<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended October 31, 1998
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _________________ to
_______________________.
Commission file number: 0-15077
SHOREWOOD PACKAGING CORPORATION
(Exact name of registrant as specified in its Charter)
DELAWARE 11-2742734
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
277 PARK AVENUE
NEW YORK, NEW YORK 10172
(Address of principal executive offices)
(212) 371-1500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
DECEMBER 1, 1998 27,267,000
Date Number of Shares
<PAGE> 2
SHOREWOOD PACKAGING CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C>
Part I: Financial Statements
Consolidated Balance Sheets
October 31, 1998 (Unaudited) and
May 2, 1998 (Audited) 3
Consolidated Condensed Statements of Earnings
13 weeks ended October 31, 1998 (Unaudited) and
13 weeks ended November 1, 1997 (Unaudited) 4
Consolidated Condensed Statements of Earnings
26 weeks ended October 31, 1998 (Unaudited) and
26 weeks ended November 1, 1997 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows
26 weeks ended October 31, 1998 (Unaudited) and
26 weeks ended November 1, 1997 (Unaudited) 6
Notes to Consolidated Condensed Financial Statements 7 - 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 18
Part II: Other Information 19
</TABLE>
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Form 10-Q,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are typically
identified by their inclusion of phrases such as "the Company anticipates," "the
Company believes" and other phrases of similar meaning. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance or achievements of the Company to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others: general economic and business conditions; competition; political
changes in international markets; raw material and other operating costs; costs
of capital equipment; changes in foreign currency exchange rates; changes in
business strategy or expansion plans; the results of continuing environmental
compliance testing and monitoring; quality of management; availability, terms,
and development of capital; fluctuating interest rates; and other factors
referenced in this Form 10-Q.
PAGE 2 OF 21
<PAGE> 3
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, MAY 2,
1998 1998
(UNAUDITED) (AUDITED)
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,662 $ 7,268
Accounts receivable, net 74,151 32,054
Inventories 47,292 46,591
Deferred tax assets 317 317
Refundable income taxes -- 411
Prepaid expenses and other current assets 6,268 9,202
--------- ---------
Total Current Assets 134,690 95,843
Property, Plant and Equipment, net 244,901 200,293
Excess of Cost Over the Fair Value of Net Assets Acquired, net 113,404 18,295
Other Assets 9,119 11,553
--------- ---------
$ 502,114 $ 325,984
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 50,045 $ 33,100
Accrued expenses 23,888 13,887
Income taxes payable 4,134 2,864
Current maturities of long-term debt 20,000 15,000
--------- ---------
Total Current Liabilities 98,067 64,851
Long-Term Debt 258,827 126,437
Other Long-Term Liabilities 1,397 794
Deferred Income Taxes 22,015 21,395
--------- ---------
Total Liabilities 380,306 213,477
--------- ---------
Temporary Equity Relating to Put Options 1,246 2,710
Commitments and Contingencies
Stockholders' Equity:
Series A preferred stock, $10 par value; 50,000 shares
authorized, none issued -- --
Preferred stock, $10 par value; 5,000,000 shares authorized
none issued -- --
Common stock, $.01 par value; 60,000,000 shares authorized;
35,352,873 issued and 27,266,999 outstanding in October and
34,106,974 issued and 27,092,100 outstanding in May 354 341
Additional paid-in capital 70,274 52,448
Retained earnings 135,369 121,976
Cumulative foreign currency translation adjustment (8,808) (4,274)
Treasury stock (8,085,874 and 7,014,874 shares at
cost in August and May) (76,627) (60,694)
--------- ---------
Total Stockholders' Equity 120,562 109,797
--------- ---------
$ 502,114 $ 325,984
========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
PAGE 3 OF 21
<PAGE> 4
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS
ENDED ENDED
OCTOBER 31, NOVEMBER 1,
1998 1997
<S> <C> <C>
Net Sales $ 145,378 $ 114,828
--------- ---------
Costs and Expenses:
Cost of Sales 110,153 87,427
Selling, General and Administrative 16,440 11,888
--------- ---------
Earnings from Operations 18,785 15,513
Other Income, net 468 147
Interest Expense (3,005) (1,854)
--------- ---------
Earnings Before Provision for Income Taxes and Extraordinary
Item 16,248 13,806
Provision for Income Taxes 6,338 5,246
--------- ---------
Earnings Before Extraordinary Item 9,910 8,560
Extraordinary Item, net of Income Tax Benefit of $177 (277) --
--------- ---------
Net Earnings $ 9,633 $ 8,560
========= =========
EARNINGS PER SHARE INFORMATION:
BASIC
Earnings Before Extraordinary Item $ .37 $ .32
Extraordinary Item (0.01) --
--------- ---------
Net Earnings Per Common Share $ .36 $ .32
========= =========
DILUTED
Earnings Before Extraordinary Item $ .37 $ .31
Extraordinary Item (0.01) --
--------- ---------
Net Earnings Per Common Share $ .36 $ .31
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 26,451 27,132
========= =========
DILUTED 27,112 27,888
========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
PAGE 4 OF 21
<PAGE> 5
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
OCTOBER 31, NOVEMBER 1,
1998 1997
--------- ---------
<S> <C> <C>
Net Sales $ 260,737 $ 215,424
--------- ---------
Costs and Expenses:
Cost of Sales 200,207 165,514
Selling, General and Administrative 28,903 22,912
--------- ---------
Earnings from Operations 31,627 26,998
Other Income, net 859 728
Interest Expense (5,091) (3,905)
--------- ---------
Earnings Before Provision for Income Taxes, Extraordinary Item
and Cumulative Effect of a Change in Accounting Principle 27,395 23,821
Provision for Income Taxes 10,685 9,052
--------- ---------
Earnings Before Extraordinary Item and Cumulative Effect of a
Change in Accounting Principle 16,710 14,769
Extraordinary Item, net of Income Tax Benefit of $177 (277) --
Cumulative Effect on Prior Years Related to the Adoption of
SOP 98-5 Reporting on the Cost of Start-Up Activities (3,040) --
--------- ---------
Net Earnings $ 13,393 $ 14,769
========= =========
EARNINGS PER SHARE INFORMATION:
BASIC
Earnings Before Extraordinary Item and Cumulative Effect of a
Change in Accounting Principle $ .63 $ .54
Extraordinary Item (0.01) --
Cumulative Effect of a Change in Accounting Principle (0.11) --
--------- ---------
Net Earnings Per Common Share $ .51 $ .54
========= =========
DILUTED
Earnings Before Extraordinary Item and Cumulative Effect of a
Change in Accounting Principle $ .62 $ .53
Extraordinary Item (0.01) --
Cumulative Effect of a Change in Accounting Principle (0.12) --
--------- ---------
Net Earnings Per Common Share $ .49 $ .53
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 26,473 27,137
========= =========
DILUTED 27,097 27,791
========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
PAGE 5 OF 21
<PAGE> 6
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
OCTOBER 31, NOVEMBER 1,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 13,393 $ 14,769
Adjustments to reconcile earnings to net cash flows
provided from operations:
Non-cash cumulative effect of change in
accounting principle 3,040 --
Non-cash extraordinary item, net of tax 277
Depreciation and amortization 10,144 8,660
Deferred income taxes 1,353 3,171
Changes in operating assets and liabilities:
Accounts receivable (22,645) (9,606)
Inventories 4,202 1,163
Prepaid expenses and other current assets 2,023 (2,145)
Other assets 346 (129)
Accounts payable, accrued expenses and other
long term liabilities 7,527 4,099
--------- ---------
Net cash flows provided from operating activities 19,660 19,982
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures (22,052) (36,888)
Business acquisitions, net of cash acquired (120,729) --
--------- ---------
Net cash flows used in investing activities (142,781) (36,888)
--------- ---------
Cash Flows from Financing Activities:
Net proceeds from revolver borrowings 120,699 25,465
Additions to long-term borrowings 100,000 --
Repayments of long-term borrowings (82,728) --
Purchase of treasury stock (15,933) (8,313)
Issuance of common stock 550 776
--------- ---------
Net cash flows provided from financing activities 122,588 17,928
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (73) 45
--------- ---------
Decrease in cash and cash equivalents (606) 1,067
Cash and cash equivalents at beginning of period 7,268 3,153
--------- ---------
Cash and cash equivalents at end of period $ 6,662 $ 4,220
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized amounts $ 6,859 $ 1,925
========= =========
Income taxes paid $ 7,566 $ 5,563
========= =========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
PAGE 6 OF 21
<PAGE> 7
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position, the
results of operations, and the changes in cash flows at October 31, 1998 and for
all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes included in the
Company's May 2, 1998 Annual Report to Stockholders on Form 10-K as filed with
the Securities and Exchange Commission ("1998 Form 10-K").
The results of operations for the 13 week period and 26 week period ended
October 31, 1998 are not necessarily indicative of the results for the full
year.
2. BUSINESS ACQUISITION
In October 1998, the Company purchased substantially all of the assets and
assumed substantially all of the liabilities of The Queens Group, Inc.
("Queens") for a purchase price of $129.5 million comprised of approximately
$113.7 million in cash including the assumption of debt, and 1.0 million shares
of Company common stock. In addition, the Company incurred expenses associated
with the transaction of approximately $2.5 million. Simultaneously with the
closing of the transaction, the Company repaid all outstanding bank debt of
Queens, approximating $19.0 million. Queens is engaged in the manufacture of
value added printed packaging primarily for the home entertainment industry. The
transaction was financed through a new credit facility as described below.
The acquisition was recorded using the purchase method of accounting and,
accordingly, the results of operations of Queens are included in the
consolidated results of operations of the Company since the date of acquisition.
The purchase price of the acquisition has been allocated to the net assets
acquired based upon the related fair values which is subject to refinement based
upon the receipt of final appraisals and other analyses. The excess of cost over
the fair value of net assets acquired approximated $96.2 million and is being
amortized over 40 years.
The following unaudited pro forma information for the twenty-six weeks ended
October 31, 1998 and November 1, 1997 includes the operations of the Company,
inclusive of the operations of Queens, as if the acquisition had occurred at the
beginning of the respective periods presented. The pro forma gives effect to the
amortization expense associated with the excess of cost over the fair value of
net assets acquired, adjustments related to the fair market value of the assets
and liabilities acquired (which is subject to further refinement), shares issued
in connection with the transaction, interest expense related to financing the
acquisition, and related income tax effects.
PAGE 7 OF 21
<PAGE> 8
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
OCTOBER 31, 1998 NOVEMBER 1, 1997
<S> <C> <C>
Revenues $ 326,240 $296,358
========= ========
Earnings from Operations $ 36,147 $ 33,499
========= ========
Net Earnings Before Extraordinary Items and Cumulative
Effect of a Change in Accounting Principle $ 18,513 $ 17,462
========= ========
Net Earnings Per Share Before Extraordinary Items and
Cumulative Effect of a Change in Accounting Principle
Basic $ .68 $ .62
========= ========
Diluted $ .67 $ .61
========= ========
</TABLE>
3. NEW CREDIT FACILITY AND INTEREST RATE DERIVATIVES
In October 1998, in order to facilitate the acquisition of Queens as described
in Note 2 and other global opportunities which may arise over the next several
years, the Company entered into a new credit agreement with its lending banks to
replace its existing credit facility. The new credit facility provides for up to
$325 million of borrowings and consists of a $100 million term loan to be paid
in equal quarterly installments over five years and a $225 million revolving
credit facility maturing at the end of five years. The revolving credit is
available, in its entirety, without any borrowing base limitation. Borrowings
pursuant to the facility will bear interest at the discretion of the Company, at
either the Bank's prime rate (8.0% at October 31, 1998) or at the LIBOR rate
(three month term of 5.22% at October 31, 1998) plus 62.5 to 125 basis points
based upon financial ratios as defined in the underlying Agreement. Initially,
borrowings bear interest at 125 basis points above the LIBOR rate. Unused
commitment fees will range from 20 to 30 basis points (initially 30 basis points
based upon the same financial ratios).
In connection with the refinancing, the Company recorded a net of tax
extraordinary charge representing the write-off of previously deferred finance
costs incurred in connection with the former credit facility of approximately
$277 thousand.
The Company uses interest rate derivatives to manage its exposure to fluctuating
interest rates. These transactions effectively change a portion of the Company's
interest rate exposure from a floating-rate to a fixed-rate basis. The Company's
interest rate derivatives are generally structured for the Company to pay a
fixed rate and receive a floating rate based on LIBOR, as determined in
three-month intervals ( a "Vanilla Swap"). The Company has Vanilla Swap
agreements relating to $150.0 million of borrowings under the credit facility
expiring in the quarter ended January 2001 providing a weighted average LIBOR
rate of 5.044% throughout the period.
In July 1997, the Company entered into a reversion swap agreement relating to
$50.0 million of borrowings under the credit facility. Under the agreement, the
Company pays a fixed rate of 5.73% and receives a floating rate based upon
LIBOR, as determined in three month intervals. This agreement terminates in
April 2002. This transaction effectively changes a portion of the Company's
interest rate exposure from a floating-rate to a fixed-rate basis. After the
first year, however, the fixed rate reverts back to floating for any three month
period during which the LIBOR rate exceeds 6.625%. The rate reverts back to the
fixed rate of 5.73% for any subsequent period for which the LIBOR rate drops
below 6.625%.
PAGE 8 OF 21
<PAGE> 9
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
In October 1997, the Company entered into an intermediate-term interest rate
swap agreement relating to approximately $35.0 million of borrowings under the
credit facility. Under the agreement, the Company pays a fixed rate of 5.74% and
receives a floating rate based on LIBOR, as determined in three-month intervals.
This transaction effectively changes a portion of the Company's interest rate
exposure from a floating-rate to a fixed-rate basis. The agreement began on May
5, 1998 and terminates May 5, 1999. The agreement may be extended at the
discretion of the financial institution for an additional year.
On June 16, 1998, the Financial Accounting Standards Board adopted Statement on
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Adoption of SFAS No. 133 is not required at
this time. The adoption of SFAS 133 is not expected to have a material impact on
the Company's financial statements.
4. INCOME TAXES
The effective income tax rate for the three and six month periods ended October
31, 1998 is 39.0% and was 38.0% for the corresponding prior periods. These rates
reflect a blend of domestic and foreign taxes and are adjusted periodically
based upon the estimated annual effective tax rate and any increase or decrease
in the provision for income taxes is reflected in the period in which the
estimate is changed. The effective income tax rate for the entire fiscal year
ended May 2, 1998 was 37.9%.
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31, 1998 MAY 2, 1998
<S> <C> <C>
Raw materials and supplies $19,671 $17,862
Work in process 10,637 7,833
Finished goods 16,984 20,896
-------- --------
$47,292 $46,591
======= =======
</TABLE>
6. COMPREHENSIVE EARNINGS
Effective May 3, 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" which requires that all items that are required to be recognized under
accounting standards as components of other comprehensive income be reported in
the financial statements. The Company's total comprehensive earnings were as
follows:
<TABLE>
<CAPTION>
26 WEEKS ENDED 26 WEEKS ENDED
OCTOBER 31, 1998 NOVEMBER 1, 1997
<S> <C> <C>
Net earnings $ 13,393 $ 14,769
Other comprehensive earnings (losses):
Change in equity due to foreign currency translation adjustment (4,534) (533)
--------- -----------
Comprehensive earnings $ 8,859 $ 14,236
========= ========
</TABLE>
PAGE 9 OF 21
<PAGE> 10
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
7. COMMITMENTS AND CONTINGENCIES
a. Treasury Stock
The Company's Board of Directors has authorized the purchase of the Company's
common stock as follows:
DATE OF AUTHORIZATION AUTHORIZED SHARES
January 1993 3.0 million
December 1995 3.0 million
April 1997 1.86 million
Shares are authorized for purchase from time to time in the open market, subject
to the terms of the Company's credit facility. As of October 31, 1998,
approximately 1.6 million shares remain authorized for purchase.
b. Temporary Equity Relating to Put Options
The Company periodically sells common equity put options ("put options") on
shares of its common stock which are exerciseable six months from the date of
issuance. At October 31, 1998, 85,000 options were outstanding at strike prices
ranging from $13.86 to $15.22 per share.
Temporary equity relating to put options on the accompanying consolidated
balance sheets represent the amount the Company would be obligated to pay if all
unexpired put options were exercised.
c. China Facility
The Company has completed building a state-of-the-art manufacturing facility in
the city of Guangzhou, China (the "China Facility"), which commenced operations
in the third quarter of fiscal 1999. The facility and related equipment will
require an initial capital investment of approximately $45.0 million, including
working capital, which the Company has financed through the Company's existing
credit facility. Through November 1, 1998, the Company has invested
approximately $34.8 million representing costs associated with the lease of the
related land, construction of the manufacturing facility, purchase of the
necessary machinery and equipment and other expenses associated with the
start-up of the facility. The Company anticipates spending the remaining $10.2
million during the remainder of fiscal 1999 with funds generated from operations
as well as the existing credit facility and the Westvaco transaction described
below.
In connection with the start-up of the facility, the Company incurred and
capitalized certain start-up costs aggregating $3.0 million. On April 3, 1998,
Statement of Position Number 98-5, "Reporting on the Costs of Start-Up
Activities" was issued by the American Institute of Certified Public
Accountants, which requires the expensing of the start-up costs when incurred.
Although adoption is not required until fiscal 2000, the Company adopted this
Statement of Position on the first day of fiscal 1999. Accordingly, the Company
recorded a $3.0 million pre-tax charge in its first quarter of fiscal 1999 as a
cumulative effect of a change in accounting principle. This pre-tax charge has
not been offset by a corresponding tax benefit as these expenses relate to the
China Facility which will enjoy a tax holiday for its first three years of
profitable operation. The Company will not report the tax benefits until
realized. Included in selling, general and administrative expenses on the
consolidated statements of earnings for the three and six months ended October
31, 1998 is $650,000 and $950,000 relating to costs incurred for the China
Facility.
PAGE 10 OF 21
<PAGE> 11
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
On October 28, 1998, the Company entered into a definitive agreement with
Westvaco Corporation to sell to Westvaco a 45% minority interest in its China
Facility. Westvaco is a major producer of paper, paperboard, envelopes,
packaging and specialty chemicals, with manufacturing facilities in the United
States, Brazil and the Czech Republic. The final agreement provides for Westvaco
to pay Shorewood, in cash, 45% of the total costs of the China investment plus
an additional $5 million. Day-to-day management control of the operation will
remain with the Company; however, Shorewood will work closely with Westvaco on
marketing programs and new product development. The gain on the sale will be
recorded upon closing of the transaction, expected to take place before the end
of fiscal 1999.
d. Environmental Matters
On a continuing basis, the Company monitors its compliance with applicable
environmental laws and regulations. As part of this process the Company
cooperates with appropriate governmental authorities to perform any necessary
testing and compliance procedures. The Company is not currently aware of any
environmental compliance matters that it believes will have a material effect on
the consolidated financial statements.
e. 1995 Performance Bonus Plan
In July 1995, the Board of Directors approved the 1995 Performance Bonus Plan
(the "Plan"), applicable to its Chairman of the Board and President (the
"Executive"). Under the Plan, for each of the five fiscal years of the Company
commencing with fiscal year 1996, the Executive will be entitled to a graduated
bonus (the "Performance Bonus") based upon a comparison of the Company's
earnings from operations plus depreciation and amortization (the "Performance
Measure") in that award year with the immediately preceding fiscal year. The
size of the Performance Bonus, if any, is tied to the level of the Company's
performance, as measured by the Performance Measure. The maximum Performance
Bonus payable in respect of any award year under the Plan is $2.0 million. The
Board of Directors and shareholders have approved the extension of the Plan for
an additional three years.
f. New Employment Agreements
Effective May 3, 1998, the Company entered into new five year employment
agreements with the Executive and its Executive Vice President and Chief
Financial Officer ("EVP") providing for annual base salaries of $800 thousand
and $450 thousand, respectively. In connection with his agreement, the Company
paid to the Executive as a signing bonus the aggregate amount of $1 million,
payable in full although earned ratably over his five-year employment period,
provided that the Executive continues to be employed with the Company at the end
of each such year. Simultaneously with the authorization of the employment
agreements by the Board of Directors, the Company granted the Executive and the
EVP options to purchase 250 thousand and 100 thousand shares of stock,
respectively. The options are exerciseable at $13.75 per share (the fair market
value at the date of grant).
g. Related Party Transaction
In the second quarter of fiscal 1999 the Company temporarily advanced $800
thousand to the Executive. The advance bears interest at 6.5% and is due to be
repaid in the third quarter.
PAGE 11 OF 21
<PAGE> 12
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In October 1998, the Company purchased substantially all of the assets and
assumed substantially all of the liabilities of The Queens Group, Inc.
("Queens") for a purchase price of $129.5 million comprised of approximately
$113.7 million in cash including the assumption of debt, and 1.0 million shares
of Company common stock. In addition, the Company incurred expenses associated
with the transaction of approximately $2.5 million. Simultaneously with the
closing of the transaction, the Company repaid all outstanding bank debt of
Queens, approximating $19.0 million. Queens is engaged in the manufacture of
value added printed packaging primarily for the home entertainment industry. The
transaction was financed through a new credit facility as described below.
The acquisition was recorded using the purchase method of accounting and,
accordingly, the results of operations of Queens are included in the
consolidated results of operations of the Company since the date of acquisition.
The purchase price of the acquisition has been allocated to the net assets
acquired based upon the related fair values which is subject to refinement based
upon the receipt of final appraisals and other analyses. The excess of cost over
the fair value of net assets acquired approximated $96.2 million and is being
amortized over 40 years.
The following unaudited pro forma information for the twenty-six weeks ended
October 31, 1998 and November 1, 1997 includes the operations of the Company,
inclusive of the operations of Queens, as if the acquisition had occurred at the
beginning of the respective periods presented. The pro forma gives effect to the
amortization expense associated with the excess of cost over the fair value of
net assets acquired, adjustments related to the fair market value of the assets
and liabilities acquired (which is subject to further refinement), shares issued
in connection with the transaction, interest expense related to financing the
acquisition, and related income tax effects.
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
OCTOBER 31, 1998 NOVEMBER 1, 1997
<S> <C> <C>
Revenues $ 326,240 $296,358
========= ========
Earnings from Operations $ 36,147 $ 33,499
========= ========
Net Earnings Before Extraordinary Items and Cumulative
Effect of a Change in Accounting Principle $ 18,513 $ 17,462
========= ========
Net Earnings Per Share Before Extraordinary Items and
Cumulative Effect of a Change in Accounting Principle
Basic $ .68 $ .62
========= ========
Diluted $ .67 $ .61
========= ========
</TABLE>
PAGE 12 OF 21
<PAGE> 13
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales for the three and six month periods ended October 31, 1998 were $145.4
million and $260.7 million as compared to net sales of $114.8 million and $215.4
million for the corresponding prior periods, an increase of 26.6% and 21.0%,
respectively. Included in the 13 and 26 week periods ended October 31, 1998 are
sales produced by former Queens facilities of $18.3 million. In addition to the
sales increase related to the former Queens facilities, the Company experienced
increases in sales in the home entertainment and the tobacco industries. Based
upon current buying patterns and known increases in awarded market share in the
tobacco industry, the Company anticipates that its growth in sales as compared
to the prior year will continue throughout fiscal 1999.
The Company believes that future sales growth will be generated through
continued penetration of its existing markets, as well as its expansion into
China.
Cost of Sales
Cost of sales as a percentage of sales for the three and six month periods ended
October 31, 1998 were 75.8% and 76.8% as compared to 76.1% and 76.8% for the
corresponding prior periods. The decrease in cost of sales as a percentage of
sales in the quarter is primarily attributable to favorable product mix, and
favorable absorbtion of fixed overhead costs as a result of the higher sales
volume. These decreases were partially offset by increased costs attributable to
the learning curve related to new products and newly installed equipment which
began operating during the last nine months.
The Company remains sensitive to price competitiveness in the markets that it
serves, and in the areas that are targeted for growth and believes that the
installation of state-of-the-art printing and manufacturing equipment (and
related labor and production efficiencies) will enable it to compete
effectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales for the
three and six month periods ended October 31, 1998 were 11.3% and 11.1% as
compared to 10.4% and 10.6% for the corresponding prior periods. Included in
selling, general and administrative expenses in the three and six month periods
of the current year were $650,000 and $950,000, respectively, of costs relating
to the facility in Guangzhou, China (the "China Facility"). Selling, general and
administrative expense as a percentage of sales for the former Queens facilities
are greater than that of existing Shorewood facilities.
Other Income, net
Other income, net, for the three and six month periods ended October 31, 1998
was $468 thousand and $859 thousand, respectively. The net gain for the three
month period includes net foreign exchange gains of $353 thousand and
approximately $115 thousand of investment income. The net gain for the six month
period includes net foreign exchange gains of $848 thousand, and approximately
$223 thousand of investment income, offset by losses on disposal of fixed assets
of $212 thousand.
PAGE 13 OF 21
<PAGE> 14
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Other income, net, for the three and six month periods ended November 1, 1997
was $147 and $728 thousand, respectively. The net gain for the three month
period was primarily due to net foreign exchange gains of $170 thousand and a
loss on the sale of equipment of $25 thousand. The net gain for the six month
period includes a net gain on the sale of equipment of $332 thousand, investment
income of $240 thousand and a net foreign exchange gains of $156 thousand.
The Company's exposure to foreign exchange transaction gains or losses primarily
relate to the Company's Canadian facilities which have U.S. dollar denominated
net assets. The Company believes that fluctuations in foreign exchange rates
will not have a material impact on the operations or liquidity of the Company,
based upon current and historical levels of working capital at the Canadian
facilities. Recently, several Asian currencies experienced weaknesses which had
the impact of reducing some demand for Company products produced in North
America intended for ultimate use in export markets. The Canadian dollar has
also experienced recent weakness against the U.S. dollar. The recent investments
in the China Facility will expose the Company to additional foreign exchange
risks related to the Renminbi ("Rmb"). Should the Canadian dollar or the Rmb
weaken, the Company would experience a reduction in the net worth of the
Company's investments in Canada and China (through the cumulative translation
adjustment account and other comprehensive income). In addition, the translation
of the net operating results for Canada and China (whether losses or profits)
would be reduced. Exposure to foreign exchange transaction gains or losses in
China is expected to be minimal as the Company will make purchases and sales in
both Rmb and the U.S. dollar, and settlement periods on both accounts receivable
and accounts payable are expected to be short.
Interest Expense
Interest expense for the three and six month periods ended October 31, 1998 was
$3.0 million and $5.1million as compared to $1.9 million and $3.9 million for
the corresponding prior periods. The increase in interest costs is primarily
attributable to increased borrowings relating to financing the acquisition of
Queens and funding non-cash working capital. Capitalized interest increased from
$463 thousand to $508 thousand for the three month period and from $658 thousand
to $1.0 million for the six month period, primarily related to the Company's
construction of its facility in China. The Company anticipates that the amount
of interest to be capitalized in fiscal 1999 will begin to decrease during the
third quarter of fiscal 1999 as the China Facility commences operations.
The Company uses interest rate derivatives to manage its exposure to fluctuating
interest rates. These transactions effectively change a portion of the Company's
interest rate exposure from a floating-rate to a fixed-rate basis. The Company's
interest rate derivatives are generally structured for the Company to pay a
fixed rate and receive a floating rate based on LIBOR, as determined in
three-month intervals ( a "Vanilla Swap"). The Company has Vanilla Swap
agreements relating to $150.0 million of borrowings under the credit facility
expiring in the quarter ended January 2001 providing a weighted average LIBOR
rate of 5.044% throughout the period.
PAGE 14 OF 21
<PAGE> 15
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
In July 1997, the Company entered into a reversion swap agreement relating to
$50.0 million of borrowings under the credit facility. Under the agreement, the
Company pays a fixed rate of 5.73% and receives a floating rate based upon
LIBOR, as determined in three month intervals. This agreement terminates in
April 2002. This transaction effectively changes a portion of the Company's
interest rate exposure from a floating-rate to a fixed-rate basis. After the
first year, however, the fixed rate reverts back to floating for any three month
period during which the LIBOR rate exceeds 6.625%. The rate reverts back to the
fixed rate of 5.73% for any subsequent period for which the LIBOR rate drops
below 6.625%.
In October 1997, the Company entered into an intermediate-term interest rate
swap agreement relating to approximately $35.0 million of borrowings under the
credit facility. Under the agreement, the Company pays a fixed rate of 5.74% and
receives a floating rate based on LIBOR, as determined in three-month intervals.
This transaction effectively changes a portion of the Company's interest rate
exposure from a floating-rate to a fixed-rate basis. The agreement began on May
5, 1998 and terminates May 5, 1999. The agreement may be extended at the
discretion of the financial institution for an additional year.
On June 16, 1998, the Financial Accounting Standards Board adopted Statement on
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Adoption of SFAS No. 133 is not required at
this time. The adoption of SFAS 133 is not expected to have a material impact on
the Company's financial statements.
The Company has used, and may continue to use, interest rate swaps and caps to
manage its exposure to fluctuating interest rates under its debt agreements.
Income Taxes
The effective income tax rate for the three and six month periods ended October
31, 1998 is 39.0% and was 38.0% for the corresponding prior periods. These rates
reflect a blend of domestic and foreign taxes and are adjusted periodically
based upon the estimated annual effective tax rate, which for the entire fiscal
year ended May 2, 1998 was 37.9%.
The China Facility will enjoy a tax holiday for the first three years of
profitable operations, and thereafter be taxed at lower rates than the Company's
North American operations. Anticipated losses during the early periods of
operation will not result in related tax benefits. Such benefits will be
recognized when realized. The Company anticipates that this situation will
temporarily result in an increase in its effective tax rate in fiscal 1999.
PAGE 15 OF 21
<PAGE> 16
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
China Facility
The Company has completed building a state-of-the-art manufacturing facility in
the city of Guangzhou, China (the "China Facility"), which commenced operations
in the third quarter of fiscal 1999. The facility and related equipment will
require an initial capital investment of approximately $45.0 million, including
working capital, which the Company has financed through the Company's existing
credit facility. Through November 1, 1998, the Company has invested
approximately $34.8 million representing costs associated with the lease of the
related land, construction of the manufacturing facility, purchase of the
necessary machinery and equipment and other expenses associated with the
start-up of the facility. The Company anticipates spending the remaining $10.2
million during the remainder of fiscal 1999 with funds generated from operations
as well as the existing credit facility and the Westvaco transaction described
below.
In connection with the start-up of the facility, the Company incurred and
capitalized certain start-up costs aggregating $3.0 million. On April 3, 1998,
Statement of Position Number 98-5, "Reporting on the Costs of Start-Up
Activities" was issued by the American Institute of Certified Public
Accountants, which requires the expensing of the start-up costs when incurred.
Although adoption is not required until fiscal 2000, the Company adopted this
Statement of Position on the first day of fiscal 1999. Accordingly, the Company
recorded a $3.0 million pre-tax charge in its first quarter of fiscal 1999 as a
cumulative effect of a change in accounting principle. This pre-tax charge has
not been offset by a corresponding tax benefit as these expenses relate to the
China Facility which will enjoy a tax holiday for its first three years of
profitable operation. The Company will not report the tax benefits until
realized. Included in selling, general and administrative expenses on the
consolidated statements of earnings for the three and six months ended October
31, 1998 is $650,000 and $950,000 relating to costs incurred for the China
Facility.
On October 28, 1998, the Company entered into a definitive agreement with
Westvaco Corporation to sell to Westvaco a 45% minority interest in its China
Facility. Westvaco is a major producer of paper, paperboard, envelopes,
packaging and specialty chemicals, with manufacturing facilities in the United
States, Brazil and the Czech Republic. The final agreement provides for Westvaco
to pay Shorewood, in cash, 45% of the total costs of the China investment plus
an additional $5 million. Day-to-day management control of the operation will
remain with the Company; however, Shorewood will work closely with Westvaco on
marketing programs and new product development. The gain on the sale will be
recorded upon closing of the transaction, expected to take place before the end
of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at October 31, 1998 was $6.7 million as compared to
$7.3 million at May 2, 1998, and working capital was $36.6 million as compared
to $31.0 million as of the same dates respectively. The current ratio at October
31, 1998 was 1.4 to one and was 1.5 to one at May 2, 1998. The Company has a
cash management program whereby collection of accounts receivable are used to
retire revolver obligations, and payments of accounts payable and accrued
expenses are funded through the revolving credit facility.
PAGE 16 OF 21
<PAGE> 17
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Cash flow from operating activities for the six months ended October 31, 1998
was $28.2 million before changes in operating assets and liabilities as compared
to $26.6 million for the corresponding prior period. Cash flows from operations
as well as borrowings under the Company's credit facilities were used to support
$22.1 million in capital investments. In addition, the Company purchased
approximately $15.9 million of treasury stock under the Board of Directors
authorized program described below. The Company anticipates that capital
expenditures will approximate $35.0 million for all of fiscal 1999 including the
completion of the China Facility. The Company has committed to building a
state-of-the-art manufacturing facility in the city of Guangzhou, China, which
has been completed in October 1998. The Company expects to report initial
revenues in the third quarter of 1998. The facility and related equipment will
require an initial capital investment of approximately $45.0 million, including
working capital, which the Company continues to finance through the Company's
existing credit facility.
Through October 31, 1998, the Company has invested approximately $34.8 million
representing costs associated with the lease of the related land, construction
of the manufacturing facility, purchase of the necessary machinery and equipment
and other expenses associated with the start-up of the facility. The Company
anticipates spending the remaining $10.2 million during the remainder of fiscal
1999 with funds generated from operations as well as the existing credit
facility.
The Company's Board of Directors has authorized the purchase of the Company's
common stock as follows:
DATE OF AUTHORIZATION AUTHORIZED SHARES
January 1993 3.0 million
December 1995 3.0 million
April 1997 1.86 million
Shares are authorized for purchase from time to time in the open market, subject
to the terms of the Company's credit facility. As of October 31, 1998,
approximately 1.6 million shares remain authorized for purchase.
The Board and management of the Company believe the long-term outlook for the
Company to be promising and that the Company's common stock represents an
attractive investment opportunity. The treasury stock purchases will be made
from time to time as market conditions permit.
In October 1998, in order to facilitate the acquisition of Queens as described
in Note 2 and other global opportunities which may arise over the next several
years, the Company entered into a new credit agreement with its lending banks to
replace its existing credit facility. The new credit facility provides for up to
$325 million of borrowings and consists of a $100 million term loan to be paid
in equal quarterly installments over five years and a $225 million revolving
credit facility maturing at the end of five years. The revolving credit is
available, in its entirety, without any borrowing base limitation. Borrowings
pursuant to the facility will bear interest at the discretion of the Company, at
either the Bank's prime rate (8.0% at October 31, 1998) or at the LIBOR rate
(three month term of 5.22% at October 31, 1998) plus 62.5 to 125 basis points
based upon financial ratios as defined in the underlying Agreement. Initially,
borrowings bear interest at 125 basis points above the LIBOR rate. Unused
commitment fees will range from 20 to 30 basis points (initially 30 basis points
based upon the same financial ratios).
PAGE 17 OF 21
<PAGE> 18
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
In connection with the refinancing, the Company recorded a net of tax
extraordinary charge representing the write-off of previously deferred finance
costs incurred in connection with the former credit facility of approximately
$277 thousand.
The loan agreement contains covenants related to levels of debt to cash flow,
current assets to current liabilities, fixed charge coverage, net worth and
investments (including investments in the Company's own common stock), and
restricts the amount of retained earnings available for payment of dividends. At
October 31, 1998, there was approximately $20.7 million of retained earnings
available for the payment of dividends.
The Company expects that cash flow from operations together with the borrowing
capacity under the revolving credit facility will be sufficient to meet the
needs of the business.
RECENT ACCOUNTING PRONOUNCEMENTS
On June 16, 1998, the Financial Accounting Standards Board adopted Statement on
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Adoption of SFAS No. 133 is not required at
this time. The adoption of SFAS 133 is not expected to have a material impact on
the Company's financial statements.
PAGE 18 OF 21
<PAGE> 19
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
Part II
Item 1 LEGAL PROCEEDINGS
Information concerning legal and environmental matters is incorporated
by reference from Part I, Footnotes 5(d) of Notes to Consolidated
Condensed Financial Statements
Item 2 CHANGES IN SECURITIES
None
Item 3 DEFAULTS UPON SENIOR SECURITIES
None
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of Stockholders was held on September 23,
1998 (the "Meeting"). At the Meeting, the Company's stockholders voted
upon the following matters: (I) The election of two directors
comprising the Class III Directors; (ii) the ratification of proposal
to amend the Company's certificate of incorporation to increase the
number of authorized shares of common stock from 40,000,000 to
60,000,000 (iii) the ratification of proposals to amend the Company's
1995 Performance Bonus Plan; and (iv) the ratification of Deloitte &
Touche LLP as the independent auditors of the Company for the fiscal
year ending May 1, 1999.
The Holders of the Company's common stock voted as a single class on
all matters submitted for a vote at the Meeting. The number of votes
cast for, against or withheld, as well as the number of abstentions, as
to each such matter is set forth below:
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
-------------------------- ----------------- -------------
NAME FOR WITHHELD
-------------------------- ----------------- -------------
<S> <C> <C>
Marc P. Shore 23,164,278 309,022
-------------------------- ----------------- -------------
Howard M. Liebman 23,170,753 302,547
-------------------------- ----------------- -------------
</TABLE>
RATIFICATION OF PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES FROM
40,000,000 TO 60,000,000
<TABLE>
<CAPTION>
----------------------- ------------------- --------------
FOR AGAINST ABSTAIN
----------------------- ------------------- --------------
<S> <C> <C>
23,196,600 268,278 8,422
----------------------- ------------------- --------------
</TABLE>
RATIFICATION OF PROPOSALS TO AMEND THE COMPANY'S 1995 PERFORMANCE BONUS
PLAN
<TABLE>
<CAPTION>
----------------------- ------------------- --------------
FOR AGAINST ABSTAIN
----------------------- ------------------- --------------
<S> <C> <C>
22,347,716 710,012 415,572
----------------------- ------------------- --------------
</TABLE>
PAGE 19 OF 21
<PAGE> 20
RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP
<TABLE>
<CAPTION>
--------------------- ------------------- ----------------
FOR AGAINST ABSTAIN
--------------------- ------------------- ----------------
<S> <C> <C>
23,405,381 6,752 61,167
--------------------- ------------------- ----------------
</TABLE>
Item 5 OTHER INFORMATION
None
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.116-- Second Amended and Restated Credit Agreement dated as of
October 29, 1998, among Shorewood Packaging Corporation, Shorewood
Corporation of Canada Limited, Nationsbank, N.A., Nationsbank
Montgomery Securities, LLC, The Bank of Nova Scotia, The Chase
Manhattan Bank, The Bank of New York, First Union National Bank,
Societe Generale, ABN AMRO Bank N.V. and Fleet Bank, N.A.
(b) Reports on Form 8-K
None.
PAGE 20 OF 21
<PAGE> 21
SIGNATURES
Pursuant to the regulations of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHOREWOOD PACKAGING CORPORATION
(Registrant)
by: /s/ Howard M. Liebman
--------------------------------
Howard M. Liebman
Executive Vice President and
Chief Financial Officer
Dated: December 15, 1998
PAGE 21 OF 21
<PAGE> 22
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
10.116 Second Amended and Restated Credit Agreement dated as of October
29, 1998, among Shorewood Packaging Corporation, Shorewood
Corporation of Canada Limited, Nationsbank, N.A., Nationsbank
Montgomery Securities, LLC, The Bank of Nova Scotia, The Chase
Manhattan Bank, The Bank of New York, First Union National Bank,
Societe Generale, ABN AMRO Bank N.V. and Fleet Bank, N.A.
<PAGE> 1
EXHIBIT 10.116
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
among
SHOREWOOD PACKAGING CORPORATION
and
SHOREWOOD CORPORATION OF CANADA LIMITED
as Borrowers
THE LENDERS PARTY HERETO
NATIONSBANK, N.A.
as Administrative Agent, Syndication Agent and Lender
NATIONSBANC MONTGOMERY SECURITIES, LLC
as Lead Arranger
THE BANK OF NOVA SCOTIA
as Canadian Administrative Agent, Documentation Agent and Lender
THE CHASE MANHATTAN BANK
THE BANK OF NEW YORK
FIRST UNION NATIONAL BANK
and
SOCIETE GENERALE
as Managing Agents
and
ABN AMRO BANK N.V.
and
FLEET BANK, N.A.
as Co-Agents
DATED AS OF
October 29, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1 DEFINITIONS AND ACCOUNTING TERMS................................................................. 1
1.1 Definitions.................................................................................... 1
1.2 Accounting Terms............................................................................... 23
1.3 Computation of Time Periods and Other Definitional Provisions.................................. 24
SECTION 2 THE REVOLVING LOANS.............................................................................. 24
2.1 The U.S. Revolving Loans....................................................................... 24
2.2 U.S. Letter of Credit Subfacility.............................................................. 25
2.3 Swing Line Loan Subfacility.................................................................... 30
2.4 The Canadian Revolving Loans................................................................... 32
2.5 Bankers' Acceptances........................................................................... 33
2.6 Minimum Amounts................................................................................ 35
2.7 Funding of Advances to Borrowers............................................................... 35
2.8 Term........................................................................................... 38
2.9 Revolving Notes................................................................................ 38
2.10 Reduction of Revolving Loan Commitments....................................................... 38
2.11 Canadian Letter of Credit Subfacility......................................................... 38
SECTION 3 THE TERM LOANS .................................................................................. 44
3.1 U.S. Term Loan Commitment...................................................................... 44
3.2 Funding of Term Loan........................................................................... 45
3.3 Scheduled Repayments........................................................................... 45
3.4 The Term Notes................................................................................. 45
SECTION 4 ADDITIONAL PROVISIONS REGARDING LOANS AND LETTERS OF CREDIT...................................... 45
4.1 Continuations and Conversions.................................................................. 45
4.2 Interest....................................................................................... 46
4.3 Place and Manner of Payments................................................................... 47
4.4 Prepayments.................................................................................... 48
4.5 Fees........................................................................................... 50
4.6 Pro Rata Treatment............................................................................. 52
4.7 Allocation of Payments After Event of Default.................................................. 53
4.8 Sharing of Payments............................................................................ 54
4.9 Capital Adequacy............................................................................... 54
4.10 Inability To Determine Interest Rate or Create Bankers' Acceptances........................... 55
4.11 Illegality.................................................................................... 56
4.12 Requirements of Law........................................................................... 56
4.13 Taxes......................................................................................... 57
4.14 Compensation.................................................................................. 60
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 5 CONDITIONS PRECEDENT............................................................................. 61
5.1 Closing Conditions............................................................................. 61
5.2 Conditions to All Extensions of Credit......................................................... 63
SECTION 6 REPRESENTATIONS AND WARRANTIES................................................................... 64
6.1 Organization and Good Standing................................................................. 64
6.2 Due Authorization.............................................................................. 65
6.3 No Conflicts................................................................................... 65
6.4 Consents....................................................................................... 65
6.5 Enforceable Obligations........................................................................ 65
6.6 Financial Condition............................................................................ 65
6.7 No Default..................................................................................... 66
6.8 Liens.......................................................................................... 66
6.9 Indebtedness................................................................................... 66
6.10 Litigation.................................................................................... 66
6.11 Material Agreements........................................................................... 66
6.12 Taxes......................................................................................... 67
6.13 Compliance with Law........................................................................... 67
6.14 ERISA......................................................................................... 67
6.15 Subsidiaries.................................................................................. 68
6.16 Ownership of Stock............................................................................ 69
6.17 Use of Proceeds; Margin Stock................................................................. 69
6.18 Government Regulation......................................................................... 69
6.19 Hazardous Substances.......................................................................... 69
6.20 Patents, Franchises, etc...................................................................... 70
6.22 Location of Assets............................................................................ 70
6.23 Year 2000 Compliance.......................................................................... 70
6.24 Certain Subsidiaries.......................................................................... 71
SECTION 7 AFFIRMATIVE COVENANTS............................................................................ 71
7.1 Information Covenants.......................................................................... 71
7.2 Preservation of Existence and Franchises....................................................... 73
7.3 Books and Records.............................................................................. 73
7.4 Compliance with Law............................................................................ 74
7.5 Payment of Taxes and Other Indebtedness........................................................ 74
7.6 Insurance...................................................................................... 74
7.7 Maintenance of Property........................................................................ 74
7.8 Performance of Obligations..................................................................... 75
7.9 ERISA.......................................................................................... 75
7.10 Use of Proceeds............................................................................... 76
7.11 Additional Subsidiaries....................................................................... 76
7.12 Audits/Inspections............................................................................ 76
7.13 Financial Covenants........................................................................... 77
7.14 Shorewood Packaging Corporation of New York................................................... 77
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 8 NEGATIVE COVENANTS............................................................................... 78
8.1 Indebtedness................................................................................... 78
8.2 Liens.......................................................................................... 79
8.3 Nature of Business............................................................................. 79
8.4 Consolidation or Merger........................................................................ 79
8.5 Sale or Lease of Assets........................................................................ 80
8.6 Acquisitions................................................................................... 80
8.7 Transactions with Affiliates................................................................... 80
8.8 Ownership of Subsidiaries...................................................................... 80
8.9 Fiscal Year.................................................................................... 80
8.10 Investments................................................................................... 81
8.11 Restricted Payments........................................................................... 81
SECTION 9 EVENTS OF DEFAULT................................................................................ 81
9.1 Events of Default.............................................................................. 81
9.2 Acceleration; Remedies......................................................................... 83
SECTION 10 AGENCY PROVISIONS............................................................................... 84
10.1 Appointment................................................................................... 84
10.2 Delegation of Duties.......................................................................... 85
10.3 Exculpatory Provisions........................................................................ 85
10.4 Reliance on Communications.................................................................... 86
10.5 Notice of Default............................................................................. 86
10.6 Non-Reliance on Agents and Other Lenders...................................................... 86
10.7 Indemnification............................................................................... 87
10.8 Agent in its Individual Capacity.............................................................. 87
10.9 Successor Agent............................................................................... 87
SECTION 11 MISCELLANEOUS................................................................................... 88
11.1 Notices....................................................................................... 88
11.2 Right of Set-Off.............................................................................. 88
11.3 Benefit of Agreement.......................................................................... 89
11.4 No Waiver; Remedies Cumulative................................................................ 91
11.5 Payment of Expenses; Indemnification.......................................................... 91
11.6 Amendments, Waivers and Consents.............................................................. 92
11.7 Defaulting Lender............................................................................. 93
11.8 Counterparts.................................................................................. 93
11.9 Headings...................................................................................... 93
11.10 Survival of Indemnification and Representations and Warranties............................... 94
11.11 Currency..................................................................................... 94
11.12 Governing Law; Venue......................................................................... 94
11.13 Waiver of Jury Trial......................................................................... 94
11.14 Severability................................................................................. 95
11.15 Loan Entirety................................................................................ 95
11.16 Binding Effect; Amendment and Restatement of Existing Credit Agreement; Further Assurances... 95
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
11.17 Confidentiality.............................................................................. 95
11.18 Definition of Knowledge...................................................................... 96
11.19 Judgment Currency............................................................................ 96
</TABLE>
EXHIBITS
2.1 Advance Request
2.3 Swing Line Loan Note
2.9 Revolving Credit Notes
3.5 Term Notes
4.1 Notice of Continuation/Conversion
7.1(c) Officer's Certificates
7.1(i) Information Certificate
11.3(b) Assignment Agreement
SCHEDULES
1.1(a) Lenders and Commitments
1.1(b) Existing Letters of Credit
6.1 Exceptions to Good Standing
6.2 Exceptions to Due Authorization
6.9 Indebtedness
6.10 Litigation
6.15 Subsidiaries/Affiliates
6.19 Hazardous Substances
6.22 Location of Assets
7.6 Type and Amount of Insurance
8.2 Liens
11.1 Notices
iv
<PAGE> 6
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is
entered into as of October 29, 1998 among SHOREWOOD PACKAGING CORPORATION, a
Delaware corporation (the "U.S. Borrower"), SHOREWOOD CORPORATION OF CANADA
LIMITED, an Ontario corporation (the "Canadian Borrower") (collectively, the
U.S. Borrower and the Canadian Borrower referred to herein as the "Borrowers"),
the LENDERS set forth on Schedule 1.1(a) attached hereto (the "Lenders"),
NATIONSBANK, N.A., a national banking association, in its capacity as
Administrative Agent for the Lenders and THE BANK OF NOVA SCOTIA in its capacity
as Canadian Administrative Agent for the Canadian Lenders.
RECITALS
A. The Borrowers, NationsBank, N.A., in its capacity as a Lender
and as Administrative Agent, The Bank of Nova Scotia, in its
capacity as a Lender and Canadian Administrative Agent, and
the Lenders party thereto entered into that certain Amended
and Restated Credit Agreement dated as of May 2, 1997 (as
amended and modified, the "Existing Credit Agreement").
B. The Borrowers, the Lenders, the Administrative Agent and the
Canadian Administrative Agent wish to amend and restate the
terms and conditions of the Existing Credit Agreement as set
forth below.
Therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Borrowers, the Lenders, the
Administrative Agent and the Canadian Administrative Agent agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions.
As used herein, the following terms shall have the meanings specified
herein unless the context otherwise requires. Defined terms herein shall include
in the singular number the plural and in the plural the singular:
"Acceptance Fee" means an amount equal to the product of (a)
the Applicable Percentage for Bankers' Acceptances; (b) the aggregate
Face Amount of Bankers' Acceptances accepted by a Canadian Lender on
the date of the requested Bankers'
<PAGE> 7
Acceptances; and (c) a fraction (i) the numerator of which is the term
to maturity of such Bankers' Acceptances, and (ii) the denominator of
which is 365 days.
"Acquisition" means the acquisition of (a) all of the capital
stock of another Person or (b) all or substantially all of the assets
of another Person.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
"Administrative Agent" means NationsBank, N.A., a national
banking association.
"Administrative Agent Fee Letter" means the letter agreement,
dated as of September 23, 1998, among the U.S. Borrower, the
Administrative Agent and NationsBanc Montgomery Securities LLC, as
amended, modified and replaced from time to time.
"Advance Request" means the request by a Borrower for a
Revolving Loan in the form of Exhibit 2.1.
"Affiliate" of any Person means any other Person directly or
indirectly controlling (including but not limited to all directors and
officers of such Person), controlled by or under direct or indirect
common control with such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power
(a) to vote 10% or more of the securities having ordinary voting power
for the election of directors of such corporation or (b) to direct or
cause direction of the management and policies of such corporation,
whether through the ownership of voting securities, by contract or
otherwise.
"Agents" means the Administrative Agent and the Canadian
Administrative Agent.
"Applicable Percentage" means for Eurodollar Loans, Bankers'
Acceptances, the Letter of Credit Fee and the Unused Fees, the
appropriate applicable percentages corresponding to the Debt Coverage
Ratio in effect as of the most recent Calculation Date as shown below:
2
<PAGE> 8
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Applicable
Percentage Applicable
for Percentage for
Pricing Debt Coverage Eurodollar Bankers' Letter of Unused
Level Ratio Loans Acceptance Credit Fee Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I Greater than or equal to 3.0 to 1.0 1.250% 1.250% 1.250% .300%
- --------------------------------------------------------------------------------------------------------------------
II Greater than or equal to 2.5 to 1.0 1.000% 1.000% 1.000% .300%
but less than 3.0 to 1.0
- --------------------------------------------------------------------------------------------------------------------
III Greater than or equal to 2.0 to 1.0 .750% .750% .750% .250%
but less than 2.5 to 1.0
- --------------------------------------------------------------------------------------------------------------------
IV Less than 2.0 to 1.0 .625% .625% .625% .200%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The initial Applicable Percentage for Eurodollar Loans,
Bankers' Acceptances, the Letter of Credit Fee and the Unused Fees
shall be based on Pricing Level I and shall remain at Pricing Level I
until the first Calculation Date (as defined below) after the fiscal
quarter ending closest to October 31, 1998. Thereafter, the Applicable
Percentage for Eurodollar Loans, Bankers' Acceptances, the Letter of
Credit Fee and the Unused Fees shall, in each case, be determined and
adjusted quarterly on the date five Business Days after the date by
which the U.S. Borrower is required to provide the officer's
certificate in accordance with the provisions of Section 7.1(c) (each a
"Calculation Date"). Such Applicable Percentage shall be effective from
such Calculation Date until the next such Calculation Date. Any
adjustment in the Applicable Percentage shall be applicable to all
existing Loans and Letters of Credit as well as any new Loans made or
Letters of Credit issued.
"Asset Disposition" means the disposition of any or all of the
assets of a member of the Consolidated Shorewood Group whether by sale,
lease, transfer, loss, damage, destruction, condemnation or otherwise,
other than (a) sales of inventory in the ordinary course of business,
(b) sales of equipment, the proceeds of which are at the time of
receipt thereof scheduled for reinvestment in replacement equipment
within 180 days from (before or after) such sale pursuant to notice
thereof from the Borrowers (provided that if such reinvestment does not
occur within 180 days then the Borrowers shall notify the
Administrative Agent of same and such sale shall be considered an Asset
Disposition), (c) leases of equipment in the ordinary course of
business, (d) transfers of assets among members of the Consolidated
Shorewood Group that are domiciled in the United States or Canada or
such other transfers of assets to other members of the Consolidated
Shorewood Group if such transfers are otherwise permitted by this
Credit Agreement and (e) any loss, destruction, condemnation or
liquidation of assets without value. The term "Asset Disposition" shall
not include any Equity Issuance.
"BA Documents" means, with respect to any Bankers' Acceptance,
such documents and agreements as the Canadian Lenders may require in
connection with the creation of such Bankers' Acceptance.
3
<PAGE> 9
"BA Revolving Obligations" means all obligations of the
Canadian Borrower with respect to Bankers' Acceptances created under
the Canadian Revolving Loan Commitment.
"Bankers' Acceptance" means a bill of exchange (a) drawn by
the Canadian Borrower under the Canadian Revolving Loan Commitment and
accepted by a Canadian Lender, (b) denominated in Canadian dollars, and
(c) issued and payable only in Canada.
"Bankruptcy Event" means, with respect to any Person, the
occurrence of any of the following with respect to such Person: (a) a
court or governmental agency having jurisdiction in the premises shall
enter a decree or order for relief in respect of such Person in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its property or
ordering the winding up or liquidation of its affairs; or (b) any
proceeding shall be instituted against such Person seeking to
adjudicate it as bankrupt or insolvent, or seeking liquidation,
winding-up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any
substantial part of its property including, but not limited to, an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect is commenced against a Person
and any such proceeding or petition remains unstayed and in effect for
a period of 60 consecutive days; or (c) such Person shall commence a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consent to the entry of an
order for relief in an involuntary case under any such law, or consent
to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of
such Person or any substantial part of its property or make any general
assignment for the benefit of creditors; or (d) such Person shall
generally not pay its debts as such debts become due or shall admit in
writing its inability to pay its debts generally as they become due or
any action shall be taken by such Person in furtherance of any of the
aforesaid purposes.
"Base Rate Loans" means all Loans accruing interest at the
U.S. Base Rate, the Canadian Prime Rate or the BNS U.S. Base Rate.
"Base Rate Revolving Loans" means the Canadian Base Rate
Revolving Loans and the U.S. Base Rate Revolving Loans.
"BNS U.S. Base Rate" means the higher of (a) the Federal Funds
Rate plus .5% or (b) the BNS U.S. Prime Rate; provided, however, that
if, in the reasonable judgment of the Canadian Administrative Agent,
the Federal Funds Rate cannot be determined then the BNS U.S. Prime
Rate.
"BNS U.S. Prime Rate" means, for any day, the fluctuating rate
of interest publicly announced by the Canadian Administrative Agent as
its "prime rate" or "reference rate" for
4
<PAGE> 10
loans made in U.S. dollars, which rate is not necessarily the best or
lowest rate of interest offered for loans in U.S. dollars by the
Canadian Administrative Agent.
"Borrower" means either the U.S. Borrower or the Canadian
Borrower.
"Borrowers" means the U.S. Borrower and the Canadian Borrower.
"Borrowers Obligations" means all payment obligations of the
Borrowers to the Lenders, whenever arising, under the Loan Documents.
"Business Day" means any day other than a Saturday, a Sunday,
a legal holiday in Charlotte, North Carolina or New York, New York or a
day on which banking institutions located in Charlotte, North Carolina
or New York, New York are authorized by law or other governmental
actions to close; except that (a) in the case of Eurodollar Loans, a
Business Day shall also be a day on which dealings between banks are
carried on in U.S. dollar deposits in the London interbank Eurodollar
market and (b) in the case of Loans made or to be made by the Canadian
Lenders, the term Business Day shall not include any day in which
banking institutions in Toronto, Ontario are authorized by law or other
governmental actions to close.
"Canadian Administrative Agent" means The Bank of Nova Scotia.
"Canadian Administrative Agent Fee Letter" means the letter
agreement, dated as of October 13, 1998, between the Canadian Borrower
and the Canadian Administrative Agent, as amended, modified and
replaced from time to time.
"Canadian Base Rate Revolving Loans" means the Revolving Loans
made by the Canadian Lenders accruing interest at either the Canadian
Prime Rate or the BNS U.S. Base Rate, as applicable.
"Canadian Borrower" means Shorewood Corporation of Canada
Limited, an Ontario corporation.
"Canadian Lenders" means The Bank of Nova Scotia, and such
other Lenders having lending offices in Canada as may be added as a
Canadian Lender in accordance with the terms of this Agreement.
"Canadian Letter of Credit" means a Letter of Credit issued
under the Canadian LOC Subfacility, as referenced in Section 2.11(a)
plus Existing Canadian Letters of Credit.
"Canadian LOC Obligations" means LOC Obligations relating to
Canadian Letters of Credit.
"Canadian LOC Subfacility" means the Letter of Credit
subfacility established pursuant to Section 2.11.
5
<PAGE> 11
"Canadian Prime Rate" means, for any day, the greater of (a)
the variable rate of interest per annum equal to the rate of interest
determined by the Canadian Administrative Agent from time to time as
its respective prime rate for Canadian dollar loans made by the
Canadian Administrative Agent in Canada, being a variable per annum
reference rate of interest adjusted automatically upon change by the
Canadian Administrative Agent, and calculated on the basis of a year of
365 days and (b) the sum of (i) the rate per annum for a Canadian
dollar bankers' acceptance having a term of 30 days that appears on the
Reuters Screen CDOR Page as of 10:00 a.m. (Toronto, Ontario time) on
the date of determination, as reported by the Canadian Administrative
Agent plus (ii) .625% per annum.
"Canadian Revolving Loan Commitment" means $25,000,000 (U.S.)
or its equivalent in Canadian dollars, as such amount may be reduced in
accordance with Section 2.10.
"Canadian Revolving Loan Commitment Percentage" means, for
each Canadian Lender, the percentage identified as its Canadian
Revolving Loan Commitment Percentage opposite such Canadian Lender's
name on Schedule 1.1(a) as such percentage may be modified by
assignment in accordance with the terms of this Agreement.
"Canadian Revolving Loans" means the revolving loans made by
the Canadian Lenders to the Canadian Borrower and the U.S. Borrower
pursuant to Section 2.4.
"Canadian Unused Revolving Commitment" means, for any period,
the amount by which (a) the then applicable Canadian Revolving Loan
Commitment exceeds (b) the daily average sum for such period of the
outstanding aggregate principal amount of all Canadian Revolving Loans
and BA Revolving Obligations and Canadian LOC Obligations.
"Capital Expenditures" means any current expenditure by the
Consolidated Shorewood Group for fixed or capital assets as reflected
on the financial statements of the Consolidated Shorewood Group, as
prepared in accordance with GAAP; provided, however, that Capital
Expenditures incurred in connection with the Chinese Investment in an
amount not to exceed, in the aggregate, $36,000,000 shall not, for the
purposes of this Agreement, be considered to be Capital Expenditures.
"Cash Equivalents" means (a) securities issued or directly and
fully guaranteed or insured by the United States of America or Canada
or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America or Canada is pledged in
support thereof) having maturities of not more than one year from the
date of acquisition, (b) U.S. or Canadian dollar denominated time
deposits and certificates of deposit of (i) any United States or
Canadian commercial bank of recognized standing having capital and
surplus in excess of $100,000,000 or (ii) any bank whose short-term
commercial paper rating from Standard & Poor's Corporation ("S&P") is
at least A-1 or the equivalent thereof or from Moody's Investors
Service, Inc. ("Moody's") is at least P-1 or the equivalent thereof
(any such bank being an "Approved Bank"), in each case with maturities
of not
6
<PAGE> 12
more than one year from the date of acquisition, (c) commercial paper
and variable or fixed rate notes issued by, any Approved Bank (or by
the parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-1 (or the equivalent
thereof) or better by S&P or P-1 (or the equivalent thereof) or better
by Moody's and maturing within one year of the date of acquisition and
(d) repurchase agreements with a bank or trust company or recognized
securities dealer having capital and surplus in excess of $500,000,000
for direct obligations issued by or fully guaranteed by the United
States of America or Canada in which a member of the Consolidated
Shorewood Group shall have a perfected first priority security interest
(subject to no other Liens) and having, on the date of purchase
thereof, a fair market value of at least 100% of the amount of the
repurchase obligations.
"Change of Control" means the occurrence of any of the
following events: (a) the acquisition, directly or indirectly, whether
voluntarily or by operation of law, by any person (as such term in used
in Section 13(d) of the Exchange Act), other than a Permitted Person
(as defined below) of (i) beneficial ownership of more than 30% of the
outstanding shares of common stock of the U.S. Borrower or (ii) all or
substantially all of the assets of the U.S. Borrower; (b) the
replacement or resignation (other than by reason of death, illness or
incapacity), within any two-year period, of a majority of the members
of the Board of Directors of the U.S. Borrower (the "Board") or a
change in the size of the Board, within any two-year period, which
results in members of the Board who were in office at the beginning of
such two-year period constituting less than a majority of the members
of the Board (unless such replacement, resignation or change in size of
the Board shall have been effected or initiated by a majority of the
members of the Board in office at the beginning of such two-year
period) or (c) the failure of the U.S. Borrower to own 100% of the
outstanding shares of common stock of the Canadian Borrower. As used
herein, "Permitted Person" means (i) any Person which as of the Closing
Date is an Affiliate of the U.S. Borrower as set forth on Schedule
6.15; (ii) Marc P. Shore and any member of Marc P. Shore's "immediate
family" (as such term is defined in Rule 16A-1 promulgated under the
Securities Exchange Act of 1934, as amended) and (iii) with respect to
each Person described in clauses (i) and (ii) above, each Affiliate,
heir, successor or estate of such Person.
"Chinese Investment" means the Investment, direct or indirect,
in cash or other assets, by the U.S. Borrower and/or other members of
the Consolidated Shorewood Group in a manufacturing facility for paper
and paperboard packaging in the People's Republic of China.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute thereto, as interpreted by the rules and
regulations issued thereunder, in each case as in effect from time to
time. References to sections of the Code shall be construed also to
refer to any successor sections.
7
<PAGE> 13
"Commitments" means the U.S. Revolving Loan Commitment, the
Canadian Revolving Loan Commitment, the U.S. Term Loan Commitment and
the Swing Line Loan Commitment.
"Consolidated Shorewood Group" means the Borrowers and all of
their Subsidiaries whether direct or indirect and whether now owned or
hereafter acquired.
"Current Assets" means, at any time, all items which, in
accordance with GAAP, would be classified as current assets on a
consolidated balance sheet of the Consolidated Shorewood Group.
"Current Liabilities" means, at any time, all items which, in
accordance with GAAP, would be classified as current liabilities on a
consolidated balance sheet of the Consolidated Shorewood Group.
"Debt Coverage Ratio" means, as measured at the end of each
fiscal quarter of the U.S. Borrower, the ratio of (a) total Funded Debt
of the Consolidated Shorewood Group, as determined in accordance with
GAAP, to (b) EBITDA, as calculated for the four fiscal quarter period
ending on such date.
"Debt Issuance" means the issuance of any Indebtedness for
borrowed money by any member of the Consolidated Shorewood Group.
"Default" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at
such time, (a) has failed to make a Loan or purchase a Participation
Interest required pursuant to the terms of this Agreement, (b) has
failed to pay to the Administrative Agent or any Lender an amount owed
by such Lender pursuant to the terms of this Agreement or (c) has been
deemed insolvent or has become subject to a receiver, trustee or
similar official.
"EBITDA" means, for any period, an amount equal to the sum of
(a) Net Income (excluding extraordinary gains or losses and non-cash
cumulative effect adjustments and excluding any gain resulting from a
sale or transfer of all or any part of the Chinese Investment) for such
period, plus (b) an amount which, in the determination of Net Income
for such period, has been deducted for (i) Interest Expense for such
period, (ii) total Federal, state, local, provincial and foreign income
and similar taxes of the Consolidated Shorewood Group for such period,
(iii) total depreciation expenses of the Consolidated Shorewood Group
for such period and (iv) total amortization expenses of the
Consolidated Shorewood Group for such period, all as determined in
accordance with GAAP.
"Effective Date" means the date on which all of the conditions
set forth in Section 5.1 have been fulfilled or waived by the Lenders.
8
<PAGE> 14
"Eligible Assignee" means (a) any Lender or Affiliate or
subsidiary of a Lender and (b) any other commercial bank, financial
institution, institutional lender or "accredited investor" (as defined
in Regulation D of the Securities and Exchange Commission) with a net
worth of at least $2,000,000,000.
"Environmental Laws" means any current or future Requirement
of Law of any Governmental Authority applicable to members of the
Consolidated Shorewood Group pertaining to (a) the protection of
health, safety, and the environment, (b) the conservation, management,
or use of natural resources and wildlife, (c) the protection or use of
surface water and groundwater or (d) the management, manufacture,
possession, presence, use, generation, transportation, treatment,
storage, disposal, release, threatened release, abatement, removal,
remediation or handling of, or exposure to, any hazardous or toxic
substance or material and includes, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization Act
of 1986, 42 USC 9601 et seq., Solid Waste Disposal Act, as amended by
the Resource Conservation and Recovery Act of 1976 and Hazardous and
Solid Waste Amendment of 1984, 42 USC 6901 et seq., Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1977, 33
USC 1251 et seq., Clean Air Act of 1966, as amended, 42 USC 7401 et
seq., Toxic Substances Control Act of 1976, 15 USC 2601 et seq.,
Hazardous Materials Transportation Act, 49 USC App. 1801 et seq.,
Occupational Safety and Health Act of 1970, as amended, 29 USC 651 et
seq., Oil Pollution Act of 1990, 33 USC 2701 et seq., Emergency
Planning and Community Right-to-Know Act of 1986, 42 USC 11001 et seq.,
National Environmental Policy Act of 1969, 42 USC 4321 et seq., Safe
Drinking Water Act of 1974, as amended, 42 USC 300(f) et seq., Ontario
Water Resources Act, Canadian Environmental Protection Act, any
analogous implementing or successor law, and any amendment, rule,
regulation, order, or directive issued thereunder.
"Equity Issuance" means any issuance by any member of the
Consolidated Shorewood Group to any Person other than a Borrower or a
Guarantor of (a) shares of its capital stock in an underwritten
offering or institutional private placement, (b) any shares of its
capital stock pursuant to the exercise of options or warrants or (c)
any shares of its capital stock pursuant to the conversion of any debt
securities to equity. The term "Equity Issuance" shall not include (i)
any Asset Disposition, (ii) any issuance of shares of its capital stock
upon the exercise of options under any employee stock option plan,
(iii) any issuance of shares of its capital stock upon the exercise of
customer warrants and (iv) any issuance of shares of its capital stock
or other equity interests in connection with the sale of up to 45% of
the Chinese Investment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
9
<PAGE> 15
"ERISA Affiliate" means an entity, whether or not
incorporated, which is under common control with the U.S. Borrower
within the meaning of Section 4001(a)(14) of ERISA, or is a member of a
group which it includes the U.S. Borrower and which is treated as a
single employer under Sections 414(b) or (c) of the Code.
"ERISA Event" means (a) with respect to any Plan, the
occurrence of a Reportable Event or the substantial cessation of
operations (within the meaning of Section 4062(e) of ERISA); (b) the
withdrawal of the U.S. Borrower or any ERISA Affiliate from a Multiple
Employer Plan during a plan year in which it was a substantial employer
(as such term is defined in Section 4001(a)(2) of ERISA), or the
termination of a Multiple Employer Plan; (c) the distribution of a
notice of intent to terminate or the actual termination of a Plan
pursuant to Section 4041(a)(2) or 4041A of ERISA; (d) the institution
of proceedings to terminate or the actual termination of a Plan by the
PBGC under Section 4042 of ERISA; (e) the termination of, or the
appointment of a trustee to administer, any Plan pursuant to Section
4042 of ERISA; (f) the complete or partial withdrawal of the U.S.
Borrower or any ERISA Affiliate from a Multiemployer Plan; (g) the
conditions for imposition of a Lien under Section 302(f) of ERISA exist
with respect to any Plan; or (h) the adoption of an amendment to any
Plan requiring the application of Section 307 of ERISA.
"Eurodollar Loans" means Loans accruing interest at the
Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each
Eurodollar Loan comprising part of the same borrowing (including
continuations and conversions), a per annum interest rate determined
pursuant to the following formula:
Eurodollar Rate = London Interbank Offered Rate
---------------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by
reference to which the interest rate of Eurodollar Loans is
determined), whether or not a Lender has any Eurocurrency liabilities
subject to such reserve requirement at that time. Eurodollar Loans
shall be deemed to constitute Eurocurrency liabilities and as such
shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available from
time to time to a Lender. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
10
<PAGE> 16
"Eurodollar Revolving Loans" means the Revolving Loans in U.S.
Dollars made to the U.S. Borrower or the Canadian Borrower accruing
interest at the Adjusted Eurodollar Rate.
"Event of Default" has the meaning specified in Section 9.1.
"Existing Canadian Letters of Credit" means those Existing
Letters of Credit identified as Canadian Letters of Credit on Schedule
1.1(b).
"Existing Letters of Credit" means the Letters of Credit
described by date, issuance, letter of credit number, undrawn amount,
name of beneficiary and the date of expiry set forth on Schedule
1.1(b).
"Existing U.S. Letters of Credit" means those Existing Letters
of Credit identified as U.S. Letters of Credit on Schedule 1.1(b).
"Face Amount" means, in respect of a Bankers' Acceptance, the
amount payable to the holder thereof on maturity.
"Federal Funds Rate" means, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of
the Federal Reserve Bank of New York, or if such rate is not released
on any Business Day, the arithmetic average (rounded upwards to the
next 1/100th of 1%), as determined by the Administrative Agent, of the
quotations for the day of such transactions, received by the
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
"Financial Statements" means such term as defined in Section
6.6.
"Fixed Charge Ratio" means, as of the last day of any fiscal
quarter, (a) the difference of: (i) EBITDA for the period of four
consecutive fiscal quarters ending on such day minus (ii) Capital
Expenditures for the period of four consecutive fiscal quarters ending
on such day divided by (b) the sum of: (i) cash Interest Expense for
the period of four fiscal quarters ending on such day plus (ii) cash
dividends paid by the U.S. Borrower for the period of four consecutive
fiscal quarters ending on such day plus (iii) all scheduled principal
payments on long term Funded Debt of the Consolidated Shorewood Group
for the period of four consecutive fiscal quarters beginning on such
day.
"Funded Debt" means, without duplication, the sum of (a) all
Indebtedness of the Consolidated Shorewood Group for borrowed money
(other than purchase money Indebtedness (as distinguished from capital
lease obligations) incurred in accordance with the terms of Section
8.1), (b) the principal portion of all obligations of the Consolidated
Shorewood Group under capital leases (including capital leases incurred
in accordance with the terms of Section 8.1), (c) all commercial
letters of credit and the maximum or face amount of all performance and
standby letters of credit issued or bankers' acceptance facilities
created for the account of a member of the Consolidated Shorewood
Group,
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<PAGE> 17
including, without duplication, all unreimbursed draws thereunder, (d)
all Guaranty Obligations of the Consolidated Shorewood Group with
respect to Funded Debt of another Person, (e) all Funded Debt of
another entity secured by a Lien on any property of the Consolidated
Shorewood Group whether or not such Funded Debt has been assumed by a
member of the Consolidated Shorewood Group, (f) all Funded Debt of any
partnership or unincorporated joint venture to the extent a member of
the Consolidated Shorewood Group is legally obligated or has a
reasonable expectation of being liable with respect thereto, net of any
assets of such partnership or joint venture and (g) the principal
balance outstanding under any synthetic lease, tax retention operating
lease, off-balance sheet loan or similar off-balance sheet financing
product of a member of the Consolidated Shorewood Group where such
transaction is considered borrowed money indebtedness for tax purposes
but is classified as an operating lease in accordance with GAAP.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to the terms of
Section 1.2.
"Government Acts" means such term as defined in Section
2.2(k)(i).
"Governmental Authority" means any Federal, State, Provincial,
local or foreign court or governmental agency, authority,
instrumentality or regulatory body.
"Guarantor" means any (a) Subsidiary of the U.S. Borrower
(other than the Canadian Borrower) domiciled in the United States or
Canada on the Closing Date and (b) any Subsidiary of the U.S. Borrower
required to execute a Guaranty Agreement pursuant to Section 7.11.
"Guaranty Agreements" means the Second Amended and Restated
Guaranty Agreement executed by the U.S. Borrower with respect to the
obligations of the Canadian Borrower, the Second Amended and Restated
Guaranty Agreements executed by the applicable Guarantors with respect
to the obligations of the U.S. Borrower and the Canadian Borrower and
any future Guaranty Agreement executed in accordance with the terms of
this Agreement, as each such Guaranty Agreement may be amended,
modified or replaced from time to time.
"Guaranty Obligations" of any Person means any obligations
(other than (a) endorsements in the ordinary course of business of
negotiable instruments for deposit or collection, (b) obligations
arising under the Guaranty Agreements and (c) obligations arising under
guaranties by a member of the Consolidated Shorewood Group of another
member of the Consolidated Shorewood Group) guaranteeing or intended to
guarantee any Indebtedness, leases, dividends or other obligations of
any other Person in any manner, whether direct or indirect, and
including, without limitation, any obligation, whether or not
contingent to, (i) purchase any such Indebtedness or other obligation
or any property constituting security therefor, (ii) advance or provide
funds or other support for the payment or purchase of such indebtedness
or obligation or to maintain working capital, solvency or other balance
sheet condition of such other Person (including, without limitation,
keep well
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agreements, maintenance agreements, comfort letters or similar
agreements or arrangements), (iii) lease or purchase property,
securities or services primarily for the purpose of assuring the owner
of such Indebtedness or obligation, or (iv) otherwise assure or hold
harmless the owner of such Indebtedness or obligation against loss in
respect thereof.
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person with respect to Funded Debt, (b) all
obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, or upon which interest payments are customarily
made, (c) all obligations of such Person under conditional sale or
other title retention agreements relating to property purchased by such
Person to the extent of the value of such property (other than
customary reservations or retentions of title under agreements with
suppliers entered into in the ordinary course of business), (d) all
obligations, including without limitation intercompany items, of such
Person issued or assumed as the deferred purchase price of property or
services purchased by such Person which would appear as liabilities on
a balance sheet of such Person, (e) all Indebtedness of others secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on, or payable out
of the proceeds of Property owned or acquired by such Person, whether
or not the obligations secured thereby have been assumed, (f) all
Guaranty Obligations of such Person, (g) the principal portion of all
obligations of such Person under (i) capital leases and (ii) any
synthetic lease, tax retention operating lease, off-balance sheet loan
or similar off-balance sheet financing product where such transaction
is considered borrowed money indebtedness for tax purposes but is
classified as an operating lease in accordance with GAAP, (h) all
obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements, or other interest or
exchange rate or commodity price hedging agreements, (i) the maximum
amount of all standby letters of credit issued or bankers' acceptances
facilities created for the account of such Person and, without
duplication, all drafts drawn thereunder (to the extent unreimbursed),
(j) all preferred stock issued by such Person and required by the terms
thereof to be redeemed, or for which mandatory sinking fund payments
are due, by a fixed date, (k) all other obligations which would be
shown as a liability on the balance sheet of such Person and (l) the
aggregate purchase price paid by third parties for the purchase of the
accounts receivable of such Person subject at such time to a sale of
receivables (or similar transaction) regardless of whether such
transaction is effected without recourse to such Person or in a manner
that would not be reflected on the balance sheet of such Person in
accordance with GAAP. The Indebtedness of any Person shall include the
Indebtedness of any partnership or unincorporated joint venture but
only to the extent such Person is legally obligated or has a reasonable
expectation of being liable with respect thereto; provided, however,
Indebtedness shall not include (i) any accumulated provisions for
deferred taxes or deferred credits reflected as a liability on the
balance sheet of such Person, or (ii) any Indebtedness in respect of
which moneys sufficient to pay and discharge the same in full (either
on the expressed date of maturity thereof or on such earlier date as
such indebtedness may be duly called for redemption and payment) have
been deposited with a depository, agency or trustee in trust for the
payment thereof. Further, "Indebtedness" shall not include
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<PAGE> 19
obligations relating to puts and calls for the purchase or sale of any
class of stock or equity interest in the U.S. Borrower now or hereafter
outstanding.
"Intercreditor Agreement" means that certain Second Amended
and Restated Intercreditor Agreement dated as of the Closing Date among
the Agents and the Lenders.
"Interest Expense" means, for any period, all interest expense
of the Consolidated Shorewood Group for such period, as determined in
accordance with GAAP.
"Interest Payment Date" means (a) as to all Loans, other than
Eurodollar Loans, the last day of each month and (b) as to Eurodollar
Loans, the last day of each applicable Interest Period; provided, that
if the Interest Period for a Eurodollar Loan is greater than three
months, then the Interest Payment Date shall be on the date three
months from the beginning of the Interest Period and the last day of
the applicable Interest Period and provided further that if an Interest
Payment Date falls on a date which is not a Business Day, such Interest
Payment Date shall be deemed to be the next succeeding Business Day,
except that in the case of an Interest Period where the next succeeding
Business Day falls in the next succeeding calendar month, then on the
next preceding Business Day.
"Interest Period" means, with respect to Eurodollar Loans, a
period of one, two, three or six month's duration, as the Borrowers may
elect from time to time, commencing in each case, on the date of the
borrowing (or continuation or conversions thereof); provided, however,
(a) if any Interest Period would end on a day which is not a Business
Day, such Interest Period shall be extended to the next succeeding
Business Day (except that where the next succeeding Business Day falls
in the next succeeding calendar month, then on the next preceding
Business Day), (b) no Interest Period shall extend beyond the Revolving
Loans Maturity Date or the Term Loans Maturity Date, as the case may
be, (c) where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last
Business Day of such calendar month and (d) with respect to the U.S.
Term Loan, no Interest Period shall extend beyond the next date
scheduled for a principal amortization payment on the U.S. Term Loan
unless the portion of the U.S. Term Loan comprised of Base Rate Loans
together with the portion of the U.S. Term Loan comprised of Eurodollar
Loans with Interest Periods expiring before the date of such principal
amortization payment is at least equal to the amount of such principal
amortization payment.
"Investment" means, with respect to any Person, (a) the
acquisition (whether for cash, property, services, assumption of
Indebtedness or securities or otherwise) of assets, shares of capital
stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of another Person, (b) any deposit with,
or advance, loan or other extension of credit to, such other Person
(other than deposits made in connection with the purchase of equipment
or other assets in the ordinary course of business) or (c) any other
investment in such other Person, including without limitation, any
Guaranty Obligation for the benefit of such other Person.
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"Issuing Lender" means (i) as to the U.S. LOC Subfacility,
NationsBank, N.A., or such other willing U.S. Lender which the U.S.
Borrower may request and the Required Lenders agree and (ii) as to the
Canadian LOC Subfacility, The Bank of Nova Scotia, or such other
willing Canadian Lender which the Canadian Borrower may request and the
Required Lenders agree.
"Issuing Lender's Fee" shall have the meaning assigned to such
term in Section 4.5.
"Lenders" means U.S. Lenders and Canadian Lenders.
"Letter of Credit" means (a) a Letter of Credit issued for the
account of the U.S. Borrower or one of its Subsidiaries by the Issuing
Lender pursuant to Section 2.2, as such Letter of Credit may be
amended, modified, extended, renewed or replaced, (b) a Letter of
Credit issued for the account of the Canadian Borrower or one of its
Subsidiaries by the Issuing Lender pursuant to Section 2.11 as such
Letter of Credit may be amended, modified, extended, renewed or
replaced and (c) any Existing Letters of Credit.
"Letter of Credit Fee" shall have the meaning assigned to such
term in Section 4.5.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority, hypothecation or charge of any kind
(including any agreement to give any of the foregoing, any conditional
sale or other title retention agreement, any financing or similar
statement filed under the Uniform Commercial Code or Personal Property
Security Act (Ontario) as adopted and in effect in the relevant
jurisdiction, or other similar recording or notice statute, and any
lease in the nature thereof.
"Loan Documents" means this Agreement, the Revolving Credit
Notes, the Swing Line Loan Note, the Term Notes, the Guaranty
Agreements, the Stock Pledge Agreements, the LOC Documents, the BA
Documents, the Intercreditor Agreement and all other documents and
instruments executed or delivered in connection herewith.
"Loans" means the Revolving Loans and the Term Loans.
"LOC Documents" means, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered
thereunder, and any other agreements, instruments, guarantees or other
documents (whether general in application or applicable only to such
Letter of Credit) governing or providing for (a) the rights and
obligations of the parties concerned or at risk or (b) any collateral
security for such obligations.
"LOC Obligations" means, at any time, the sum of (a) the
maximum amount which is, or at any time thereafter may become,
available to be drawn under all Letters of Credit then outstanding,
assuming compliance with all requirements for drawings referred to in
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<PAGE> 21
such Letters of Credit plus (b) the aggregate amount of all drawings
under Letters of Credit honored by the Issuing Lender but not
theretofore reimbursed.
"London Interbank Offered Rate" means, with respect to any
Eurodollar Loan for the Interest Period applicable thereto, the rate of
interest per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in U.S. dollars at
approximately 11:00 A.M. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is specified
on Telerate Page 3750, the applicable rate shall be the arithmetic mean
of all such rates. If, for any reason, such rate is not available, the
term "London Interbank Offered Rate" shall mean, with respect to any
Eurodollar Loan for the Interest Period applicable thereto, the rate of
interest per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in U.S. dollars at approximately 11:00 A.M.
(London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such
rates.
"Material Adverse Effect" means a material adverse effect,
after taking into account any applicable insurance (to the extent the
provider of such insurance has the financial ability to support its
obligations with respect thereto and is not disputing or refusing to
acknowledge same), on (a) the operations, financial condition, business
or prospects of the Consolidated Shorewood Group taken as a whole, (b)
the operations, financial condition, business or prospects of the
Target through and including the Closing Date, (c) the ability of (i)
the U.S. Borrower to perform its material obligations under this Credit
Agreement or any of the other Loan Documents, (ii) the Canadian
Borrower to perform its material obligations under this Credit
Agreement or any of the other Loan Documents, or (iii) the members of
the Consolidated Shorewood Group, taken as a whole, to perform their
material obligations under this Agreement or any of the other Loan
Documents, or (d) the validity or enforceability of this Agreement, any
of the other Loan Documents, or the rights and remedies of the Lenders
hereunder or thereunder taken as a whole.
"Multiemployer Plan" means a Plan which is a multiemployer
plan as defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan (other than a
Multiemployer Plan) which the U.S. Borrower or any ERISA Affiliate and
at least one other employer other than the U.S. Borrower or any ERISA
Affiliate are contributing sponsors.
"NationsBank" means NationsBank, N.A.
"Net Income" means, for any period, the net income after taxes
of the Consolidated Shorewood Group for such period, as determined in
accordance with GAAP.
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<PAGE> 22
"Net Proceeds" means all cash proceeds received in connection
with an Asset Disposition, in connection with any Debt Issuance or in
connection with any Equity Issuance, net of (a) the actual cash costs
incurred in connection with and attributable to such Asset Disposition,
Debt Issuance or Equity Issuance, (b) any tax liability attributable to
such transaction and (c) with respect to an Asset Disposition, amounts
applied to repayment of Indebtedness (other than Borrowers Obligations)
secured by a Permitted Lien on a disposed asset.
"Net Worth" means, at any time, the consolidated net
stockholders' equity of the Consolidated Shorewood Group (with no
reduction for payments of the type described in clauses (b) and (c) of
the definition of "Restricted Payments" and otherwise permitted
pursuant to Section 8.11) at such time as determined in accordance with
GAAP.
"Notes" means the Revolving Credit Notes, the Swing Line Loan
Note and the Term Notes.
"Notice of Continuation/Conversion" means a request by a
Borrower to continue an existing Eurodollar Loan, convert a U.S. Base
Rate Loan to a Eurodollar Loan, convert a Eurodollar Loan to a U.S.
Base Rate Loan, convert a Canadian Base Rate Loan to a Bankers'
Acceptance or convert a Bankers' Acceptance to a Canadian Base Rate
Loan in the form of Exhibit 4.1.
"Participation Interest" means the purchase of a participation
in Letters of Credit or LOC Obligations pursuant to Section 2.2 or in
Loans pursuant to Section 2.3(c) or Section 4.6.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA, and any
successor thereof.
"Permitted Acquisitions" means (I) the acquisition of the
assets of the Target and (II) Acquisitions (a) that are in a similar
line of business as conducted by the Consolidated Shorewood Group as of
the Closing Date, (b) with respect to which the cash (or other assets)
consideration paid, the face amount of seller financing relating
thereto and Indebtedness assumed (other than trade payables) do not
exceed (i) when aggregated with all other Permitted Acquisitions (other
than the acquisition of the assets of the Target) occurring during the
twelve month period then ended, $50 million and (ii) when aggregated
with all other Permitted Acquisitions (other than the acquisition of
the assets of the Target), $100 million and (c) after giving effect to
any such Permitted Acquisition, the Consolidated Shorewood Group is in
pro forma compliance with the financial covenants set forth in Section
7.13. For the purposes hereof, pro forma compliance means the
acquisition was completed as of the first day of the four-quarter
period ending as of the last day of the most recent fiscal quarter for
which the Lenders have received the financial information required by
Section 7.1(b).
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"Permitted Investments" means (a) cash and Cash Equivalents;
(b) money market investment programs that invest exclusively in Cash
Equivalents and that are classified as a current asset in accordance
with GAAP and that are administered by broker-dealers reasonably
acceptable to the Administrative Agent; (c) Investments of a Borrower
into any of its Subsidiaries that guaranty the obligations of such
Borrower under the Loan Documents; (d) loans or advances in the usual
and ordinary course of business to officers, directors and employees
for expenses incidental to carrying on the business of the Borrowers;
(e) accounts receivable arising from the sale of goods and services in
the ordinary course of business of the Borrowers; (f) stock or
securities received in settlement of debts (created in the ordinary
course of business) owing to a member of the Consolidated Shorewood
Group; (g) Investments in Persons organized and existing in the United
States or Canada, whether or not such Persons are wholly-owned upon
consummation of such Investment, to the extent acquired by the issuance
or exchange of common stock in the U.S. Borrower, (h) Investments in
Persons organized and existing outside of the United States or Canada,
whether or not such Persons are wholly-owned upon consummation of such
Investment, in an aggregate amount at any time outstanding (on a cost
basis) not to exceed an amount equal to the sum of $50 million plus an
amount equal to 50% of cumulative Net Income earned subsequent to the
fiscal quarter ending closest to October 31, 1998 (determined on a
quarterly basis) minus an amount equal to 100% of cumulative Restricted
Payments made since the date of this Agreement, (i) Investments in the
Chinese Investment (including such Investments existing on the Closing
Date) not to exceed the product of (I) $45 million and (II) the
percentage ownership of the Consolidated Shorewood Group in the Chinese
Investment, (j) Permitted Acquisitions and (k) other Investments not to
exceed $15 million, in the aggregate, at any time outstanding (on a
cost basis).
"Permitted Liens" means (a) Liens in favor of the Lenders; (b)
Liens for taxes not yet due or Liens for taxes being contested in good
faith by appropriate proceedings for which adequate reserves determined
in accordance with GAAP have been established; (c) Liens in respect of
property imposed by law arising in the ordinary course of business such
as materialmen's, mechanics', warehousemen's, supplier's or vendor's
and other like Liens provided that such Liens secure only amounts not
yet due and payable or if overdue are being contested in good faith by
appropriate actions or proceedings and adequate reserves have been
established; (d) pledges or deposits made to secure payment of worker's
compensation insurance, unemployment insurance, pensions or social
security programs; (e) Liens arising from good faith deposits in
connection with or to secure performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of business (other than
obligations in respect of the payment of borrowed money); (f)
easements, rights-of-way, restrictions (including zoning restrictions),
minor defects or irregularities in title and other similar charges or
encumbrances not impairing, in any material respect, the use of such
property for its intended purposes or interfering, in any material
respect, with the ordinary conduct of business of the Consolidated
Shorewood Group; (g) Liens securing purchase money indebtedness (it
being understood for the purposes of this Agreement that conditional
sales contracts shall constitute purchase money indebtedness) permitted
by Section 8.1(d); (h) Liens existing on property or assets of a
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<PAGE> 24
member of the Consolidated Shorewood Group as of the date of this
Agreement and disclosed on Schedule 8.2; provided that the Liens set
forth on Schedule 8.2 shall not extend to or secure any Indebtedness
other than any such Indebtedness outstanding on the date hereof; (i)
Liens granted by a Subsidiary of a Borrower to secure debt owing to
such Borrower or to another member of the Consolidated Shorewood Group;
(j) judgments and other similar Liens arising in connection with court
proceedings to the extent such judgments do not constitute Events of
Default; provided the execution or other enforcement of such Lien is
effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings; (k) Liens on
specific plant, property or equipment financed with the proceeds of and
relating to industrial development revenue bonds or other similar
tax-advantaged financing assumed in connection with a Permitted
Acquisition and (l) Liens (excluding blanket Liens on accounts,
inventory, equipment or general intangibles) securing Indebtedness not
in excess of $25,000 in any instance or $250,000 in the aggregate, at
any time outstanding. Notwithstanding anything contained herein to the
contrary, "Permitted Liens" shall not include any Lien on the Chinese
Investment.
"Person" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or
other enterprise or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which the
U.S. Borrower or any ERISA Affiliate is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" within the meaning of Section 3(5) of ERISA.
"Purchase Agreement" means that certain Purchase and Sale
Agreement dated October 30, 1998 by and among Shorewood Packaging
Corporation as buyer and Queens Group, Inc., Queens Group-Weaverville,
Inc., Allmond Realty Co., Talmadge Realty Company, Belmont Realty
Company, Mount Holly Enterprises, Inc. and Weaverville Realty Company,
LLC as sellers.
"Regulation U or X" means Regulation U or X, respectively, of
the Board of Governors of the Federal Reserve System as from time to
time in effect and any successor to all or a portion thereof
establishing reserve requirements.
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the
notice requirement has been waived by regulation.
"Required Lenders" means Lenders whose aggregate Credit
Exposure (as hereinafter defined) constitute at least 51% of the
aggregate Credit Exposure of all Lenders at such time; provided,
however, that if any Lender shall be a Defaulting Lender at such time
then there shall be excluded from the determination of Required Lenders
at such time the aggregate principal amount of Credit Exposure of such
Lender at such time. For purposes of the preceding sentence, the term
"Credit Exposure" as applied to each Lender
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shall mean (a) at any time prior to the termination of the Commitments,
the sum of (i) the U.S. Revolving Loan Commitment Percentage of such
Lender multiplied times the U.S. Revolving Loan Commitments; plus (ii)
the Canadian Revolving Loan Commitment Percentage of such Lender
multiplied times the Canadian Revolving Loan Commitments; plus (iii)
the U.S. Term Loan Commitment Percentage of such Lender multiplied
times the principal amount of U.S. Term Loan outstanding at that time
and (b) at any time after the termination of the Commitments, the sum
of (i) the principal balance of outstanding Loans of such Lender plus
(ii) such Lender's Participation Interests in the face amount of
outstanding Letters of Credit.
"Requirement of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation or final, non-appealable determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to our
binding upon such Person or to which any of its property is subject.
"Restricted Payments" means (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class
of capital stock or other equity interest in the U.S. Borrower now or
hereafter outstanding, except a dividend payable solely in shares of
that class to holders of that class, (b) any redemption, retirement,
sinking fund or other similar payment, purchase or other acquisition
for value, direct or indirect, of any shares of any class of stock or
other equity interest in the U.S. Borrower now or hereafter
outstanding, and (c) obligations relating to puts and calls for the
purchase or sale of any class of stock or equity interest in the U.S.
Borrower now or hereafter outstanding.
"Revolving Credit Notes" means the promissory notes of the
Borrowers in favor of each Lender evidencing the Revolving Loans and
substantially in the form of Exhibit 2.9, as such promissory notes may
be amended, modified, supplemented or replaced from time to time.
"Revolving Loan Commitments" means the U.S. Revolving Loan
Commitment and the Canadian Revolving Loan Commitment.
"Revolving Loans" means the loans made pursuant to Section 2.1
and 2.4, which may be U.S. Revolving Loans and/or Canadian Revolving
Loans.
"Revolving Loans Maturity Date" means October 31, 2003.
"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple
Employer Plan.
"Solvent" means, with respect to any Person as of a particular
date, that on such date (a) such Person is able to pay its debts and
other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (b) such Person does not
intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's
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<PAGE> 26
ability to pay as such debts and liabilities mature in their ordinary
course, (c) such Person is not engaged in a business or a transaction,
and is not about to engage in a business or a transaction, for which
such Person's assets would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in
which such Person is engaged or is to engage, (d) the fair value of the
assets of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person
and (e) the present fair saleable value of the assets of such Person is
not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and
matured. In computing the amount of contingent liabilities at any time,
it is intended that such liabilities will be computed at the amount
which, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become
an actual or matured liability.
"Stock Pledge Agreements" means the amended and restated
pledge and security agreements executed and delivered by the U.S.
Borrower, the Canadian Borrower, and such other members of the
Consolidated Shorewood Group, as appropriate, whether on the Closing
Date or in the future in accordance with the terms of this Agreement,
as such Stock Pledge Agreements may be amended, modified, extended,
renewed, restated or replaced from time to time.
"Subsidiary" of any Person means (a) any corporation more than
50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time, any class or
classes of the capital stock of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at
the time owned by such Person directly or indirectly through
Subsidiaries of such Person, and (b) any partnership, association,
joint venture or other entity in which such Person directly or
indirectly through Subsidiaries of such Person has more than 50% of the
equity interest at any time.
"Swing Line Loan Commitment" means $5,000,000 (U.S.), as such
amount may be reduced in accordance with Section 2.3.
"Swing Line Loans" means the loans made by NationsBank to the
U.S. Borrower pursuant to Section 2.3.
"Swing Line Loan Note" means the promissory note of the U.S.
Borrower in favor of NationsBank evidencing the Swing Line Loans and
substantially in the form of Exhibit 2.3, as such promissory note may
be amended, modified, supplemented, or replaced from time to time.
"Target" means Queens Group, Inc., Queens Group-Weaverville,
Inc., Allmond Realty Co., Talmadge Realty Company, Belmont Realty
Company, Mount Holly Enterprises, Inc. and Weaverville Realty Company,
LLC.
"Term Loans" means the U.S. Term Loan.
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"Term Loans Maturity Date" means October 31, 2003.
"Term Notes" means the promissory notes of the Borrowers in
favor of the Lenders evidencing the Term Loans and substantially in the
form of Exhibit 3.4, as such promissory notes may be amended, modified,
supplemented or replaced from time to time.
"Unused Fees" has the meaning set forth in Section 4.5.
"U.S. Base Rate" means the higher of (a) the Federal Funds
Rate plus .5% or (b) the U.S. Prime Rate; provided, however, that if in
the reasonable judgment of the Administrative Agent the Federal Funds
Rate cannot be determined then the U.S. Prime Rate.
"U.S. Base Rate Loans" means any Loans accruing interest at
the U.S. Base Rate or the BNS U.S. Base Rate.
"U.S. Base Rate Revolving Loans" means the Revolving Loans
made by the U.S. Lenders accruing interest at the U.S. Base Rate.
"U.S. Borrower" means Shorewood Packaging Corporation, a
Delaware corporation.
"U.S. Dollar Equivalent" has the meaning set forth in Section
4.4(b)(i).
"U.S. Lenders" means the Lenders identified as such on
Schedule 1.1(a) and such other Lenders as may be added in accordance
with the terms of this Agreement.
"U.S. Letter of Credit" means a Letter of Credit issued under
the U.S. LOC Subfacility, as referenced in Section 2.2(a) plus Existing
U.S. Letters of Credit.
"U.S. LOC Obligations" means LOC Obligations relating to U.S.
Letters of Credit.
"U.S. LOC Subfacility" means the Letter of Credit subfacility
established pursuant to Section 2.2.
"U.S. Prime Rate" means the per annum rate of interest
established from time to time by the Administrative Agent at its
principal office in Charlotte, North Carolina (or such other principal
office of the Administrative Agent as communicated in writing to the
Borrowers and the Lenders) as its Prime Rate. Any change in the
interest rate resulting from a change in the U.S. Prime Rate shall
become effective as of 12:01 a.m. of the Business Day on which each
change in the U.S. Prime Rate is announced by the Administrative Agent.
The U.S. Prime Rate is a reference rate used by the Administrative
Agent in determining interest rates on certain loans and is not
intended to be the lowest rate of interest charged on any extension of
credit to any debtor.
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"U.S. Revolving Loan Commitment" means $200,000,000 (U.S.) as
such amount may be reduced in accordance with Section 2.10.
"U.S. Revolving Loan Commitment Percentage" means, for each
U.S. Lender, the percentage identified as its U.S. Revolving Loan
Commitment Percentage opposite such U.S. Lender's name on Schedule
1.1(a), as such percentage may be modified by assignment in accordance
with the terms of this Agreement.
"U.S. Revolving Loans" means the revolving loans made by the
U.S. Lenders to the U.S. Borrower pursuant to Section 2.1.
"U.S. Term Loan" means the term loan made by the U.S. Lenders
to the U.S. Borrower pursuant to Section 3.1.
"U.S. Term Loan Commitment" means $100,000,000 (U.S.).
"U.S. Term Loan Commitment Percentage" means, for each U.S.
Lender, the percentage identified as its Term Loan Commitment
Percentage opposite such U.S. Lender's name on Schedule 1.1(a), as such
percentage may be modified by assignment in accordance with the terms
of this Agreement.
"U.S. Unused Revolving Commitment" means, for any period, the
amount by which (a) the then applicable U.S. Revolving Loan Commitment
exceeds (b) the daily average sum for such period of the outstanding
aggregate principal amount of all U.S. Revolving Loans plus the daily
average balance of U.S. LOC Obligations for such period.
1.2 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided herein) be made by
application of GAAP applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial statements under Section
7.1 (or prior to the delivery of the first financial statements under Section
7.1 used in the preparation of the financial statements described in Section
6.6); provided, however, if (a) the U.S. Borrower shall have objected to
determining such compliance on such basis at the time of delivery of such
financial statements or (b) the Administrative Agent or the Required Lenders
shall so object in writing within 30 days after delivery of such financial
statements, then such calculations shall be made on a basis consistent with
those used in the preparation of the latest financial statements as to which no
such objection shall have been made.
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The Borrowers shall deliver to the Lenders at the same time as the
delivery of any annual or quarterly financial statement under Section 7.1 (a) a
description in reasonable detail of any material variation between the
application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the most recent preceding annual or quarterly financial
statements as to which no objection has been made in accordance with the
paragraph above and (b) reasonable estimates of the difference between such
statements arising as a consequence thereof.
1.3 COMPUTATION OF TIME PERIODS AND OTHER DEFINITIONAL PROVISIONS.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding." References in this Agreement to "Articles", "Sections",
"Schedules" or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits
of or to this Agreement unless otherwise specifically provided.
SECTION 2
THE REVOLVING LOANS
2.1 THE U.S. REVOLVING LOANS.
(a) U.S. Revolving Loan Commitment. Subject to the terms and
conditions set forth herein, each U.S. Lender agrees, severally and not
jointly, at any time and from time to time from the Effective Date to
the Revolving Loans Maturity Date, to make revolving loans (each a
"U.S. Revolving Loan" and collectively, the "U.S. Revolving Loans") in
U.S. dollars to the U.S. Borrower; provided, however, that (i) the
aggregate amount of U.S. Revolving Loans outstanding plus U.S. LOC
Obligations outstanding plus Swing Line Loans outstanding at any one
time may not exceed the U.S. Revolving Loan Commitment; (b) the
aggregate amount of U.S. Revolving Loans outstanding plus Canadian
Revolving Loans outstanding plus LOC Obligations outstanding plus BA
Revolving Obligations outstanding plus Swing Line Loans outstanding may
not exceed $225,000,000 (U.S.); and (c) with regard to each individual
U.S. Lender (other than NationsBank with respect to Swing Line Loans),
the U.S. Lender's pro rata share of outstanding U.S. Revolving Loans
plus U.S. LOC Obligations outstanding (plus, if applicable, such U.S.
Lender's pro rata share of the Swing Line Loans) shall not exceed such
U.S. Lender's U.S. Revolving Loan Commitment Percentage of the U.S.
Revolving Loan Commitment. U.S. Revolving Loans may consist of U.S.
Base Rate Revolving Loans or Eurodollar Revolving Loans (or a
combination thereof) as the U.S. Borrower may request, and the U.S.
Borrower may borrow, repay and reborrow in accordance with the terms
hereof.
(b) Method of Borrowing for U.S. Revolving Loans.
(i) U.S. Base Rate Revolving Loans. By no later than
10:00 a.m., Charlotte, North Carolina time, on the date of the
request, the U.S. Borrower shall
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submit an Advance Request to the Administrative Agent setting
forth the amount requested, the desire to have such Revolving
Loan accrue interest at the U.S. Base Rate and complying in
all respects with Section 5.2.
(ii) Eurodollar Revolving Loans. By no later than
10:00 a.m., Charlotte, North Carolina time, three Business
Days prior to the date of the requested Eurodollar Revolving
Loan, the U.S. Borrower shall submit an Advance Request to the
Administrative Agent setting forth the amount thereof, the
desire to have such Revolving Loan accrue interest at the
Adjusted Eurodollar Rate, the Interest Period applicable
thereto and complying in all respects with Section 5.2.
2.2 U.S. LETTER OF CREDIT SUBFACILITY.
(a) Issuance. Subject to the terms and conditions hereof and
of the LOC Documents, if any, and any other terms and conditions which
the Issuing Lender may reasonably require (so long as such terms and
conditions do not impose any financial obligation on or require any
Lien (not otherwise contemplated by this Agreement) to be given by any
member of the Consolidated Shorewood Group or conflict with any
obligation of, or detract from any action which may be taken by, either
Borrower or their Subsidiaries under this Agreement), the Issuing
Lender shall from time to time upon request issue, in U.S. dollars, and
the U.S. Lenders shall participate in, letters of credit (the "U.S.
Letters of Credit") for the account of the U.S. Borrower or any of its
Subsidiaries, from the Effective Date until the Revolving Loans
Maturity Date, in a form reasonably acceptable to the Issuing Lender;
provided, however, that (i) the aggregate amount of U.S. LOC
Obligations shall not at any time exceed $15,000,000 (U.S.), (ii) the
sum of the aggregate amount of U.S. LOC Obligations outstanding plus
U.S. Revolving Loans outstanding plus Swing Line Loans outstanding
shall not exceed the U.S. Revolving Loan Commitment, (iii) with respect
to each individual U.S. Lender (other than NationsBank with respect to
Swing Line Loans), the U.S. Lender's pro rata share of outstanding U.S.
Revolving Loans plus its pro rata share of outstanding U.S. LOC
Obligations plus its pro rata share of Swing Line Loans, if any, shall
not exceed such U.S. Lender's Revolving Loan Commitment Percentage of
the U.S. Revolving Loan Commitment and (iv) the sum of U.S. Revolving
Loans outstanding plus Canadian Revolving Loans outstanding plus Swing
Line Loans outstanding plus LOC Obligations outstanding plus BA
Revolving Obligations outstanding shall not exceed $225,000,000 (U.S.).
The issuance and expiry date of each U.S. Letter of Credit shall be a
Business Day. Except as otherwise expressly agreed upon by all the U.S.
Lenders, no U.S. Letter of Credit shall have an original expiry date
more than one year from the date of issuance, or as extended, shall
have an expiry date extending beyond the Revolving Loans Maturity Date.
Each U.S. Letter of Credit shall be either (x) a standby letter of
credit issued to support the obligations (including pension or
insurance obligations), contingent or otherwise, of the U.S. Borrower
or any of its Subsidiaries, or (y) a commercial letter of credit in
respect of the purchase of goods or services by the U.S. Borrower or
any of its Subsidiaries in the ordinary course of business. Each U.S.
Letter of Credit shall comply with the related LOC Documents.
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(b) Notice and Reports. The request for the issuance of a U.S.
Letter of Credit shall be submitted to the Issuing Lender at least
three Business Days prior to the requested date of issuance. The
Issuing Lender will, at least quarterly and more frequently upon
request, provide to the Administrative Agent for dissemination to the
Lenders a detailed report specifying the Letters of Credit which are
then issued and outstanding and any activity with respect thereto which
may have occurred since the date of the prior report, and including
therein, among other things, the account party, the beneficiary, the
face amount, and the expiry date as well as any payments or expirations
which may have occurred. The Issuing Lender will further provide to the
Administrative Agent, promptly upon request, copies of the Letters of
Credit.
(c) Participations.
(i) On the Effective Date, each U.S. Lender
shall automatically acquire a participation in the liability
of the Issuing Lender under each Existing U.S. Letter of
Credit in an amount equal to its U.S. Revolving Loan
Commitment Percentage of such U.S. Existing Letters of Credit.
Each U.S. Existing Letter of Credit shall be deemed for all
purposes of this Agreement and the other Loan Documents to be
a U.S. Letter of Credit.
(ii) Each U.S. Lender, upon issuance of a U.S. Letter
of Credit, shall be deemed to have purchased without recourse
a risk participation from the Issuing Lender in such U.S.
Letter of Credit and the obligations arising thereunder and
any collateral relating thereto, in each case in an amount
equal to its U.S. Revolving Loan Commitment Percentage of the
obligations under such U.S. Letter of Credit, and shall
absolutely, unconditionally and irrevocably assume, as primary
obligor and not as surety, and be obligated to pay to the
Issuing Lender therefor and discharge when due, its U.S.
Revolving Loan Commitment Percentage of the obligations
arising under such U.S. Letter of Credit. Without limiting the
scope and nature of each U.S. Lender's participation in any
U.S. Letter of Credit, to the extent that the Issuing Lender
has not been reimbursed as required hereunder or under any
such U.S. Letter of Credit, each such U.S. Lender shall pay to
the Issuing Lender its U.S. Revolving Loan Commitment
Percentage of such unreimbursed drawing in same day funds on
the day of notification by the Issuing Lender of an
unreimbursed drawing pursuant to the provisions of subsection
(d) hereof. The obligation of each U.S. Lender to so reimburse
the Issuing Lender shall be absolute and unconditional and
shall not be affected by the occurrence of a Default, an Event
of Default or any other occurrence or event. Any such
reimbursement shall not relieve or otherwise impair the
obligation of the U.S. Borrower or any other member of the
Consolidated Shorewood Group to reimburse the Issuing Lender
under any U.S. Letter of Credit, together with interest as
hereinafter provided.
(d) Reimbursement. In the event of any drawing under any U.S.
Letter of Credit, the Issuing Lender will promptly notify the U.S.
Borrower. Unless the U.S. Borrower shall immediately notify the Issuing
Lender of its intent to otherwise reimburse
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the Issuing Lender, the U.S. Borrower shall be deemed to have requested
a U.S. Revolving Loan at the U.S. Base Rate in the amount of the
drawing as provided in subsection (e) hereof, the proceeds of which
will be used to satisfy the reimbursement obligations. The U.S.
Borrower shall reimburse the Issuing Lender on the day of drawing under
any U.S. Letter of Credit either with the proceeds of a U.S. Revolving
Loan obtained hereunder or otherwise in same day funds as provided
herein or in the LOC Documents. If the U.S. Borrower shall fail to
reimburse the Issuing Lender as provided hereinabove, the unreimbursed
amount of such drawing shall bear interest at a per annum rate equal to
the U.S. Base Rate plus two percent (2%). Subject to Section 2.2(k)(v),
the Borrower's reimbursement obligations hereunder shall be absolute
and unconditional under all circumstances irrespective of (but without
waiver of) any rights of set-off, counterclaim or defense to payment
the applicable account party or the U.S. Borrower may claim or have
against the Issuing Lender, the Administrative Agent, the U.S. Lenders,
the beneficiary of the Letter of Credit drawn upon or any other Person,
including without limitation, any defense based on any failure of the
applicable account party, the U.S. Borrower or any other member of the
Consolidated Shorewood Group to receive consideration or the legality,
validity, regularity or unenforceability of the Letter of Credit. The
Issuing Lender will promptly notify the U.S. Lenders of the amount of
any unreimbursed drawing and each U.S. Lender shall promptly pay to the
Administrative Agent for the account of the Issuing Lender, in Dollars
and in immediately available funds, the amount of such U.S. Lender's
Revolving Loan Commitment Percentage of such unreimbursed drawing. Such
payment shall be made on the day such notice is received by such U.S.
Lender from the Issuing Lender if such notice is received at or before
2:00 p.m., otherwise such payment shall be made at or before 12:00 Noon
on the Business Day next succeeding the day such notice is received. If
such U.S. Lender does not pay such amount to the Issuing Lender in full
upon such request, such U.S. Lender shall, on demand, pay to the
Administrative Agent for the account of the Issuing Lender interest on
the unpaid amount during the period from the date the U.S. Lender
received the notice regarding the unreimbursed drawing until such U.S.
Lender pays such amount to the Issuing Lender in full at a rate per
annum equal to, if paid within two Business Days of the date of
drawing, the Federal Funds Rate and thereafter at a rate equal to the
Base Rate. Each U.S. Lender's obligation to make such payment to the
Issuing Lender, and the right of the Issuing Lender to receive the
same, shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and without regard to the termination of this
Agreement or the Commitments hereunder, the existence of a Default or
Event of Default or the acceleration of the obligations hereunder and
shall be made without any offset, abatement, withholding or reduction
whatsoever. Simultaneously with the making of each such payment by a
U.S. Lender to the Issuing Lender, such U.S. Lender shall,
automatically and without any further action on the part of the Issuing
Lender or such U.S. Lender, acquire a participation in an amount equal
to such payment (excluding the portion of such payment constituting
interest owing to the Issuing Lender) in the related unreimbursed
drawing portion of the LOC Obligation and in the interest thereon and
in the related LOC Documents, and shall have a claim against the U.S.
Borrower and the other applicable members of the Consolidated Shorewood
Group with respect thereto.
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(e) Repayment with Revolving Loans. On any day on which the
U.S. Borrower shall have requested, or been deemed to have requested, a
U.S. Revolving Loan borrowing to reimburse a drawing under a U.S.
Letter of Credit, the Administrative Agent shall give notice to the
U.S. Lenders that a U.S. Revolving Loan has been requested or deemed
requested in connection with a drawing under a U.S. Letter of Credit,
in which case a U.S. Revolving Loan borrowing comprised solely of Base
Rate Loans (each such borrowing, a "Mandatory Borrowing") shall be
immediately made from all U.S. Lenders (without giving effect to any
termination of the Commitments pursuant to Section 9.2) pro rata based
on each U.S. Lender's respective U.S. Revolving Loan Commitment
Percentage and the proceeds thereof shall be paid directly to the
Issuing Lender for application to the respective LOC Obligations. Each
such U.S. Lender hereby irrevocably agrees to make such U.S. Revolving
Loans immediately upon any such request or deemed request on account of
each such Mandatory Borrowing in the amount and in the manner specified
in the preceding sentence and on the same such date notwithstanding (i)
the amount of Mandatory Borrowing may not comply with the minimum
amount for borrowings of U.S. Revolving Loans otherwise required
hereunder, (ii) whether any conditions specified in Section 5.2 are
then satisfied, (iii) whether a Default or Event of Default then
exists, (iv) failure of any such request or deemed request for U.S.
Revolving Loans to be made by the time otherwise required hereunder,
(v) the date of such Mandatory Borrowing, or (vi) any reduction in the
U.S. Revolving Loan Commitment or any termination of the Commitments.
In the event that any Mandatory Borrowing cannot for any reason be made
on the date otherwise required above (including, without limitation, as
a result of the commencement of a proceeding under the Bankruptcy Code
with respect to the U.S. Borrower or any other member of the
Consolidated Shorewood Group), then each such U.S. Lender hereby agrees
that it shall forthwith fund (as of the date the Mandatory Borrowing
would otherwise have occurred, but adjusted for any payments received
from the U.S. Borrower on or after such date and prior to such
purchase) its Participation Interest in the outstanding U.S. LOC
Obligations; provided, further, that in the event any U.S. Lender shall
fail to fund its Participation Interest on the day the Mandatory
Borrowing would otherwise have occurred, then the amount of such U.S.
Lender's unfunded Participation Interest therein shall bear interest
payable to the Issuing Lender upon demand, at the rate equal to, if
paid within two Business Days of such date, the Federal Funds Rate, and
thereafter at a rate equal to the Base Rate.
(f) Designation of Subsidiaries as Account Parties.
Notwithstanding anything to the contrary set forth in this Agreement, a
U.S. Letter of Credit issued hereunder may contain a statement to the
effect that such U.S. Letter of Credit is issued for the account of a
Subsidiary of the U.S. Borrower; provided that notwithstanding such
statement, the U.S. Borrower shall be the actual account party for all
purposes of this Agreement for such Letter of Credit and such statement
shall not affect the U.S. Borrower's reimbursement obligations
hereunder with respect to such Letter of Credit.
(g) Modification and Extension. The issuance of any
supplement, modification, amendment, renewal, or extensions to any
Letter of Credit shall, for purposes hereof, be treated in all respects
the same as the issuance of a new Letter of Credit hereunder.
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(h) Uniform Customs and Practices. The Issuing Lender may have
the Letters of Credit be subject to The Uniform Customs and Practice
for Documentary Credits, as published as of the date of issue by the
International Chamber of Commerce (Publication No. 500 or the most
recent publication, the "UCP"), in which case the UCP may be
incorporated therein and deemed in all respects to be a part thereof.
(i) Responsibility of Issuing Lender. It is expressly
understood and agreed that the obligations of the Issuing Lender
hereunder to the U.S. Lenders are only those expressly set forth in
this Agreement and that the Issuing Lender shall be entitled to assume
that the conditions precedent set forth in Section 5.2 have been
satisfied unless it shall have acquired actual knowledge that any such
condition precedent has not been satisfied; provided, however, that
nothing set forth in this Section 2.2 shall be deemed to prejudice the
right of any U.S. Lender to recover from the Issuing Lender any amounts
made available by such U.S. Lender to the Issuing Lender pursuant to
this Section 2.2 in the event that it is determined by a court of
competent jurisdiction that the payment with respect to a Letter of
Credit constituted gross negligence or willful misconduct on the part
of the Issuing Lender.
(j) Conflict with LOC Documents. In the event of any conflict
between this Agreement and any LOC Document, this Agreement shall
govern.
(k) Indemnification of Issuing Lender.
(i) In addition to its other obligations under
this Agreement, the U.S. Borrower hereby agrees to protect,
indemnify, pay and save the Issuing Lender harmless from and
against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable
attorneys' fees) that the Issuing Lender may incur or be
subject to as a consequence, direct or indirect, of (A) the
issuance of any U.S. Letter of Credit or (B) the failure of
the Issuing Lender to honor a drawing under a U.S. Letter of
Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or
omissions, herein called "Government Acts").
(ii) As between the U.S. Borrower and the
Issuing Lender, the U.S. Borrower shall assume all risks of
the acts, omissions or misuse of any U.S. Letter of Credit by
the beneficiary thereof. The Issuing Lender shall not be
responsible for: (A) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for
and issuance of any U.S. Letter of Credit, even if it should
in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) the
validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any U.S. Letter
of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, that may prove to be invalid or
ineffective for
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any reason; (C) failure of the beneficiary of a U.S. Letter of
Credit to comply fully with conditions required in order to
draw upon a U.S. Letter of Credit; (D) errors, omissions,
interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (E) errors in interpretation
of technical terms; (F) any loss or delay in the transmission
or otherwise of any document required in order to make a
drawing under a U.S. Letter of Credit or of the proceeds
thereof; and (G) any consequences arising from causes beyond
the control of the Issuing Lender, including, without
limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of the Issuing Lender's
rights or powers hereunder.
(iii) In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth,
any action taken or omitted by the Issuing Lender, under or in
connection with any U.S. Letter of Credit or the related
certificates, if taken or omitted in good faith, shall not put
the Issuing Lender under any resulting liability to the U.S.
Borrower or any other member of the Consolidated Shorewood
Group. It is the intention of the parties that this Agreement
shall be construed and applied to protect and indemnify the
Issuing Lender against any and all risks involved in the
issuance of the U.S. Letters of Credit, all of which risks are
hereby assumed by the Borrower, including, without limitation,
any and all risks of the acts or omissions, whether rightful
or wrongful, of any present or future Government Acts. The
Issuing Lender shall not, in any way, be liable for any
failure by the Issuing Lender or anyone else to pay any
drawing under any U.S. Letter of Credit as a result of any
Government Acts or any other cause beyond the control of the
Issuing Lender.
(iv) Nothing in this subsection (k) is intended
to limit the reimbursement obligation of the U.S. Borrower
contained in this Section 2.2. The obligations of the U.S.
Borrower under this subsection (k) shall survive the
termination of this Agreement. No act or omission of any
current or prior beneficiary of a U.S. Letter of Credit shall
in any way affect or impair the rights of the Issuing Lender
to enforce any right, power or benefit under this Agreement.
(v) Notwithstanding anything to the contrary
contained in this subsection (k), the U.S. Borrower shall have
no obligation to indemnify the Issuing Lender in respect of
any liability incurred by the Issuing Lender arising solely
out of the gross negligence or willful misconduct of the
Issuing Lender, as determined by a court of competent
jurisdiction. Nothing in this Agreement shall relieve the
Issuing Lender of any liability to the U.S. Borrower in
respect of any action taken by the Issuing Lender which action
constitutes gross negligence or willful misconduct of the
Issuing Lender or a violation of the UCP or Uniform Commercial
Code (as applicable), as determined by a court of competent
jurisdiction.
2.3 SWING LINE LOAN SUBFACILITY.
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(a) Swing Line Loan Commitment. Subject to the terms and
conditions set forth herein, NationsBank agrees to make revolving loans
to the U.S. Borrower in U.S. dollars from time to time from the
Effective Date to the Revolving Loans Maturity Date (each such loan, a
"Swing Line Loan" and collectively, the "Swing Line Loans"); provided
that (i) the aggregate amount of the Swing Line Loans outstanding at
any one time shall not exceed the Swing Line Loan Commitment, (ii) the
sum of the aggregate amount of Swing Line Loans outstanding plus the
amount of U.S. Revolving Loans outstanding plus the U.S. LOC
Obligations outstanding at any one time may not exceed the U.S.
Revolving Loan Commitment and (iii) the aggregate amount of Swing Line
Loans outstanding plus U.S. Revolving Loans outstanding plus Canadian
Revolving Loans outstanding plus LOC Obligations outstanding plus BA
Revolving Obligations may not exceed $225,000,000 (U.S.). The Swing
Line Loan Commitment may be reduced or terminated by NationsBank, in
its sole discretion, upon two Business Days' notice to the U.S.
Borrower. Prior to the Revolving Loans Maturity Date, Swing Line Loans
may be repaid and reborrowed by the U.S. Borrower in accordance with
the provisions hereof. Upon the request of any U.S. Lender, NationsBank
shall provide such U.S. Lender a schedule of Swing Line Loans then
outstanding.
(b) Method of Borrowing Swing Line Loans. By no later than
10:00 a.m., Charlotte, North Carolina time, on the date of the
requested borrowing of Swing Line Loans, the U.S. Borrower shall submit
an Advance Request to NationsBank in the form of Exhibit 2.3(b) setting
forth (i) the amount of the requested Swing Line Loan and (ii) the date
of the requested Swing Line Loan.
(c) Payment and Participations of Swing Line Loans. The U.S.
Borrower agrees to repay all Swing Line Loans then outstanding within
one Business Day of demand therefor by NationsBank, which may be
accomplished by requesting a U.S. Revolving Loan. In the event that the
U.S. Borrower shall fail to repay any Swing Line Loan within three
Business Days after demand therefor by NationsBank, and in any event
upon (i) a request by NationsBank, (ii) the occurrence of an Event of
Default described in Section 9.1(f) or (iii) the acceleration of any
Loan or termination of any Commitment pursuant to Section 9.2, each
other U.S. Lender shall irrevocably and unconditionally purchase from
NationsBank, without recourse or warranty, an undivided interest and
participation in such Swing Line Loan in an amount equal to such other
U.S. Lender's U.S. Revolving Loan Commitment Percentage thereof, by
directly purchasing a participation in such Swing Line Loan in such
amount (regardless of whether the conditions precedent thereto set
forth in Section 5.2 are then satisfied, whether or not the U.S.
Borrower has made an Advance Request and whether or not the Revolving
Loan Commitments are then in effect, any Event of Default exists or all
the Loans have been accelerated) and paying the proceeds thereof to
NationsBank at the address provided in Section 11.1, or at such other
address as NationsBank may designate, in lawful money of the United
States of America and in immediately available funds. NationsBank
agrees to notify each U.S. Lender that is obligated to purchase a
participation in Swing Line Loans hereunder of the occurrence of any
event described in clause (ii) or (iii) above promptly after
NationsBank becomes aware thereof, but the failure to give such notice
will not affect the obligation of any such U.S.
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Lender to purchase any such participation. If such amount is not in
fact made available to NationsBank by any U.S. Lender, NationsBank
shall be entitled to recover such amount on demand from such U.S.
Lender, together with accrued interest thereon for each day from the
date of demand thereof, at the Federal Funds Rate. If such U.S. Lender
does not pay such amount forthwith upon NationsBank's demand therefor,
and until such time as such U.S. Lender makes the required payment,
NationsBank shall be deemed to continue to have outstanding Swing Line
Loans in the amount of such unpaid participation obligation for all
purposes of the Loan Documents other than those provisions requiring
the other U.S. Lenders to purchase a participation therein. Further,
such U.S. Lender shall be deemed to have assigned any and all payments
made of principal and interest on its Loans, amounts due with respect
to its Letters of Credit (or its Participation Interests therein) and
any other amounts due to it hereunder to NationsBank to fund Swing Line
Loans in the amount of the participation in Swing Line Loans that such
U.S. Lender failed to purchase pursuant to this Section 2.3(c) until
such amount has been purchased (as a result of such assignment or
otherwise). Upon the purchase of a Participation Interest in respect of
such Swing Line Loan by a U.S. Lender pursuant to this Section 2.3(c),
the amount so funded shall become a U.S. Revolving Loan by the
purchasing U.S. Lender hereunder and shall no longer be a Swing Line
Loan. On the date that the U.S. Lenders are required to purchase
participations in Swing Line Loans under this Section 2.3(c),
NationsBank's pro rata share of such Swing Line Loans shall no longer
be a Swing Line Loan hereunder but shall be a U.S. Revolving Loan.
(d) Swing Line Note. The Swing Line Loans made by NationsBank
shall be evidenced by a duly executed promissory note of the U.S.
Borrower to NationsBank in the face amount of the Swing Line Committed
Amount and in substantially the form of Exhibit 2.3.
2.4 THE CANADIAN REVOLVING LOANS.
(a) Canadian Revolving Loan Commitment. Subject to the terms
and conditions set forth herein, each Canadian Lender agrees, severally
and not jointly, at any time and from time to time from the Effective
Date to the Revolving Loans Maturity Date, to make revolving loans
(each a "Canadian Revolving Loan" and collectively, the "Canadian
Revolving Loans") to the Canadian Borrower in Canadian dollars or U.S.
Dollars and to the U.S. Borrower in U.S. dollars; provided, however,
that (i) the aggregate amount of Canadian Revolving Loans outstanding
plus BA Revolving Obligations outstanding plus Canadian LOC Obligations
outstanding at any one time may not exceed the Canadian Revolving Loan
Commitment; (ii) the aggregate amount of U.S. Revolving Loans
outstanding plus Canadian Revolving Loans outstanding plus LOC
Obligations outstanding plus BA Revolving Obligations outstanding plus
Swing Line Loans outstanding may not exceed $225,000,000 (U.S.); and
(iii) with regard to each individual Canadian Lender, the Canadian
Lender's pro rata share of Canadian Revolving Loans outstanding plus BA
Revolving Obligations outstanding plus Canadian LOC Obligations
outstanding shall not exceed such Canadian Lender's Canadian Revolving
Loan Commitment Percentage of the Canadian Revolving Loan Commitment.
Canadian Revolving Loans shall consist of
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Canadian Base Rate Revolving Loans or Eurodollar Revolving Loans as the
Borrowers may request and the Borrowers may borrow, repay and reborrow
in accordance with the terms hereof. All Canadian Revolving Loans
advanced on the Effective Date shall be Canadian Base Rate Revolving
Loans and may thereafter be converted to Eurodollar Revolving Loans or
Bankers' Acceptances in accordance with Section 4.1.
(b) Method of Borrowing for Canadian Revolving Loans.
(i) Canadian Base Rate Revolving Loans. By no later than
10:00 a.m., Toronto, Ontario time, on the date of the request,
the Canadian Borrower or the U.S. Borrower shall submit an
Advance Request to the Canadian Administrative Agent setting
forth the amount requested, the desire to have such Revolving
Loan accrue interest at either (A) for the Canadian Borrower
at the Canadian Prime Rate or (B) for the U.S. Borrower at the
BNS U.S. Prime Rate and complying in all respects with Section
5.2.
(ii) Eurodollar Revolving Loans. By no later than 10:00
a.m., Toronto, Ontario time, three Business Days prior to the
date of the requested Eurodollar Revolving Loan, the U.S.
Borrower shall submit an Advance Request to the Canadian
Administrative Agent setting forth the amount thereof, the
desire to have such Revolving Loan accrue interest at the
Adjusted Eurodollar Rate, the Interest Period applicable
thereto and complying in all respects with Section 5.2.
2.5 BANKERS' ACCEPTANCES.
(a) Issuance. Subject to the terms and conditions hereof and
of the BA Documents, if any, executed in connection with the creation
of each Banker's Acceptance and any other terms and conditions which
the Canadian Lenders may reasonably require, (so long as such terms and
conditions do not impose any financial obligation on or require any
Lien (not otherwise contemplated by this Agreement) to be given by any
member of the Consolidated Shorewood Group or conflict with any
obligation of, or detract from any action which may be taken by, either
Borrower or their Subsidiaries under this Agreement) each Canadian
Lender agrees, severally and not jointly, at any time and from time to
time from the Effective Date to the Revolving Loans Maturity Date, to
create Bankers' Acceptances by accepting drafts of the Canadian
Borrower presented to it for acceptance equal to such Canadian Lender's
Canadian Revolving Loan Commitment Percentage of such Bankers'
Acceptances as the Canadian Borrower may request on such date;
provided, however, that (i) the aggregate amount of Canadian Revolving
Loans outstanding plus BA Revolving Obligations outstanding plus
Canadian LOC Obligations outstanding may not exceed the Canadian
Revolving Loan Commitment and (ii) the sum of U.S. Revolving Loans
outstanding plus Canadian Revolving Loans outstanding plus LOC
Obligations outstanding plus BA Revolving Obligations outstanding plus
Swing Line Loans outstanding shall not at any time exceed $225,000,000
(U.S.). Upon the acceptance of any draft of the Canadian Borrower
pursuant hereto, the Canadian Borrower shall pay to each of the
Canadian Lenders, in advance, the Acceptance Fee. Forthwith after each
request for
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drawdown of, continuation of or conversion into Bankers' Acceptances,
the Canadian Administrative Agent shall notify each Canadian Lender of
the amount and denomination Bankers' Acceptances to be accepted by such
Canadian Lender. The Canadian Lenders may, but are not obligated to,
purchase any of the Bankers' Acceptances. The Canadian Borrower shall
as soon as practical deliver to the Canadian Administrative Agent a
notice confirming the issuance of Bankers' Acceptances and specifying
the net proceeds derived therefrom. For greater certainty, with respect
to each extension of credit by way of Bankers' Acceptance, each
Bankers' Acceptance shall have the same term and, upon sale, each
Bankers' Acceptance shall be discounted at the rate relating to the
Canadian Lender accepting the Bankers' Acceptance.
(b) Requirements of Bankers' Acceptances. Each Bankers'
Acceptance shall comply with the related BA Documents and shall be
executed by the Canadian Borrower and presented to the Canadian Lenders
pursuant to such procedures as are provided for in such BA Documents or
as otherwise provided or required by a Canadian Lender. The creation
and maturity date of each Bankers' Acceptance shall be a Business Day
and no Bankers' Acceptance shall have a maturity date later than the
Revolving Loans Maturity Date or Term Loans Maturity Date, as the case
may be.
(c) Method of Requesting a Bankers' Acceptance. By no later
than 10:00 a.m., Toronto, Ontario time, three Business Days prior to
the date of the requested Bankers' Acceptance, the Canadian Borrower
shall submit an Advance Request to the Canadian Administrative Agent
setting forth the aggregate amount of Bankers' Acceptances requested
and the maturity date of the requested Bankers' Acceptances which shall
be 30, 60, 90 or 180 days, at the election of the Canadian Borrower,
and complying in all respects with Section 5.2.
(d) Safekeeping of Drafts. The Canadian Lenders agree that, in
respect of the safekeeping of executed drafts of the Canadian Borrower
which are delivered to them for acceptance hereunder, they shall
exercise the same degree of care which the Canadian Lenders give to
their own property, provided that the Canadian Lenders shall not be
deemed to be insurers thereof.
(e) Maturity/Continuations. The Canadian Borrower shall pay to
the Canadian Administrative Agent, and there shall become due and
payable, at 1:00 p.m. (Toronto, Ontario time) on the maturity date for
each Bankers' Acceptance an amount in Canadian Dollars in same day
funds equal to the Face Amount of such Bankers' Acceptance
(notwithstanding that any Canadian Lender which accepted any such
Bankers' Acceptance may be the holder thereof at maturity); provided,
however, that subject to Section 4.10(b) and provided that the Canadian
Borrower has, by giving notice in accordance with Section 2.5(c) or
4.1, requested the Canadian Lenders to accept its drafts to replace all
or a portion of outstanding Bankers' Acceptances as they mature, each
Canadian Lender shall, on the maturity of such Bankers' Acceptances and
concurrent with the payment by the Canadian Borrower to the Canadian
Lenders of the Face Amount of such Bankers' Acceptances or the portion
thereof to be replaced, accept the Canadian Borrower's draft or drafts
having an
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aggregate Face Amount equal to its pro rata share of the aggregate Face
Amount of the matured Bankers' Acceptances or the portion thereof to be
replaced.
(f) Repayments Prior to Maturity. Except as required by
Section 4.4(b), no repayment of a Bankers' Acceptance shall be made by
the Canadian Borrower to the Canadian Lenders prior to the maturity
date thereof. Any such repayment required by Section 4.4(b) shall be
made to the Canadian Administrative Agent and such monies shall be held
by the Canadian Administrative Agent, in a cash collateral account
hypothecated to the Canadian Administrative Agent, to be paid to the
Canadian Lenders on the maturity date of the Bankers' Acceptances which
have been accepted by it. The Canadian Borrower shall be entitled to
the benefit of any interest accruing thereon, in each case, on the
respective maturity date of each Bankers' Acceptance in respect of
which repayment is made, and upon the maturity of each such Bankers'
Acceptance the Canadian Lenders shall apply the interest thereon in
payment of amounts owed by the Canadian Borrower hereunder. Any such
payment by the Canadian Borrower to the Canadian Lenders shall satisfy
the Canadian Borrower's obligations under the Bankers' Acceptance to
which it relates and the Canadian Lender which has accepted such
Bankers' Acceptance shall thereafter be solely responsible for the
payment of such Bankers' Acceptance.
2.6 MINIMUM AMOUNTS.
Each Revolving Loan shall be (a) in the case of Eurodollar Revolving
Loans, in a minimum aggregate principal amount of the lesser of $3,000,000 or
the remaining amount available to be borrowed with respect to the U.S. Revolving
Loans or the Canadian Revolving Loans, as applicable, and (b) in the case of
Base Rate Revolving Loans, in a minimum aggregate principal amount of the lesser
of $1,000,000 or the remaining amount available to be borrowed with respect to
the U.S. Revolving Loans or the Canadian Revolving Loans, as applicable. Any
Revolving Loan requested shall be in an integral multiple of $1,000,000 unless
the request is for all of the remaining amount available to be borrowed. Each
Bankers' Acceptance shall be in a minimum aggregate amount of Cnd. $1,000,000
and in integral multiples of Cnd. $1,000,000 above such amount. Each Swing Line
Loan shall be in a minimum aggregate principal amount of $100,000 and in
integral multiples of $25,000 above such amount.
2.7 FUNDING OF ADVANCES TO BORROWERS.
(a) U.S. Revolving Loans. Upon receipt of an Advance Request
requesting U.S. Revolving Loans, the Administrative Agent shall
promptly inform the U.S. Lenders as to the terms thereof. Each U.S.
Lender will make its pro rata share of each U.S. Revolving Loan
available to the Administrative Agent by 1:00 p.m., Charlotte, North
Carolina time, on the date specified in the Advance Request by deposit
(in U.S. dollars) of immediately available funds at the offices of the
Administrative Agent at the address provided in Section 11.1, or at
such other address as the Administrative Agent may designate in
writing. All U.S. Revolving Loans shall be made by the U.S. Lenders pro
rata on the basis of each U.S. Lender's U.S. Revolving Loan Commitment
Percentage. The amount of the U.S. Revolving Loans will then be made
available to the U.S. Borrower by the Administrative
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Agent by crediting the account of the U.S. Borrower on the books of
such office of the Administrative Agent to the extent of the amount of
such U.S. Revolving Loans are made available to the Administrative
Agent.
(b) Canadian Revolving Loans. Upon receipt of an Advance
Request requesting Canadian Revolving Loans, the Canadian
Administrative Agent shall promptly inform the Canadian Lenders of the
receipt thereof. Each Canadian Lender will make its pro rata share of
each Canadian Revolving Loan available to the Canadian Administrative
Agent by 1:00 p.m., Toronto, Ontario time, on the date specified in the
Advance Request by deposit (in Canadian dollars or U.S. dollars, as
appropriate, if the request was made by the Canadian Borrower and in
U.S. dollars if the request was made by the U.S. Borrower) of
immediately available funds at the offices of the Canadian
Administrative Agent at the address provided in Section 11.1. All
Canadian Revolving Loans shall be made by the Canadian Lenders pro rata
on the basis of each Canadian Lender's Canadian Revolving Loan
Commitment Percentage. The amount of the Canadian Revolving Loans will
then be made available to the Canadian Borrower or the U.S. Borrower,
as applicable, by the Canadian Administrative Agent by crediting the
account of the Canadian Borrower or the U.S. Borrower, as applicable,
on the books of such office of the Canadian Administrative Agent to the
extent of the amount of such Canadian Revolving Loans are made
available to the Canadian Administrative Agent.
(c) Bankers' Acceptances.
(i) Subject to subsection (ii) below, each Canadian
Lender shall, not later than 1:00 p.m., Toronto, Ontario time,
on the date of creation of the Bankers' Acceptances, accept
drafts of the Canadian Borrower which are presented to it for
acceptance in an amount equal to each Canadian Lender's
Canadian Revolving Loan Commitment Percentage of the aggregate
amount of Bankers' Acceptances created on such date. Subject
to the provisions hereof, the Canadian Administrative Agent
shall be responsible for making all necessary arrangements
with each of the Canadian Lenders with respect to the stamping
of Bankers' Acceptances.
(ii) Subject to Section 4.10, in the sole judgment of a
Canadian Lender, if such Canadian Lender is unable to create a
Bankers' Acceptance in accordance with this Agreement, such
Canadian Lender shall give an irrevocable notice to such
effect to the Canadian Administrative Agent and the Canadian
Borrower prior to 10:00 a.m., Toronto, Ontario time, on the
date of the requested creation of the Bankers' Acceptances. If
the Bankers' Acceptance was requested in connection with the
Canadian Revolving Loan Commitment, such Canadian Lender shall
make available to the Canadian Borrower prior to 1:00 p.m.,
Toronto, Ontario time, on the date of such requested Bankers'
Acceptance a Canadian dollar loan in a principal amount equal
to such Canadian Lender's pro rata share of the aggregate
amount of Bankers' Acceptance to be created on such date, such
loan to be funded in the same manner as the Bankers'
Acceptances provided by the other Canadian Lenders. Such loan
shall have the same term as the Bankers' Acceptance for which
it is a substitute
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and shall bear such interest per annum throughout the term
thereof as shall permit such Canadian Lender to obtain the
same effective rate as if such Canadian Lender had accepted
and purchased a Bankers' Acceptance at the same acceptance fee
and pricing in which the Canadian Administrative Agent would
have accepted and purchased on the bid side of the market,
such Bankers' Acceptance at approximately 1:00 p.m., Toronto,
Ontario time, on the date such loan is made. The Canadian
Borrower hereby agrees that if such loan is made by a Canadian
Lender interest shall be payable in advance on the date of
such loan by deducting the interest payable in respect thereof
from the principal amount of such loan.
(d) Swing Line Loans. Upon receipt of an Advance Request
requesting a Swing Line Loan, NationsBank shall fund such amount to the
U.S. Borrower by 2:00 p.m., Charlotte, North Carolina time, on the date
specified in the Advance Request by crediting the account of the U.S.
Borrower on the books of NationsBank.
The Canadian Administrative Agent shall promptly inform the
Administrative Agent and the Administrative Agent shall promptly inform the
Canadian Administrative Agent, by telecopy, of the funding of any Revolving Loan
or the creation of Bankers' Acceptances and the terms thereof. No Lender shall
be responsible for the failure or delay by any other Lender in its obligation to
make Revolving Loans or create Bankers' Acceptances hereunder; provided,
however, that the failure of any Lender to fulfill its Commitment hereunder
shall not relieve any other Lender of its Commitment hereunder. Unless the
Administrative Agent or the Canadian Administrative Agent, as the case may be,
shall have been notified by any Lender prior to the date of any Revolving Loan
advance that such Lender does not intend to make available to the Administrative
Agent or the Canadian Administrative Agent, as the case may be, its portion of
the Revolving Loan advance to be made on such date, the Administrative Agent or
the Canadian Administrative Agent, as the case may be, may assume that such
Lender has made such amount available to the Administrative Agent or the
Canadian Administrative Agent, as the case may be, on the date of such Revolving
Loan advance, and the Administrative Agent or the Canadian Administrative Agent,
as the case may be, in reliance upon such assumption, may (in its sole
discretion without any obligation to do so) make available to a Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to the Administrative Agent or the Canadian Administrative Agent, as the case
may be, the Administrative Agent or the Canadian Administrative Agent, as the
case may be, shall be entitled to recover such corresponding amount from such
Lender. If such Lender does not pay such corresponding amount forthwith upon the
Administrative Agent's or, as the case may be, the Canadian Administrative
Agent's demand therefor, the Administrative Agent or the Canadian Administrative
Agent, as the case may be, will promptly notify the applicable Borrower and such
Borrower shall immediately pay such corresponding amount to the Administrative
Agent or the Canadian Administrative Agent, as the case may be. The
Administrative Agent or the Canadian Administrative Agent, as the case may be,
shall also be entitled to recover from such Lender or such Borrower, as the case
may be, interest on such corresponding amount in respect of each day from the
date such corresponding amount was made available by the Administrative Agent or
the Canadian Administrative Agent, as the case may be, to such Borrower to the
date such corresponding amount is recovered by the Administrative
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Agent or the Canadian Administrative Agent, as the case may be, at a per annum
rate equal to the Federal Funds Rate.
2.8 TERM.
The obligation of the Lenders to make Revolving Loans or create
Bankers' Acceptances shall expire at the Administrative Agent's close of
business in Charlotte, North Carolina on the Revolving Loans Maturity Date or
such earlier date if the Commitments are terminated pursuant to Section 9.2. On
the Revolving Loans Maturity Date, the entire outstanding principal balance of
all amounts outstanding under the U.S. Revolving Loan Commitment and the
Canadian Revolving Loan Commitment, together with accrued but unpaid interest
and all other sums owing under this Agreement, shall be due and payable in full,
unless accelerated sooner pursuant to Section 9.2.
2.9 REVOLVING NOTES.
The Revolving Loans made by each Lender shall be evidenced by a duly
executed promissory note of the applicable Borrower, dated as of the Closing
Date, in an original principal amount equal to such Lender's U.S. Revolving Loan
Commitment or Canadian Revolving Loan Commitment, as applicable, and
substantially in the form of Exhibit 2.9.
2.10 REDUCTION OF REVOLVING LOAN COMMITMENTS.
Upon at least three Business Days' notice, (a) the Borrowers may, from
time to time, permanently reduce the Canadian Revolving Loan Commitment in whole
or in part; provided that, (i) such reduction must be in a minimum amount of
$5,000,000 and in integral multiples of $1,000,000 above such amount and (ii) no
reduction shall be made which would reduce the Canadian Revolving Loan
Commitment to an amount less than the sum of Canadian Revolving Loans then
outstanding plus BA Revolving Obligations then outstanding plus Canadian LOC
Obligations outstanding; and (b) the U.S. Borrower may from time to time
permanently reduce the U.S. Revolving Loan Commitment in whole or in part;
provided that, (i) such reduction must be in a minimum amount of $5,000,000 and
in integral multiples of $1,000,000 above such amount and (ii) no reduction
shall be made which would reduce the U.S. Revolving Loan Commitment to an amount
less than the sum of U.S. Revolving Loans then outstanding plus U.S. LOC
Obligations then outstanding plus Swing Line Loans then outstanding.
Notwithstanding anything above to the contrary, any permanent reduction of the
Revolving Loan Commitments must be done on a basis such that both the Canadian
Revolving Loan Commitment and the U.S. Revolving Loan Commitment reduce
simultaneously on a pro rata basis.
2.11 CANADIAN LETTER OF CREDIT SUBFACILITY.
(a) Issuance. Subject to the terms and conditions hereof and
of the LOC Documents, if any, and any other terms and conditions which
the Issuing Lender may reasonably require (so long as such terms and
conditions do not impose any financial obligation on or require any
Lien (not otherwise contemplated by this Agreement) to be given by any
member of the Consolidated Shorewood Group or conflict with any
obligation
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of, or detract from any action which may be taken by, the Canadian
Borrower or its Subsidiaries under this Agreement), the Issuing Lender
shall from time to time upon request issue, in U.S. dollars or Canadian
dollars, and the Canadian Lenders shall participate in, letters of
credit (the "Canadian Letters of Credit") for the account of the
Canadian Borrower or any of its Subsidiaries, from the Effective Date
until the Revolving Loans Maturity Date, in a form reasonably
acceptable to the Issuing Lender; provided, however, that (i) the
aggregate amount of Canadian LOC Obligations shall not at any time
exceed $5,000,000 (U.S.), (ii) the sum of the aggregate amount of
Canadian Revolving Loans outstanding plus BA Revolving Obligations
outstanding plus Canadian LOC Obligations outstanding shall not exceed
the Canadian Revolving Loan Commitment, (iii) with respect to each
individual Canadian Lender, the Canadian Lender's pro rata share of
outstanding Canadian Revolving Loans plus its pro rata share of
outstanding Canadian LOC Obligations plus its pro rata share of BA
Revolving Obligations, if any, shall not exceed such Canadian Lender's
Revolving Loan Commitment Percentage of the Canadian Revolving Loan
Commitment and (iv) the sum of U.S. Revolving Loans outstanding plus
Canadian Revolving Loans outstanding plus Swing Line Loans outstanding
plus LOC Obligations outstanding plus BA Revolving Obligations
outstanding shall not exceed $225,000,000 (U.S.). The issuance and
expiry date of each Canadian Letter of Credit shall be a Business Day.
Except as otherwise expressly agreed upon by all the Canadian Lenders,
no Canadian Letter of Credit shall have an original expiry date more
than one year from the date of issuance, or as extended, shall have an
expiry date extending beyond the Revolving Loans Maturity Date. Each
Canadian Letter of Credit shall be either (x) a standby letter of
credit issued to support the obligations (including pension or
insurance obligations), contingent or otherwise, of the Canadian
Borrower or any of its Subsidiaries, or (y) a commercial letter of
credit in respect of the purchase of goods or services by the Canadian
Borrower or any of its Subsidiaries in the ordinary course of business.
Each Canadian Letter of Credit shall comply with the related LOC
Documents.
(b) Notice and Reports. The request for the issuance of a
Canadian Letter of Credit shall be submitted to the Issuing Lender at
least three Business Days prior to the requested date of issuance. The
Issuing Lender will, at least quarterly and more frequently upon
request, provide to the Administrative Agent for dissemination to the
Lenders a detailed report specifying the Letters of Credit which are
then issued and outstanding and any activity with respect thereto which
may have occurred since the date of the prior report, and including
therein, among other things, the account party, the beneficiary, the
face amount, and the expiry date as well as any payments or expirations
which may have occurred. The Issuing Lender will further provide to the
Administrative Agent, promptly upon request, copies of the Letters of
Credit.
(c) Participations.
(i) On the Effective Date, each Canadian
Lender shall automatically acquire a participation in the
liability of the Issuing Lender under each Existing Canadian
Letter of Credit in an amount equal to its Canadian Revolving
Loan Commitment Percentage of such Existing Canadian Letters
of Credit. Each
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Existing Canadian Letter of Credit shall be deemed for all
purposes of this Agreement and the other Loan Documents to be
a Canadian Letter of Credit.
(ii) Each Canadian Lender, upon issuance of a
Canadian Letter of Credit, shall be deemed to have purchased
without recourse a risk participation from the Issuing Lender
in such Canadian Letter of Credit and the obligations arising
thereunder and any collateral relating thereto, in each case
in an amount equal to its Canadian Revolving Loan Commitment
Percentage of the obligations under such Canadian Letter of
Credit, and shall absolutely, unconditionally and irrevocably
assume, as primary obligor and not as surety, and be obligated
to pay to the Issuing Lender therefor and discharge when due,
its Canadian Revolving Loan Commitment Percentage of the
obligations arising under such Canadian Letter of Credit.
Without limiting the scope and nature of each Canadian
Lender's participation in any Canadian Letter of Credit, to
the extent that the Issuing Lender has not been reimbursed as
required hereunder or under any such Canadian Letter of
Credit, each such Canadian Lender shall pay to the Issuing
Lender its Canadian Revolving Loan Commitment Percentage of
such unreimbursed drawing in same day funds on the day of
notification by the Issuing Lender of an unreimbursed drawing
pursuant to the provisions of subsection (d) hereof. The
obligation of each Canadian Lender to so reimburse the Issuing
Lender shall be absolute and unconditional and shall not be
affected by the occurrence of a Default, an Event of Default
or any other occurrence or event. Any such reimbursement shall
not relieve or otherwise impair the obligation of the Canadian
Borrower or any other member of the Consolidated Shorewood
Group to reimburse the Issuing Lender under any Canadian
Letter of Credit, together with interest as hereinafter
provided.
(d) Reimbursement. In the event of any drawing under any
Canadian Letter of Credit, the Issuing Lender will promptly notify the
Canadian Borrower. Unless the Canadian Borrower shall immediately
notify the Issuing Lender of its intent to otherwise reimburse the
Issuing Lender, the Canadian Borrower shall be deemed to have requested
a Canadian Revolving Loan at the Canadian Prime Rate or the BNS U.S.
Prime Rate, as appropriate, in the amount of the drawing as provided in
subsection (e) hereof, the proceeds of which will be used to satisfy
the reimbursement obligations. The Canadian Borrower shall reimburse
the Issuing Lender on the day of drawing under any Canadian Letter of
Credit either with the proceeds of a Canadian Revolving Loan obtained
hereunder or otherwise in same day funds as provided herein or in the
LOC Documents. If the Canadian Borrower shall fail to reimburse the
Issuing Lender as provided hereinabove, the unreimbursed amount of such
drawing shall bear interest at a per annum rate equal to the Canadian
Prime Rate or the BNS U.S. Prime Rate, as appropriate, plus two percent
(2%). Subject to Section 2.11(k)(v), the Borrower's reimbursement
obligations hereunder shall be absolute and unconditional under all
circumstances irrespective of (but without waiver of) any rights of
set-off, counterclaim or defense to payment the applicable account
party or the Canadian Borrower may claim or have against the Issuing
Lender, the Administrative Agent, the Canadian Lenders, the beneficiary
of the Letter of Credit drawn upon or any other Person, including
without limitation, any defense based on any failure of the
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applicable account party, the Canadian Borrower or any other member of
the Consolidated Shorewood Group to receive consideration or the
legality, validity, regularity or unenforceability of the Letter of
Credit. The Issuing Lender will promptly notify the Canadian Lenders of
the amount of any unreimbursed drawing and each Canadian Lender shall
promptly pay to the Administrative Agent for the account of the Issuing
Lender, in immediately available funds, the amount of such Canadian
Lender's Revolving Loan Commitment Percentage of such unreimbursed
drawing. Such payment shall be made on the day such notice is received
by such Canadian Lender from the Issuing Lender if such notice is
received at or before 2:00 p.m., otherwise such payment shall be made
at or before 12:00 Noon on the Business Day next succeeding the day
such notice is received. If such Canadian Lender does not pay such
amount to the Issuing Lender in full upon such request, such Canadian
Lender shall, on demand, pay to the Administrative Agent for the
account of the Issuing Lender interest on the unpaid amount during the
period from the date the Canadian Lender received the notice regarding
the unreimbursed drawing until such Canadian Lender pays such amount to
the Issuing Lender in full at a rate per annum equal to, if paid within
two Business Days of the date of drawing, the Federal Funds Rate and
thereafter at a rate equal to the Canadian Prime Rate or the BNS U.S.
Prime Rate, as appropriate. Each Canadian Lender's obligation to make
such payment to the Issuing Lender, and the right of the Issuing Lender
to receive the same, shall be absolute and unconditional, shall not be
affected by any circumstance whatsoever and without regard to the
termination of this Agreement or the Commitments hereunder, the
existence of a Default or Event of Default or the acceleration of the
obligations hereunder and shall be made without any offset, abatement,
withholding or reduction whatsoever. Simultaneously with the making of
each such payment by a Canadian Lender to the Issuing Lender, such
Canadian Lender shall, automatically and without any further action on
the part of the Issuing Lender or such Canadian Lender, acquire a
participation in an amount equal to such payment (excluding the portion
of such payment constituting interest owing to the Issuing Lender) in
the related unreimbursed drawing portion of the LOC Obligation and in
the interest thereon and in the related LOC Documents, and shall have a
claim against the Canadian Borrower and the other members of the
Consolidated Shorewood Group with respect thereto.
(e) Repayment with Revolving Loans. On any day on which the
Canadian Borrower shall have requested, or been deemed to have
requested, a Canadian Revolving Loan borrowing to reimburse a drawing
under a Canadian Letter of Credit, the Administrative Agent shall give
notice to the Canadian Lenders that a Canadian Revolving Loan has been
requested or deemed requested in connection with a drawing under a
Canadian Letter of Credit, in which case a Canadian Revolving Loan
borrowing comprised solely of Base Rate Loans (each such borrowing, a
"Mandatory Borrowing") shall be immediately made from all Canadian
Lenders (without giving effect to any termination of the Commitments
pursuant to Section 9.2) pro rata based on each Canadian Lender's
respective Canadian Revolving Loan Commitment Percentage and the
proceeds thereof shall be paid directly to the Issuing Lender for
application to the respective LOC Obligations. Each such Canadian
Lender hereby irrevocably agrees to make such Canadian Revolving Loans
immediately upon any such request or deemed request on account of each
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such Mandatory Borrowing in the amount and in the manner specified in
the preceding sentence and on the same such date notwithstanding (i)
the amount of Mandatory Borrowing may not comply with the minimum
amount for borrowings of Canadian Revolving Loans otherwise required
hereunder, (ii) whether any conditions specified in Section 5.2 are
then satisfied, (iii) whether a Default or Event of Default then
exists, (iv) failure of any such request or deemed request for Canadian
Revolving Loans to be made by the time otherwise required hereunder,
(v) the date of such Mandatory Borrowing, or (vi) any reduction in the
Canadian Revolving Loan Commitment or any termination of the
Commitments. In the event that any Mandatory Borrowing cannot for any
reason be made on the date otherwise required above (including, without
limitation, as a result of the commencement of a proceeding under the
Bankruptcy Code with respect to the Canadian Borrower or any other
member of the Consolidated Shorewood Group), then each such Canadian
Lender hereby agrees that it shall forthwith fund (as of the date the
Mandatory Borrowing would otherwise have occurred, but adjusted for any
payments received from the Canadian Borrower on or after such date and
prior to such purchase) its Participation Interest in the outstanding
Canadian LOC Obligations; provided, further, that in the event any
Canadian Lender shall fail to fund its Participation Interest on the
day the Mandatory Borrowing would otherwise have occurred, then the
amount of such Canadian Lender's unfunded Participation Interest
therein shall bear interest payable to the Issuing Lender upon demand,
at the rate equal to, if paid within two Business Days of such date,
the Federal Funds Rate, and thereafter at a rate equal to the Base
Rate.
(f) Designation of Subsidiaries as Account Parties.
Notwithstanding anything to the contrary set forth in this Agreement, a
Canadian Letter of Credit issued hereunder may contain a statement to
the effect that such Canadian Letter of Credit is issued for the
account of a Subsidiary of the Canadian Borrower; provided that
notwithstanding such statement, the Canadian Borrower shall be the
actual account party for all purposes of this Agreement for such Letter
of Credit and such statement shall not affect the Canadian Borrower's
reimbursement obligations hereunder with respect to such Letter of
Credit.
(g) Modification and Extension. The issuance of any
supplement, modification, amendment, renewal, or extensions to any
Letter of Credit shall, for purposes hereof, be treated in all respects
the same as the issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may have
the Letters of Credit be subject to The Uniform Customs and Practice
for Documentary Credits, as published as of the date of issue by the
International Chamber of Commerce (Publication No. 500 or the most
recent publication, the "UCP"), in which case the UCP may be
incorporated therein and deemed in all respects to be a part thereof.
(i) Responsibility of Issuing Lender. It is expressly
understood and agreed that the obligations of the Issuing Lender
hereunder to the Canadian Lenders are only those expressly set forth in
this Agreement and that the Issuing Lender shall be entitled to assume
that the conditions precedent set forth in Section 5.2 have been
satisfied unless it shall have acquired actual knowledge that any such
condition precedent has not been satisfied;
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provided, however, that nothing set forth in this Section 2.11 shall be
deemed to prejudice the right of any Canadian Lender to recover from
the Issuing Lender any amounts made available by such Canadian Lender
to the Issuing Lender pursuant to this Section 2.11 in the event that
it is determined by a court of competent jurisdiction that the payment
with respect to a Letter of Credit constituted gross negligence or
willful misconduct on the part of the Issuing Lender.
(j) Conflict with LOC Documents. In the event of any conflict
between this Agreement and any LOC Document, this Agreement shall
govern.
(k) Indemnification of Issuing Lender.
(i) In addition to its other obligations under
this Agreement, the Canadian Borrower hereby agrees to
protect, indemnify, pay and save the Issuing Lender harmless
from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that the Issuing Lender may incur
or be subject to as a consequence, direct or indirect, of (A)
the issuance of any Canadian Letter of Credit or (B) the
failure of the Issuing Lender to honor a drawing under a
Canadian Letter of Credit as a result of any Government Act.
(ii) As between the Canadian Borrower and the
Issuing Lender, the Canadian Borrower shall assume all risks
of the acts, omissions or misuse of any Canadian Letter of
Credit by the beneficiary thereof. The Issuing Lender shall
not be responsible for: (A) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for
and issuance of any Canadian Letter of Credit, even if it
should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) the
validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Canadian
Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, that may prove to be
invalid or ineffective for any reason; (C) failure of the
beneficiary of a Canadian Letter of Credit to comply fully
with conditions required in order to draw upon a Canadian
Letter of Credit; (D) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be
in cipher; (E) errors in interpretation of technical terms;
(F) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under a Canadian
Letter of Credit or of the proceeds thereof; and (G) any
consequences arising from causes beyond the control of the
Issuing Lender, including, without limitation, any Government
Acts. None of the above shall affect, impair, or prevent the
vesting of the Issuing Lender's rights or powers hereunder.
(iii) In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth,
any action taken or omitted by the Issuing
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Lender, under or in connection with any Canadian Letter of
Credit or the related certificates, if taken or omitted in
good faith, shall not put the Issuing Lender under any
resulting liability to the Canadian Borrower or any other
member of the Consolidated Shorewood Group. It is the
intention of the parties that this Agreement shall be
construed and applied to protect and indemnify the Issuing
Lender against any and all risks involved in the issuance of
the Canadian Letters of Credit, all of which risks are hereby
assumed by the Borrower, including, without limitation, any
and all risks of the acts or omissions, whether rightful or
wrongful, of any present or future Government Acts. The
Issuing Lender shall not, in any way, be liable for any
failure by the Issuing Lender or anyone else to pay any
drawing under any Canadian Letter of Credit as a result of any
Government Acts or any other cause beyond the control of the
Issuing Lender.
(iv) Nothing in this subsection (k) is intended
to limit the reimbursement obligation of the Canadian Borrower
contained in this Section 2.11. The obligations of the
Canadian Borrower under this subsection (k) shall survive the
termination of this Agreement. No act or omission of any
current or prior beneficiary of a Canadian Letter of Credit
shall in any way affect or impair the rights of the Issuing
Lender to enforce any right, power or benefit under this
Agreement.
(v) Notwithstanding anything to the contrary
contained in this subsection (k), the Canadian Borrower shall
have no obligation to indemnify the Issuing Lender in respect
of any liability incurred by the Issuing Lender arising solely
out of the gross negligence or willful misconduct of the
Issuing Lender, as determined by a court of competent
jurisdiction. Nothing in this Agreement shall relieve the
Issuing Lender of any liability to the Canadian Borrower in
respect of any action taken by the Issuing Lender which action
constitutes gross negligence or willful misconduct of the
Issuing Lender or a violation of the UCP or Uniform Commercial
Code (as applicable), as determined by a court of competent
jurisdiction.
SECTION 3
THE TERM LOANS
3.1 U.S. TERM LOAN COMMITMENT.
Subject to the terms and conditions set forth herein, each U.S. Lender
agrees severally and not jointly, on the Effective Date, to make a term loan
(collectively, the "U.S. Term Loan") to the U.S. Borrower, in U.S. dollars, in
an amount equal to each U.S. Lender's U.S. Term Loan Commitment Percentage of
the U.S. Term Loan Commitment. Once repaid, the U.S. Term Loan cannot be
reborrowed.
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3.2 FUNDING OF TERM LOAN.
On the Effective Date, each U.S. Lender will make its U.S. Term Loan
Commitment Percentage of the U.S. Term Loan Commitment available to the
Administrative Agent by deposit, in U.S. dollars and in immediately available
funds, at the offices of the Administrative Agent at its principal office in
Charlotte, North Carolina or at such other address as the Administrative Agent
may designate in writing. The amount of the U.S. Term Loan will then be made
available to the U.S. Borrower by the Administrative Agent by crediting the
account of the U.S. Borrower on the books of such office of the Administrative
Agent, to the extent the amount of such U.S. Term Loan is made available to the
Administrative Agent.
3.3 SCHEDULED REPAYMENTS.
The U.S. Term Loan shall be due and payable in twenty equal quarterly
principal installments of $5,000,000 each with the first such principal
amortization payment due on January 31, 1999, and each subsequent payment due on
each April 30, July 31, October 31 and January 31 thereafter until the Term
Loans Maturity Date at which time all remaining principal amounts owning under
the U.S. Term Loan, if any, shall be due and payable in full.
3.4 THE TERM NOTES.
The U.S. Term Loan made by each Lender shall be evidenced by a duly
executed promissory notes of the U.S. Borrower, dated as of the Closing Date, in
an original principal amount equal to such Lender's U.S. Term Loan Commitment
Percentage and substantially in the form of Exhibit 3.4.
SECTION 4
ADDITIONAL PROVISIONS REGARDING LOANS AND LETTERS OF CREDIT
4.1 CONTINUATIONS AND CONVERSIONS.
(a) U.S. Borrower. The U.S. Borrower shall have the option, on
any Business Day, to continue an existing Eurodollar Revolving Loan
into a subsequent Interest Period, to convert a Base Rate Loan into a
Eurodollar Loan or to convert a Eurodollar Loan into a Base Rate Loan;
provided, however, that (i) each such continuation must be requested by
the U.S. Borrower pursuant to a written Notice of
Continuation/Conversion, in the form of Exhibit 4.1, in compliance with
the terms set forth below and (ii) except as provided in Section 4.11,
Eurodollar Loans may be converted into Base Rate Loans only on the last
day of an Interest Period applicable thereto; (iii) Eurodollar Loans
may be continued and Base Rate Loans may be converted into Eurodollar
Loans only if no Default or Event of Default is in existence on the
date of continuation or conversion; and (iv) failure by the U.S.
Borrower to properly continue a Eurodollar Loan at the end of an
Interest Period shall be deemed a conversion to a Base Rate Loan. Each
continuation or conversion must be
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requested by the U.S. Borrower no later than 10:00 a.m., Charlotte,
North Carolina time, (A) on the date of a requested conversion of a
Eurodollar Loan to a Base Rate Loan or (B) three Business Days prior to
the date of a requested continuation of a Eurodollar Loan or conversion
of a Base Rate Loan to a Eurodollar Loan, in each case pursuant to a
written Notice of Continuation/Conversion submitted to the
Administrative Agent which shall set forth (x) whether the Loans to be
continued or converted are U.S. Revolving Loans, Canadian Revolving
Loans or U.S. Term Loans, (y) whether the U.S. Borrower wishes to
continue or convert such Loans and (z) if the request is to continue a
Eurodollar Loan or convert a Base Rate Loan to a Eurodollar Loan, the
Interest Period applicable thereto. The Administrative Agent shall give
each U.S. Lender notice as promptly as practicable of any such proposed
extension or conversion pursuant to this section.
(b) Canadian Borrower. The Canadian Borrower shall have the
option, on any Business Day, to convert a Base Rate Loan accruing
interest at the Canadian Prime Rate into a Bankers' Acceptance, to
continue a maturing Bankers' Acceptance in accordance with Section
2.5(c) or to convert a maturing Bankers' Acceptance into a Base Rate
Loan; provided, however, (i) each such continuation or conversion must
be requested by the Canadian Borrower pursuant to a written Notice of
Continuation/Conversion, in the form of Exhibit 4.1, in compliance with
the terms set forth below and (ii) the Canadian Borrower must comply
with all the requirements of Section 2.5, and (iii) failure by the
Canadian Borrower to properly continue a Bankers' Acceptance shall be
deemed a conversion to a Base Rate Loan. Each continuation or
conversion must be requested by the Canadian Borrower no later than
10:00 a.m., Toronto, Ontario time, (A) the date of a requested
conversion of a Bankers' Acceptance to a Base Rate Loan or (B) three
Business Days prior to the date of a requested continuation of a
Bankers' Acceptance or conversion of a Base Rate Loan to a Bankers'
Acceptance, in each case pursuant to a written Notice of Continuation/
Conversion submitted to the Canadian Administrative Agent which shall
set forth (x) whether the Loans to be continued or converted are
Canadian Revolving Loans, (y) whether the Canadian Borrower wishes to
continue or convert such Loans and (z) if the request is to continue a
Bankers' Acceptance or convert a Base Rate Loan to a Bankers'
Acceptance, the maturity date applicable thereto. The Canadian
Administrative Agent shall give each Canadian Lender notice as promptly
as practicable of any such proposed extension or conversion pursuant to
this section.
4.2 INTEREST.
(a) Interest Rate. All Swing Line Loans shall accrue interest
at the U.S. Base Rate. All U.S. Base Rate Revolving Loans and that
portion of the U.S. Term Loan that is a Base Rate Loan shall accrue
interest at the U.S. Base Rate. All Canadian Base Rate Revolving Loans
made in Canadian dollars shall accrue interest at the Canadian Prime
Rate payable in Canadian dollars. All Canadian Base Rate Revolving
Loans made in U.S. dollars shall accrue interest at the BNS U.S. Prime
Rate or the Adjusted Eurodollar Rate, as appropriate, payable in U.S.
dollars. All Eurodollar Revolving Loans and that portion of the U.S.
Term Loan that is a Eurodollar Loan shall accrue interest at the
Adjusted
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Eurodollar Rate for the applicable Interest Period. Except for Canadian
Base Rate Revolving Loans accruing interest at the Canadian Prime Rate
for which interest shall accrue on the basis of a 365 or 366 day year,
as the case may be, all interest is calculated for the actual days
elapsed on the basis of a year consisting of 360 days.
(b) Default Rate of Interest. Upon the occurrence, and during
the continuance, of an Event of Default, the principal of and, to the
extent permitted by law, interest on the Loans and any other amounts
owing (but not timely paid) hereunder or under the other Loan Documents
(including without limitation fees and expenses) shall bear interest,
payable on demand, at a per annum rate equal to 2% plus the rate which
would otherwise be applicable (or if no rate is applicable, then the
U.S. Base Rate plus two percent (2%) per annum).
(c) Interest Payments. Interest on Loans shall be due and
payable in arrears on each Interest Payment Date; provided that
interest on Swing Line Loans shall also be due upon demand. If an
Interest Payment Date falls on a date which is not a Business Day, such
Interest Payment Date shall be deemed to be the next succeeding
Business Day, except that in the case of Eurodollar Loans where the
next succeeding Business Day falls in the next succeeding calendar
month, then on the next preceding day.
(d) Computation of Interest and Fees. Except as otherwise
provided herein, all computations of interest and fees hereunder shall
be made on the basis of the actual number of days elapsed over a year
of 360 days. Each Borrower hereby acknowledges that the rate or rates
of interest applicable to the Indebtedness may be computed on the basis
of a year of 360 days and paid for the actual number of days elapsed.
For purposes of the Interest Act (Canada), at any time and from time to
time, the yearly rate of interest to which any such interest at the
rate or rates is equivalent provided in the Loan Documents, which is
payable by the Canadian Borrower pursuant thereto, may be determined by
multiplying the applicable rate of interest by the number of days in
such calendar year and dividing such product by 360.
4.3 PLACE AND MANNER OF PAYMENTS.
All payments of principal, interest and fees in connection with the
Canadian Revolving Loans shall be made by the Borrowers to the Canadian
Administrative Agent on the date due by 2:00 p.m., Toronto, Ontario time, (in
Canadian dollars or U.S. Dollars, as applicable) in immediately available funds,
without setoff, deduction, counterclaim or withholding of any kind. All other
payments of principal, interest, fees, expenses and other amounts to be made by
the Borrowers under this Agreement (including, but not limited to, the U.S.
Revolving Loans, the U.S. Term Loan and the Swing Line Loans) shall be received
not later than 2:00 p.m., Charlotte, North Carolina time, on the date when due
in U.S. Dollars and in immediately available funds, without setoff, deduction,
counterclaim or withholding of any kind, by the Administrative Agent (or in the
case of Swing Line Loans, by NationsBank) at its offices at NationsBank
Corporate Center, Charlotte, North Carolina. A Borrower shall, at the time it
makes any payment under this Agreement, specify to the Administrative Agent, or
the Canadian Administrative Agent as
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applicable, the Loans, Letters of Credit, Bankers' Acceptances, fees or other
amounts payable by the Borrowers hereunder to which such payment is to be
applied (and in the event that it fails to specify, or if such application would
be inconsistent with the terms hereof, the Administrative Agent, or the Canadian
Administrative Agent as applicable, shall distribute such payment to the Lenders
in the manner described in Section 4.6). The Canadian Administrative Agent shall
inform the Administrative Agent and the Administrative Agent shall inform the
Canadian Administrative Agent, by telecopy as of the first Business Day of each
month, of all principal, interest or fees received from the Borrowers during the
prior month, except for fees received pursuant to Section 4.5(c). The
Administrative Agent or the Canadian Administrative Agent, as applicable, will
distribute such payments to the applicable Lenders on the date of receipt if any
such payment is received prior to 2:00 p.m. (Charlotte, North Carolina time or
Toronto, Ontario time, as applicable); otherwise the Administrative Agent or the
Canadian Administrative Agent, as applicable, will distribute such payment to
the applicable Lenders on the next succeeding Business Day. Whenever any payment
hereunder shall be stated to be due on a day which is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day (subject
to accrual of interest and fees for the period of such extension), except that
in the case of Eurodollar Loans, if the extension would cause the payment to be
made in the next following calendar month, then such payment shall instead be
made on the next preceding Business Day.
4.4 PREPAYMENTS.
(a) Voluntary Prepayments. The Borrowers shall have the right
to prepay Revolving Loans and the Term Loans in whole or in part from
time to time without premium or penalty; provided, however, that (i)
Eurodollar Loans may only be prepaid on three Business Day's prior
written notice to the Administrative Agent or the Canadian
Administrative Agent, as the case may be, and any prepayment of
Eurodollar Loans will be subject to Section 4.14; (ii) that portion of
the Canadian Revolving Loan Commitment subject to the creation of a
Bankers' Acceptance may not be prepaid prior to the maturity of such
Bankers' Acceptance; (iii) each such partial prepayment of Loans (other
than Swing Line Loans) shall be in the minimum principal amount of
$1,000,000; and (iv) any partial prepayment of Swing Line Loans shall
be in a minimum aggregate principal amount of $25,000. Amounts prepaid
hereunder shall be applied as the Borrowers may elect; provided, that
(A) any voluntary prepayments on the Term Loans must be made first to
accrued interest and then to remaining payments in the inverse order of
maturity, (B) if the U.S. Borrower fails to specify a voluntary
prepayment as to the U.S. Revolving Loans then such prepayment shall be
applied first to U.S. Base Rate Revolving Loans and then to Eurodollar
Revolving Loans in direct order of Interest Period maturities and (c)
if the Canadian Borrower or the U.S. Borrower fails to specify a
voluntary prepayment as to the Canadian Revolving Loan Commitment then
such prepayments shall be applied first to Canadian Base Rate Revolving
Loans and then to BA Revolving Obligations (as set forth in Section
2.5(f)) in direct order of maturities.
(b) Mandatory Prepayments.
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(i) Revolving Loan Overadvance. If, at any time
(A) the sum of U.S. Revolving Loans outstanding plus Canadian
Revolving Loans outstanding plus LOC Obligations outstanding
plus BA Revolving Obligations outstanding plus Swing Line
Loans outstanding exceeds $225 million; (B) the U.S. Revolving
Loans outstanding plus the U.S. LOC Obligations outstanding
plus the Swing Line Loans outstanding exceed the U.S.
Revolving Loan Commitment; (C) the Canadian Revolving Loans
outstanding plus BA Revolving Obligations outstanding plus
Canadian LOC Obligations outstanding exceed the Canadian
Revolving Loan Commitment; or (D) the Swing Line Loans
outstanding exceed the Swing Line Loan Commitment, then the
Borrowers (or the applicable Borrower) shall immediately make
a payment in an amount equal to the deficiency. Payments made
under (A) shall be applied first pro rata to U.S. Base Rate
Revolving Loans and Canadian Base Rate Revolving Loans and
then to Eurodollar Revolving Loans (pro rata between those
made under the Canadian Revolving Loans and the U.S. Revolving
Loans) in direct order of Interest Period maturities. Payments
made under (B) shall be applied first to U.S. Base Rate
Revolving Loans and then to Eurodollar Revolving Loans in
direct order of Interest Period maturities. Payments made
under (C) shall be applied first to Canadian Base Rate
Revolving Loans then to Eurodollar Revolving Loans (pro rata
between those made under the Canadian Revolving Loans and the
U.S. Revolving Loans) in direct order of Interest Period
maturities and finally to that portion of the Canadian
Revolving Loan Commitment subject to the creation of Bankers'
Acceptances in accordance with the terms of Section 2.5(f).
For the purpose of determining compliance with this subsection
(i), the amount outstanding in Canadian dollars under the
Canadian Revolving Loans shall be converted to U.S. dollars
based on an exchange rate (y) on the date of each Advance
Request and Notice of Continuation/Conversion and (z) on the
last day of each fiscal quarter, such determination to be made
by the Canadian Administrative Agent in accordance with its
normal practices (the "U.S. Dollar Equivalent").
(ii) Asset Sales. Immediately upon the receipt
by any member of the Consolidated Shorewood Group of proceeds
from any Asset Disposition, the Borrowers shall prepay the
Borrowers Obligations (in the order provided in Section 4.4(c)
below) in an amount equal to the Net Proceeds of such Asset
Disposition; provided, however, that (A) the Borrowers shall
not be required to prepay the Borrowers Obligations with
respect to the first $5,000,000 in any calendar year, in the
aggregate, received by the Consolidated Shorewood Group from
Asset Dispositions (other than amounts excluded from
prepayment requirements as described in clause (C) below), (B)
the Borrowers shall only be required to forward money received
from an Asset Disposition, to prepay Borrowers Obligations
under this Subsection (ii) when the amount then received and
held by the Borrowers from one or more Asset Dispositions is
equal to or greater than $1,000,000 (other than amounts
excluded from prepayment requirements as described in clause
(C) below) (for example, if the Net Proceeds received by the
Borrowers from an Asset
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Disposition is less than $1,000,000, then the Borrowers may
hold such funds until the aggregate amount of Net Proceeds
received from Asset Dispositions, and not previously forwarded
to the Lenders, is in excess of $1,000,000 and then all such
funds must be forwarded to the Lenders) and (C) the Borrowers
shall be allowed to exclude from prepayment pursuant to this
Section 4.4(b)(ii) up to 100% of the Net Proceeds received in
consideration for Asset Dispositions relating to the Chinese
Investment (not to exceed $25 million).
(iii) Incurrences of Debt. Immediately upon
receipt by any member of the Consolidated Shorewood Group of
proceeds from any incurrence of any Debt Issuance (other than
debt permitted by Section 8.1), the Borrowers shall prepay the
Borrowers Obligations (in the order provided in Section 4.4(c)
below) in an amount equal to the Net Proceeds of such Debt
Issuance.
(iv) Issuances of Equity. Immediately upon
receipt by any member of the Consolidated Shorewood Group of
proceeds from any Equity Issuance, the Borrowers shall prepay
the Borrowers Obligations (in the order provided in Section
4.4(c) below) in an amount equal to fifty percent (50%) of the
Net Proceeds of such Equity Issuance.
(c) Application of Certain Prepayments. All amounts required
to prepay Borrowers Obligations pursuant to Section 4.4(ii), (iii) or
(iv) above shall be applied to the U.S. Term Loan first to accrued
interest and then to remaining payments in the inverse order of
maturity and then to U.S. Revolving Loans and Canadian Revolving Loans
on a pro rata basis (first to Base Rate Revolving Loans, then to
Eurodollar Revolving Loans in direct order of maturities, then to the
BA Revolving Obligations in accordance with Section 2.5(f) and then to
Swing Line Loans). Prepayments on the Revolving Loans, the Bankers'
Acceptances and the Swing Line Loans in accordance with this subsection
shall immediately and permanently reduce the applicable Revolving Loan
Commitment in an amount equal to such prepayment. All prepayments shall
be subject to Section 4.14. Payments on Loans denominated in U.S.
Dollars shall be made in U.S. dollars and payments on Loans denominated
in Canadian dollars shall be made in Canadian dollars.
4.5 FEES.
(a) Unused Fees. In consideration of the Revolving Loan
Commitments being made available by the Lenders hereunder, the
Borrowers agree to pay (i) to the Administrative Agent, for the account
of the U.S. Lenders, a per annum fee equal to the Applicable Percentage
for the Unused Fees (calculated on the basis of the actual number of
days elapsed in a 360 day year) on the U.S. Unused Revolving Commitment
and (ii) to the Canadian Administrative Agent, for the account of the
Canadian Lenders, a per annum fee equal to the Applicable Percentage
for the Unused Fees (calculated on the basis of the actual number of
days elapsed in a 360 day year) on the Canadian Unused Revolving
Commitment (collectively, the "Unused Fees"). The accrued Unused Fees
shall be due and payable quarterly in arrears on the 15th day of each
February, May, August and November
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(as well as on the Revolving Loans Maturity Date and on any date that a
Revolving Loan Commitment is reduced) for the immediately preceding
fiscal quarter (or portion thereof), beginning with the first of such
dates to occur after the Closing Date.
Notwithstanding anything above to the contrary, all U.S.
Lenders (other than NationsBank) shall receive their Unused Fees with
respect to the U.S. Unused Revolving Commitment as if no Swing Line
Loans were outstanding during the period for calculation of such Unused
Fee, and NationsBank shall receive a reduced Unused Fee with respect to
the U.S. Unused Revolving Commitment resulting from Swing Line Loans
outstanding during such period.
(b) Letter of Credit Fees.
(i) Letter of Credit Fee. In consideration of
the issuance of Letters of Credit hereunder, the U.S. Borrower
agrees to pay to each Issuing Lender in respect of U.S.
Letters of Credit for the pro rata benefit of the U.S. Lenders
(based on each U.S. Lender's U.S. Revolving Loan Commitment
Percentage of the U.S. Revolving Loan Commitment) and, the
Canadian Borrower agrees to pay to each Issuing Lender in
respect of Canadian Letter of Credit for the pro rata benefit
of the Canadian Lenders (based on each Canadian Lender's
Canadian Revolving Loan Commitment Percentage of the Canadian
Revolving Commitment), a fee (the "Letter of Credit Fee")
equal to the Applicable Percentage for the Letter of Credit
Fee (but in any event not less than $1,000 annually for any
Letter of Credit) on the average daily maximum amount
available to be drawn under each such Letter of Credit from
the date of issuance to the date of expiration. The Letter of
Credit Fee will be payable quarterly in arrears on the last
day of each fiscal quarter of the respective Borrower and on
the Revolving Loans Maturity Date.
(ii) Issuing Lender Fees. In addition to the
Letter of Credit Fees payable pursuant to subsection (i)
above, each the Borrowers shall pay to the Issuing Lender for
its own account, without sharing by the other Lenders, (A) a
fee equal to one-fourth of one percent (.25%) per annum on the
total sum of all Letters of Credit issued by the Issuing
Lender, such fee to be paid quarterly in arrears on the last
day of each fiscal quarter of the respective Borrower (as well
as on the Revolving Loans Maturity Date) and (B) the customary
charges from time to time to the Issuing Lender for its
services in connection with the issuance, amendment, payment,
transfer, administration, cancellation and conversion of, and
drawings under, such Letters of Credit (collectively, the
"Issuing Lender Fees").
(c) Administrative Fees. The U.S. Borrower agrees to pay to
the Administrative Agent, for its own account, an annual fee as agreed
to between the U.S. Borrower and the Administrative Agent in the
Administrative Agent Fee Letter and the Canadian Borrower agrees to pay
to the Canadian Administrative Agent, for its own account, an annual
fee as agreed to between the Canadian Borrower and the Canadian
Administrative Agent in the Canadian Administrative Agent Fee Letter.
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4.6 PRO RATA TREATMENT.
Except to the extent otherwise provided herein:
(a) Loans. Each Revolving Loan borrowing (including, without
limitation, each Mandatory Borrowing), each payment or prepayment of
principal of any Loan (other than a Swing Line Loan), each payment of
fees (other than the Issuing Lender Fees retained by each of the
Issuing Lenders for its own account and the administrative fees
retained by the Administrative Agent and the Canadian Administrative
Agent for its own account), each reduction of the U.S. Revolving Loan
Commitment or the Canadian Revolving Loan Commitment, and each
conversion or continuation of any Loan (other than a Swing Line Loan),
shall be allocated pro rata among the relevant Lenders in accordance
with the respective U.S. Revolving Loan Commitment Percentages,
Canadian Revolving Loan Commitment Percentages or U.S. Term Loan
Commitment Percentages, as applicable, of such Lenders; it being
understood that payments under the U.S. Revolving Loans shall be
allocated pro rata among the U.S. Lenders, payments under the Canadian
Revolving Loans shall be allocated pro rata among the Canadian Lenders,
etc. (or, if the Commitments of such Lenders have expired or been
terminated, in accordance with the respective principal amounts of the
outstanding Loans and Participation Interests of such Lenders);
provided that, if any Lender shall have failed to pay its applicable
pro rata share of any Revolving Loan, then any amount to which such
Lender would otherwise be entitled pursuant to this subsection (a)
shall instead be payable to the Administrative Agent or the Canadian
Administrative Agent, as applicable; provided further, that in the
event any amount paid to any Lender pursuant to this subsection (a) is
rescinded or must otherwise be returned by the Administrative Agent or
the Canadian Administrative Agent, as applicable, each Lender shall,
upon the request of the Administrative Agent or the Canadian
Administrative Agent, as applicable, repay to the Administrative Agent
or the Canadian Administrative Agent, as applicable the amount so paid
to such Lender, with interest for the period commencing on the date
such payment is returned by the Administrative Agent or the Canadian
Administrative Agent, as applicable until the date the Administrative
Agent or the Canadian Administrative Agent, as applicable receives such
repayment at a rate per annum equal to, during the period to but
excluding the date two Business Days after such request, the Federal
Funds Rate, and thereafter, the U.S. Base Rate plus two percent (2%)
per annum; and
(b) Letters of Credit. Each payment of unreimbursed drawings
in respect of LOC Obligations shall be allocated to each U.S. Lender
pro rata in accordance with its U.S. Lender Revolving Loan Commitment
Percentage or to each Canadian Lender pro rata in accordance with its
Canadian Lender Revolving Loan Commitment Percentage, as appropriate;
provided that, if any Lender shall have failed to pay its applicable
pro rata share of any drawing under any Letter of Credit, then any
amount to which such Lender would otherwise be entitled pursuant to
this subsection (b) shall instead be payable to the Issuing Lender;
provided further, that in the event any amount paid to any Lender
pursuant to this subsection (b) is rescinded or must otherwise be
returned by the Issuing Lender, each
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Lender shall, upon the request of the Issuing Lender, repay to the
Administrative Agent for the account of the Issuing Lender the amount
so paid to such Lender, with interest for the period commencing on the
date such payment is returned by the Issuing Lender until the date the
Issuing Lender receives such repayment at a rate per annum equal to,
during the period to but excluding the date two Business Days after
such request, the Federal Funds Rate, and thereafter, the U.S. Base
Rate, the Canadian Prime Rate or the BNS U.S. Prime Rate, as
appropriate, plus two percent (2%) per annum.
4.7 ALLOCATION OF PAYMENTS AFTER EVENT OF DEFAULT.
Notwithstanding any other provisions of this Agreement, after the
occurrence and during the continuance of an Event of Default, all amounts
collected or received by an Agent or any Lender on account of amounts
outstanding under any of the Loan Documents or in respect of the collateral
shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs
and expenses (including without limitation reasonable attorneys' fees)
of the Agents in connection with enforcing the rights of the Lenders
under the Loan Documents and any protective advances made by the Agents
with respect to the collateral under or pursuant to the terms of the
Stock Pledge Agreements;
SECOND, to payment of any fees owed to an Agent or a Issuing
Lender;
THIRD, to the payment of all reasonable out-of-pocket costs
and expenses, (including, without limitation, reasonable attorneys'
fees) of each of the Lenders in connection with enforcing its rights
under the Loan Documents;
FOURTH, to the payment of all accrued fees and interest
payable to the Lenders hereunder;
FIFTH, to the payment of the outstanding principal amount of
the Loans and to the payment or cash collateralization of the
outstanding LOC Obligations and BA Revolving Obligations, pro rata, as
set forth below;
SIXTH, to all other obligations which shall have become due
and payable under the Loan Documents and not repaid pursuant to clauses
"FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may
be lawfully entitled to receive such surplus.
In carrying out the foregoing, (a) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (b) each of the Lenders shall receive an amount equal to
its pro rata share (based on the proportion that the then outstanding Loans, LOC
Obligations and BA Revolving Obligations held by such Lender bears to the
aggregate then outstanding Loans, LOC Obligations and BA Revolving Obligations)
of amounts available to
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be applied pursuant to clauses "THIRD", "FOURTH," "FIFTH," and "SIXTH" above;
and (c) to the extent that any amounts available for distribution pursuant to
clause "FIFTH" above are attributable to the issued but undrawn amount of
outstanding Letters of Credit, such amounts shall be held by the Administrative
Agent in a cash collateral account and applied (x) first, to reimburse the
Issuing Lender from time to time for any drawings under such Letters of Credit
and (y) then, following the expiration of all Letters of Credit, to all other
obligations of the types described in clauses "FIFTH" and "SIXTH" above in the
manner provided in this Section 4.7.
4.8 SHARING OF PAYMENTS.
The Lenders agree among themselves that, except to the extent otherwise
provided herein, in the event that any Lender shall obtain payment in respect of
any Loan, unreimbursed drawing with respect to any LOC Obligations or any other
obligation owing to such Lender under this Agreement through the exercise of a
right of setoff, banker's lien or counterclaim, or pursuant to a secured claim
under Section 506 of the U.S. Bankruptcy Code (or similar provision of the
Canadian bankruptcy laws) or other security or 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, or by any other means, in excess
of its pro rata share of such payment as provided for in this Agreement, such
Lender shall promptly pay in cash or purchase from the other applicable Lenders
a participation in such Loans, LOC Obligations, BA Revolving Obligations and
other obligations in such amounts, and make such other adjustments from time to
time, as shall be equitable to the end that all Lenders share such payment in
accordance with their respective ratable shares as provided for in this
Agreement. The Lenders further agree among themselves that if payment to a
Lender obtained by such Lender through the exercise of a right of setoff,
banker's lien, counterclaim or other event as aforesaid shall be rescinded or
must otherwise be restored, each applicable Lender which shall have shared the
benefit of such payment shall, by payment in cash or a repurchase of a
participation theretofore sold, return its share of that benefit (together with
its share of any accrued interest payable with respect thereto) to each Lender
whose payment shall have been rescinded or otherwise restored. The Borrowers
agree that any Lender so purchasing such a participation may, to the fullest
extent permitted by law, exercise all rights of payment, including setoff,
banker's lien or counterclaim, with respect to such participation as fully as if
such Lender were a holder of such Loan, LOC Obligation, BA Revolving Obligation
or other obligation in the amount of such participation. Except as otherwise
expressly provided in this Agreement, if any Lender or an Agent shall fail to
remit to an Agent or any other Lender an amount payable by such Lender or such
Agent to such Agent or such other Lender pursuant to this Agreement on the date
when such amount is due, such payments shall be made together with interest
thereon for each date from the date such amount is due until the date such
amount is paid to such Agent or such other Lender at a rate per annum equal to
the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a setoff to which
this Section 4.8 applies, such Lender shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner consistent with the
rights of the Lenders under this Section 4.8 to share in the benefits of any
recovery on such secured claim.
4.9 CAPITAL ADEQUACY.
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If, after the date hereof, any Lender has determined that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender, or its parent corporation, 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 or would have the
effect of reducing the rate of return on such Lender's (or parent corporation's)
capital or assets as a consequence of its commitments or obligations hereunder
to a level below that which such Lender, or its parent corporation, could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's (or parent corporation's) policies with respect to
capital adequacy), then, upon notice from such Lender to the Borrowers, the
Borrowers shall be obligated to pay to such Lender such additional amount or
amounts as will compensate such Lender on an after-tax basis (after taking into
account applicable deductions and credits in respect of the amount indemnified)
for such reduction. Each determination by any such Lender of amounts owing under
this Section shall, absent manifest error, be conclusive and binding on the
parties hereto. This covenant shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
4.10 INABILITY TO DETERMINE INTEREST RATE OR CREATE BANKERS'
ACCEPTANCES.
(a) If prior to the first day of any Interest Period, the
Administrative Agent shall have determined in good faith (which
determination shall be conclusive and binding upon the U.S. Borrower
absent manifest error) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Interest Period, the
Administrative Agent shall give telecopy or telephonic notice thereof
to the U.S. Borrower and the U.S. Lenders as soon as practicable
thereafter, and will also give prompt written notice to the U.S.
Borrower when such conditions no longer exist. If such notice is given
(i) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as Base Rate Loans, (ii) any Loans that
were to have been converted on the first day of such Interest Period to
or continued as Eurodollar Loans shall be converted to or continued as
Base Rate Loans and (iii) any outstanding Eurodollar Loans shall be
converted, on the first day of such Interest Period, to Base Rate
Loans. Until such notice has been withdrawn by the Agent, no further
Eurodollar Loans shall be made or continued as such, nor shall the U.S.
Borrower have the right to convert Base Rate Loans to Eurodollar Loans.
(b) If the Canadian Administrative Agent determines in good
faith, which determination shall be final, conclusive and binding upon
the Canadian Borrower absent manifest error, and notifies the Canadian
Borrower and each of the Canadian Lenders that, by reason of
circumstances affecting the money market (i) there is no market for
Bankers' Acceptances; or (ii) the demand for Bankers' Acceptances is
insufficient to allow the sale or trading of the Bankers' Acceptances
created and purchased hereunder, then,
(A) the right of the Canadian Borrower to request a
borrowing by way of Bankers' Acceptances shall be suspended
until the Canadian Administrative Agent
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determines in good faith that the circumstances causing such
suspension no longer exist and the Canadian Administrative
Agent so notifies the Canadian Borrower; and
(B) any notice of requested Bankers' Acceptances
which is outstanding shall be canceled and the Bankers'
Acceptance requested therein shall not be made.
(C) The Canadian Administrative Agent shall promptly
notify the Canadian Borrower of the suspension of the Canadian
Borrower's right to request a Bankers' Acceptance and of the
termination of any such suspension.
4.11 ILLEGALITY.
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Agreement, (a) such Lender
shall promptly give written notice of such circumstances to the U.S. Borrower
and the Administrative Agent (which notice shall be withdrawn whenever such
circumstances no longer exist), (b) the commitment of such Lender hereunder to
make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base Rate
Loan to Eurodollar Loans shall forthwith be suspended and, until such time as it
shall no longer be unlawful for such Lender to make or maintain Eurodollar
Loans, such Lender shall then have a commitment only to make a Base Rate Loan
when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding
as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrowers shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 4.14.
4.12 REQUIREMENTS OF LAW.
If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof applicable to any Lender, or compliance by
any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the Closing Date (or, if later, the date on which such Lender
becomes a Lender):
(a) shall subject such Lender to any tax of any kind
whatsoever with respect to any Letter of Credit, any Loans made by it
or Bankers' Acceptances issued by it or its obligation to make or issue
any of the foregoing, or change the basis of taxation of payments to
such Lender in respect thereof (except for Non-Excluded Taxes covered
by Section 4.13 (including Non-Excluded Taxes imposed solely by reason
of any failure of such Lender to comply with its obligations under
Section 4.13(b)) and changes in taxes measured by or imposed upon the
overall net income, or franchise tax (imposed in lieu of
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such net income tax), of such Lender or its applicable lending office,
branch, or any affiliate thereof);
(b) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the applicable interest or
discount rate or fee hereunder; or
(c) shall impose on such Lender any other condition (excluding
any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Loans or issuing or participating in Letters of Credit
or issuing Bankers' Acceptances or to reduce any amount receivable hereunder in
respect thereof, then, in any such case, upon notice to the Borrowers from such
Lender, through either of the Agents, in accordance herewith, the Borrowers
shall be obligated to promptly pay such Lender, upon its demand, any additional
amounts necessary to compensate such Lender on an after-tax basis (after taking
into account applicable deductions and credits in respect of the amount
indemnified) for such increased cost or reduced amount receivable, provided
that, in any such case, the Borrowers may elect to convert the Eurodollar Loans
made by such Lender hereunder to Base Rate Loans by giving the Administrative
Agent at least one Business Day's notice of such election, in which case the
Borrowers shall promptly pay to such Lender, upon demand, without duplication,
such amounts, if any, as may be required pursuant to Section 4.14. If any Lender
becomes entitled to claim any additional amounts pursuant to this Section 4.12,
it shall provide prompt notice thereof to the Borrowers, through the
Administrative Agent, certifying (x) that one of the events described in this
Section 4.12 has occurred and describing in reasonable detail the nature of such
event, (y) as to the increased cost or reduced amount resulting from such event
and (z) as to the additional amount demanded by such Lender and a reasonably
detailed explanation of the calculation thereof. Such a certificate as to any
additional amounts payable pursuant to this Section 4.12 submitted by such
Lender, through the Administrative Agent, to the Borrowers shall be conclusive
and binding on the parties hereto in the absence of manifest error. This
covenant shall survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
4.13 TAXES.
(a) Except as provided below in this Section 4.13, all
payments made by the Borrowers under this Agreement, any Notes and any
documents relating hereto shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any court, or governmental body,
agency or other official, including interest, penalties and liabilities
with respect thereto ("Taxes"), excluding taxes measured by or imposed
upon the overall net income of any Lender or its applicable lending
office, or any
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branch or affiliate thereof, and all franchise taxes, branch taxes,
taxes on doing business or taxes on the overall capital or net worth of
any Lender or its applicable lending office, or any branch or affiliate
thereof, in each case imposed in lieu of net income taxes, imposed: (i)
by the jurisdiction under the laws of which such Lender, applicable
lending office, branch or affiliate is organized or is located, or in
which its principal executive office is located, or any nation within
which such jurisdiction is located or any political subdivision
thereof; or (ii) by reason of any connection between the jurisdiction
imposing such tax and such Lender, applicable lending office, branch or
affiliate other than a connection arising solely from such Lender
having executed, delivered or performed its obligations, or received
payment under or enforced, this Agreement or any Notes. If any such
non-excluded Taxes, ("Non-Excluded Taxes") are required to be withheld
from any amounts payable to an Agent or any Lender hereunder or under
any Notes or other documents relating thereto, (A) the Borrowers shall
withhold and remit such Taxes to the relevant authority when and as
due, (B) the amounts so payable to an Agent or such Lender shall be
increased to the extent necessary to yield to an Agent or such Lender
(after payment of all Non-Excluded Taxes, including Non-Excluded Taxes
in respect of additional amounts payable hereunder) interest or any
such other amounts payable hereunder or under the Notes or any other
document relating hereto at the rates or in the amounts specified in
this Agreement and any Notes, provided, however, that the Borrowers
shall be entitled to deduct and withhold any Non-Excluded Taxes and
shall not be required to increase any such amounts payable to any
Lender that is not organized under the laws of the United States of
America or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this Section 4.13 whenever any
Non-Excluded Taxes are payable by the Borrowers, and (C) as promptly as
possible thereafter the Borrowers shall send to such Agent for its own
account or for the account of such Lender, as the case may be, a
certified copy of an original official receipt received by the
Borrowers showing prompt payment thereof. If the Borrowers fail to pay
any Non-Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrowers shall indemnify an
Agent and any Lender for any incremental Taxes, interest or penalties
that may become payable by an Agent or any Lender as a result of any
such failure. If a Lender shall change its office that makes or
maintains a Loan hereunder, the Borrowers shall not be required to pay
any increased amounts to the Lender in respect of any Non-Excluded
Taxes pursuant to this subsection 4.13 over and above any obligation to
withhold or deduct any amount with respect to such Non-Excluded Taxes
that existed on the date the Lender changed such office, unless the
Lender changed the office at the request of the Borrowers in which case
the Borrower shall indemnify the Lender in respect of such increased
amounts. The agreements in this subsection shall survive the
termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) (A) on or before the date of any payment by the
U.S. Borrower under this Agreement or Notes to such Lender,
deliver to the U.S. Borrower and the
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Administrative Agent (x) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, or
successor applicable form, as the case may be, certifying that
it is entitled to receive payments under this Agreement and
any Notes without deduction or withholding of any United
States federal income taxes and (y) an Internal Revenue
Service Form W-8 or W-9, or successor applicable form, as the
case may be, certifying that it is entitled to an exemption
from United States backup withholding tax;
(B) deliver to the U.S. Borrower and the
Administrative Agent two further copies of any such form or
certification on or before the date that any such form or
certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent
form previously delivered by it to the U.S. Borrower; and
(C) obtain such extensions of time for
filing and complete such forms or certifications as may
reasonably be requested by the U.S. Borrower or the
Administrative Agent; or
(ii) in the case of any such Lender that is not
a "bank" within the meaning of Section 881(c)(3)(A) of the
Internal Revenue Code, (A) represent to the U.S. Borrower (for
the benefit of the U.S. Borrower and the Administrative Agent)
that it is not a bank within the meaning of Section
881(c)(3)(A) of the Internal Revenue Code, (B) agree to
furnish to the U.S. Borrower, on or before the date of any
payment by the U.S. Borrower, with a copy to the
Administrative Agent, two accurate and complete original
signed copies of Internal Revenue Service Form W-8, or
successor applicable form certifying to such Lender's legal
entitlement at the date of such certificate to an exemption
from U.S. withholding tax under the provisions of Section
881(c) of the Internal Revenue Code with respect to payments
to be made under this Agreement and any Notes (and to deliver
to the U.S. Borrower and the Administrative Agent two further
copies of such form on or before the date it expires or
becomes obsolete and after the occurrence of any event
requiring a change in the most recently provided form and, if
necessary, obtain any extensions of time reasonably requested
by the U.S. Borrower or the Administrative Agent for filing
and completing such forms), and (C) agree, to the extent
legally entitled to do so, upon reasonable request by the U.S.
Borrower, to provide to the U.S. Borrower (for the benefit of
the U.S. Borrower and the Administrative Agent) such other
forms as may be reasonably required in order to establish the
legal entitlement of such Lender to an exemption from
withholding with respect to payments under this Agreement and
any Notes.
Notwithstanding the above, if any change in treaty, law or regulation
has occurred after the date such Person becomes a Lender hereunder
which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form with respect
to it and such Lender so advises the U.S. Borrower and the
Administrative Agent then such Lender shall be exempt from such
requirements. Each Person that shall become a
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Lender or a participant of a Lender pursuant to Section 11.3 shall,
upon the effectiveness of the related transfer, be required to provide
all of the forms, certifications and statements required pursuant to
this subsection (b); provided that in the case of a participant of a
Lender, the obligations of such participant of a Lender pursuant to
this subsection (b) shall be determined as if the participant of a
Lender were a Lender except that such participant of a Lender shall
furnish all such required forms, certifications and statements to the
Lender from which the related participation shall have been purchased.
(c) If any such Taxes shall be or become applicable after the
date of this Agreement to such payments by the Borrowers to a Lender,
such Lender shall use reasonable efforts to make, fund or maintain the
Loan or Loans, as the case may be, through another lending office
located in another jurisdiction so as to reduce, to the fullest extent
possible, the Borrowers' liability hereunder, if the making, funding or
maintenance of such Loan or Loans through such other office does not,
in the reasonable judgment of the Lender, materially affect the Lender
of such Loan. If the Borrowers are required to make any additional
payment to a Lender pursuant to this Section 4.13, and any such Lender
receives, or is entitled to receive, a credit against, remission for,
or repayment of, any tax paid or payable by it in respect of, or
calculated with reference to, the taxes giving rise to such payment,
such Lender shall, within a reasonable time after it receives such
credit, relief, remission or repayment, reimburse the Borrowers the
amount of any such credit, relief, remission or repayment.
4.14 COMPENSATION.
The Borrowers promise to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur (other
than through such Lender's gross negligence or willful misconduct) as a
consequence of (a) default by a Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after such Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (b)
default by a Borrower in making any prepayment of a Eurodollar Loan after such
Borrower has given a notice thereof in accordance with the provisions of this
Agreement and (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to (i) the present value of the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
the applicable Interest Period (or, in the case of a failure to borrow, convert
or continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Eurodollar
Loans provided for herein (excluding, however, the Applicable Percentage
included therein, if any) minus (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank Eurodollar market. Such a certificate as to any amounts
payable pursuant to this Section 4.14 submitted by a Lender, through the
Administrative Agent to the Lenders, shall be conclusive and binding in the
absence of manifest error. The agreements in this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
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SECTION 5
CONDITIONS PRECEDENT
5.1 CLOSING CONDITIONS.
The obligation of the Lenders to enter into this Agreement is subject
to satisfaction of the following conditions (in form and substance acceptable to
the Administrative Agent):
(a) Executed Loan Documents. Receipt by the Administrative
Agent of duly executed copies of (i) this Agreement; (ii) the Revolving
Credit Notes; (iii) the Term Notes; (iv) the Swing Line Note; (v) the
Guaranty Agreements; (vi) the Stock Pledge Agreements; and (vii) all
other Loan Documents.
(b) No Default; Representations and Warranties. As of the
Closing Date (i) there shall exist no Default or Event of Default and
(ii) all representations and warranties contained herein and in the
other Loan Documents shall be true and correct in all material
respects.
(c) Opinion of Counsel. Receipt by the Administrative Agent of
an opinion, or opinions, in form and substance satisfactory to the
Administrative Agent and the Canadian Administrative Agent, addressed
to the Agents on behalf of the Lenders and dated as of the Closing
Date, from legal counsel to the Consolidated Shorewood Group.
(d) Corporate Documents. Receipt by the Administrative Agent
of the following:
(i) Charter Documents. Copies of the articles
or certificates of incorporation or other charter documents of
each member of the Consolidated Shorewood Group that is a
party to a Loan Document, certified to be true and complete as
of a recent date by the appropriate Governmental Authority of
the state or other jurisdiction of its incorporation and
certified by a secretary or assistant secretary as of the
Closing Date to be true and correct.
(ii) Resolutions. Copies of resolutions of the
Board of Directors of each member of the Consolidated
Shorewood Group that is party to a Loan Document, approving
and adopting the Loan Documents to which it is a party, the
transactions contemplated therein and authorizing execution
and delivery thereof, certified by a secretary or assistant
secretary as of the Closing Date to be true and correct and in
force and effect as of such date.
(iii) Bylaws. A copy of the bylaws of each member
of the Consolidated Shorewood Group that is a party to a Loan
Document, certified by a
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secretary or assistant secretary as of the Closing Date to be
true and correct and in force and effect as of such date.
(iv) Good Standing. Copies of (i) certificates
of good standing, existence or its equivalent with respect to
each member of the Consolidated Shorewood Group that is a
party to a Loan Document, certified as of a recent date by the
appropriate Governmental Authorities of the state or other
jurisdiction of incorporation and each other jurisdiction in
which the failure to so qualify and be in good standing would
have a Material Adverse Effect and (ii) where available, a
certificate indicating payment of all corporate franchise
taxes certified as of a recent date by the appropriate
governmental taxing authorities.
(e) Stock Certificates and Powers. If not previously delivered
to the Administrative Agent, (i) delivery of 100% of the stock of each
Subsidiary of the U.S. Borrower domiciled in the United States and 66%
of the stock of each Subsidiary of the U.S. Borrower domiciled outside
of the United States (other than a Subsidiary owned as part of or in
connection with the Chinese Investment) to secure the obligations of
the U.S. Borrower under the Loan Document and (ii) delivery of 100% of
the stock of each Subsidiary of the Canadian Borrower to secure the
obligations of the Canadian Borrower under the Loan Documents, along
with duly executed stock powers, and such other documents and
instruments as required by the Stock Pledge Agreements.
(f) Personal Property Collateral. The Collateral Agent shall
have received to the extent not previously received by the
Administrative Agent, duly executed UCC or PPSA financing statements
for each appropriate jurisdiction as is necessary, in the
Administrative Agent's sole discretion, to perfect the Lenders'
security interest in the collateral.
(g) No Material Adverse Effect. No event shall have occurred
since April 30, 1998 that has had or could be reasonably expected to
have a Material Adverse Effect.
(h) Litigation. No litigation shall be pending or threatened
which, in the reasonable determination of the Administrative Agent,
would have or reasonably be expected to have a Material Adverse Effect.
(i) Consents and Approvals. Receipt by the Administrative
Agent of evidence that all material governmental, shareholder and third
party consents and approvals necessary or desirable in connection with
the Acquisition of the assets of the Target and the execution and
delivery of the Loan Documents and the consummation of the transactions
set forth therein.
(j) Officer's Certificate. The Administrative Agent shall have
received a certificate or certificates executed by the chief financial
officer of the U.S. Borrower on behalf of the Consolidated Shorewood
Group as of the Closing Date stating that (A) each member of the
Consolidated Shorewood Group is in compliance with all existing
material
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financial obligations, (B) all material governmental, shareholder and
third party consents and approvals, if any, with respect to the Loan
Documents, the Acquisition of the assets of the Target and the other
transactions contemplated thereby have been obtained, (C) no action,
suit, investigation or proceeding is pending or threatened in any court
or before any arbitrator or governmental instrumentality that purports
to effect a member of the Consolidated Shorewood Group, the Acquisition
of the assets of the Target or any other transaction contemplated by
the Loan Documents, if such action, suit, investigation or proceeding
could have or could be reasonably expected to have a Material Adverse
Effect, and (D) immediately after giving effect to this Agreement, the
other Loan Documents, the Acquisition of the assets of the Target and
the other transactions contemplated therein to occur on such date, (1)
each member of the Consolidated Shorewood Group is Solvent, (2) no
Default or Event of Default exists, (3) all representations and
warranties contained herein and in the other Loan Documents are true
and correct in all material respects, and (4) the Consolidated
Shorewood Group is in compliance with each of the financial covenants
set forth in Section 7.13.
(k) Purchase Agreement. Simultaneous with the execution and
delivery of the Loan Documents, the U.S. Borrower shall acquire the
assets of the Target in accordance with the terms and conditions of the
Purchase Agreement. The purchase price paid for the assets of the
Target (including any Indebtedness assumed in connection therewith)
shall not exceed $140,000,000. The Agents shall have received an
executed copy of the Purchase Agreement, together with all schedules
and exhibits thereto, certified as true, correct and complete by the
chief financial officer of the U.S. Borrower. The terms and conditions
of the Purchase Agreement shall not have been materially altered,
waived, amended or otherwise modified in any manner without the prior
written consent of the Agents.
(l) Financial Statements. The Agents shall have received the
Financial Statements described in Section 6.6.
(m) Fees and Expenses. All fees and expenses required to be
paid under this Agreement shall have been paid in full.
(n) Due Diligence. The Agents shall have completed their due
diligence with respect to the Borrower and its Subsidiaries and their
review of management information systems (including Year 2000
compliance).
(o) Existing Credit Agreement. All Indebtedness under the
Existing Credit Agreement shall be paid in full either prior to or
simultaneous with the execution and delivery of this Credit Agreement,
and the commitments thereunder shall be terminated.
(p) Other. The receipt by the Administrative Agent of such
other documents, agreements or information as reasonably requested by
any Lender.
5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
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In addition to the conditions precedent stated elsewhere herein, the
Lenders shall not be obligated to make Loans or create Bankers' Acceptances nor
shall the Issuing Lender be required to issue or extend a Letter of Credit
unless:
(a) Notice. The applicable Borrower shall have delivered (i)
in the case of any Loan or Bankers' Acceptance, an Advance Request,
duly executed and completed, by the time specified in Sections 2.1,
2.3, 2.4 or 2.5, as appropriate and (ii) in the case of any Letter of
Credit, the Issuing Lender shall have received an appropriate request
for issuance in accordance with the provisions of Section 2.2;
(b) Representations and Warranties. The representations and
warranties made by a member of the Consolidated Shorewood Group in any
Loan Document are true and correct in all material respects at and as
if made as of such date;
(c) No Default. No Default or Event of Default shall exist or
be continuing either prior to or after giving effect thereto;
(d) No Material Adverse Effect. There shall not have occurred
any Material Adverse Effect; and
(e) Availability. Immediately after giving effect to the
making of a Loan, the creation of a Bankers' Acceptance or the issuance
of a Letter of Credit, as the case may be, the Borrowers shall be in
compliance with Section 4.4(b)(i).
The delivery of each Advance Request and each request for a Letter of Credit
shall constitute a representation and warranty by the applicable Borrower of the
correctness of the matters specified in subsections (b), (c), (d) and (e) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Borrowers hereby represent and warrant to each Lender that:
6.1 ORGANIZATION AND GOOD STANDING.
Except as set forth on Schedule 6.1, each member of the Consolidated
Shorewood Group domiciled in the United States is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of its incorporation, is duly qualified and in good standing as a foreign
corporation authorized to do business in every jurisdiction where the failure to
so qualify would have a Material Adverse Effect, and has the requisite corporate
power and authority to own its properties and to carry on its business as now
conducted and as proposed to be conducted. Each member of the Consolidated
Shorewood Group domiciled in Canada is a corporation duly incorporated and
validly subsisting under the laws of its jurisdiction of incorporation, is duly
qualified, licensed or registered to carry on its business in each jurisdiction
where the failure to do
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so would have a Material Adverse Effect and has the corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted.
6.2 DUE AUTHORIZATION.
Except as set forth on Schedule 6.2, each member of the Consolidated
Shorewood Group (a) has the requisite corporate power and authority to execute,
deliver and perform such of the Loan Documents to which it is a party and to
incur the obligations herein and therein provided for, and (b) is duly
authorized to, and has been authorized by all necessary corporate action, to
execute, deliver and perform such of the Loan Documents to which it is a party.
6.3 NO CONFLICTS.
With respect to each member of the Consolidated Shorewood Group,
neither the execution and delivery of the Loan Documents, nor the consummation
of the transactions contemplated therein, nor performance of and compliance with
the terms and provisions thereof will (a) violate or conflict in any material
respect with any material provision of its articles or certificate of
incorporation or bylaws, (b) violate, contravene or materially conflict with any
material law, regulation (including without limitation Regulation U or
Regulation X), order, writ, judgment, injunction, decree or permit applicable to
it, (c) violate, contravene or conflict in any material respect with contractual
provisions of, or cause an event of default under, any indenture, loan
agreement, mortgage, deed of trust, contract or other agreement or instrument to
which it is a party or by which it may be bound, or (d) result in or require the
creation of any material Lien upon or with respect to its properties except in
favor of the Lenders.
6.4 CONSENTS.
No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental authority or third
party in respect of any member of the Consolidated Shorewood Group is required
in connection with the execution, delivery or performance of this Agreement or
any of the other Loan Documents other than those consents which have been
obtained and copies of which have been delivered to the Administrative Agent.
6.5 ENFORCEABLE OBLIGATIONS.
This Agreement and the other Loan Documents have been duly executed and
delivered and constitute legal, valid and binding obligations of each member of
the Consolidated Shorewood Group (with regard to each agreement or instrument to
which it is a party) enforceable in accordance with their respective terms,
except as may be limited by bankruptcy or insolvency laws or similar laws
affecting creditors' rights generally.
6.6 FINANCIAL CONDITION.
(a) The financial statements provided to the Lenders,
consisting of (i) an audited consolidated balance sheet of the
Consolidated Shorewood Group, together with related
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consolidated statements of income, stockholders' equity and changes in
financial position or cash flow for the fiscal years 1996, 1997 and
1998, (ii) an audited consolidated balance sheet of the Target,
together with related consolidated statements of income, stockholders'
equity and changes in financial position or cash flow for the fiscal
years 1995, 1996 and 1997, (iii) unaudited consolidated balance sheets
of the Consolidated Shorewood Group, together with related consolidated
statements of income, and consolidated statements of stockholders'
equity and changes in financial position or cash flow for the most
recently ended fiscal quarter and (iv) unaudited consolidated balance
sheets of the Target, together with related consolidated statements of
income for the eight month period ending August 30, 1998, fairly
present the financial condition and business operations of the
Consolidated Shorewood Group or the Target, as the case may be, as of
such respective dates (together, the "Financial Statements"); such
financial statements were prepared in accordance with GAAP; and since
the date of such financial statements there have occurred no changes or
circumstances which have had or are reasonably likely to have a
Material Adverse Effect.
(b) The financial statements delivered to the Lenders pursuant
to Sections 7.1(a) and (b): (i) have been prepared in accordance with
GAAP and (ii) present fairly the consolidated and consolidating (as
applicable) financial condition, results of operations and cash flows
of the Consolidated Shorewood Group as of such date and for such
periods.
6.7 NO DEFAULT.
No Default or Event of Default presently exists.
6.8 LIENS.
Except for Permitted Liens, each member of the Consolidated Shorewood
Group has good and marketable title to all of its properties and assets free and
clear of all Liens.
6.9 INDEBTEDNESS.
The Consolidated Shorewood Group has no Indebtedness (including without
limitation guaranty, reimbursement or other contingent obligations) except (a)
as disclosed in the Financial Statements referenced in Section 6.6, (b) as set
forth in Schedule 6.9, and (c) as otherwise permitted under the terms of this
Agreement.
6.10 LITIGATION.
Except as disclosed in Schedule 6.10, there are no actions, suits or
legal, equitable, arbitration or administrative proceedings, pending or, to the
knowledge of the Borrowers threatened, against any member of the Consolidated
Shorewood Group which, if adversely determined, would have or be reasonably
likely to have a Material Adverse Effect.
6.11 MATERIAL AGREEMENTS.
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No member of the Consolidated Shorewood Group is in default in any
material respect under any contract, lease, loan agreement, indenture, mortgage,
security agreement or other material agreement or obligation to which it is a
party or by which any of its properties is bound which default would have or be
reasonably likely to have a Material Adverse Effect.
6.12 TAXES.
Each member of the Consolidated Shorewood Group has filed, or caused to
be filed, all material tax returns (federal, state, local and foreign) required
to be filed and paid all amounts of taxes shown thereon to be due (including
interest and penalties) and has paid all other material taxes, fees, assessments
and other governmental charges (including mortgage recording taxes, documentary
stamp taxes and intangibles taxes) owing by it, except for such taxes (a) that
are not yet delinquent or (b) that are being contested in good faith and by
proper proceedings, and against which adequate reserves are being maintained in
accordance with GAAP. Neither Borrower is aware of any proposed material tax
assessments against it or any other member of the Consolidated Shorewood Group.
6.13 COMPLIANCE WITH LAW.
Each member of the Consolidated Shorewood Group is in substantial and
material compliance with all laws, rules, regulations, orders and decrees
(including without limitation environmental laws) applicable to it, or to its
properties.
6.14 ERISA.
(a) Except as would not reasonably be expected to have a
Material Adverse Effect, during the five-year period prior to the date
on which this representation is made or deemed made: (i) no ERISA Event
has occurred, and, to the best of the Borrowers' or any ERISA
Affiliate's knowledge, no event or condition has occurred or exists as
a result of which any ERISA Event could reasonably be expected to
occur, with respect to any Plan; (ii) no "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA and
Section 412 of the Code, whether or not waived, has occurred with
respect to any Plan; (iii) each Plan, Single Employer Plan and, to the
best of the Borrowers' or any ERISA Affiliate's knowledge, each
Multiemployer Plan has been maintained, operated, and funded in
compliance with its own terms and in material compliance with the
provisions of ERISA, the Code, and any other applicable federal or
state laws; and (iv) no Lien in favor or the PBGC or a Plan has arisen
or is reasonably likely to arise on account of any Plan.
(b) Except as set forth in the Financial Statements, the
actuarial present value of all "benefit liabilities" on a going concern
basis, whether or not vested, under each Single Employer Plan, as of
the last annual valuation date prior to the date on which this
representation is made or deemed made (determined, in each case,
utilizing the actuarial assumptions used in such Plan's most recent
actuarial valuation report), did not exceed as of such valuation date
the fair market value of the assets of such Plan.
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(c) Except as would not reasonably be expected to have a
Material Adverse Effect, neither the Borrowers nor any ERISA Affiliate
has not incurred, or, to the best of the Borrowers' or any ERISA
Affiliate's knowledge, is reasonably expected to incur, any withdrawal
liability under ERISA with respect to any Multiemployer Plan or
Multiple Employer Plan. Except as would not reasonably be expected to
have a Material Adverse Effect, neither Borrower nor any ERISA
Affiliate would become subject to any withdrawal liability under ERISA
if such Borrower or any such ERISA Affiliate were to withdraw
completely from all Multiemployer Plans and Multiple Employer Plans as
of the valuation date most closely preceding the date on which this
representation is made or deemed made. Neither Borrower nor any ERISA
Affiliate has received any notification that any Multiemployer Plan is
in reorganization (within the meaning of Section 4241 of ERISA), is
insolvent (within the meaning of Section 4245 of ERISA), or has been
terminated (within the meaning of Title IV of ERISA), and no
Multiemployer Plan is, to the best of the Borrowers' or any ERISA
Affiliate's knowledge, reasonably expected to be in reorganization,
insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility has occurred with respect to a Plan which has subjected
or may subject the Borrowers or any ERISA Affiliate to any liability
under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of
the Code, or under any agreement or other instrument pursuant to which
the Borrowers or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability.
(e) Except as set forth in the Financial Statements, the
Borrowers and their ERISA Affiliates have no material liability with
respect to "expected post-retirement benefit obligations" within the
meaning of the Financial Accounting Standards Board Statement 106. Each
Plan which is a welfare plan (as defined in Section 3(1) of ERISA) to
which Sections 601-609 of ERISA and Section 4980B of the Code apply has
been administered in compliance in all material respects with such
sections.
(f) All Canadian benefit plans and Canadian pension plans and
any similar plans of the Canadian Borrower and its Subsidiaries are
duly registered under the provisions of the Income Tax Act (Canada),
have been administered in accordance with such statute and no event has
occurred which would cause a loss of such registered status. All
material obligations of the Canadian Borrower and its Subsidiaries
(including fiduciary and funding obligations) under such plans required
to be performed have been performed. There are no outstanding disputes
concerning the assets held in the funding media for such plans. All
contributions or premiums required to be made by the Canadian Borrower
or its Subsidiaries to such plans have been made in a timely fashion in
accordance with the terms of such plans and applicable laws. Each of
such plans is fully funded and there exists no going concern unfunded
actuarial liabilities or solvency deficiencies in respect of such
plans.
6.15 SUBSIDIARIES.
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Set forth in Schedule 6.15 is a complete and accurate list of all
Affiliates and Subsidiaries of each member of the Consolidated Shorewood Group.
Information on the attached Schedule 6.15 includes jurisdiction of
incorporation; the number of shares of each class of capital stock or other
equity interests outstanding; the number and percentage of outstanding shares of
each class owned (directly or indirectly) by the member of the Consolidated
Shorewood Group, Subsidiary or Affiliate; and the number and effect, if
exercised, of all outstanding options, warrants, rights of conversion or
purchase and similar rights.
6.16 OWNERSHIP OF STOCK.
The outstanding capital stock and other equity interests of all
Subsidiaries of the Borrowers is validly issued, fully paid and non-assessable
and is owned by the Borrowers, directly or indirectly, free and clear of all
Liens (other than those arising under or contemplated in connection with the
Loan Documents).
6.17 USE OF PROCEEDS; MARGIN STOCK.
The proceeds of the Loans hereunder will be used solely for the
purposes specified in Section 7.10. None of such proceeds will be used for the
purpose of purchasing or carrying any "margin stock" as defined in Regulation U
or Regulation X, or for the purpose of reducing or retiring any Indebtedness
which was originally incurred to purchase or carry "margin stock" or for any
other purpose which might constitute this transaction a "purpose credit" within
the meaning of Regulation U or Regulation X.
6.18 GOVERNMENT REGULATION.
No member of the Consolidated Shorewood Group is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940 or the Interstate Commerce Act, each as amended.
In addition, none of the Consolidated Shorewood Group is (a) an "investment
company" registered or required to be registered under the Investment Company
Act of 1940, as amended, and is not controlled by such a company, or (b) a
"holding company," or a "Subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "Subsidiary" or a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended. No director, executive officer or principal shareholder of any member
of the Consolidated Shorewood Group is a director, executive officer or
principal shareholder of any Lender. For purposes hereof, the terms "director",
"executive officer" and "principal shareholder" (when used with reference to any
Lender) shall have the meanings ascribed to them in Regulation O issued by the
Board of Governors of the Federal Reserve System.
6.19 HAZARDOUS SUBSTANCES.
Except as disclosed on Schedule 6.19 or except as would not reasonably
be expected to have a Material Adverse Effect, to the Borrowers' knowledge
without having undertaken any environmental audit, all real property owned or
leased by any member of the Consolidated Shorewood Group or on which any member
of the Consolidated Shorewood Group operates (the
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"Subject Property") is free from "hazardous substances" "contaminants" or
"pollutants" or similar substances as defined in the applicable Environmental
Laws in concentrations or amounts that require cleanup under any Environmental
Laws; no portion of the Subject Property is subject to federal, provincial,
state or local, complaint, investigation or, to the Borrowers' knowledge without
having undertaken any environmental audit, liability under applicable
Environmental Laws because of the presence of leaked or spilled petroleum
products, waste materials or debris, "PCB's" or PCB items (as defined in 40
C.F.R. Section 763.3), underground storage tanks, "asbestos" (as defined in 40
C.F.R. Section 763.63) or the past or present accumulation, spillage or leakage
of any such substance subject to regulation under the Environmental Laws; and
the Consolidated Shorewood Group is in substantial compliance with all material
Environmental Laws applicable in connection with the operation of their
businesses; and neither Borrower knows of any complaint or investigation under
Environmental Laws regarding real property which it or any other member of the
Consolidated Shorewood Group owns or leases or on which it or any other member
of the Consolidated Shorewood Group operates.
6.20 PATENTS, FRANCHISES, ETC.
Each member of the Consolidated Shorewood Group possesses all material
patents, trademarks, service marks, trade names, copyrights, licenses and other
rights, free from burdensome restrictions, that are necessary for the operation
of their respective businesses as presently conducted and as proposed to be
conducted. Each member of the Consolidated Shorewood Group has obtained all
material licenses, permits, franchises or other governmental authorizations
necessary to the ownership of its respective property and to the conduct of its
business.
6.21 SOLVENCY.
Each member of the Consolidated Shorewood Group individually, and the
Consolidated Shorewood Group as a whole, is and, after consummation of this
Agreement and after giving effect to all Indebtedness incurred hereunder and the
acquisition of the assets of the Target, will be Solvent.
6.22 LOCATION OF ASSETS.
Set forth on Schedule 6.22 is the chief executive office of each member
of the Consolidated Shorewood Group and the location (city, county, state and
country) of all assets of each member of the Consolidated Shorewood Group.
6.23 YEAR 2000 COMPLIANCE.
The U.S. Borrower has (a) initiated a review and assessment of all areas
within its and each of its Subsidiaries' businesses and operations (including
those affected by suppliers, vendors and customers) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications may not be able to recognize and properly perform date-sensitive
functions after December 31, 1999), (b) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (c) to date, implemented
that plan in accordance with that
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timetable. To date, the Borrowers have not become aware of any reason to believe
that the Year 2000 Problem could reasonably be expected to have a Material
Adverse Effect.
6.24 CERTAIN SUBSIDIARIES.
Shor-Wrap Packages of Canada, Ltd. and Shorewood Transport, Inc. have
no assets and no ongoing business.
SECTION 7
AFFIRMATIVE COVENANTS
Each Borrower hereby covenants and agrees that so long as this Agreement
is in effect and until the Loans and LOC Obligations, together with interest,
fees and other obligations hereunder, have been paid in full and the Commitments
and Letters of Credit hereunder shall have terminated that they will do or cause
to be done the following:
7.1 INFORMATION COVENANTS.
The Borrowers will furnish, or cause to be furnished, to the
Administrative Agent and each Lender:
(a) Annual Financial Statements. As soon as available and in
any event within 90 days after the close of each fiscal year of the
Consolidated Shorewood Group, a consolidated balance sheet of the
Consolidated Shorewood Group as at the end of such fiscal year together
with related consolidated statements of income, shareholder's equity and
of cash flows for such fiscal year, setting forth in comparative form
consolidated figures for the preceding fiscal year, all in reasonable
detail and audited by independent certified public accountants of
recognized national standing and whose opinion shall be to the effect
that such consolidated financial statements have been prepared in
accordance with GAAP and shall not be limited as to the scope of the
audit or qualified as to the status of the Consolidated Shorewood Group
as a going concern. It is specifically understood and agreed that
failure of the annual financial statements to be accompanied by an
opinion of such accountants in form and substance as provided herein
shall constitute an Event of Default hereunder.
(b) Quarterly Financial Statements. As soon as
available and in any event within 45 days after the end of each fiscal
quarter (other than the fourth fiscal quarter, in which case 90 days
after the end thereof) of each fiscal year of the Consolidated
Shorewood Group, a consolidated and consolidating balance sheet and
statement of income of the Consolidated Shorewood Group as at the end
of such quarterly period together with related consolidated statements
of retained earnings, shareholder's equity and of cash flows for such
quarterly period and for the portion of the fiscal year ending with
such period, in each case setting forth in comparative form figures for
the corresponding period of the preceding fiscal year, all in
reasonable form and detail acceptable to the Administrative
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Agent, and accompanied by a certificate of the chief financial officer
of the U.S. Borrower as being true and correct and as having been
prepared in accordance with GAAP, subject to changes resulting from
audit and normal year-end audit adjustments.
(c) Officer's Certificate. At the time of delivery of the
financial statements provided for in Sections 7.1(a) and (b), a
certificate of the chief financial officer or chief accounting officer
of the U.S. Borrower substantially in the form of Exhibit 7.1(c) to the
effect that no Default or Event of Default exists, or if any Default or
Event of Default does exist specifying the nature and extent thereof
and what action the U.S. Borrower proposes to take with respect
thereto. In addition, the Officer's Certificate shall (i) demonstrate
compliance with the financial covenants contained in Section 7.13 by
calculation thereof as of the end of each such fiscal period
(including, without limitation, calculation of the Debt Coverage Ratio
for purposes of calculating the Applicable Percentage) and (ii) contain
a representation that the Borrowers have not become aware of any reason
to believe that the Year 2000 Problem could reasonably be expected to
have a Material Adverse Effect.
(d) Auditor's Reports. Promptly upon receipt thereof, a copy
of any other report or "management letter" submitted by independent
accountants to a member of the Consolidated Shorewood Group in
connection with any annual, interim or special audit of the books of
the Consolidated Shorewood Group.
(e) SEC and Other Reports. Promptly upon transmission or
receipt thereof, (i) copies of any filings and registrations with, and
reports to or from, the Securities and Exchange Commission, or any
successor agency, and copies of all financial statements, proxy
statements, notices and reports as the Consolidated Shorewood Group
shall send to its shareholders or to the holders of any other
Indebtedness in their capacity as such holders and (ii) upon the
request of the Administrative Agent, all material reports and written
information to and from the United States Environmental Protection
Agency, or any state or local agency responsible for environmental
matters, the United States Occupational Health and Safety
Administration, or any state or local agency responsible for health and
safety matters, or any successor agencies or authorities concerning
environmental, health or safety matters relating to member of the
Consolidated Shorewood Group.
(f) Notices. Upon an executive officer of either Borrower
obtaining knowledge thereof, such Borrower will give written notice to
the Administrative Agent (i) immediately of the occurrence of an event
or condition consisting of a Default or Event of Default, specifying
the nature and existence thereof and what action the Borrowers propose
to take with respect thereto, and (ii) promptly, but in any event
within 5 Business Days, of the occurrence of any of the following with
respect to the Consolidated Shorewood Group (A) the pendency or
commencement of any litigation, arbitral or governmental proceeding
against a member of the Consolidated Shorewood Group which, if
adversely determined, would have or be reasonably likely to have a
Material Adverse Effect, (B) any levy of an attachment, execution or
other process against the assets of a member of the Consolidated
Shorewood Group having a value of $500,000 or more, (C) the occurrence
of an event or condition which shall constitute a default or event of
default under any Indebtedness of a
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member of the Consolidated Shorewood Group in excess of $500,000, (D)
any development in the business or affairs of the Consolidated
Shorewood Group which has resulted in, or which either Borrower
reasonably believes may result in, a Material Adverse Effect, or (E)
the institution of any proceedings against a member of the Consolidated
Shorewood Group with respect to, or the receipt of notice by such
Person of potential liability or responsibility for violation, or
alleged violation of any federal, state or local law, rule or
regulation, including but not limited to, Environmental Laws, the
violation of which would have or be reasonably expected to have a
Material Adverse Effect.
(g) Annual Business Plan. At least 30 days prior to the end of
each fiscal year, beginning with the fiscal year ending in 1999, an
annual business plan of the Consolidated Shorewood Group containing,
among other things, pro forma financial statements for the next fiscal
year.
(h) Environmental Update. Within 45 days after the end of each
fiscal quarter (90 days after the end of the fourth fiscal quarter), a
report from the Consolidated Shorewood Group identifying all material
environmental issues and matters arising under applicable Environmental
Laws concerning the Consolidated Shorewood Group or their properties of
which the Borrowers are aware and what action the Consolidated
Shorewood Group has been taking or plans to take to address or comply
with same.
(i) Compliance with Certain Covenants. At the time the
Borrowers deliver the financial statements required by Section 7.1(b),
the Consolidated Shorewood Group shall deliver a certificate, in the
form of Exhibit 7.1(i), containing information regarding expenditures
made by the Consolidated Shorewood Group as to Investments,
Acquisitions, Capital Expenditures and Restricted Payments during the
prior fiscal quarter.
(j) Other Information. With reasonable promptness upon any
such request, such other information regarding the business, properties
or financial condition of the Consolidated Shorewood Group as the
Administrative Agent or the Lenders may reasonably request.
7.2 PRESERVATION OF EXISTENCE AND FRANCHISES.
Each Borrower will do all things necessary to preserve and keep (and
will cause each other member of the Consolidated Shorewood Group to keep) in
full force and effect its existence, rights, franchises and authority.
7.3 BOOKS AND RECORDS.
The U.S. Borrower will keep (and will cause each other member of the
Consolidated Shorewood Group domiciled in the United States to keep) complete
and accurate books and records of its transactions in accordance with good
accounting practices on the basis of GAAP. The Canadian Borrower will keep (and
cause each other member of the Consolidated Shorewood Group domiciled in Canada
to keep) complete and accurate books and records of its transactions in
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accordance with good accounting practices on the basis of generally accepted
accounting principles applicable in Canada.
7.4 COMPLIANCE WITH LAW.
Each Borrower will comply (and will cause each other member of the
Consolidated Shorewood Group to comply) with all material laws, rules,
regulations and orders of, and all applicable restrictions imposed by all
applicable Governmental Authorities applicable to it (and to each other member
of the Consolidated Shorewood Group), including applicable Environmental Laws if
noncompliance would have or be reasonably likely to have a Material Adverse
Effect.
7.5 PAYMENT OF TAXES AND OTHER INDEBTEDNESS.
Each Borrower will pay and discharge (and cause each other member of
the Consolidated Shorewood Group to pay and discharge) (a) all material taxes,
assessments and governmental charges or levies imposed upon it or them, or upon
its or their income or profits, or upon any of its or their properties, before
they shall become delinquent, (b) all lawful claims (including claims for labor,
materials and supplies) which, if unpaid, might give rise to a Lien or charge
upon any of its or their properties, and (c) except as prohibited hereunder, all
of its other Indebtedness as it shall become due; provided, however, that there
is no requirement to pay any such tax, assessment, charge, levy, claim or
Indebtedness which is being contested in good faith by appropriate proceedings
and as to which adequate reserves therefor have been established in accordance
with GAAP, unless the failure to make any such payment (i) shall give rise to an
immediate right to foreclosure on a Lien securing such amounts or (ii) otherwise
would have a Material Adverse Effect.
7.6 INSURANCE.
Each Borrower will maintain (and will cause each member of the
Consolidated Shorewood Group to maintain) at all times in full force and effect
insurance (including worker's compensation insurance, liability insurance,
casualty insurance and business interruption insurance) in such amounts,
covering such risks and liabilities and with such deductibles or self-insurance
retentions as are in accordance with normal industry practice unless higher
limits or other types of coverage are required by the terms of the other Loan
Documents or are otherwise reasonably required by the Lender. The present
coverage of the Consolidated Shorewood Group is outlined as to carrier, policy
number, expiration date, type and amount on Schedule 7.6 hereto and is
acceptable to the Lenders as of the Closing Date.
7.7 MAINTENANCE OF PROPERTY.
Each Borrower will maintain and preserve (and cause each other member
of the Consolidated Shorewood Group to maintain and preserve) its properties and
equipment used or necessary in its business (in whomsoever's possession as they
may be) in good repair, working order and condition, normal wear and tear
excepted, and will make, or cause to be made, in such properties and equipment
from time to time all repairs, renewals, replacements, extensions,
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additions, betterments and improvements thereto as may be needed or proper, to
the extent and in the manner customary for companies in similar businesses.
7.8 PERFORMANCE OF OBLIGATIONS.
Each Borrower will perform (and cause each other member of the
Consolidated Shorewood Group to perform) in all material respects all of its
obligations (including, except as may be otherwise prohibited or contemplated
hereunder, payment of Indebtedness in accordance with its terms) under the terms
of all material agreements, indentures, mortgages, security agreements or other
debt instruments to which it is a party or by which it is bound.
7.9 ERISA.
Upon the U.S. Borrower or any ERISA Affiliate obtaining knowledge
thereof, the U.S. Borrower will give written notice to the Administrative Agent
promptly (and in any event within five Business Days) of: (a) any event or
condition, including, but not limited to, any Reportable Event, that
constitutes, or might reasonably lead to, a ERISA Event; (b) with respect to any
Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise of
any withdrawal liability assessed against the U.S. Borrower or any ERISA
Affiliate, or of a determination that any Multiemployer Plan is in
reorganization or insolvent (both within the meaning of Title IV of ERISA); (c)
the failure to make full payment on or before the due date (including
extensions) thereof of all amounts which the U.S. Borrower or any ERISA
Affiliate is required to contribute to each Plan pursuant to its terms and as
required to meet the minimum funding standard set forth in ERISA and the Code
with respect thereto; or (d) any change in the funding status of any Plan that
could have or be reasonably expected to have a Material Adverse Effect;
together, with a description of any such event or condition or a copy of any
such notice and a statement by the principal financial officer of the U.S.
Borrower briefly setting forth the details regarding such event, condition, or
notice, and the action, if any, which has been or is being taken or is proposed
to be taken by the U.S. Borrower or any ERISA Affiliate with respect thereto.
Promptly upon request, the U.S. Borrower shall furnish the Administrative Agent
and the Lenders with such additional information concerning any Plan as may be
reasonably requested, including, but not limited to, copies of each annual
report/return (Form 5500 series), as well as all schedules and attachments
thereto required to filed with the Department of Labor and/or the Internal
Revenue Service pursuant to ERISA and the Code, respectively, for each "plan
year" (within the meaning of Section 3(39) of ERISA).
All Canadian benefit plans and Canadian pension plans and any similar plans
applicable to the Canadian Borrower and its Subsidiaries will be duly registered
under the provisions of the Income Tax Act (Canada), will be administered in
accordance with such statute and no event will be allowed to occur which would
cause a loss of such registered status. All material obligations of the Canadian
Borrower and its Subsidiaries (including fiduciary and funding obligations)
required to be performed in connection with such plans and the funding media
therefor will be performed. There will be no outstanding disputes concerning the
assets held in the funding media for such plans. All contributions or premiums
required to be made by the Canadian Borrower or its Subsidiaries to such plans
will be made in a timely fashion in accordance with the terms of such plans and
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applicable laws. Each of such plans will be fully funded and no going concern
unfunded actuarial liabilities or solvency deficiencies in respect of such plans
will be allowed to exist.
7.10 USE OF PROCEEDS.
The proceeds of the Loans hereunder will be used solely (a) to finance
a portion of the purchase price of the assets of the Target and all fees and
expenses in connection with such acquisition, (b) for repayment of all amounts
owing under the Existing Credit Agreement, (c) for general corporate and working
capital purposes of each Borrower in the ordinary course of business and (d) as
otherwise permitted under this Agreement.
7.11 ADDITIONAL SUBSIDIARIES.
Promptly, or in any event within 30 days, upon any Person becoming a
Subsidiary of a Borrower or any other member of the Consolidated Shorewood
Group, the Borrowers shall so notify the Administrative Agent and the Canadian
Administrative Agent and shall, (a) in the case of a Person organized and
domiciled in the United States cause (i) such Person to execute a Guaranty
Agreement in substantially the same form as the Guaranty Agreements executed by
the other Guarantors organized and domiciled in the United States and (ii) 100%
of the stock of such Person to be pledged to the Lenders pursuant to a Stock
Pledge Agreement similar to those executed by other Guarantors organized and
domiciled in the United States, (b) in the case of a Person organized and
domiciled in Canada cause (i) such Person to execute a Guaranty Agreement in
substantially the same form as the Guaranty Agreements executed by the other
similar situated Guarantors organized and domiciled in Canada (i.e., depending
upon whether such Person is a first tier Subsidiary or a lower tier Subsidiary)
and (ii) the stock of such Person to be pledged to the Lenders in substantially
the same way and the same amount as other similar situated Guarantors organized
and domiciled in Canada and (c) in the case of a Person organized and domiciled
outside of the United States or Canada (other than in connection with the
Chinese Investment), cause 66% of the stock of such Person to be pledged to the
Lenders in a manner reasonably acceptable to the Agent.
7.12 AUDITS/INSPECTIONS.
Upon reasonable notice and during normal business hours, each Borrower
will permit (and will cause each member of the Consolidated Shorewood Group to
permit) representatives appointed by the Administrative Agent, including,
without limitation, independent accountants, agents, attorneys, and appraisers
to visit and inspect any member of the Consolidated Shorewood Group's property,
including its books of account and other books and records, its accounts
receivable and inventory, its facilities and its other business assets, and to
make photocopies or photographs thereof and to write down and record any
information such representative obtains and shall permit the Administrative
Agent or its representatives to investigate and verify the accuracy of
information provided to the Lenders and to discuss all such matters with the
officers, employees and representatives of each member of the Consolidated
Shorewood Group.
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7.13 FINANCIAL COVENANTS.
(a) Current Ratio. At any time, the ratio of Current Assets to
Current Liabilities shall be greater than or equal to 1.10 to 1.0.
(b) Fixed Charge Ratio.
(i) The Fixed Charge Ratio, as of the end of
the fiscal quarter ending closest to October 31, 1998 and as
of the end of each fiscal quarter thereafter through and
including the fiscal quarter ending closest to April 30, 1999,
shall be greater than or equal to 1.25 to 1.0; and
(ii) The Fixed Charge Ratio, as of the end of
the fiscal quarter ending closest to July 31, 1999 and as of
the end of each fiscal quarter thereafter, shall be greater
than or equal to 1.50 to 1.0.
(c) Net Worth. The consolidated Net Worth of the Consolidated
Shorewood Group shall be greater than or equal to:
(i) $95,000,000, plus
(ii) an amount, determined at the end of each
fiscal quarter, commencing with the quarterly fiscal period
ending closest to October 31, 1998, equal to 50% of Net Income
earned by the Consolidated Shorewood Group (with no reductions
for any losses incurred during any fiscal quarter).
(d) Debt Coverage Ratio.
(i) The Debt Coverage Ratio, as of the end of
the fiscal quarter ending closest to October 31, 1998 shall be
less than or equal to 4.00 to 1.0;
(ii) The Debt Coverage Ratio, as of the end of
the fiscal quarter ending closest to January 31, 1999 and the
fiscal quarter ending closest to April 30, 1999 shall be less
than or equal to 3.50 to 1.0; and
(iii) The Debt Coverage Ratio, as of the end of
the fiscal quarter ending closest to July 31, 1999 and as of
the end of each fiscal quarter thereafter, shall be less than
or equal to 3.0 to 1.0.
7.14 SHOREWOOD PACKAGING CORPORATION OF NEW YORK.
On or before February 15, 1999, the Borrowers shall take such action as
is necessary to insure that Shorewood Packaging Corporation of New York is a
validly existing New York corporation and is in good standing in the State of
New York and all other applicable
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jurisdictions and shall deliver such documents, instruments and opinions with
respect thereto as requested by the Administrative Agent.
SECTION 8
NEGATIVE COVENANTS
Each Borrower hereby covenants and agrees that so long as this
Agreement is in effect and until the Loans and LOC Obligations, together with
interest, fees and other obligations hereunder, have been paid in full and the
Commitments and Letters of Credit hereunder shall have terminated that it will
do or cause to be done the following:
8.1 INDEBTEDNESS.
The Borrowers will not (nor will they permit any Guarantor to)
contract, create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Agreement and the other
Loan Documents;
(b) Indebtedness existing as of the Closing Date as referenced
in Section 6.9 (and renewals, refinancings or extensions thereof on
terms and conditions substantially the same as such existing
Indebtedness and in a principal amount not in excess of that
outstanding as of the date of such renewal, refinancing or extension);
(c) Indebtedness in respect of current accounts payable and
accrued expenses incurred in the ordinary course of business including,
to the extent not current, accounts payable and accrued expenses that
are subject to bona fide dispute;
(d) purchase money Indebtedness (including capital leases)
incurred by the Borrowers and Guarantors to finance the purchase of
fixed assets; provided that (i) the total of all such Indebtedness for
all of the Borrowers and Guarantors taken together shall not exceed an
aggregate principal amount of $15,000,000 at any one time outstanding
(including any such Indebtedness referred to in subsection (b) above);
(ii) such Indebtedness when incurred shall not exceed the purchase
price of the asset(s) financed; and (iii) no such Indebtedness shall be
refinanced for a principal amount in excess of the principal balance
outstanding thereon at the time of such refinancing;
(e) Indebtedness owing from the U.S. Borrower to its
Subsidiaries domiciled in the United States or from such Subsidiaries
in the United States to the U.S. Borrower;
(f) Indebtedness owing from the Canadian Borrower to its
Subsidiaries domiciled in Canada or from such Subsidiaries in Canada to
the Canadian Borrower;
(g) Indebtedness in the form of loans or advances owing by
Subsidiaries or Affiliates organized and existing outside of the United
States or Canada to members of the
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Consolidated Shorewood Group (subject to the limitations of Section
8.10 by the member of the Consolidated Shorewood Group making the loan
or advance);
(h) Indebtedness assumed in connection with a Permitted
Acquisition; and
(i) other unsecured Indebtedness of the U.S. Borrower of up to
$3,000,000 in the aggregate at any time outstanding.
8.2 LIENS.
The Borrowers will not (nor will they permit any Guarantor to)
contract, create, incur, assume or permit to exist any Lien with respect to any
of its property or assets of any kind (whether real or personal, tangible or
intangible), whether now owned or after acquired, except for Permitted Liens.
8.3 NATURE OF BUSINESS.
The Borrowers will not (nor will they permit any member of the
Consolidated Shorewood Group to) substantively alter the character of its
business from that conducted as of the Closing Date.
8.4 CONSOLIDATION OR MERGER.
The Borrowers will not (nor will they permit any member of the
Consolidated Shorewood Group to) enter into any transaction of merger or
consolidation or dissolve, liquidate, or wind up its affairs other than the
following:
(a) the merger or consolidation of a Subsidiary of a Borrower
into such Borrower or into a member of the Consolidated Shorewood
Group; provided that if such merger involves a Borrower such Borrower
shall be the surviving entity,
(b) the merger or consolidation of any Person who is not a
member of the Consolidated Shorewood Group into a member of the
Consolidated Shorewood Group, provided that the member of the
Consolidated Shorewood Group shall be the surviving corporation, and
management and control of the member of the Consolidated Shorewood
Group shall remain substantially unchanged and no Default or Event of
Default shall exist either immediately prior to or after giving effect
to such merger, and the Board of Directors of the company which is the
subject of the acquisition or merger shall have approved the
acquisition or merger, or
(c) the dissolution of Shor-Wrap Packages of Canada, Ltd. and
Shorewood Transport, Inc.
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8.5 SALE OR LEASE OF ASSETS.
The Borrowers will not (nor will they permit any member of the
Consolidated Shorewood Group to), convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any part of
its business or assets whether now owned or hereafter acquired, including,
without limitation, inventory, receivables, equipment, real property interests
(whether owned or leasehold), and securities, other than (a) any inventory sold
or otherwise disposed of in the ordinary course of business; (b) the sale,
lease, transfer or other disposal by a Guarantor of any or all of its assets to
a Borrower or to another Guarantor; (c) obsolete, slow-moving, idle or worn-out
assets (including inventory) no longer used or useful in its business, (d) the
transfer of assets which constitute a Permitted Investment, (e) the termination,
liquidation or winding down of non-performing, obsolete or redundant businesses,
facilities or operations, (f) the sale or transfer of Permitted Investments or
interests therein, (g) sales and transfers described in clauses (b) and (c) of
the definition of "Asset Disposition", and (h) other sales and dispositions to
the extent the Net Proceeds thereof are used solely to make payment on the Loans
and obligations hereunder and a permanent reduction in the Commitments hereunder
of a like amount.
8.6 ACQUISITIONS.
The Borrowers will not (nor will they permit any member of the
Consolidated Shorewood Group to) make any Acquisitions other than Permitted
Acquisitions.
8.7 TRANSACTIONS WITH AFFILIATES.
The Borrowers will not (nor will they permit any member of the
Consolidated Shorewood Group to) enter into any transaction or series of
transactions, whether or not in the ordinary course of business, with any
officer, director, shareholder, Subsidiary or Affiliate except upon terms and
conditions no less favorable than would be obtainable in a comparable
arm's-length transaction with a Person other than an Affiliate.
8.8 OWNERSHIP OF SUBSIDIARIES.
The Borrowers will not (nor will they permit any member of the
Consolidated Shorewood Group to) sell, transfer or otherwise dispose of, any
shares of capital stock of any of its Subsidiaries or permit any of its
Subsidiaries to issue, sell or otherwise dispose of, any shares of capital stock
of any of their Subsidiaries, except to members of the Consolidated Shorewood
Group or except as permitted by Section 8.5(f).
8.9 FISCAL YEAR.
The Borrowers will not (nor will they permit any member of the
Consolidated Shorewood Group to) change its fiscal year without the prior
written consent of the Required Lenders, which consent shall not be unreasonably
denied or delayed, with appropriate modification of the financial covenants to
give effect to the partial year resulting therefrom.
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8.10 INVESTMENTS.
The Borrowers will not (nor will they permit any member of the
Consolidated Shorewood Group to) make any Investments except for Permitted
Investments.
8.11 RESTRICTED PAYMENTS.
The U.S. Borrower will not declare or make any Restricted Payment if as
a result of such payment the aggregate amount of all Restricted Payments made
from the date of this Agreement would exceed the sum of $50 million plus an
amount equal to 50% of cumulative Net Income earned subsequent to the fiscal
quarter ending closest to October 31, 1998 (determined on a quarterly basis)
minus the aggregate amount of Investments (determined on a cost basis)
outstanding at that time of the type described in clause (h) of the definition
of "Permitted Investments" (i.e. up to $45 million invested in the Chinese
Investment); provided, however, no Restricted Payment otherwise payable pursuant
to this Section 8.11 shall be made if (i) at the time of such Restricted
Payment, the Debt Coverage Ratio is greater than 3.0 to 1.0 or (ii) after giving
effect to such Restricted Payment, on a pro forma basis, the Debt Coverage Ratio
would be greater than 3.0 to 1.0. Notwithstanding the foregoing, Restricted
Payments relating to puts and calls for the purchase or sale of any class of
capital stock or equity interest in the U.S. Borrower now or hereafter
outstanding may be made without regard to the Debt Coverage Ratio at the time of
such Restricted Payment or after giving effect to such Restricted Payment on a
pro forma basis, if the Restricted Payment would have been permitted hereunder
on the date the put or call was granted. For the purposes hereof, pro forma
basis means that such Restricted Payment occurred as of the first day of the
four quarter period ending as of the last day of the most recent fiscal quarter
for which the Lenders have received the financial information required by
Section 7.1(b).
SECTION 9
EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
(a) Payment. Either Borrower shall default in the payment when
due of any principal or within three days of when due of any interest,
fees or other amounts owing hereunder, under any of the other Loan
Documents or in connection herewith;
(b) Representations. Any representation, warranty or statement
made or deemed to be made by any member of the Consolidated Shorewood
Group herein, in any of the Loan Documents, or in any statement or
certificate delivered or required to be delivered pursuant hereto or
thereto shall prove untrue in any material respect on the date as of
which it was deemed to have been made;
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(c) Covenants. Any member of the Consolidated Shorewood Group
shall
(i) default in the due performance or observance of
any term condition or agreement contained in Section
7.1(f)(i), 7.13 or 8.1 through 8.11, inclusive (except in the
case of negative covenants contained in Sections 8.1 through
8.11, those Defaults which may occur or arise other than on
account of or by affirmative or intentional act by a member of
the Consolidated Shorewood Group or event or condition which
members of the Consolidated Shorewood Group shall with
knowledge permit to exist, all of which shall be subject to
the provisions of clause (iii) hereof), or
(ii) default in the due performance or observance of
any term or condition in Section 7.1(a), (b) or (c) and such
default shall remain unremedied for a period of five Business
Days after the earlier of a member of the Consolidated
Shorewood Group becoming aware of such default or notice
thereof given by the Agent.
(iii) default in the due performance or observance of
any term, covenant or agreement (other than those referred to
in subsections (a), (b), (c)(i) or (c)(ii) of this Section
9.1) contained in this Agreement and such default shall
continue unremedied for a period of 30 Business Days after the
earlier of a member of the Consolidated Shorewood Group
becoming aware of such default or notice thereof given by the
Administrative Agent;
(d) Other Loan Documents. (i) Any member of the Consolidated
Shorewood Group shall default in the due performance or observance of
any term, covenant or agreement in any of the other Loan Documents
(subject to applicable grace or cure periods, if any), or (ii) any Loan
Document shall fail to be in full force and effect or to give an Agent
and/or the Lenders the rights, powers and privileges purported to be
created thereby;
(e) Guaranties. Any Guarantor or any Person acting by or on
behalf of such Guarantor shall deny or disaffirm such Guarantor's
obligations under a Guaranty Agreement;
(f) Bankruptcy, etc. The occurrence of any Bankruptcy Event
with respect to a member of the Consolidated Shorewood Group;
(g) Defaults under Other Agreements. With respect to any
Funded Debt in excess of $3,000,000 (other than Funded Debt outstanding
under this Agreement), (i) a member of the Consolidated Shorewood Group
shall (A) default in any payment (beyond the applicable grace period
with respect thereto, if any) with respect to any such Funded Debt, or
(B) default in the observance or performance relating to such Funded
Debt or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event or condition shall occur or
condition exist, the effect of which default or other event or
condition is to cause, or permit, the holder or holders of such Funded
Debt (or trustee or agent on behalf of such holders) to cause
(determined without regard to whether
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any notice or lapse of time is required), any such Funded Debt to
become due prior to its stated maturity; or (ii) any such Indebtedness
shall be declared due and payable, or required to be prepaid other than
by a regularly scheduled required prepayment, prior to the stated
maturity thereof;
(h) Judgments. One or more judgments or decrees shall be
entered against a member of the Consolidated Shorewood Group involving
a liability of $1,000,000 or more in the aggregate (to the extent not
paid or fully covered by insurance provided by a carrier who has
acknowledged coverage) and any such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 30
days from the entry thereof;
(i) ERISA. The occurrence of any of the following events or
conditions, if the result could have or be reasonably expected to have
a Material Adverse Effect: (A) any "accumulated funding deficiency," as
such term is defined in Section 302 of ERISA and Section 412 of the
Code, whether or not waived, shall exist with respect to any Plan, or
any lien shall arise on the assets of the U.S. Borrower or any ERISA
Affiliate in favor of the PBGC or a Plan; (B) a ERISA Event shall occur
with respect to a Single Employer Plan, which is, in the reasonable
opinion of the Administrative Agent, likely to result in the
termination of such Plan for purposes of Title IV of ERISA; (C) a ERISA
Event shall occur with respect to a Multiemployer Plan or Multiple
Employer Plan, which is, in the reasonable opinion of the
Administrative Agent, likely to result in (1) the termination of such
Plan for purposes of Title IV of ERISA, or (2) the U.S. Borrower or any
ERISA Affiliate incurring any liability in connection with a withdrawal
from, reorganization of (within the meaning of Section 4241 of ERISA),
or insolvency or (within the meaning of Section 4245 of ERISA) such
Plan; or (D) any prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility shall occur which may subject the U.S. Borrower or any
ERISA Affiliate to any liability under Sections 406, 409, 502(i), or
502(l) of ERISA or Section 4975 of the Code, or under any agreement or
other instrument pursuant to which the U.S. Borrower or any ERISA
Affiliate has agreed or is required to indemnify any person against any
such liability.
(j) Ownership. There shall occur a Change of Control.
9.2 ACCELERATION; REMEDIES.
Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived by the Required Lenders
or cured, the Administrative Agent shall, upon the request and direction of the
Required Lenders, by written notice to the Borrowers, take any of the following
actions without prejudice to the rights of the Administrative Agent or any
Lender to enforce its claims against any member of the Consolidated Shorewood
Group, except as otherwise specifically provided for herein:
(a) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
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(b) Acceleration of Loans. Declare the unpaid principal of and
any accrued interest in respect of all Loans and any and all other
indebtedness or obligations of any and every kind owing by the
Borrowers to any of the Lenders hereunder to be due whereupon the same
shall be immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by
the Borrowers.
(c) Cash Collateral. Direct the Borrowers to pay (and the
Borrowers agree that upon receipt of such notice, or upon the
occurrence of an Event of Default under Section 9.1(f), they will
immediately pay) to the Administrative Agent additional cash, to be
held by the Administrative Agent, for the benefit of the Lenders, in a
cash collateral account as security for the LOC Obligations in respect
of subsequent drawings under all then outstanding Letters of Credit in
an amount equal to the maximum aggregate amount which may be drawn
under all Letters of Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Loan Documents, including,
without limitation, the Guaranty Agreements and the Stock Pledge
Agreements, and all rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations under Letters of Credit, all accrued
interest in respect thereof, all accrued and unpaid fees and other indebtedness
or obligations owing to the Lenders hereunder shall immediately become due and
payable without the giving of any notice or other action by the Agents or the
Lenders which notice or other action is expressly waived by the Borrowers.
Notwithstanding the fact that enforcement powers reside primarily with the
Agents, each Lender has, to the extent permitted by law, a separate right of
payment and shall be considered a separate "creditor" holding a separate "claim"
within the meaning of Section 101(5) of the Bankruptcy Code or any other
insolvency statute.
SECTION 10
AGENCY PROVISIONS
10.1 APPOINTMENT.
Each Lender hereby designates and appoints NationsBank, N.A. as
Administrative Agent and The Bank of Nova Scotia as Canadian Administrative
Agent to act as specified herein and the other Loan Documents, and each such
Lender hereby authorizes the Agents as the agent for such Lender, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated by the terms hereof and of the other Loan Documents, together with
such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere herein and in the other
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Loan Documents, the Agents shall not have any duties or responsibilities, except
those expressly set forth herein and therein, or any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any of the other
Loan Documents, or shall otherwise exist against the Agents. The provisions of
this Section are solely for the benefit of the Agents and the Lenders and none
of the members of the Consolidated Shorewood Group shall have any rights as a
third party beneficiary of the provisions hereof. In performing its functions
and duties under this Agreement and the other Loan Documents, the Agents shall
act solely as agent of the Lenders and do not assume and shall not be deemed to
have assumed any obligation or relationship of agency or trust with or for the
Borrowers or any other member of the Consolidated Shorewood Group.
10.2 DELEGATION OF DUTIES.
The Agents may execute any of their respective duties hereunder or
under the other Loan Documents by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agents shall not be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected with reasonable care.
10.3 EXCULPATORY PROVISIONS.
Each of the Agents or any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates shall not be (a) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection herewith or in connection with any of the other Loan Documents
(except for its or such Person's own gross negligence or willful misconduct), or
(b) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any of the member of the
Consolidated Shorewood Group contained herein or in any of the other Loan
Documents or in any certificate, report, statement or other document referred to
or provided for in, or received by an Agent under or in connection herewith or
in connection with the other Loan Documents, or enforceability or sufficiency
therefor of any of the other Loan Documents, or for any failure of either of the
Borrowers to perform its obligations hereunder or thereunder. An Agent shall not
be responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of this Agreement, or any of the
other Loan Documents or for any representations, warranties, recitals or
statements made herein or therein or made by the Borrowers or any member of the
Consolidated Shorewood Group in any written or oral statement or in any
financial or other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by an Agent to
the Lenders or by or on behalf of the Consolidated Shorewood Group to an Agent
or any Lender or be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained herein or therein or as to the use of the proceeds of the Loans or of
the existence or possible existence of any Default or Event of Default or to
inspect the properties, books or records of the Consolidated Shorewood Group.
The Agents are not trustees for the Lenders and owe no fiduciary duty of the
Lenders.
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10.4 RELIANCE ON COMMUNICATIONS.
The Agents shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrowers or any of the other member of the
Consolidated Shorewood Group, independent accountants and other experts selected
by the Administrative Agent with reasonable care). The Agents may deem and treat
the Lenders as the owner of their respective interests hereunder for all
purposes unless a written notice of assignment, negotiation or transfer thereof
shall have been filed with the appropriate Agent in accordance with Section
11.3(b). The Agents shall be fully justified in failing or refusing to take any
action under this Agreement or under any of the other Loan Documents unless it
shall first receive such advice or concurrence of the Required Lenders as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. Each Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder or
under any of the other Loan Documents in accordance with a request of the
Required Lenders (or to the extent specifically provided in Section 11.6, all
the Lenders) and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders (including their successors and
assigns).
10.5 NOTICE OF DEFAULT.
An Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless such Agent has
received notice from a Lender or a member of the Consolidated Shorewood Group
referring to the Loan Document, describing such Default or Event of Default and
stating that such notice is a "notice of default." In the event that an Agent
receives such a notice, such Agent shall give prompt notice thereof to the
Lenders. The Administrative Agent shall take such action with respect to such
Default or Event of Default as shall be directed by the Required Lenders.
10.6 NON-RELIANCE ON AGENTS AND OTHER LENDERS.
Each Lender expressly acknowledges that neither of the Agents nor any
of their officers, directors, employees, agents, attorneys-in-fact or affiliates
(including, without limitation, NationsBanc Montgomery Securities LLC ("NMS");
it being understood that each reference to affiliate in this Section 10.6 shall
include NMS)) has made any representations or warranties to it and that no act
by an Agent or any affiliate thereof hereinafter taken, including any review of
the affairs of the Consolidated Shorewood Group, shall be deemed to constitute
any representation or warranty by an Agent to any Lender. Each Lender represents
to the Agents that it has, independently and without reliance upon the Agents or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Consolidated Shorewood Group and made its own decision
to
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make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the Agents 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 analysis, appraisals
and decisions in taking or not taking action under this Agreement, and to make
such investigation as it deems necessary to inform itself as to the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Consolidated Shorewood Group. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
the Agents hereunder, the Agents shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, assets, property, financial or other conditions, prospects or
creditworthiness of the Consolidated Shorewood Group which may come into the
possession of an Agent or any of its respective officers, directors, employees,
agents, attorneys-in-fact or affiliates.
10.7 INDEMNIFICATION.
The Lenders agree to indemnify each Agent in its capacity as such (to
the extent not reimbursed by the Borrowers and without limiting the obligation
of the Borrowers to do so), ratably according to their respective Commitments,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including without limitation at any time
following the payment of the Borrowers Obligations) be imposed on, incurred by
or asserted against an Agent in its respective capacity as such in any way
relating to or arising out of this Agreement or the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by an Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of 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 an Agent. If any
indemnity furnished to an Agent for any purpose shall, in the opinion of such
Agent, be insufficient or become impaired, such Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished. The agreements in this Section shall
survive the payment of the Borrowers Obligations and all other amounts payable
hereunder and under the other Loan Documents.
10.8 AGENT IN ITS INDIVIDUAL CAPACITY.
An Agent and its affiliates may make loans to, accept deposits from and
generally engage in any kind of business with the Borrowers or any other member
of the Consolidated Shorewood Group as though the Agent were not a Agent
hereunder. With respect to the Loans made, the Agents shall have the same rights
and powers under this Agreement as any Lender and may exercise the same as
though they were not a Agent, and the terms "Lender" and "Lenders" shall include
the Administrative Agent and the Canadian Administrative Agent in their
individual capacities.
10.9 SUCCESSOR AGENT.
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An Agent may, at any time, resign upon 20 days' written notice to the
Lenders, and be removed with or without cause by the Required Lenders upon 30
days' written notice to the Agents. Upon any such resignation or removal, the
Required Lenders shall have the right to appoint a successor Administrative
Agent or Canadian Administrative Agent, as the case may be. If no successor
Agent shall have been so appointed by the Required Lenders, and shall have
accepted such appointment, within 30 days after the notice of resignation or
notice of removal, as appropriate, then the retiring Agent shall select a
successor Agent provided such successor is a Lender hereunder or a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and has a combined capital and surplus of at least
$400,000,000. Upon the acceptance of any appointment as Administrative Agent or
Canadian Administrative Agent, as the case may be, hereunder by a successor,
such successor Administrative Agent or Canadian Administrative Agent, as the
case may be, shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Administrative Agent or Canadian
Administrative Agent, as the case may be, and the retiring Administrative Agent
or Canadian Administrative Agent, as the case may be, shall be discharged from
its duties and obligations as Administrative Agent or Canadian Administrative
Agent, as the case may be, as appropriate, under this Agreement and the other
Loan Documents and the provisions of this Section 10.9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was an
Agent under this Agreement.
SECTION 11
MISCELLANEOUS
11.1 NOTICES.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered by hand, (b) when transmitted via telecopy (or other facsimile
device), (c) the Business Day following the day on which the same has been
delivered prepaid to a reputable national overnight air courier service, or (d)
the third Business Day following the day on which the same is sent by certified
or registered mail, postage prepaid, in each case to the respective parties at
the address or telecopy numbers set forth on Schedule 11.1 attached hereto, or
at such other address as such party may specify by written notice to the other
parties hereto; provided, however, that if any notice is delivered on a day
other than a Business Day then such notice shall not be effective until the next
Business Day.
11.2 RIGHT OF SET-OFF.
In addition to any rights now or hereafter granted under applicable law
or otherwise, and not by way of limitation of any such rights, upon the
occurrence of an Event of Default, each Lender is authorized at any time and
from time to time, without presentment, demand, protest or other notice of any
kind (all of which rights being hereby expressly waived), to set-off and to
appropriate and apply any and all deposits (general or special) and any other
indebtedness at any time held or owing by such Lender (including, without
limitation branches, agencies or Affiliates of such Lender
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wherever located) to or for the credit or the account of a Borrower against
obligations and liabilities of a Borrower to such Lender hereunder, under the
Notes, the other Loan Documents or otherwise, irrespective of whether such
Lender shall have made any demand hereunder and although such obligations,
liabilities or claims, or any of them, may be contingent or unmatured, and any
such set-off shall be deemed to have been made immediately upon the occurrence
of an Event of Default even though such charge is made or entered on the books
of such Lender subsequent thereto. Each Borrower hereby agrees that any Person
purchasing a participation in the Loans and Commitments hereunder pursuant to
Section 11.3(c) may exercise all rights of set-off with respect to its
participation interest as fully as if such Person were a Lender hereunder.
11.3 BENEFIT OF AGREEMENT.
(a) Generally. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that a Borrower may not assign
and transfer any of its interests without prior written consent of the
Lenders; and provided further that the rights of each Lender to
transfer, assign or grant participations in its rights and/or
obligations hereunder shall be limited as set forth in this Section
11.3.
(b) Assignments. Subject to the consent of the Borrowers
(provided, however, that no consent shall be required during the
existence and continuation of an Event of Default), which consent shall
not be unreasonably withheld, each Lender may assign all or a portion
of its rights and obligations hereunder pursuant to an assignment
agreement substantially in the form of Exhibit 11.3(b) to one or more
Eligible Assignees; provided that any such assignment shall be in a
minimum aggregate amount of $5,000,000 of the Commitments and in
integral multiples of $1,000,000 above such amount and that each such
assignment shall be of a constant, not varying, percentage of all of
the assigning Lender's rights and obligations under this Agreement. Any
assignment hereunder shall be effective upon satisfaction of the
conditions set forth in the preceding sentence and delivery to the
Administrative Agent of written notice of the assignment together with
a transfer fee of $3,500 (or with respect to an assignment of the
Canadian Revolving Loan Commitment, a transfer fee of Cdn. $1,250)
payable to the Administrative Agent for its own account; provided that
any assignment of the Canadian Revolving Loan Commitment shall require
delivery of written notice of the assignment to the Canadian
Administrative Agent together with a transfer fee of Cdn. $1,250
payable to the Canadian Administrative Agent for its own account. Upon
the effectiveness of any such assignment, the assignee shall become a
"Lender" for all purposes of this Agreement and the other Loan
Documents and, to the extent of such assignment, the assigning Lender
shall be relieved of its obligations hereunder to the extent of the
Loans and Commitment components being assigned. Along such lines, the
Borrowers agree that upon effectiveness of any such assignment and
surrender of the appropriate Note or Notes, it will promptly provide to
the assigning Lender and to the assignee separate promissory notes in
the amount of their respective interests substantially in the form of
the original Note (but with notation thereon that it is given in
substitution for and replacement of the original Note or any
replacement notes thereof). In addition to the assignments permitted
under this Section 11.3(b), any Lender may (without
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notice to the Borrowers, the Administrative Agent or any other Lender
and without payment of any fee) (i) assign and pledge all or any
portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular
issued by such Federal Reserve Bank and (ii) assign all or any portion
of its rights under this Agreement and its Loans and its Notes to an
Affiliate. No such assignment, as set forth in the preceding sentence,
shall release the assigning Lender from its obligations hereunder.
By executing and delivering an assignment agreement in accordance with
this Section 11.3(b), 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 the assignee
warrants that it is an Eligible Assignee; (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 of the other Loan Documents 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 of the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto or the
financial condition of any member of the Consolidated Shorewood Group
or the performance or observance by any member of the Consolidated
Shorewood Group of any of its obligations under this Agreement, any of
the other Loan Documents 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 agreement;
(iv) such assignee confirms that it has received a copy of this
Agreement, the other Loan Documents and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into such assignment agreement; (v) such
assignee will independently and without reliance upon the Agents, 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 and the other Loan Documents; (vi) such assignee appoints and
authorizes the Agents to take such action on its behalf and to exercise
such powers under this Agreement or any other Loan Document as are
delegated to the Agents by the terms hereof or thereof, 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 and the other Loan
Documents are required to be performed by it as a Lender.
(c) Participations. Each Lender may sell, transfer, grant or
assign participations in all or any part of such Lender's rights,
obligations or rights and obligations hereunder; provided that (i) such
selling Lender shall remain a "Lender" for all purposes under this
Agreement (such selling Lender's obligations under the Loan Documents
remaining unchanged) and the participant shall not constitute a Lender
hereunder, (ii) no such participant shall have, or be granted, rights
to approve any amendment or waiver relating to this Agreement or the
other Loan Documents except to the extent any such amendment or waiver
would (A) reduce the principal of or rate of interest on or fees in
respect of any
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Loans in which the participant is participating, (B) postpone the date
fixed for any payment of principal (including extension of the
Revolving Loans Maturity Date or the Term Loans Maturity Date but
excluding any mandatory prepayment), interest or fees in which the
participant is participating, or (C) release all or substantially all
of the guaranties or the collateral (except as expressly provided in
the Loan Documents) supporting any of the Loans or Commitments in which
the participant is participating, and (iii) sub-participations by the
participant (except to an affiliate, parent company or affiliate of a
parent company of the participant) shall be prohibited. In the case of
any such participation, the participant shall not have any rights under
this Agreement or the other Loan Documents (the participant's rights
against the selling Lender in respect of such participation to be those
set forth in the participation agreement with such Lender creating such
participation) and all amounts payable by the Borrowers hereunder shall
be determined as if such Lender had not sold such participation,
provided, however, that such participant shall be entitled to receive
additional amounts under Sections 4.9 through 4.14 on the same basis as
if it were a Lender.
11.4 NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of an Agent or any Lender in exercising
any right, power or privilege hereunder or under any other Loan Document and no
course of dealing between the Borrowers or any member of the Consolidated
Shorewood Group and an Agent or any Lender shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder or under any other Loan Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies provided herein are cumulative
and not exclusive of any rights or remedies which the Agents or any Lender would
otherwise have. No notice to or demand on the Borrowers in any case shall
entitle the Borrowers or any member of the Consolidated Shorewood Group to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Administrative Agent or the Lenders to
any other or further action in any circumstances without notice or demand.
11.5 PAYMENT OF EXPENSES; INDEMNIFICATION.
The Borrowers agree to: (a) pay all reasonable out-of-pocket costs and
expenses of the Administrative Agent and NationsBanc Montgomery Securities LLC
("NMS") in connection with the negotiation, preparation, execution and delivery
and administration of this Agreement and the other Loan Documents and the
documents and instruments referred to therein (including, without limitation,
the reasonable fees and expenses of Moore & Van Allen, PLLC, special counsel to
the Agents as well as Canadian counsel to the Agents) and any amendment, waiver
or consent relating hereto and thereto including, but not limited to, any such
amendments, waivers or consents resulting from or related to any work-out,
renegotiation or restructure relating to the performance by the Borrowers under
this Agreement and of the Administrative Agent and the Lenders in connection
with enforcement of the Loan Documents and the documents and instruments
referred to therein (including, without limitation, in connection with any such
enforcement, the reasonable fees and disbursements of counsel for the
Administrative Agent and each of the Lenders); (ii) pay and hold each of the
Lenders harmless from and against any and all claims for Non-Excluded Taxes
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as set forth in Section 4.13 and hold each of the Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to such Lender) to pay such
Non-Excluded Taxes; and (iii) indemnify each Agent, NMS and each Lender, its
officers, directors, employees, representatives and agents from and hold each of
them harmless against any and all losses, liabilities, claims, damages or
expenses incurred by any of them as a result of, or arising out of, or in any
way related to, or by reason of, any investigation, litigation or other
proceeding (whether or not any Agent, NMS or Lender is a party thereto) related
to the entering into and/or performance of any Loan Document or the use of
proceeds of any Loans (including other extensions of credit) hereunder or the
consummation of any other transactions contemplated in any Loan Document,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceeding (but excluding any such losses, liabilities, claims, damages or
expenses to the extent they relate to disputes solely between or among the
Lenders and/or the Agents, or they relate to a material breach of this Agreement
by the Lenders or they are incurred by reason of gross negligence, willful
misconduct or professional misconduct on the part of the Person to be
indemnified). Anything herein to the contrary notwithstanding, no Borrower shall
have any obligation to indemnify any Person under this Section 11.5 from and
against any expenses incurred by such Person as a result of or in connection
with any litigation, action or proceeding asserted by either of them against the
other in which such Borrower is the prevailing party in a final and
non-appealable judgment.
11.6 AMENDMENTS, WAIVERS AND CONSENTS.
In order for any amendment, change, waiver, discharge or termination of
this Agreement or any of the other Loan Documents to be binding on the Lenders
and the members of the Consolidated Shorewood Group, such amendment, change,
waiver, discharge or termination must be in writing and signed by the Required
Lenders; provided that to be binding no such amendment, change, waiver,
discharge or termination shall:
(a) extend the Revolving Loans Maturity Date or the Term Loans
Maturity Date without the consent of all the Lenders, or postpone or
extend the time for any payment or prepayment of principal to any
Lender without the consent of such Lender;
(b) reduce the rate (other than as a result of waiving the
applicability of any post-default increase in interest rates) or extend
the time of payment of interest on any Loan made by or any fees
hereunder for the account of any Lender without the consent of such
Lender;
(c) reduce or waive the principal amount of any Loan made by
any Lender without the consent of such Lender;
(d) increase or extend the Commitment of a Lender over the
amount thereof in effect without the consent of such Lender (it being
understood and agreed that a waiver of any Default or Event of Default
or a waiver of any mandatory reduction in the Commitments shall not
constitute an increase in the Commitment of any Lender);
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(e) except as otherwise permitted in this Agreement or the
Stock Pledge Agreements, release a Borrower or substantially all of the
Guarantors from their respective obligations under the Loan Documents
or release all or substantially all of the collateral pledged under the
Stock Pledge Agreements without the consent of all the Lenders;
provided that the Lenders agree that the Administrative Agent may
release the shares of a Guarantor which is dissolved in accordance with
Section 8.4(c);
(f) amend, modify or waive any provision of this Section or
Sections 4.4(b), 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14,
9.1(a), 11.2, 11.3 or 11.5 without the consent of all the Lenders;
(g) reduce any percentage specified in, or otherwise modify,
the definition of Required Lenders without the consent of all the
Lenders; or
(h) consent to the assignment or transfer by a Borrower of any
of its rights and obligations under (or in respect of) the Loan
Documents.
Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any reorganization plan that affects the Loans or the
Letters of Credit, and each Lender acknowledges that the provisions of Section
1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set
forth herein and (y) the Required Lenders may consent to allow a member of the
Consolidated Shorewood Group to use cash collateral in the context of a
bankruptcy or insolvency proceeding.
11.7 DEFAULTING LENDER.
Each Lender understands and agrees that if such Lender is a Defaulting
Lender then it shall not be entitled to vote on any matter requiring the consent
of the Required Lenders or to object to any matter requiring the consent of all
the Lenders; provided, however, that all other benefits and obligations under
the Loan Documents shall apply to such Defaulting Lender.
11.8 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which where so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart. Delivery of an executed counterpart by telecopy shall be as
effective as delivery of a manually executed counterpart hereto and shall
constitute a representation that an original executed counterpart will be
provided.
11.9 HEADINGS.
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The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Agreement.
11.10 SURVIVAL OF INDEMNIFICATION AND REPRESENTATIONS AND WARRANTIES.
All indemnities set forth herein and all representations and warranties
made herein shall survive the execution and delivery of this Agreement, the
making of the Loans, the issuance of the Letters of Credit, and the repayment of
the Loans, LOC Obligations and other obligations and the termination of the
Commitments hereunder.
11.11 CURRENCY.
The use of term "dollars" or "Dollars" or the symbol "$" or "U.S. $" in
the Loan Documents shall mean a reference to lawful money of the United States
of America unless specifically indicated otherwise.
11.12 GOVERNING LAW; VENUE.
(a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NORTH CAROLINA. Any legal action or proceeding with
respect to this Agreement or any other Loan Document may be brought in
the courts of the State of North Carolina in Mecklenburg County, or of
the United States for the Western District of North Carolina, and, by
execution and delivery of this Agreement, each Borrower hereby
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of such courts. Each
Borrower further irrevocably consents to the service of process out 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 it at the address for notices pursuant to Section 11.1,
such service to become effective 30 days after such mailing. Nothing
herein shall affect the right of a Lender to serve process in any other
manner permitted by law or to commence legal proceedings or to
otherwise proceed against the Borrowers in any other jurisdiction.
(b) Each Borrower hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Agreement or any other Loan Document brought in the courts
referred to in subsection (a) hereof and hereby further irrevocably
waives and agrees not to plead or claim in any such court that any such
action or proceeding brought in any such court has been brought in an
inconvenient forum.
11.13 WAIVER OF JURY TRIAL.
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<PAGE> 100
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.14 SEVERABILITY.
If any provision of any of the Loan Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.15 LOAN ENTIRETY.
This Agreement together with the other Loan Documents represent the
entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to the Loan Documents or the transactions
contemplated herein and therein; provided, however, that the Confidentiality
Letters executed by the Lenders and all other Persons shall remain in effect
subsequent to the execution and delivery of this Agreement.
11.16 BINDING EFFECT; AMENDMENT AND RESTATEMENT OF EXISTING CREDIT
AGREEMENT; FURTHER ASSURANCES.
This Agreement shall become effective at such time, on or after the
Closing Date, that the conditions precedent set forth in Section 5.1 have been
satisfied and when it shall have been executed by each Borrower and the Agents,
and the Agents shall receive copies hereof (telefaxed or otherwise) which, when
taken together, bear the signatures of each Lender (including the Issuing
Lenders), and thereafter this Agreement shall be binding upon and inure to the
benefit of each Borrower, each Lender (including the Issuing Lenders) and the
Agents, together with their respective successors and assigns. The Borrowers and
the Lenders (including the Issuing Lenders) party to the Existing Credit
Agreement each hereby agrees that, at such time as this Credit Agreement shall
have become effective pursuant to the terms of the immediately preceding
sentence, the Existing Credit Agreement automatically shall be deemed terminated
and the Credit Parties and the lenders party to the Existing Credit Agreement
shall no longer have any obligations thereunder (other than those obligations in
the Existing Credit Agreement that expressly survive the termination of the
Existing Credit Agreement). The Borrowers further agree, upon the request of the
Administrative Agent and/or the Required Lenders, to promptly take such actions,
as reasonably requested, as are appropriate to carry out the intent of this
Agreement and the other Loan Documents, including, but not limited to, such
actions as are reasonably necessary to ensure that the Lenders have a perfected
security interest in all collateral securing the Borrowers Obligations, subject
to no Liens other than Permitted Liens.
11.17 CONFIDENTIALITY.
95
<PAGE> 101
(a) The Agents and the Lenders agree to keep confidential (and to cause
their respective affiliates, officers, directors, employees, agents and
representatives to keep confidential) all information, materials and documents
furnished to the Agents or any such Lender by or on behalf of the Borrowers or
any members of the Consolidated Shorewood Group (whether before or after the
Closing Date) which relates to the Borrowers or any of their Subsidiaries (the
"Information"). Notwithstanding the foregoing, the Agents and Lenders shall be
permitted to disclose Information (i) to its affiliates, officers, directors,
employees, agents and representatives in connection with their participation in
any of the transactions evidenced by this Agreement or any other Loan Documents
or the administration of this Agreement or any other Loan Documents (so long as
such Persons are notified of the confidential nature of the information); (ii)
to the extent required by applicable laws and regulations or by any subpoena or
similar legal process, or requested by any Governmental Authority; (iii) to the
extent such Information (A) becomes publicly available other than as a result of
a breach of this Credit Agreement or any agreement entered into pursuant to
clause (iv) below, (B) becomes available to the Agents or any Lender on a
non-confidential basis or (C) was available to the Agents or Lenders on a
non-confidential basis prior to its disclosure to the Agents or any Lender by
the Borrowers or any member of the Consolidated Shorewood Group; (iv) to any
assignee or participant (or prospective assignee or participant) so long as such
assignee or participant (or prospective assignee or participant) first
specifically agrees in a writing furnished to and for the benefit of the parties
hereto to be bound by the terms of this Section; or (v) to the extent that the
Borrowers shall have consented in writing to such disclosure. Nothing set forth
in this Section shall obligate the Agents or any Lender to return any materials
furnished by the Borrowers or any member of the Consolidated Shorewood Group.
(b) In the event that any Lender or all of them are requested or
required (by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or otherwise) to disclose any
Information under clause (ii) of the second sentence of subsection (a) hereof,
such Lender shall provide the Borrowers with prompt notice of such request(s),
to the extent it may do so, so that the Borrowers may seek an appropriate
protective order or other appropriate remedy. In the event that such protective
order or other remedy is not obtained, the Lender which has received such
request may furnish that portion (and only that portion) of the Information
which, in the opinion of its counsel, it is legally compelled to disclose.
11.18 DEFINITION OF KNOWLEDGE.
Whenever used in this Agreement, the words "knowledge", "best
knowledge", "known to", "becoming aware of", "are aware" or other words of
similar meaning or effect, as they pertain to the Borrowers or the other members
of the Consolidated Shorewood Group, mean the actual present knowledge of those
officers of the U.S. Borrower identified by it from time to time as "Executive
Officers" in its filings with the Securities and Exchange Commission, as
described in Section 7.1(e).
11.19 JUDGMENT CURRENCY.
(a) If for the purposes of obtaining judgment in any court it
is necessary to convert all or any part of the Indebtedness or any
other amount due to the Lenders
96
<PAGE> 102
hereunder or under any security in respect of the Borrowers'
obligations hereunder in any currency (the "Original Currency") into
another currency (the "Other Currency") each Borrower to the fullest
extent that it may effectively do so, agrees that the rate of exchange
used shall be that at which, in accordance with normal banking
procedures, the Administrative Agent could purchase the Original
Currency with the Other Currency at its principal offices in Charlotte,
North Carolina on the day (a "Business Day") on which the
Administrative Agent is open for the transaction of its banking
business at such offices immediately preceding the day on which any
such judgment, or any relevant part thereof, is paid or otherwise
satisfied.
(b) The obligation of each Borrower in respect of any sum due
in the Original Currency from it to the Lenders hereunder or under any
security in respect of the Borrowers' obligation hereunder shall,
notwithstanding any judgment in any Other Currency, be discharged only
to the extent that on the Business Day following receipt by the Agents
of any sum adjudged to be so due in such Other Currency or of any other
sum in any Other Currency the Agents may, in accordance with their
normal banking procedures, purchase the Original Currency with such
Other Currency. If the amount of the Original Currency so purchased is
less than the sum originally due to the Lenders in the Original
Currency, the Borrowers shall, as a separate obligation and
notwithstanding any such judgment, indemnify the Agents against such
loss, and if the amount of the Original Currency so purchased exceeds
the sum originally due to the Lenders, the Agents shall remit such
excess to the Borrowers.
11.20 STRUCTURE OF CHINESE INVESTMENT.
Notwithstanding anything in this Credit Agreement to the contrary, it
is acknowledged that in connection with the Chinese Investment, one or more
entities domiciled in China, Mauritius or elsewhere outside the United States
and Canada may become Subsidiaries of the Borrowers and that the Borrowers will
be permitted to take such corporate action as required to adopt such structure.
97
<PAGE> 103
Each of the parties hereto has caused a counterpart of this Agreement
to be duly executed and delivered as of the date first above written.
BORROWERS:
SHOREWOOD PACKAGING CORPORATION
By:
----------------------------------------
Name: Howard M. Liebman
Title: Executive Vice President / CFO
SHOREWOOD CORPORATION OF CANADA
LIMITED
By:
----------------------------------------
Name: Howard M. Liebman
Title: Vice President
S-1
<PAGE> 104
LENDERS:
NATIONSBANK, N.A., in its capacity as
Administrative Agent and as a Lender
By:
----------------------------------------
Name:
Title:
S-2
<PAGE> 105
THE BANK OF NOVA SCOTIA, in its
capacity as Canadian Administrative
Agent and as a Lender
By:
----------------------------------------
Name:
Title:
S-3
<PAGE> 106
CRESTAR BANK
By:
----------------------------------------
Name:
Title:
S-4
<PAGE> 107
THE CHASE MANHATTAN BANK
By:
----------------------------------------
Name:
Title:
S-5
<PAGE> 108
PARIBAS
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
S-6
<PAGE> 109
FLEET BANK N.A.
By:
----------------------------------------
Name:
Title:
S-7
<PAGE> 110
THE BANK OF NEW YORK
By:
----------------------------------------
Name:
Title:
S-8
<PAGE> 111
FIRST UNION NATIONAL BANK
By:
----------------------------------------
Name:
Title:
S-9
<PAGE> 112
US TRUST BANK
By:
----------------------------------------
Name:
Title:
S-10
<PAGE> 113
BANK HAPOALIM B.M.
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
S-11
<PAGE> 114
BANK LEUMI USA
By:
----------------------------------------
Name:
Title:
S-12
<PAGE> 115
MELLON BANK, N.A.
By:
----------------------------------------
Name:
Title:
S-13
<PAGE> 116
ABN AMRO BANK N.V.
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
S-14
<PAGE> 117
SOCIETE GENERALE
By:
----------------------------------------
Name:
Title:
S-15
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<S> <C>
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<PERIOD-START> AUG-02-1998
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0
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