenders; or
(ii) amend, modify or waive any provision of this Agreement or
any Security Document so as to adversely affect any of the Trustee's
rights, immunities or indemnities hereunder or thereunder or enlarge
its duties hereunder or thereunder, without the written consent of the
Trustee.
Any such supplemental agreement shall be binding upon the Grantors, the Holders
and the Trustee and their respective successors and assigns. The Trustee shall
not enter into any such supplemental agreement unless it shall have received a
certificate signed by an Authorized Officer of the Company to the effect that
such supplemental agreement will not result in a breach of any provision or
covenant contained in the Credit Agreement, any of the Public Indentures or any
of the Refinancing Instruments. Prior to executing any amendment pursuant to
the terms of this SECTION 8.1(a), the Trustee shall be entitled to receive an
opinion of counsel to the effect that the execution of such document is
authorized hereunder.
(b) Without the consent of the Holders, at any time and from time to
time, with the consent of the Agent, the Grantors and the Trustee may enter into
additional Security Documents or one or more agreements supplemental hereto or
to any Security Document, in form satisfactory to the Trustee:
(i) to add to the covenants of the Grantors for the benefit of
the Holders;
(ii) to mortgage, pledge or grant a security interest in favor
of the Trustee as additional security for the Secured Debt pursuant to
any Security Document; or
(iii) to cure any ambiguity or to correct or supplement any
provision herein or in any Security Document which may be defective or
inconsistent with any other provision herein or therein; PROVIDED,
HOWEVER, that any such action contemplated in this CLAUSE (iii) shall
not adversely affect the interests of the Holders in any manner
whatsoever.
(c) Without the consent of the Holders, the Grantors and the Trustee
may, at the direction of the Agent and at any time and from time to time, add
additional Persons ("ADDITIONAL GRANTORS") to this Agreement, or any of the
Security Documents, and such additional provisions hereto and thereto as may be
necessary or appropriate to effect the grant by such Additional Grantors of
Liens on any assets of such Additional Grantors as additional
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security for the Secured Debt. Upon its addition hereto, such Additional
Grantor shall have all of the rights and obligations of a Grantor hereunder.
Section 8.2. NOTICES. All notices, requests, demands and other
communications provided for or permitted hereunder shall be in writing
(including telex and telecopy communications), shall be sent by mail, telex,
telecopier or hand delivery and, except as otherwise provided in this Agreement,
the cost thereof shall be for the sole account of the Company and shall be added
to the Secured Debt:
(a) if to the Company, at: USG Corporation, 125 South Franklin
Street, Chicago, Illinois 60606-4678, Attention: Corporate Secretary,
with a copy thereof to Kirkland & Ellis, 200 E. Randolph Drive,
Chicago, Illinois, 60601, Attention: Michael G. Timmers; or at such
other address as shall be designated by it in a written notice to the
Trustee and the Secured Parties;
(b) if to the Trustee, at: Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890,
Attention: Corporate Trust Administration, with a copy to Richards,
Layton and Finger, One Rodney Square, Wilmington, Delaware 19899.
Attention: William J. Wade; or at such other address as shall be
designated by it in a written notice to the Company and the Secured
Parties;
(c) if to the Agent or any Lender, to the Agent at its address
at: Chemical Bank, 270 Park Avenue, New York, New York 10017,
Attention: Christopher C. Wardell, with a copy to Chemical Securities
Inc., 10 South LaSalle, Chicago, Illinois 60603, Attention: Steven J.
Faliski, and a copy to Sidley & Austin, One First National Plaza,
Chicago, Illinois 60603, Attention: Gary B. Stern; and or at such
other address as shall be designated by the Agent in a written notice
to the Trustee;
(d) if to any Public Lender, to the applicable Public Trustee at
the address for such Public Trustee set forth on SCHEDULE 2 hereto, or
at such other address as shall be designated by any Public Trustee in
a written notice to the Trustee; and
(e) if to any Refinancing Lender, to the applicable Representative, at
such address as shall be designated by such Representative in a written
notice to the Trustee.
All such notices, requests, demands and communications shall, to be effective
hereunder, be in writing or by a telecommunications device capable of creating a
written record, and shall be deemed to have been given or made when delivered by
hand or five (5) Business Days after its deposit in the mail, first class or air
postage prepaid (except that any notice to the Company by mail that an
Actionable Default has occurred or given by the Company pursuant to SECTION 7.2
hereof shall be sent by registered or certified mail), or in the case of notice
by such a telecommunications device, when properly transmitted; PROVIDED,
HOWEVER, that any notice, request, demand or other communication to the Trustee
shall not be effective until received.
Section 8.3. HEADINGS. Section, subsection and other headings used
in this Agreement are for convenience only and shall not affect the construction
of this Agreement.
Section 8.4. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction; PROVIDED THAT this Agreement shall be
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construed so as to give effect to the intention expressed in SECTION 3.12
hereof.
Section 8.5. TREATMENT OF PAYEE OR INDORSEE BY TRUSTEE. (a) The
Trustee may treat the registered holder of any registered note, and the payee or
indorsee of any note or debenture which is not registered, as the absolute owner
thereof for all purposes hereunder and shall not be affected by any notice to
the contrary, whether such promissory note or debenture shall be past due or
not.
(b) Any Person which shall be designated as the duly authorized
representative of one or more Holders to act as such in connection with any
matters pertaining to this Agreement or any Security Document or the Collateral
shall present to the Trustee such documents, including, without limitation,
opinions of counsel, as the Trustee may reasonably request, in order to
demonstrate to the Trustee the authority of such Person to act as the
representative of such Holders; PROVIDED THAT, unless the Trustee has received a
prior written notice to the contrary from any Lender, the Trustee may
conclusively presume that the Agent is the duly authorized representative of all
Lenders and Issuing Banks.
Section 8.6. DEALINGS WITH THE COMPANY. (a) Upon any application or
demand by any of the Grantors to the Trustee to take or permit any action under
any of the provisions of this Agreement or any Security Document, such Grantor
shall furnish to the Trustee a certificate signed by an Authorized Officer of
such Grantor stating that all conditions precedent, if any, provided for in this
Agreement or any Security Document relating to the proposed action have been
complied with, except that in the case of any such application or demand as to
which the furnishing of such documents is specifically required by any provision
of this Agreement or any Security Document relating to such particular
application or demand, no additional certificate or opinion need be furnished.
(b) Any opinion of counsel may be based, insofar as it relates to
factual matters, upon a certificate of Authorized Officers of the applicable
Grantor delivered to the Trustee.
Section 8.7. CLAIMS AGAINST THE TRUSTEE. Any claims or causes of
action which the Holders or the Grantors shall have against the Trustee shall
survive the termination of this Agreement and the release of the Collateral
hereunder.
Section 8.8. BINDING EFFECT. (a) This Agreement shall be binding
upon and inure to the benefit of each of the parties hereto and shall inure to
the benefit of the Holders and their respective successors and assigns, and
nothing herein or in any Security Document is intended or shall be construed to
give any other Person any right, remedy or claim under, to or in respect of this
Agreement, any Security Document, the Collateral or the Trust Estate.
(b) The Grantors jointly and severally agree to pay the Trustee's
Fees on demand. In the event the Grantors fail to pay the Trustee's Fees and
the Trustee's Fees cannot be paid out of amounts received in the Collateral
Account, each Lender agrees to pay the Trustee's Fees, ratably in accordance
with the proportion of the Obligations held by it.
Section 8.9. CONFLICT WITH OTHER AGREEMENTS. The parties agree that
in the event of any conflict between the provisions of this Agreement and the
provisions of any of the Security Documents, the provisions of this Agreement
shall control.
Section 8.10. GOVERNING LAW. The provisions of this Agreement
creating a trust for the benefit of the Holders and setting forth the rights,
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duties, obligations and responsibilities of the Trustee hereunder shall be
governed by and construed in accordance with the internal laws (as opposed to
conflicts of law provisions) and decisions of the State of Delaware, so long as
Wilmington Trust Company shall serve as Trustee hereunder. In all other
respects, including, without limitation, all matters governed by the Uniform
Commercial Code, and in all respects if Wilmington Trust Company shall cease to
serve as Trustee hereunder, this Agreement shall be governed by and construed in
accordance with the laws and decisions of the State of New York.
Section 8.11. COUNTERPARTS. This Agreement may be executed in
separate counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
Section 8.12. COMPANY AS AGENT FOR GRANTORS. Each Grantor hereby
designates and appoints the Company as the agent of such Grantor, and each
Grantor irrevocably authorizes the Company, to execute and deliver any notice
required hereunder on behalf of such Grantor. Any notice required to be
delivered to any Grantor hereunder shall be deemed delivered to such Grantor
when any such notice is delivered to the Company in accordance with the terms
hereof. The Company hereby accepts such designation as agent for the Grantors
until all Obligations have been paid in full and this Agreement has been
terminated. Each Grantor agrees not to revoke, modify or withdraw such
designation until all Obligations have been paid in full and this Agreement has
been terminated.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be duly executed by their respective officers thereunto
duly authorized as of the day and year first above written.
USG CORPORATION
By______________________________
Title:
WILMINGTON TRUST COMPANY, not in its
individual capacity (except as otherwise
expressly provided in this Agreement)
but solely as Trustee
By______________________________
Title:
________________________________
William J. Wade, not in his individual
capacity (except as otherwise expressly
provided in this Agreement) but solely
as Trustee
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SCHEDULE 1
to
COLLATERAL TRUST AGREEMENT
PUBLIC INDENTURES
1. Indenture dated as of October 1, 1986 between the Company and
Harris Trust and Savings Bank, Trustee, under which the Company has issued those
certain 8% Senior Notes due 1996, those certain 8% Senior Notes due 1997 and
those certain 8-3/4% Debentures due 2017, and under which the Company proposes
to issue those certain __% Senior Notes due 2005.(1)
Public Trustee Notice Address:
Corporate Trust Department
311 West Monroe Street
Chicago, Illinois 60690
2. Indenture dated as of January 1, 1974, between United States
Gypsum Company, and The First National Bank of Chicago, Trustee, as supplemented
by that certain First Supplemental Indenture, dated as of January 1, 1985,
between United States Gypsum Company, the Company, and The First National Bank
of Chicago, under which those certain 7.875% Sinking Fund Debentures due January
1, 2004 have been issued.
Public Trustee Notice Address:
Corporate Trust Department
One First National Plaza
Chicago, Illinois 60670
3. (a) Indenture dated as of April 26, 1993 between the Company and
State Street Bank and Trust Company, as Trustee, under which the Company has
issued those certain 10-1/4% Senior Notes due 2002.
(b) Indenture dated as of August 10, 1993 between the Company and
State Street Bank and Trust Company, as Trustee, under which the Company has
issued those certain 10 1/4% Senior Notes due 2002, Series B.
Public Trustee Notice Address:
Corporate Trust Department
225 Franklin Street
Boston, Massachusetts 02110]
_____________________
(1)The proceeds from the sale of the __% Senior Notes due 2005 (together
with other available funds) will be used to refinance those certain 10-1/4%
Senior Notes due 2002 and those certain 10-1/4% Senior Notes due 2002, Series B.
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<PAGE>
EXHIBIT 99(c)
FORM OF
COMPANY PLEDGE AGREEMENT
THIS COMPANY PLEDGE AGREEMENT (this "AGREEMENT") dated as of July ___,
1995 by and among USG CORPORATION, a Delaware corporation (the "PLEDGOR"),
WILMINGTON TRUST COMPANY, a Delaware banking corporation ("WILMINGTON"), and
WILLIAM J. WADE ("WADE"), Wilmington and Wade acting not in their individual
capacities, but solely as trustees (collectively and individually, the
"TRUSTEE") under the "Collateral Trust Agreement" referred to below. Terms
capitalized and used herein which are not otherwise defined herein shall have
the meanings given them in the Collateral Trust Agreement.
W I T N E S S E T H:
WHEREAS, the Pledgor is party to that certain Credit Agreement dated
as of July 26, 1995 (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT") with the financial
institutions from time to time party thereto (the "LENDERS") and Chemical Bank,
in its separate capacity as agent for the Lenders (in such capacity, the
"AGENT");
WHEREAS, in connection with the Credit Agreement, the Pledgor has
entered into that certain Collateral Trust Agreement dated as of July 26, 1995
(as the same may amended, restated, supplemented or otherwise modified from time
to time, the "COLLATERAL TRUST AGREEMENT");
WHEREAS, in connection with the Collateral Trust Agreement, and in
order to secure the prompt and complete payment, observance and performance of
the Secured Debt, the Pledgor and the Trustee have agreed to enter into this
Agreement; and
WHEREAS, the Pledgor is the owner of the issued and outstanding shares
of capital stock of the subsidiaries listed on EXHIBIT A attached hereto and
made a part hereof (the "SUBSIDIARIES");
NOW, THEREFORE, for and in consideration of the foregoing and of any
financial accommodations or extensions of credit (including, without limitation,
any loan or advance by renewal, refinancing or extension of the agreements
described hereinabove or otherwise) heretofore, now or hereafter made to or for
the benefit of the Pledgor by any of the Lenders or Issuing Banks in connection
with the transactions contemplated by the Credit Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST. The Pledgor hereby grants to the
Trustee for the equal and ratable benefit of the Secured Parties, as security
for the prompt and complete payment, observance and performance of all of the
Secured Debt, a security interest in (a) all shares of the capital stock of the
Subsidiaries now or at any time or times hereafter owned by Pledgor (the
"PLEDGED SHARES"), (b) all warrants, options and other rights to acquire capital
stock of the Subsidiaries now or at any time or times hereafter owned by the
Pledgor (the "RIGHTS"), and (c) all proceeds thereof (the Pledged Shares, the
Rights together with the "POWERS" (as defined below), the property and interests
in property described in PARAGRAPHS 7 and 8 below, dividends and distributions
payable with respect to the Pledged Shares that are required to be deposited in
the Collateral Account pursuant to PARAGRAPH 4 below, and all proceeds of any of
the foregoing, being hereinafter collectively referred to as the "PLEDGED
COLLATERAL"). The Pledgor agrees to execute and deliver to the Trustee (i)
stock powers in the form of EXHIBIT B attached hereto and made
<PAGE>
a part hereof, appropriately endorsed in blank, with respect to the Pledged
Shares and any warrants or options for the purchase of capital stock of the
Subsidiaries included in the Rights, and (ii) such other documents of transfer
as the Trustee may from time to time reasonably request to enable the Trustee
(when and as permitted under the Collateral Trust Agreement) to transfer the
Pledged Shares and the Rights into its name or the name of its nominee (all of
the foregoing being hereinafter referred to as the "POWERS").
2. PERFECTION OF SECURITY INTEREST. The Pledgor agrees (i) to
deliver immediately to the Trustee or the Trustee's nominee all certificates
evidencing any of the Pledged Collateral which may at any time come into the
possession of Pledgor, (ii) to execute and deliver to the Trustee such financing
statements as the Trustee may request with respect to the Pledged Collateral,
and (iii) to take such other steps as the Trustee may from time to time
reasonably request to perfect the Trustee's security interest in the Pledged
Collateral under applicable law. The Pledgor further agrees, at the reasonable
request of the Trustee, to use its best efforts to cause the Subsidiaries to
issue, in substitution for existing certificates evidencing any of the Pledged
Collateral, one or more new certificates ("SUBSTITUTE CERTIFICATE(S)") intended
to evidence all of the Pledged Collateral evidenced by the certificates which
are exchanged for the Substitute Certificate(s), and the Pledgor shall
immediately thereafter deliver such Substitute Certificates to the Trustee,
together with attached Powers. The Pledgor agrees that this Agreement or a
photocopy of this Agreement shall be sufficient as a financing statement.
3. VOTING RIGHTS. During the term of this Agreement, and so long as
no Notice of Actionable Default has been given and has not been withdrawn
pursuant to the Collateral Trust Agreement, and the Trustee has not given the
notice referred to in the final sentence of this PARAGRAPH 3, the Pledgor shall
have the right to vote the Pledged Shares and exercise any voting rights
pertaining to the Pledged Collateral (which may, subject to any registration of
the Trustee's security interest pursuant to PARAGRAPH 2 above, be registered on
the books and records of the Subsidiaries in the Pledgor's name except as
otherwise provided in PARAGRAPH 12 below), and to give consents, ratifications
and waivers with respect thereto for all purposes not prohibited by the terms of
the Credit Agreement, the Collateral Trust Agreement or any of the other "LOAN
DOCUMENTS" (as defined in the Credit Agreement). The Trustee shall, at the
request of the Pledgor, provide the Pledgor with appropriate proxies and any
other documents necessary or appropriate to permit the Pledgor to exercise the
rights set forth in the preceding sentence. Upon or at any time after the
giving of a Notice of Actionable Default and during the time any Notice of
Actionable Default which has been given has not been withdrawn pursuant to the
Collateral Trust Agreement, the Trustee shall be entitled, at the Trustee's
option and following written notice from the Trustee to the Pledgor, to exercise
all voting powers pertaining to the Pledged Collateral.
4. DIVIDENDS AND OTHER DISTRIBUTIONS. Upon receipt of notice in
accordance with Section 3.1 of the Collateral Trust Agreement that the Trustee
has received a Notice of Actionable Default, the Pledgor shall, at the written
request of the Requisite Lenders, send a written notice (a "DIVIDENDS AND
DISTRIBUTIONS NOTICE") to each of the Subsidiaries specified in such request, no
later than five (5) days after the date of receipt of such request, instructing
such Subsidiaries to remit all dividends and other distributions payable with
respect to the Pledged Collateral (until such time as such Notice of Actionable
Default is withdrawn pursuant to the Collateral Trust Agreement) directly to the
Trustee to be deposited in the Collateral Account as additional Pledged
Collateral, and promptly send a copy of the Dividends and Distributions Notice
to the Agent and the Trustee. Nothing contained in this PARAGRAPH 4 shall be
deemed to permit the payment of any dividend or the making of any distribution
which is prohibited by the Credit Agreement or any of the other agreements and
documents executed in connection with the transactions contemplated thereby.
<PAGE>
5. REPRESENTATIONS. On the date hereof, the Pledgor warrants and
represents as follows:
(a) The Pledgor is the sole, direct, legal and beneficial owner of
the Pledged Shares, free and clear of any Lien except for the security
interests created by this Agreement and "PERMITTED LIENS" (as defined in
Section 6.03 of the Credit Agreement), and such stock has been duly
authorized and is fully paid and nonassessable;
(b) The Pledged Shares constitute the percentage of the issued and
outstanding capital stock of the Subsidiaries as set forth on EXHIBIT A,
and there are no Rights associated with such capital stock;
(c) The Pledgor has full corporate power and authority to enter into
this Agreement;
(d) There are no restrictions upon the voting rights associated with,
or the transfer of, any of the Pledged Collateral except as provided by (i)
the "Securities Act" (as defined in PARAGRAPH 9 of this Agreement), and/or
(ii) the terms and provisions of the Loan Documents, and/or (iii) any
restrictions in connection with the Existing Credit Agreement (as such term
is defined in the Credit Agreement);
(e) The Pledgor has the right, subject to the provisions of the Loan
Documents, (i) to vote the Pledged Collateral, and (ii) to pledge and grant
a security interest in all or any part of the Pledged Collateral free of
any Lien;
(f) The Pledgor has the right (subject, however, to the Securities
Act and/or the terms and provisions of the Loan Documents) to transfer all
or any part of the Pledged Collateral free of any Lien;
(g) No authorization, approval, or other action by, and no notice to
or filing with, any governmental authority or regulatory body which has not
heretofore been taken or obtained is required either (i) for the pledge of
the Pledged Collateral pursuant to this Agreement or for the execution,
delivery or performance of this Agreement by the Pledgor or (ii) for the
exercise by the Trustee of the voting or other rights provided for in this
Agreement or the remedies in respect of the Pledged Collateral pursuant to
this Agreement (except as may be required in connection with any
disposition thereof by laws affecting the offering and sale of securities
generally);
(h) The pledge of the Pledged Collateral pursuant to this Agreement
creates a valid and perfected (and, with respect to the Pledged Shares
only, first priority) security interest in the Pledged Collateral, in favor
of the Trustee, securing the payment and performance of the Secured Debt;
and
(i) The Powers are duly executed and give the Trustee the authority
they purport to confer.
6. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL. The Pledgor
represents to the Trustee that the Pledgor has made its own arrangements for
keeping informed of changes or potential changes affecting the Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights), and Pledgor agrees that neither the Trustee nor any
Secured Party shall have any responsibility or liability for informing Pledgor
of any such changes or potential changes or for taking any action or omitting to
take any action with respect thereto.
7. PLEDGED SHARES ADJUSTMENTS. In the event that, during the term of
this Agreement, any stock dividend, reclassification, readjustment or
<PAGE>
other change is declared or made in the capital structure of any of the
Subsidiaries (including, without limitation, the issuance of additional shares
of capital stock of any of the Subsidiaries), or any of the Rights are
exercised, or both, then the Trustee shall have a security interest in all new,
substituted and additional shares or other securities issued to or acquired by
the Pledgor by reason of any such change or exercise, and such shares or other
securities shall become part of the Pledged Collateral; PROVIDED, HOWEVER, that
nothing contained in this PARAGRAPH 7 shall be deemed to permit any stock
dividend, issuance of additional stock, reclassification, readjustment or other
change in the capital structure of any of the Subsidiaries which is prohibited
by the Credit Agreement, the Collateral Trust Agreement or any other Loan
Document.
8. WARRANTS, OPTIONS AND OTHER RIGHTS. The Pledgor shall not permit
any Subsidiary to issue any capital stock or Rights, other than in favor of
Pledgor. In the event that, during the term of this Agreement, any Rights shall
be issued by any of the Subsidiaries in connection with the Pledged Collateral
or otherwise issued to or acquired by the Pledgor, then the Trustee shall have a
security interest in such Rights, and such Rights shall become part of the
Pledged Collateral; PROVIDED, HOWEVER, that nothing contained in this PARAGRAPH
8 shall be deemed to permit the issuance of any warrants or other rights or
options by any of the Subsidiaries which is prohibited by the Credit Agreement,
the Collateral Trust Agreement or any other Loan Document.
9. REGISTRATION. Upon or at any time after the giving of a Notice of
Actionable Default and during the time any Notice of Actionable Default which
has been given has not been withdrawn pursuant to the Collateral Trust
Agreement, in the event the Trustee determines to exercise its right to sell the
Pledged Collateral pursuant to PARAGRAPH 12 below, Pledgor shall, upon the
request of Trustee, at Pledgor's expense:
(a) execute and deliver, and cause the Subsidiaries, their respective
officers and directors to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts and things, as
may be necessary or, in the opinion of the Trustee, the Requisite Lenders
or its or their counsel, advisable to register the Pledged Collateral or
any part thereof under the provisions of the Securities Act of 1933, as
from time to time amended (the "Securities Act"), and to cause each
registration statement relating thereto to become effective and to remain
effective for such period as prospectuses are required by law to be
furnished, and to make all amendments and supplements thereto and to the
related prospectus which, in the opinion of the Trustee, the Requisite
Lenders or its or their counsel, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto;
(b) use its best efforts to qualify the Pledged Collateral under
applicable state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Pledged Collateral or any
thereof, as requested by the Trustee or the Requisite Lenders;
(c) cause each or any of the Subsidiaries to make available to the
Pledgor, as soon as practicable, an earnings statement which will satisfy
the provisions of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Pledged Collateral or any part thereof
valid and binding and in compliance with applicable law.
The Pledgor will reimburse the Trustee for any expense incurred by the Trustee,
including, without limitation, reasonable attorneys' and accountants' fees and
expenses in connection with the foregoing. Upon or at any time after
<PAGE>
the giving of a Notice of Actionable Default and during the time any Notice of
Actionable Default which has been given has not been withdrawn pursuant to the
terms of the Collateral Trust Agreement, should the Trustee or the Requisite
Lenders reasonably determine that, prior to any public offering of any
securities constituting all or any part of the Pledged Collateral, such
securities should be registered under the Securities Act and/or registered or
qualified under any other federal or state law, and that such registration
and/or qualification is not practical, then the Pledgor agrees that it will be
commercially reasonable to hold a private sale, upon at least five (5) Business
Days' notice to the Pledgor, so as to avoid a public offering, even though the
sales price established and/or obtained at such private sale may be
substantially less than prices which could have been obtained for such security
on any market or exchange or in any other public sale.
10. NO DISCHARGE. The Pledgor shall remain bound and its obligations
hereunder shall be unconditional, irrespective of (i) the subordination of the
Secured Debt or any of the Debt Instruments, (ii) the absence of any attempt to
collect the Secured Debt from any guarantor thereof or other action to enforce
the same or the election of any remedy by the Trustee or any of the Secured
Parties, (iii) the waiver, consent, extension, forbearance or granting of any
indulgence by the Trustee or any of the Secured Parties with respect to any
provision of any of the Debt Instruments, (iv) the failure by the Trustee to
take any steps to perfect and maintain its security interest in, or to preserve
its rights to, any of the Pledged Collateral, (v) the election by any of the
Secured Parties, in any proceeding instituted under Chapter 11 of the Bankruptcy
Code of the application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any
borrowing or grant of a security interest by any Grantor, as
debtor-in-possession, under Section 364 of the Bankruptcy Code, (vii) the
disallowance under Section 502 of the Bankruptcy Code of all or any portion of
the claims of the Secured Parties for repayment of the Secured Debt, or (viii)
any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor or of the Pledgor; all of the foregoing
being expressly waived by the Pledgor to the extent permitted by applicable law.
11. WAIVERS. To the extent permitted by applicable law, the Pledgor
hereby waives any requirement of diligence, presentment, demand of payment,
filing of claims with a court in the event of receivership or bankruptcy of any
Grantor, protest or notice with respect to the Secured Debt and all demands
whatsoever (and shall not require that the same be made on any other Grantor as
a condition precedent to the Pledgor's obligations hereunder), and covenants
that this Agreement will not be discharged, except as provided in PARAGRAPH 13
hereunder. Notwithstanding anything to the contrary contained in this
Agreement, the Pledgor does not waive any rights to notice provided to it as the
"Borrower" under the Credit Agreement.
12. REMEDIES OF TRUSTEE FOLLOWING A NOTICE OF ACTIONABLE DEFAULT.
The Trustee may, upon or at any time after the giving of a Notice of Actionable
Default and during the time any Notice of Actionable Default which has been
given has not been withdrawn pursuant to the Collateral Trust Agreement, at its
option, transfer or register the Pledged Collateral or any part thereof into its
or its nominee's name with or without any indication that such Pledged
Collateral is subject to the security interest hereunder. The Pledgor hereby
appoints the Trustee as its attorney-in-fact to arrange at the Trustee's option
for such transfer. The Trustee shall have, in addition to the foregoing and any
other rights given under this Agreement or by law, all of the rights and
remedies with respect to the Pledged Collateral of a secured party under the
Uniform Commercial Code as in effect in the State of New York. In addition,
following the receipt by the Trustee of a Notice of Actionable Default, and
during the time any Notice of Actionable Default which has been given has not
been withdrawn pursuant to the terms of the Collateral Trust Agreement, the
Trustee shall have such powers of sale and other powers as may be conferred by
applicable law. With respect to the Pledged Collateral or any part thereof
which shall then be in or shall thereafter come into the
<PAGE>
possession or custody of the Trustee or which the Trustee shall otherwise have
the ability to transfer under applicable law, the Trustee may, in its sole
discretion, without notice except as specified below, following the giving of a
Notice of Actionable Default and during such time as any Notice of Actionable
Default which has been given has not been withdrawn pursuant to the terms of the
Collateral Trust Agreement, sell or cause the same to be sold at any broker's
board or at public or private sale, in one or more sales or lots, at such price
as the Trustee may deem best, for cash or on credit or for future delivery,
without assumption of any credit risk on the part of the Trustee or any other
Secured Party, and the purchaser of any or all of the Pledged Collateral so sold
shall thereafter own the same, absolutely free from any claim, encumbrance or
right of any kind whatsoever.
The Trustee will give the Pledgor reasonable notice of the time and
place of any public sale of the Pledged Collateral, or of the time after which
any private sale or other intended disposition is to be made. Any sale of the
Pledged Collateral conducted in conformity with reasonable commercial practices
of banks, commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Notwithstanding any provision to the
contrary contained herein, any requirements of reasonable notice shall be met if
five (5) Business Days' notice of such sale or disposition is provided to
Pledgor. Any other requirement of notice, demand or advertisement for sale is,
to the extent permitted by law, waived. The Trustee or any Secured Party may,
in its own name or in the name of a designee or nominee, buy all or any part of
the Pledged Collateral at any public sale and, if permitted by applicable law,
buy all or any part of the Pledged Collateral at any private sale. The Pledgor
will pay to the Trustee all expenses (including, without limitation, court costs
and attorneys' and paralegals' fees and expenses) of, or incident to, (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale or collection of or other realization upon, any of the Pledged Collateral,
(iii) the exercise or enforcement of any of the rights of the Trustee hereunder,
or (iv) the failure by the Pledgor to perform or observe its duties and
obligations hereunder. In view of the fact that federal and state securities
laws may impose certain restrictions on the method by which a sale of the
Pledged Collateral may be effected, the Pledgor agrees that upon the giving of a
Notice of Actionable Default and during the time any Notice of Actionable
Default which has been given has not been withdrawn pursuant to the terms of the
Collateral Trust Agreement, the Trustee may, from time to time, attempt to sell
all or any part of the Pledged Collateral by means of a private placement
restricting the bidders and prospective purchasers to those who are qualified
and will represent and agree that they are purchasing for investment only and
not for distribution. In so doing, the Trustee may solicit offers to buy the
Pledged Collateral, or any part of it, from a limited number of investors deemed
by the Trustee, in its reasonable judgment, to be financially responsible
parties who might be interested in purchasing the Pledged Collateral. If the
Trustee solicits such offers, then the acceptance by the Trustee of the highest
offer obtained therefrom shall be deemed to be a commercially reasonable method
of disposing of such Pledged Collateral.
13. TERM. This Agreement shall remain in full force and effect until
such time as all of the Pledged Collateral has been released pursuant to the
terms of the Collateral Trust Agreement and the Credit Agreement. The security
interest under this Agreement in all or any portion of the Pledged Collateral
(the "RELEASED COLLATERAL") may be released pursuant to the terms and provisions
of the Collateral Trust Agreement and the Credit Agreement, and thereupon the
Released Collateral shall no longer be "PLEDGED SHARES" or "PLEDGED COLLATERAL"
as defined and used herein. The Trustee shall promptly take all steps Pledgor
may reasonably request to release its security interest in the Released
Collateral, as required by Section 7.4 of the Collateral Trust Agreement.
14. TRUSTEE'S EXERCISE OF RIGHTS AND REMEDIES UPON RECEIPT OF A
<PAGE>
NOTICE OF ACTIONABLE DEFAULT. Notwithstanding anything set forth herein to the
contrary, it is hereby expressly agreed that, upon the Trustee's receipt of a
Notice of Actionable Default, the Trustee may, and upon the written direction of
the Requisite Lenders shall, exercise any of the rights and remedies provided in
this Agreement, the Collateral Trust Agreement or any other "COLLATERAL
DOCUMENT" (as defined in the Credit Agreement).
15. DEFINITIONS. The singular shall include the plural and vice versa
and any gender shall include any other gender as the context may require.
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Pledgor, the Trustee and their respective successors
and assigns. The Pledgor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession of or for the Pledgor.
17. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be held to be prohibited or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
18. FURTHER ASSURANCES. The Pledgor agrees that it will cooperate
with the Trustee and will execute and deliver, or cause to be executed and
delivered, all such other stock powers, proxies, instruments, documents and
resignations of officers and directors, and will take all such other action,
including, without limitation, the filing of financing statements, as the
Trustee may reasonably request from time to time in order to carry out the
provisions and purposes hereof.
19. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. All judicial
proceedings brought against the Pledgor with respect to this Agreement may be
brought in any state or federal court of competent jurisdiction in the state of
New York, and by execution and delivery of this Agreement, the Pledgor accepts,
for itself and in connection with its properties, generally and unconditionally,
the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agrees to
be bound by any final judgment rendered thereby in connection with this
Agreement from which no appeal has been taken or is available. The Pledgor
irrevocably consents to the service of process of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to its notice address specified
on the signature pages hereof, such service to become effective ten (10) days
after such mailing. The Pledgor irrevocably waives any objection (including,
without limitation, any objection to the laying of venue or based on the grounds
of forum non conveniens) which it may now or hereafter have to the bringing of
any such action or proceeding with respect to this Agreement in any jurisdiction
set forth above. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of any Secured Party to
bring proceedings against the Pledgor in the courts of any other jurisdiction.
20. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE TRUSTEE WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, BETWEEN THE TRUSTEE AND THE PLEDGOR ARISING OUT OF OR RELATED TO
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EITHER THE
PLEDGOR OR THE TRUSTEE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
<PAGE>
21. TRUSTEE APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby appoints
the Trustee as the Pledgor's attorney-in-fact, with full authority in the place
and stead of the Pledgor and in the name of the Pledgor or otherwise, following
the Pledgor's receipt of a Notice of Actionable Default that has not been
withdrawn pursuant to the Collateral Trust Agreement, to take any action and to
execute any instrument which the Trustee may deem necessary or advisable to
accomplish the purposes of this Agreement, in the Trustee's discretion,
including, without limitation, to receive, endorse and collect all instruments
made payable to the Pledgor representing any distribution, interest payment or
other dividend distribution in respect of the Pledged Collateral or any part
thereof to the extent required to be deposited into the Collateral Account in
accordance with Section 4.1 of the Collateral Trust Agreement and to give full
discharge for the same. This power of attorney created under this PARAGRAPH 21,
being coupled with an interest, shall be irrevocable for the term of this
Agreement and thereafter as long as any of the Secured Debt shall be
outstanding, but shall not be deemed to authorize the Trustee to take any action
which the Pledgor could not be required to take hereunder.
22. TRUSTEE'S DUTY. The Trustee shall not be liable for any acts,
omissions, errors of judgment or mistakes of fact or law including, without
limitation, acts, omissions, errors or mistakes with respect to the Pledged
Collateral, except for those arising out of or in connection with the Trustee's
(i) gross negligence, bad faith or willful misconduct, or (ii) failure to use
reasonable care with respect to the safe custody of any certificate evidencing
any of the Pledged Collateral which is in the physical possession of the
Trustee. Without limiting the generality of the foregoing, the Trustee shall be
under no obligation to take any steps necessary to preserve rights in the
Pledged Collateral against any other parties but may do so at its option, and
all expenses incurred in connection therewith shall be for the sole account of
the Pledgor, and shall be added to the Secured Debt secured hereby.
23. NOTICES. Any notice or other communication herein required or
permitted to be given shall be in writing and may be personally served,
telecopied, telexed or sent by courier service or United States mail and shall
be deemed to have been given when delivered in person or by courier service,
upon receipt of a telecopy or telex or five (5) Business Days after being
deposited in the United States mail (registered or certified mail, with postage
prepaid and properly addressed). For the purposes hereof, the addresses of the
parties hereto (until notice of a change thereof is delivered as provided in
this paragraph) shall be as set forth below each party's name on the signature
pages hereof, or, as to each party, at such other address as may be designated
by such party in a written notice to each of the other parties.
24. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same instrument.
25. PARAGRAPH HEADINGS. The paragraph headings herein are for
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Trustee have executed this
Agreement as of the day first above written.
USG CORPORATION
By:__________________________
Title:
NOTICE ADDRESS:
125 South Franklin Street
Chicago, Illinois 60606-4678
Attention: Vice President and
Treasurer
With a copy to:
125 South Franklin Street
Chicago, Illinois 60606-4678
Attention: Corporate Secretary
WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as
Collateral Trustee under the Collateral
Trust Agreement
By:___________________________
Title:
NOTICE ADDRESS:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust
Administration
______________________________
William J. Wade, not in his individual
capacity but solely as Collateral
Trustee under the Collateral Trust
Agreement
NOTICE ADDRESS:
Richards, Layton & Finger
One Rodney Square
Wilmington, Delaware 19899
Attention: William J. Wade
<PAGE>
ACKNOWLEDGMENT
Each of the undersigned hereby acknowledges receipt of a copy of the
foregoing Company Pledge Agreement, agrees promptly to note on the books of the
corporation the transfer of the security interest in the stock of the
corporation as provided in such Agreement, and waives any right or requirement
at any time hereafter to receive a copy of such Agreement in connection with the
registration of any Pledged Collateral in the name of the Trustee or its nominee
or the exercise of voting rights by the Trustee.
Dated: ________________.
L&W SUPPLY CORPORATION
By______________________________
Title:
USG FOREIGN INVESTMENTS, LTD.
By______________________________
Title:
USG INTERIORS, INC.
By______________________________
Title:
UNITED STATES GYPSUM COMPANY
By______________________________
Title:
<PAGE>
EXHIBIT A
to
COMPANY PLEDGE AGREEMENT
SUBSIDIARIES AND CAPITAL STOCK
Shares of Capital
Percentage of Issued Stock owned by
List of and Outstanding Capital Pledgor Subject
Subsidiaries Stock owned by the Pledgor to Pledge
- ------------ -------------------------- -----------------
L&W Supply
Corporation 100% 1000
USG Foreign
Investments, Ltd. 100% 100
USG Interiors, Inc. 100% 250
United States
Gypsum Company 100% 250
<PAGE>
EXHIBIT B
to
COMPANY PLEDGE AGREEMENT
FORM OF POWERS
Attached.
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to ________________, Federal Identification No. _______________,
___________ share(s) of the capital stock of ____________________________, a
____________ corporation, represented by certificate no. __________, standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint _________________ attorney to
transfer the shares of said corporation, with full power of substitution in the
premises.
Dated:___________________.
USG CORPORATION
By:___________________________
Title:
ATTEST:
By:_____________________________
