FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
For Quarter Ended June 30, 1996 Commission file number 1-9915
GAYLORD CONTAINER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3472452
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Lake Cook Road, Suite 400
Deerfield, Illinois 60015
Telephone: (847) 405-5500
(Address, including zip code, and telephone number, including
area code, of registrant's principal offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes X No
As of August 8, 1996, the registrant had outstanding 53,723,902 shares
of its $0.0001 par value Class A Common Stock (including 14,466,295 shares
held in trust for the benefit of the warrant holders) and 14,466,295
redeemable exchangeable warrants to obtain Class A Common Stock.
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PAGE
PART I. FINANCIAL INFORMATION NUMBERS
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Item 1. Financial Statements 1 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 11
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings 12 - 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14 - 15
SIGNATURES 16
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS,
JUNE 30, 1996 AND SEPTEMBER 30, 1995
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JUNE 30, SEPTEMBER 30,
1996 1995
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ASSETS (In millions)
CURRENT ASSETS:
Cash and equivalents $ 32.4 $ 32.5
Trade receivables (less allowances of
$6.7 million and $6.5 million, respectively) 115.8 140.0
Inventories (Note 2) 79.0 73.1
Deferred income taxes 37.4 49.6
Other current assets 9.2 11.1
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Total current assets 273.8 306.3
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PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 1,050.2 1,013.9
Less accumulated depreciation 414.4 373.9
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Property - net 635.8 640.0
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OTHER ASSETS 37.0 41.7
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TOTAL $ 946.6 $ 988.0
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 11.1 $ 15.6
Trade payables 55.4 51.7
Accrued and other liabilities 65.4 82.6
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Total current liabilities 131.9 149.9
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LONG-TERM DEBT 632.0 671.5
OTHER LONG-TERM LIABILITIES 25.0 27.5
DEFERRED INCOME TAXES 25.8 25.9
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Class A common stock - par value, $.0001 per share;
authorized 125,000,000 shares; issued 54,203,880
shares and 54,124,530 shares, respectively, and
outstanding 54,183,379 shares and 54,077,527
shares, respectively - -
Capital in excess of par value 173.3 172.6
Retained deficit (36.9) (54.7)
Common stock in treasury - at cost; 20,501 shares
and 47,003 shares, respectively (0.2) (0.4)
Recognition of minimum pension liability (4.3) (4.3)
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Total stockholders' equity 131.9 113.2
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TOTAL $ 946.6 $ 988.0
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</TABLE>
See notes to condensed consolidated financial statements.
1
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1995 (In millions, except per share data)
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THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
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NET SALES $ 225.5 $ 285.2
COST OF GOODS SOLD 181.7 199.8
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GROSS MARGIN 43.8 85.4
SELLING AND ADMINISTRATIVE COSTS (24.9) (23.4)
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OPERATING EARNINGS 18.9 62.0
INTEREST EXPENSE - Net (18.8) (21.3)
OTHER INCOME - Net 0.1 0.1
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EARNINGS BEFORE TAXES 0.2 40.8
INCOME TAXES 0.1 1.0
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NET INCOME 0.1 $ 39.8
======
RETAINED DEFICIT:
BEGINNING OF PERIOD (37.0)
------
END OF PERIOD $ (36.9)
======
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.00 $ 0.72
====== ======
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 55.1 55.2
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
2
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1995 (In millions, except per share data)
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NINE MONTHS ENDED JUNE 30,
--------------------------
1996 1995
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NET SALES $ 698.6 $ 782.7
COST OF GOODS SOLD 534.8 565.7
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GROSS MARGIN 163.8 217.0
SELLING AND ADMINISTRATIVE COSTS (71.4) (71.3)
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OPERATING EARNINGS 92.4 145.7
INTEREST EXPENSE - Net (57.9) (64.5)
OTHER INCOME (EXPENSE) - Net 0.3 (0.1)
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EARNINGS BEFORE TAXES AND
EXTRAORDINARY ITEM 34.8 81.1
INCOME TAXES 14.4 2.0
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EARNINGS BEFORE EXTRAORDINARY ITEM 20.4 79.1
EXTRAORDINARY LOSS (Note 3) (2.6) -
------ ------
NET INCOME 17.8 $ 79.1
======
RETAINED DEFICIT:
BEGINNING OF PERIOD (54.7)
------
END OF PERIOD $ (36.9)
======
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
EARNINGS BEFORE EXTRAORDINARY ITEM $ 0.37 $ 1.44
EXTRAORDINARY LOSS (Note 3) (0.05) -
------ ------
NET INCOME $ 0.32 $ 1.44
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AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 55.1 55.0
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
3
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1995
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NINE MONTHS ENDED JUNE 30,
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1996 1995
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(In millions)
CASH FLOWS FROM OPERATIONS:
Earnings before extraordinary item $ 20.4 $ 79.1
Adjustments to reconcile earnings before
extraordinary item to net cash from operating
activities:
Depreciation and amortization 48.6 48.5
Non-cash interest expense 31.2 34.5
Deferred income taxes 13.7 -
Change in current assets and liabilities,
excluding acquisitions and dispositions 8.1 (53.9)
Other - net (3.6) (5.4)
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Net cash provided by operations 118.4 102.8
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CASH FLOWS FROM INVESTMENTS:
Capital expenditures (39.4) (44.3)
Capitalized interest (0.5) (2.1)
Other investments - net 0.3 (0.1)
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Net cash used for investments (39.6) (46.5)
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CASH FLOWS FROM FINANCING:
Senior debt - repayments (12.5) (67.6)
Early retirement of debt (Note 3) (66.8) -
Other financing - net 0.4 1.1
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Net cash used for financing (78.9) (66.5)
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Net decrease in cash and equivalents (0.1) (10.2)
Cash and equivalents, beginning of period 32.5 17.4
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Cash and equivalents, end of period $ 32.4 $ 7.2
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 27.4 $ 35.4
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Income taxes $ 2.9 $ 1.2
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Write-off of deferred financing fees $ 1.4 $ -
===== =====
Property additions $ 1.1 $ 43.4
===== =====
Increase in total debt $ 1.1 $ 43.4
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</TABLE>
See notes to condensed consolidated financial statements.
4
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GAYLORD CONTAINER CORPORATION AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. GENERAL
-------
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all normal and recurring
adjustments and accruals necessary to present fairly the financial position
as of June 30, 1996 and the results of operations for the three months and
nine months ended June 30, 1996 and 1995 and cash flows for the nine months
ended June 30, 1996 and 1995, including all the accounts of Gaylord
Container Corporation (including its subsidiaries, the Company), and are in
conformity with Securities and Exchange Commission Rule 10-01 of Regulation
S-X. Certain amounts in the statement of cash flows for fiscal 1995 have
been reclassified to conform with the current-year presentation. The
financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto on Form 10-K for the
fiscal year ended September 30, 1995.
2. INVENTORIES
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JUNE 30, SEPTEMBER 30,
1996 1995
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(In millions)
Inventories consist of:
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Finished products $18.1 $17.4
In process 38.6 34.8
Raw materials 9.6 15.1
Supplies 14.6 15.8
---- ----
Total 80.9 83.1
LIFO valuation adjustment (1.9) (10.0)
---- ----
Total $79.0 $73.1
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3. EXTRAORDINARY ITEM
------------------
During the first quarter of fiscal 1996, the Company purchased and retired
$65.3 million principal amount of its publicly traded debt securities. In
conjunction with the purchase, $1.4 million of deferred financing fees were
written off. These transactions resulted in an extraordinary loss of $2.6
million, net of an income tax benefit of $1.8 million.
4. SUBSEQUENT EVENT
----------------
On July 12, 1996, the Company contributed its grocery bag manufacturing net
assets to S&G Packaging, L.L.C. (S&G Packaging), a joint venture with Stone
Container Corporation, in exchange for a 35 percent equity interest in the
new company. The Company has the option to purchase an additional 15
percent interest within the next five years. Beginning July 13, 1996, the
financial results of S&G Packaging will be reported on the equity method of
accounting and included in other income/expense on the Company's income
statement.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
---------------------
Third Quarter of Fiscal 1996 Compared with Third Quarter of Fiscal 1995.
Net sales for the third quarter of fiscal 1996 were $225.5 million, a
decrease of approximately 21 percent compared with net sales of $285.2
million for the third quarter of fiscal 1995. Operating earnings for the
current quarter were $18.9 million compared with $62.0 million for the
year-ago quarter. Net income for the current quarter totaled $0.1 million,
or $0.00 per share, compared with $39.8 million, or $0.72 per share, for the
year-ago quarter.
Sales and earnings in the third quarter of fiscal 1996 were adversely
affected by lower average selling prices for the Company's products, which
decreased operating earnings by approximately $74 million compared with the
third quarter of fiscal 1995. Average selling prices for the Company's
domestic linerboard, export linerboard and corrugated products decreased
approximately 36 percent, 47 percent and 18 percent, respectively, in the
third quarter of fiscal 1996 compared with the prior-year quarter. Average
selling prices for the Company's unbleached kraft paper, multiwall bags and
grocery bags and sacks decreased approximately 32 percent, 6 percent and 25
percent, respectively, in the current quarter compared with the prior-year
quarter.
Sales and earnings in the third quarter of fiscal 1996 were favorably
affected by higher mill production and corrugated shipments which were
partially offset by incremental operating costs associated with expanded
capacity in the Company's converting operations. These factors increased
operating earnings by approximately $6 million.
Quarter-over-quarter, total mill production increased to 4,278 tons per day
(TPD, calculated on the basis of the number of days in the period) from
4,220 TPD. Containerboard production in the third quarter of fiscal 1996 of
3,560 TPD was essentially unchanged from 3,580 TPD in the prior-year
quarter. Market-related down time at the Company's Bogalusa, Louisiana
mill, totaling approximately 88 TPD in the third quarter of fiscal 1996 was
partially offset by significantly improved operating performance at the
Antioch, California mill. Unbleached kraft paper production in the current
quarter increased approximately 12 percent to 718 TPD from 640 TPD in the
prior-year quarter.
Corrugated shipments totaled 3.4 billion square feet in the third quarter of
fiscal 1996, an increase of approximately 10 percent compared with 3.1
billion square feet in the year-ago quarter. Shipments from a new sheet
feeder plant accounted for approximately one-third of the increase.
Multiwall bag shipments increased to 12.6 thousand tons in the current
quarter compared with shipments of 12.4 thousand tons in the third quarter
of fiscal 1995. Grocery bag and sack shipments increased approximately 26
percent to 28.7 thousand tons from shipments of 22.8 thousand tons in the
year-ago quarter. The quarter-over-quarter gain in grocery bag and sack
shipments was due to an approximately 85 percent increase in shipments of
the Gaylord Handle-Bag R compared with the prior-year quarter.
Gross margin as a percentage of net sales for the third quarter of fiscal
1996 decreased to 19.4 percent from 29.9 percent in the prior-year quarter
6
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primarily due to lower selling prices for the Company's products, partially
offset by lower fiber costs (primarily the cost of old corrugated containers
(OCC)) and improved volume. Lower fiber costs increased operating earnings
by approximately $30 million. The Company's average delivered cost of OCC
decreased approximately 61 percent in the third quarter of fiscal 1996
compared with the year-ago quarter.
Selling and administrative costs of $24.9 million for the current quarter
increased from $23.4 million in the prior-year quarter. Net interest
expense declined from the prior-year quarter by $2.5 million to $18.8
million in the third quarter of fiscal 1996 primarily due to lower average
debt levels resulting from the Company's debt reduction efforts.
In the third quarter of fiscal 1996, the Company recorded a tax provision of
$0.1 million which corresponds to an effective tax rate of approximately 41
percent. In the third quarter of fiscal 1995, the Company recorded a
tax provision of $1.0 million, an effective rate of 2.5 percent, due to the
application of net operating loss carryforwards.
First Nine Months of Fiscal 1996 Compared with First Nine Months of Fiscal
1995
Net sales for the first nine months of fiscal 1996 were $698.6 million, a
decrease of approximately 11 percent from net sales of $782.7 million for
the first nine months of fiscal 1995. Operating earnings for the current
period were $92.4 million compared with $145.7 million for the year-ago
period, which represents a decrease of approximately 37 percent. Earnings
before extraordinary item for the first nine months of fiscal 1996 were
$20.4 million, or $0.37 per share. Including a $2.6 million extraordinary
loss ($0.05 per share) on the early retirement of debt, net income for the
current period totaled $17.8 million, or $0.32 per share, versus $79.1
million, or $1.44 per share, for the year-ago period.
Sales and earnings in the first nine months of fiscal 1996 were adversely
affected by lower average selling prices for most of the Company's products,
which decreased operating earnings by approximately $70 million. Average
selling prices for the Company's domestic linerboard, export linerboard and
corrugated products decreased approximately 14 percent, 28 percent and 3
percent, respectively, versus the comparable prior-year period. Average
selling prices for the Company's multiwall bags increased approximately 3
percent, while average selling prices for unbleached kraft paper and grocery
bags and sacks decreased approximately 14 percent and 10 percent,
respectively, in the first nine months of fiscal 1996 compared with the
year-ago period.
Sales and earnings in the first nine months of fiscal 1996 were also
adversely affected by lower mill and converted product shipments, which
decreased operating earnings by approximately $33 million compared with the
year-ago period. Total mill production decreased approximately 4 percent in
the first nine months of fiscal 1996 to 3,928 TPD compared to 4,096 TPD in
the year-ago period.
7
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Containerboard production in the first nine months of fiscal 1996 of 3,241
TPD decreased approximately 3 percent from 3,358 TPD in the year-ago period.
Unbleached kraft paper production in the current period decreased
approximately 7 percent to 687 TPD from 738 TPD in the year-ago period.
These decreases are primarily the result of approximately 82 thousand tons
of market-related down time taken at the Bogalusa and Antioch mills.
Corrugated shipments of approximately 9.5 billion square feet increased
approximately 2 percent in the first nine months of fiscal 1996 compared
with 9.3 billion square feet shipped in the year-ago period. Multiwall bag
shipments of 37.2 thousand tons decreased approximately 8 percent compared
with the year-ago period's shipments of 40.4 thousand tons. Grocery bag and
sack shipments of 85.1 thousand tons increased approximately 7 percent
compared with the year-ago period's shipments of 79.2 thousand tons. The
year-over-year increase is due primarily to an increase of approximately 63
percent in shipments of the Gaylord Handle-Bag.
Gross margin as a percentage of net sales for the first nine months of
fiscal 1996 decreased to 23.4 percent from 27.7 percent in the year-ago
period. The decrease in margin was primarily due to lower selling prices
and volume, partially offset by lower fiber costs. Lower fiber costs
increased operating earnings by approximately $54 million in the first nine
months of fiscal 1996 versus the prior-year period. The Company's average
delivered cost of OCC decreased approximately 47 percent in the first nine
months of fiscal 1996 compared with the year-ago period.
Selling and administrative costs of $71.4 million for the first nine months
of fiscal 1996 were essentially unchanged from the year-ago period. Net
interest expense decreased from the prior-year period by $6.6 million to
$57.9 million for the first nine months of fiscal 1996 primarily due to
lower average debt levels, partially offset by accretion of the discount on
subordinated debt.
In the first nine months of fiscal 1996, the Company recorded a tax
provision of $14.4 million which corresponds to an effective tax rate of
approximately 41 percent. In the first nine months of fiscal 1995, the
Company recorded a current tax provision of $2.0 million, an effective rate
of 2.5 percent, due to the application of net operating loss carryforwards.
During the first quarter of fiscal 1996, the Company purchased and
retired $65.3 million principal amount of its publicly traded debt
securities. In conjunction with the purchase, $1.4 million of deferred
financing fees were written off. These transactions resulted in an
extraordinary loss of $2.6 million, net of an income tax benefit of $1.8
million.
8
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LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
General
The Company has historically financed its operations through cash provided
by operations, borrowings under its credit agreements and the issuance of
debt and equity securities. The Company's principal uses of cash are to pay
operating expenses, fund capital expenditures and service debt.
Net cash provided by operations for the first nine months of fiscal 1996 was
$118.4 million, compared with $102.8 million a year ago. The favorable
comparison to the prior-year period was primarily due to a reduction in
working capital.
Capital expenditures of $39.4 million in the first nine months of fiscal
1996 decreased by $4.9 million from $44.3 million in the first nine months
of fiscal 1995. In the first nine months of fiscal 1995, the Company also
purchased $43.4 million of equipment financed by capital leases and debt
obligations secured by the assets acquired.
In fiscal 1992, the Company determined it would be unlikely that its
Antioch, California virgin fiber mill (the East Mill), which was closed in
fiscal 1991, could be sold as a mill site or that the East Mill, or some
portion thereof, could be operated economically by the Company. The Company
believed, and continues to believe, that the most likely outcome will be the
sale of individual assets and the subsequent demolition of the remaining
structures on the mill site. For the first nine months of fiscal 1996,
proceeds from asset disposals exceeded East Mill related costs by
approximately $0.5 million. Demolition of the remaining structures on the
mill site will require the Company to incur costs for asbestos removal.
While some demolition and asbestos removal has begun, the Company has
deferred incurring substantial expenditures for such activities until the
final disposition of the remaining mill assets has been determined. At June
30, 1996, balance sheet valuation allowances for demolition and asbestos
removal were approximately $3.4 million and $14.2 million, respectively,
reducing the book value of the East Mill to $0.2 million.
In fiscal 1994, the Company recognized non-recurring operating charges of
$15.5 million. These charges included (i) $9.9 million primarily for
equipment abandonments, asset write-downs, lease termination costs and other
costs related to the relocation of three of the Company's converting
facilities (ii) $3.5 million for costs associated with closure of a
corrugated container plant and (iii) $2.1 million for a loss on the sale and
costs associated with the disposition of a corrugated container plant. For
the first nine months of fiscal 1996, the Company charged approximately $1.8
million of costs associated with the fiscal 1994 non-recurring operating
charges to balance sheet accruals. At June 30, 1996, the Company has
remaining balance sheet accruals for such costs of $1.6 million (primarily
lease termination costs). In addition, the Company has remaining balance
sheet accruals of approximately $0.6 million for non-recurring operating
charges (primarily lease termination costs) recognized in years prior to
fiscal 1994 and anticipates incurring such costs ratably over the next two
years.
9
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On July 12, 1996, the Company contributed its grocery bag manufacturing net
assets to S&G Packaging, L.L.C. (S&G Packaging), a joint venture with Stone
Container Corporation, in exchange for a 35 percent equity interest in the
new company. The Company has the option to purchase an additional 15
percent interest within the next five years. Beginning July 13, 1996, the
financial results of S&G Packaging will be reported on the equity method of
accounting and included in other income/expense on the Company's income
statement.
The Company's Board of Directors has authorized the repurchase of up to 6
million shares of the Company's common stock. The shares will be
repurchased from time to time in the open market and will be used for
general corporate purposes, including issuances in connection with the
Company's employee stock option plans and employee stock purchase plan.
Liquidity
At June 30, 1996, the Company had cash and equivalents of $32.4 million, a
decrease of $0.1 million from September 30, 1995, as cash used for
financing and investments (principally the early retirement of debt and
capital spending) was essentially equal to cash provided by operations.
Total debt decreased by $44.0 million to $643.1 million at June 30, 1996
from $687.1 million at September 30, 1995. The decline in total debt was
due to the purchase and retirement of $65.3 million principal amount of the
Company's publicly traded debt securities, partially offset by accretion of
the Company's Senior Subordinated Discount Debentures due 2005 (the
Subordinated Discount Debentures). On May 15, 1996, the Subordinated
Discount Debentures became fully accreted, and cash interest began to accrue
from that date. The first cash interest payment on these securities is
payable in the first quarter of fiscal 1997. This will result in a
significant increase in the Company's future cash requirements. At June 30,
1996, the Company had no borrowings and more than $225 million of credit
available under the revolving portions of its credit agreements. The
Company will continue to evaluate the advisability of using future excess
cash flow to reduce debt. The Company recently amended its bank credit
agreement to (i) allow the S&G Packaging joint venture, (ii) allow the
common stock repurchase and (iii) modify the financial covenants to allow
the Company greater financial flexibility.
Based upon July 1996 product prices and fiber costs, the Company believes
that cash provided by operations and amounts available under its credit
agreements will provide adequate liquidity to meet its debt service
obligations and other liquidity requirements over the next 12 to 24 months.
Further price erosion or higher fiber costs could require modifications to
certain of the financial covenants in the Company's bank credit agreement.
10
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Pending Accounting Standard
Financial Accounting Standard No. 123 "Accounting for Stock-Based
Compensation" (FAS No. 123), which encourages entities to adopt a fair value
based method of accounting for compensation costs of employee stock
compensation plans, was issued in October 1995. FAS No. 123 allows an
entity to continue the application of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
however, pro forma footnote disclosures of net income and earnings per
share, as if the fair value based method of accounting defined by this
statement had been applied, are required.
The Company will be required to adopt FAS No. 123 in fiscal 1997. The
Company has not decided whether it will adopt the fair value based method of
accounting for compensation costs of employee stock compensation plans or
the footnote disclosure requirements prescribed by FAS No. 123. Therefore,
the Company is unable to predict the impact the adoption of FAS No. 123 will
have on its financial position or results of operations.
11
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any legal proceedings other than
litigation incidental to normal business activities, except as
described below:
The Company and certain of its officers and directors have been
named in a civil suit filed in Cook County (Illinois) Circuit Court
alleging that they omitted or misrepresented facts about the
Company's operations in connection with the Company's initial
public offering of stock in 1988 and in certain periodic reports.
The complaint, a purported class action, originally sought
unspecified damages under the Illinois Consumer Fraud and Deceptive
Practices Act and for common law fraud. On January 10, 1996, the
court dismissed both counts with prejudice, and plaintiff has
appealed. A similar lawsuit, based on the same factual
allegations, but alleging violations of Federal securities laws and
filed in the United States District Court for the Northern District
of Illinois, was voluntarily dismissed by the same plaintiff in
July 1993. The Company believes that, after investigation of the
facts, the allegations are without merit, and the Company is
vigorously defending the judgment on appeal.
On October 18 and December 4, 1995, the Company, its directors and
certain of its officers were named in complaints which have been
consolidated in the Court of Chancery of the state of Delaware
alleging breach of fiduciary duties on two counts. The first count
is a putative class action and the second is an alleged derivative
claim brought on behalf of the Company against the individual
defendants. Both counts allege that the Company's stockholder
Rights Agreement, adopted on June 12, 1995, amendments to the
Company's charter and by-laws, adopted on July 21, 1995, and a
redemption of Warrants in June 1995 all were designed to entrench
the individual defendants in their capacities as directors and
officers at the expense of stockholders who otherwise would have
been able to take advantage of a sale of the Company. The
complaint asks the court, among other things, to rescind the
amendments and prohibit the use of the stockholder Rights Agreement
to discourage any bona fide acquirer. In the alternative, the
plaintiffs seek compensatory damages. The Company believes the
allegations are without merit and has moved to dismiss the
consolidated complaint. The motion is fully briefed and is
awaiting a decision.
On October 23, 1995, a rail tank car accident occurred on the
premises of the Bogalusa, Louisiana plant of Gaylord Chemical
Corporation, a wholly owned subsidiary of the Company. The
accident resulted in the venting of certain chemicals, including
by-products of nitrogen tetroxide, a raw material used by the plant
to produce dimethyl sulfoxide, a solvent used in the manufacture of
pharmaceutical and agricultural chemicals. More than 70 lawsuits
have been filed in both federal and state courts naming as
defendants Gaylord Chemical Corporation, the Company, certain of
their respective officers and other unrelated corporations and
individuals. On April 1, 1996, the federal judge dismissed all but
12
<PAGE>
PART II. OTHER INFORMATION - CONTINUED
Item 1. Legal Proceedings (continued).
one of the federal actions for failing to state claims under
federal law and remanded the remaining tort cases to the
district court in Washington Parish, Louisiana, where they have
been consolidated. The remaining federal action has been stayed.
On May 21, 1996 the Louisiana state court established a Plaintiff's
Liaison Committee (PLC) to coordinate and oversee the more than 70
consolidated cases on behalf of plaintiffs. On June 26, 1996 the
PLC and defendants agreed to a Case Management Order (CMO) that was
subsequently entered by the Court. Pursuant to this CMO, the
plaintiffs filed a single Consolidated Master Petition against
Gaylord Chemical Corporation, the Company and twenty-one other
defendants. In this Consolidated Master Petition all claims against
the individuals (including the officers of Gaylord Chemical
Corporation and the Company) have been dropped. Also, pursuant to
the terms of the June 25th CMO, all of the individual actions filed
before the Consolidated Master Petition have been, or shortly will
be, dismissed. The Consolidated Master Petition includes
substantially all of the claims and theories asserted in the prior
lawsuits including, negligence, strict liability and res ispa
loquitur, as well as several claims of statutory liability.
Compensatory and punitive damages are sought. The Company and its
subsidiaries are vigorously contesting all of these claims.
On July 15, 1996 the state court certified these consolidated
actions as a single class action. The class was tentatively
defined to include all those persons or entities who claim to have
been injured as a result of the October 23, 1995 incident. This
definition may be amended, or subclasses established, depending on
the results of discovery. Written and document discovery is
proceeding.
In June and July several individual plaintiffs filed supervisory
writs seeking to challenge the validity of the Court's (i) May 21,
1996 Order establishing the PLC; (ii) June 25, 1996 CMO; and (iii)
July 15, 1996 Order certifying these consolidated cases as a class
action. Some, but not all, of these supervisory writs have been
fully briefed and no rulings have been rendered by the Court of
Appeals.
In addition, the Company, its subsidiary and numerous other third
party companies have been named as defendants in a single action
brought by two plaintiffs in Mississippi State Court, Hinds County.
This case is not filed as a class action but seeks to allege claims
similar to those in the Louisiana State Court. All defendants in
the Mississippi case are filing a joint motion to stay or transfer
this proceeding. The Company and its subsidiary are vigorously
contesting these claims.
13
<PAGE>
PART II. OTHER INFORMATION - CONTINUED
Item 1. Legal Proceedings (continued).
The Company and its subsidiary maintain insurance and have filed
separate suits seeking a declaratory judgment of coverage against
their general liability and directors and officers liability
insurance carriers. These cases are currently pending in state
court with the liability cases. The carrier with the first layer
of coverage under the general liability policy has agreed to pay
the Company's and its subsidiary's defense costs under a
reservation of rights.
The Company believes the outcome of such litigation will not have a
material adverse effect on the Company's financial position,
results of operations or cash flows.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Number and Description of Exhibit
---------------------------------
a) 4.1(a) First Amendment to Amended and Restated Credit
Agreement dated as of May 30, 1996 by and between
the Registrant, the financial institutions
signatory thereto, Bankers Trust Company, as Agent
and Co-Manager and Wells Fargo Bank National
Association, as Co-Manager.
4.2(a) Second Amendment to Amended and Restated Credit
Agreement dated as of July 19, 1996 by and between
the Registrant, the financial institutions
signatory thereto, and Bankers Trust Company, as
Agent.
14
<PAGE>
PART II. OTHER INFORMATION - CONCLUDED
Item 6. Exhibits and Reports on Form 8-K (continued).
Number and Description of Exhibit
---------------------------------
10.1(a) S&G Packaging Company, L.L.C. Joint Venture
Agreement dated as of July 12, 1996 by and between
the Registrant and Stone Container Corporation.
10.2(a) S&G Packaging Company, L.L.C. Limited Liability
Company Agreement dated as of July 12, 1996.
27.1(a) Financial Data Schedule
(b) Not applicable.
---------------------------------------------------------------------
(a) Filed with this Quarterly Report.
(b) Incorporated by reference.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GAYLORD CONTAINER CORPORATION
Date: August 8, 1996 /s/ Marvin A. Pomerantz
-----------------------
Marvin A. Pomerantz
Chairman and Chief Executive Officer
Date: August 8, 1996 /s/ Jeffrey B. Park
-------------------
Jeffrey B. Park
Vice President-Controller
(Principal Accounting Officer)
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GAYLORD CONTAINER CORPORATION
Date: August 8, 1996
Marvin A. Pomerantz
Chairman and Chief Executive Officer
Date: August 8, 1996
Jeffrey B. Park
Vice President-Controller
(Principal Accounting Officer)
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 32,400
<SECURITIES> 0
<RECEIVABLES> 115,800
<ALLOWANCES> 6,700
<INVENTORY> 79,000
<CURRENT-ASSETS> 273,800
<PP&E> 1,050,200
<DEPRECIATION> 414,400
<TOTAL-ASSETS> 946,600
<CURRENT-LIABILITIES> 131,900
<BONDS> 632,000
0
0
<COMMON> 173,300
<OTHER-SE> (41,400)
<TOTAL-LIABILITY-AND-EQUITY> 946,600
<SALES> 225,500
<TOTAL-REVENUES> 225,500
<CGS> 181,700
<TOTAL-COSTS> 206,600
<OTHER-EXPENSES> (100)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,800
<INCOME-PRETAX> 200
<INCOME-TAX> 100
<INCOME-CONTINUING> 100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<PAGE>
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This First Amendment to Amended and Restated Credit Agreement (this
"Amendment"), dated as of May 30, 1996, is by and among Gaylord Container
Corporation, a Delaware corporation (the "Borrower"), the undersigned
financial institutions in their capacities as lenders (collectively, the
"Banks"), Bankers Trust Company, as both agent (the "Agent") and co-manager
for the Banks, and Wells Fargo Bank, National Association, as co-manager for
the Banks.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Agent and the co-managers are parties
to that certain Amended and Restated Credit Agreement dated as of November 17,
1986 and amended and restated as of June 30, 1995 (as amended, restated,
supplemented or otherwise modified and in effect from time to time, the
"Credit Agreement"), pursuant to which the Banks have provided to the Borrower
credit facilities and other financial accommodations; and
WHEREAS, the Borrower has requested that the Agent and the Banks amend
the Credit Agreement in certain respects as set forth herein and the Banks and
the Agent are agreeable to the same, subject to the terms and conditions hereof;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined Terms. Terms capitalized herein and not otherwise defined
herein are used with the meanings ascribed to such terms in the Credit
Agreement.
2. Amendments to Credit Agreement. The Credit Agreement is, as of the
Effective Date (as defined below), hereby amended as follows:
(a) The definition of "Adjusted Consolidated Net Worth" appearing
in Section 1.1 of the Credit Agreement is hereby amended by inserting at the
end thereof but before the period, the following:
", and adjusted to exclude from the calculation thereof the
net effect of, and any impact thereon caused by, the application of FASB
109 to the Borrower (it being the intent of the parties in excluding any
such net effect or impact to exclude only the effects of any valuation
reserve against the Borrower's deferred tax assets created pursuant to the
application of FASB 109)"
(b) Section 1.1 of the Credit Agreement is hereby further amended by
deleting "$10 million" appearing in subclause (1) in the second proviso of
clause (ix) of the definition of"Permitted Investments" and replacing it with
"$15 million."
(c) Section 1.1 of the Credit Agreement is hereby further amended by
deleting "$5 million" appearing in clause (xv) of the definition of "Permitted
Investments" and replacing it with "$10 million."
(d) Section 1.1 of the Credit Agreement is further amended by
inserting the following new definitions in the appropriate alphabetical order:
""Bag Joint Venture" has the meaning assigned to that term in
Section 5.2(f)(x)."
""Bag Joint Venture Agreement" means the Joint Venture Agreement
and all exhibits and other attachments thereto executed by the Borrower in
connection with the formation of the Bag Joint Venture, as such
agreement and/or exhibit or attachment may be amended, restated,
supplemented or otherwise modified from time to time."
(e) Section 5.1(j) of the Credit Agreement is hereby amended by
deleting such Section in its entirety and replacing it with the following:
"(j) Adjusted Consolidated Net Worth. The Borrower's Adjusted
Consolidated Net Worth as of the end of each Fiscal Quarter ending on
or after the Fiscal Quarter ended in June, 1996 as specified below shall
not be less than the applicable amount set forth in the table below:
Minimum Adjusted
Fiscal Quarter Ended Consolidated Net Worth
Fiscal Quarter ended $100,000,000
in June, 1996
Fiscal Quarter ended $ 94,000,000
in September, 1996
Fiscal Quarter ended $ 80,000,000
in December, 1996
Fiscal Quarter ended $ 68,000,000
in March, 1997
Fiscal Quarter ended $ 58,000,000
in June, 1997
Fiscal Quarter ended $ 48,000,000
in September, 1997
Fiscal Quarter ended $ 37,000,000
in December, 1997
Fiscal Quarter ended $ 34,000,000
in March, 1998
Fiscal Quarter ended $ 36,000,000
in June, 1998
Fiscal Quarter ended $ 44,000,000
in September, 1998
Fiscal Quarter ended $ 47,000,000
in December, 1998
Fiscal Quarter ended $ 56,000,000
in March, 1999
Fiscal Quarter ended $71,000,000
in June, 1999
Fiscal Quarter ended $ 89,000,000"
in September, 1999 and
each Fiscal Quarter
ended thereafter
(f) Section 5.1(l) of the Credit Agreement is hereby amended by
deleting such Section in its entirety and replacing it with the following:
"(l) Interest Coverage Ratio. (i) Maintain for each Fiscal
Quarter, a ratio (the "Interest Coverage Ratio") of (A) EBITDA for the
four preceding Fiscal Quarters ending on the last day of the Fiscal
Quarter set forth below to (B) Interest Expense of the Borrower for the
same four Fiscal Quarters, which is equal to or greater than those set
forth below:
Fiscal Quarter Interest Coverage Ratio
ending June 30, 1996 2.27 to 1.00
ending September 30, 1996 1.80 to 1.00
ending December 31, 1996 1.07 to 1.00
ending March 31, 1997 0.81 to 1.00
ending June 30, 1997 0.65 to 1.00
ending September 30, 1997 0.59 to 1.00
ending December 31, 1997 0.69 to 1.00
ending March 31, 1998 0.84 to 1.00
ending June 30, 1998 1.07 to 1.00
ending September 30, 1998 1.35 to 1.00
ending December 31, 1998 1.59 to 1.00
ending March 31, 1999 1.84 to 1.00
ending June 30, 1999 2.13 to 1.00
ending September 30, 1999 and 2.44 to 1.00
each Fiscal Quarter
ending thereafter
(ii) For purposes of this Section 5.1(l), "Interest Expense"
shall be equal to actual consolidated interest expense of the Borrower
(including capitalized interest and including any discount applicable to
the Receivables Financing Transaction) net of interest income on Permitted
Investments and funds held in escrow accounts for the benefit of the Banks
referred to in Section 3.7, plus, to the extent excluded from consolidated
interest expense and without duplication, noncash interest expense and
interest paid in kind (other than amortization of deferred financing
fees)."
(g) Section 5.2(b) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (i) thereof, (ii)
deleting the period appearing at the end of clause (ii) thereof and inserting
";" in place thereof, and (iii) inserting new clauses (iii) and (iv) immediately
after clause (ii) thereof as follows:
"(iii) unsecured Indebtedness for Money Borrowed in the form of
promissory note(s) issued by the Borrower for the benefit of the Bag
Joint Venture, provided that (A) each such note shall be issued pursuant to
the assumption of a Financing Lease by the Bag Joint Venture for any
equipment transferred by the Borrower to the Bag Joint Venture which is
subject to a Financing Lease Obligation of the Borrower and which the
Borrower elects not to prepay as permitted by clause (i)(F) of Section
5.2(i), (B) all principal, interest, fees and all other payment terms of
each such note shall be substantially identical to the payment terms of the
applicable Financing Lease assumed by the Bag Joint Venture and in
consideration for which such note was issued, and shall otherwise be in
form and substance reasonably satisfactory to the Agent, and (C) the
aggregate principal amount of all such notes issued under this clause
(iii) shall not exceed $7,500,000 (less the amount of any prepayments
under clause (i)(F) of Section 5.2(i) and the amount of any guaranties
under Section 5.2(c)(vi)); and
(iv) unsecured Indebtedness for Money Borrowed in the form of
promissory note(s) issued by the Borrower for the benefit of the Bag
Joint Venture evidencing cash assessments by the management committee of
the Bag Joint Venture to fund discretionary or nondiscretionary
expenditures by the Bag Joint Venture, provided that (A) each such note
shall represent an Investment in the Bag Joint Venture permitted by clause
(B) of Section 5.2(f)(x) and (B) any such note shall (i) require the
payment of interest no more than semiannually and (ii) mature no later
than two years from the date of issuance of any such note."
(h) Section 5.2(c) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (iv) thereof, (ii)
deleting the period appearing at the end of clause (v) thereof and inserting ";
and" in place thereof, and (iii) inserting a new clause (vi) at the end
thereof as follows:
"(vi) guaranties by the Borrower in favor of the Bag Joint Venture of
any Financing Lease Obligations contributed by the Borrower to and assumed by
the Bag Joint Venture pursuant to Section 5.2(f)(x), provided that the aggregate
amount so guaranteed does not exceed $7,500,000 (less the amount of notes issued
under Section 5.2(b)(iii) and the amount of any prepayments under clause (i)(F)
of Section 5.2(i))."
(i) Section 5.2(f) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (viii) thereof, (ii)
deleting the period appearing at the end of clause (ix) thereof and inserting
"; and" in place thereof, and (iii) inserting a new clause (x) at the end
thereof as follows:
"(x) the Borrower may (A) contribute all of its grocery bag division
assets, including, without limitation, inventory, equipment, customer lists,
licenses and intellectual property, but excluding trade accounts receivable, and
assign its liabilities and real estate and equipment leases, which assets,
liabilities and leases, immediately prior to such contribution, are utilized
by the Borrower in its grocery bag division and such assets, liabilities and
leases are located at, or relate to, the Borrower's grocery bag operations
located in Alsip, Illinois and Monroe, Louisiana, and the Borrower's four
handle bag machines and related equipment which have been located at the
Borrower's facility in Twinsburg, Ohio, and which assets do not exceed
(x) $26 million in aggregate book value for all assets other than inventory, as
reflected on the Borrower's most recently delivered unaudited financial
statements for the Fiscal Quarter ended March 31, 1996 (including additions and
changes thereto since such date arising in the ordinary course of business) and
(y) $16 million in aggregate fair market value for all contributions of
inventory (including contributions of inventory subsequent to the inception of
the Bag Joint Venture pursuant to the terms of the Bag Joint Venture Agreement),
to a newly formed limited liability company (the "Bag Joint Venture") in
exchange for a 35% equity ownership interest in the Bag Joint Venture, and (B)
make additional Investments in the Bag Joint Venture through the acquisition of
additional equity ownership interests in the Bag Joint Venture, cash assessment
payments and/or other payments to the Bag Joint Venture for indemnification or
otherwise (and including the issuance of any promissory notes in lieu of such
payments as permitted by Section 5.2(b)(iv)), provided that (1) the aggregate
amount of all such additional Investments in and other payments to the Bag
Joint Venture under this clause (B) do not exceed $25 million, (2) at the time
of any Investment or payment permitted to be made pursuant to this clause (B),
no Event of Default or Unmatured Event of Default shall then exist
or result therefrom, and (3) immediately after giving effect to each such
Investment and payment, the Total Unused Maximum Commitment shall be no less
than $25,000,000."
(j) Section 5.2(h) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (i) thereof, (ii)
deleting the period appearing at the end of clause (ii) thereof and inserting
"; and" in place thereof, and (iii) inserting a new clause (iii) at the end
thereof as follows:
"(iii) the Borrower may acquire an equity ownership interest in
the Bag Joint Venture in connection with the initial contribution of assets
to the Bag Joint Venture (it being understood that the initial contribution
of assets may occur contemporaneously or may occur over a period of time of
approximately 12 months) and subsequent Investments or payments to the Bag
Joint Venture, all as permitted by Section 5.2(f)(x)."
(k) Section 5.2(i) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (i)(D) of such Section
and (ii) inserting a new subclause (F) immediately after subclause (E) of clause
(i) of such Section as follows:
", and (F) the prepayment of any Financing Lease (including the
payment of any prepayment penalty or premium in connection therewith) by
the Borrower which relates to or is secured by any equipment transferred by
the Borrower to the Bag Joint Venture pursuant to Section 5.2(f)(x),
provided that the aggregate amount paid by the Borrower does not exceed
$7,500,000 (less the amount of notes issued under Section 5.2(b)(iii) and
the amount of any guaranties under Section 5.2(c)(vi))."
(l) Section 5.2(l) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (iii) thereof, (ii)
deleting the period at the end of clause (iv) thereof and inserting "; and"
in place thereof, and (iii) inserting a new clause (v) at the end thereof as
follows:
"(v) the Borrower may (A) contribute assets and property to the
Bag Joint Venture as permitted by Section 5.2(f)(x) in connection with the
initial capitalization of the Bag Joint Venture and (B) sublease to the Bag
Joint Venture any equipment which may otherwise be contributed by the
Borrower to the Bag Joint Venture pursuant to Section 5.2(f)(x) and which
is subject to a Financing Lease Obligation of the Borrower that is not
otherwise prepaid pursuant to Section 5.2(i) or assumed by the Bag Joint
Venture pursuant to Section 5.2(f)(x)."
3. Amendment Fee. In consideration of the execution of this Amendment by
the Agent and the Banks, the Borrower hereby agrees to pay each Bank which
executes this Amendment a fee (the "Amendment Fee") in an amount equal to such
Bank's Maximum Commitment multiplied by one-eighth of one percent (1/8 of 1%).
4. Borrower's Representations and Warranties. In order to induce the
Agent, the co-managers and the Banks to enter into this Amendment, the Borrower
hereby represents and warrants to the Agent, the co-managers and the Banks that:
(i) the Borrower has the right, power and capacity and has been
duly authorized and empowered by all requisite corporate and
shareholder action to enter into, execute, deliver and perform (x)
this Amendment, (y) all agreements, documents and instruments executed
and delivered pursuant to this Amendment and (z) all agreements,
documents and instruments executed and delivered, or to be
executed and delivered, in connection with the Bag Joint Venture;
(ii) this Amendment constitutes the Borrower's legal, valid and
binding obligation, enforceable against it, except as enforcement
thereof may be subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and general principles of equity
(regardless of whether such enforcement is sought in a proceeding in
equity or at law or otherwise);
(iii) the Borrower's execution, delivery and performance of
this Amendment do not and will not violate its Certificate of
Incorporation or By-laws, any law, rule, regulation, order, writ,
judgment, decree or award applicable to it or any contractual
provision to which it is a party or to which it or any of its property
is subject;
(iv) no authorization or approval or other action by, and no
notice to or filing or registration with, any governmental authority
or regulatory body (other than those which have been obtained and are
in force and effect) is required in connection with its execution,
delivery and performance of (x) this Amendment, (y) all agreements,
documents and instruments executed and delivered pursuant to this
Amendment and (z) all agreements, documents and instruments executed
and delivered, or to be executed and delivered, in connection with the
Bag Joint Venture; and
(v) no Event of Default or Unmatured Event of Default exists
under the Credit Agreement or would exist after giving effect to the
transactions contemplated by this Amendment.
5. Conditions to Effectiveness of Amendment. This Amendment shall become
effective on the date (the "Effective Date") each of the following conditions
precedent are satisfied:
(a) Execution and Delivery. The Borrower, the Agent, and the
Required Banks shall have executed and delivered this Amendment.
(b) No Defaults. No Unmatured Event of Default or Event of Default
under the Credit Agreement (as amended hereby) shall have occurred and be
continuing.
(c) Representations and Warranties. The representations and
warranties of the Borrower contained in this Amendment and in the Credit
Agreement (as amended hereby) shall be true and correct in all material respects
as of the Effective Date, with the same effect as though made on such date,
except to the extent that any such representation or warranty relates to an
earlier date, in which case such representation or warranty shall be true and
correct in all material respects as of such earlier date.
(d) Payment of Amendment Fee. The Borrower shall have paid in full
to the Agent, for ratable distribution to those Banks that have signed this
Amendment, an amount equal to the Amendment Fee; provided, however, that the
Amendment Fee shall be payable only in the event that this Amendment has been
executed by the Agent and the Required Banks.
(e) Deliveries. The Borrower shall have duly executed and
delivered to the Agent a certificate of a Responsible Officer of the Borrower
dated as of the Effective Date certifying as to the conditions precedent set
forth in Sections 5(b) and (c) of this Amendment.
6. Release of Liens. Upon the effectiveness of this Amendment as
provided in Section 5 above and after the Agent has received a copy of the duly
executed Bag Joint Venture Agreement and all documents, instruments and
agreements executed and/or delivered in connection therewith, the Agent is
hereby directed by the Banks to release all Liens existing under the Loan
Documents on the property and all assets to be contributed and/or assigned to
the Bag Joint Venture pursuant to Section 5.2(f)(x) of the Credit Agreement (as
amended hereby) and to release all Liens on the Borrower's existing and future
ownership interest in the Bag Joint Venture that would otherwise be created
under the Loan Documents, such releases to be effective concurrently with such
initial contribution of property and assets, and the Agent is hereby authorized
and directed by the Banks to execute such documents and instruments of release
as may be necessary to affect such release of Liens.
7. Miscellaneous. The parties hereto hereby further agree as follows:
(a) Further Assurances. Each of the parties hereto hereby agrees to
take such further actions and to execute, deliver and acknowledge such
additional agreements, powers and instruments as any other party hereto may
reasonably require to carry into effect the purposes of this Amendment.
(b) Costs, Expenses and Taxes. The Borrower hereby agrees to pay
all reasonable fees, costs and expenses of the Agent incurred in connection with
the negotiation, preparation and execution of this Amendment and the
transactions contemplated hereby, including, without limitation, the reasonable
fees and expenses of Winston & Strawn, counsel to the Agent.
(c) Counterparts. This Amendment may be executed in one or more
counterparts, each of which, when executed and delivered, shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same document with the same force and effect as if the signatures
of all of the parties were on a single counterpart, and it shall not be
necessary in making proof of this Amendment to produce more than one (1) such
counterpart.
(d) Headings. Headings used in this Amendment are for convenience of
reference only and shall not affect the construction of this Amendment.
(e) Integration. This Amendment and the Credit Agreement (as amended
hereby) constitute the entire agreement among the parties hereto with respect to
the subject matter hereof.
(f) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS
AND DECISIONS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO
CONFLICT OF LAWS PRINCIPLES).
(g) Binding Effect. This Amendment shall be binding upon and inure
to the benefit of and be enforceable by the Borrower, the Agent, the co-managers
and the Banks and their respective successors and assigns. Except as expressly
set forth to the contrary herein, this Amendment shall not be construed so as
to confer any right or benefit upon any Person other than the Borrower, the
Agent, the co-managers and the Banks and their respective successors and
permitted assigns.
(h) Amendment; Waiver. The parties hereto agree and acknowledge that
nothing contained in this Amendment in any manner or respect limits or
terminates any of the provisions of the Credit Agreement or any of the other
Basic Agreements other than as expressly set forth herein and further agree
and acknowledge that the Credit Agreement (as amended hereby) and each of the
other Basic Agreements remain and continue in full force and effect and are
hereby ratified and confirmed. Except to the extent expressly set forth herein,
the execution, delivery and effectiveness of this Amendment shall not operate
as a waiver of any rights, power or remedy of the Banks, the Agent or the
co-managers under the Credit Agreement or any other Basic Agreement, nor
constitute a waiver of any provision of the Credit Agreement or any other Basic
Agreement. No delay on the part of any Bank, the Agent or the co-managers in
exercising any of their respective rights, remedies, powers and privileges
under the Credit Agreement or any of the Basic Agreements or partial or
single exercise thereof, shall constitute a waiver thereof. None of the terms
and conditions of this Amendment may be changed, waived, modified or varied in
any manner, whatsoever, except in accordance with Section 9.1 of the Credit
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
GAYLORD CONTAINER CORPORATION
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
BANKERS TRUST COMPANY, in its individual
capacity, as Agent and as co-manager
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
WELLS FARGO BANK, NATIONAL ASSOCIATION,
in its individual capacity and as co-manager
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
THE BANK OF NEW YORK
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
<PAGE>
BANKERS TRUST (DELAWARE)
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
CAISSE NATIONAL DE CREDIT AGRICOLE
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
HARRIS TRUST AND SAVINGS BANK
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
NATIONSBANK, N.A. (Carolinas)
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
CHRISTIANIA BANK
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
HELLER FINANCIAL, INC.
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
TRANSAMERICA BUSINESS CREDIT CORP.
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
<PAGE>
Document Number: BANKERS.AGM
7-2-96/:47a
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amendment to Amended and Restated Credit Agreement (this
"Amendment"), dated as of July 19, 1996, is by and among Gaylord Container
Corporation, a Delaware corporation (the "Borrower"), the undersigned
financial institutions in their capacities as lenders (collectively, the
"Banks"), and Bankers Trust Company, as agent (the "Agent") for the Banks.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Agent and the co-managers are parties
to that certain Amended and Restated Credit Agreement dated as of November 17,
1986 and amended and restated as of June 30, 1995, and as amended as of May 30,
1996 (as amended, restated, supplemented or otherwise modified and in effect
from time to time, the "Credit Agreement"), pursuant to which the Banks have
provided to the Borrower credit facilities and other financial accommodations;
and
WHEREAS, the Borrower has requested that the Agent and the Banks amend the
Credit Agreement in certain respects as set forth herein and the Banks and the
Agent are agreeable to the same, subject to the terms and conditions hereof;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined Terms. Terms capitalized herein and not otherwise defined
herein are used with the meanings ascribed to such terms in the Credit
Agreement.
2. Amendments to Credit Agreement. The Credit Agreement is, as of the
Effective Date (as defined below), hereby amended as follows:
(a) The definition of "Adjusted Consolidated Net Worth" appearing in
Section 1.1 of the Credit Agreement is hereby amended by inserting at the end
thereof but before the period, the following:
"; provided, however, that Consolidated Net Worth shall be calculated
without giving effect to any impact on the determination thereof from
the repurchase of any shares of Common Stock of the Borrower made
pursuant to Section 5.2(e)(viii)"
(b) Section 5.2(a) of the Credit Agreement is hereby amended by
deleting clause (1) appearing in the penultimate paragraph thereof in its
entirety and replacing it with the following:
"(1) purchased by the Borrower, provided that the aggregate
purchase price for all such purchased margin stock shall not exceed
$5,000 at any time, or represents shares of Common Stock of the
Borrower repurchased by the Borrower pursuant to Section
5.2(e)(viii) and held as treasury shares;"
(c) Section 5.2(e) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (vi) thereof, (ii)
deleting the period appearing at the end of clause (vii) thereof and inserting
"; and" in place thereof, and (iii) inserting a new clause (viii) at the end
thereof as follows:
"(viii) the Borrower may from time to time repurchase shares of its
Common Stock in an aggregate amount not to exceed $50 million
(exclusive of any repurchases of Common Stock under clauses (iii), (v)
and (vii) above)."
3. Acknowledgment. The Agent, the Banks and the Borrower hereby
acknowledge and agree that any shares of Common Stock of the Borrower
repurchased pursuant to Section 5.2(e)(viii) of the Credit Agreement and held by
the Company as treasury shares shall not constitute Collateral under the
Security Agreement.
4. Amendment Fee. In consideration of the execution of this Amendment by
the Agent and the Banks, the Borrower hereby agrees to pay each Bank which
executes this Amendment on or prior to July 19, 1996 a fee (the "Amendment Fee")
in an amount equal to such Bank's Maximum Commitment multiplied by one-eighth of
one percent (1/8 of 1%).
5. Borrower's Representations and Warranties. In order to induce the
Agent and the Banks to enter into this Amendment, the Borrower hereby represents
and warrants to the Agent and the Banks that:
(i) the Borrower has the right, power and capacity and has been
duly authorized and empowered by all requisite corporate and
shareholder action to enter into, execute, deliver and perform (x)
this Amendment and (y) all agreements, documents and instruments
executed and delivered pursuant to this Amendment;
(ii) this Amendment constitutes the Borrower's legal, valid and
binding obligation, enforceable against it, except as enforcement
thereof may be subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and general principles of equity
(regardless of whether such enforcement is sought in a proceeding in
equity or at law or otherwise);
(iii) the Borrower's execution, delivery and performance of
this Amendment do not and will not violate its Certificate of
Incorporation or By-laws, any law, rule, regulation, order, writ,
judgment, decree or award applicable to it or any contractual
provision to which it is a party or to which it or any of its property
is subject;
(iv) no authorization or approval or other action by, and no
notice to or filing or registration with, any governmental authority
or regulatory body (other than those which have been obtained and are
in force and effect) is required in connection with its execution,
delivery and performance of (x) this Amendment and (y) all agreements,
documents and instruments executed and delivered pursuant to this
Amendment; and
(v) no Event of Default or Unmatured Event of Default exists
under the Credit Agreement or would exist after giving effect to the
transactions contemplated by this Amendment.
6. Conditions to Effectiveness of Amendment. This Amendment shall become
effective on the date (the "Effective Date") each of the following conditions
precedent are satisfied:
(a) Execution and Delivery. The Borrower, the Agent, and the
Required Banks shall have executed and delivered this Amendment.
(b) No Defaults. No Unmatured Event of Default or Event of Default
under the Credit Agreement (as amended hereby) shall have occurred and be
continuing.
(c) Representations and Warranties. The representations and
warranties of the Borrower contained in this Amendment and in the Credit
Agreement (as amended hereby) shall be true and correct in all material respects
as of the Effective Date, with the same effect as though made on such date,
except to the extent that any such representation or warranty relates to an
earlier date, in which case such representation or warranty shall be true and
correct in all material respects as of such earlier date.
(d) Payment of Amendment Fee. The Borrower shall have paid in full
to the Agent, for ratable distribution to those Banks that have signed this
Amendment on or prior to July 19, 1996, an amount equal to the Amendment Fee;
provided, however, that the Amendment Fee shall be payable only in the event
that this Amendment has been executed by the Agent and the Required Banks.
(e) Deliveries. The Borrower shall have duly executed and
delivered to the Agent a certificate of a Responsible Officer of the Borrower
dated as of the Effective Date certifying as to the conditions precedent set
forth in Sections 5(b) and (c) of this Amendment.
7. Miscellaneous. The parties hereto hereby further agree as follows:
(a) Costs, Expenses and Taxes. The Borrower hereby agrees to pay
all reasonable fees, costs and expenses of the Agent incurred in connection with
the negotiation, preparation and execution of this Amendment and the
transactions contemplated hereby, including, without limitation, the reasonable
fees and expenses of Winston & Strawn, counsel to the Agent.
(b) Counterparts. This Amendment may be executed in one or more
counterparts, each of which, when executed and delivered, shall be deemed to be
an original and all of which counterparts, taken together, shall constitute
but one and the same document with the same force and effect as if the
signatures of all of the parties were on a single counterpart, and it shall not
be necessary in making proof of this Amendment to produce more than one (1) such
counterpart.
(c) Headings. Headings used in this Amendment are for convenience of
reference only and shall not affect the construction of this Amendment.
(d) Integration. This Amendment and the Credit Agreement (as amended
hereby) constitute the entire agreement among the parties hereto with respect to
the subject matter hereof.
(e) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS
AND DECISIONS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO
CONFLICT OF LAWS PRINCIPLES).
(f) Binding Effect. This Amendment shall be binding upon and inure
to the benefit of and be enforceable by the Borrower, the Agent and the Banks
and their respective successors and assigns. Except as expressly set forth
to the contrary herein, this Amendment shall not be construed so as to confer
any right or benefit upon any Person other than the Borrower, the Agent and the
Banks and their respective successors and permitted assigns.
(g) Amendment; Waiver. The parties hereto agree and acknowledge that
nothing contained in this Amendment in any manner or respect limits or
terminates any of the provisions of the Credit Agreement or any of the other
Basic Agreements other than as expressly set forth herein and further agree and
acknowledge that the Credit Agreement (as amended hereby) and each of the
other Basic Agreements remain and continue in full force and effect and are
hereby ratified and confirmed. Except to the extent expressly set forth herein,
the execution, delivery and effectiveness of this Amendment shall not operate as
a waiver of any rights, power or remedy of the Banks or the Agent under the
Credit Agreement or any other Basic Agreement, nor constitute a waiver of any
provision of the Credit Agreement or any other Basic Agreement. No delay on the
part of any Bank or the Agent in exercising any of their respective rights,
remedies, powers and privileges under the Credit Agreement or any of the Basic
Agreements or partial or single exercise thereof, shall constitute a waiver
thereof. None of the terms and conditions of this Amendment may be changed,
waived, modified or varied in any manner, whatsoever, except in accordance with
Section 9.1 of the Credit Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
GAYLORD CONTAINER CORPORATION
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
BANKERS TRUST COMPANY, in its individual
capacity and as Agent
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
THE BANK OF NEW YORK
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
<PAGE>
BANKERS TRUST (DELAWARE)
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
CAISSE NATIONAL DE CREDIT AGRICOLE
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
HARRIS TRUST AND SAVINGS BANK
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
NATIONSBANK, N.A.
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
CHRISTIANIA BANK
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
HELLER FINANCIAL, INC.
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
TRANSAMERICA BUSINESS CREDIT CORP.
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
BEAR, STEARNS GOVERNMENT SECURITIES, INC.
By: _________________________________________
Name: _______________________________________
Title: ________________________________________
<PAGE>
Document Number: 0112042.03
7-29-96/:57p
JOINT VENTURE AGREEMENT
dated as of July 12, 1996
between
GAYLORD CONTAINER CORPORATION
and
STONE CONTAINER CORPORATION
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE IDEFINITIONS; CLOSING
1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . .1
1.2. Interpretation . . . . . . . . . . . . . . . . . . . . . .1
1.3. Time and Place of Closing. . . . . . . . . . . . . . . . .2
1.4. Other Agreements . . . . . . . . . . . . . . . . . . . . .2
ARTICLE IICONDITIONS TO CLOSING
2.1. Illegality, Etc. . . . . . . . . . . . . . . . . . . . . .2
2.2. Litigation . . . . . . . . . . . . . . . . . . . . . . . .2
2.3. Consents and Approvals . . . . . . . . . . . . . . . . . .3
2.4. Transaction Agreements . . . . . . . . . . . . . . . . . .3
2.5. Resolutions, Certificates, Etc.. . . . . . . . . . . . . .4
2.6. Opinions of Counsel. . . . . . . . . . . . . . . . . . . .4
2.7. Representations and Warranties; Performance
of Obligations . . . . . . . . . . . . . . . . . . . . . .4
2.8. No Material Adverse Change . . . . . . . . . . . . . . . .5
2.9. Other Agreements . . . . . . . . . . . . . . . . . . . . .5
ARTICLE IIIREPRESENTATIONS AND WARRANTIES. . .
3.1. Representations and Warranties of Gaylord. . . . . . . . .5
3.2. Representations and Warranties of Stone. . . . . . . . . .8
ARTICLE IVADDITIONAL AGREEMENTS
4.1. Reasonable Access. . . . . . . . . . . . . . . . . . . . 11
4.2. Accuracy of Representations and Warranties . . . . . . . 12
4.3. Efforts to Consummate. . . . . . . . . . . . . . . . . . 12
4.4. No Public Announcement . . . . . . . . . . . . . . . . . 12
4.5. Regulatory Disclosure. . . . . . . . . . . . . . . . . . 12
4.6. Required Approvals . . . . . . . . . . . . . . . . . . . 13
4.7. Operations until Contribution of Bag Businesses. . . . . 13
4.8. Intentionally Omitted. . . . . . . . . . . . . . . . . . 13
4.9. Protected Business Opportunities . . . . . . . . . . . . 13
4.10. Certain Ancillary Restrictions on Right to
Compete with the Company. . . . . . . . . . . . . . . . 13
4.11. Ancillary Business Opportunity. . . . . . . . . . . . . 13
4.12. Gaylord Purchase Option . . . . . . . . . . . . . . . . 14
4.13. Employee Benefits Matters . . . . . . . . . . . . . . . 15
4.14. Obtaining Applicable Consents . . . . . . . . . . . . . 16
ARTICLE VINDEMNIFICATION; PAYMENT OF CERTAIN COSTS
5.1. Indemnification by Stone . . . . . . . . . . . . . . . . 16
5.2. Indemnification by Gaylord . . . . . . . . . . . . . . . 17
5.3. Notice of Claims . . . . . . . . . . . . . . . . . . . . 18
5.4. Third Person Claims. . . . . . . . . . . . . . . . . . . 18
5.5. Limit on Liability . . . . . . . . . . . . . . . . . . . 19
5.6. Scope of Indemnity . . . . . . . . . . . . . . . . . . . 20
5.7. No Special Damages . . . . . . . . . . . . . . . . . . . 20
ARTICLE VICONFIDENTIAL INFORMATION . . . . .
6.1. Confidential Information . . . . . . . . . . . . . . . . 21
6.2. Confidentiality of Transaction Agreements. . . . . . . . 21
6.3. Remedy . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIITERMINATION PRIOR TO CLOSING. . . .
7.1. Termination Events . . . . . . . . . . . . . . . . . . . 22
7.2. Notice of Termination. . . . . . . . . . . . . . . . . . 23
7.3. Effect of Termination. . . . . . . . . . . . . . . . . . 23
ARTICLE VIIIPOST-CLOSING TERMINATION OF JOINT VENTURE
8.1. Termination Trigger Events . . . . . . . . . . . . . . . 23
8.2. Termination Procedures . . . . . . . . . . . . . . . . . 24
8.3. Post-Termination Obligations . . . . . . . . . . . . . . 26
ARTICLE IX MISCELLANEOUS PROVISIONS. . . . .
9.1. Counterparts . . . . . . . . . . . . . . . . . . . . . . 26
9.2. Entire Agreement . . . . . . . . . . . . . . . . . . . . 26
9.3. Partial Invalidity . . . . . . . . . . . . . . . . . . . 27
9.4. Amendment. . . . . . . . . . . . . . . . . . . . . . . . 27
9.5. Governing Law. . . . . . . . . . . . . . . . . . . . . . 27
9.6. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7. Further Assurances . . . . . . . . . . . . . . . . . . . 27
9.8. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 27
9.9. Survival of Obligations. . . . . . . . . . . . . . . . . 28
9.10. Successors and Assigns. . . . . . . . . . . . . . . . . 28
9.11. Dispute Resolutions . . . . . . . . . . . . . . . . . . 28
9.12. Arbitration . . . . . . . . . . . . . . . . . . . . . . 29
9.13. Judicial Procedure. . . . . . . . . . . . . . . . . . . 31
9.14. Notices . . . . . . . . . . . . . . . . . . . . . . . . 31
<PAGE>
Exhibits
Exhibit A -- Gaylord Contribution, Assignment and Assumption
Agreement
Exhibit B -- Stone Contribution, Assignment and Assumption
Agreement
Exhibit C -- Formation Agreement
Exhibit D -- Paper Supply Contract
Exhibit E -- Lease Assignments and Leases
Exhibit F -- Employment Agreements
Exhibit G -- Transition Services Agreements
Exhibit H -- License Agreements
Exhibit I -- Permitted Use Agreements and Consents
Schedules
Schedule 1.4 -- Closing Actions
Schedule 3.1(b) -- Authority of Gaylord
Schedule 3.1(d) -- Status of Gaylord Bag Contracts
Schedule 3.1(g) -- Title to Property of Gaylord
Schedule 3.1(h) -- Financial Information of Gaylord
Schedule 3.2(b) -- Authority of Stone
Schedule 3.2(d) -- Status of Stone Bag Contracts
Schedule 3.2(g) -- Title to Property of Stone
Schedule 3.2(h) -- Financial Information of Stone
Schedule 4.13 -- Employee Benefits Matters
Annex
Annex I -- Definitions<PAGE>
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT, dated as of July 12, 1996
(the "Agreement"), between Gaylord Container Corporation, a
Delaware corporation ("Gaylord") and Stone Container Corporation,
a Delaware corporation ("Stone").
W I T N E S S E T H:
WHEREAS, Gaylord and Stone each desire to form S&G
Packaging Company, L.L.C., a Delaware limited liability company
(the "Company"), to engage in, among other things, the
manufacture, distribution and sale of paper bags in order to
provide better service and lower the cost of producing product
thereby becoming more competitive with non-paper related
products;
WHEREAS, 65 percent of the Membership Interests of the
Company will initially be owned by Stone and 35 percent of the
Membership Interests of the Company will initially be owned by
Gaylord;
WHEREAS, in connection therewith, the parties intend to
enter into this Agreement and the Ancillary Agreements; and
WHEREAS, any cooperation between Stone and Gaylord
shall be limited only to the transactions contemplated by this
Agreement and the Ancillary Agreements.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; CLOSING
1.1. Definitions. In this Agreement, unless the
context shall otherwise require, the capitalized terms used
herein shall have the respective meanings specified or referred
to in Annex I hereto, which is incorporated by reference herein.
Each agreement referred to in Annex I shall mean such agreement
as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and hereof.
1.2. Interpretation. Each definition in this
Agreement includes the singular and the plural, and reference to
the neuter gender includes the masculine and feminine where
appropriate. References to any statute or regulation means such
statute or regulation as amended at the time and include any
successor legislation or regulations. The headings to the
Articles and Sections are for convenience of reference and shall
not affect the meaning or interpretation of this Agreement.
Except as otherwise stated, reference to Articles, Sections,
Exhibits and Schedules mean the Articles, Sections, Exhibits and
Schedules of this Agreement. The Exhibits and Schedules are
hereby incorporated by reference into and shall be deemed a part
of this Agreement. Unless the context clearly indicates
otherwise, the word "including" means "including but not limited
to."
1.3. Time and Place of Closing. Subject to the terms
and conditions set forth herein, the closing of the transactions
contemplated hereby (the "Closing") shall take place at 10:00
a.m. Chicago time on the third Business Day following the
satisfaction of the closing conditions specified in Article II or
such later date as may be agreed upon by the parties hereto after
the conditions set forth in Article II have been satisfied (the
"Closing Date"), at the offices of Sidley & Austin, Chicago,
Illinois, or at such other time and place as the parties hereto
shall agree.
1.4. Other Agreements. Upon the terms and subject to
the conditions of this Agreement, on the Closing Date, each party
hereto shall execute and deliver the agreements listed in
Section 2.4 and each party shall take the actions set forth on
Schedule 1.4 in the order set forth on such Schedule.
ARTICLE II
CONDITIONS TO CLOSING
The obligations of the parties hereto to consummate the
transactions contemplated by this Agreement shall be subject to
the satisfaction, or waiver by the appropriate party or parties,
on or prior to the Closing Date of the following conditions
precedent (except that the obligation of any party shall not be
subject to such party's own performance):
2.1. Illegality, Etc. No change shall have occurred
as of the Closing Date in applicable Requirements of Laws that,
in the reasonable opinion of any party, would make it illegal for
it to participate in any of the transactions contemplated herein
or in any Ancillary Agreement.
2.2. Litigation. No action, proceeding or
investigation shall have been instituted before any court or
Governmental Body nor shall any such action, proceeding or
investigation be threatened, which in the reasonable opinion of
counsel for Gaylord or Stone, as the case may be, is not
frivolous, nor shall any order, judgment or decree have been
issued or proposed to be issued by any court or Governmental
Body, at the time of the Closing Date, in each case to materially
modify, set aside, restrain, enjoin or prevent the consummation
of this Agreement, any Ancillary Agreement or the transactions
contemplated herein or therein.
2.3. Consents and Approvals. (a) All actions,
approvals, consents, waivers, exemptions, variances, franchises,
orders, permits, authorizations, rights and licenses (other than
any thereof that are routine in nature and that cannot be
obtained, or are not normally applied for, prior to the time they
are required and that Gaylord or Stone, as the case may be, does
not have any reason to believe any difficulty will be encountered
in obtaining or any thereof which are not material) required to
be taken, given or obtained, as the case may be, by or from any
Governmental Body, that are necessary or, in the reasonable
opinion of Gaylord or Stone or their respective counsel,
advisable in connection with the consummation of the transactions
contemplated by this Agreement and each Ancillary Agreement,
shall have been duly taken, given or obtained, as the case may
be, shall be in full force and effect on the Closing Date, shall
not be subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time
within which any appeal therefrom may be taken or review thereof
may be obtained shall have expired or no review thereof may be
obtained or appeal therefrom taken, and shall (in the reasonable
opinion of the party required to obtain such consent) be adequate
to authorize the consummation of the transactions contemplated by
this Agreement and each Ancillary Agreement.
(b) All approvals, consents or waivers required to be
obtained by Gaylord or Stone, as the case may be, pursuant to any
loan agreement, lease, indenture or similar instrument in order
to consummate the transactions contemplated hereby shall have
been duly obtained or given (collectively, the "Required
Approvals").
2.4. Transaction Agreements. The following agreements
shall have been duly authorized, executed and delivered by the
respective party or parties thereto, or shall have been received
by a party hereto, shall each be substantially in the forms
attached hereto and shall be in full force and effect, and
executed counterparts shall have been delivered to each such
party and its respective counsel:
(a) this Agreement;
(b) the Gaylord Contribution, Assignment and
Assumption Agreement;
(c) the Stone Contribution, Assignment and Assumption
Agreement;
(d) the Formation Agreement;
(e) the Paper Supply Contract;
(f) the Lease Assignments and Leases;
(g) the Employment Agreements;
(h) the Transition Services Agreements; and
(i) the License Agreements.
2.5. Resolutions, Certificates, Etc. Each party
hereto shall have received the following, in each case in form
and substance reasonably satisfactory to it:
(a) a copy of resolutions of the Board of Directors of
Gaylord and Stone certified as of the Closing Date by the
Secretary or an Assistant Secretary thereof, duly authorizing the
execution, delivery and performance by Gaylord and Stone,
respectively, of each of this Agreement and each Ancillary
Agreement to which it is a party, together with an incumbency
certificate as to the Person or Persons authorized to execute and
deliver such documents on its behalf; and
(b) such other documents and evidence with respect to
Gaylord or Stone and their respective Affiliates as Gaylord or
Stone or their respective counsel may reasonably request in order
to consummate the transactions contemplated hereby, the taking of
all corporate proceedings in connection therewith and compliance
with the conditions herein or set forth in any Ancillary
Agreement.
2.6. Opinions of Counsel. The following opinions of
legal counsel, dated the Closing Date, shall have been delivered:
(a) Opinion of Counsel for Gaylord. Opinion of the
general counsel of Gaylord, addressed to Stone in form and
substance reasonably satisfactory to Stone.
(b) Opinion of Counsel for Stone. Opinion of the
general counsel of Stone, addressed to Gaylord in form and
substance reasonably satisfactory to Gaylord.
2.7. Representations and Warranties; Performance of
Obligations. (a) The representations and warranties of each of
the parties hereto set forth in Article III hereof and each of
the Ancillary Agreements shall be true and correct in all
material respects as though made on and as of the Closing Date,
except to the extent that any such representations and warranties
are by their express provisions made as of a specified date, and
each party hereto shall have received a certificate signed by a
duly authorized officer of the other party to that effect.
(b) Each party hereto and each party to each of the
Ancillary Agreements shall have performed in all material
respects all obligations required to be performed by it hereunder
or thereunder at or prior to Closing, and each party shall have
received a certificate signed by a duly authorized officer of the
other party to that effect.
2.8. No Material Adverse Change. (a) Between the date
hereof and the Closing Date, there shall have been no material
adverse change in the physical condition of the Gaylord
Contributed Property; and there shall have been delivered to
Stone a certificate to such effect, dated the Closing Date and
signed on behalf of Gaylord by a duly authorized officer of
Gaylord.
(b) Between the date hereof and the Closing Date,
there shall have been no material adverse change in the physical
condition of the Stone Contributed Property; and there shall have
been delivered to Gaylord a certificate to such effect, dated the
Closing Date and signed on behalf of Stone by a duly authorized
officer of Stone.
2.9. Other Agreements. All conditions relating to the
transactions contemplated herein and in each of the Ancillary
Agreements shall have been satisfied or waived by the appropriate
party or parties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of Gaylord. As an
inducement to Stone to enter into this Agreement and each
Ancillary Agreement to which Stone is a party and to consummate
the transactions contemplated hereby and thereby, Gaylord repre-
sents and warrants to Stone as follows:
(a) Organization, Corporate Power, Etc. Gaylord
(i) is duly organized, validly existing and in good standing
under the laws of Delaware, (ii) has the corporate power and
authority to own, lease and operate all of its assets and to
carry on its business as it is now being conducted, including,
without limitation, the Gaylord Bag Business, and (iii) is, or
will be at the Closing Date, duly licensed or qualified to do
business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the assets owned
or leased by it with respect to the Gaylord Bag Business makes
such licensing or qualification necessary, except where the
failure to be so licensed or qualified will not have, or is not
reasonably likely to have, individually or in the aggregate, a
material adverse effect on the operations or financial condition
of the Gaylord Bag Business, the Gaylord Contributed Property or
the Joint Venture Business or its ability to consummate the
transactions contemplated by, and perform its obligations under,
this Agreement or the Ancillary Agreements (a "Gaylord Material
Adverse Effect").
(b) Authority of Gaylord. Gaylord has full power and
authority to execute, deliver and perform this Agreement and each
of the Ancillary Agreements to which Gaylord is a party. The
execution, delivery and performance of this Agreement and each of
the Ancillary Agreements to which Gaylord is a party by Gaylord
have been duly authorized and approved by Gaylord's Board of
Directors and do not require any further authorization or consent
of Gaylord or its stockholders. This Agreement and each
Ancillary Agreement to which Gaylord is a party has been duly
authorized, executed and delivered by Gaylord and is the legal,
valid and binding obligation of Gaylord enforceable against it in
accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of general
applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of
equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
Neither the execution and delivery of this Agreement
or any of the Ancillary Agreements to which Gaylord is a party or
the consummation of any of the transactions contemplated hereby
or thereby nor compliance with or fulfillment of the terms,
conditions and provisions hereof or thereof will conflict with,
violate, result in a breach of, constitute a default under, or
result in the creation or imposition of any Encumbrance upon any
of the Gaylord Contributed Property, under (i) the charter or
By-laws of Gaylord, (ii) any Gaylord Bag Contract, (iii) subject
to receipt of the consents listed on Schedule 3.1(b), any other
material note, instrument, agreement, indenture, mortgage, lease,
license, franchise, permit or other authorization, right,
restriction or obligation to which Gaylord or any Gaylord
Affiliate is a party or any of the Gaylord Contributed Property
is subject or by which Gaylord or any Gaylord Affiliate is bound,
(iv) any Court Order to which Gaylord or any Gaylord Affiliate is
a party or any of the Gaylord Contributed Property is subject or
by which Gaylord is bound, or (v) subject to the consents
described in Section 3.1(c), any Requirements of Laws affecting
Gaylord or any Gaylord Contributed Property or any Gaylord Bag
Contract.
(c) Consents and Approvals. No consent, approval or
authorization of, or declaration, filing or registration with, or
notice to, or order or action of, any court, administrative
agency or other Governmental Body or any other Person (including,
without limitation, any financial institution or indenture
trustee) is required to be made or obtained by Gaylord or any
Gaylord Affiliate in connection with the execution and delivery
by Gaylord of this Agreement or any Ancillary Agreement to which
it is a party, the consummation by Gaylord of the transactions
contemplated hereby or thereby and the performance by Gaylord of
its obligations contained herein or therein, other than consents,
approvals or authorizations that have been obtained or if not
obtained, will not have, or are not reasonably likely to have,
individually or in the aggregate, a Gaylord Material Adverse
Effect.
(d) Status of Gaylord Bag Contracts. Except as set
forth in Schedule 3.1(d), each of the Gaylord Bag Contracts
constitutes a valid and binding obligation of the parties
thereto, is in full force and effect, may be assigned to the
Company as contemplated hereby and, after such assignment, will
continue in full force and effect thereafter, in each case
without breaching any material term thereof or resulting in the
forfeiture or impairment of any material right thereunder and
without the consent, approval or act of, or the making of any
filing with, any other Person. Gaylord has fulfilled and
performed in all material respects its obligations under each of
the Gaylord Bag Contracts, and Gaylord is not in, or, to its
knowledge, alleged to be in, any material breach or default
under, nor, to its knowledge, is there or is there alleged to be
any reasonable basis for termination of, any of the Gaylord Bag
Contracts and, to its knowledge, no other party to any of the
Gaylord Bag Contracts has materially breached or defaulted
thereunder. Gaylord has afforded Stone, to the extent requested
by Stone, reasonable access to complete and correct copies of
each of the Gaylord Bag Contracts for Stone to review and
inspect.
(e) No Litigation. There are no material lawsuits,
claims, suits, proceedings or investigations pending or, to the
knowledge of Gaylord, threatened before any Governmental Body
which questions the legality or propriety of the transactions
contemplated by this Agreement or any Ancillary Agreement.
(f) No Broker or Finder. No broker, finder or
investment banker is entitled to any fee or commission from
Gaylord or any Gaylord Affiliate in connection with the
transactions contemplated by this Agreement or any Ancillary
Agreement.
(g) Title To Property. Except as set forth on
Schedule 3.1(g), Gaylord has good and marketable title to the
Gaylord Contributed Property, free and clear of all Encumbrances
other than Permitted Encumbrances, and the Gaylord Contributed
Property constitutes all of the assets and properties used by
Gaylord in the conduct of the Gaylord Bag Business prior to the
Closing Date. Except as set forth on Schedule 3.1(g), upon
delivery to the Company on the Closing Date of the instruments of
transfer contemplated hereby, Gaylord will transfer to the
Company good and marketable title to the Gaylord Contributed
Property (including, without limitation, the Gaylord Bag
Contracts), subject to no Encumbrances other than Permitted
Encumbrances.
(h) Financial Information. Schedule 3.1(h) contains
certain financial information relating to the Gaylord Bag
Business for the periods ending September 30, 1994 and September
30, 1995 and the interim periods up through and including the
period ending March 31, 1996 (the "Gaylord Financial
Information"). The Gaylord Financial Information presents fairly
(and has been prepared in good faith and on a reasonable basis
with respect to) the revenues, costs and expenses associated with
the Gaylord Bag Business as of the respective dates and for the
respective periods covered thereby.
(i) Statements True and Correct. (i) The representa-
tions and warranties of Gaylord set forth in this Agreement, the
Ancillary Agreements or otherwise contained in any other docu-
ments delivered by Gaylord to Stone pursuant to this Agreement or
any of the Ancillary Agreements, are, as of the date hereof, and
will be, as of the Closing Date, except to the extent that any
such representations and warranties are by their express provi-
sions made as of a specified date, true and correct in all mate-
rial respects.
(ii) All documents that Gaylord is responsible for
filing with any Governmental Body in connection with the
transactions contemplated hereby will comply as to form in all
material respects with the provisions of applicable Requirements
of Law and none of them will contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein not misleading.
3.2. Representations and Warranties of Stone. As an
inducement to Gaylord to enter into this Agreement and each
Ancillary Agreement to which Gaylord is a party and to consummate
the transactions contemplated hereby and thereby, Stone repre-
sents and warrants to Gaylord as follows:
(a) Organization, Corporate Power, Etc. Stone (i) is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, (ii) has the corporate
power and authority to own, lease and operate all of its assets
and to carry on its business as it is now being conducted,
including, without limitation, the Stone Bag Business and (iii)
is, or will be at the Closing Date, duly licensed or qualified to
do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the
assets owned or leased by it with respect to the Stone Bag
Business makes such licensing or qualification necessary, except
where the failure to be so licensed or qualified will not have or
is not reasonably likely to have, individually or in the aggre-
gate, a material adverse effect on the operations or financial
condition of the Stone Bag Business, the Stone Contributed
Property or the Joint Venture Business or its ability to
consummate the transactions contemplated by, and perform its
obligations under, this Agreement or the Ancillary Agreements (a
"Stone Material Adverse Effect").
(b) Authority of Stone. Stone has full power and
authority to execute, deliver and perform this Agreement and each
of the Ancillary Agreements to which Stone is a party. The
execution, delivery and performance of this Agreement and each of
the Ancillary Agreements to which Stone is a party by Stone have
been duly authorized and approved by Stone's Board of Directors
and do not require any further authorization or consent of Stone
or its stockholders. This Agreement and each Ancillary Agreement
to which Stone is a party has been duly authorized, executed and
delivered by Stone and is the legal, valid and binding obligation
of Stone enforceable against it in accordance with its terms,
except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws of general applicability relating to or
affecting the enforcement of creditors' rights and by the effect
of general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at
law).
Neither the execution and delivery of this Agreement or
any of the Ancillary Agreements to which Stone is a party or the
consummation of any of the transactions contemplated hereby or
thereby nor compliance with or fulfillment of the terms,
conditions and provisions hereof or thereof will conflict with,
violate, result in a breach of, constitute a default under, or
result in the creation or imposition of any Encumbrance upon any
Stone Contributed Property, under (i) the charter or By-laws of
Stone (ii) any Stone Bag Contract, (iii) subject to receipt of
the consents listed on Schedule 3.2(b), any other material note,
instrument, agreement, indenture, mortgage, lease, license,
franchise, permit or other authorization, right, restriction or
obligation to which Stone or any Stone Affiliate is a party or
any of the Stone Contributed Property is subject or by which
Stone or any Stone Affiliate is bound, (iv) any Court Order to
which Stone or any Stone Affiliate is a party or any Stone
Contributed Property is subject or by which Stone is bound, or
(v) subject to the consents described in Section 3.2(c), any
Requirements of Laws affecting Stone or any Stone Contributed
Property or any Stone Bag Contract.
(c) Consents and Approvals. No consent, approval or
authorization of, or declaration, filing or registration with, or
notice to, or order or action of, any court, administrative
agency or other Governmental Body or any other Person (including,
without limitation, any financial institution or indenture
trustee) is required to be made or obtained by Stone or any Stone
Affiliate in connection with the execution and delivery by Stone
of this Agreement or any Ancillary Agreement to which it is a
party, the consummation by Stone of the transactions contemplated
hereby or thereby and the performance by Stone of its obligations
contained herein or therein, other than consents, approvals or
authorizations that have been obtained or, if not obtained, will
not have, or are not reasonably likely to have, individually or
in the aggregate, a Stone Material Adverse Effect.
(d) Status of Stone Bag Contracts. Except as set
forth in Schedule 3.2(d), each of the Stone Bag Contracts
constitutes a valid and binding obligation of the parties
thereto, is in full force and effect, may be assigned to the
Company as contemplated hereby and, after such assignment, will
continue in full force and effect thereafter, in each case
without breaching any material term thereof or resulting in the
forfeiture or impairment of any material right thereunder and
without the consent, approval or act of, or the making of any
filing with, any other Person. Stone has fulfilled and performed
in all material respects its obligations under each of the Stone
Bag Contracts, and Stone is not in, or, to its knowledge, alleged
to be in, any material breach or default under, nor, to its
knowledge, is there or is there alleged to be any reasonable
basis for termination of, any of the Stone Bag Contracts and, to
its knowledge, no other party to any of the Stone Bag Contracts
has materially breached or defaulted thereunder. Stone has
afforded Gaylord, to the extent requested by Gaylord, reasonable
access to complete and correct copies of each of the Stone Bag
Contracts for Gaylord to review and inspect.
(e) No Litigation. There are no material lawsuits,
claims, suits, proceedings or investigations pending or, to the
knowledge of Stone, threatened before any Governmental Body which
questions the legality or propriety of the transactions
contemplated by this Agreement or any Ancillary Agreement.
(f) No Broker or Finder. No broker, finder or
investment banker is entitled to any fee or commission from Stone
or any Stone Affiliate in connection with the transactions
contemplated by this Agreement or any Ancillary Agreement.
(g) Title to Property. Except as otherwise set forth
on Schedule 3.2(g), Stone has good and marketable title to the
Stone Contributed Property, free and clear of all Encumbrances
other than Permitted Encumbrances, and the Stone Contributed
Property constitutes all of the assets and properties used by
Stone in the conduct of the Stone Bag Business prior to the
Closing Date. Except as set forth on Schedule 3.2(g), upon
delivery to the Company on the Closing Date of the instruments of
transfer contemplated herein, Stone will transfer to the Company
good and marketable title to the Stone Contributed Property
(including, without limitation, the Stone Bag Contracts), subject
to no Encumbrances other than Permitted Encumbrances.
(h) Financial Information. Schedule 3.2(h) contains
certain financial information relating to the Stone Bag Business
for the periods ending December 31, 1994 and December 31, 1995
and the interim periods up through and including the period
ending March 31, 1996 (the "Stone Financial Information.") The
Stone Financial Information presents fairly (and has been
prepared in good faith on a reasonable basis with respect to)
the revenues, costs and expenses associated with the Stone Bag
Business as of the respective dates and for the respective
periods covered thereby.
(i) Statements True and Correct. (i) The representa-
tions and warranties of Stone set forth in this Agreement, the
Ancillary Agreements or otherwise contained in any other docu-
ments delivered by Stone to Gaylord pursuant to this Agreement or
any of the Ancillary Agreements, are, as of the date hereof, and
will be, as of the Closing Date, except to the extent that any
such representations and warranties are by their express provi-
sions made as of a specified date, true and correct in all
material respects.
(ii) All documents that Stone is responsible for
filing with any Governmental Body in connection with the
transactions contemplated hereby will comply as to form in all
material respects with the provisions of applicable Requirements
of Law and none of them will contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
therein not misleading.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1. Reasonable Access. Between the date hereof and
the Closing Date, each of Gaylord and Stone shall make available
to employees, agents and representatives of the other party and
its Affiliates, at reasonably acceptable times and at locations
reasonably acceptable and accessible, the books and records of
the Gaylord Bag Business and the Stone Bag Business, respec-
tively, and allow employees, agents and representatives of the
other to discuss the Gaylord Bag Business and Stone Bag Business
with certain key employees of Gaylord and Stone, respectively,
mutually agreed to by Gaylord and Stone, including all such
information (including without limitation financial information)
as shall be necessary to enable Gaylord and Stone or their
respective representatives to complete their financial, opera-
tional, and legal due diligence to verify the accuracy of the
representations and warranties contained in this Agreement, to
verify that the covenants of the other party contained in this
Agreement have been complied with and to determine whether the
conditions set forth in Article II have been satisfied.
4.2. Accuracy of Representations and Warranties.
Between the date hereof and the Closing Date, each of Gaylord and
Stone will use reasonable efforts not to take any action or omit
to take any action, and to cause its Affiliates not to take any
action or omit to take any action, that would result in its
respective representations or warranties contained in this
Agreement or any Ancillary Agreement not being true and correct
as at the Closing Date. Each party shall promptly notify the
other of the receipt of any written notice regarding any action,
suit or proceeding that shall be instituted or threatened against
such party to restrain, prohibit or otherwise challenge the
legality of any transaction contemplated by this Agreement.
4.3. Efforts to Consummate. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to
use all reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary,
proper or advisable to consummate, as promptly as practicable,
the transactions contemplated hereby and in each of the Ancillary
Agreements including, but not limited to, the obtaining of all
necessary consents, waivers, authorizations, orders and approvals
of third parties, whether private or governmental, required of it
by this Agreement or any Ancillary Agreement. Each of Gaylord
and Stone agrees to cooperate fully with the other in assisting
it to comply with the provisions of this Section 4.3.
4.4. No Public Announcement. Neither Gaylord nor
Stone shall make any press release or other public announcement
concerning the transactions contemplated by this Agreement or any
Ancillary Agreement without consulting the other party as to the
timing and content of any such release or announcement such that
a mutually agreeable release or announcement may be issued.
4.5. Regulatory Disclosure. Notwithstanding that both
Gaylord and Stone agree that the transactions contemplated hereby
do not require a filing under the HSR Act, as promptly as
practicable after the date hereof, Gaylord and Stone shall
jointly disclose the transactions contemplated hereby to the
Federal Trade Commission and the Antitrust Division of the
Department of Justice (the "Regulatory Agencies"). Each of
Gaylord and Stone agrees to make available to the other such
information as each of them may reasonably request relative to
its business, assets and property as may be necessary to fully
disclose the transactions contemplated hereby to the Regulatory
Agencies as contemplated herein or as may be required to provide
any additional information requested by such Regulatory Agencies.
4.6. Required Approvals. As promptly as possible
after the date hereof, each party shall take the necessary action
to obtain any approvals, consents or waivers required to be
obtained from any financial institution or lessor.
4.7. Operations until Contribution of Bag Businesses.
Between the date hereof and the Closing Date, Gaylord shall
conduct the Gaylord Bag Business only in the ordinary course and
in conformity with past practice. Between the date hereof and
the Closing Date, Stone shall conduct the Stone Bag Business only
in the ordinary course and in conformity with past practice.
4.8. Intentionally Omitted.
4.9. Protected Business Opportunities. If at any time
during the term of the Formation Agreement, a Protected Business
Opportunity is made available to any Member, then (i) such Member
shall refer such Protected Business Opportunity to the Management
Committee and (ii) such Member shall not refer such Protected
Business Opportunity to any other Person and shall refrain from
exploiting such Protected Business Opportunity for its own
benefit unless (a) the Representatives designated by the Member
who does not have the Protected Business Opportunity (the
"Disinterested Members") unanimously advise such Member that the
Company does not wish to pursue such Protected Business
Opportunity and (b) the Disinterested Members of the Management
Committee unanimously determine in their good faith judgment and
making all reasonable efforts that the Company would be unable to
manage such Protected Business Opportunity because of financial
constraints or otherwise, in which case such Member may pursue
such Protected Business Opportunity, subject to the restrictions
of Section 4.10.
4.10. Certain Ancillary Restrictions on Right to
Compete with the Company. During the term of the Formation
Agreement, except for Permitted Activities or any Ancillary
Business Opportunity, each party will not, and will not permit
any of its Affiliates to, and will not assist any third party to
own, manage, operate, control, participate in, compete with or
otherwise carry on a business competitive with the Joint Venture
Business.
4.11. Ancillary Business Opportunity. Notwithstanding
the provisions of Section 4.9 and Section 4.10, any Member may
acquire an Ancillary Business Opportunity, if and only if such
Member shall either (a) present to the Management Committee the
opportunity for the Company to purchase solely those assets
associated with the Ancillary Business Opportunity which are
similar to the Joint Venture Business (the "Ancillary Assets");
provided, however, if any Member votes that the Company purchase
such Ancillary Assets and Optional Additional Cash Contributions
are required to fund such purchase pursuant to Section 4.4 of the
Formation Agreement, then such Member shall be deemed to have
agreed to fully fund its pro rata portion of any such Optional
Additional Cash Contribution, (b) present to the Management
Committee the opportunity for the Company to manage the division
of business which uses the Ancillary Assets or (c) sell or spin-off the
Ancillary Assets to a third party. If (i) the Representatives designated by
the Member who has not acquired the Ancillary Business Opportunity unanimously
vote that the Company neither buy, nor manage the division of business which
uses, the Ancillary Assets and (ii) the Member who acquired the Ancillary
Business Opportunity reasonably determines in its good faith
judgment that it would be unable to receive fair market value for
the Ancillary Assets pursuant to a sale or spin-off to a third
party, then the Member who acquired the Ancillary Business
Opportunity shall be allowed to retain such Ancillary Business
Opportunity in total, notwithstanding any other provision of this
Agreement to the contrary, including Section 4.10.
4.12. Gaylord Purchase Option. At any time prior to
the fourth anniversary of the Closing Date, Gaylord shall have
the option (as set forth below) exercisable by written notice to
Stone to purchase from Stone a portion of Stone's Membership
Interest sufficient to increase Gaylord's Membership Interest to
50% of the total Membership Interests in the Company, provided
that such purchase must be completed by the earlier of (i) the
fifth anniversary of the Closing Date or (ii) one year after
delivery of such written notice. The written notice delivered to
Stone can only be exercised to acquire a portion of Stone's
Membership Interest sufficient to increase Gaylord's ownership to
50% of the total Membership Interests. The written notice shall
specify a proposed cash purchase price or the methodology for
calculating the cash purchase price and summarize the basis on
which Gaylord determined such proposed purchase price. If Stone
disagrees as to the proposed purchase price, the parties shall
negotiate in good faith in an effort to agree upon a purchase
price for a period of 30 days. If the parties are unable to
agree upon a purchase price within such 30-day period, the
parties shall appoint an investment banking firm or valuation
firm with a national reputation to determine the Fair Market
Value (as herein defined), as of the date of delivery of the
written notice to purchase, of the Membership Interest to be pur-
chased by Gaylord. If the parties are unable to agree upon an
investment banking firm or valuation firm, such appointment shall
be made by the American Arbitration Association, Chicago,
Illinois. Gaylord, Stone and their Affiliates shall provide the
appraiser with any information which it reasonably requests
(subject to any applicable confidentiality restrictions) relating
to the Company and the Joint Venture Business; provided, however,
no information regarding the price negotiations between Stone and
Gaylord shall be provided to the appraiser. Such investment
banking firm or valuation firm shall develop a valuation (the
"Fair Market Value") of the Company in its entirety, as a going
concern as of the date of delivery of the written notice to
purchase, taking into account such factors as it reasonably deems
to be relevant, including the Company's assets, liabilities,
revenues, earnings before interest, taxes, depreciation and
amortization, net income, market conditions, comparable companies
and other factors which customarily are used in developing
valuations of companies engaged in businesses which are
substantially similar to those engaged in by the Company;
provided, however, that, in computing the Fair Market Value, no
discount or premium shall be applied to any Membership Interest
to reflect its status as a minority or non-controlling Membership
Interest or value of becoming a 50% equity owner. The Fair
Market Value shall be determined (i) within six months of the
delivery of the written notice to purchase or (ii) within 90 days
after such investment banking or valuation firm is appointed,
whichever is later. Such Membership Interest shall be valued as
if the Company was being sold in its entirety in an arms' length
transaction assuming the Company was being sold in a manner
designed to maximize value to its Members. After determining the
valuation of the Company in its entirety, the valuation
determined by such investment banking firm or valuation firm
shall specify the amount to be paid for the specific Membership
Interest being transferred based on the ratio of the ownership
interests in the Company being transferred to the total
Membership Interests of the Company. The fees and expenses of
the appraiser pursuant to this Section 4.12 shall be borne
equally by the parties; provided, however, that if the appraiser
determines a valuation 15% or more greater than the purchase
price proposed by Gaylord, Gaylord shall pay the fees and
expenses of the appraiser and if the appraiser determines a
valuation 15% or more less than the purchase price proposed by
Gaylord, Stone shall pay the fees and expenses of the appraiser.
At the closing of any sale of a Membership Interest pursuant to
this Section 4.12, Stone shall deliver to Gaylord instruments of
assignment and other appropriate documentation in a form
reasonably satisfactory to Gaylord under which Stone will
transfer and assign to Gaylord by appropriate warranty deed good
and marketable title to the Membership Interest to be sold free
and clear of all Encumbrances, and Schedule I to the Formation
Agreement shall be amended accordingly. The purchase price for
such Membership Interest shall be paid by certified check or wire
transfer of immediately available funds. The closing of such
purchase shall take place on the later of (i) within five (5)
business days of the date that the valuation is finally agreed to
or determined by the appraiser or (ii) one year from the date of
delivery of the notice described in the first sentence of this
Section 4.12.
4.13. Employee Benefits Matters. It is contemplated
that certain employees of Gaylord and certain employees of Stone
will become employees of the Company. Each of Gaylord and Stone
shall make appropriate arrangements concerning employee benefits
matters as required by Schedule 4.13 hereto.
4.14. Obtaining Applicable Consents. The consummation
of (a) a dissolution of the Company pursuant to Article XII of
the Formation Agreement or (b) the purchase of any Membership
Interest pursuant to Section 8.2(b)(i) of this Agreement, will be
made subject to all applicable consents, approvals,
authorizations of, or declaration, filing or registration with,
or notice to, or order or action of, any Person (including,
without limitation, those required under the HSR Act).
ARTICLE V
INDEMNIFICATION; PAYMENT OF CERTAIN COSTS
5.1. Indemnification by Stone. (a) Stone shall
indemnify, protect and hold harmless each Gaylord Group Member
from and against any and all Loss and Expense, whether or not
litigation is commenced, imposed upon, incurred by or asserted
against such Gaylord Group Member in connection with or arising
from the breach by Stone of any representation, warranty,
covenant or agreement of Stone in this Agreement or a Loss
arising out of, related to or associated with any Stone
Contributed Property; provided, however, that Stone shall not be
required to indemnify or hold any Gaylord Group Member harmless
from or against any such Loss or Expense to the extent that such
Loss or Expense arises as a result of such Gaylord Group Member's
own gross negligence, willful misconduct or breach of any of its
representations, warranties or obligations pursuant to this
Agreement.
(b) The indemnification provided for in this
Section 5.1 with respect to the breach of any representation or
warranty contained in this Agreement shall terminate one year
after the Closing Date (and no claims shall be made by any
Gaylord Group Member under this Section 5.1 thereafter), except
that (i) the indemnification by Stone with respect to a breach of
a representation or warranty contained in Section 3.2(g) shall
continue indefinitely and (ii) the indemnification by Stone with
respect to all other representations and warranties shall
continue as to any Loss or Expense of which any Gaylord Group
Member has notified Stone in accordance with the requirements of
Section 5.3 on or prior to the date such indemnification would
otherwise terminate in accordance with this Section 5.1, as to
which the obligation of Stone shall continue until the liability
of Stone shall have been determined pursuant to this Article V,
and Stone shall have reimbursed all Gaylord Group Members for the
full amount of such Loss and Expense in accordance with this
Article V.
(c) Notwithstanding any other provision of this
Agreement (including Section 5.5), this Section 5.1(c) provides
the sole indemnities by Stone relating to Stone Environmental
Matters. From and after the Closing Date as long as a claim is
made within ten (10) years from the date thereof, at the request
of Gaylord (being the only beneficiary of this provision), Stone
shall indemnify, defend and hold harmless the Company from any
actual Loss or Expense, including, without limitation, reasonable
attorney's fees and environmental consulting costs, incurred by
the Company as a result of any violation of or liability under
any Environmental Laws relating to any of the Stone Contributed
Property, except to the extent the event or condition giving rise
to such violation or liability is caused by the act or acts of
the Company after the Closing Date; provided, however, if Stone
(a)(i) does not have available cash or other liquid investments
to satisfy its indemnity obligations under this Section 5.l(c),
(ii) does not have sufficient borrowing availability under any of
its financing agreements to satisfy such indemnity obligations or
(iii) is, or by funding such indemnity obligations would be, in
default under any of its financing agreements, or (b) Stone
otherwise fails to satisfy its indemnity obligations under this
Section 5.1(c), then Gaylord shall have the right to acquire, in
full satisfaction of Stone's indemnity obligations hereunder, the
portion of Stone's Membership Interest equal in value to Stone's
indemnity obligations (determined pursuant to the procedures set
forth in Section 4.12).
5.2. Indemnification by Gaylord. (a) Gaylord shall
indemnify, protect and hold harmless each Stone Group Member from
and against any and all Loss and Expense, whether or not
litigation is commenced, imposed upon, incurred by or asserted
against such Stone Group Member in connection with or arising
from the breach by Gaylord of any representation, warranty,
covenant or agreement of Gaylord in this Agreement or a Loss
arising out of, related to or associated with any Gaylord
Contributed Property; provided, however, that Gaylord shall not
be required to indemnify, protect or hold any Stone Group Member
harmless from or against any such Loss or Expense to the extent
that such Loss or Expense arises as a result of such Stone Group
Member's own gross negligence, willful misconduct or breach of
any of its representations, warranties or obligations pursuant to
this Agreement.
(b) The indemnification provided for in this
Section 5.2 with respect to the breach of any representation or
warranty contained in this Agreement shall terminate one year
after the Closing Date (and no claims shall be made by any Stone
Group Member under this Section 5.2 thereafter), except that
(i) the indemnification by Gaylord with respect to a breach of a
representation or warranty contained in Section 3.1(g) shall
continue indefinitely and (ii) the indemnification by Gaylord
with respect to all other representations and warranties shall
continue as to any Loss or Expense of which any Stone Group
Member has notified Gaylord in accordance with the requirements
of Section 5.3 on or prior to the date such indemnification would
otherwise terminate in accordance with this Section 5.2, as to
which the obligation of Gaylord shall continue until the
liability of Gaylord shall have been determined pursuant to this
Article V, and Gaylord shall have reimbursed all Stone Group
Members for the full amount of such Loss and Expense in
accordance with this Article V.
(c) Notwithstanding any other provision of this
Agreement (including Section 5.5), this Section 5.2(c) provides
the sole indemnities by relating to Gaylord Environmental
Matters. From and after the Closing Date and so long as a claim
is made within ten (10) years from the date thereof, at the
request of Stone (being the only beneficiary of this provision),
Gaylord shall indemnify, defend and hold harmless the Company
from any actual Loss or Expense, including, without limitation,
reasonable attorney's fees and environmental consulting costs,
incurred by the Company as a result of any violation or liability
under any Environmental Laws relating to any of the Gaylord
Contributed Property, except to the extent the event or condition
giving rise to such violation or liability is caused by the act
or acts of the Company after the Closing Date; provided, however,
if Gaylord (a) (i) does not have available cash or other liquid
investments to satisfy its indemnity obligations under this
Section 5.2(c), (ii) does not have sufficient borrowing
availability under any of its financing agreements to satisfy
such indemnity obligations or (iii) is, or by funding such
indemnity obligations would be, in default under any of its
financing agreements, or (b) Gaylord otherwise fails to satisfy
its indemnity obligations under this Section 5.2(c), then Stone
shall have the right to acquire, in full satisfaction of
Gaylord's indemnity obligations hereunder, the portion of
Gaylord's Membership Interest equal in value to Gaylord's
indemnity obligations (determined pursuant to the procedures set
forth in Section 4.12).
5.3. Notice of Claims. (a) Any Gaylord Group Member
or Stone Group Member (the "Indemnified Party") seeking
indemnification hereunder shall give promptly to the party
obligated to provide indemnification to such Indemnified Party
(the "Indemnitor") a notice (a "Claim Notice") describing in
reasonable detail the facts giving rise to any claim for
indemnification hereunder and shall include in such Claim Notice
(if then known) the amount or the method of computation of the
amount of such claim, and a reference to the provision of this
Agreement or any other agreement, document or instrument executed
hereunder or in connection herewith upon which such claim is
based; provided, however, that a Claim Notice in respect of any
action at law or suit in equity by or against a third Person as
to which indemnification will be sought shall be given promptly
after the action or suit is commenced.
(b) In calculating any Loss or Expense there shall be
deducted any insurance recovery in respect thereof (and no right
of subrogation shall accrue hereunder to any insurer).
(c) After the giving of any Claim Notice pursuant
hereto, the amount of indemnification to which an Indemnified
Party shall be entitled under this Article V shall be determined:
(i) by the written agreement between the Indemnified Party and
the Indemnitor; (ii) by a final judgment or decree of any court
of competent jurisdiction; or (iii) by any other means to which
the Indemnified Party and the Indemnitor shall agree. The
judgment or decree of a court shall be deemed final when the time
for appeal, if any, shall have expired and no appeal shall have
been taken or when all appeals taken shall have been finally
determined. The Indemnified Party shall have the burden of proof
in establishing the amount of Loss and Expense suffered by it.
5.4. Third Person Claims. (a) In order for an
Indemnified Party to be entitled to any indemnification provided
for under this Agreement in respect of, arising out of or
involving a claim or demand made by any third Person against an
Indemnified Party, such Indemnified Party must notify the
Indemnitor in writing, and in reasonable detail, of the third
Person claim within 10 days after receipt by such Indemnified
Party of written notice of the third Person claim; provided,
however, that the failure of an Indemnified Party to give timely
notice shall not affect its right to indemnification hereunder
except to the extent the Indemnitor has actually been materially
prejudiced or damaged thereby. Thereafter, the Indemnified Party
shall deliver to the Indemnitor, within five Business Days after
the Indemnified Party's receipt thereof, copies of all notices
and documents (including court papers) received by the
Indemnified Party relating to the third Person claim.
Notwithstanding the foregoing, should an Indemnified Party be
physically served with a complaint with regard to a third Person
claim, the Indemnified Party must notify the Indemnitor and
deliver a copy of the complaint within five Business Days after
receipt thereof and shall deliver to the Indemnitor within seven
Business Days after the receipt of such complaint copies of
notices and documents (including court papers) received by the
Indemnified Party relating to the third Person claim; provided,
however, that the failure of an Indemnified Party to give timely
notice or delivery shall not affect its right to indemnification
hereunder except to the extent the Indemnifying Party has
actually been materially prejudiced or damaged thereby.
(b) In the event of the initiation of any legal
proceeding, claim or demand against the Indemnified Party by a
third Person, and provided that the Indemnitor shall have agreed
in writing to assume all liability therefor without any
reservation of rights, the Indemnitor shall have the sole and
absolute right after the receipt of notice, at its option and at
its own expense, to be represented by counsel of its choice and
to control, defend against, negotiate, settle or otherwise deal
with any proceeding, claim, or demand which relates to any Loss
or Expense indemnified against hereunder; provided, however,
that the Indemnified Party may participate in any such proceeding
with counsel of its choice and at its expense. The parties
hereto agree to cooperate fully with each other in connection
with the defense, negotiation or settlement of any such legal
proceeding, claim or demand. To the extent the Indemnitor elects
not to defend such proceeding, claim or demand, and the
Indemnified Party defends against or otherwise deals with any
such proceeding, claim or demand, the Indemnified Party may
retain counsel, at the expense of the Indemnitor, and control the
defense of such proceeding. Neither the Indemnitor nor the
Indemnified Party may settle any such proceeding which settlement
obligates the other party or the Company to pay money, to perform
obligations or to admit liability without the consent of the
other party, such consent not to be unreasonably withheld. After
any final judgment or award shall have been rendered by a court,
arbitration board or administrative agency of competent juris-
diction and the time in which to appeal therefrom has expired, or
a settlement shall have been consummated, or the Indemnified
Party and the Indemnitor shall arrive at a mutually binding
agreement with respect to each separate matter alleged to be
indemnified by the Indemnitor hereunder, the Indemnified Party
shall forward to the Indemnitor notice of any sums due and owing
by it with respect to such matter and the Indemnitor shall pay
all of the sums so owing to the Indemnified Party by wire
transfer, certified or bank cashier's check within 30 days after
the date of such notice.
5.5. Limit on Liability. (a) Notwithstanding anything
to the contrary in this Agreement (other than Section 5.1(c)),
Stone shall be required to indemnify and hold harmless each
Gaylord Group Member under Section 5.1 with respect to Loss and
Expense incurred by Gaylord Group Members only up to an aggregate
amount not to exceed $15,000,000. There shall be no limit on
Stone's indemnification obligations under Section 5.1(c).
(b) Notwithstanding anything to the contrary in this
Agreement (other than Section 5.2(c)), Gaylord shall be required
to indemnify and hold harmless each Stone Group Member under
Section 5.2 with respect to Loss and Expense incurred by Stone
Group Members only up to an aggregate amount not to exceed
$15,000,000. There shall be no limit on Gaylord's
indemnification obligations under Section 5.2(c).
(c) If the Indemnitor is unable (as opposed to
unwilling) to satisfy a requirement to pay indemnification, the
Indemnified Party shall have the option to receive such portion
of the Indemnitor's Membership Interest equal in value (as
determined in accordance with the procedures of Section 4.12) to
the amount of the indemnification required to be paid. If there
is a dispute as to the value of the Membership Interest, the
dispute shall be determined using the procedures set forth in
Section 4.12 hereof. As used herein, "unable to satisfy
requirement to pay indemnification" shall mean that the
Indemnitor (i) does not have available cash or other liquid
investments to satisfy its indemnity obligations, (ii) does not
have sufficient borrowing availability under any of its financing
agreements to satisfy such indemnity obligations or (iii) is, or
by funding such indemnity obligations would be, in default under
any of its financing agreements.
5.6. Scope of Indemnity. Except for remedies that
cannot be waived as a matter of law and injunctive and
provisional relief, this Article V shall be the exclusive remedy
for breach of this Agreement.
5.7. No Special Damages. IN NO EVENT SHALL STONE OR
GAYLORD OR ANY OF THEIR RESPECTIVE AFFILIATES BE LIABLE UNDER
THIS AGREEMENT UNDER ANY THEORY OF TORT, CONTRACT, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY LOST
PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY
AGREEMENT OF THE PARTIES REGARDLESS OF WHETHER OR NOT STONE, THE
COMPANY OR GAYLORD HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES; PROVIDED THAT THE FOREGOING SHALL NOT EXCLUDE ANY AWARD
OF DAMAGES FOR LOST PROFITS ARISING OUT OF ANY BREACH BY EITHER
GAYLORD, STONE OR ANY OF THEIR RESPECTIVE AFFILIATES OF SECTION
4.9, 4.10 OR ARTICLE VI HEREOF; PROVIDED FURTHER THAT IF ANY
BREACH BY STONE UNDER SECTION 3.2 or 5.1(c) RELATES TO STONE
CONTRIBUTED PROPERTY OR ANY BREACH BY GAYLORD UNDER SECTION 3.1
or 5.2(c) RELATES TO GAYLORD CONTRIBUTED PROPERTY, THE INDEMNITOR
SHALL EITHER (A) INDEMNIFY THE COMPANY FOR ANY DECREASE IN THE
VALUE OF THE STONE CONTRIBUTED PROPERTY OR THE GAYLORD
CONTRIBUTED PROPERTY, AS THE CASE MAY BE, CAUSED BY SUCH BREACH
OR (B) INDEMNIFY THE NON-BREACHING MEMBER BASED ON THE REDUCED
VALUE OF ITS MEMBERSHIP INTEREST.
ARTICLE VI
CONFIDENTIAL INFORMATION
6.1. Confidential Information. Each party agrees that
it will keep (and will cause each of its Affiliates and its and
their respective directors, officers, employees, representatives,
agents, advisors, consultants, counsel, external or internal
auditors and independent contractors to whom disclosure may be
made in connection with the negotiation and performance of this
Agreement or any Ancillary Agreement to keep) in confidence all
documents, materials and other information which it shall have
obtained regarding the other party during the course of the
negotiations leading to the consummation of the transactions
contemplated hereby (whether obtained before or after the date of
this Agreement), the investigation provided for herein or the
preparation of this Agreement, the Ancillary Agreements and other
related documents, and, in the event the transactions contem-
plated hereby shall not be consummated, each party will return to
the other party all copies of nonpublic documents, electronic
records, information and materials which have been furnished in
connection therewith. Such documents, electronic records,
information and materials shall not be communicated to any third
Person (other than counsel, accountants or financial advisors of
Gaylord and Stone, employees of Gaylord and Stone and their
Affiliates who have a need to know). No other party shall use
any confidential information in any manner whatsoever except
solely for the purpose of evaluating the transactions contem-
plated by this Agreement and the Ancillary Agreements. The
obligation of each party to treat such documents, materials and
other information in confidence shall not apply to any informa-
tion which (i) is or becomes available to such party from a
source other than such party, which source was not itself known
to such party after due inquiry to be bound by a confidentiality
agreement with the other party or its representatives and was not
known by such party after due inquiry to have received such
information, directly or indirectly, from a person or entity so
bound, (ii) is or becomes available to the public other than as a
result of disclosure by such party or its agents or representa-
tives, (iii) is required to be disclosed under applicable
Requirements of Law or judicial or administrative process, but
only to the extent it must be disclosed, (iv) such party
reasonably deems necessary to disclose to obtain any Governmental
Body consents or approvals contemplated hereby or (v) such party
reasonably deems necessary to disclose in connection with any
judicial or arbitral proceeding to enforce any rights of such
party under this Agreement or any Ancillary Agreement or
otherwise relating to the transactions contemplated hereby or
thereby, but subject to cooperation with the other party to
maintain the confidentiality of such disclosed information.
6.2. Confidentiality of Transaction Agreements.
Except as expressly authorized in this Agreement or any Ancillary
Agreement, each of Gaylord and Stone shall keep confidential and
not disclose (and shall cause each of its Affiliates and its and
their respective directors, officers, employees, representatives,
agents, advisors, consultants, counsel, external or internal
auditors and independent contractors to whom disclosure may be
made in connection with the negotiation and performance of this
Agreement or any Ancillary Agreement to keep confidential and not
disclose), except to the extent required by any Requirement of
Law or judicial or administrative process, any of the terms and
conditions of this Agreement or any Ancillary Agreement to any
third party without the prior written consent of each of the
other parties to this Agreement or such Ancillary Agreement, as
applicable.
6.3. Remedy. In the event of any breach of this
Article VI or any provision of any Ancillary Agreement
incorporating the provisions of this Article VI by reference, the
parties agree that the non-breaching parties will suffer
irreparable harm and monetary damages that may be recovered
pursuant to Article V hereof for any injury to the non-breaching
parties from any violation of this Article VI will be an
inadequate remedy. Accordingly, the parties agree that the non-breaching
parties shall be entitled to temporary and permanent
injunctive relief against the breaching party, its Affiliates,
employees, officers, directors, agents, representatives or
independent contractors, and the other rights and remedies to
which the non-breaching parties may be entitled to at law, in
equity and under this Agreement or any such Ancillary Agreement
for any violation of this Article VI. The provisions of this
Article VI shall survive the expiration or termination of this
Agreement.
ARTICLE VII
TERMINATION PRIOR TO CLOSING
7.1. Termination Events. Anything contained in this
Agreement to the contrary notwithstanding, this Agreement may be
terminated and the transactions contemplated hereby abandoned at
any time prior to the Closing Date:
(a) by the mutual written consent of Gaylord and
Stone;
(b) by either Gaylord or Stone if the Closing shall
not have occurred on or before September 30, 1996 (or such
later date if either of the Regulatory Agencies (as defined
in Section 4.5) requests information or otherwise commences
an investigation with regard to the transactions
contemplated by this Agreement or any of the Ancillary
Agreements, or as may be mutually agreed to in writing by
Gaylord and Stone), unless the failure of such occurrence
shall be due to the failure of the party seeking to
terminate this Agreement or its Affiliates to perform or
observe their obligations as set forth in this Agreement
required to be performed or observed by them on or before
the Closing Date;
(c) by either Gaylord or Stone, if there shall have
been any material breach by the other party or any of its
Affiliates of any of their covenants or agreements contained
in Article IV and VI and such breach shall not have been
remedied, or cannot be remedied, within thirty (30) days
after written notice specifying the nature of such breach
and requesting that it be remedied has been delivered to the
breaching party;
(d) by either Gaylord or Stone upon written notice to
the other party in the event that any Governmental Body of
competent jurisdiction shall have issued a final nonappeal-
able order enjoining or otherwise prohibiting the consumma-
tion of the transactions contemplated by this Agreement;
(e) by Gaylord upon written notice to Stone if an
event that would constitute a Joint Venture Termination
Event under Section 8.1(b) upon the giving of notice occurs
prior to the Closing Date; or
(f) by Stone upon written notice to Gaylord if an
event that would constitute a Joint Venture Termination
Event under Section 8.1(a) upon the giving of notice occurs
prior to the Closing Date.
7.2. Notice of Termination. Any party desiring to
terminate this Agreement pursuant to Section 7.1 shall give
written notice of such termination to the other party to this
Agreement.
7.3. Effect of Termination. In the event that this
Agreement shall be terminated pursuant to this Article VII, all
further obligations of the parties under this Agreement (other
than under Article V and Article VI and Sections 9.11 and 9.12)
shall be terminated without further liability of any party to the
other, provided that nothing herein shall relieve any party from
liability for its intentional or knowing breach of this
Agreement.
ARTICLE VIII
POST-CLOSING TERMINATION OF JOINT VENTURE
8.1. Termination Trigger Events. The parties agree
that the Joint Venture will be terminated in accordance with the
procedures set forth in Section 8.2 upon the occurrence of any of
the following (each a "Joint Venture Termination Event"):
(a) upon written notice given by Stone to Gaylord not
later than four (4) months after the occurrence of any of
the following:
(i) the Bankruptcy, subsequent to the date hereof, of
Gaylord pursuant to which it is not a debtor in
possession; or
(ii) a Change in Control hereafter occurs with respect
to Gaylord.
(b) upon written notice given by Gaylord to Stone not
later than four (4) months after the occurrence of any of
the following:
(i) the Bankruptcy, subsequent to the date hereof, of
Stone pursuant to which it is not a debtor in
possession; or
(ii) a Change in Control hereafter occurs with respect
to Stone.
8.2. Termination Procedures. (a) During the thirty
(30) day period following the delivery of any termination notice
(the "Termination Notice") by Stone pursuant to Section 8.1(a) or
by Gaylord pursuant to Section 8.1(b) (the party giving such
notice being sometimes referred to herein as the "Electing
Party"), Gaylord and Stone shall negotiate in good faith to
determine the Fair Market Value of the Membership Interests of
the Electing Party and the other party (the "Triggering Party").
If the parties are unable to agree on such valuation by the end
of such 30-day period, either party may submit such valuation for
determination by appraisal pursuant to the following procedure
(the "Membership Interest Appraisal Procedure"): The party
desiring determination of such value by appraisal shall give the
other party written notice requesting determination of such value
under the Membership Interest Appraisal Procedure. Within twenty
(20) days after such notice is given, the parties shall agree
upon an independent investment banking firm or valuation firm
with a national reputation as an appraiser. Gaylord, Stone and
their Affiliates shall provide the appraiser with any information
which it reasonably requests (subject to any applicable confi-
dentiality restrictions) relating to the Company and the Joint
Venture Business; provided, however, no information regarding the
price negotiations between Stone and Gaylord shall be provided to
the appraiser. The appraiser so appointed shall determine the
Fair Market Value in accordance with the valuation criteria
described in Section 4.12, such determination to be made within
thirty (30) days after the appointment of the appraiser. If the
parties fail to agree upon the appointment of an appraiser, such
appointment shall be made promptly by the American Arbitration
Association, Chicago, Illinois office. The fees and expenses of
the appraiser pursuant to this Section 8.2(a) shall be borne by
the Triggering Party.
(b) Within fifteen (15) days after determination of
the Fair Market Value of the Membership Interests pursuant to
Section 8.2(a), the Electing Party shall specify either that (i)
the Electing Party desires to buy the Membership Interest of the
Triggering Party or (ii) the Electing Party waives any right to
buy the Membership Interest of the Triggering Party. In the
event that such a Termination Notice is properly given hereunder
and the Electing Party does not waive its rights pursuant to
clause (ii) of the prior sentence, the Triggering Party shall be
obligated to sell its Membership Interest to the Electing Party
(or its designee, including any Affiliate) for a cash payment
equal to the Fair Market Value of such Membership Interest, as so
determined. Notwithstanding anything to the contrary contained
herein, the party which is obligated to purchase the Membership
Interest of the other party pursuant to this Section 8.2 may
assign such obligation to a third Person.
(c) In the event of a Change in Control with respect
to Stone, Gaylord shall have the option (exercisable within 6
months of such Change-in-Control) to acquire a portion of the
other Member's Membership Interest sufficient to increase
Gaylord's Membership Interest to 50% of the total Membership
Interests of the Company pursuant to the procedures set forth in
Section 4.12, notwithstanding that it may be later than the
fourth anniversary of the Closing Date.
(d) In the event any Member has rights as an Electing
Party pursuant to Section 8.2(b)(i), such Member may issue a
note, in lieu of immediate payment, in order to purchase the
Triggering Party's Membership Interest if, and only if such
Electing Party (x) does not have sufficient borrowing
availability under any of its financing agreements to fund such
purchase or (y) is, or by funding such purchase would be, in
default under any of such Electing Party's financing agreements.
Any note issued by an Electing Party pursuant to this Section
8.2(d) shall bear interest at the lowest available incremental
short-term borrowing rate of the Electing Party, pay interest
semi-annually and mature two years from its date of issue.
(e) At the closing of any sale of a Membership
Interest pursuant to this Section 8.2, the selling party shall
deliver to the purchaser instruments of assignment and other
appropriate documentation in a form reasonably satisfactory to
such purchaser under which the selling party will transfer and
assign to such purchaser good title to the Membership Interest to
be sold free and clear of all Encumbrances. The purchase price
for such Membership Interest shall be paid by certified check or
wire transfer of immediately available funds.
8.3. Post-Termination Obligations. (a) Effect of
Termination of Joint Venture. If at any time a Joint Venture
Termination Event shall occur and a Termination Notice is
delivered by the Electing Party, then, except with respect to
Article V and Article VI and as otherwise provided in this
Section 8.3, the respective obligations of Gaylord and Stone and
their respective Affiliates under this Agreement and the
Ancillary Agreements (except the Paper Supply Contract) shall
automatically be terminated without liability of any party to the
other, provided, that, nothing herein shall relieve any party
from liability for an intentional or knowing breach of this
Agreement or any such Ancillary Agreement.
(b) Gaylord and Stone Obligations. In the event of a
Joint Venture Termination Event, a Termination Notice is
delivered and the Electing Party exercises its rights under
Section 8.2(b)(i), then for the period beginning on the date of
sale of the Membership Interest pursuant to Section 8.2(b)(i) and
ending on the second anniversary of such date, the party which
sells its Membership Interest in the Company pursuant to Section
8.2(b)(i) shall not, and any of such party's Affiliates shall
not, without the prior written consent of the other party
purchasing such Membership Interest:
(i) directly or indirectly, approach, counsel,
initiate contact with or otherwise attempt to solicit the
employment of any employee of the Company; or
(ii) directly or indirectly solicit any customers of
the Company with respect to Joint Venture Business except to
the extent the party selling such Membership Interest is
previously engaged in business (other than the Joint Venture
Business) with such customers.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1. Counterparts. This Agreement may be executed in
several counterparts, each of which will be deemed an original,
but all of which together will constitute one and the same
instrument.
9.2. Entire Agreement. This Agreement and the
Ancillary Agreements and the Exhibits and Schedules hereto and
thereto constitute the entire agreement among the parties hereto
and contain all of the agreements among such parties with respect
to the subject matter hereof and thereof. This Agreement and the
Ancillary Agreements and the Exhibits and Schedules hereto and
thereto supersede any and all other agreements, either oral or
written, between such parties with respect to the subject matter
hereof and thereof.
9.3. Partial Invalidity. Wherever possible, each
provision hereof shall be interpreted in such manner as to be
effective and valid under applicable law, but in case any one or
more of the provisions contained herein shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability
without invalidating the remainder of such invalid, illegal or
unenforceable provision or provisions or any other provisions
hereof, unless such a construction would be unreasonable.
9.4. Amendment. Except as expressly provided herein,
this Agreement may be amended only by a written agreement exe-
cuted by each of Gaylord and Stone.
9.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ILLINOIS WITHOUT REGARD TO ITS CONFLICTS OF LAW
DOCTRINE, EXCEPT TO THE EXTENT THE DELAWARE LIMITED LIABILITY
COMPANY ACT IS CONTROLLING.
9.6. Waiver. Any term or provision of this Agreement
may be waived, or the time for its performance may be extended,
by the party or parties entitled to the benefit thereof. Any
such waiver shall be validly and sufficiently authorized for the
purposes of this Agreement if, as to any party, it is authorized
in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision
of this Agreement shall not be construed to be a waiver of such
provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of any party thereafter
to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of
any other or subsequent breach.
9.7. Further Assurances. In connection with this
Agreement and each Ancillary Agreement and the transactions
contemplated hereby and thereby, each of Gaylord and Stone shall
execute and deliver, or cause their respective Affiliates to
execute and deliver, any additional documents and instruments and
perform any additional acts that may be necessary or appropriate
to effectuate and perform the provisions of this Agreement and
each Ancillary Agreement to which it is a party and the
transactions contemplated hereby and thereby.
9.8. Expenses. Each of Gaylord and Stone shall pay
its own legal, accounting and other expenses (including filing
fees incurred by a party with respect to any regulatory filing by
such party) incident to its negotiation and preparation of this
Agreement and each Ancillary Agreement and (except as expressly
set forth herein or therein) the consummation of the transactions
contemplated hereby and thereby.
9.9. Survival of Obligations. All representations,
warranties, covenants and obligations contained in this Agreement
shall survive the consummation of the transactions contemplated
by this Agreement; provided, however, that, except as otherwise
provided in Article V, the representations and warranties
contained in Article III other than 3.1(g) and 3.2(g), shall
terminate on the first anniversary of the Closing Date and the
covenants and obligations contained in Article VI shall terminate
on the third anniversary of any termination of this Agreement.
Except as otherwise provided herein, no claim shall be made for
the breach of any representation or warranty contained in
Article III or under any certificate delivered with respect
thereto under this Agreement after the date on which such
representations and warranties terminate as set forth in this
Section.
9.10. Successors and Assigns. (a) The rights of
either party under this Agreement shall not be assignable by such
party hereto without the written consent of the other.
(b) This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their successors and
permitted assigns. The successors and permitted assigns
hereunder shall include without limitation, any permitted
assignee as well as the successors in interest to such permitted
assignee (whether by merger, liquidation (including successive
mergers or liquidations) or otherwise). Nothing in this
Agreement, expressed or implied, is intended or shall be
construed to confer upon any Person other than the parties and
successors and assigns permitted by this Section 9.10 any right,
remedy or claim under or by reason of this Agreement.
9.11. Dispute Resolutions. Any dispute, controversy
or claim, whether based on contract, tort, statute, fraud,
misrepresentation or any other legal theory (a "Dispute") between
any parties hereto arising out of or relating to this Agreement
or any Ancillary Agreement or any rights or obligations or
related services to be provided hereunder or thereunder,
including matters relating to business judgment and operations,
shall be resolved in accordance with the procedures described in
this Section and, if necessary, Section 9.12; provided, however,
that the matters set forth in Section 8.4 (a), (b), (c), (d),
(g), (h), (i), (m) or (n) of the Formation Agreement (other than
contract interpretation issues relating to such provisions) shall
not be subject to the procedures for arbitration described
herein. The parties hereto agree to establish an internal
hierarchy to facilitate resolution of these issues as set forth
below:
(a) Upon written request of either party, each party
will appoint a designated representative whose task it will
be to meet for the purpose of endeavoring to resolve such
Dispute.
(b) The designated representatives shall meet as often
as the parties reasonably deem necessary to discuss the
problem in an effort to resolve the Dispute without the
necessity of any formal proceeding. During the discussions,
all reasonable requests by a party to another party for
non-privileged information reasonably related to the Dispute
shall be honored in order that each party may be fully
advised of the other party's position.
(c) Formal proceedings for the resolution of a Dispute
may not be commenced until the earlier of:
(i) the designated representatives concluding in good
faith that amicable resolution through continued
negotiation of the matter does not appear likely;
or
(ii) the expiration of the fifteen (15) day period
immediately following the initial request to
negotiate the Dispute;
provided, however, that this Section 9.11 will not be construed
to prevent a party from instituting formal proceedings earlier to
avoid the expiration of any applicable limitations period, to
preserve a superior position with respect to other creditors or
to seek temporary or preliminary injunctive relief pursuant to
Section 9.13.
9.12. Arbitration. If resolution of the Dispute still
cannot be achieved as contemplated by Section 9.11, the Dispute
shall be settled by binding arbitration conducted in accordance
with the then current Commercial Arbitration Rules of the
American Arbitration Association ("AAA") as modified by the
following provisions of this Agreement:
(a) If the amount in dispute exceeds 1 million
dollars, three neutral arbitrators shall be selected by the
parties from the AAA panel list in accordance with the
appointment rules of the AAA. If the amount in dispute is
less than 1 million dollars, selection of one neutral
arbitrator by the parties shall be from the AAA panel list
in accordance with appointment rules of the AAA.
(b) The arbitration process shall be conducted on an
expedited basis by the Chicago Regional Office of the AAA.
Proceedings in arbitration shall begin no later than
forty-five (45) days after the filing of the Dispute with
the AAA and shall be scheduled to conclude no later than
two-hundred seventy (270) days after the filing of the
Dispute. All hearings, unless otherwise agreed to by the
parties, shall be held in Chicago, Illinois.
(c) After giving due consideration to the need for
expedited resolution of the Dispute, the arbitrator(s) may
in his or her discretion order a pre-hearing exchange of
information including production of documents, exchange of
summaries of testimony or exchange of statements of position
or depositions.
(d) The arbitration proceedings and all testimony,
filings, documents and information relating to or presented
during the arbitration proceedings shall be disclosed
exclusively for the purpose of facilitating the arbitration
process and for no other purpose and shall be deemed to be
information subject to the confidentiality provisions of
this Agreement.
(e) The award of the arbitrator(s) shall be made in a
written opinion containing a concise analysis of the basis
upon which the award was made.
(f) A judgment upon the award rendered by the
arbitrator(s) may be entered in any court having
jurisdiction thereof.
(g) The parties agree to equally split the cost of any
arbitration including the administrative fee, the
compensation of the arbitrator(s) and the expenses of any
witnesses or proof produced at the direct request of the
arbitrator(s).
(h) The parties shall each bear all their own costs
and Expenses.
(i) Notwithstanding the agreements contained in
Sections 9.11 and 9.12, either party may apply to a court
having jurisdiction to (i) enforce this agreement to
arbitrate, (ii) seek provisional injunctive relief so as to
maintain the status quo until the arbitration award is
rendered or the controversy is otherwise resolved, (iii)
avoid the expiration of any applicable limitations period,
(iv) to preserve a superior position with respect to other
creditors, or (v) challenge or vacate any final judgment,
award or decision of the arbitrator(s) that does not comport
with the express provisions of subparagraph (j) or (k)
below.
(j) The arbitrator(s) are only authorized to, and only
have the consent of the parties to, interpret and apply the
terms and conditions of this Agreement in accordance with
the governing law. The arbitrator(s) are not authorized to
and shall not order any remedy not permitted by this
Agreement and shall not change any term or condition of this
Agreement, deprive either party of any remedy expressly
provided hereunder, provide any right or remedy that has not
been expressly provided hereunder or provide for the remedy
of dissolution of the Company. In the event that the
arbitrator(s) exceed their authority under this Agreement
and violate this provision, either party may petition a
court of competent jurisdiction to vacate the arbitration
award on the grounds that the arbitrator(s) exceeded their
authority.
(k) The arbitrator(s) shall not have the power to
award consequential damages (except to the extent that
consequential damages are available as a remedy as specified
in Section 5.7) or punitive damages.
(l) The Federal Arbitration Act, 9 U.S.C. Sections 1
through 14, except as modified hereby, shall govern the
interpretation and enforcement of this Section 9.12.
Notwithstanding the foregoing, Gaylord and Stone agree
to continue performing their respective obligations under this
Agreement while the Dispute is being resolved unless and until
such obligations are terminated or expire in accordance with the
provisions hereof.
9.13. Judicial Procedure. Nothing in Sections 9.11 or
9.12 shall be construed to prevent any party from seeking from a
court a temporary restraining order or other temporary or
preliminary relief pending final resolution of a Dispute pursuant
to such Section 9.11 or Section 9.12.
9.14. Notices. All notices or other communications
required or permitted hereunder shall be in writing and shall be
deemed given or delivered when delivered personally, by courier
or facsimile transmission or mailed (first class postage prepaid)
to the parties at the addresses or facsimile numbers set forth
below:
If to Gaylord, to:
Gaylord Container Corporation
500 Lake Cook Road
Deerfield, Illinois 60015
Telephone: (847) 405-5500
Facsimile: (847) 405-5586
Attention: General Counsel
with a copy to:
Kirkland & Ellis
200 East Randolph Street
Chicago, Illinois 60601
Telephone: (312) 861-2000
Facsimile: (312) 861-2200
Attention: William S. Kirsch, P.C.
If to Stone, to:
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601-7568
Telephone: (312) 580-4624
Facsimile: (312) 580-4625
Attention: General Counsel
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Telephone: (312) 853-7000
Facsimile: (312) 853-7036
Attention: Richard G. Clemens
The parties hereto agree that delivery to any party
designated above to receive copies of notices shall not, by
itself, be considered notice to any other party pursuant to this
Section 9.14.
All such notices and other communications will (x) if
delivered personally or by courier to the address provided in
this Section 9.14, be deemed given upon delivery, (y) if
delivered by facsimile transmission to the facsimile number
provided in this Section 9.14, be deemed given when receipt of
transmission has been orally confirmed by the sending party, and
(z) if delivered by certified mail, return receipt requested, in
the manner described above to the address as provided in this
Section 9.14, be deemed given five (5) Business Days after
deposit in the United States mail (in each case regardless of
whether such notice, request or other communication is received
by any other Person to whom a copy of such notice is to be
delivered pursuant to this Section 9.14). Any party from time to
time may change its address, facsimile number or other
information for the purpose of notices to that party by giving
notice specifying such change to the other party.
* * * * * *
IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered by the duly authorized officers of the
parties hereto as of the date first above written.
GAYLORD CONTAINER CORPORATION
By: Name:
Title:
STONE CONTAINER CORPORATION
By: Name:
Title:
<PAGE>
Schedule 1.4
Actions to be Taken at Closing
1. Gaylord and the Stone shall execute and deliver the
Formation Agreement and the Certificate of Formation
referred to therein, and shall cause such Certificate of
Formation to be duly filed with the Delaware Secretary of
State.
2. The Company and each of the parties shall execute and
deliver a Contribution, Assignment and Assumption Agreement,
and each party shall take all actions contemplated to be
taken thereunder to effect the transfer to the Company, as
the Initial Capital Contribution of each such party, the
assets to be contributed to the Company by each such party.
3. Each of the parties to each of the Ancillary Agreements
shall execute and deliver each of the Ancillary Agreements.
JVAGREE.WPD
EXHIBIT C TO
JOINT VENTURE AGREEMENT
S&G PACKAGING COMPANY, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of July 12, 1996
<PAGE>
TABLE OF CONTENTS
Section Page
PRELIMINARY STATEMENTS . . . . . . . . . . . . . . . . . . . . .1
ARTICLE IDEFINITIONS; INTERPRETATION . . . . . . . . . . . . . .1
1.1. Definitions. . . . . . . . . . . . . . . . . . . . .1
1.2. Interpretation . . . . . . . . . . . . . . . . . . .2
ARTICLE IIORGANIZATION . . . . . . . . . . . . . . . . . . . . .2
2.1. Formation. . . . . . . . . . . . . . . . . . . . . .2
2.2. Name.. . . . . . . . . . . . . . . . . . . . . . . .2
2.3. Purposes.. . . . . . . . . . . . . . . . . . . . . .2
2.4. Duration.. . . . . . . . . . . . . . . . . . . . . .2
2.5. Registered Office and Registered Agent; Principal
Office.. . . . . . . . . . . . . . . . . . . . . . .2
2.6. Qualification in Other Jurisdictions.. . . . . . . .3
2.7. No State-Law Partnership.. . . . . . . . . . . . . .3
ARTICLE IIIMEMBERS . . . . . . . . . . . . . . . . . . . . . . .3
3.1. Initial Members. . . . . . . . . . . . . . . . . . .3
3.2. Admission of Additional Members. . . . . . . . . . .4
3.3. Investment Representations.. . . . . . . . . . . . .4
ARTICLE IVCAPITAL CONTRIBUTIONS. . . . . . . . . . . . . . . . .5
4.1. Initial Capital Contributions. . . . . . . . . . . .5
4.2. Initial Membership Interests.. . . . . . . . . . . .5
4.3. Mandatory Additional Capital Contributions . . . . .5
4.4. Optional Additional Cash Contributions.. . . . . . .5
4.5. Capital Accounts.. . . . . . . . . . . . . . . . . .7
4.6. Return of Capital Contributions. . . . . . . . . . 10
4.7. Interest.. . . . . . . . . . . . . . . . . . . . . 10
4.8. Loans From Members.. . . . . . . . . . . . . . . . 10
ARTICLE VALLOCATIONS AND DISTRIBUTIONS . . . . . . . . . . . . 11
5.1. Allocations of Income, Gain, Loss, Deduction and
Credit From Operations and Interim Capital
Transactions.. . . . . . . . . . . . . . . . . . . 11
5.2. Allocations on Dissolution and Winding Up. . . . . 11
5.3. Book/Tax Disparities; Section 754 Elections;
Etc. . . . . . . . . . . . . . . . . . . . . . . . 11
5.4. Allocation of Nonrecourse Deductions.. . . . . . . 12
5.5. Allocation of Member Nonrecourse Deductions. . . . 12
5.6. Minimum Gain Chargeback. . . . . . . . . . . . . . 13
5.7. Member Minimum Gain Chargeback.. . . . . . . . . . 13
5.8. Qualified Income Offset. . . . . . . . . . . . . . 13
5.9. Limitations on Loss Allocation.. . . . . . . . . . 13
5.10. Curative Allocations.. . . . . . . . . . . . . . . 13
5.11. Interest in Company Profits. . . . . . . . . . . . 14
5.12. Distributions in Kind. . . . . . . . . . . . . . . 14
5.13. Allocations and Distributions to Transferred
Interests. . . . . . . . . . . . . . . . . . . . . 14
5.14. Distributions of Distributable Funds.. . . . . . . 15
5.15. Special Allocations. . . . . . . . . . . . . . . . 15
5.16. Order of Application.. . . . . . . . . . . . . . . 15
ARTICLE VIRIGHTS, POWERS AND OBLIGATIONS OF MEMBERS. . . . . . 16
6.1. Authority; Liability to Third Parties. . . . . . . 16
6.2. Transfer of Membership Interests.. . . . . . . . . 16
6.3. Admission of Transferee as Member. . . . . . . . . 16
6.4. Resignation of a Member. . . . . . . . . . . . . . 17
ARTICLE VIIMEETINGS OF MEMBERS . . . . . . . . . . . . . . . . 17
7.1. Place of Meetings. . . . . . . . . . . . . . . . . 17
7.2. Meetings.. . . . . . . . . . . . . . . . . . . . . 17
7.3. Notice.. . . . . . . . . . . . . . . . . . . . . . 18
7.4. Waiver of Notice.. . . . . . . . . . . . . . . . . 18
7.5. Quorum.. . . . . . . . . . . . . . . . . . . . . . 18
7.6. Voting.. . . . . . . . . . . . . . . . . . . . . . 18
7.7. Conduct of Meetings. . . . . . . . . . . . . . . . 19
7.8. Action by Written Consent. . . . . . . . . . . . . 19
7.9. Proxies. . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIIIMANAGEMENT OF THE COMPANY. . . . . . . . . . . . . 20
8.1. Management of the Company and the Joint Venture
Business.. . . . . . . . . . . . . . . . . . . . . 20
8.2. Management Committee; Number and Election of
Representatives; Additional Committees.. . . . . . 20
8.3. General Powers of Management Committee . . . . . . 21
8.4. Limitations on Powers of Management Committee. . . 21
8.5. Place of Meetings. . . . . . . . . . . . . . . . . 22
8.6. Regular Meetings.. . . . . . . . . . . . . . . . . 22
8.7. Special Meetings.. . . . . . . . . . . . . . . . . 22
8.8. Quorum of and Action by Management Committee . . . 23
8.9. Compensation . . . . . . . . . . . . . . . . . . . 23
8.10. Resignation and Removal. . . . . . . . . . . . . . 23
8.11. Vacancies. . . . . . . . . . . . . . . . . . . . . 23
8.12. Action by Written Consent. . . . . . . . . . . . . 24
8.13. Standard of Care; Liability. . . . . . . . . . . . 24
8.14. Appointment of Officers; President.. . . . . . . . 24
ARTICLE IXOWNERSHIP OF COMPANY PROPERTY. . . . . . . . . . . . 25
ARTICLE XFISCAL MATTERS; BOOKS AND RECORDS . . . . . . . . . . 25
10.1. Bank Accounts; Investments.. . . . . . . . . . . . 25
10.2. Records Required by Act; Right of Inspection.. . . 25
10.3. Books and Records. . . . . . . . . . . . . . . . . 26
10.4. Access to Financial and Accounting Records . . . . 26
10.5. Tax Returns and Information. . . . . . . . . . . . 26
10.6. Delivery of Financial Statements to Members. . . . 26
10.7. Audits . . . . . . . . . . . . . . . . . . . . . . 27
10.8. Fiscal Year. . . . . . . . . . . . . . . . . . . . 27
10.9. Tax Elections. . . . . . . . . . . . . . . . . . . 27
10.10. Tax Matters Member . . . . . . . . . . . . . . . . 28
ARTICLE XIINDEMNIFICATION AND INSURANCE. . . . . . . . . . . . 28
11.1. Indemnification and Advancement of Expenses by
the Company. . . . . . . . . . . . . . . . . . . . 28
11.2. Insurance. . . . . . . . . . . . . . . . . . . . . 31
11.3. Limit on Liability of Members from Company
Indemnification. . . . . . . . . . . . . . . . . . 31
ARTICLE XIIDISSOLUTION AND WINDING UP. . . . . . . . . . . . . 31
12.1. Events Causing Dissolution.. . . . . . . . . . . . 31
12.2. Winding Up.. . . . . . . . . . . . . . . . . . . . 32
12.3. Compensation of Liquidator.. . . . . . . . . . . . 33
12.4. Distribution of Company Property and Proceeds
of Sale Thereof. . . . . . . . . . . . . . . . . . 33
12.5. Final Audit. . . . . . . . . . . . . . . . . . . . 34
12.6. Deficit Capital Accounts.. . . . . . . . . . . . . 34
ARTICLE XIIIDISPUTE RESOLUTION . . . . . . . . . . . . . . . . 34
ARTICLE XIVMISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . 35
14.1. Conference Telephone Meetings. . . . . . . . . . . 35
14.2. Counterparts.. . . . . . . . . . . . . . . . . . . 35
14.3. Entire Agreement.. . . . . . . . . . . . . . . . . 35
14.4. Partial Invalidity.. . . . . . . . . . . . . . . . 35
14.5. Amendment. . . . . . . . . . . . . . . . . . . . . 36
14.6. Binding Effect.. . . . . . . . . . . . . . . . . . 36
14.7. Governing Law. . . . . . . . . . . . . . . . . . . 36
14.8. Offset.. . . . . . . . . . . . . . . . . . . . . . 36
14.9. Effect of Waiver or Consent. . . . . . . . . . . . 36
14.10. Further Assurances.. . . . . . . . . . . . . . . . 36
14.11. Expenses . . . . . . . . . . . . . . . . . . . . . 36
14.12. Notices. . . . . . . . . . . . . . . . . . . . . . 37
<PAGE>
ANNEX
Annex I -- Definitions
SCHEDULES
Schedule I -- Membership Interests
<PAGE>
S&G PACKAGING COMPANY, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
(a Delaware Limited Liability Company)
THIS AGREEMENT is made and entered into as of July 12,
1996 by and among S&G Packaging Company, L.L.C., a Delaware lim-
ited liability company (the "Company"), Stone Container
Corporation, a Delaware corporation ("Stone"), as a Member of the
Company, Gaylord Container Corporation, a Delaware corporation
("Gaylord"), as a Member of the Company, and any other Person who
shall hereafter execute this Agreement as a Member of the Company
(Stone, Gaylord and any such other Person being herein referred
to individually as a "Member" and collectively as the "Members").
PRELIMINARY STATEMENTS
WHEREAS, there has heretofore been filed a Certificate
of Formation with the Secretary of State of the State of Delaware
to organize the Company under and pursuant to the Act (as herein
defined);
WHEREAS, the Company's primary activity shall initially
be the manufacture, distribution and sale of paper bags and sacks
and related activities;
WHEREAS, upon the terms and subject to the conditions
set forth herein, each of Stone and Gaylord are concurrently with
the execution of this Agreement acquiring certain Membership
Interests (as herein defined) in the Company;
WHEREAS, in accordance with the Act, each of the
Company and the Members desire to enter into this Agreement to
set forth the respective rights, powers and interests of the
Members with respect to the Company and their respective
Membership Interests therein and to provide for the management of
the business and operations of the Company;
NOW, THEREFORE, in consideration of the premises and
mutual covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
1.1. Definitions. In this Agreement, unless the
context shall otherwise require, the capitalized terms used herein shall
have the respective meanings specified or referred to in Annex I hereto,
which is incorporated by reference herein. Each agreement referred to in
Annex I shall mean such agreement as amended, supplemented and modified from
time to time to the extent permitted by the applicable provisions thereof and
hereof.
1.2. Interpretation. Each definition in this
Agreement includes the singular and the plural, and reference to
the neuter gender includes the masculine and feminine where
appropriate. References to any statute or regulation mean such
statute or regulation as amended at the time and include any
successor legislation or regulations. The headings to the
Articles and Sections are for convenience of reference and shall
not affect the meaning or interpretation of this Agreement.
Except as otherwise stated, references to Articles, Sections,
Exhibits and Schedules mean the Articles, Sections, Exhibits and
Schedules of this Agreement. The Exhibits and Schedules are
hereby incorporated by reference into and shall be deemed a part
of this Agreement. Unless the context indicates otherwise, the
word "including" means "including but not limited to."
ARTICLE II
ORGANIZATION
2.1. Formation. The Company has been organized as a
Delaware limited liability company under and pursuant to the Act
by the filing of a Certificate of Formation with the Office of
the Secretary of State of Delaware as required by the Act. In
the event of a conflict between the terms of this Agreement and
the Certificate of Formation, the terms of the Certificate of
Formation shall prevail.
2.2. Name. The name of the Company is S&G Packaging
Company, L.L.C. To the extent permitted by the Act, the Company
may conduct its business under one or more assumed names deemed
advisable by the Management Committee by Majority Vote.
2.3. Purposes. The purposes of the Company are to
engage in any activity and/or business for which limited liabili-
ty companies may be formed under the Act (including, without
limitation, the Joint Venture Business). The Company shall have
all the powers necessary or convenient to effect any purpose for
which it is formed, including all powers granted by the Act.
2.4. Duration. The Company shall continue in exis-
tence for the period fixed in the Certificate of Formation for
the duration of the Company or until the Company shall be sooner
dissolved and its affairs wound up in accordance with the Act or
this Agreement.
2.5. Registered Office and Registered Agent; Princi-
pal Office. (a) The registered office of the Company required
by the Act to be maintained in the State of Delaware shall be the
initial registered office named in the Certificate of Formation
or such other office (which need not be a place of business of
the Company) as the Management Committee by Majority Vote may
designate from time to time in the manner provided by the Act.
(b) The registered agent of the Company in the State
of Delaware shall be the initial registered agent named in the
Certificate of Formation or such other Person or Persons as the
Management Committee by Majority Vote may designate in the manner
provided by the Act.
(c) The principal office of the Company shall be at
150 N. Michigan Avenue, Chicago, Illinois 60601 or at such place
as the Management Committee by Majority Vote may designate from
time to time, which need not be in the State of Delaware, and the
Company shall maintain records there for inspection as required
by the Act. The Company may have such other offices as the
Management Committee by Majority Vote may designate from time to
time.
2.6. Qualification in Other Jurisdictions. The
Management Committee shall have authority to cause the Company to
do business in jurisdictions other than the State of Delaware
only if one of the following conditions is satisfied:
(a) Such jurisdiction has enacted a limited
liability company statute, and the Management Committee by
Majority Vote shall have approved the qualification of the
Company under such statute to do business as a foreign limited
liability company in such jurisdiction; or
(b) The Company shall have obtained an opinion of
counsel qualified to practice law in the other jurisdiction to
the effect that under the laws of such jurisdiction the Members
will not be held liable for any debts or obligations of the
Company.
2.7. No State-Law Partnership. No provisions of this
Agreement (including, without limitation, the provisions of
Article VIII) shall be deemed or construed to constitute the
Company a partnership (including, without limitation, a limited
partnership) or joint venture, or any Member or Representative a
partner or joint venturer of or with any other Member or
Representative, for any purposes other than federal and state tax
purposes.
ARTICLE III
MEMBERS
3.1. Initial Members. The Initial Members of the
Company are Stone and Gaylord and the addresses of such Initial
Members are as set forth on Schedule I. As of the date hereof,
there are no other Members of the Company and no other Person has
any right to take part in the ownership of the Company.
3.2. Admission of Additional Members. Additional
Members of the Company may only be added if the addition of any
such proposed additional Member is approved unanimously in
writing, prior to such admission, by all the then existing
Members and such proposed additional Member executes a
counterpart of, or an agreement adopting, this Agreement and such
Ancillary Agreements or other related agreements as the existing
Members may require.
3.3. Investment Representations. Each Member hereby
represents and warrants as follows:
(a) Such Member is acquiring its Membership Interest
for investment solely for such Member's own account and not for
distribution, transfer or sale to others in connection with any
distribution or public offering.
(b) Such Member is financially able to bear the
economic risk of an investment in the Company and has no need for
liquidity in this investment and has such knowledge, experience
and skill in financial and business matters in general and with
respect to investments of a nature similar to an investment in
the Company so as to be capable of evaluating the merits and
risks of, and making an informed business decision with regard
to, this investment.
(c) Such Member (i) has received all information
that such Member deems necessary to make an informed investment
decision with respect to an investment in the Company and
(ii) has had the unrestricted opportunity to make such reasonable
investigation as such Member desires pertaining to the Company
and an investment therein and to verify any information furnished
to such Member.
(d) Such Member understands that such Member must
bear the economic risk of an investment in the Company for an
indefinite period of time because (i) the Membership Interests
have not been registered under the Securities Act and applicable
state securities laws and (ii) the Membership Interests may not
be sold, transferred, pledged or otherwise disposed of except in
accordance with this Agreement and then only if they are subse-
quently registered in accordance with the provisions of the
Securities Act and applicable state securities laws or registra-
tion under the Securities Act or any applicable state securities
laws is not required.
(e) Such Member understands that the Company is not
obligated to register the Membership Interests for resale under
the Securities Act or any applicable state securities laws and
that the Company is not obligated to supply such Member with
information or assistance in complying with any exemption under
the Securities Act or any applicable state securities laws. Upon
the request of the Company, such Member will provide the Company
with an opinion of counsel satisfactory to the Company that a
proposed resale of the Membership Interests complies with the
Securities Act or any applicable state securities laws.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1. Initial Capital Contributions. Gaylord shall be
obligated to contribute to the initial capital of the Company the
Gaylord Contributed Property pursuant to the terms of the Gaylord
Contribution, Assignment and Assumption Agreement and Stone shall
be obligated to contribute to the initial capital of the Company
the Stone Contributed Property pursuant to the terms of the Stone
Contribution, Assignment and Assumption Agreement. Each of the
Gaylord Contributed Property and the Stone Contributed Property
are also referred to as the "Initial Capital Contribution."
Stone and Gaylord shall make their respective Initial Capital
Contributions on the Closing Date. Each Member agrees to provide
the other Members and the Company with the tax basis, as of the
date of transfer, of property (other than cash) contributed to
the Company by that Member. Gaylord shall also contribute to the
Company an amount of roll stock having a value equal to (A) the
sum of all Members' Capital Accounts at Closing plus 50% of such
amount divided by (B) ten (the "Gaylord Additional Contributed
Property"), computed including the Gaylord Additional Contributed
Property in the sum of all Members' Capital Accounts, such
computation being a reiterative calculation. A receivable will
be recorded on the Company's books from Gaylord in the amount of
the Gaylord Additional Contributed Property on the Closing Date
and the Gaylord Additional Contributed Property will be part of
Gaylord's Initial Capital Contribution. Gaylord shall transfer
roll stock inventory within 180 days of the Closing Date to
satisfy this obligation. The value of the roll stock shall be
determined based on the prices set forth in the Paper Supply
Contract between the Company, Stone and Gaylord. Gaylord agrees
to provide the other Members and the Company with the tax basis,
as of the date of transfer, of such roll stock.
4.2. Initial Membership Interests. Upon making the
Initial Capital Contribution, each Member shall be entitled to
the Membership Interest set forth opposite such Member's name on
Schedule I.
4.3. Intentionally Omitted.
4.4. Optional Additional Cash Contributions. (a) In
the event that (i) the Management Committee by Majority Vote
determines that the Company requires additional funds for a
Discretionary Expenditure and upon approval by all Members of the
amount and timing of such Discretionary Expenditure or (ii) any
Member reasonably believes in good faith that a Non-Discretionary
Expenditure is necessary, the Management Committee shall make one
or more written requests for the Members to make optional addi-
tional cash contributions ("Optional Additional Cash Contribu-
tions") to sufficiently fund the Discretionary Expenditure or
Non-Discretionary Expenditure, as the case may be. The respec-
tive portion of any Optional Additional Cash Contributions which
may be contributed by any Member shall be determined on a pro
rata basis in accordance with each Member's Membership Interest
at the time of such request. Members shall have the right to
make no cash contribution, or to make all or any portion of their
full requested Optional Additional Cash Contributions. Such
request shall specify the date on or before which the contribu-
tions must be delivered to the Company, which date shall not be
earlier than 30 days after mailing of written notice of such
request to all Members. Any request made in accordance with this
subsection (a) shall be referred to as a "First Request."
(b) In the event one or more Members fail to make
such Member's full Optional Additional Cash Contribution upon a
First Request, the Management Committee by Majority Vote may make
successive requests for Optional Additional Cash Contributions,
equal to the amount of the shortfall in such First Request, in
the same manner as described in subsection 4.4(a), and the
contribution date shall not be earlier than 15 days (rather than
30 days) after written notice of such request. The successive
requests provided by this subsection (b) may be continued until
no Member wishes to make an Optional Additional Cash Contribution
or until the aggregate amount of the First Request shall have
been contributed. In making any request for Optional Additional
Cash Contributions, the Management Committee shall follow such
procedures as it shall deem to be reasonable and fair to all
Members.
(c) (i) Discretionary Expenditure. In the event
one or more Members fail, in whole or in part, to make their full
Optional Additional Cash Contributions (each a "Tardy Member")
required to fund a Discretionary Expenditure, but other Members
make the Optional Additional Cash Contributions (each a "Non-Tardy Member")
necessary to fully fund the Discretionary Expenditure, the Membership Interest
of the Tardy Member shall be reduced proportionately and the Membership
Interest of the Non-Tardy Member shall be increased proportionately on the date
such Discretionary Expenditure is fully funded. Notwithstanding the
immediately prior sentence, the Membership Interest of a Tardy
Member shall not be reduced and the Membership Interest of the
Non-Tardy Member shall not be increased as described in the prior
sentence if (x) the Tardy Member signs a note to the Company,
dated the date of the cash contribution actually made by the
other Members, and such note is in the amount equal to the
portion of such Tardy Member's pro rata Optional Additional Cash
Contribution which has been funded by the Non-Tardy Member, bears
interest at the lowest available incremental short-term borrowing
rate of the Non-Tardy Member, pays interest semi-annually and
matures two years from its date of issue (a "Grace Period Note")
and (y) the Tardy Member does not default in the payment of
interest and/or principal amount of such Grace Period Note
(hereinafter (x) and (y) are collectively referred to as the
"Grace Period Option").
(ii) Non-Discretionary Expenditure. In the context of
a Non-Discretionary Expenditure, the Membership Interests of a
Tardy Member and a Non-Tardy Member shall be decreased and
increased, respectively, in the manner provided in Section
4.4(c)(i) on the date such Non-Discretionary Expenditure is fully
funded. Notwithstanding the immediately prior sentence, the
Grace Period Option shall be available to the Tardy Member if,
and only if, such Tardy Member (x) does not have sufficient
borrowing availability under any of its financing agreements to
fully fund such Tardy Member's pro rata portion of such Non-Discretionary
Expenditure or (y) is, or by funding such Non-Discretionary Expenditure would
be, in default under any of such Tardy Member's financing agreements.
(iii) Valuation. In order to determine the value of
any Optional Additional Cash Contribution relative to the value
of the Company as a whole (prior to such Optional Additional Cash
Contribution), and accordingly the amount of a Tardy Member's
Membership Interest to be reduced or a Non-Tardy Member's
Membership Interest to be increased pursuant to subparagraph (c)
of this Section 4.4 (subject to the Grace Period Option, if
applicable), the parties shall appoint an investment banking firm
or valuation firm with a national reputation to determine the
Fair Market Value of the Company pursuant to the procedures set
out in Section 4.12 of the Joint Venture Agreement. Upon the
making of any such Optional Additional Cash Contributions
(subject to the Grace Period Option, if applicable), Schedule I
shall be revised accordingly to reflect the then applicable
Membership Interests of each Member. Thereafter, the Member
failing to make such Optional Additional Cash Contribution shall
be limited in its right to provide further additional capital in
proportion to such Member's Membership Interest as so revised.
(iv) Default. Any principal payment made by any Tardy
Member on its Grace Period Note shall be treated as a Capital
Contribution by such Member for purposes of this Agreement. In
the event that the Tardy Member fails to pay interest or
principal, each within five (5) days of being due, with respect
to its Grace Period Note, such Tardy Member's Membership Interest
shall be reduced and the Non-Tardy Member's Membership Interest
shall be increased as provided in this Section 4.4(c) and such
Grace Period Note shall be canceled.
4.5. Capital Accounts. (a) A Capital Account shall
be established and maintained for each Member. Each Member's
Capital Account (i) shall be increased by (A) the amount of money
contributed by that Member to the Company, (B) the Agreed Value
of Contributed Property contributed by that Member to the Company
(net of liabilities secured by the Contributed Property that the
Company is considered to assume or take subject to under Section
752 of the Code), and (C) allocations to that Member of Company
income and gain (or items thereof), including income and gain
exempt from tax and income and gain described in Section 1.704-1(b)(2)(iv)(g) of
the Treasury Regulations and (ii) shall be de-creased by (A) the amount of
money distributed to that Member by the Company, (B) the fair market
value of property distributed to that Member by the Company (net of
liabilities secured by the distributed property that the Member is
considered to assume or take subject to under Section 752 of the Code),
(C) allocations to that Member of Section 705(a)(2)(B) Expenditures, and
(D) allocations of Company loss and deduction (or items thereof),
including loss and deduction described in Section 1.704-1(b)(2)(iv)(g)
of the Treasury Regulations, but excluding items described
in clause (a)(ii)(C) above and loss or deduction described in Section
1.704-1(b)(4)(iii) of the Treasury Regulations.
(b) Except as otherwise provided herein, whenever it
is necessary to determine the Capital Account of any Member for
purposes of this Agreement, the Capital Account of the Member
shall be determined after giving effect to (i) all Capital Con-
tributions made to the Company on or after the date of this
Agreement, (ii) all allocations of income, gain, deduction and
loss pursuant to Article V for operations and transactions
effected on or after the date of this Agreement and prior to the
date such determination is required to be made under this
Agreement and (iii) all distributions made on or after the date
of this Agreement.
(c) Upon the Transfer of a Membership Interest in
the Company (or portion thereof) on or after the date of this
Agreement, if such Transfer does not cause a termination of the
Company within the meaning of Section 708(b)(1)(B) of the Code,
the Capital Account of the transferor Member that is attributable
to the transferred Membership Interest will be carried over to
the transferee Member.
(d) The realization, recognition and classification
of any item of income, gain, loss or deduction for Capital
Account purposes shall be the same as its realization,
recognition and classification for federal income tax purposes;
provided, however, that:
(i) Any deductions for depreciation, cost re-
covery or amortization attributable to a Contributed
Property shall be determined as if the adjusted tax
basis of such property on the date it was acquired by
the Company was equal to the Agreed Value of such prop-
erty. Upon adjustment pursuant to Section 4.5(e) of
the Carrying Value of the Company Property subject to
depreciation, cost recovery or amortization, any fur-
ther deductions for such depreciation, cost recovery or
amortization shall be determined as if the adjusted tax
basis of such property was equal to its Carrying Value
immediately following such adjustment; and any deduc-
tions for depreciation, cost recovery or amortization
under this Section 4.5(d) shall be computed in
accordance with Section 1.704-1(b)(2)(iv)(g)(3) of the
Treasury Regulations or, with respect to the applicable
portion of the Carrying Value of Contributed Property
or Adjusted Property, in accordance with Section 1.704-3(d)(2)
of the Treasury Regulations using the depreciation, cost
recovery or amortization method and period that would apply
to such Contributed Property or Adjusted Property if it were
newly purchased by the Company from an unrelated party at the
time of the contribution or adjustment.
(ii) Any income, gain or loss attributable to
the taxable disposition of any property shall be
determined by the Company as if the adjusted tax basis
of such property as of such date of disposition was
equal in amount to the Carrying Value of such property
as of such date.
(iii) All items incurred by the Company that can
neither be deducted nor amortized under Section 709 of
the Code shall, for purposes of Capital Accounts, be
treated as an item of deduction and shall be allocated
among the Members pursuant to Article V.
(iv) If the assets of the Company are sold in a
transaction in which, by reason of the provisions of
Section 453 of the Code or any successor thereto, gain is
realized but not recognized, such gain shall be taken into
account in computing gain or loss of the Company for
purposes of allocations and distributions to the Members
pursuant to Article V, notwithstanding that in the event of
a distribution pursuant to Section 12.4 the Members may
elect to continue the Company pending collection of deferred
purchase money obligations received in connection with such
sale.
(e)(i) Upon the contribution to the Company by a
new or existing Member of cash or Contributed Property
(other than any contribution by Gaylord pursuant to
Section 4.3 and other than a de minimis amount) in
consideration for a Membership Interest in the Company,
the Capital Accounts of all Members and the Carrying
Values of all Company Properties immediately prior to
such contribution shall be adjusted (consistent with
the provisions hereof and with the Treasury Regulations
under Section 704 of the Code) upward or downward to
reflect any Unrealized Gain or Unrealized Loss
attributable to each Company Property, as if such Unre-
alized Gain or Unrealized Loss had been recognized upon
an actual sale of each such Company Property immedi-
ately prior to such issuance and had been allocated to
the Members in accordance with Article V.
(ii) Immediately prior to the actual distribution
of any Company Property (other than cash) or the
distribution of cash to a retiring or continuing Member
as consideration for an interest in the Company, the
Capital Accounts of all Members and the Carrying Value
of all Company Property shall be adjusted (consistent
with the provisions hereof and Treasury Regulations
under Section 704 of the Code) upward or downward to
reflect any Unrealized Gain or Unrealized Loss
attributable to each Company Property, as if such
Unrealized Gain or Unrealized Loss had been recognized
upon an actual sale of each such Company Property
immediately prior to such distribution and had been
allocated to the Members at such time in accordance
with Article V.
(f) In addition to the adjustments required by the
foregoing provisions of this Section 4.5, the Capital Accounts of
the Members shall be adjusted in accordance with the capital
account maintenance rules of Section 1.704-1(b)(2)(iv) of the
Treasury Regulations.
(g) The foregoing provisions of this Section 4.5 are
intended to comply with Section 1.704-1(b)(2)(iv) (and, to the
extent set forth above, Section 1.704-3(d)(2)) of the Treasury
Regulations and shall be interpreted and applied in a manner
consistent with such Treasury Regulations. If the Management
Committee, by Majority Vote, shall determine that it is prudent
to modify the manner in which the Capital Accounts are computed
in order to comply with such Sections of the Treasury Regula-
tions, the Management Committee, by Majority Vote, may make such
modification, provided that such modification is not likely to
have a material effect on the amounts distributable to any Member
pursuant to Article V and the Management Committee notifies the
Members in writing of such modification prior to its effective
date, and provided further that the Management Committee shall
have no liability to any Member for any failure to exercise any
such discretion to make any modifications permitted under this
Section 4.5(g).
(h) The Capital Account balance of any Member who
receives a "guaranteed payment" (as determined under Section
707(c) of the Code) from the Company shall be adjusted only to
the extent of such Member's allocable share of any Company
deduction or loss, or other downward Capital Account adjustment,
resulting from such guaranteed payment.
4.6. Return of Capital Contributions. Except as
otherwise provided herein or in the Act, no Member shall have the
right to withdraw, or receive any return of, all or any portion
of such Member's Capital Contribution.
4.7. Interest. No interest shall be paid by the Com-
pany on Capital Contributions or on balances in Members' Capital
Accounts.
4.8. Loans From Members. Loans by a Member to the
Company shall not be considered Capital Contributions. If any
Member shall advance funds to the Company in excess of the
amounts required hereunder to be contributed by such Member to
the capital of the Company, the making of such advances shall not
result in any increase in the amount of the Capital Account of
such Member. The amounts of any such advances shall be a debt of
the Company to such Member and shall be payable or collectible
only out of the Company assets in accordance with the terms and
conditions upon which such advances are made. The repayment of
loans from a Member to the Company upon liquidation shall be
subject to the order of priority set forth in Section 12.4.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1. Allocations of Income, Gain, Loss, Deduction and
Credit From Operations and Interim Capital Transactions. Except
as otherwise provided in this Article V, income, gain, loss,
deduction and credit of the Company for a fiscal year of the
Company from operations and Interim Capital Transactions for the
year shall be allocated to the Members in accordance with their
respective Membership Interests.
5.2. Allocations on Dissolution and Winding Up.
Except as otherwise provided in this Article V, after adjusting
the Capital Accounts for all allocations under Section 5.1 and
all distributions under Section 5.14 for the year, gain or loss
resulting from the sale of the Company's assets under Section
12.2 or otherwise upon the dissolution and termination of the
Company shall be allocated to the Members in accordance with
their respective Membership Interests.
5.3. Book/Tax Disparities; Section 754 Elections;
Etc.
(a) In the case of Contributed Property, items of
income, gain, loss, deduction and credit, as determined for
federal income tax purposes, shall be allocated in a manner
consistent with the requirements of Section 704(c) of the Code by
using the remedial method described in Section 1.704-3(d) of the
Treasury Regulations applied in a manner which eliminates the
difference between the Agreed Value of such property and its
adjusted tax basis at the time of contribution.
(b) In the case of Adjusted Property, such items
shall be allocated in a manner consistent with the principles of
Section 704(c) of the Code. In the event that the Adjusted
Property was originally a Contributed Property, the allocation
required by this Section 5.3(b) also shall take into account the
requirements of Section 5.3(a).
(c) All items of income, gain, loss, deduction and
credit recognized by the Company for federal income tax purposes
and allocated to the Members in accordance with the provisions
hereof shall be determined without regard to any election under
Section 754 of the Code which may be made by the Company;
provided, however, that such allocations, once made, shall be
adjusted as necessary or appropriate to take into account those
adjustments permitted by Section 734 and 743 of the Code.
(d) Whenever the income, gain and loss of the
Company allocable hereunder consists of items of different
character for tax purposes (e.g., ordinary income, long-term
capital gain, interest expense, etc.), the income, gain and loss
for tax purposes allocable to each Member shall be deemed to
include its pro rata share of each such item except as otherwise
required by the Code and the Treasury Regulations. Notwithstand-
ing the foregoing, if the Company realizes depreciation recapture
income pursuant to Section 1245 or Section 1250 (or other
comparable provision) of the Code as the result of the sale or
other disposition of any asset, the allocations to each Member
hereunder shall be deemed to include the same proportion of such
depreciation recapture as the total amount of deductions for tax
depreciation of such asset previously allocated to such Member
bears to the total amount of deductions for tax depreciation of
such asset previously allocated to all Members. This Section
5.3(d) shall be construed to affect only the character, rather
than the amount, of any items of income, gain and loss.
(e) Allocations pursuant this Section 5.3 are solely
for purposes of federal, state and local taxes and shall not
affect, or in any way be taken into account in computing, any
Member's Capital Account, share of Company income, gain, loss,
deductions or credit pursuant to any other provision of this
Agreement or share of distributions under this Agreement.
5.4. Allocation of Nonrecourse Deductions. Items of
loss, deduction and Section 705(a)(2)(B) Expenditures attribut-
able, under Section 1.704-2(c) of the Treasury Regulations, to
increases in the Company's Minimum Gain shall be allocated, as
provided in Section 1.704-2(e) of the Treasury Regulations, to
the Members in accordance with their respective Membership
Interests.
5.5. Allocation of Member Nonrecourse Deductions.
Notwithstanding the provisions of Sections 5.1 and 5.2, items of
loss, deduction and Section 705(a)(2)(B) Expenditures attribut-
able, under Section 1.704-2(i) of the Treasury Regulations, to
Member Nonrecourse Debt shall (prior to any allocation pursuant
to Section 5.1 or 5.2) be allocated, as provided in Section
1.704-2(i) of the Treasury Regulations, to the Members in accord-
ance with the ratios in which they bear the economic risk of loss
for such debt for purposes of Section 1.752-2 of the Treasury
Regulations.
5.6. Minimum Gain Chargeback. In the event that
there is a net decrease in the amount of the Company's Minimum
Gain during a taxable year of the Company, the minimum gain
chargeback described in Sections 1.704-2(f) and (g) of the
Treasury Regulations shall apply.
5.7. Member Minimum Gain Chargeback. If during a
taxable year of the Company there is a net decrease in a Member
Nonrecourse Debt Minimum Gain, any Member with a share of that
Member Nonrecourse Debt Minimum Gain (determined under Section
1.704-2(i)(5) of the Treasury Regulations) as of the beginning of
the year must be allocated items of income and gain for the year
(and, if necessary, for succeeding years) equal to that Member's
share of such net decrease in accordance with Section 1.704-2(i)
of the Treasury Regulations.
5.8. Qualified Income Offset. Pursuant to Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations, income of the
Company shall be allocated, after the allocations required by
Sections 5.6 and 5.7 but before any other allocation required by
this Article V, to the Members with deficit balances in their
Adjusted Capital Accounts in an amount and manner sufficient to
eliminate such deficit balances as quickly as possible. This
Section 5.8 is intended to satisfy the provisions of Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall be
interpreted consistently therewith.
5.9. Limitations on Loss Allocation. Notwithstanding
any other provision of this Agreement to the contrary (other than
the following sentence), no item of loss or deduction of the
Company shall be allocated to a Member if such allocation would
result in a negative balance in such Member's Adjusted Capital
Account. Such item of loss or deduction shall be allocated first
among the Members with positive balances in their Adjusted
Capital Accounts in proportion to (and to the extent of) such
positive balances and thereafter in accordance with their
interests in the Company as determined under Section 1.704-1(b)(3)
of the Treasury Regulations.
5.10. Curative Allocations. If any items of income
and gain (including gross income) or loss, deduction and Section
705(a)(2)(B) Expenditures are allocated to a Member pursuant to
Section 5.4, 5.5, 5.6, 5.7, 5.8 or 5.9, then, prior to any
allocation pursuant to Section 5.1 or 5.2 and subject to
Sections 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9, items of income and
gain (including gross income) and items of loss, deduction and
Section 705(a)(2)(B) Expenditures for subsequent periods shall be
allocated to the Members in a manner designed to result in each
Member's Capital Account having a balance equal to what it would
have been had such allocation of items of income and gain
(including gross income) or loss, deduction and Section
705(a)(2)(B) Expenditures not occurred under Section 5.4, 5.5,
5.6, 5.7, 5.8 or 5.9. In exercising their discretion under this
Section 5.10, the Management Committee shall take into account
future allocations under Sections 5.6 and 5.7 that, although not
yet made, are likely to offset other allocations previously made
under Sections 5.4 and 5.5.
5.11. Interest in Company Profits. Pursuant to
Section 1.752-3(a)(3) of the Treasury Regulations, the Members'
interests in Company profits for purposes of determining the
Members' proportionate shares of the excess nonrecourse
liabilities (as defined in Section 1.752-3(a)(3) of the Treasury
Regulations) of the Company shall be determined in accordance
with their respective Membership Interests.
5.12. Distributions in Kind. If any assets of the
Company are distributed in kind pursuant to Section 12.4, such
assets shall be distributed to the Members entitled thereto in
the same proportions as if the distribution were in cash. Such
assets shall be valued at their then fair market value as
reasonably determined by the Management Committee by unanimous
vote. The amount of Unrealized Gain or Unrealized Loss
attributable to any asset to be distributed in kind to the
Members shall, to the extent not otherwise recognized by the
Company or taken into account under Section 5.3(c), be taken into
account in computing gain or loss of the Company for purposes of
allocation of gain or loss under Sections 5.1 and 5.2, and
distributions of proceeds to the Members under Sections 5.14 and
12.4.
5.13. Allocations and Distributions to Transferred
Interests. (a) If any interest in the Company is Transferred,
increased or decreased during the year, all items of income,
gain, loss, deduction and credit recognized by the Company for
such year shall be allocated among the Members to take into
account their varying interests during the year in any manner the
Management Committee shall approve pursuant to Section 8.4(n), in
its sole discretion, as then permitted by the Code.
(b) Distributions under Sections 5.14 and 12.4 shall
be made only to Members and assignees who, according to the books
and records of the Company, are Members or assignees on the
actual date of distribution. Neither the Company nor the
Management Committee (or any Representative serving thereon)
shall incur any liability for making distributions in accordance
with this Section 5.13(b).
5.14. Distributions of Distributable Funds. (a) As
soon as reasonably practicable after the end of each calendar
quarter, the Tax Matters Member shall determine the Tax Allowance
Amount for every Member in respect of such quarter. Upon such
determination, the Company shall distribute to the Members, in
accordance with their respective Membership Interests, an amount
sufficient to cause each Member to receive a distribution at
least equal to such Member's Tax Allowance Amount to be
distributed to such Member, provided such a distribution is
permitted by all lending agreements to which the Company is then
a party.
(b) Except as provided in Section 5.14(a) hereof,
Section 5.14(c) hereof and Section 12.4 hereof relating to
distributions upon the dissolution and liquidation of the
Company, Distributable Funds shall be distributed on a quarterly
basis to the Members in accordance with their respective
Membership Interests. Any additional distributions shall be made
only to the extent unanimously approved by the Management
Committee. To the extent that the Management Committee approves
any distribution pursuant to this Section 5.14 that consists of a
consideration of a type or in a form other than cash, the types
and forms of such consideration shall be allocated in an
equitable manner among the Members entitled thereto, in the
proportions and amounts provided for herein, such that each Mem-
ber shall, except for immaterial variances, receive the same type
or form of consideration (including equivalent tax basis). The
Company shall not make any distribution to the Members if,
immediately after giving effect to the distribution, all
liabilities of the Company, other than liabilities to Members
with respect to their Membership Interests and liabilities for
which the recourse of creditors is limited to specified property
of the Company, exceed the fair market value of Company Property,
except that the fair market value of Company Property that is
subject to a liability for which recourse of creditors is limited
shall be included in the Company assets only to the extent that
the fair market value of that Company Property exceeds that
liability.
(c) Any interest paid to the Company by any Tardy
Member in respect of any Grace Period Note shall be distributed
to the Non-Tardy Member within 5 days of receipt thereof by the
Company. Upon the payment of any principal amount of any Grace
Period Note, the Company shall distribute such amount to the Non-Tardy Member.
5.15. Special Allocations. Notwithstanding Section
5.1 and Section 5.2 hereof, any interest income recognized by the
Company in respect of any Grace Period Note shall be specially
allocated to the Non-Tardy Member.
5.16. Order of Application. For purposes of this
Article V, the listed provisions shall be applied in the order in
which they are listed below (from first to last):
Section 5.14; Section 5.7; Section 5.6; Section 5.8;
Section 5.9; Section 5.3; Section 5.5; Section 5.4; Section 5.10;
Section 5.15; Section 5.1; and Section 5.2.
ARTICLE VI
RIGHTS, POWERS AND OBLIGATIONS OF MEMBERS
6.1. Authority; Liability to Third Parties. Except
as otherwise provided herein, no Member has the authority or
power to act for or on behalf of the Company, to do any act that
would be binding on the Company, or to incur any expenditures on
behalf of the Company. No Member shall be liable for the debts,
obligations or liabilities of the Company, whether arising from
trade creditors, governmental authorities or otherwise (except
liability to the Company or the other Member as provided in
Section 5.1(c) and Section 5.2(c) of the Joint Venture
Agreement), including under a judgment, decree or order of a
court.
6.2. Transfer of Membership Interests.
(a) No Member shall, directly or indirectly, offer,
sell, assign, pledge (except for the Gaylord Pledge), encumber or
otherwise Transfer all or any portion of its Membership Interest
(including economic rights associated therewith) to any Person,
except as contemplated by Sections 4.12 and 8.2 of the Joint
Venture Agreement or otherwise with the unanimous written consent
of all other Members. Notwithstanding the previous sentence, a
Member may effect a Transfer of its economic rights in the
Company to an Affiliate of such Member without the consent of all
other Members, but such Affiliate shall not be admitted as a
Member unless admitted in accordance with Section 6.3. Until the
transferee is admitted as a Member pursuant to Section 6.3, the
transferor Member shall continue to be a Member and to be
entitled to exercise any rights or powers of a Member with
respect to the Membership Interest transferred.
(b) Any purported Transfer of any Membership
Interest in violation of the provisions of this Agreement shall
be wholly void and shall not effectuate the Transfer contemplated
thereby. Notwithstanding anything contained herein to the
contrary, (i) no Member may Transfer any Membership Interest in
violation of any provision of this Agreement or in violation of
the Securities Act and any applicable state securities laws,
(ii) no Transfer of any Membership Interest may be effected to
any transferee (including any Affiliate of the transferor) unless
such transferee has executed and delivered to the Company a copy
of this Agreement and agreed to be bound by all of the terms and
provisions hereof, (iii) no Transfer of any Membership Interest
(or economic rights associated therewith) may be effected if such
Transfer would cause a dissolution of the Company under the Act,
(iv) no Transfer of any Membership Interest may be effected if it
would cause the Company to be treated as having greater than 100
persons as determined in Treas. Reg. Sec. 1.7704-1(h) and (v) except
as permitted pursuant to Section 8.2 of the Joint Venture
Agreement, no Transfer of any Membership Interest (or economic
rights associated therewith) may be effected if such Transfer
would cause a termination of the Company under Section
708(b)(1)(B) of the Code unless the Members unanimously approve
such Transfer.
6.3. Admission of Transferee as Member. A transferee
of a Membership Interest, including an Affiliate of a Member
desiring to be admitted as a Member must execute a counterpart
of, or an agreement adopting, this Agreement and such Ancillary
Agreements as the existing Members may require. Except as
otherwise set forth in this Agreement, the admission of such
transferee is subject to the unanimous approval of the Members.
Upon admission of the transferee as a Member, the transferee
shall have, to the extent of the Membership Interest transferred,
the rights and powers and shall be subject to the restrictions
and liabilities of a Member under this Agreement, the Certificate
of Formation and the Act. The transferee shall also be liable,
to the extent of the Membership Interest transferred, for the
unfulfilled obligations, if any, of the transferor Member to make
Capital Contributions, but shall not be obligated for liabilities
unknown to the transferee at the time such transferee was
admitted as a Member and that could not be ascertained from this
Agreement, the Ancillary Agreements or the books and records of
the Company. Whether or not the transferee of a Membership
Interest becomes a Member, the transferor Member is not released
from any liability to the Company under the Act.
6.4. Resignation of a Member. No Member shall
resign, withdraw, retire or otherwise take action to effect the
foregoing, except as expressly permitted by this Article VI or
the Joint Venture Agreement.
ARTICLE VII
MEETINGS OF MEMBERS
7.1. Place of Meetings. All meetings of Members
shall be held at the principal office of the Company as provided
in Section 2.5, or at such other place as may be designated by
the Majority Vote of the Management Committee.
7.2. Meetings. (a) An annual meeting of Members for
the transaction of such business as may properly come before the
meeting shall be held at such place, on such date and at such
time as the Management Committee shall determine.
(b) Special meetings of Members for any proper
purpose or purposes may be called at any time by a Majority Vote
of the Management Committee or by the holders of at least 80% of
the Membership Interests then outstanding; provided, however,
that if Gaylord does not elect to purchase an amount of Stone's
Membership Interest by delivering written notice to Stone within
four years from the date hereof pursuant to Section 4.12 of the
Joint Venture Agreement such that, after such purchase, each of
Gaylord and Stone would own 50% of the Membership Interests, then
on the fifth anniversary of this Agreement the term "80%" in this
Section shall be amended to "30%".
7.3. Notice. A Notification of all meetings, stating
the place, day and hour of the meeting and in the case of a
special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten (10) nor more than
sixty (60) days before the meeting to each Member entitled to
vote.
7.4. Waiver of Notice. Attendance of a Member at a
meeting shall constitute a waiver of Notification of the meeting,
except where such Member attends for the express purpose of
objecting to the transaction of any business on the ground that
the meeting is not lawfully called or convened. Notification of
a meeting may also be waived in writing. Attendance at a meeting
is not a waiver of any right to object to the consideration of
matters required to be included in the Notification of the
meeting but not so included, if the objection is expressly made
at the meeting.
7.5. Quorum. The presence, either in person or by
proxy, of Members holding at least 80% of the Membership In-
terests is required to constitute a quorum at any meeting of the
Members; provided, however, that if Gaylord does not elect to
purchase an amount of Stone's Membership Interest by delivering
written notice to Stone within four years from the date hereof
pursuant to Section 4.12 of the Joint Venture Agreement such
that, after such purchase, each of Gaylord and Stone would own
50% of the Membership Interests, then on the fifth anniversary of
this Agreement the term "80%" in this section shall be amended to
"51%".
7.6. Voting. (a) All Members shall be entitled to
vote on any matter submitted to a vote of the Members. Members
may vote either in person or by proxy at any meeting. Each
Member shall be entitled to one vote for each full percentage of
the Membership Interest held by such Member. Fractional votes
shall be permitted.
(b) With respect to any matter other than a matter
for which the affirmative vote of Members owning a higher
specified percentage of the Membership Interests is required by
the Act or this Agreement, the affirmative vote of the holders of
at least 80% of the outstanding Membership Interests (taken at a
meeting at which a quorum is present) shall be the act of the
Members; provided, however, that if Gaylord does not elect to
purchase an amount of Stone's Membership Interest by delivering
written notice to Stone within four years from the date hereof
pursuant to Section 4.12 of the Joint Venture Agreement such
that, after such purchase, each of Gaylord and Stone would own
50% of the Membership Interests, then on the fifth anniversary of
this Agreement the term "80%" in this section shall be amended to
"51%".
7.7. Conduct of Meetings. The Management Committee
shall have full power and authority concerning the manner of
conducting any meeting of the Members, including, without limita-
tion, the determination of Persons entitled to vote, the exis-
tence of a quorum, the satisfaction of the requirements of this
Article VII, the conduct of voting, the validity and effective-
ness of any proxies, and the determination of any controversies,
votes or challenges arising in connection with or during the
meeting or voting. The Management Committee by Majority Vote
shall designate a Person to serve as chairperson of any meeting
and shall further designate a Person to take minutes of any
meeting. The chairperson of the meeting shall have the power to
adjourn the meeting from time to time, without notice, other than
announcement of the time and place of the adjourned meeting.
Upon the resumption of such adjourned meeting, any business may
be transacted that might have been transacted at the meeting as
originally called.
7.8. Action by Written Consent. Any action that may
be taken at a meeting of the Members may be taken without a
meeting if a consent in writing, setting forth the action to be
taken, shall be signed and dated by all Members. Such consent
shall have the same force and effect as a vote of the signing
Members at a meeting duly called and held pursuant to this
Article VII.
7.9. Proxies. A Member may vote either in person or
by proxy executed in writing by the Member. A facsimile, tele-
gram, telex, cablegram or similar transmission by the Member or a
photographic, photostatic, facsimile or similar reproduction of a
writing executed by the Member shall be treated as an execution
in writing for purposes of this Section 7.9. Proxies for use at
any meeting of Members or in connection with the taking of any
action by written consent shall be filed with the Company before
or at the time of the meeting or execution of the written con-
sent, as the case may be. All proxies shall be received and
taken charge of and all ballots shall be received and canvassed
by the Management Committee who shall decide all questions touch-
ing upon the qualification of voters, the validity of the prox-
ies, and the acceptance or rejection of votes, unless an
inspector or inspectors shall have been appointed by the
chairperson of the meeting, in which event such inspector or
inspectors shall decide all such questions. No proxy shall be
valid after eleven (11) months from the date of its execution
unless otherwise provided in the proxy. A proxy shall be
revocable unless the proxy form conspicuously states that the
proxy is irrevocable and the proxy is coupled with an interest.
Should a proxy designate two or more Persons to act as proxies,
unless such instrument shall provide to the contrary, a majority
of such Persons present at any meeting at which their powers
thereunder are to be exercised shall have and may exercise all
the powers of voting or giving consents thereby conferred, or if
only one be present, then such powers may be exercised by that
one; or, if an even number attend and a majority do not agree on
any particular issue, the Company shall not be required to
recognize such proxy with respect to such issue if such proxy
does not specify how the Membership Interests that are the
subject of such proxy are to be voted with respect to such issue.
ARTICLE VIII
MANAGEMENT OF THE COMPANY
8.1. Management of the Company and the Joint Venture
Business. Except as otherwise expressly provided in this
Agreement, the powers of the Company shall be exercised by or
under the authority of, and the business and affairs of the
Company shall be managed under the direction of, the Members who,
for administrative convenience only, shall appoint a management
committee (the "Management Committee") as described herein.
8.2. Management Committee; Number and Election of
Representatives; Additional Committees. (a) The Management
Committee shall consist of six Representatives, three
Representatives designated by Stone and three Representatives
designated by the Gaylord; provided, however, that if Gaylord
does not elect to purchase an amount of Stone's Membership
Interest by delivering written notice to Stone within four years
from the date hereof pursuant to Section 4.12 of the Joint
Venture Agreement such that, after such purchase, each of Gaylord
and Stone would own 50% of the Membership Interests, then on the
fifth anniversary of this Agreement the Management Committee
shall consist of four Representatives designated by Stone and two
Representatives designated by Gaylord. Certain Management
Committee decisions also require approval of the Membership
Interests pursuant to Section 8.4 herein. Representatives must
be officers or employees of a Member or any Affiliate of a
Member. The initial Representatives of the Company shall be
Roger W. Stone, Thomas Cadden, Matt Kaplan, Marvin Pomerantz, Dan
Casey and Dale Stahl.
(b) In the event that additional committees of the
Company are formed by the Management Committee, the Members shall
be entitled to appoint the same proportion of Representatives on
any such additional committee as such Members are entitled to on
the Management Committee, subject to the same proviso contained
in the last clause of subsection (a) above.
8.3. General Powers of Management Committee. The
Members, through the Management Committee, shall have complete
and exclusive discretion and authority in the management and
control of the business and affairs of the Company, including the
right to make and control all ordinary and usual decisions
concerning the business and affairs of the Company. The Members,
through the Management Committee, shall, subject to Section 8.4,
possess all power, on behalf of the Company, to do or authorize
the Company or to direct the executive officers of the Company,
on behalf of the Company, to do all things necessary or conven-
ient to carry out the business and affairs of the Company.
8.4. Limitations on Powers of Management Committee.
Notwithstanding any other provision contained in this Agreement
to the contrary, in addition to other requirements set forth
herein no act shall be taken, sum expended, decision made, obli-
gation incurred or power exercised by the Company, or the
officers or the Management Committee on behalf of the Company, in
each case without the approval of 80% of the Membership Interests
(100% if by written consent) with respect to each of the
following:
(a) any merger or consolidation involving the
Company (other than a merger of any subsidiary of the Company
into the Company);
(b) any voluntary liquidation, dissolution or
termination of the Company pursuant to Section 12.1(b);
(c) the sale, lease, transfer or other disposition
by the Company of any material portion of its assets, other than
in the ordinary course of business;
(d) any split, combination or reclassification of
any Membership Interests or any reorganization of the Company;
(e) the declaration, setting aside or the payment of
any distributions or redemptions (whether in cash or property,
but excluding (i) any mandatory tax distributions made available
to all Members, and (ii) distributions required by Section
5.14(c)) by the Company to any Member;
(f) the incurrence by the Company of any indebted-ness
for borrowed money or any capitalized lease obligation or
the entry into any agreement, commitment, assumption or guarantee
with respect thereto;
(g) the removal of any Member and, except as may be
provided for in this Agreement, the issuance by the Company of
any additional Membership Interests or other equity interests
(including any interests convertible into equity interests) of
the Company;
(h) any change of the Company's name or purpose or
any amendment or restatement of the Certificate of Formation or
this Agreement, the Joint Venture Agreement or any other
Ancillary Agreement;
(i) the entry by the Company into any contract or
agreement (or any amendment thereof) with, or the payment of any
amounts (other than those described in subparagraph 8.4(e)(i) or
(ii)) to, a Member or any Affiliate of a Member other than any
Grace Period Note;
(j) the entering into a line of business other than
the Joint Venture Business contemplated by the Joint Venture
Agreement;
(k) the incurrence of capital expenditures in any
fiscal year in excess of $2,500,000 other than capital
expenditures previously authorized by all Members;
(l) any acquisition or any investment in any amount
in excess of $2,500,000 except to the extent permitted invest-
ments are authorized by the primary senior loan agreement between
the Company and one or more financial institutions;
(m) the creation of any subsidiary of the Company;
(n) except as otherwise provided in this Agreement,
the making of any income tax election or allocation.
8.5. Place of Meetings. Meetings of the Management
Committee may be held either within or without the State of
Delaware at whatever place is specified in the call of the meet-
ing. In the absence of specific designation, the meetings shall
be held at the principal office of the Company as provided in
Section 2.5. The Representatives serving on the Management
Committee, by Majority Vote, may appoint from among themselves a
chairperson or chairpersons to preside at meetings of the
Management Committee; provided, however, from the date hereof
until this Agreement's six-month anniversary, Marvin Pomerantz
and Roger Stone will act as co-chairpersons. Any Representative
shall be permitted to attend any meeting of the Management
Committee in person or by conference call pursuant to
Section 14.1.
8.6. Regular Meetings. The Management Committee
shall meet at least quarterly. No notice need be given to
Representatives of regular meetings for which the Representatives
previously have designated a time and place for the meeting.
8.7. Special Meetings. Special meetings of the
Management Committee may be held at any time upon the request of
at least two (2) of the Representatives. A Notification of any
special meeting shall be sent to the last known address of each
Representative at least two (2) Business Days before the meeting.
Notification of the time, place and purpose and all matters and
business to be transacted at such meeting may be waived in
writing before or after such meeting, and shall be equivalent to
the giving of a Notification. Attendance of a Representative at
such meeting shall also constitute a waiver of Notification
thereof, except where such Representative attends for the express
purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened. The
business to be transacted at, and the purpose of, each special
meeting of the Management Committee must be specified in the
notice or waiver of notice of such meeting.
8.8. Quorum of and Action by Management Committee.
The presence, in person or by proxy, of at least four (4)
Representatives, including at least one Representative designated
by each of Stone and Gaylord, shall constitute a quorum for the
transaction of business at any meeting of the Management Commit-
tee; provided, however, that if Gaylord does not elect to
purchase an amount of Stone's Membership Interest within five
years from the date hereof pursuant to Section 4.12 of the Joint
Venture Agreement such that, after such purchase, each of Gaylord
and Stone would own 50% of the Membership Interests, then on the
fifth anniversary of this Agreement the phrase "including at
least one Representative designated by each of Stone and Gaylord"
in this section shall be deleted. Each Representative shall be
entitled to one vote. Except as otherwise expressly set forth in
this Agreement, all actions of the Management Committee shall be
by unanimous vote; provided, however, upon (i) the consummation
of the purchase by Gaylord pursuant to Section 4.12 of the Joint
Venture Agreement or (ii) the fifth anniversary of this
Agreement, whichever shall occur first, all actions of the
Management Committee shall be by Majority Vote, subject to
Section 8.4 herein. Any action so taken shall constitute the act
of the Management Committee, provided that a quorum is present.
Notwithstanding any other provision of this Agreement, no action
taken or approved by the Management Committee at any meeting
shall be valid unless at least two (2) Business Days prior
written notice of such meeting was duly given to each
Representative then serving on the Management Committee. In the
event that the Management Committee cannot reach agreement on a
particular issue in accordance with the applicable voting
requirements as set forth in this Agreement, any Representative
may refer the matter to decision pursuant to Article XIII (other
than matters pertaining to Section 8.4 (a), (b), (c), (d), (g),
(h), (i), (m) or (n) (other than contract interpretation issues
relating to such provisions) which shall not be governed by
Article XIII).
8.9. Compensation. The Representatives shall serve
without compensation. Representatives shall be entitled to
reimbursement from the Company for their reasonable out-of-pocket
expenses incurred in attending any meeting.
8.10. Resignation and Removal. Any Representative may
resign at any time by giving notice to the Company and the Member
that designated such Representative. Such resignation shall be
made in writing and shall take effect upon the earlier of the
acceptance of such resignation or at the time such Representative
is replaced by the Member that designated such Representative.
Any Representatives serving on the Management Committee may be
removed, either for or without cause, upon the written request of
the Member that appointed such Representative. Any such removal
shall be effective upon the delivery of such a written request to
the Company and to such Representative.
8.11. Vacancies. Any vacancy occurring with respect
to a Representative serving on the Management Committee by
designation of a Member pursuant to Section 8.2 shall be filled
by designation of the Member that designated such Representative
pursuant to the procedures set forth in Section 8.2.
8.12. Action by Written Consent. Any action that may
be taken at a meeting of the Management Committee may be taken
without a meeting if a consent in writing, setting forth the
action to be taken, shall be signed by (a) all of those Persons
entitled to vote at that meeting, and such consent shall have the
same force and effect as a unanimous vote of the Management
Committee at a meeting duly called and held or (b) if approved by
each of the Members, the Management Committee may act by majority
written consent, and such consent shall have the same force and
effect as if adopted by the Management Committee at a meeting
duly called and held. No notice shall be required in connection
with the use of a written consent pursuant to this Section 8.12.
8.13. Standard of Care; Liability. Every Representa-
tive shall discharge his or her duties as a representative in
good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances, and in a
manner he or she reasonably believes to be in the best interests
of the Company. A Representative shall not be liable for any
monetary damages to the Company for any breach of such duties
except for (a) receipt of a financial benefit to which the
Representative is not entitled, (b) voting for or assenting to a
distribution to Members in violation of this Agreement or the Act
or (c) a knowing violation of the law.
8.14. Appointment of Officers; President. The Mem-
bers, through the Management Committee, shall have the right to
appoint officers of the Company, including a President of the
Company, to assist with the day-to-day management of the business
affairs of the Company. Any President so appointed shall be the
Chief Executive Officer of the Company, subject at all times to
the direction of the Members, through the Management Committee.
The President shall not have greater power and authority than
that delegated to him by the Management Committee and shall not,
on behalf of the Company, negotiate, authorize, engage in or
enter into any of the transactions or actions specified in
Section 8.4 without the requisite prior consent of each of the
Members in respect thereof. The Members, through the Management
Committee, shall have the right to remove any President of the
Company, either for or without cause, at any time; provided,
however, that nothing contained herein shall limit any rights of
the President under any employment agreement which such President
may have entered into with the Company. In addition to the
President, the Company shall have such other executive officers
as the Management Committee may designate. From the date hereof
until the six-month anniversary of this Agreement, Thomas Cadden
will be President of the Company.
ARTICLE IX
OWNERSHIP OF COMPANY PROPERTY
Company Property shall be deemed to be owned by the
Company as an entity, and no Member or Representative,
individually or collectively, shall have any ownership interest
in such Company Property or any portion thereof. Title to any or
all Company Property may be held in the name of the Company or
one or more nominees, as the Management Committee by Majority
Vote may determine. All Company Property shall be recorded as
the property of the Company on its books and records,
irrespective of the name in which legal title to such Company
Property is held.
ARTICLE X
FISCAL MATTERS; BOOKS AND RECORDS
10.1. Bank Accounts; Investments. Capital Contribu-
tions, revenues and any other Company funds shall be deposited by
the Company in a bank account established in the name of the
Company, or shall be invested by the Company, at the direction of
the Management Committee, in furtherance of the purposes of the
Company. No other funds shall be deposited into Company bank
accounts or commingled with Company investments. Funds deposited
in the Company's bank accounts may be withdrawn only to be in-
vested in furtherance of the Company's purposes, to pay Company
debts or obligations or to be distributed to the Members pursuant
to this Agreement.
10.2. Records Required by Act; Right of Inspection.
(a) During the term of the Company's existence and for a period
of four (4) years thereafter, there shall be maintained in the
Company's principal office specified pursuant to Section 2.5 all
records required to be kept pursuant to the Act, including,
without limitation, a current list of the names, addresses and
Membership Interests held by each of the Members (including the
dates on which each of the Members became a Member) or permitted
transferee, copies of federal, state and local information or
income tax returns for each of the Company's tax years, copies of
this Agreement and the Certificate of Formation, including all
amendments or restatements, and correct and complete books and
records of account of the Company.
(b) On written request stating the purpose, a Member
may examine and copy in person, at any reasonable time, for any
proper purpose reasonably related to such Member's interest as a
Member of the Company, and at the Member's expense, records
required to be maintained under the Act and such other informa-
tion regarding the business, affairs and financial condition of
the Company as is just and reasonable for the Member to examine
and copy. Upon written request by any Member made to the Company
at the address of the Company's principal office specified in
Section 2.5, the Company shall provide to the Member without
charge true copies of (i) this Agreement and the Certificate of
Formation and all amendments or restatements, and (ii) any of the
tax returns of the Company described above.
10.3. Books and Records. The Company shall maintain
adequate books and records of account that shall be maintained on
the accrual method of accounting and on a basis consistent with
appropriate provisions of the Code, containing, among other
entries, a Capital Account for the Membership Interests held by
each Member and permitted transferee.
10.4. Access to Financial and Accounting Records. The
parties shall have access to the records relating to the Company
and shall be entitled to perform internal reviews and audits of
such records at their own expense. The parties shall also have
the right to perform limited financial review of the Company for
their own respective financial reports. The parties agree that
Stone's auditors and Gaylord's auditors shall have access to
financial and accounting records of the Company. However,
expenses related to third party audits (requested by the
Company), tax returns and tax return preparation, and any other
Company filing requirements shall be paid by the Company. The
parties hereby agree to the disclosure of any financial informa-
tion required to be disclosed by either party in order to comply
with applicable law, including applicable regulations of the
Securities and Exchange Commission.
10.5. Tax Returns and Information. The Members intend
for the Company to be treated as a partnership for income tax
purposes. The Company shall prepare or cause there to be
prepared all federal, state and local income and other tax
returns that the Company is required to file. Within seventy-five (75)
days after the end of each calendar year, the Company shall send
or deliver to each Person who was a Member at any time during such
year such tax information as shall be reasonably necessary for the
preparation by such Person of such Person's federal income tax
return and state income and other tax returns.
10.6. Delivery of Financial Statements to Members. As
to each of the first three fiscal quarters of the Company and
each fiscal year of the Company, the Company shall send to each
Member a copy of (a) the balance sheet of the Company as of the
end of the fiscal quarter or year, (b) an income statement of the
Company for such quarter or year, and (c) a statement showing the
revenues distributed by the Company to Members in respect of such
quarter or year. Such financial statements shall be delivered no
later than 30 days following the end of the fiscal quarter to
which the statements apply, except that the financial statements
relating to the end of the fiscal year shall be delivered no
later than 30 days following the end of such fiscal year. Each
Member shall also have the right to receive copies of the
operating plan, strategic plan and capital expenditure budget of
the Company for any fiscal year upon request. Within 15 days
after the end of each month (except for a month which ends a
quarter), the Company shall send to each Member a copy of the
operating results for the preceding month. Within 30 days after
the end of each month (except for a month which ends a quarter),
the Company shall send to each Member a balance sheet and an
income statement.
10.7. Audits. The fiscal year-end financial state-
ments to be delivered pursuant to Section 10.6 shall be audited
or subject to other agreed financial procedures. The audit, if
any, shall be performed by an accounting firm approved by the
Management Committee.
10.8. Fiscal Year. The Company's fiscal year shall
end on December 31 of each calendar year. Each fiscal year shall
consist of four quarters ending on March 31, June 30,
September 30 and December 31 of each fiscal year. Each such
quarter shall be referred to as a "fiscal quarter".
10.9. Tax Elections. The Company shall make the fol-
lowing elections on the appropriate tax returns:
(a) to adopt the calendar year as the Company's
fiscal year, if permitted by the Code;
(b) to adopt the accrual method of accounting, if
permitted by the Code, and to keep the Company's books and
records on such method;
(c) if a distribution of Company property as
described in Section 734 of the Code occurs or if a Transfer of
any Membership Interest as described in Section 743 of the Code
occurs, to elect, pursuant to Section 754 of the Code, to adjust
the basis of Company properties (it being understood that, if
applicable, the Company shall, upon Gaylord's request or Stone's
request, make a valid election pursuant to Section 754 of the
Code that will be applicable with respect to the potential
purchase by Gaylord of a portion of Stone's Membership Interest
pursuant to Section 4.12 of the Joint Venture Agreement); and
(d) to elect to amortize the organizational expenses
of the Company ratably over a period of sixty (60) months as
permitted by Section 709(b) of the Code.
Neither the Company, the Management Committee nor any Member or
Representative may make an election for the Company to be
excluded from the application of the provisions of subchapter K
of chapter 1 of subtitle A of the Code or any similar provisions
of applicable state law.
10.10. Tax Matters Member. The Management Committee
shall designate one Member to be the "tax matters partner" (the
"Tax Matters Member") of the Company pursuant to Section
6231(a)(7) of the Code. Such Member shall take such action as
may be necessary to cause each other Member to become a "notice
partner" within the meaning of Section 6223 of the Code. Such
Member shall inform each other Member of all significant matters
that may come to its attention in its capacity as Tax Matters
Member by giving notice thereof on or before the fifth Business
Day after becoming aware thereof and, within that time, shall
forward to each other Member copies of all significant written
communications it may receive in that capacity. Such Member may
take any action contemplated by Sections 6222 through 6232 of the
Code without the consent of all Members, but this sentence does
not authorize such Member to take any action left to the deter-
mination of an individual Member under Sections 6222 through 6232
of the Code. The initial Tax Matters Member shall be Stone. The
Tax Matters Member shall not without the unanimous consent of the
other Members, which consent shall not be unreasonably withheld:
(i) consent to any administrative adjustment; (ii) settle or
compromise any administrative or judicial proceeding; (iii)
extend the statute of limitations with respect to any tax return
of the Company; or (iv) forgo any administrative proceeding.
ARTICLE XI
INDEMNIFICATION AND INSURANCE
11.1. Indemnification and Advancement of Expenses by
the Company. (a) The Company shall indemnify in accordance
with, and to the fullest extent authorized by, the Act, as it may
be in effect from time to time, any Person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Company), by reason of the fact that he, she or
it is or was a Representative, Member, employee or officer of the
Company, or is or was serving at the request of the Company as a
director, officer, Representative, employee, representative or
agent of another corporation, limited liability company, general
partnership, limited partnership, joint venture, trust, business
trust or other enterprise or entity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him, her or it in connection
with such action, suit or proceeding if he, she or it acted in
good faith and in a manner he, she or it reasonably believed to
be in or not opposed to the best interests of the Company, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his, her or its conduct was unlawful.
The termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that such Person did not act in good faith and in a
manner which he, she or it reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had reasonable cause to
believe that his, her or its conduct was unlawful.
(b) The Company shall indemnify any Person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the
right of the Company to procure a judgment in its favor by reason
of the fact that he, she or it is or was a Representative, Member
or officer of the Company, or is or was serving at the request of
the Company as a director, officer, Representative, employee,
representative or agent of another corporation, limited liability
company, general partnership, limited partnership, joint venture,
trust, business trust or other enterprise or entity, against
expenses (including attorneys' fees) actually and reasonably
incurred by him, her or it in connection with the defense or
settlement of such action or suit if he, she or it acted in good
faith and in a manner he, she or it reasonably believed to be in
or not opposed to the best interests of the Company, except that
no indemnification shall be made in respect of any claim, issue
or matter as to which such Person shall have been finally
adjudged to be liable to the Company unless and only to the
extent that a Delaware state court or the court in which such
action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall
deem proper.
(c) To the extent that a Representative, Member,
employee or officer of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding
referred to in paragraphs (a) and (b) of this Section 11.1, or in
defense of any claim, issue or matter therein, he, she or it
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him, her or it in connection
therewith.
(d) Any indemnification under paragraphs (a) and (b)
or advancement of Expenses under paragraph (e), each of this
Section 11.1, (unless ordered by a court of competent jurisdic-
tion) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the
Representative, Member or officer is proper in the circumstances
because he, she or it has met the applicable standard of conduct
set forth in paragraphs (a) and (b) of this Section 11.1. Such
determination shall be made (i) by the Management Committee by a
Majority Vote of Representatives who were not parties to such
action, suit or proceeding (even if such Representatives
constitute less than a quorum of Representatives), (ii) if a
quorum of disinterested Representatives so directs, by
independent legal counsel in a written opinion or (iii) by all
the Members.
(e) Expenses (including reasonable attorneys' fees)
incurred by a Representative or Member in defending any civil,
criminal, administrative or investigative action, suit or pro-
ceeding shall be paid by the Company as and when incurred in
advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Representative or Member to repay such amount if it shall ulti-
mately be determined that he, she or it is not entitled to be
indemnified by the Company pursuant to this Section 11.1. Such
expenses (including reasonable attorneys' fees) incurred by other
officers shall be so paid upon such terms and conditions, if any,
as the Management Committee deems appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 11.1 shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under
any by-law, agreement, vote of Members or disinterested
Representatives or otherwise, both as to action in an official
capacity and as to action in another capacity while holding such
office.
(g) For purposes of this Section 11.1, any reference
to the "Company" shall include, in addition to the resulting or
surviving business entity, any constituent business entity
(including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its
directors, officers, representatives or members, so that any
Person who is or was a director, officer, representative or
member of such constituent business entity, or is or was serving
at the request of such constituent business entity as a director,
officer, representative or member of another business entity,
limited liability company, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the
provisions of this Section 11.1 with respect to the resulting or
surviving business entity as he or she would have with respect to
such constituent business entity if its separate existence had
continued.
(h) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 11.1 shall
continue as to a Person who has ceased to be a Representative,
Member, employee or officer and shall inure to the benefit of the
heirs, executors and administrators of such Person.
(i) Notwithstanding anything in this Article XI to
the contrary, the Company will not have the obligation of
indemnifying any Person with respect to proceedings, claims or
actions initiated or brought voluntarily by such Person and not
by way of or in connection with defending any such proceedings,
claims or actions.
11.2. Insurance. The Company may purchase and
maintain insurance or another arrangement on behalf of any Person
who is or was a Representative, Member, officer, employee, agent
or other Person identified in Section 11.1 against any liability
asserted against such Person or incurred by such Person in such a
capacity or arising out of the status of such a Person, whether
or not the Company would have the power to indemnify such Person
against that liability under Section 11.1 or otherwise.
11.3. Limit on Liability of Members from Company
Indemnification. The indemnification set forth in Section 11.1
shall in no event cause the Members to incur any personal
liability beyond their total Capital Contributions, nor shall it
result in any liability of the Members to any third party.
ARTICLE XII
DISSOLUTION AND WINDING UP
12.1. Events Causing Dissolution. The Company shall
be dissolved upon the first of the following events to occur:
(a) The written consent of all Members at any time
to dissolve and wind up the affairs of the Company;
(b) The Bankruptcy or dissolution of a Member or the
occurrence of any other event that terminates the continued
membership of a Member in the Company, unless there are at least
two remaining Members (after taking into account any sale
pursuant to the provisions of Section 8.2 of the Joint Venture
Agreement) and the business of the Company is continued by the
unanimous consent of all remaining Members within 90 days
following the occurrence of any such event; or
(c) The occurrence of any other event that causes
the dissolution of a limited liability company under the Act.
12.2. Winding Up. If the Company is dissolved pursu-
ant to Section 12.1, the Company's affairs shall be wound up as
soon as reasonably practicable in the manner set forth below.
(a) The winding up of the Company's affairs shall be
supervised by a liquidator (the "Liquidator") selected by the
Members holding at least 80% of the Membership Interests.
(b) In winding up the affairs of the Company, the
Liquidator shall have full right and unlimited discretion, in the
name of and for and on behalf of the Company to:
(i) Prosecute and defend civil, criminal or
administrative suits;
(ii) Collect Company assets, including obliga-
tions owed to the Company;
(iii) Settle and close the Company's business;
(iv) Dispose of and convey all Company Property
for cash, and in connection therewith to determine the
time, manner and terms of any sale or sales of Company
Property, having due regard for the activity and condi-
tion of the relevant market and general financial and
economic conditions;
(v) Pay all reasonable selling costs and other
expenses incurred in connection with the winding up out
of the proceeds of the disposition of Company Property;
(vi) Discharge the Company's known liabilities
and, if necessary, to set up, for a period not to ex-
ceed five (5) years after the date of dissolution, such
cash reserves as the Liquidator may deem reasonably
necessary for any contingent or unforeseen liabilities
or obligations of the Company;
(vii) Distribute any remaining proceeds from the
sale of Company Property to the Members as provided in
Section 12.4;
(viii) Prepare, execute, acknowledge and file
articles of dissolution under the Act and any other
certificates, tax returns or instruments necessary or
advisable under any applicable law to effect the
winding up and termination of the Company; and
(ix) Exercise, without further authorization or
consent of any of the parties hereto or their legal
representatives or successors in interest, all of the
powers conferred upon the Management Committee under
the terms of this Agreement to the extent necessary or
desirable in the good faith judgment of the Liquidator
to perform its duties and functions. The Liquidator
(if not a Representative or the Management Committee)
shall not be liable as a Representative to the Members
and shall, while acting in such capacity on behalf of
the Company, be entitled to the indemnification rights
set forth in Article XI.
12.3. Compensation of Liquidator. The Liquidator
appointed as provided herein shall be entitled to receive such
reasonable compensation for its services as shall be agreed upon
by the Liquidator and the Members holding at least 80% of the
Membership Interests.
12.4. Distribution of Company Property and Proceeds of
Sale Thereof. (a) Upon completion of all desired sales of
Company Property, and after payment of all selling costs and
expenses, the Liquidator shall distribute the proceeds of such
sales, and any Company Property that is to be distributed in
kind, to the following groups in the following order of priority:
(i) to satisfy Company liabilities to
creditors, including Members and Representatives who
are creditors, to the extent otherwise permitted by law
(other than for past due Company distributions),
whether by payment or establishment of reserves;
(ii) to satisfy Company obligations to Members
and former Members to pay past due Company
distributions;
(iii) to the Members, in accordance with the
positive balances in their respective Capital Accounts
(determined after allocating all items for all periods
prior to and including the date of distribution,
including items relating to sales and distributions
pursuant to this Article XII); and
(iv) then, any remaining amounts shall be
distributed to the Members in accordance with their
respective Membership Interests.
(b) All distributions required under this
Section 12.4 shall be made to the Members by the end of the
taxable year in which the liquidation occurs or, if later, within
90 days after the date of such liquidation.
(c) The claims of each priority group specified
above shall be satisfied in full before satisfying any claims of
a lower priority group. If the assets available for disposition
are insufficient to dispose of all of the claims of a priority
group, the available assets shall be distributed in proportion to
the amounts owed to each creditor or the respective Capital
Account balances or Membership Interests of each Member in such
group.
12.5. Final Audit. Within a reasonable time following
the completion of the liquidation, the Liquidator shall supply to
each of the Members a statement that shall set forth the assets
and the liabilities of the Company as of the date of complete
liquidation and each Member's pro rata portion of distributions
pursuant to Section 12.4.
12.6. Deficit Capital Accounts. Notwithstanding any-
thing to the contrary contained in this Agreement, and notwith-
standing any custom or rule of law to the contrary, to the extent
that the deficit, if any, in the Capital Account of any Member
results from or is attributable to deductions and losses of the
Company (including non-cash items such as depreciation), or dis-
tributions of money pursuant to this Agreement, upon dissolution
of the Company such deficit shall not be an asset of the Company
and such Members shall not be obligated to contribute such amount
to the Company to bring the balance of such Member's Capital
Account to zero.
ARTICLE XIII
DISPUTE RESOLUTION
Any dispute, controversy or claim, whether based on
contract, tort, statute, fraud, misrepresentation or any other
legal theory between any parties hereto arising out of or
relating to this Agreement or any Ancillary Agreement or any
rights or obligations or related services to be provided
hereunder or thereunder, including matters relating to business
judgement and operations, shall constitute a "Dispute" under
Sections 9.11 and 9.12 of the Joint Venture Agreement and the
parties hereto agree that any such Dispute shall be subject to
and governed by the dispute resolution provisions set forth in
Sections 9.11 and 9.12 of the Joint Venture Agreement, which are
hereby incorporated by reference into this Agreement as if fully
set forth herein.
Notwithstanding the foregoing, the Members agree to
continue performing their respective obligations under this
Agreement and the Ancillary Agreements while the Dispute is being
resolved unless and until such obligations are terminated or
expire in accordance with the provisions hereof or thereof.
Nothing in this Article XIII shall be construed to
prevent any party from seeking from a court a temporary
restraining order or other temporary or preliminary relief
pending final resolution of a Dispute pursuant hereto.
Notwithstanding the foregoing, any dispute, controversy
or disagreement between any parties hereto relating to (i) the
necessity of the Company to solicit Optional Additional Cash
Contributions from its Members and (ii) issues of business
judgment (including Management Committee and Member deadlocks)
arising out of the matters set forth in Sections 8.4(a), (b),
(c), (d), (g), (h), (i), (m) or (n) (other than contract
interpretation issues relating to such provisions), shall not
constitute a "Dispute" under Sections 9.11 and 9.12 of the Joint
Venture Agreement and shall not be governed by the dispute
resolution provisions of such sections.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1. Conference Telephone Meetings. Meetings of the
Members or the Management Committee may be held by means of
conference telephone or similar communications equipment so long
as all Persons participating in the meeting can hear each other.
Participation in a meeting by means of conference telephone shall
constitute presence in person at such meeting, except where a
Person participates in the meeting for the express purpose of
objecting to the transaction of any business thereat on the
ground that the meeting is not lawfully called or convened.
14.2. Counterparts. This Agreement may be executed in
several counterparts, each of which will be deemed an original,
but all of which together will constitute one and the same
instrument.
14.3. Entire Agreement. This Agreement, the Joint
Venture Agreement and the other Ancillary Agreements and the
Exhibits and Schedules hereto and thereto constitute the entire
agreement among the parties hereto and contains all of the
agreements among such parties with respect to the subject matter
hereof. This Agreement and the Ancillary Agreements and the
Exhibits and Schedules hereto and thereto supersede any and all
other agreements, either oral or written, between such parties
with respect to the subject matter hereof.
14.4. Partial Invalidity. Wherever possible, each
provision hereof shall be interpreted in such manner as to be
effective and valid under applicable law, but in case any one or
more of the provisions contained herein shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective to the extent, but only to the
extent, of such invalidity, illegality or unenforceability with-
out invalidating the remainder of such invalid, illegal or unen-
forceable provision or provisions or any other provisions hereof,
unless such a construction would be unreasonable.
14.5. Amendment. Except as expressly provided herein,
this Agreement may be amended only by a written agreement exe-
cuted by all Members. No provision of this Agreement requiring
that any action be taken only upon approval of Members holding a
specified percentage of the Membership Interests may be modified,
amended or repealed unless such modification, amendment or repeal
is approved by Members holding at least such percentage of the
Membership Interests.
14.6. Binding Effect. Subject to the provisions of
this Agreement relating to transferability, this Agreement will
be binding upon and shall inure to the benefit of the parties,
and their respective successors and assigns.
14.7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO ITS CONFLICT OF LAWS
DOCTRINE. IN PARTICULAR, THIS AGREEMENT IS INTENDED TO COMPLY
WITH THE REQUIREMENTS OF THE ACT AND THE CERTIFICATE OF
FORMATION. IN THE EVENT OF A DIRECT CONFLICT BETWEEN THE PROVI-
SIONS OF THIS AGREEMENT AND THE MANDATORY PROVISIONS OF THE ACT
OR ANY PROVISION OF THE CERTIFICATE OF FORMATION, THE ACT AND THE
CERTIFICATE OF FORMATION, IN THAT ORDER OF PRIORITY, WILL
CONTROL.
14.8. Offset. Whenever the Company is to pay any sum
to any Person under this Agreement or any Ancillary Agreement,
any amounts that Person owes the Company under this Agreement or
any Ancillary Agreement may be deducted from that sum before
payment.
14.9. Effect of Waiver or Consent. A waiver or con-
sent, express or implied, to or of any breach or default by any
Person in the performance by that Person of its obligations with
respect to the Company is not a consent or waiver to or of any
other breach or default in the performance by that Person of the
same or any other obligations of that Person with respect to the
Company. Failure on the part of a Person to complain of any act
of any Person or to declare any Person in default with respect to
the Company, irrespective of how long that failure continues,
does not constitute a waiver by that Person of its rights with
respect to that default until the applicable statute-of-limita-
tions period has run.
14.10. Further Assurances. In connection with this
Agreement and the transactions contemplated hereby, each Member
shall execute and deliver any additional documents and instru-
ments and perform any additional acts that may be necessary or
appropriate to effectuate and perform the provisions of this
Agreement and such transactions.
14.11. Expenses. Each Member shall pay its own legal,
accounting and other expenses incident to its negotiation and
preparation of this Agreement and the Ancillary Agreements and
(except as expressly set forth herein or therein) the
consummation of the transactions contemplated hereby and thereby.
14.12. Notices. All notices or other communications
required or permitted hereunder shall be in writing and shall be
deemed given or delivered when delivered personally, by courier
or facsimile transmission or mailed (first class postage prepaid)
to the parties at the addresses or facsimile numbers set forth
below:
If to Stone, to:
Stone Container Corporation
150 North Michigan Avenue
Chicago, Illinois 60601
Telephone: (312) 346-6600
Facsimile: (312) 580-4625
Attention: General Counsel
If to Gaylord, to:
Gaylord Container Corporation
500 Lake Cook Road
Deerfield, Illinois 60015
Telephone: (847) 405-5500
Facsimile: (847) 405-5586
Attention: General Counsel
Delivery to any party designated above to receive
copies of notices shall not, by itself, be considered notice to
any party pursuant to this Section 14.12 and that failure to
deliver a copy shall not, by itself, cause delivery of notice to
any other party to be insufficient or invalid.
All such notices and other communications will (x) if
delivered personally or by courier to the address provided in
this Section 14.12, be deemed given upon delivery, (y) if
delivered by facsimile transmission to the facsimile number
provided in this Section 14.12, be deemed given when receipt of
transmission has been orally confirmed by the sending party, and
(z) if delivered by certified mail, return receipt requested, in
the manner described above to the address as provided in this
Section 14.12, be deemed given five (5) Business Days after
deposit in the United States mail (in each case regardless of
whether such notice, request or other communication is received
by any other Person to whom a copy of such notice is to be
delivered pursuant to this Section 14.12). Any party from time
to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving
notice specifying such change to the other party.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered by the duly authorized officers of the
parties hereto on the dates set forth below opposite their names,
to be effective on the date first above written.
S&G PACKAGING COMPANY, L.L.C.
Dated: _________________ By:________________________________
Its:____________________________
Date:___________________________
MEMBERS:
STONE CONTAINER CORPORATION
Dated: _________________ By:________________________________
Name:
Title:
GAYLORD CONTAINER CORPORATION
Dated: __________________ By:_______________________________
Name:
Title:
<PAGE>
Schedule I
MEMBERS AND MEMBERSHIP INTERESTS
Membership
Member Interests
Stone Container Corporation 65%
Gaylord Container Corporation 35%
0152111.09 August 12, 1996 (11:39a)
