<PAGE>
As filed with the Securities and Exchange Commission on May 23, 1996
Registration No. 333-3006
----
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM S-1
------------------
REGISTRATION STATEMENT
Under the Securities Act of 1933
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
----------------------------
STATIONERY HOUSE INC. VIP DIVISION
WILLIAMHOUSE OF CALIFORNIA, INC.
THE PRECIOUS COLLECTION, INC.
REGENCY SONNELL GREETINGS, INC.
REGENCY THERMOGRAPHERS, INC.
REGENCY THERMOGRAPHERS OF CALIFORNIA, INC.
REGENCY THERMOGRAPHERS OF ILLINOIS, INC.
REGENCY THERMOGRAPHERS OF WASHINGTON, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 2678 25-1512956
DELAWARE 2678 23-2575118
COLORADO 2678 84-0807780
TEXAS 2678 13-2841515
CALIFORNIA 2771 95-3887676
DELAWARE 2678 13-1960400
CALIFORNIA 2678 95-2314024
ILLINOIS 2759 36-2274605
WASHINGTON 2678 91-0730734
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
17304 PRESTON ROAD, SUITE 700
DALLAS, TX 75252-5613
(214) 733-6200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
GREGORY M. BENSON
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
17304 PRESTON ROAD, SUITE 700
DALLAS, TX 75252-5613
(214) 733-6200
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NY 10022-4675
(212) 446-4800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
-
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list of the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information Required by Items of Part I of
Form S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors, Ratio of
Earnings to Fixed Charges Prospectus Summary; Selected Historical Consolidated
Financial Data; Risk Factors; Summary Unaudited Pro
Forma Financial Information for the Company;
Summary Historical Consolidated Financial Data
Williamhouse
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Not applicable
6. Dilution Not applicable
7. Selling Security Holders Not applicable
8. Plan of Distribution Plan of Distribution
9. Description of Security to be Registered Cover Page; Prospectus Summary; Description of
Exchange Notes
10. Interests of Named Experts and Counsel Experts; Legal Matters
11. Information with Respect to the Registrants Outside Front Cover page; Prospectus Summary; The
Company; The Transactions; Proposed Initial Public
Offering; Risk Factors; Use of Proceeds; Capitalization;
Summary Unaudited Pro Forma Financial Data;
Unaudited Pro Forma Consolidated Statement of Income;
Selected Historical Consolidated Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Principal Stockholders; Certain
Relationships and Related Transactions; Description of
Bank Credit Agreement; Description of New Bank Credit
Agreement; Description of Accounts Receivable Facility
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
SUBJECT TO COMPLETION, DATED MAY 23, 1996
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
OFFER TO EXCHANGE ITS 13% SENIOR SUBORDINATED
NOTES DUE 2005, SERIES B FOR ANY AND ALL OF ITS
OUTSTANDING 13% SENIOR SUBORDINATED NOTES DUE 2005.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON ______, 1996,
UNLESS EXTENDED.
American Pad & Paper Company of Delaware, Inc., formerly known as
Williamhouse-Regency of Delaware, Inc. (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 13% Senior
Subordinated Notes due 2005, Series B (the "Exchange Notes"), registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1000
principal amount of its outstanding 13% Senior Subordinated Notes due 2005 (the
"Notes"), of which $200,000,000 principal amount is outstanding. The form and
terms of the Exchange Notes are the same as the form and term, of the Notes
(which they replace) except that the Exchange Notes will bear a Series B
designation and will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not contain
certain provisions relating to an increase in the interest rate which were
included in the terms of the Notes in certain circumstances relating to the
timing of the Exchange Offer. The Exchange Notes will evidence the same debt as
the Notes (which they replace) and will be issued under and be entitled to the
benefits of the Indenture, dated as of December 1, 1995, between the Company,
the Subsidiary Guarantors (as defined) and IBJ Schroder Bank & Trust Company
(the "Indenture") governing the Notes. See "The Exchange Offer" and "Description
of Exchange Notes." The Exchange Notes will be fully and unconditionally
guaranteed on a senior subordinated basis by each of the Company's existing
subsidiaries, jointly and severally, except Notepad Funding Corporation, a
receivables entity (collectively, the "Subsidiary Guarantors"). The Guarantees
(as defined) will be general unsecured obligations of the Subsidiary Guarantors
and will be subordinated in right of payment to all existing and future
Guarantor Senior Debt (as defined). As of March 31, 1996, the Company had
approximately $253.5 million of Senior Debt and the Subsidiary Guarantors had
approximately $8.6 million of Guarantor Senior Debt (excluding guarantees of
Senior Debt). The Guarantees will be senior in right of payment of any
indebtedness of the Subsidiary Guarantors which is, by its express terms,
subordinated to the Guarantees, none of which was outstanding as of March 31,
1996. The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt (as
defined) of the Company, which will include borrowings under the Bank Credit
Agreement (as defined). As of March 31, 1996, the Company had approximately
$45.7 million available to be drawn under the revolving credit portion and
letter of credit facility of the Bank Credit Agreement.
The Company will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on _______________, 1996,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Notes were sold by the Company on December 1, 1995, to the Initial
Purchasers (as defined) in a transaction not registered under the Securities Act
in reliance upon an exemption under the Securities Act. The Initial Purchasers
subsequently placed the Notes with qualified institutional buyers in reliance
upon Rule 144A under the Securities Act and with institutional accredited
investors that agreed to comply with certain transfer restrictions and other
conditions. Accordingly, the Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Company and Subsidiary Guarantors under
the Registration Rights Agreement (as defined) entered into by the Company and
Subsidiary Guarantors in connection with the offering of the Notes. See "The
Exchange Offer."
Based on no-action letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties, the Company believes the
Exchange Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. See "The Exchange Offer -- Purpose
and Effect of the Exchange Offer" and "The Exchange Offer -- Resale of the
Exchange Notes." Each broker-dealer (a "Participating Broker-Dealer") that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
Holders of Notes not tendered and accepted in the Exchange Offer will continue
to hold such Notes and will be entitled to all the rights and benefits and will
be subject to the limitations applicable thereto under the Indenture and with
respect to transfer under the Securities Act. The Company will pay all the
expenses incurred by it incident to the Exchange Offer. See "The Exchange
Offer."
SEE "RISK FACTORS," BEGINNING ON PAGE 16, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is___________ __, 1996.
<PAGE>
There has not previously been any public market for the Notes or the Exchange
Notes. The Company does not intend to list the Exchange Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Notes or as to the liquidity of the trading
market for the Exchange Notes. See "Risk Factors - Absence of Public Market."
Moreover, to the extent that Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Notes would
be adversely affected.
The Company expects that the Exchange Notes issued pursuant to this Exchange
Offer will be issued in the form of a Global Certificate (as defined), which
will be deposited with, or on behalf of, The Depository Trust Company (the
"Depository") and registered in its name or in the name of its nominee.
Beneficial interests in the Global Certificate representing the Exchange Notes
will be shown on, and transfers thereof will be effected through, records
maintained by the Depository and its participants. After the initial issuance
of the Global Certificate, Exchange Notes in certified form will be issued in
exchange for the Global Certificate only on the terms set forth in the
Indenture. See "Description of Exchange Notes -- Book Entry; Delivery and
Form."
Ampad(R), Evidence(R), Embassy(R), Gold Fibre(R), SCM(TM), World
Fibre(TM), Williamhouse(TM), Peel & Seel(R), Kent(TM), Karolton(R), Huxley(TM)
and Century(TM) are trademarks of the Company.
AVAILABLE INFORMATION
The Company and Subsidiary Guarantors have filed with the Commission a
Registration Statement on Form S-1 (the "Exchange Offer Registration Statement,"
which term shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the Exchange Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to the Company,
the Subsidiary Guarantors, and the Exchange Offer, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement,
including the exhibits thereto, can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, at the Regional Offices of the Commission
at 7 World Trade Center, New York, New York 10048 and at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The obligation of the Company to file
periodic reports and other information with the Commission will be suspended if
the Exchange Notes are held of record by fewer than 300 holders as of the
beginning of any fiscal year of the Company other than the fiscal year in which
the Exchange Offer Registration Statement is declared effective. In the event
the Company ceases to be subject to the informational requirements of the
Exchange Act, the Company will be required under the Indenture to continue to
file with the Commission the annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms 10-
K, 10-Q and 8-K, which would be required pursuant to the information
requirements of the Exchange Act. The Company will also furnish such other
reports as may be required by law.
The Company and the Subsidiary Guarantors' principal executive offices are
located at 17304 Preston Road, Dallas, Texas 75252; their telephone number is
(214) 733-6200.
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements and notes thereto included elsewhere in
this Prospectus. Unless otherwise stated in this Prospectus, references to (a)
the "Company" shall mean American Pad & Paper Company of Delaware, Inc.
(formerly known as Williamhouse-Regency of Delaware Inc.) and its consolidated
subsidiaries; (b) "APP" shall mean American Pad & Paper Company, the indirect
parent of the Company; (c) "Williamhouse" shall mean the operations of the
Company prior to its acquisition by APP on October 31, 1995 (the "Acquisition");
and (d) "Ampad" shall mean Ampad Corporation, the former operating subsidiary of
APP, prior to Ampad's merger with and into Williamhouse immediately prior to the
Acquisition (the "Merger"). See "The Transactions." Although the Company was
the surviving corporation in the Merger, Ampad has been treated as the acquiring
corporation for accounting purposes. Operating data presented herein on a pro
forma basis gives effect to the Acquisition and the other transactions related
thereto as if the Acquisition and such other transactions occurred on January 1,
1995. See "Unaudited Pro Forma Financial Data."
THE COMPANY
The Company is the largest manufacturer and marketer of paper-based office
products (excluding computer forms and copy paper), a segment of the $60 to $70
billion North American office products industry. The Company offers a broad
product line including nationally branded and private label writing pads, file
folders, envelopes and other office products. Through its Ampad division, the
Company is among the largest and most important suppliers of pads and other
paper-based writing products, filing supplies and envelopes to many of the
largest and fastest growing office products distributors. Acquired in October
1995, the Company's Williamhouse division is the leading supplier of mill
branded, specialty and commodity envelopes to paper merchants/distributors. The
Company's strategy is to grow by focusing on the largest and fastest growing
office product distribution channels, making acquisitions, introducing new
product lines, broadening product distribution across its channels and
maintaining its position among the lowest-cost manufacturers in the industry.
As a result of this strategy, the Company's sales have grown at a compound
annual rate of approximately 34% from 1992 to 1995. For the year ended December
31, 1995, the Company had net sales of $511.3 million and income from operations
of $53.2 million on the pro forma basis described herein. See "Unaudited Pro
Forma Financial Data."
Since the mid-1980s, the office products industry has experienced significant
changes in the channels through which office products are distributed such as
the emergence of new channels, including national office products superstores,
national contract stationers and mass merchandisers, and consolidation within
these and other channels. As a result of these changes, approximately 6,800
office product distributors existed in 1994 compared with approximately 13,300
in 1987. Office products are distributed from the manufacturer to the end-user
through several different channels, including retail channels such as national
office products superstores, mass merchandisers and warehouse clubs; commercial
channels such as national contract stationers; paper merchants/distributors; and
other channels such as regional distributors, school campuses and direct mail.
The Company believes that sales of office products through retail channels are
approximately $20 to $25 billion. The three dominant national superstores
(Office Depot, OfficeMax and Staples) have experienced significant growth over
the past five years and currently account for approximately 17% of total retail
office products sales and approximately 6% of total office products sales. The
Company believes that sales of office products through commercial channels are
approximately $25 to $30 billion. Principally through the acquisition of
smaller, regional contract stationers, national contract stationers, including
Boise Cascade Office Products, BT Office Products, Corporate Express, U.S.
Office Products and the contract stationer divisions of Office Depot and
Staples, have grown more rapidly than other commercial channels. These national
contract stationers now account for approximately 25% of commercial office
products sales and approximately 11% of total office products sales. Certain
office products, particularly envelopes, are sold predominantly through paper
merchants/distributors or directly to end users. Paper merchants/distributors
currently account for approximately 30% of the envelope market. The three
largest paper merchants (ResourceNet, Unisource and Zellerbach) have experienced
significant growth primarily through consolidation.
The Company has targeted and will continue to target those customers driving
consolidation in the retail, commercial, and paper merchant distribution
channels and believes that it is uniquely positioned to meet the special
1
<PAGE>
requirements of these customers. These customers seek suppliers, such as the
Company, who are able to offer a broad product line, higher value-added
innovative products, national distribution capabilities, low costs and reliable
service. Furthermore, as these customers continue to grow and as they
consolidate their supplier bases, the Company's ability to meet their
requirements becomes an increasingly important competitive advantage.
Recognizing the Company's potential for growth through the changing distribution
channels, Bain Capital, Inc. ("Bain Capital") and management formed APP and
purchased Ampad from Mead Corporation ("Mead") in 1992. Since that time,
management has enhanced the Company's scale, broadened its product line,
expanded upon its national presence and strengthened its distribution
capabilities through acquisition and innovation while simultaneously delivering
higher customer service levels. As a result, the Company's net sales through
the most rapidly growing retail and commercial channels increased from $8.8
million in 1992 to $134.8 million ($164.5 million on a pro forma basis) in 1995.
The following chart illustrates the Company's principal corporate structure as
well as its principal products, customers and brands in its primary business
segment. Certain of the operations of the Williamhouse division are conducted
through wholly owned subsidiaries of the Company.
[CHART APPEARS HERE]
Products: . Pads and Notebooks . Envelopes
. Filing Supplies . Invitations
. Envelopes . Announcements
. Christmas and Holiday Cards
Customers: . Retailers . Paper Merchants/Distributors
. Contract Stationers . Jobbers
. Wholesalers . Personalizing Businesses
. Buying Groups
Selected Brands: . Ampad(R) . Century(TM)
. Embassy(R) . Huxley(TM)
. Evidence(R) . Karolton(R)
. Globe-Weis(R) . Kent(TM)
. Gold Fibre(R) . Peel & Seel(R)
. SCM(TM) . Williamhouse(TM)
. World Fibre(TM)
2
<PAGE>
COMPETITIVE STRENGTHS
The combination of the Company's products, customers and national scale
distinguishes it as the leading manufacturer and marketer of paper-based office
products (excluding computer forms and copy paper) in North America. The Company
attributes its leading position in the paper-based office products segment and
its continued opportunities for growth and profitability to the following
competitive strengths:
. Market Leader. The Company has achieved market leadership in core products
sold to customers in the largest and fastest growing office products
channels by offering one of the broadest assortments of high quality
products in the industry. Furthermore, the Company enjoys national brand
awareness in many of its product lines, including Ampad, Century, Embassy,
Evidence, Gold Fibre, Huxley, Karolton, Kent, Peel & Seel, SCM,
Williamhouse and World Fibre.
. Well-Positioned and Diversified Customer Base. The Company has substantial
opportunities for growth within several distribution channels of the office
products industry. The Company has focused on the largest and fastest
growing office products channels, with several of the Company's largest
customers, such as Boise Cascade Office Products, BT Office Products,
Corporate Express, Office Depot, OfficeMax and Staples, expected by
industry analysts to experience annual revenue growth of 15% to 35% over
the next five years. The Company's Williamhouse division maintains
particularly strong relationships with the largest and fastest growing
paper merchants/distributors in the market, including ResourceNet,
Unisource and Zellerbach. The Company also maintains strong customer
relationships across all of the other office products distribution
channels, including mass merchandisers, warehouse clubs, office products
wholesalers and independent dealers.
. National Scale and Service Capability. The Company's extensive product
line, multiple brands and broad price point coverage provide significant
advantages and economies of scale in selling to and servicing its
customers. The Company has become an increasingly important strategic
partner to its customers as they seek higher value-added products, simplify
their purchasing organizations and consolidate their relationships among
selected national suppliers. The Company's national presence and network of
22 strategically located facilities have enabled it to maintain rapid and
efficient order fulfillment standards. In addition, the Company's advanced
electronic data interchange ("EDI") capabilities enable it to meet its
customers' EDI requirements, executing automated transactions rapidly,
efficiently and accurately.
. Innovation New Products. The Company has introduced several innovative
products as part of its marketing strategy to differentiate itself from
other suppliers and enhance profitability. Recent examples include Gold
Fibre classic and designer notebooks, Papers with a Purpose, World Fibre
ground-wood writing pads and Peel & Seel envelopes. Products introduced
since 1992 accounted for over $70 million of the Company's 1995 net sales.
The Company's brand recognition and presence with its national customers
allows it to more easily introduce new or acquired product lines to those
customers.
. Low-Cost Manufacturer. The Company believes it is among the lowest-cost
manufacturers of paper-based office products in the industry. The Company
ensures its low-cost manufacturing position through its paper purchasing
and distribution advantages as well as its maintenance of modem and
efficient manufacturing technology and a high quality workforce. The
Company has been successful in reducing costs with each of its acquisitions
in the last three years by continually streamlining its manufacturing
processes and overhead structure. From 1992 to 1995, the Company reduced
its fixed manufacturing costs from 7.4% to 5.2% of net sales and its
selling, general and administrative expenses from 10.5% to 7.2% of net
sales. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
. Purchasing Advantages. The Company has strong relationships with most of
the country's largest paper mills, many of which have been conducting
business with the Company for more than 30 years. The Company believes it
is one of the largest purchasers of the principal paper grades used in its
manufacturing operations. In addition, the Company has the largest number
of designated mill relationships which involve some of the largest and most
recognized paper mill brands such as Hammermill, Hopper, Neenah and
Strathmore. These
3
<PAGE>
relationships afford the Company certain paper purchasing advantages,
including stable supply and favorable pricing arrangements.
. Proven Management Team With Successful Track Record. The Company's senior
operating management team averages over 25 years each in the paper products
industry. Management has succeeded in increasing sales and operating
profitability by recognizing and acting on the transition to the fastest
growing distribution channels, introducing higher value-added products,
acquiring complementary product lines (Karolton in December 1993, SCM
Office Supplies, Inc. ("SCM") in July 1994 and certain product lines of
Huxley and Globe-Weis in July 1994 and August 1995, respectively),
improving manufacturing processes and reducing overhead and administrative
costs.
GROWTH STRATEGY
The Company's strategy is to maintain and strengthen its leadership position
by focusing on the following.
. Focus on Rapidly Growing Customers. The Company serves many of the largest
and best positioned customers in the office products market segment
including national office product superstores, mass merchandisers and
warehouse clubs, national contract stationers and national paper
merchants/distributors. For 1995 on a pro forma basis, approximately 15.3%
of the Company's net sales were to national office product superstores,
7.8% to mass merchandisers and warehouse clubs, 9.1% to national contract
stationers and 19.7% to the three largest national paper
merchants/distributors. Anticipating further consolidation in the office
products industry, the Company expects that its national scope and broad
product line will be increasingly important in meeting the need of its
customers. The Company will continue to target those customers driving
consolidation in the office products industry.
. Continue to Introduce New Products. New, higher value-added products give
the Company a greater selection to offer its customers and improve product
line profitability for both the Company and its customers. The Company
plans to differentiate itself from other suppliers and improve
profitability through product innovation, differentiation and line
extensions.
. Pursue Complementary Product Line and Strategic Acquisitions. The office
products industry is highly fragmented despite continued consolidation
among office product manufacturers. The Company has led the consolidation
among manufacturers of writing products and filing supplies, as
demonstrated by its acquisitions of SCM, Globe-Weis and Williamhouse. These
acquisitions have broadened the Company's product line to include filing
products and envelopes and have enhanced its presence in the growing
distribution channels. The Company believes there are significant
opportunities to acquire companies in both its existing and complementary
product lines. In addition, the Company intends to enter new office product
markets by acquisitions of established companies in those markets.
. Broaden Product Distribution. The Company's market presence and
distribution strengths uniquely position it to sell new or acquired product
lines across its distribution channels, including national office product
superstores, national contract stationers, office product wholesalers and
mass merchandisers. As an important part of its growth strategy, for
example, the Company has successfully introduced the envelope product lines
acquired in the Acquisition, previously distributed primarily through paper
merchants/distributors, to its existing office products distribution
channels under the Ampad and private label names. The Company estimates
that this market opportunity is approximately $350 million in annual net
sales.
. Continue to Reduce Costs. The Company has identified and is in the process
of implementing cost reductions in connection with the Acquisition that are
expected to result in approximately $7.4 million of annual cost savings
following the adoption of such measures. In addition, management plans to
implement further identified cost reductions beyond 1996.
4
<PAGE>
THE TRANSACTIONS
Acquisition. On October 3, 1995, APP agreed to acquire in a merger transaction
all of the outstanding stock of WR Acquisition, Inc. ("WR"), the parent
corporation of Williamhouse. In a series of transactions, APP exchanged 100% of
the capital stock of its then wholly owned subsidiary, Ampad Corporation, for
newly issued shares of WR. WR then effected the Merger of Ampad with and into
Williamhouse, with Williamhouse being the surviving legal entity. WR was then
merged with a wholly owned subsidiary of APP, pursuant to which WR's
stockholders (other than APP and affiliates) received an aggregate of $140.0
million in cash plus reimbursement of certain expenses of $4.0 million. As a
result of the transactions, APP now owns all of the issued capital stock of WR,
which in turn owns all of the issued capital stock of the Company. APP is owned
by the Company's management and Bain Capital and its related investors. In
connection with the Acquisition, the Company refinanced approximately $119.1
million of indebtedness, including prepayment penalties of approximately $1.7
million. Concurrently with the closing of the Acquisition on October 31, 1995
(the "Closing"), the Company incurred borrowings under a bank credit agreement
(the "Bank Credit Agreement") and the Company entered into a new non-recourse,
off-balance sheet accounts receivable securitization program (the "Accounts
Receivable Facility"). Following the Acquisition, the Company's name was changed
to American Pad & Paper Company of Delaware, Inc.
Tender Offer and Consent Solicitation. On October 23, 1995, an offer (as
amended, the "Tender Offer") was commenced to purchase for cash all of the
Company's 11 1/2% Senior Subordinated Debentures due 2005 (the "Old Debentures")
and a related solicitation (the "Consent Solicitation") of consents to modify
certain terms of the indenture under which the Old Debentures were issued. The
Company received consents and tenders representing 99.9% in aggregate principal
amount of the Old Debentures outstanding at a price of 109% of the aggregate
principal amount of the Old Debentures. As of the date hereof, there are no Old
Debentures outstanding.
Refinancing. The Company has effected the following additional transactions
(such transactions, together with the Acquisition, the entering into of the
Accounts Receivable Facility and the incurrence of borrowings under the Bank
Credit Agreement being referred to collectively as the "Transactions"): (i) the
offering of the Notes (the "Offering"); (ii) the Tender Offer and the related
Consent Solicitation; (iii) the redemption of $70.6 million of preferred stock
and preferred stock equivalents of APP (collectively, the "Preferred Stock");
and (iv) the payment of a $4.5 million cash dividend to pay the liquidation
preference, including the return of original costs, on APP's Class P Common
Stock (the "Class P Common Stock Dividend"). The Company received approximately
$194 million in net proceeds from the sale of the Notes in the Offering. The
net proceeds were used by the Company (i) to repurchase Old Debentures in
connection with the Tender Offer and Consent Solicitation, (ii) to redeem a
portion of the Preferred Stock, (iii) to pay the Class P Common Stock Dividend
and (iv) to provide working capital and to pay related fees and expenses related
to the Transactions. See "Use of Proceeds."
Certain Arrangements. Prior to the Acquisition, APP declared a dividend on
its common stock and Class P Common Stock (the "Class P Common Stock") of one
share of Preferred Stock for each ten shares of common stock and Class P Common
Stock. In December 1995, APP redeemed on a pro rata basis a portion of such
Preferred Stock with an aggregate liquidation value of approximately $70.6
million from the proceeds of the Offering. At the same time, APP declared a
cash dividend of approximately $4.5 million on its Class P Common Stock and,
thereafter, converted all outstanding Class P Common Stock on a share-for-share
basis into common stock. In connection with the Acquisition, members of
Williamhouse's management received substantial payments for their equity
interests in Williamhouse. Bain Capital was paid a fee by Ampad for, among
other things, its services in analyzing, negotiating and arranging the financing
for the Acquisition. See "Certain Relationships and Related Transactions." At
the time APP was purchased from Mead in 1992, certain of the Company's executive
officers entered into management agreements with APP pursuant to which, among
other things, such executives are guaranteed certain levels of base salary. See
"Management -Management Agreements."
SALE OF PERSONALIZING DIVISION
The Company's management identified the personalizing division of Williamhouse
(the "Personalizing Division") as a nonstrategic asset following the Acquisition
and has decided to pursue a sale of the Personalizing Division. As a result,
the financial statements of the Company included elsewhere in this Prospectus
reflect the Personalizing Division as "Assets for Sale" as of December 31, 1995
and March 31, 1996. On April 17, 1996, the Company signed a letter of
5
<PAGE>
intent with a potential buyer to sell the Personalizing Division. Under the
terms of such letter, the Company will receive gross proceeds of approximately
$60 million (subject to certain closing adjustments) from the sale of the
Personalizing Division. To date, the Company has not signed definitive
agreements with respect to such sale and, as a result, no assurance can be given
that the sale will be completed or, if completed, will be on the terms outlined
herein. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview."
THE NOTES OFFERING
NOTES....................... The Notes were sold by the Company on December 1,
1995, to BT Securities Corporation and Wasserstein
Perella Securities, Inc. (collectively, the
"Initial Purchasers") pursuant to a Purchase
Agreement, dated November 17, 1995. The Initial
Purchasers subsequently resold the Notes to
qualified institutional buyers or accredited
investors pursuant to Rule 144A under the
Securities Act.
REGISTRATION RIGHTS
AGREEMENTS.................. Pursuant to the Purchase Agreement, the Company,
the Subsidiary Guarantors and the Initial
Purchasers entered into a Registration Rights
Agreement, dated December 1, 1995 (the
"Registration Rights Agreement"), which grants the
holders of the Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such exchange rights which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED.......... $200,000,000 aggregate principal amount of 13%
Senior Subordinated Notes due 2005, Series B (the
"Exchange Notes").
THE EXCHANGE OFFER.......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of Notes.
As of the date hereof, $200,000,000 aggregate
principal amount of Notes are outstanding. The
Company will issue the Exchange Notes to holders on
or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
6
<PAGE>
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of
Exchange Notes received in exchange for Notes where
such Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for
use in connection with any such resale. See "Plan
of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure to
comply with such requirements in such instance may
result in such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
EXPIRATION DATE............. 5:00 p.m., New York City time, on _______________,
1996, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTE AND NOTES ... Each Exchange Note will bear interest from its
issuance date. Holders of Notes that are accepted
for exchange will receive, in cash, accrued
interest thereon to, but not including, the
issuance date of the Exchange Notes. Such interest
will be paid with the first interest payment on the
Exchange Notes. Interest on the Notes accepted for
exchange will cease to accrue upon issuance of the
Exchange Notes.
CONDITIONS TO THE EXCHANGE
OFFER...................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
7
<PAGE>
PROCEDURES FOR TENDERING
NOTES...................... Each holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Notes and any other required documentation
to the Exchange Agent (as defined) at the address
set forth herein. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person has
any arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company. See
"The Exchange Offer -- Purpose and Effect of the
Exchange Offer" and "-- Procedures for Tendering."
UNTENDERED NOTES............ Following the consummation of the Exchange Offer,
holders of Notes eligible to participate but who do
not tender their Notes will not have any further
registration rights and such Notes will continue to
be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such
Notes could be adversely affected upon consummation
of the Exchange Offer if such holder does not
participate in the Exchange Offer.
CONSEQUENCES OF FAILURE
TO EXCHANGE................. The Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Notes may be resold only (i) to
the Company, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to some other
exemption under the Securities Act, (iii) outside
the United States to a foreign person pursuant to
the requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective registration
statement under the Securities Act. See "The
Exchange Offer -- Consequences of Failure to
Exchange."
SHELF REGISTRATION
STATEMENT.................. If any holder of the Notes (other than any such
holder which is an "affiliate" of the Company or
the Subsidiary Guarantors within the meaning of
Rule 405 under the Securities Act) is not eligible
under applicable securities laws to participate in
the Exchange Offer, and such holder has satisfied
certain conditions relating to the provision of
information to the Company for use therein, the
Company and the Subsidiary Guarantors have agreed
to register the Notes on a shelf registration
statement (the "Shelf Registration Statement") and
use their best efforts to cause it to be declared
effective by the Commission as promptly as
practical on or after the consummation of the
Exchange Offer. The Company and the Subsidiary
Guarantors have agreed to maintain the
effectiveness of the Shelf Registration Statement
for, under certain circumstances, a maximum of
three years from the date of issuance of the Notes,
to cover resales of the Notes held by any such
holders.
8
<PAGE>
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........... Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Notes, either make appropriate
arrangements to register ownership of the Notes in
such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
or registered ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES.................. Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
on or prior to the Expiration Date must tender
their Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE NOTES. Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
The Company will accept for exchange any and all
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer - Terms of the Exchange Offer."
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES................ The exchange pursuant to the Exchange Offer should
not be a taxable event for Federal income tax
purposes. See "Certain Material Federal Income Tax
Consequences."
USE OF PROCEEDS............. There will be no cash proceeds to the Company or
the Subsidiary Guarantors from the exchange
pursuant to the Exchange Offer.
EXCHANGE AGENT.............. IBJ Schroder Bank & Trust Company
9
<PAGE>
THE EXCHANGE NOTES
GENERAL..................... The form and terms of the Exchange Notes are the
same as the form and terms of the Notes (which they
replace) except that (i) the Exchange Notes bear a
Series B designation, (ii) the Exchange Notes have
been registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of Exchange
Notes will not be entitled to certain rights under
the Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the Notes in certain circumstances
relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is
consummated. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer." The Exchange Notes
will evidence the same debt as the Notes and will
be entitled to the benefits of the Indenture. See
"Description of Exchange Notes." The Notes and the
Exchange Notes are sometimes referred to herein
collectively as the "Senior Notes".
MATURITY DATE............... November 15, 2005.
INTEREST PAYMENT DATES...... Interest on the Exchange Notes will accrue from the
date of original issuance (the "Issue Date") and is
payable semi-annually on each May 15 and November
15, commencing November 15, 1996.
RANKING..................... The Exchange Notes and Guarantees will be general
unsecured obligations of the Company and Subsidiary
Guarantors and will be subordinated in right of
payment to all existing and future Senior Debt of
the Company and Guarantor Senior Debt of the
Subsidiary Guarantors, respectively. The Senior
Notes will rank pari passu with any future senior
subordinated indebtedness of the Company and
Subsidiary Guarantors and will rank senior to all
other subordinated indebtedness of the Company and
Subsidiary Guarantors. As of March 31, 1996, the
Company had approximately $253.5 million of Senior
Debt (excluding $5.8 million of Senior Debt owed by
a Subsidiary Guarantor, which is being sold subject
to such debt. See "Business--Sale of Personalizing
Division"). As of March 31, 1996, the Company had
approximately $45.7 million available to be drawn
under the revolving credit portion and letter
credit facility of the Bank Credit Agreement, which
amounts would have been Senior Debt. Under the
Indenture (without giving effect to the
restrictions in the Bank Credit Agreement), the
Company could have incurred approximately $74
million of additional indebtedness, including
indebtedness senior in right of payment to the
Exchange Notes, at March 31, 1996.
10
<PAGE>
OPTIONAL REDEMPTION......... The Exchange Notes are redeemable, in whole or in
part, at the option of the Company on or after
November 15, 2000, at the redemption prices set
forth herein plus accrued interest to the date of
redemption. See "Description of Exchange Notes -
Redemption." In addition, prior to November 15,
1998, the Company, at its option, may redeem up to
35% of the aggregate principal amount of the
Exchange Notes originally issued in the Offering
with the net cash proceeds of one or more Public
Equity Offerings (as defined), at the redemption
prices set forth herein plus accrued interest to
the date of redemption. APP has filed a
registration statement with the Commission for the
purpose of registering the initial public offering
(the "Proposed Equity Offering") of its Class A
Common Stock, par value $.01 per share (the "Class
A Common Stock"). The net proceeds to APP from the
Proposed Equity Offering are currently estimated to
be approximately $187 million. APP intends to use a
portion of such proceeds to allow the Company to
redeem approximately $70 million aggregate
principal amount of the Notes or Exchange Notes
from the holders thereof on a pro rata basis and to
allow the Company to pay approximately $8 million
in redemption premiums thereon. There can be no
assurance that APP will consummate the Proposed
Equity Offering, or if it does, that it will use
the proceeds therefrom to redeem amounts
outstanding under the Notes or the Exchange Notes.
See "Proposed Initial Public Offering."
CHANGE OF CONTROL........... Upon a Change of Control, each holder will have the
right to require the Company to repurchase such
holder's Exchange Notes at a price equal to 101% of
the principal amount thereof plus accrued interest
to the date of repurchase.
GUARANTEES.................. The Exchange Notes will be fully and
unconditionally guaranteed (the "Guarantees") on a
senior subordinated basis by the Subsidiary
Guarantors jointly and severally. The Guarantees
will be general unsecured obligations of the
Subsidiary Guarantors and will be subordinated in
right of payment to all existing and future
Guarantor Senior Debt. As of March 31, 1996, the
Subsidiary Guarantors collectively had
approximately $8.6 million of Guarantor Senior Debt
(excluding guarantees of Senior Debt).
CERTAIN COVENANTS........... The Indenture governing the Exchange Notes contains
certain covenants that limit the ability of the
Company and certain of its subsidiaries to, among
other things, incur additional indebtedness, pay
dividends or make certain other restricted
payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur
indebtedness that is subordinate in right of
payment to any Senior Debt and senior in right of
payment to the Exchange Notes, incur liens, impose
restrictions on the ability of a subsidiary to pay
dividends or make certain payments to the Company
and its subsidiaries, merge or consolidate with any
other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially
all of the assets of the Company. In addition, the
Indenture requires the Company to use 50% of the
net cash proceeds of an Initial Public Offering (as
defined) to repay up to $50 million of indebtedness
of the Company.
For additional information regarding the Notes, see "Description of Exchange
Notes."
11
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
THE COMPANY
The summary historical consolidated financial data set forth below for the
years ended December 31, 1993, 1994 and 1995 have been derived from, and are
qualified by reference to, the audited consolidated financial statements of the
Company, included elsewhere in this Prospectus. Although the Company was the
surviving corporation in the Merger, Ampad has been treated as the acquiring
corporation for accounting purposes. As a result, the income statement and
other data for the year ended December 31, 1995 reflect the historical
operations of Ampad and the results of the Company for the two-month period
ended December 31, 1995. The historical consolidated financial data for the
three months ended March 31, 1995 and 1996 have been derived from the unaudited
consolidated financial statements of the Company which, in the opinion of the
Company, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation. Results for the three months
ended March 31, 1996 are not necessarily indicative of results for the full
year. The summary historical consolidated financial data set forth below should
be read in conjunction with, and are qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and accompanying notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------------------------------
1993 1994 1995 1995 1996
-------- -------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (1)(2)(3):
Net sales $104,277 $120,443 $ 259,341 $45,691 $121,418
Cost of sales(4) 88,491 113,394 211,814 42,394 97,889
-------- -------- --------- ------- --------
Gross profit 15,786 7,049(4) 47,527 5,297 23,529
Selling, general and administrative expenses 10,765 10,615 18,545 2,749 11,026
Nonrecurring compensation charge(5) -- -- 27,632
-------- -------- ---------
Income (loss) from operations 5,021 (3,566) 1,350 2,548 12,503
Interest expense 3,320 4,560 13,657 1,656 12,542
Other (income) expense (167) (90) (735) (65) (269)
-------- -------- --------- ------- --------
Income (loss) before income taxes 1,868 (8,036) (11,572) 957 230
Provision for (benefit from) income taxes 64 (488) (6,538) 366 102
-------- -------- --------- ------- --------
Income (loss) before extraordinary item 1,804 (7,548) (5,034) 591 128
Extraordinary loss from extinguishment of debt, -- -- (9,652) -- --
net of income tax benefit -------- -------- --------- ------- --------
Net income (loss) $ 1,804 ($7,548) ($14,686) $ 591 $ 128
======== ======== ========= ======= ========
OTHER DATA:
Consolidated EBITDA, as defined (6) $ 4,575 $ 4,345 $ 38,760 $ 5,718 $ 14,142
Depreciation and amortization 159 942 4,248 528 3,020
Capital expenditures 1,656 942 3,919 809 2,321
Ratio of earnings to fixed charges (7) 1.5x --(8) --(8) 1.5x 1.0x
<CAPTION>
BALANCE SHEET DATA: DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Working capital $108,924 $109,238
Total assets 504,356 500,794
Long-term debt, less current maturities 443,794 440,453
Stockholders' equity (deficit)(9) (66,421) (66,293)
</TABLE>
- -----------------------
(1) Effective July 5, 1994, Ampad acquired the assets and assumed certain
liabilities of SCM Office Supplies, Inc. (the "SCM Acquisition"). The
acquisition has been accounted for under the purchase method of accounting
and, accordingly, the operating results have been included with Ampad's
results since the date of acquisition. See
12
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 of the Notes to Consolidated Financial Statements of
the Company included herein.
(2) Effective August 16, 1995, Ampad acquired the inventories and certain
equipment of the file folder and hanging file product lines of the Globe-
Weis office products division ("Globe-Weis") of Atapco (as defined) (the
"Globe-Weis Acquisition"). The acquisition has been accounted for under the
purchase method of accounting and, accordingly, the operating results have
been included in Ampad's results since the date of acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 of the Notes to Consolidated Financial Statements of
the Company included herein.
(3) Effective October 31, 1995, Ampad acquired Williamhouse in the Acquisition.
The Acquisition has been accounted for under the purchase method of
accounting and accordingly, the operating results of Williamhouse, except
for the Personalizing Division, for the two month period ended December 31,
1995 have been included in Ampad's results for the year ended December 31,
1995. The Personalizing Division was held for sale at December 31, 1995.
As such, the operating results of the Personalizing Division are excluded
from the results of operations for the two month period ended December 31,
1995 (period subsequent to the Acquisition). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 3
of the Notes of Consolidated Financial Statements of the Company included
herein.
(4) Inventory cost is determined using the last-in, first-out ("LIFO") method
of valuation. Gross profit in the fourth quarter of 1994 was adversely
impacted by a significant increase in paper prices, resulting in a $5.4
million charge for LIFO in advance of Ampad's raising selling prices in the
first quarter of 1995.
(5) Includes non-cash stock option compensation of $24.3 million directly
related to the Acquisition as well as other non-recurring cash and non-cash
charges aggregating $3.3 million (see Note 9 of Notes to Consolidated
Financial Statements).
(6) "Consolidated EBITDA, as defined" is defined under the Indenture pursuant
to which the Notes were issued as income from operations, prior to
adjustment for the effect of the LIFO method of inventory valuation, plus
depreciation and amortization expense, non-recurring charges and other non-
cash expense items. See "Description of Exchange Notes - Certain
Covenants." Consolidated EBITDA, as defined should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(7) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing fees and one-third of the rent expense
from operating leases, which management believes is a reasonable
approximation of an interest factor.
(8) Earnings were insufficient to cover fixed charges by approximately $8.0
million and $11.6 million during the year ended December 31, 1994 and 1995,
respectively.
(9) Includes $70.6 million to redeem a portion of the Preferred Stock and $4.5
million to pay the Class P Common Stock Dividend.
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
THE COMPANY
The following summary unaudited pro forma financial data set forth below for
the year ended December 31, 1995 gives pro forma effect in the manner described
under "Unaudited Pro Forma Financial Data" and the notes thereto to the
Transactions, the Globe-Weis Acquisition and the pending disposal of the
Personalizing Division, as if each had occurred on January 1, 1995. The Income
Statement Data and Other Data for the year ended December 31, 1995 do not (i)
purport to represent what the Company's results of operations actually would
have been if the Transactions, the Globe-Weis Acquisition and the pending
disposal of the Personalizing Division had actually occurred as of such dates or
what such results will be for any future periods or (ii) give effect to certain
non-recurring charges expected to result from the Transactions, including
certain non-cash compensation charges directly related to the Acquisition and an
extraordinary charge for the write-off of deferred financing fees and direct
expenses to retire existing Ampad and Williamhouse debt. The final allocation of
purchase price and the resulting amortization expense in the income statement
data may differ somewhat from the preliminary estimates for the reasons
described in more detail in "Unaudited Pro Forma Financial Data" and in Note 3
of the Notes to Consolidated Financial Statements of the Company. The Income
Statement Data and Other Data for the year ended December 31, 1995 do not give
effect to the Proposed Equity Offering. See "Proposed Initial Public Offering."
Pro forma information is not presented for the three months ended March 31, 1996
since the historical financial statements of the Company for such period include
the effects of the Transactions and the Globe-Weis Acquisition during the entire
period. The information contained in this table should be read in conjunction
with the "Unaudited Pro Forma Financial Data," "Selected Historical Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited consolidated financial statements and
accompanying notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, 1995
----------------------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
<S> <C>
Net sales $511,307
Cost of sales(1) 399,419
--------
Gross profit 111,888
Selling, general and administrative expenses 55,294
Nonrecurring compensation charge(2) 3,367
--------
Income from operations 53,227
Interest expense 49,978
Other (income) expense (859)
--------
Income (loss) before income taxes 4,108
Provision for (benefit from) income taxes 681
--------
Net income (loss) $ 3,427
========
OTHER DATA:
Consolidated EBITDA, as defined(3) $ 81,679
Depreciation and amortization 15,016
Capital expenditures 12,034
Ratio of earnings to fixed charges(4) 1.1x
</TABLE>
- --------------
(1) Inventory cost is determined using the LIFO method of valuation.
(2) Excludes $33,809 of non-recurring non-cash compensation charges from stock
options directly related to the Acquisition.
14
<PAGE>
(3) "Consolidated EBITDA, as defined" is defined under the Indenture pursuant
to which the Notes were issued as income from operations, prior to adjustment
for the effect of the LIFO method of inventory valuation, plus depreciation and
amortization expense, non-recurring charges and other non-cash expense items.
See "Description of Exchange Notes - Certain Covenants." Consolidated EBITDA,
as defined should not be considered as an alternative to net income as a measure
of operating results or to cash flows as a measure of liquidity in accordance
with generally accepted accounting principles.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing fees and one-third of the rent expense
from operating leases, which management believes is a reasonable
approximation of an interest factor.
15
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before tendering
in the Exchange Offer.
RISKS ASSOCIATED WITH SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
In connection with the Transactions, the Company incurred a significant amount
of indebtedness. On March 31, 1996, the Company's indebtedness was approximately
$453.5 million (excluding $5.8 million of indebtedness expected to be assumed in
the Personalizing Division sale and reflected in "Assets held for Sale" at March
31, 1996) and its stockholders' deficit was $(66.3) million. In addition,
subject to the restrictions in the Bank Credit Agreement and the Indenture, the
Company may incur additional indebtedness from time to time to finance
acquisitions or capital expenditures or for other purposes. For the twelve-
month period ended March 31, 1996, the Company's ratio of earnings to fixed
charges was 1.2 to 1.0 on a pro forma basis.
The level of the Company's indebtedness could have important consequences to
holders of the Exchange Notes, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes; (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures or acquisitions may be limited; and (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the industry
and economic conditions generally. Certain of the Company's competitors
currently operate on a less leveraged basis and have significantly greater
operating and financing flexibility than the Company.
The Company's ability to pay interest on the Exchange Notes and to satisfy its
other debt obligations will depend upon its future operating performance, which
will be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond its control. The Company anticipates
that its operating cash flow, together with borrowings under the Bank Credit
Agreement, will be sufficient to meet its operating expenses and to service its
debt requirements as they become due. However, if the Company is unable to
service its indebtedness it will be forced to adopt an alternative strategy that
may include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness, or seeking additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
RISKS RELATING TO THE SUBORDINATION OF EXCHANGE NOTES AND THE GUARANTEES
The Exchange Notes and the Guarantees will be subordinated in right of payment
to all Senior Debt of the Company and Guarantor Senior Debt of the Subsidiary
Guarantors, respectively. In the event of bankruptcy, liquidation or
reorganization of the Company or the Subsidiary Guarantors, the assets of the
Company or the Subsidiary Guarantors will be available to pay obligations on the
Exchange Notes only after all Senior Debt or Guarantor Senior Debt, as the case
may be, has been paid in full, and there may not be sufficient assets remaining
to pay amounts due on any or all of the Exchange Notes then outstanding. In
addition, indebtedness outstanding under the Bank Credit Agreement will be
secured by substantially all of the assets of the Company and its subsidiaries.
As of March 31, 1996, the Company had approximately $253.5 million of Senior
Debt and the Subsidiary Guarantors had approximately $8.6 million of Guarantor
Senior Debt (excluding guarantees of Senior Debt). Additional Senior Debt and
Guarantor Senior Debt may be incurred by the Company and the Subsidiary
Guarantors from time to time subject to certain restrictions contained in the
Bank Credit Agreement and the Indenture. As of March 31, 1996, the Company had
approximately $45.7 million available to be drawn under the revolving credit
portion and letter of credit facility of the Bank Credit Agreement, which
amounts would have been Senior Debt. Under the Indenture (without giving effect
to the restrictions in the Bank Credit Agreement), the Company could have
incurred approximately $74 million of additional indebtedness, including
indebtedness senior right of payment to the Exchange Notes, at March 31, 1996.
See "Description of Bank Credit Agreement" and "Description of Exchange Notes."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company and the Subsidiary
Guarantors' ability to incur additional indebtedness, incur liens, pay dividends
or make certain other restricted payments, consummate certain asset sales, enter
into certain transactions with affiliates, incur indebtedness that is
subordinate in right of payment to any Senior Debt or
16
<PAGE>
Guarantor Senior Debt and senior in right of payment to the Exchange Notes or
the Guarantees, as the case may be, impose restrictions on the ability of a
subsidiary to pay dividends or make certain payments to the Company, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company. In
addition, the Bank Credit Agreement contains other and more restrictive
covenants and prohibits the Company from prepaying its other indebtedness
(including the Exchange Notes). See "Description of Exchange Notes--Certain
Covenants" and "Description of Bank Credit Agreement." Contemporaneously with,
and conditioned upon, the Proposed Equity Offering, the Company intends to
refinance and retire all remaining indebtedness under the Bank Credit Agreement
with the proceeds of loans under a new bank credit agreement. The Company
anticipates that the new bank credit agreement will impose operating and
financial restrictions on the Company similar to those contained in the Bank
Credit Agreement. See "Proposed Initial Public Offering."
CROSS DEFAULT RISKS
The Bank Credit Agreement requires the Company to maintain specified financial
ratios and satisfy certain financial condition tests. The Company's ability to
meet those financial ratios and tests can be affected by events beyond its
control, and there can be no assurance that the Company will meet those tests. A
breach of any of these covenants could result in a default under the Bank Credit
Agreement and/or the Indenture. Upon the occurrence of an event of default under
the Bank Credit Agreement, the lenders could elect to declare all amounts
outstanding under the Bank Credit Agreement, together with accrued interest, to
be immediately due and payable. If the Company were unable to repay those
amounts, the lenders could proceed against the collateral granted to them to
secure that indebtedness. If the lenders under the Bank Credit Agreement
accelerate the payment of the indebtedness, there can be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness and
the other indebtedness of the Company, including the Exchange Notes.
Substantially all the assets of the Company are pledged as security under the
Bank Credit Agreement. See "Description of Bank Credit Agreement." The Company
expects that its new bank credit agreement will contain similar provisions.
RISKS RELATING TO REPURCHASE OBLIGATION
Under the Indenture, upon the occurrence of a Change in Control (as defined),
each holder of the Notes may require the Company to repurchase all or a portion
of such holder's Notes or Exchange Notes at 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
repurchase. If a Change of Control occurs, there can be no assurance that the
agreements controlling the Company's then-existing Senior Debt would permit the
Company to make payments pursuant to a Change of Control Offer (as defined)
without prior repayment of such Senior Debt or that the Company would have
available funds sufficient to purchase all of the Notes or Exchange Notes that
might be delivered by the holders thereof. Such limitations may have the effect
of delaying, deterring or preventing a third-party takeover attempt.
RISKS RELATING TO ACQUISITION STRATEGY
The Company expects to continue its strategy of identifying and acquiring
companies or assets that would enable the Company to offer complementary product
lines and that management considers likely to enhance the Company's operations
and profitability. There can be no assurance that the Company will continue to
acquire businesses or assets on satisfactory terms or that any business or
assets acquired by the Company will be integrated successfully into the
Company's operations or be able to operate profitably.
RISKS ASSOCIATED WITH FLUCTUATIONS IN PAPER COSTS
The Company's principal raw material is paper. While paper prices have
increased by an average of less than 1% annually since 1989, certain commodity
grades have shown considerable price volatility during that period. This
volatility negatively impacted the Company's earnings in 1994, particularly in
the fourth quarter, as a result of the Company's inability to implement price
changes in many of its product lines without giving its customers advance
notification. Beginning in January 1995, the Company adopted new pricing
policies enabling it to set product prices consistent with the Company's cost of
paper at the time of shipment. To date, such policies have been accepted by
customers; however, no assurance can be given that the Company will continue to
be successful in maintaining such pricing policies or that future price
fluctuations in the price of paper will not have a material adverse effect on
the Company. Fluctuation in paper prices can have an effect on quarterly
comparisons of the results of operations and
17
<PAGE>
financial condition of the Company. See "Management's Discussion and Analysis
of Financial Condition and Result of Operations--Overview."
SUPPLIER RELATIONSHIPS
The Company has strong relationships with most of the country's largest paper
mills, many of which have been doing business with the Company for more than 30
years. The Company is one of the largest purchasers of the principal paper
grades used in its manufacturing operations. In addition, the Company has the
largest number of designated mill relationships which involve some of the
largest and most recognized paper mill brands such as Hammermill, Hopper, Neenah
and Strathmore. These relationships afford the Company certain paper purchasing
advantages, including stable supply and favorable pricing arrangements. While
these relationships are stable, all but one of the designated manufacturer
arrangements are oral and terminable at will at the option of either party.
Although the Company is not dependent on any single supplier relationship, there
can be no assurance that the termination of one or more of these supplier or
designated manufacturer relationships would not have a material adverse effect
on the Company. While the Company has been able to obtain sufficient paper
supplies during recent paper shortages and otherwise, the Company is subject to
the risk that it will be unable to purchase sufficient quantities of paper to
meet its production requirements during times of tight supply. An interruption
in the Company's supply of paper could have a material adverse effect on the
Company's business. See "Business--Products and Services" and "Industry--
Distribution."
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
The Company's aggregate net sales to Sam's Warehouse Club/Wal-Mart and Office
Depot accounted for approximately 14.8% and 12.7% of the Company's net sales for
1995, respectively. The Company's top five customers accounted for
approximately 50.3% of its net sales in 1995 (34.0% on a pro forma basis). A
significant decrease or interruption in business from Sam's Warehouse Club/Wal-
Mart or Office Depot or from any other of the Company's significant customers
could have a material adverse effect on the Company. See "Business--Sales,
Distribution and Marketing."
CONTROLLING STOCKHOLDERS
The Company is a wholly owned subsidiary of APP. Certain members of the
Company's management and Bain Capital and its related investors currently own
approximately 97% of the outstanding capital stock of APP. After giving effect
to the Proposed Equity Offering, management and Bain Capital are expected to
beneficially own shares of Common Stock representing on a fully-diluted basis
approximately 41% of the economic interest in APP and approximately 83% of the
voting power. By virtue of this stock ownership, these stockholders will be
able to control the vote on all matters submitted to a vote of the holders of
Common Stock, including the election of a majority of the directors, amendments
to APP's certificate of incorporation and bylaws and approval of significant
corporation transactions. Such concentration of stock ownership could have the
effect of delaying, deterring or preventing a change in control of APP that
might otherwise be beneficial to holders of Notes. See "Proposed Initial Public
Offering."
COMPETITION
The paper-based office products market is highly competitive. The Company
competes with other national and local manufacturers in many product segments.
Certain of the Company's principal competitors are less highly-leveraged than
the Company and may be better able to withstand volatile market conditions
within the paper industry. There can be no assurance that the Company will not
encounter increased competition in the future, which could have a material
adverse effect on the Company's business. See "Business--Competition."
DEPENDENCE ON KEY EXECUTIVES
The Company is dependent to a large degree on the services of its senior
management team and there can be no assurance that such individuals will remain
with the Company. The loss of any of these individuals could have a material
adverse effect on the Company. See "Management."
18
<PAGE>
IMPACT OF ENVIRONMENTAL REGULATION
The Company is subject to the requirements of federal, state, and local
environmental and occupational health and safety laws and regulations. While
there can be no assurance that the Company is at all times in complete
compliance with all such requirements, the Company believes that any
noncompliance is unlikely to have a material adverse effect on the Company. The
Company has made and will continue to make capital expenditures to comply with
environmental requirements. As is the case with manufacturers in general, if a
release of hazardous substances occurs on or from the Company's properties or
any associated offsite disposal location, or if contamination from prior
activities is discovered at any of the Company's properties, the Company may be
held liable and the amount of such liability could be material. The Company's
Ampad division has been named a potentially responsible party for cleanup costs
under the federal Comprehensive Environmental Response, Compensation and
Liability Act at five waste disposal sites. See "Business--Environmental, Health
and Safety Matters."
RISKS ASSOCIATED WITH FRAUDULENT TRANSFER STATUTES
The incurrence by the Company and the Subsidiary Guarantors of indebtedness
such as the Notes, the Exchange Notes and the Guarantees to finance the
Transactions may be subject to review under relevant state and federal
fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on
behalf of unpaid creditors of the Company or the Subsidiary Guarantors. Under
these laws, if a court were to find that, after giving effect to the sale of the
Notes and the application of the net proceeds therefrom, either (a) the Company
or the Subsidiary Guarantors incurred such indebtedness with the intent of
hindering, delaying or defrauding creditors or (b) the Company or the Subsidiary
Guarantors received less than reasonably equivalent value or consideration for
incurring such indebtedness and (i) was insolvent or was rendered insolvent by
reason of such transactions, (ii) was engaged in a business or transaction for
which the assets remaining with the Company or the Subsidiary Guarantors
constituted unreasonably small capital or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court may subordinate such indebtedness to presently existing and future
indebtedness of the Company or the Subsidiary Guarantors, as the case may be,
avoid the issuance of such indebtedness and direct the repayment of any amounts
paid thereunder to the Company's or the Subsidiary Guarantors', as the case may
be, creditors or take other action detrimental to the holders of such
indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
There can be no assurance as to what standard a court would apply in order to
determine solvency. To the extent that proceeds from the sale of the Notes were
used to finance the Transactions, a court may find that the Company or the
Subsidiary Guarantors, as the case may be, did not receive fair consideration or
reasonably equivalent value for the incurrence of the indebtedness represented
thereby. In addition, if a court were to find that any of the components of the
Transactions constituted a fraudulent transfer, to the extent that proceeds from
the sale of the Notes were used to finance such Transactions, a court may find
that the Company or the Subsidiary Guarantors, as the case may be, did not
receive fair consideration or reasonably equivalent value for the incurrence of
the indebtedness represented by the Notes or the Guarantees, as the case may be.
Pursuant to the terms of the Guarantees, the liability of each Subsidiary
Guarantor is limited to the maximum amount of indebtedness permitted, at the
time of the grant of such Guarantee, to be incurred in compliance with
fraudulent conveyance or similar laws.
Each of the Company and the Subsidiary Guarantors believes that it received or
will receive equivalent value at the time the indebtedness under the Notes, the
Exchange Notes and the Guarantees was or is incurred. In addition, neither the
Company nor the Subsidiary Guarantors believes that it, after giving effect to
the Transactions, (i) was or will be insolvent or rendered insolvent, (ii) was
or will be engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital or (iii) intends or intended to incur, or
believes or believed that it will or would incur, debts beyond its ability to
pay such debts as they mature. These beliefs are based on the Company's
operating history and analysis of internal cash flow projections and estimated
values of assets and liabilities of the Company and the Subsidiary Guarantors at
the time of the offering of the Notes and the Exchange Notes. There can be no
assurance, however, that a court passing on these issues would make the same
determination.
19
<PAGE>
ABSENCE OF PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for the
Notes. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Notes (other than any such holder that is an
affiliate of the company within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the Exchange Offer are entitled to
certain registration rights, and the Company may be required to file a Shelf
Registration Statement with respect to such Notes. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to list the Exchange Notes on any national securities
exchange or to seek approval for quotation through any automated quotation
system. The Initial Purchasers of the Notes currently make a market in the
Notes, but they are not obligated to do so and may discontinue such market
making at any time. In addition, such market making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer and the pendency of the Shelf Registration Statement.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of the trading market
for the Exchange Notes. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from their
principal amount.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Notes who do not exchange their Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Notes as set forth in the legend thereon and in the Offering
Memorandum, dated November 17, 1995, because the Notes were issued pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Notes may not be offered or sold unless registered under the
Securities Act and applicable state securities laws, or pursuant to an exemption
therefrom, or in a transaction not subject to the Securities Act and applicable
state securities laws. The Company does not intend to register the Notes under
the Securities Act and, after consummation of the Exchange Offer, will not be
obligated to do so except under limited circumstances. See "The Exchange Offer
- -- Purpose and Effect." Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to third parties, the Company
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale, resold or otherwise transferred by
holders thereof (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, such holders have no arrangement with any
person to participate in the distribution of such Exchange Notes and neither
such holders nor any such other person is engaging in or intends to engage in a
distribution of such Exchange Notes. Any holder of Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution." To the extent the Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Notes could be adversely affected. See "The Exchange Offer."
20
<PAGE>
THE TRANSACTIONS
THE ACQUISITION
APP, WHR Acquisition, Inc. and WR, the parent corporation of Williamhouse,
entered into an Agreement and Plan of Merger, dated as of October 3, 1995 (the
"Acquisition Agreement"), pursuant to which the Acquisition was consummated on
October 31, 1995. WHR Acquisition, Inc. was a newly organized wholly owned
subsidiary of APP that was formed to effect the Acquisition. WR acquired Ampad
Corporation in exchange for newly issued shares of WR common stock. Ampad
Corporation was then merged with and into Williamhouse, and WHR Acquisition,
Inc. merged into WR and the stockholders of WR (other than WHR Acquisition, Inc.
and its affiliates) received the Acquisition consideration. As a result of the
transactions, APP now owns all of the issued capital stock of WR, which in turns
owns all of the issued capital stock of the Company. APP is owned by the
Company's management and Bain Capital and its related investors. Following the
acquisition, the Company's name was changed to American Pad & Paper Company of
Delaware, Inc.
As consideration for the Acquisition, WHR Acquisition, Inc. paid $140 million
for the common stock of WR Acquisition, Inc. and $4 million for certain expenses
of the selling stockholders. In connection with the Acquisition, the Company
refinanced approximately $119.1 million of indebtedness. The cash portion of the
purchase price was paid at the Closing, except for $25.2 million, which certain
former stockholders of WR Acquisition, Inc. elected to defer until January 1996.
Funding for the Acquisition consisted of borrowings under the Bank Credit
Agreement and the proceeds of the Accounts Receivable Facility. The Bank Credit
Agreement provides for $245 million of term loans, a $45 million revolving
credit facility and a $13.4 million letter of credit facility relating to
Williamhouse's outstanding industrial revenue bonds (the "IRBs").
TENDER OFFER AND CONSENT SOLICITATION
On October 23, 1995, WHR Acquisition, Inc. commenced the Tender Offer to
purchase for cash all of the Old Debentures and the related Consent Solicitation
to modify certain terms of the indenture for the Old Debentures. The purchase
price paid in respect of validly tendered Old Debentures and related consents
was 109% of their principal amount, plus accrued interest up to, but not
including, the date of purchase. The Company received consents and tenders
representing 99.9% in aggregate principal amount of the Old Debentures
outstanding. As of the date hereof, there are no Old Debentures outstanding.
REFINANCING
The Company has effected the following additional Transactions: (i) the
Offering of the Notes; (ii) the Tender Offer and the related Consent
Solicitation; (iii) the redemption of $70.6 million of the Preferred Stock of
APP; and (iv) the payment of the Class P Common Stock Dividend. The Company
received approximately $194 million in net proceeds from the sale of the Notes
in the Offering. The net proceeds were used by the Company (i) to repurchase
Old Debentures in connection with the Tender Offer and Consent Solicitation,
(ii) to redeem a portion of the Preferred Stock, (iii) to pay the Class P Common
Stock Dividend and (iv) to provide working capital and to pay related fees and
expenses. See "Use of Proceeds."
PROPOSED INITIAL PUBLIC OFFERING
On April 25, 1996, APP filed with the Commission a registration statement
relating to the initial public offering of up to 15,625,000 shares of Class A
Common Stock. In connection with the Proposed Equity Offering, APP will effect
a recapitalization (the "Recapitalization") whereby (i) all outstanding shares
of its common stock and Preferred Stock will be converted into shares of Class B
Common Stock, par value $.01 per share (the "Class B Common Stock"), (ii) all
outstanding options to purchase shares of its common stock or Preferred Stock
will be converted into options to purchase shares of Class A Common Stock and
(iii) a 6.1255-for-one split of all common stock and common stock equivalents
outstanding will be effected. Contemporaneously with, and conditioned upon, the
Proposed Equity Offering, the Company intends to refinance and retire all
remaining indebtedness under the Bank Credit Agreement with the proceeds of
loans under a new bank credit agreement (the "New Bank Credit Agreement"). See
"Description of New Bank Credit Agreement."
21
<PAGE>
Upon completion of the Proposed Equity Offering, the Company will have two
outstanding classes of stock: Class A Common Stock and Class B Common Stock.
The Class A Common Stock will be substantially identical to the Class B Common
Stock except with respect to voting and conversion rights. The Class B Common
Stock will generally vote with the Class A Common Stock on all matters submitted
to a vote of stockholders, including the election of Directors, except that the
Class A Common Stock will vote as a class to elect two Directors. On all
matters, the Class A Common Stock will be entitled to one vote per share and the
Class B Common Stock will be entitled to ten votes per share. The Class B
Common Stock will be generally non-transferable and will be convertible at the
option of the holder into Class A Common Stock on a one-to-one basis. Certain
members of the Company's management and Bain Capital and its related investors
currently own approximately 97% of the outstanding capital stock of APP. After
giving effect to the Proposed Equity Offering, management and Bain Capital will
beneficially own shares of Common Stock representing on a fully-diluted basis
approximately 41% of the economic interest in APP and approximately 83% of the
voting power. The Class A Common Stock and Class B Common Stock are collectively
referred to herein as the "Common Stock."
The net proceeds to APP from the Proposed Equity Offering are estimated to be
approximately $187 million. APP intends to use such proceeds to repay
approximately $107 million of the indebtedness incurred under the Bank Credit
Agreement, (ii) allow the Company to redeem approximately $70 million aggregate
principal amount of the Notes or the Exchange Notes from the holders thereof on
a pro rata basis, (iii) allow the Company to pay approximately $8 million in
redemption premiums on the Notes or Exchange Notes and (iv) pay certain fees
associated with the Proposed Equity Offering. There can be no assurance that
APP will consummate the Proposed Equity Offering, or if it does, that it will
use the net proceeds therefrom as set forth herein. The Exchange Offer is not
conditioned upon or subject to the consummation of the Proposed Equity Offering.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's and the
Subsidiary Guarantors' obligation under the Purchase Agreement and the
Registration Rights Agreement. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Notes in like
principal amount, the form and terms of which are the same as the form and terms
of the Exchange Notes (which they replace), except as otherwise described
herein. The Notes surrendered in exchange for Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase or decrease in the indebtedness of the Company
or the Subsidiary Guarantors. As such, no effect has been given to the Exchange
Offer in the pro forma statements or capitalization tables. The Company will not
receive any proceeds from the Exchange Offer. The net proceeds to the Company
from the Offering of the Notes on December 1, 1995, were approximately $194
million (after deducting the Initial Purchasers' discount and certain fees and
expenses relating to the Offering). The net proceeds of the Offering were used
to repurchase Old Debentures in connection with the Tender Offer and Consent
Solicitation, to redeem a portion of the Preferred Stock, to provide working
capital and to pay related fees and expenses.
22
<PAGE>
CAPITALIZATION
(UNAUDITED)
The following table sets forth the actual capitalization of the Company as of
March 31, 1996. This table should be read in conjunction with the "Selected
Historical Consolidated Financial Data" and "Unaudited Pro Forma Financial Data"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents $ 20,108
========
Current maturities of long-term debt:
Term Loans, IRBs and other indebtedness--current $ 13,066
--------
Long-term debt:
Revolving Credit Facility --
Term Loans 231,625
--------
IRBs and other indebtedness 8,828
Notes 200,000
--------
Total long-term debt 440,453
--------
Total debt 453,519
Stockholders' equity (deficit) (66,253)
--------
Total capitalization $387,226
========
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Statement of Income for the
year ended December 31, 1995 gives effect to the Transactions, the Globe-Weis
Acquisition and the pending disposal of the Personalizing Division as if they
had occurred on January 1, 1995. The unaudited pro forma financial data are
based on the historical financial statements of the Company and Williamhouse and
the assumptions and adjustments described in the accompanying notes. The
Unaudited Pro Forma Consolidated Statement of Income does not (i) purport to
represent what the Company's results of operations actually would have been if
the Transactions, the Globe-Weis Acquisition and the pending sale of the
Personalizing Division had occurred as of the dates indicated or what such
results will be for any future periods, or (ii) give effect to certain non-
recurring charges expected to result from the Transactions, including certain
non-cash compensation charges directly related to the Acquisition and an
extraordinary charge from the write-off of deferred financing fees and direct
expenses resulting from the refinancing of existing Ampad and Williamhouse debt.
Pro forma information is not presented for the three months ended March 31, 1996
since the historical financial statements of the Company for such period include
the effects of the Transactions and the Globe-Weis Acquisition during the entire
period. The Unaudited Pro Forma Consolidated Statement of Income for the year
ended December 31, 1995 does not give effect to the Proposed Equity Offering.
See "Proposed Initial Public Offering."
An Unaudited Pro Forma Condensed Consolidated Balance Sheet is not presented
since the historical financial statements of the Company reflect the
Transactions, the Globe-Weis Acquisition and the pending disposal of the
Personalizing Division as of March 31, 1996. The historical financial
statements and the Unaudited Pro Forma Consolidated Statement of Income reflect
the preliminary allocation of purchase price to the Company's tangible and
intangible assets and liabilities. The final allocation of purchase price, and
the resulting amortization expense may differ somewhat from the preliminary
estimates primarily due to the final allocation being based on the actual
proceeds to be received from the disposal of the Personalizing Division. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 3 of the Notes to Consolidated Financial Statements of the
Company included herein.
The unaudited pro forma financial data are based upon assumptions that
the Company believes are reasonable and should be read in conjunction with the
Consolidated Financial Statements of the Company and Williamhouse and the
accompanying notes thereto included elsewhere in this Prospectus.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
THE COMPANY WILLIAMHOUSE
FOR THE YEAR FOR THE TEN-
ENDED GLOBE-WEIS PRO FORMA FOR MONTH PERIOD
DECEMBER 31, ACQUISITION GLOBE-WEIS ENDED OCTOBER TRANSACTIONS COMPANY
1995 ADJUSTMENTS(1) ACQUISITION 31, 1995 ADJUSTMENTS PRO FORMA
------------ -------------- ----------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 259,341 $ 32,600 $ 291,941 $219,366 $ - $511,307
Cost of sales 211,814 32,860 244,674 152,781 2,339 (6) 399,419
(375)(4)
--------- -------- --------- -------- ----------- --------
Gross profit 47,527 (260) 47,267 66,585 (1,964) 111,888
Selling, general and
administrative expenses 18,545 358 18,903 39,866 1,803 (2(b)) 55,294
1,000 (3)
2,490 (3)
(7,029)(5)
1,063 (10)
(1,828)(11)
(974)(11)
Nonrecurring compensation
charge 27,632 - 27,632 9,544 (33,809)(9) 3,367
--------- -------- --------- -------- ----------- --------
Income (loss) from
operations 1,350 (618) 732 17,175 35,320 53,227
Interest expense 13,657 - 13,657 11,615 24,706 (2(a)) 49,978
Other (income) expense (735) - (735) (124) - (859)
--------- -------- --------- -------- ----------- --------
Income (loss) before
income taxes (11,572) (618) (12,190) 5,684 10,614 4,108
Provision for (benefit from)
income taxes (6,538) (247)(7) (6,785) 2,224 5,242(8) 681
--------- -------- --------- -------- ----------- --------
Net income (loss) from continuing
operations and before
extraordinary items ($ 5,034) ($ 371) ($ 5,405) $ 3,460 $ 5,372 $ 3,427
========= ======== ========= ======== =========== ========
See accompanying notes.
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
The Unaudited Pro Forma Consolidated Statement of Income gives effect to the
following unaudited pro forma adjustments:
(1) Reflects the inclusion of Globe-Weis unaudited historical results of
operations for the seven and one-half months ended August 15, 1995. Globe-
Weis' results after August 15, 1995 are included in the Company's
historical results. Operating data for preacquisition periods for Globe-
Weis are set forth below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Net sales $ 32,600
Cost of sales(a) 32,860
---------
Gross profit (loss) (260)
Selling, general and administrative expenses(a) 358
---------
Income (loss) from operations ($618)
=========
</TABLE>
________________________
(a) Certain reclassifications were made to the unaudited historical results of
operations to conform to the Company's presentation.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS)
(2(a)) Addition to pro forma interest expense is summarized below. As the
Transactions (including the acquisition of Williamhouse) were
principally completed on October 31, 1995, the following table presents
actual interest expense for the Company for the two-month period ended
December 31, 1995. Certain additional adjustments are set forth below to
adjust historical interest expense for the two-month period to reflect
the completion of the Transactions during the period. Unless otherwise
noted, pro forma amounts set forth below represent ten months activity
prior to the Transactions.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Elimination of Ampad and Williamhouse
historical interest expense ($25,272)
--------
Post-Acquisition actual interest expense (November-December) 7,018
Adjustments to November and December actual interest expense to reflect
completion of the Transactions:
Draw-down of $200,000 of Notes on December 1, and retirement of
$100,000 of Old Notes resulting in incremental debt ($100,000)
and an interest rate differential (13% versus 11.5% on $100,000) 1,208
Interest rate differential (7.2%) resulting from repayment of 1%
Shareholder Installment Notes totaling $25,157 (a) 302
Interest on the Notes ($200,000 x 13% x 10/12) 21,667
Interest on $10,628 of existing IRB and other debt
(Avg. 5.175%) 458
Interest on borrowings under Bank Credit Facility at
LIBOR (5.4531%) plus:
Revolver-- (8.203%) -
Term A--$95,000 (8.203%)(a) 6,494
Term B--$65,000 (8.828%) 4,782
Term C--$45,000 (9.203%) 3,451
Term D--$40,000 (9.453%) 3,151
Bank fees on IRB letters of credit at 3.00% on $8,049 of
outstanding debt 201
Interest on unused Revolver commitment at 0.50% 188
Interest on amount of debt repaid from proceeds of sale of the Personalizing
Division (estimated net proceeds of $38.5 million at a weighted average
interest rate of 8.76%) (3,369)
--------
Cash interest expense 45,551
Amortization of Transactions debt issuance costs
($33,200) over an average 7.5 year amortization
period (effective interest method) 4,427
--------
Interest from Transactions debt requirements 49,978
--------
Net increase $24,706
========
</TABLE>
________________________
(a) Interest on Term A is calculated on the entire amount of Term A to be drawn
($95,000) after repayment of Shareholder Installment Notes of $25,157 in
January 1996.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS)
(2(b)) In conjunction with entering into the Bank Credit Agreement, the
Company also entered into a $45,000 non-recourse, off-balance sheet
Accounts Receivable Facility. The interest rate on this facility is
LIBOR (5.453%) plus 0.563% (6.016%) per annum. In accordance with SFAS
No. 77, this discount rate on $45,000 equates to an annual charge of
$2,707 to selling, general and administrative expenses as a "loss on
sale" on receivables. The pro forma adjustment reflects the additional
charge above the historical fee paid by the Company ($423) net of $481
resulting from an $8,000 reduction in the Accounts Receivable Facility
resulting from the sale of the Personalizing Division.
(3) Reflects the annual goodwill amortization ($2,988) and annual
tradenames amortization ($1,200) resulting from the purchase of
Williamhouse. The Acquisition resulted in an allocation of $37,900 to
trade names and goodwill of approximately $119,500. Trade names are
being amortized over periods ranging from fifteen to forty years.
Goodwill is being amortized over a forty year period. The pro forma
adjustment represents amortization expense for the ten-month period
prior to the Acquisition.
(4) Reflects the estimated recurring cost savings relating to manufacturing
operations from conforming health, welfare and other employee benefit
programs (assumed to be 50% allocated to cost of sales).
(5) Reflects the estimated recurring cost savings relating to selling,
general and administrative "SG&A" activities from management's
consolidation plans as described below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995
-----------------------
<S> <C>
Elimination of Williamhouse New York City headquarters facility, including
workforce reductions (net of increase in Ampad's Dallas, Texas
headquarters staff) $ 4,912
Consolidation of regional data processing centers from three to one locations
and elimination of redundant regional administrative positions by
consolidating accounting, accounts payable, credit and collections
functions in either Willamhouse's regional headquarters or Ampad's Dallas
headquarters 729
Consolidation of sales and marketing organizations, along with sales
distribution and promotional activity program changes 1,013
Cost reductions arising from conforming health, welfare and other employee
benefit programs (assumed to be 50% allocated to SG&A) 375
--------
$ 7,02
========
</TABLE>
(6) Represents additional depreciation expense for the ten-month period prior
to the merger resulting from the write-up of property, plant and equipment
to fair market value as summarized below:
<TABLE>
<CAPTION>
ESTIMATED ADDITIONAL
USEFUL LIFE FAIR VALUE ANNUAL
IN YEARS WRITE-UP DEPRECIATION
-------- ---------- ------------
<S> <C> <C> <C>
Land -- $ 1,443 $ --
Buildings 40 1,664 42
Machinery and
Equipment 12 33,178 2,765
------- ------
$36,285 $2,807
======= ======
</TABLE>
28
<PAGE>
(7) Reflects tax provision for pro forma adjustments to income before income
taxes using an estimated effective income tax rate of 40%.
(8) Reflects the income tax adjustment required to result in a pro forma
provision (benefit) based on: (i) Ampad's and Williamhouse's respective
historical tax provisions (benefit) using historical amounts and (ii) the
direct tax effects of the pro forma adjustments described herein. The
primary reason for the difference between the historical rate and the pro
forma effective rate is that the goodwill resulting from the Williamhouse
acquisition is not tax deductible and, pursuant to SFAS No. 109, deferred
taxes are not recognized on non-tax deductible goodwill in purchase
accounting.
(9) Represents the elimination of a portion of non-recurring stock option-
related compensation expense to certain members of the Company's management
directly related to the Acquisition.
(10) Represents the additional annual management fee above the historical fee
paid by Ampad to equal an agreed upon prospective annual fee of $2,000 to
be charged by Bain Capital for consulting and financial services to be
provided to the Company.
(11) Represents the elimination of historical amortization of Williamhouse
deferred financing fees of $974 (which Williamhouse historically classified
in SG&A) and the elimination of the one-time charge of $1,828 to write-off
the remaining balance relating to refinanced debt.
29
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
THE COMPANY
The selected historical consolidated financial data set forth below for the
years ended December 31, 1993, 1994 and 1995 have been derived from, and are
qualified by reference to the audited consolidated financial statements of the
Company, included elsewhere in this Prospectus. Although the Company was the
surviving corporation in the Merger, Ampad has been treated as the acquiring
corporation for accounting purposes. As a result, the income statement and
other data for the year ended December 31, 1995, reflect the historical
operations of Ampad and the results of the Company for the two-month period
ended December 31, 1995. The historical consolidated financial data for the
three months ended March 31, 1995 and 1996 have been derived from the unaudited
consolidated financial statements of the Company which, in the opinion of the
Company, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for the full year. Results for the three months ended
March 31, 1996 are not necessarily indicative of results for the full year.
Effective July 31, 1992, APP acquired Ampad (referred to below as the
"Predecessor") from Mead. As such, the selected historical consolidated
financial data set forth below for the period from January 1, 1992 through July
31, 1992 and the year ended December 31, 1991 have been derived from the
Predecessor's unaudited financial statements, not included herein, and include
all adjustments, consisting only of normal recurring adjustments, which
management considers necessary for a fair presentation of the results of the
Predecessor for such periods. The selected historical consolidated financial
data for the Predecessor are not comparable in certain respects to the selected
historical consolidated financial data of the Company due to the effects of the
acquisition of the assets of the Predecessor described in the notes hereto. The
selected historical consolidated financial data set forth below should be read
in conjunction with, and is qualified by reference to, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the audited
consolidated financial statements and accompanying notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR AMPAD/COMPANY
-----------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD PERIOD YEAR ENDED THREE MONTHS ENDED
DECEMBER FROM FROM DECEMBER 31, MARCH 31,
31, 1/1/92- 8/1/92- ----------------------------------- ---------------------
1991 7/31/92 12/31/92 1993 1994 1995 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT (UNAUDITED)
DATA(1)(2)(3):
Net sales $107,964 $ 63,238 $ 43,526 $104,277 $120,443 $259,341 $47,691 $121,418
Cost of sales(4) 96,959 55,737 37,610 88,491 113,394 211,814 42,394 97,889
Gross profit 11,005 7,501 5,916 15,786 7,049.(4) 47,527 5,297 23,529
Selling, general and 9,466 5,838 4,561 10,765 10,615 18,545 2,749 11,026
administrative expenses
Nonrecurring compensation
charge(5) -- -- -- -- -- 27,632 -- --
-------- -------- --------- -------- -------- -------- ------- --------
Income (loss) from
operations 1,539 1,663 1,355 5,021 (3,566) 1,350 2,548
Interest expense 2,204 1,337 1,311 3,320 4,560 13,657 (1,656) (12,542)
Other (income) expense (2,820) -- -- (167) (90) (735) 65 269
-------- -------- --------- -------- -------- -------- ------- --------
Income (loss) before
income taxes 2,155 326 44 1,868 (8,036) (11,572) 957 230
Provision for (benefit
from) income taxes 862 130 33 64 (488) (6,538) 366 102
-------- -------- --------- -------- -------- -------- ------- --------
Income (loss) before
extraordinary item 1,293 196 11 1,804 (7,548) (5,034) 591 128
Extraordinary loss from
extinguishment of debt,
net of income tax benefit -- -- -- -- -- (9,652) -- --
-------- -------- --------- -------- -------- -------- ------- --------
Net income (loss) $ 1,293 $ 196 $ 11 $ 1,804 $ (7,548) $(14,686) $ 591 $ 128
OTHER DATA:
Consolidated EBITDA, as
defined(6) $ 3,045 $ 3,394 $ 1,036 $ 4,575 $ 4,345 $ 38,760 $ 5,718 $ 14,142
Depreciation and
amortization 3,385 1,936 79 159 942 4,248 528 3,020
Capital expenditures 1,243 647 948 1,656 942 3,919 809 2,321
Ratio of earnings to
fixed charges(7) 1.9x 1.2x 1.0x 1.5x -- (8) -- (8) 1.5x 1.0x
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital $ 22,720 -- $ 8,774 $ 8,248 $ 1,170 $108,924 $109,238
Total assets 65,659 -- 42,305 47,893 68,233 504,356 500,794
Long-term debt, less -- -- 11,301 10,806 19,889 443,794 440,453
current maturities
Stockholders' equity
(deficit)(9) 54,769 -- 3,011 4,815 (2,733) (66,421) (66,293)
</TABLE>
(1) Effective July 5, 1994, Ampad acquired the assets and assumed certain
liabilities of SCM Office Supplies, Inc. The acquisition has been accounted
for under the purchase method of accounting and, accordingly, the operating
results have been included with Ampad's results since the date of
acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of the Notes to
Consolidated Financial Statements of the Company included herein.
(2) Effective August 16, 1995, Ampad acquired the inventory and certain
equipment of the file folder and hanging file product lines of the Globe-
Weis office products division of Atapco. The acquisition has been accounted
for under the purchase method of accounting and, accordingly, the operating
results have been included in Ampad's results since the date of
acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included herein and Note 3 of the
Notes to the Consolidated Financial Statements of the Company included
herein.
(3) Effective October 31, 1995, Ampad was deemed to have acquired Williamhouse
as a result of the Acquisition. The Acquisition has been accounted for
under the purchase method and, accordingly, the operating results of
Williamhouse except for the Personalizing Division, for the two month
period ended December 31, 1995 have been included in Ampad's results for
the year ended December 31, 1995. The Personalizing Division was held for
sale at December 31, 1995. As such, the operating results of the
Personalizing Division are excluded from the results of operations for the
two-month period ended December 31, 1995 (period subsequent to the
Acquisition). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3 of the Notes to
Consolidated Financial Statements of the Company included herein.
(4) Inventory cost is determined using the LIFO method of valuation. Gross
profit in the fourth quarter of 1994 was adversely impacted by a
significant increase in paper prices resulting in a $5.4 million charge for
LIFO in advance of Ampad's raising selling prices in the first quarter of
1995.
(5) Includes non-cash stock option compensation charges of $24.3 million
directly related to the Acquisition as well as other non-recurring cash and
non-cash changes aggregating $3.3 million. See Note 9 of "Notes to
Consolidated Financial Statements" of the Company included herein.
(6) "Consolidated EBITDA, as defined" is defined under the Indenture pursuant
to which the Notes were issued as income from operations, prior to
adjustment for the effect of the LIFO method of inventory valuation, plus
depreciation and amortization expense, non-recurring charges and other non-
cash expense items. See "Description of Exchange Notes - Certain
Covenants." Consolidated EBITDA, as defined should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(7) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing fees and one-third of the rent expense
from operating leases, which management believes is a reasonable
approximation of an interest factor.
(8) Earnings were insufficient to cover fixed charges by approximately $8.0
million and $11.5 million during the year ended December 31, 1994 and
1995, respectively.
(9) Includes $70.6 million to redeem a portion of APP's Preferred Stock and
$4.5 million to pay the Class P Common Stock Dividend.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is the largest manufacturer and marketer of nationally branded
and private label paper-based office products (excluding computer forms and copy
paper), a segment of the $60 to $70 billion North American office products
industry. The Company offers a broad assortment of products including writing
pads, file folders, envelopes and other paper-based products. Through its Ampad
division, the Company is among the largest and most important suppliers of pads
and other paper-based writing products, filing supplies and envelopes to many of
the largest and fastest growing office products distributors. Through its
Williamhouse division, the Company is the leading supplier of mill branded,
specialty and commodity envelopes to paper merchants/distributors. The Company
believes that its future operating results will not be directly comparable to
its historical operating results because of its strategic acquisitions and the
expected cost savings from integration of the Acquisition. The Company's
business has not generally been seasonal in nature. Certain factors which have
affected, and may affect prospectively, the operating results of the Company are
discussed below.
Strategic Acquisitions. On October 31, 1995, APP acquired Williamhouse, a
leading supplier of envelopes to many of the largest and fastest growing
distributors, for an aggregate purchase price (including assumption of debt) of
approximately $300 million plus reimbursement of certain expenses to the
sellers. On July 5, 1994, Ampad acquired the assets and assumed certain
liabilities of SCM, one of the industry leaders in hanging files and writing
products. The aggregate acquisition consideration of $14.4 million, including
fees and expenses, was financed through the incurrence of bank debt. On August
16, 1995, Ampad acquired the file folder and hanging file product lines of
Atapco's Globe-Weis office products division. Atapco was one of the leading
providers of file folders and hanging files to office products superstores. The
aggregate acquisition consideration of $19.7 million, including fees and
expenses, was financed through the incurrence of bank debt and seller notes.
The SCM Acquisition and the Globe-Weis Acquisition further strengthened the
Company's position in the filing supplies and writing products categories.
On December 20, 1993, Williamhouse acquired the principal assets of
Kimberly-Clark Corporation's Karolton envelope business. The Karolton envelope
business manufactures high quality envelopes made from fine and specialty grades
of paper and Tyvek(R) (a high density polyurethane-based product made by
DuPont). The aggregate acquisition consideration of $9.6 million was financed
through the incurrence of bank debt. On July 29, 1994, Williamhouse acquired
the giant and X-ray envelope product lines from Huxley Envelope Corp. The
aggregate acquisition consideration of $4.2 million, including a seller note,
was principally financed through the incurrence of bank debt.
Purchase Accounting Effects. The Company's acquisitions have been
accounted for using the purchase accounting method. The Acquisition has
currently affected, and will prospectively affect, the Company's results of
operations in certain significant respects. The aggregate acquisition cost
(including assumption of debt) of approximately $300 million was allocated to
the net assets acquired based on the fair market value of such net assets. The
preliminary allocation of the purchase price resulted in an increase in the
historical book value of certain Williamhouse assets such as property, plant and
equipment and intangible assets, including goodwill, which results, on a pro
forma basis, in incremental annual depreciation and amortization expense of $7.0
million as of December 31, 1995.
Potential Operating Improvements. The Company has identified and is in the
process of implementing cost reductions in connection with the Acquisition that
are expected to result in approximately $7.4 million of annual cost savings
following the adoption of such measures. In addition, management plans to
implement further identified cost reductions which are expected to improve
operations beyond 1996. The most significant cost reduction actions involve
closing Williamhouse's New York City headquarters, contractual changes in
employee benefit and other insurance plans and the consolidation of sales and
marketing and other administrative functions to eliminate duplicative functions,
sales programs and sales personnel. However, because these improvements have
not yet been fully implemented and Williamhouse's selling, general and
administrative ("SG&A") expenses have historically been a higher percentage of
net sales than those of the Company prior to the Acquisition, the Company's
aggregate SG&A expenses may rise as a percentage of net sales in the near term.
Sale of Personalizing Division. The Company's management identified the
Personalizing Division of Williamhouse as a nonstrategic asset following the
Acquisition and has decided to pursue its sale. As a result, the
32
<PAGE>
financial statements of the Company included elsewhere in this Prospectus
reflect the Personalizing Division as "Assets held for Sale" as of December 31,
1995 and March 31, 1996. On April 17, 1996, the Company signed a letter of
intent with a potential buyer to sell the Personalizing Division. Under the
terms of such letter, the Company will receive gross proceeds of approximately
$60 million (subject to certain closing adjustments) from the sale of the
Personalizing Division. To date, the Company has not signed definitive
agreements with respect to such sale and, as a result, no assurance can be given
that the sale will be completed or, if completed, will be on the terms outlined
herein.
SCM Work Stoppage. Prior to the consummation of the SCM Acquisition,
management was aware that work rules and associated costs at the SCM plant in
Indiana were less favorable than those at other plants of the Company. As a
result of management's efforts to bring the labor agreement at the Indiana plant
more in line with market labor agreements, a labor strike occurred on September
1, 1994. Consequently, the Company closed the Indiana plant on February 15,
1995, and moved the equipment to other facilities operated by the Company. By
July 1995, all machinery and equipment previously operated in Indiana was
available for production in other Company facilities.
Paper Prices. Paper represents a majority of the Company's cost of goods
sold. While paper prices have increased by an average of less than 1% annually
since 1989, certain commodity grades have shown considerable price volatility
during that period. This volatility negatively impacted the Company's earnings
in 1994, particularly in the fourth quarter, as a result of the Company's
inability to implement price changes in many of its product lines without giving
its customers advance notification. Beginning in January 1995, the Company
adopted new pricing policies enabling it to set product prices consistent with
the Company's cost of paper at the time of shipment. The Company believes that
it is now able to price its products so as to minimize the impact of price
volatility on dollar margins. In addition, as a result of acquisitions and new
product introductions, the Company offers a broader and more diverse product mix
which is less susceptible to paper price fluctuations. See "Risk Factors -
Risks Associated with Fluctuations in Paper Costs."
RESULTS OF OPERATIONS
The following table summarizes Ampad's historical results of operations as
a percentage of net sales for the years ended December 31, 1993 and 1994 and the
three months ended March 31, 1995 and the Company's historical results of
operations as a percentage of net sales for the year ended December 31, 1995 and
the three months ended March 31, 1996. Although the Company was the surviving
corporation in the Merger, Ampad has been treated as the acquiring corporation
for accounting purposes. As such, the results of operations for the year ended
December 31, 1995 reflect the historical annual results of the Company and the
results of Williamhouse for the two-month period ended December 31, 1995:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ---------------
1993 1994 1995 1995 1996
------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit 15.1 5.9 18.3 11.1 19.4
Selling, general and administrative expenses 10.3 8.9 7.2 5.8 9.1
Non-recurring compensation charge -- -- 10.6 -- --
----- ----- ----- ----- -----
Income (loss) from operations 4.8 (3.0) 0.5 5.3 10.3
Interest expense, net 3.2 3.8 5.2 3.4 10.3
Other (income) expense (0.2) (0.1) (0.2) (0.1) (0.2)
----- ----- ----- ----- -----
Income (loss) before taxes 1.8 (6.7) (4.5) 2.0 0.2
Provision for (benefit from) income taxes 0.1 (0.4) (2.5) 0.8 0.2
----- ----- ----- ----- -----
Income from continuing operations before extraordinary
item 1.7 (6.3) (2.0) 1.2 0.2
Extraordinary loss from extinguishment of debt, net of
income tax benefit -- -- (3.7) -- --
----- ----- ----- ----- -----
Net income (loss) from continuing operations 1.7% (6.3)% (5.7)% 1.2% 0.2%
===== ===== ===== ===== =====
</TABLE>
33
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 OF THE COMPANY COMPARED TO THREE MONTHS ENDED
MARCH 31, 1995 OF AMPAD
Net Sales for the three months ended March 31, 1996 increased by $73.7
million, or 155%, to $121.4 million from $47.7 million for the three months
ended March 31, 1995. Of this net sales increase, $64.3 million is related to
the Acquisition and $15.9 million is related to the Globe-Weis Acquisition.
Ampad division net sales, exclusive of Globe-Weis, decreased by $6.5 million in
the first quarter of 1996 compared to the unusually strong first quarter of
1995. The strong 1995 first quarter was due to certain of the Company's
customers increasing inventory levels in anticipation of price increases and
supply shortages.
Gross Profit for the three months ended March 31, 1996 increased by $18.2
million, or 343%, to $23.5 million from $5.3 million for the three months ended
March 31, 1995. Approximately $15.5 million of the increase in gross profit is
attributable to the Acquisition and $2.0 million is attributable to the Globe-
Weis Acquisition. The gross profit from the Ampad division, exclusive of Globe-
Weis, increased by $0.7 million, due to increased gross margins. Gross profit
margin increased to 19.4% for the three months ended March 31, 1996 from 11.1%
for the three months ended March 31, 1995. The increase in gross profit margin
is related to unfavorable inventory valuation of $2.4 million in the first
quarter of 1995 due to rising paper prices. In addition, the Company's ability
to maintain its current pricing policies in the first quarter of 1996 despite a
falling price environment led to higher margin percentages.
SG&A expenses for the three months ended March 31, 1996 increased $8.2
million, or 302%, to $11.0 from $2.8 million for the three months ended March
31, 1995. Approximately $7.3 million of the increase is attributable to the
Acquisition and includes $1.0 million of amortization of goodwill and
intangibles and $0.7 million of costs related to the off balance sheet financing
of receivables. The remaining $0.9 million of the increase is attributable to
the Ampad division, primarily related to shifting of corporate activities from
the Williamhouse division. As a percentage of net sales, SG&A expenses
increased to 9.1% for the first three months of 1996 from 5.8% in the comparable
period for the prior year as a result of higher SG&A expenses as a percentage of
net sales of the Williamhouse division (11.4% for the period) compared to the
Ampad Division (6.4% for the period)
Interest Expense for the three months ended March 31, 1996 increased $10.9
million to $12.5 million from $1.6 million for the three months ended March 31,
1995. The increase is attributable primarily to increased borrowings as a
result of the Offering of the Notes in December, 1995, the Acquisition in
October 1995 and the Globe-Weis Acquisition in August 1995.
The income tax provision for the three month period ended March 31, 1996
reflects an effective tax rate of 44.4%, versus an effective tax rate of 38.3%
for the three month period ended March 31, 1995.
YEAR ENDED DECEMBER 31, 1995 OF THE COMPANY COMPARED TO YEAR ENDED DECEMBER 31,
1994 OF AMPAD
Net sales for the year ended December 31, 1995 increased by $138.9 million, or
115%, to $259.3 million from $120.4 million for the year ended December 31,
1994. Of this net sales increase, $46.6 million, or 33%, is related to the
Acquisition and $29.4 million, or 21%, is related to the Globe-Weis Acquisition.
The remaining increase of $62.9 million, or 46%, is related to increased net
sales in the base business, primarily as a result of price increases and, to a
lesser extent, a change in product mix, partially offset by a decline in sales
through nonstrategic channels, particularly independent dealers. Net sales to
independent dealers declined to less than 2% of net sales in the year ended
December 31, 1995, compared to 8.5% in 1994. Net sales in the emerging channels
(national office products superstores, national contract stationers and mass
merchandisers) represented 52.0% of total net sales (63.4% of Ampad division
sales) in the year ended December 31, 1995 as compared to 45.7% of total net
sales (45.7% of Ampad division sales) in the year ended December 31, 1994.
Gross profit for the year ended December 31, 1995 increased by $40.5 million,
or 575%, to $47.5 million, from $7.0 million for the year ended December 31,
1994. Approximately $13.6 million of the increase in gross profit is
attributable to the Acquisition and an estimated $3.8 million increase is due to
the Globe-Weis Acquisition. The remainder of the increase in gross profit is
due to (i) higher variable margins associated with the gains in unit sales,
product mix and pricing; (ii) lower fixed manufacturing costs primarily as a
result of the SCM plant closure and (iii) lower rate of paper price increases in
1995 compared with 1994, and the timing of the Acquisition resulting in lower
LIFO charges of approximately $2.5 million in 1995. Fixed manufacturing costs
as a percentage of net sales
34
<PAGE>
declined as a result of the successful integration of the Globe-Weis
manufacturing operations and the closing of the Indiana facility.
Gross profit margin increased in the year ended December 31, 1995 to 18.3%
from 5.9% in 1994. The increase is principally a result of higher variable
margins, lower fixed manufacturing costs and lower LIFO charges. Excluding
acquisitions, gross profit margin would have increased to 16.4% for the period
ended December 31, 1995.
SG&A expenses for the year ended December 31, 1995 increased by $7.9 million,
or 74%, to $18.5 million, from $10.6 million for the year ended December 31,
1994. Approximately $5.9 million of this increase related to the Acquisition.
The balance of such increase related to higher amortization costs as a result of
the Acquisition and costs associated with the Accounts Receivable Facility.
SG&A as a percentage of net sales for the year ended December 31, 1995 decreased
to 7.2% from 8.9% in 1994, as a result of higher revenues and cost efficiencies
achieved from the successful integration of SCM and Globe-Weis operations into
the Company's existing sales and administrative structure, combined with
improved control of operating expenses.
The non-recurring compensation charge of $27.6 million for the year ended
December 31, 1995 was primarily the result of the issuance of options for
Preferred Stock granted to existing option holders in order to maintain such
holders' economic value in previously issued options for Common Stock as a
result of the Preferred Stock Dividend and the grant of additional options in
December 1995 at an exercise price below the fair market value at the date of
grant. See Note 9 of the Notes to Consolidated Financial Statements of the
Company included herein.
Income (loss) from operations for the year ended December 31, 1995 increased
by $4.9 million to $1.3 million from ($3.6) million in 1994, for the reasons
stated above. Income (loss) from operations as a percentage of net sales for
the year ended December 31, 1995 increased to 0.5% from (3.0)% for the year
ended December 31, 1994.
Interest expense for the year ended December 31, 1995 increased $9.1 million,
or 198%, to $13.7 million from $4.6 million for the year ended December 31,
1994. The increase is attributable primarily to increased borrowings as a
result of the Acquisition and the Globe-Weis Acquisition.
Income tax benefit for the year ended December 31, 1995 reflects an effective
tax rate of 46.9%, versus a 6.1% effective tax rate in 1994. The difference
between the effective rate and the statutory rate in 1995 is due to a reduction
in the SFAS No. 109 deferred tax valuation allowance resulting from improved
operating results.
Extraordinary item representing an after tax loss on extinguishment of debt of
$9.6 million ($16.1 million pretax) was recognized as a result of $10.8 million
of redemption premiums and prepayment penalties associated with the repurchase
of the Old Debentures and the Company's bank debt and the write off of $5.3
million of unamortized deferred financing costs in connection with the
redemption of the Old Debentures and the Company's debt refinancings.
Supplemental 1995 Williamhouse Data. Although only two months of
Williamhouse's post-Acquisition results are included in the Company's
consolidated financial statements for the year ended December 31, 1995, the
Company believes that the following combined twelve month unaudited comparative
information is useful in evaluating the expected future contribution of the
Williamhouse division to the Company's results of operations. Net sales for the
year ended December 31, 1995 increased 6.9% to $265.2 million from $248.0
million for the year ended December 31, 1994. The increased sales are a result
of both increased selling prices on commodity and mill branded envelopes and
increased sales volume of Christmas card product lines due to product expansion
and more aggressive sales efforts. Gross profit for the year ended December 31,
1995 increased by $7.5 million, or 10.1%, to $82.0 million from $74.5 million
for the year ended December 31, 1994 as a result of higher pricing offset
partially by higher costs. Gross profit margin for the year ended December 31,
1995 increased slightly to 30.9% from 30.0% for the year ended December 31,
1994, as a result of price increases on selected products, partially offset by
higher raw material costs for mill branded and commodity paper. SG&A expenses
for the year ended December 31, 1995 increased to $48.0 million as compared to
$45.2 million for the year ended December 31, 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales for the year ended December 31, 1994 increased by $16.2 million, or
15.5%, to $120.4 million from $104.3 million for the year ended December 31,
1993. The net sales increase is related to the SCM Acquisition in July
35
<PAGE>
1994, which contributed $21.0 million through the end of 1994. Excluding the SCM
Acquisition, net sales decreased by $4.8 million as a result of the
discontinuation of the copy paper brokerage business ($10 million), partially
offset by continued sales growth in the emerging distribution channels, which
contributed 45% of sales during 1994 compared to 30% in 1993. Net sales from SCM
operations were negatively affected as a result of the Indiana plant strike that
occurred in the third quarter of 1994. As a result of the work stoppage at the
Indiana plant, sales from that plant were $10.4 million for the period between
September 1, 1994 through December 31, 1994 as compared to $22.8 million for the
same period in 1993.
Gross profit for the year ended December 31, 1994 decreased by $8.8 million,
or 55.7%, to $7.0 million from $15.8 million for the year ended December 31,
1993. Gross profit margins decreased to 5.9% in 1994, from 15.1% in 1993.
Gross profit margin decreased primarily as a result of a $7.0 million increase,
or 5.8%, in the LIFO reserve and delayed implementation of price changes
subsequent to increased raw material paper costs. Management believes that
pricing delays negatively impacted gross profit margin by approximately 2.1%. In
addition, as the Company began shifting its customer base to the emerging
channels, it incurred certain non-recurring expenses. Such expenses were
related to removing competitive products from customers' inventory, revising the
Company's packaging and increasing the breadth of products offered by the
Company in those channels. Furthermore, as a result of the work stoppage at the
Indiana plant, gross profit at that plant decreased from $2.4 million for the
period between September 1, 1993 and December 31, 1993, to $(0.5) million for
the same period in 1994.
SG&A expenses for the year ended December 31, 1994 decreased by $0.2 million,
or 1.4%, to $10.6 million from $10.8 million for the year ended December 31,
1993. SG&A as a percentage of net sales in 1994 decreased to 8.9% from 10.3% in
1993 as a result of management's efforts to successfully integrate SCM's
operations into the Company's existing sales and administrative structure.
Income (loss) from operations for the year ended December 31, 1994 decreased
by $8.6 million to $(3.6) million from $5.0 million for the year ended December
31, 1993. Income (Loss) from operations as a percentage of net sales decreased
to (3.0)% in 1994 from 4.8% in 1993 primarily as a result of the factors
discussed above.
Management believes that the Company's 1994 historical earnings are not
comparable to the ongoing level of operations of the business which now reflect
the full impact of the SCM, Globe-Weis and Williamhouse acquisitions. A
prolonged work stoppage at SCM's Indiana plant (see "--Overview--SCM Work
Stoppage") prevented the Company from operating the acquired assets at full
capacity until 1995. Furthermore, with respect to Globe-Weis, the previous
owner allocated to it corporate and other fixed overhead costs at levels higher
than those allocated to it by the Company. The Company has operated the Globe-
Weis assets profitably since their acquisition. Management believes Globe-Weis
can contribute to improved overall ongoing results as compared to 1994 levels of
business. Finally, the Company's former pricing policies delayed the aligning
of the price the Company charged for its products with the market price for
paper.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March 31,
1996 was $7.6 million compared to a use of cash of $10.3 million for the three
months ended March 31, 1995. The $7.6 million provided in the first quarter of
1996 was primarily due to an income tax refund of $3.6 million, a decrease in
accounts receivable of $7.5 million, partially offset by a decrease in accounts
payable ($0.4 million) and accrued expenses ($1.5 million) and an increase in
prepaid expenses ($1.1 million). The use of cash of $10.3 million in the first
quarter of 1995 was primarily due to an increase in accounts receivable ($5.0
million) and inventories ($5.7 million) and a decrease in accrued expenses ($2.2
million), partially offset by an increase in accounts payable ($1.7 million).
Net cash provided by operating activities for the year ended December 31, 1995
was $8.3 million compared to $1.9 million used by operations for the year ended
December 31, 1994. The net cash provided for the year ended December 31, 1995
resulted primarily from an increase of $5.0 million in accounts payable, an
increase in accrued expenses of $4.9 million, a decrease in inventories and
increased margins on sales. The increase was partially offset by an increase in
accounts receivable due to increased sales. Cash used by operations for the
years ended December 31, 1994 and 1993 was $1.9 million and $1.7 million,
respectively. The use of cash for the year ended December 31, 1994 was
primarily due to an increase in inventories offset by an increased LIFO charge
due to rising paper prices, and a decrease in accrued expenses, offset by an
increase in accounts payable. The use of cash for the year ended December 31,
1993 resulted from increased inventories offset by an increase in accounts
payable.
36
<PAGE>
Cash used in investing activities for the three months ended March 31, 1996
and 1995 and the years ended December 31, 1995, 1994 and 1993, was $3.0 million,
$0.7 million, $131.2 million, $14.6 million and $0.5 million, respectively. The
use of cash for the three months ended March 31, 1996 and 1995 was primarily due
to purchases of property and equipment. The use of cash for the year ended
December 31, 1995, was due to the Acquisition ($122.7 million), the Globe-Weis
Acquisition ($7.0 million) and purchase of equipment ($3.9 million). The use of
cash for the year ended December 31, 1994, was due primarily to the SCM
Acquisition ($14.4 million). The use of cash for the year ended December 31,
1993, was due to purchases of equipment offset by proceeds from the sale of the
dated goods products line.
Cash provided by financing activities for the three months ended March 31,
1995 and the years ended December 31, 1995, 1994 and 1993, was $11.1 million,
$144.9 million, $16.5 million and $2.2 million, respectively, primarily due to
periodic financing incurred in connection with the various acquisitions. Cash
used in financing activities for the three months ended March 31, 1996 was $2.9
million due to repayments of debt, partially offset by proceeds from long-term
debt.
Capital expenditures, excluding acquisitions, in 1995, 1994 and 1993 were $3.9
million, $0.9 million, and $1.7 million, respectively. The Company expects that
combined capital expenditure requirements will be approximately $12 million for
1996. The Company believes these capital expenditure levels will be sufficient
to maintain competitiveness and to provide sufficient manufacturing capacity.
The Company expects to fund capital expenditures primarily from cash generated
from operating activities.
As a result of the Transactions, the debt service costs associated with the
borrowings under the Bank Credit Agreement and the Notes significantly increased
the Company's liquidity requirements. All borrowings under the Bank Credit
Agreement will mature prior to the Exchange Notes. Additional borrowings are
available under the $45 million revolving credit facility portion of the Bank
Credit Agreement. As of March 31, 1996, the Company did not have any borrowings
under the revolving credit facility portion of the Bank Credit Agreement. The
Bank Credit Agreement and the Indenture impose certain restrictions on the
Company, including restrictions on its ability to incur indebtedness, pay
dividends, make investments, grant liens, sell its assets and engage in certain
other activities. In addition, the indebtedness of the Company under the Bank
Credit Agreement is secured by substantially all of the assets of the Company,
including the Company's real and personal property, inventory, accounts
receivable, intellectual property and other intangibles. See "Description of
Certain Indebtedness--Bank Credit Agreement. The Company expects that cash
flows from operating activities together with borrowings available under the
Bank Credit Agreement or the New Bank Credit Agreement, as the case may be, will
be sufficient to fund working capital needs, capital spending requirements,
restructuring costs incurred in connection with the Acquisition and debt service
requirements of the Company's capital structure for the foreseeable future.
Concurrently with the Acquisition, the Company entered into the $45 million
Accounts Receivable Facility.
Management believes that based on current levels of operations and anticipated
internal growth, cash flow from operations, together with other available
sources of funds including borrowings under the Bank Credit Agreement or the New
Bank Credit Agreement, as the case may be, and available cash on hand at March
31, 1996 of $20.1 million, will be adequate for the foreseeable future to make
required payments of principal and interest on the Company's indebtedness, to
fund anticipated capital expenditures and working capital requirements,
including the aforementioned restructuring costs, and to enable the Company and
its subsidiaries to comply with the terms of their debt agreements. However,
actual capital requirements may change, particularly as a result of any
acquisitions which the Company may make. The ability of the Company to meet its
debt service obligations and reduce its total debt will be dependent, however,
upon the future performance of the Company and its subsidiaries which, in turn,
will be subject to general economic conditions and to financial, business and
other factors, including factors beyond the Company's control. A portion of the
consolidated debt of the Company bears interest at floating rates; therefore,
its financial condition is and will continue to be affected by changes in
prevailing interest rates. The Company has entered into an interest rate
protection agreement to minimize the impact from a rise in interest rates.
On April 25, 1996, APP filed with the Commission a registration statement
relating to the initial public offering of up to 15,625,000 shares of Class A
Common Stock. The net proceeds to APP from the Proposed Equity Offering are
estimated to be approximately $187 million. APP intends to use such proceeds to
repay approximately $107 million of the indebtedness incurred under the Bank
Credit Agreement, (ii) allow the Company to redeem approximately $70 million
aggregate principal amount of the Notes or Exchange Notes from the holders
thereof on a pro rata basis, (iii) allow the Company to pay approximately $8
million in redemption premiums on the Notes or Exchange Notes and (iv)
37
<PAGE>
pay certain fees associated with the Proposed Equity Offering. There can be no
assurance that APP will consummate the Proposed Equity Offering, or if it does,
that it will use the proceeds therefrom for the purposes set forth herein.
Contemporaneously with, and conditional upon, the Proposed Equity Offering,
the Company intends to refinance and retire all remaining indebtedness under the
Bank Credit Agreement with the proceeds of the loans under the New Bank Credit
Agreement. Although the Company has not finalized the terms of the definitive
New Bank Credit Agreement, Bankers Trust Company has, subject to certain
conditions, committed to provide the facility. Although there can be no
assurances that the Company will be successful in negotiating the New Bank
Credit Agreement, or if successful, the terms of such facility, the Company
anticipates that the New Bank Credit Agreement will provide a revolving credit
facility of $300 million subject to the following principal terms: Loans made
under the New Bank Credit Agreement will bear interest at a rate per annum equal
to, at the Company's option, (i) the Base Rate plus the Applicable Margin or
(ii) the LIBOR Rate plus the Applicable Margin (as each term is defined in the
New Bank Credit Agreement). The Applicable Margin will vary from 0% to 1.75%,
based on the Company's level of debt as compared to earnings ("Leverage Ratio")
and the type of loan. Availability under the New Bank Credit Agreement will be
subject to an unused Commitment Fee which, like the Applicable Margin, will vary
from .3% to .5% based on the Company's Leverage Ratio. Availability under the
New Bank Credit Agreement will be reduced to the extent of the net proceeds of a
sale of assets by the Company, the net proceeds of an issuance of debt by the
Company or 50% of the net proceeds of an issuance of equity by the Company.
Availability will also be reduced by $50 million in 1999 and $50 million in
2000. The New Bank Credit Agreement will terminate in 2001. The Company will be
permitted to make acquisitions under the New Bank Credit Agreement up to an
aggregate of $25 million without consent of the Agent (as defined) and up to $50
million if, on a pro forma basis giving effect to such acquisition, the
Company's Leverage Ratio is less than 3.0:1.0. If the New Bank Credit Agreement
had been in place on December 31, 1995, the initial interest rate would have
been 7.2%. As a result of the New Bank Credit Agreement, the Company's effective
interest rate under its senior credit facility will be reduced by 156 basis
points contemporaneously with the Proposed Equity Offering.
The Company will use the proceeds from the sale of the Personalizing Division
to repay indebtedness.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the three years ended December 31, 1995.
CHANGES IN ACCOUNTING STANDARDS
The Company has elected not to early adopt the provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation." The Company will adopt the reporting provisions of SFAS 123 in
1996. The Company expects the adoption to have no effect on its financial
condition or results of operations.
INDUSTRY
OFFICE PRODUCTS
The North American office products industry, excluding contract office
furniture and business machines, generates approximately $60 to $70 billion in
annual sales at retail prices. The Company believes that the market has grown
at an approximate average annual rate of 5% from 1992 to 1995. Office products
include paper, envelopes, writing products, writing instruments, mailroom
supplies, filing supplies, organizers, desktop accessories, business forms,
binders, tape, printed products, staples and fastening products and other
consumable items. The Company believes that the market for these products is
approximately $30 to $35 billion at wholesale prices.
The Company participates in the writing products, filing supplies and envelope
segments of the industry. The writing products segment includes writing pads,
notebooks, jotter pads, easels, flip charts, data pads, message pads, wire
notebooks, certain business forms, specialty computer forms, business machine
paper and other categories, including a wide range of stock keeping units
("SKUs") based on size, quality, finish, thickness, reusability/refillability
and various customized features. The key raw materials for writing products are
tablet and form grades of paper. The Company estimates that the writing
products segment at wholesale prices is approximately $2.9 billion in size.
38
<PAGE>
The filing supplies segment includes suspension (hanging) files, expandable
folders, manila folders, index cards, labels and related products. Estimated by
the Company at approximately $1.5 billion at wholesale prices, the filing
supplies segment is characterized by manufacturers with national brand coverage,
large-scale production capabilities, wide-area distribution systems and
standardized products. The key raw materials for filing supplies are paperboard,
bristols, metal and plastics, all of which are available from a large number of
suppliers.
The envelope segment includes both standard size and specialty envelopes such
as catalog mailing envelopes, envelopes closable by metal clasp or button-and-
string, and giant, X-ray, remittance and overnight delivery envelopes. Envelopes
are made from mill branded and commodity grades of paper or from Tyvek(R) (a
high density polyurethane-based product made by DuPont) and other non-woven
material. According to the Envelope Manufacturers Association of America, the
United States envelope market in 1995 was estimated to be approximately $2.85
billion dollars in net sales or 170.6 billion units at the manufacturers' level.
The historical growth rate for envelopes has shown high correlation with that of
Gross Domestic Product ("GDP").
The Company believes that demand for writing products, filing supplies and
envelopes has not been significantly affected by the growth in electronic office
tools such as e-mail and personal digital assistants and the Company does not
expect these tools to have a significant impact on such demand for the
foreseeable future.
DISTRIBUTION
Office products are distributed from the manufacturer to the end-user through
several different channels, including retail channels such as national office
product superstores, mass merchandisers and warehouse clubs; commercial channels
such as national contract stationers; paper merchants/distributors; and other
channels such as regional distributors, school campuses and direct mail. Office
products, including writing products, filing supplies and a relatively small
portion of envelopes, were traditionally distributed through contract
stationers, wholesalers and independent dealers. Envelopes have been
distributed primarily through paper merchants/distributors. Since the mid-
1980s, the office products industry has experienced significant changes in the
channels through which office products are distributed such as the emergence of
new channels, including national office product superstores, national contract
stationers and mass merchandisers, and consolidation within these and other
channels. As a result of these changes, approximately 6,800 office product
distributors existed in 1994 compared with approximately 13,300 in 1987.
Retail Channels. The Company estimates that total 1995 sales of office
products to end-users in North America through retail channels were
approximately $20 to $25 million. Office products retailers typically serve
small and medium-sized businesses, home offices and individuals. The national
office products superstores have experienced significant consolidation in recent
years, with today's three dominant operators (Office Depot, OfficeMax and
Staples) emerging from approximately 17 different superstore operators in 1986.
Over the past five years, Office Depot, OfficeMax and Staples have each
experienced average annual growth rates in excess of 35%. In addition, mass
merchandisers (such as Wal-Mart) and warehouse clubs (such as Sam's Warehouse
Club) are significant and growing retailers of office products, although both
carry a smaller assortment than do the superstores. The three dominant national
office superstores currently account for approximately 17% of total retail
office products sales and approximately 6% of total office products sales. In
addition to the growth experienced by these operators within the retail channel,
the retail channel as a whole has also captured significant market share from
other distribution channels.
Commercial Channels. The Company estimates that total 1995 sales of office
products to end-users in North America through commercial channels were
approximately $25 to $30 billion. Commercial distributors typically serve large
and medium-sized business customers through product catalogs and direct sales
forces. Generally, commercial distributors stock products in distribution
centers and deliver them to customers on a next-day basis against orders
received electronically, by telephone or fax, or taken by a salesperson on the
customer's premises. A growing segment within commercial channels is the
contract stationer channel. Major contract stationers purchase in large
quantities directly from manufacturers, rely upon wholesaler intermediaries to
only a limited extent for inventory backup and product breadth, and offer
significant volume-related discounts and a high level of service to their
customers. Most contract stationers operate in only one or very few major
metropolitan areas. There has been significant consolidation of contract
stationers into national companies in recent years, and the Company expects this
consolidation trend to continue. Major national participants include Boise
Cascade Office Products, BT Office Products, Corporate Express, U.S. Office
Products and the contract stationer divisions of Office Depot and Staples.
These national contract stationers now account for approximately 25% of
commercial office products sales and approximately 11% of total office products
39
<PAGE>
sales. Given this consolidation and opportunity for growth, suppliers capable
of distributing a broad and deep product line nationwide, such as the Company,
are best positioned to serve major contract stationers.
Paper Merchants/Distributors Channel. According to industry sources, the paper
merchant/distributor channel has been experiencing 6% to 7% growth over the past
three years. Paper merchants/distributors sell a wide range of products
including stationery, envelopes, and invitations and announcements to printers,
thermographers, office products companies and large end-users. Total 1995 net
sales of envelopes by the paper merchant/distributor channel are estimated to
have been approximately $855 million. Envelopes, invitations and announcements
made from branded paper are purchased from manufacturers that have been
"designated" by paper mills to convert their proprietary paper into such
products. A paper mill generally "designates" two manufacturers for its mill
branded paper. A "designated" manufacturer has an advantage in purchasing
branded paper directly from the mills at more favorable prices than from paper
merchants/distributors and in accessing a dependable paper supply. Envelope
manufacturers which supply a complete product offering of mill branded,
specialty and commodity envelopes are best positioned to serve these paper
merchants/distributors. The paper merchant/distributor channel has also
experienced, and is continuing to experience, significant consolidation, with
ResourceNet, Unisource and Zellerbach emerging as the channel's leaders.
Other Channels. The Company estimates that total sales of office products to
end-users in North America through other channels, such as regional
distributors, school campuses and direct mail, are approximately $5 to $10
billion.
The Company's strategy with respect to each of these distribution channels is
to focus on the most rapidly growing customers, particularly dominant industry
participants leading the trend towards consolidation such as Office Depot,
OfficeMax, Staples, Wal-Mart and Sam's Warehouse Club in the retail channel;
Boise Cascade Office Products, BT Office Products, Corporate Express, U.S.
Office Products and the contract stationer divisions of Office Depot and Staples
in the contract stationers channel; and ResourceNet, Unisource and Zellerbach in
the paper merchant/distributor channel. The Company also believes there is
significant opportunity to distribute envelope product lines through the rapidly
growing retail channel under the Ampad and private label names. Prior to the
Acquisition, Williamhouse sold envelopes primarily through the paper
merchant/distributor channel. See "Business--Growth Strategy."
40
<PAGE>
BUSINESS
The Company is the largest manufacturer and marketer of nationally branded and
private label paper-based office products (excluding computer forms and copy
paper), a segment of the $60 to $70 billion North American office products
industry. The Company offers a broad product line including writing pads, file
folders, envelopes and other office products. Through its Ampad division, the
Company is among the largest and most important suppliers of pads and other
paper-based writing products, filing supplies and envelopes to many of the
largest and fastest growing office products distributors. Acquired in October
1995, the Company's Williamhouse division is the leading supplier of mill
branded, specialty and commodity envelopes to paper merchants/distributors. The
Company's strategy is to grow by focusing on the largest and fastest growing
office product distribution channels, making acquisitions, introducing new
product lines, broadening product distribution across its channels and
maintaining its position among the lowest-cost manufacturers in the industry.
As a result of this strategy, the Company's sales have grown at a compound
annual rate of approximately 34% from 1992 to 1995. For the year ended December
31, 1995, the Company had net sales of $511.3 million and income from operations
of $53.2 million on the pro forma basis described herein. See "Unaudited Pro
Forma Financial Data."
COMPETITIVE STRENGTHS
The combination of the Company's products and customers distinguishes it as
the leading manufacturer and marketer of paper-based office products (excluding
computer forms and copy paper) in North America. The Company attributes its
leading position in the paper-based office products segment and its continued
opportunities for growth and profitability to the following competitive
strengths:
. Market Leader. The Company has achieved market leadership in core products
sold to customers in the largest and fastest growing office products channels
by offering one of the broadest assortments of high quality products in the
industry. Furthermore, the Company enjoys national brand awareness in many of
its product lines, including Ampad, Century, Embassy, Evidence, Gold Fibre,
Huxley, Karolton, Kent, Peel & Seel, SCM, Williamhouse and World Fibre.
. Well-Positioned and Diversified Customer Base. The Company has substantial
opportunities for growth within several distribution channels of the office
products industry. The Company has focused on the largest and fastest growing
office products channels, with several of the Company's largest customers,
such as Boise Cascade Office Products, BT Office Products, Corporate Express,
Office Depot, OfficeMax and Staples, expected by industry analysts to
experience annual revenue growth of 15% to 35% over the next five years. The
Company's Williamhouse division maintains particularly strong relationships
with the largest and fastest growing paper merchants/distributors in the
market, including ResourceNet, Unisource and Zellerbach. The Company also
maintains strong customer relationships across all of the other office
products distribution channels, including mass merchandisers, warehouse clubs,
office products wholesalers and independent dealers.
. National Scale and Service Capability. The Company's extensive product line,
multiple brands and broad price point coverage provide significant advantages
and economies of scale in selling to and servicing its customers. The Company
has become an increasingly important strategic partner to its customers as
they seek higher value-added products, simplify their purchasing organizations
and consolidate their relationships among selected national suppliers. The
Company's national presence and network of 22 strategically located facilities
have enabled it to maintain rapid and efficient order fulfillment standards.
In addition, the Company's advanced EDI capabilities enable it to meet its
customers' EDI requirements, executing automated transactions rapidly,
efficiently and accurately.
. Innovation/New Products. The Company has introduced several innovative
products as part of its marketing strategy to differentiate itself from other
suppliers and enhance profitability. Recent examples include Gold Fibre
classic and designer notebooks, Papers with a Purpose, World Fibre ground-wood
writing pads and Peel & Seel envelopes. Products introduced since 1992
accounted for over $70 million of the Company's 1995 net sales. The Company's
brand recognition and presence with its national customers allows it to more
easily introduce new or acquired product lines to those customers.
. Low-Cost Manufacturer. The Company believes it is among the lowest-cost
manufacturers of paper-based office products in the industry. The Company
ensures its low-cost manufacturing position through its paper
41
<PAGE>
purchasing and distribution advantages as well as its maintenance of modern
and efficient manufacturing technology and a high quality workforce. The
Company has been successful in reducing costs with each of its acquisitions in
the last three years by continually streamlining its manufacturing processes
and overhead structure. From 1992 to 1995, the Company reduced its fixed
manufacturing costs from 7.4% to 5.2% of net sales and its selling, general
and administrative expenses from 10.5% to 7.2% of net sales. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview."
. Purchasing Advantages. The Company has strong relationships with most of the
country's largest paper mills, many of which have been conducting business
with the Company for more than 30 years. The Company is one of the largest
purchasers of the principal paper grades used in its manufacturing operations.
In addition, the Company has the largest number of designated mill
relationships which involve some of the largest and most recognized paper mill
brands such as Hammermill, Hopper, Neenah and Strathmore. These relationships
afford the Company certain paper purchasing advantages, including stable
supply and favorable pricing arrangements.
. Proven Management Team With Successful Track Record. The Company's senior
operating management team averages over 25 years each in the paper products
industry. Management has succeeded in increasing sales and operating
profitability by recognizing and acting on the transition to the fastest
growing distribution channels, introducing higher value-added products,
acquiring complementary product lines (Karolton in December 1993, SCM in July
1994 and certain product lines of Huxley and Globe-Weis in July 1994 and
August 1995, respectively), improving manufacturing processes and reducing
overhead and administrative costs.
GROWTH STRATEGY
The Company's strategy is to maintain and strengthen its leadership position
by focusing on the following.
. Focus on Rapidly Growing Customers. The Company serves many of the largest and
best positioned customers in the office products market segment including
national office product superstores, mass merchandisers and warehouse clubs,
national contract stationers and national paper merchants/distributors. For
1995 on a pro forma basis, approximately 15.3% of the Company's net sales were
to national office product superstores, 7.8% to mass merchandisers and
warehouse clubs, 9.1% to national contract stationers and 19.7% to the three
largest national paper merchants/distributors. Anticipating further
consolidation in the office products industry, the Company expects that its
national scope and broad product line will be increasingly important in
meeting the needs of its customers. The Company will continue to target those
customers driving consolidation in the office products industry.
. Continue to Introduce New Products. New, higher value-added products give the
Company a greater selection to offer its customers and improve product line
profitability for both the Company and its customers. The Company plans to
differentiate itself from other suppliers and improved profitability through
product innovation, differentiation and line extensions.
. Pursue Complementary Product Line and Strategic Acquisitions. The office
products industry is highly fragmented despite continued consolidation among
office product manufacturers. The Company has led the consolidation among
manufacturers of writing products and filing supplies, as demonstrated by its
acquisitions of SCM, Globe-Weis and Williamhouse. These acquisitions have
broadened the Company's product line to include filing products and envelopes
and have enhanced its presence in the growing distribution channels. The
Company believes there are significant opportunities to acquire companies in
both its existing and complementary product lines. In addition, the Company
intends to enter new office product markets by acquisitions of established
companies in those markets.
. Broaden Product Distribution. The Company's market presence and distribution
strengths uniquely position it to sell new or acquired product lines across
its distribution channels, including national office product superstores,
national contract stationers, office product wholesalers and mass
merchandisers. As an important part of its growth strategy, for example, the
Company has successfully introduced the envelope product lines acquired in the
Acquisition, previously distributed primarily through paper
merchants/distributors, to its existing office products distribution channels
under the Ampad and private label names. The Company estimates that this
market opportunity is approximately $350 million in annual net sales.
42
<PAGE>
. Continue to Reduce Costs. The Company has identified and is in the process of
implementing cost reductions in connection with the Acquisition that are
expected to result in approximately $7.4 million of annual cost savings
following the adoption of such measures. In addition, management plans to
implement further identified cost reductions beyond 1996.
SALE OF PERSONALIZING DIVISION
The Company's management identified the Personalizing Division of Williamhouse
as a nonstrategic asset following the Acquisition and has decided to pursue a
sale of the Personalizing Division. As a result, the financial statements of
the Company included elsewhere in this Prospectus reflect the Personalizing
Division as "Assets held for Sale" as of December 31, 1995 and March 31, 1996.
On April 17, 1996, the Company signed a letter of intent with a potential buyer
to sell the Personalizing Division. Under the terms of such letter, the Company
will receive gross proceeds of approximately $60 million (subject to certain
closing adjustments) from the sale of the Personalizing Division. To date, the
Company has not signed definitive agreements with respect to such sale and, as a
result, no assurance can be given that the sale will be completed or, if
completed, will be on the terms outlined herein. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
PRODUCTS AND SERVICES
Pads and Other Paper-Based Writing Products. The Company is the largest
manufacturer and marketer of paper-based writing products (excluding computer
forms and copy paper) in North America, offering more than 2,200 SKUs of writing
pads, notebooks and specialty papers. Many of the Company's writing products
are available in multiple sizes, grades of paper (including recycled), and
colors and with glued, perforated tops or wire binding. All writing products
are offered under the Ampad brand name or a retailer's private label. During
the past three years, the Company has focused on the introduction of new and
innovative products such as Gold Fibre classic and designer notebooks, Papers
with a Purpose and World Fibre ground-wood writing pads. The Company has also
created innovative packaging, especially for sale through warehouse clubs (bulk
and crate packaging), superstores and mass merchandisers.
Filing Supplies. The Company is one of the three largest manufacturers of
filing supplies in North America. The product line includes more than 800 SKUs
of filing supplies including file folders, hanging files, index cards and
expandable folders under the SCM and Globe-Weis brand names. The Company has
been expanding its market share in filing supplies by focusing its sales efforts
on large retail customers and contract stationers, where its writing products
enjoy the leading market share position.
Envelopes. The Company is the largest manufacturer of envelopes serving the
paper merchant/distributor channel and sold over 10 billion envelopes in 1995.
The Company's broad envelope product line includes products manufactured from
mill branded paper, which is paper unique in color and texture to a particular
mill, typically with an identifying watermark. The Company is the designated
envelope manufacturer for 33 mill brands, which is approximately twice as many
as its nearest competitor. These brands include the Hammermill, Strathmore and
Beckett divisions of International Paper Company, the Hopper division of Georgia
Pacific Corporation, the Neenah division of Kimberly-Clark Corporation and the
Gilbert division of Mead.
The Company also produces a wide variety of standard size and specialty
envelopes made from commodity paper and Tyvek(R) (a high density polyurethane
based product made by DuPont), including booklet and catalog mailing envelopes,
envelopes closable by metal clasp or button-and-string, Peel & Seel (pressure
sensitive adhesion) envelopes, and giant, X-ray and remittance envelopes. The
Company offers in excess of 30,000 SKUs of envelopes (which the Company believes
is more than any of its competitors), providing its customers with a wide choice
of paper grades, colors and sizes.
Invitations and Announcements. The Company is among the largest manufacturers
of invitations and announcements, Christmas and holiday cards, and presentation
folders. These products are sold principally to paper merchants/distributors,
personalizing businesses (including the Personalizing Division), and other
wholesale outlets throughout the United States. The Company offers a wide
variety of such products, primarily made from the same mill branded grades of
paper used in manufacturing envelopes.
43
<PAGE>
The following chart illustrates the Company's principal products and customers
and selected brands in its primary business segments:
[CHART APPEARS HERE]
Products
--------
. Pads and Notebooks . Envelopes
. Filing Supplies . Invitations
. Envelopes . Announcements
. Christmas and Holiday Cards
Customers
---------
. Retailers . Paper Merchants/Distributors
. Contract Stationers . Jobbers
. Wholesalers . Personalizing Businesses
. Buying Groups
Selected Brands
---------------
. Ampad(R) . Century(TM)
. Embassy(R) . Huxley(TM)
. Evidence(R) . Karolton(R)
. Globe-Weis(R) . Kent(R)
. Gold Fibre(R) . Peel & Seel(R)
. SCM(TM) . Williamhouse(TM)
. World Fibre(TM)
SALES, DISTRIBUTION AND MARKETING
The Company markets its broad range of products to a wide variety of
customers. In 1995, only two customers accounted for more than ten percent of
the Company's net sales. The Company's aggregate net sales to Sam's Warehouse
Club/Wal-Mart and Office Depot accounted for approximately 14.8% and 12.7% of
the Company's net sales for 1995, respectively.
The Company markets its writing products and filing supplies through virtually
every channel of distribution for paper-based office products including the
largest mass merchant retailers, office product superstores, warehouse clubs,
major contract stationers, paper merchants/distributors and other traditional
outlets for office supplies such as office product wholesalers, independent
dealers, buying groups and mail order companies.
The Company sells its envelopes principally to paper merchants/distributors
and other wholesale outlets throughout the United States, primarily through an
in-house sales force. In addition, all branded products are sold directly to
personalizing businesses (including the Personalizing Division). The Company
currently employs sales representatives at 20 locations throughout the United
States and sells products to over 2,000 paper merchants/distributors in the
United States and Canada. As an important part of its growth strategy, the
Company has successfully introduced
44
<PAGE>
the envelope product lines acquired in the Acquisition, previously distributed
primarily through paper merchants, to its existing office products distribution
channels under the Ampad and private label names. The Company estimates that
this market opportunity is approximately $350 million in net sales.
The following chart illustrates some of the Company's key customers:
KEY CUSTOMERS
-------------
Office Products Superstores: Mass Merchandisers: Paper Merchants/Distributors:
Office Depot Wal-Mart ResourceNet
OfficeMax Unisource Zellerbach
Staples
Contract Stationers: Office Products Wholesalers: Warehouse Clubs:
Boise Cascade Office Products S.P. Richards Sam's Warehouse Club
BT Office Products United Stationers
Corporate Express
Office Depot*
Staples*
- -----------------
*Contract stationers division
The Company has targeted and will continue to target those customers driving
consolidation in the office products industry and believes that it is uniquely
positioned to meet the special requirements of these customers in the growing
distribution channels of the office products industry. These customers seek
suppliers, such as the Company, who are able to offer a broad product line,
higher value-added innovative products, national distribution capabilities, low
costs and reliable service. Furthermore, as these customers continue to grow
and they consolidate their supplier bases, the Company's ability to meet their
requirements will be an increasingly important competitive advantage.
Recognizing the Company's potential for growth through the changing distribution
channels, Bain Capital and management purchased the Company from Mead in 1992.
Since that time, management has enhanced the Company's scale, broadened its
product line, expanded upon its national presence and strengthened its
distribution capabilities through acquisition and innovation while
simultaneously delivering higher customer service levels. As a result, the
Company's sales through the most rapidly growing retail and commercial channels
increased from $8.8 million in 1992 to $134.8 million ($164.5 million on a pro
forma basis) in 1995. For the same period, the Company's sales to the three
largest paper merchants/distributors increased from $75.6 million to $100.6
million.
COMPETITION
The markets for the Company's products are highly competitive. Competition is
based largely on a company's ability to offer a broad range of products on a
regional or national scale at competitive prices and to deliver these products
on a timely basis. The Company has many local and regional competitors. The
markets in which the Company operates have become increasingly characterized by
a limited number of large companies selling under recognized trade names. These
larger companies, including the Company, have the economies of scale, national
presence, management information systems and breadth of product line required by
the major customers. In addition to branded product lines, manufacturers also
produce private-label products, especially in the context of broader supply
relationships with office product superstores and contract stationers.
The writing products industry is fragmented, ranging from large national
manufacturers to localized jobbers and printers. A few manufacturers, including
the Company, have developed strong brand name recognition for a limited number
of product lines. Other national companies include Mead, the Tops division of
Wallace Computer Services, the Stuart Hall division of Newell Co. and Pen-Tab
Industries.
In the filing supplies segment, the Company's key domestic competitors include
Smead Manufacturing and Esselte A.B.
45
<PAGE>
Envelope manufacturers compete in three distinct channels. In the paper
merchant/distributor channel, where the Company competes, manufacturers sell a
wide variety of mill branded, specialty and commodity envelope products to
paper merchants/distributors. The Company's principal competitor in this
channel is New York/National Envelope Group of National Envelope Corporation, a
private company. Other competitors in this channel include Niagara Envelope and
Murray Envelope Corp. In the direct channel, manufacturers sell customized
envelopes directly to high volume corporate users and mass mailers. Mail-Well
is the leading company in this channel. In the office products channel,
manufacturers including Westvaco and Quality Park produce commodity mailing
envelopes for retail sale.
INTELLECTUAL PROPERTY
The Company registers some of its material trademarks, tradenames and
copyrights and has acquired patent protection for some of its proprietary
processes. In the opinion of management, the Company has current trademark
rights to conduct its business as now constituted. The Company has the right to
use the Globe-Weis name on a non-exclusive basis through August 1998, pursuant
to the Company's purchase of certain file folder and hanging file assets from
Atapco. The Company does not expect that the loss of the right to use the
Globe-Weis name will have a material adverse effect on its results of
operations.
EMPLOYEES
As of March 31, 1996, the Company employed a total of 3,198 full-time persons,
including 3,170 manufacturing, sales and administrative personnel and 28
corporate staff members. In addition, the Personalizing Division (currently
held as "Assets Held for Sale") had 1,832 employees at March 31, 1996. All of
the Company's operations are non-union except for the operations at the
facilities located in Fresno, California; Scottdale, Pennsylvania; Miamisburg,
Ohio; and Appleton, Wisconsin which have, in total, approximately 900 union
employees. The collective bargaining contracts covering the Company's employees
will expire as follows: the Miamisburg contract expires December 31, 1996; the
Appleton contract expires March 31, 1997; and the Scottdale contract expires
April 30, 1998. The Company is currently in the process of closing its Fresno
facility. With the exception of a strike at the Company's Indiana plant, as
described below, there have been no work stoppages at any Company facility
during the last five years. The Company believes that its relations with its
employees and unions are satisfactory.
In July 1994, the Company acquired the writing products and filing supplies
assets of SCM. Work rules and associated costs at SCM's plant in Indiana were
less favorable than those at other plants of the Company. As a result of
management's effort to bring the labor agreement at the Indiana plant more in
line with market labor agreements, a labor strike occurred on September 1, 1994.
Consequently, the Company closed the Indiana on February 15, 1995 and moved the
equipment to other facilities operated by the Company. By July 1995, all
machinery and equipment previously operated in Indiana was available for
production in other facilities of the Company.
PROPERTIES AND FACILITIES
As of March 31, 1996, the Company operated manufacturing, distribution, office
and warehouse space in the United States with a total floor area of
approximately 3,717,716 square feet of this footage, 989,500 square feet are
leased and approximately 2,728,216 square feet are owned. The Personalizing
Division operates through 10 primary facilities with a total floor space of
approximately 736,500 square feet.
To provide a cost efficient supply of products to its customers, the Company
maintains centralized management of nationwide manufacturing and distribution
facilities. Since 1992, the Company has consolidated ten manufacturing and
distribution facilities into five facilities. The Company's management is
evaluating the potential closure of additional space acquired pursuant to the
Acquisition. All of the Company's owned facilities are pledged as collateral
under the Bank Credit Agreement and are expected to be similarly pledged under
the New Bank Credit Agreement.
The Company believes that substantially all of its property and equipment are
in good condition and that it has sufficient capacity to meet its current and
projected manufacturing and distribution needs in the foreseeable future. The
following table describes the principal properties of the Company (other than
sales service centers, sales office space, temporary warehouse space and
facilities associated with the Personalizing Division) as of March 31, 1996:
46
<PAGE>
<TABLE>
<CAPTION>
LOCATION BUSINESS OWNED OR EXPIRATION OF SQUARE
DIVISION(1) LEASED LEASE(2) FEET
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA
Fresno A Leased 1997(c) 42,900
Fresno A Leased 1997(c) 84,200
City of Industry W Owned 85,000
City of Industry W Leased 2008(a)(b) 105,000
West Sacramento W Leased 2000(b) 37,000
Rancho Cucamonga W Leased 1996(b) 12,800
COLORADO
Denver W Leased 1996(b) 21,100
GEORGIA
Moultrie W Owned 50,000
ILLINOIS
Mattoon A Leased month-to month 29,200
Mattoon A Owned 261,800
Mattoon A Leased 3 month 25,200
Mattoon A Leased 1996(b) 58,900
Chicago W Leased 1996(b) 33,000
Chicago W Owned (f) 200,000
INDIANA
Marion A Owned (d) 218,000
MASSACHUSETTS
Westfield A Owned 128,000
Holyoke A Owned (f) 572,416
Millbury W Leased 1996(b) 30,100
MISSISSIPPI
Kosciusko A Leased 1997(b)(c)(h) 70,600
NEW JERSEY
Bloomfield W Leased 2003 94,000
NEW YORK
New York City W Leased 2009 22,000
OHIO
Miamisburg W Leased 1998(b)(g) 177,000
PENNSYLVANIA
Scottdale W Owned 400,000
Mt. Pleasant W Leased 1999(b) 11,000
TENNESSEE
Morristown W Owned 140,000
TEXAS
Dallas Corporate Leased 1998 14,500
Headquarters
Corsicana W Owned 250,000
UTAH
North Salt Lake City A Owned 110,000
North Salt Lake City A Leased 2001(e) 97,000
WASHINGTON
Kent W Leased 1999 24,000
WISCONSIN
Appleton W Owned 313,000
</TABLE>
______________________
47
<PAGE>
(1) "A" indicates operations associated with the Company's Ampad division and
"W" indicates operations associated with the Company's Williamhouse
division.
(2) (a) Lease contains option to purchase.
(b) Lease or sublease contains an extension or renewal option.
(c) Sublease.
(d) Vacant (currently under contract for sale).
(e) Two leases at this location.
(f) Two properties owned at this location.
(g) Lease contains a right of first refusal.
(h) Sublease contains option to assume prime lease.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the conduct
of its business. Management does not believe that the outcome of any of the
matters in which it is currently involved will have a material adverse effect on
the financial condition or results of operations of the Company. See "--
Environmental, Health and Safety Matters."
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company is subject to federal, state, and local environmental and
occupational health and safety laws and regulations. Such laws and regulations
impose limitations on the discharge of pollutants and establish standards for
management of waste. While there can be no assurance that the Company is at all
times in complete compliance with all such requirements, the Company has made
and will continue to make capital and other expenditures to comply with such
requirements. The Company spent approximately $7,200 in 1995 on environmental
capital projects. The Company estimates that its environmental capital
expenditures will be approximately $100,000 in each of 1996 and 1997. As is the
case with manufacturers in general, if a release of hazardous substances occurs
on or from the Company's properties or any associated offsite disposal location,
or if contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable and the amount of such liability
could be material.
The City of Industry, California facility is located within an area of
regional groundwater contamination designated as the San Gabriel Valley National
Priority List Area. The Company does not believe its operations have
contributed to the contamination and to date the Company has not received a
notice of potential liability with respect to that site.
The Company's Ampad division has been named a potentially responsible party
("PRP") under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), at five waste disposal sites. The
Company settled its liability at four of these sites as a de minimis party. At
the Spectron site in Elkton, Maryland, the Company paid approximately $1,300 in
1989 as a de minimis settlement for an initial removal action at the site. In
1995, the Company received a notice of a remedial action at the site, and based
upon its allocation in 1989, expects to be eligible for a de minimis or de
minimis settlement. Although the Company endeavors to manage its wastes
carefully, because CERCLA liability is strict and retroactive, it is possible
that in the future the Company may be identified as a PRP with respect to other
waste disposal sites.
48
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Directors of the Company and the Subsidiary Guarantors are elected annually
by their respective stockholders to serve during the ensuing year or until a
successor is duly elected and qualified. Executive officers of the Company and
the Subsidiary Guarantors are duly elected by their respective Board of
Directors to serve until their respective successors are elected and qualified.
The following table sets forth certain information with respect to the directors
and executive officers of the Company.
NAME AGE POSITION
- ---- --- --------
Charles G. Hanson, III 55 Chief Executive Officer and Director
Russell M. Gard 48 Chief Operating Officer and Director
Gregory M. Benson 41 Chief Administrative Officer, Executive Vice
President, Secretary and Director
Timothy E. Needham 47 Executive Vice President
Edward Norton 53 Executive Vice President
Frank Ginolfi 49 Vice President - Finance, Williamhouse Division
Robert C. Gay 44 Director
Jonathan S. Lavine 30 Director
Marc B. Wolpow 37 Director
The following table set forth certain information with respect to the
directors and executive officers of the Subsidiary Guarantors.
NAME AGE POSITION
- ---- --- --------
Gregory M. Benson 41 President, Secretary, Chief Financial Officer
and Director
Jonathan S. Lavine 30 Director
Frank Ginolfi 49 Vice President
CHARLES G. HANSON, III serves as Chief Executive Officer and Director of
the Company and has served as Chief Executive Officer and Director of American
Pad & Paper Company since 1992. From 1992 to 1995, Mr. Hanson served as Chairman
of the Board, Chief Executive Officer and Director of Ampad Corporation. Mr.
Hanson was formerly the President and Chief Operating Officer of Stuart Hall Co.
Inc. and Group Vice President of Pen-Tab Industries, Inc.
RUSSELL M. GARD serves as President, Chief Operating Officer and Director
of the Company and has served as President, Chief Operating Officer and Director
of American Pad & Paper Company since 1992. From 1992 to 1995, Mr. Gard served
as President, Chief Operating Officer and Director of Ampad Corporation. Mr.
Gard has experience with several paper converters, most recently with Pen-Tab
Industries, Inc.
GREGORY M. BENSON serves as Chief Administrative Officer, Executive Vice
President, Secretary and Director of the Company and, in such capacities,
functions as the Company's chief financial officer. Mr. Benson has served as
49
<PAGE>
Chief Financial Officer, Chief Administrative Officer and Director of American
Pad & Paper Company since 1992. Mr. Benson also serves as the President,
Secretary, Chief Financial Officer and Director of the Subsidiary Guarantors.
From 1992 to 1995, Mr. Benson served as Chief Financial Officer, Chief
Administrative Officer and Director of Ampad Corporation. Mr. Benson was at GE
Capital Corporation from 1977 to 1992.
TIMOTHY E. NEEDHAM serves as Executive Vice President of the Company. Mr.
Needham served as Chairman of the Board of Williamhouse in 1995 and as a
Director from 1993 to 1995. From 1987 to 1995, Mr. Needham served as President
of Williamhouse and from 1992 to 1995, as Chief Operating Officer of
Williamhouse.
EDWARD NORTON serves as Executive Vice President of the Company. Mr. Norton
served as President of Williamhouse in 1995 and as a Director from 1994 to 1995.
From 1984 to 1995, Mr. Norton served as Vice President and Group Chairman--
Converting Group of Williamhouse.
FRANK GINOLFI serves as Vice President - Finance of the Williamhouse
division of the Company and, prior to the Acquisition, served as Chief Financial
Officer of Williamhouse. Mr. Ginolfi also serves as Vice President of the
Subsidiary Guarantors. Mr. Ginolfi served as Vice President--Finance and
Administration and Chief Financial Officer of Williamhouse from 1991 to 1995.
From 1985 to 1991, Mr. Ginolfi served as the Controller of Williamhouse.
ROBERT C. GAY serves as a Director of the Company and has served as a
Director of American Pad & Paper Company since 1992. Mr. Gay has been a
Managing Director of Bain Capital since 1993 and has been a General Partner of
Bain Venture Capital since 1989. From 1988 through 1989, Mr. Gay was a principal
of Bain Venture Capital. Mr. Gay is also Vice Chairman of the Board of Directors
of IHF Capital, Inc., parent of ICON Health & Fitness Inc. In addition, Mr. Gay
is a director of Alliance Entertainment Corp., GT Bicycles, Inc., GS Industries,
Inc. and its subsidiary GS Technologies Operating Co., Inc., and Physio-Control
International Corporation.
JONATHAN S. LAVINE serves as a Director of the Company and has served as a
Director of American Pad & Paper Company since 1995. Mr. Lavine also serves as
a Director of the Subsidiary Guarantors. Mr. Lavine has been a Principal at Bain
Capital since 1995 and was an associate at Bain Capital from 1993 to 1995. In
1992, Mr. Lavine was a consultant at McKinsey & Co. Mr. Lavine attended the
Harvard Business School from 1990 to 1992. Prior thereto, Mr. Lavine worked in
the mergers and acquisitions department of Drexel Burnham Lambert, Incorporated.
MARC B. WOLPOW serves as a Director of the Company and has served as a
Director of American Pad & Paper Company since 1992. Mr. Wolpow has been a
Managing Director of Bain Capital since 1993 and was a Principal of Bain Venture
Capital from 1990 through 1992. From 1988 to 1990, Mr. Wolpow was a Vice
President in the corporate finance department of Drexel Burnham Lambert,
Incorporated. Mr. Wolpow is also a director of Waters Corporation, The Holson
Business Group, Inc. and FTD, Inc.
There are no family relationships between any of the Directors or executive
officers of the Company or the Subsidiary Guarantors.
50
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued for years ended December 31, 1993, 1994 and 1995 for the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company as of the end of the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------- ----------------------
SECURITIES UNDERLYING ALL OTHER
OPTIONS (#) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMMON/PREFERRED ($)(5)
- --------------------------- ---- ---------- --------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Charles G. Hanson, III (1)(2) 1995 $250,000 $809,859 2,749/275(5) $ 4,595
Chief Executive Officer
Russell M. Gard (1) 1995 225,000 723,837 2,730/273(5) 1,553
Chief Operating Officer
Gregory M. Benson (1) 1995 175,000 400,000 2,630/263(5) 683
Chief Administrative Officer and
Executive Vice President
Timothy E. Needham 1995 300,000 75,000 -- 2,012
Executive Vice President (3)(6) 1994 280,000 105,000 -- 1,912
1993 260,000 58,500 48(7) 2,169
Edward Norton 1995 300,000 75,000 -- 4,342
Executive Vice President (4)(6) 1994 192,500 39,375 -- 4,973
1993 175,000 40,000 90(7) 3,869
Martin R. Lewis (2)(6) 1995 487,113 137,500 -- 41,627
1994 510,000 191,250 -- 39,575
1993 474,000 106,650 248(7) 33,551
</TABLE>
___________________
(1) For the first ten months of fiscal year 1995 (i.e., before the
Acquisition), Ampad paid the compensation for Messrs. Hanson, Gard and
Benson. After the Acquisition, the Company paid such compensation. The
compensation stated in the table for these executive officers includes
amounts received from both Ampad and the Company for fiscal year 1995.
(2) Mr. Hanson became Chief Executive Officer of the Company in November 1995.
Before such time, Mr. Lewis was the Chief Executive Officer of the Company.
(3) Prior to November 1995, Mr. Needham was Chairman of the Board of the
Company.
(4) Prior to November 1995, Mr. Norton was President of the Company.
(5) Amounts shown represent options to purchase common stock and Preferred
Stock of APP. If APP consummates the Proposed Equity Offering and the
Recapitalization, all options will be converted into options to purchase
Class A Common Stock. This will result the executives owning the following
options: Mr. Hanson - 50,316; Mr. Gard - 49,968; and Mr. Benson - 48,138.
51
<PAGE>
(6) For the first ten months of fiscal year 1995 (i.e., before the
Acquisition), Williamhouse paid the compensation for Messrs. Needham and
Norton. After the Acquisition, the Company paid such compensation. The
compensation stated in the table for these executive officers includes
amounts received from both the Company and Williamhouse for fiscal year
1995. Prior to the Acquisition, Williamhouse filed periodic reports under
the Exchange Act and in connection therewith was previously required to
disclose the compensation of Messrs. Needham and Norton for 1994 and 1993.
As a result, such information is included herein.
(7) Options were for common stock of WR, the parent corporation of
Williamhouse.
(8) The amounts shown for "All Other Compensation" for 1995 for Messrs. Lewis
and Norton include $41,277 and $3,992, respectively, representing the
taxable portion of split dollar life insurance paid by the Company for such
individuals; the amount for Mr. Needham includes $1,662, representing the
taxable portion of group life insurance premiums paid by the Company for
Mr. Needham. All other amounts shown for Messrs. Lewis, Needham and Norton
represent a $350 contribution made by the Company on the behalf of each
such individuals to the Company's 401(k) Plan. The amounts shown for
Messrs. Hanson, Gard and Benson represent $4,595, $1,553 and $683,
respectively, representing life insurance premiums paid by the Company for
such individuals.
The amounts shown for "All Other Compensation" for 1994 for Messrs. Lewis
and Norton include $39,325 and $4,723, respectively, representing the
taxable portion of split dollar life insurance premiums paid by the Company
for such individuals; the amounts for Mr. Needham include $1,662,
representing the taxable portion of group term life insurance premiums paid
by the Company for Mr. Needham. All other amounts shown ($250 for each of
Messrs. Lewis, Needham and Norton) represent amounts contributed by the
Company on behalf of the named individuals to the Company's 401(k) Plan.
The amounts shown for "All Other Compensation" for 1993 for Messrs. Lewis
and Norton include $33,401 and $3,719, respectively, representing the
taxable portion of split dollar life insurance premiums paid by the Company
for such individuals; the amounts for Mr. Needham include $2,019
representing the taxable portion of group term life insurance premiums paid
by the Company for Mr. Needham. All other amounts shown ($150 for each of
Messrs. Lewis, Needham and Norton) represent amounts contributed by the
Company on behalf of the named individuals to the Company's 401(k) Plan.
52
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
by APP or WR, as the case may be, to Mr. Hanson and the other named executives
who received stock options during the last fiscal year. Mr. Lewis was not
granted any options during the last fiscal year. The Company and the Subsidiary
Guarantors granted no options during the last fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(7)
- ------------------------------------------------------------------------------------------------------------------------------------
% OF
TOTAL
NUMBER OF OPTIONS MARKET
SECURITIES GRANTED TO PRICE ON
UNDERLYING EMPLOYEES EXERCISE OR DATE OF
OPTIONS IN BASE PRICE GRANT EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) ($/SH) DATE 0%($) 5%($) 10%($)
- ---- ----------- ----------- ---------- ------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles G. Hanson, III 2,749.0 (1)(2) 33.9% $0.06 $ 19.33 (6) $ 52,973.23 $86,391.56 $137,661.66
274.9 (2)(3) 33.9 3.60 1948.50 (6) 534,653.00 -- --
Russell M. Gard 2,730.0 (1)(2) 33.7 0.06 19.33 (6) 52,607.10 85,794.46 136,710.20
273.0 (2)(3) 33.7 3.60 1948.50 (6) 530,958.00 -- --
Gregory M. Benson 2,630.0 (1)(2) 32.4 0.06 19.33 (6) 50,680.10 82,651.80 131,702.50
263.0 (2)(3) 32.4 3.60 1948.50 (6) 511,509.00 -- --
Timothy E. Needham 62.0 (3)(4) 11.2 1,312.50 2,625.00 2005 -- -- --
Edward Norton 152.0(3)(4) 27.4 1,312.50 2,625.00 2005 -- -- --
</TABLE>
- --------------------
(1) Options for common stock of APP.
(2) Amounts shown represent options to purchase common stock and Preferred
Stock of APP. If APP consummates the Proposed Equity Offering and the
Recapitalization, all options will be converted into options to purchase
Class A Common Stock. This will result the executives owning the following
options: Mr. Hanson - 50,316; Mr. Gard - 49,968; and Mr. Benson - 48,138.
(3) Options for Preferred Stock of APP.
(4) Options for common stock of WR.
(5) Market price was determined in good faith by the Company's Board of
Directors on the date of grant.
(6) Options will expire on the date of the termination of the executive
officer's employment with APP or any of its subsidiaries for any reason.
(7) Amounts reflect certain assumed rates of appreciation set forth in the
SEC's executive compensation disclosure rules. Actual gains, if any, on
stock options exercises depend on future performance of the Company's stock
and overall market conditions. At an annual rate of appreciation of 5% per
year for the option term, the price of the common stock would be
approximately $31.49 for the common stock. At an annual rate of
appreciation of 10% per year for the option term, the price of the common
stock would be approximately $50.14 for the common stock. For purposes of
this calculation, the option terms were assumed to be ten years. See Note
(3). By its terms, the value of a share of Preferred Stock is limited to
its liquidation value. Accordingly, the Company has not set forth the
appreciated values for the Preferred Stock in the table. The appreciation
on options for common stock of WR held by Messrs. Needham and Norton, were
not calculated. All such options were exercised immediately prior to the
Acquisition.
53
<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised
during or held outstanding at the end of the last fiscal year by Mr. Hanson and
the other named executives. All outstanding options are currently exercisable
and are for securities of APP. The Company and the Subsidiary Guarantors do not
have options outstanding. There were no options exercised in the last fiscal
year for securities of APP. The options listed in the table under the heading
"Shares Acquired on Exercise" were sold to APP in connection with the
Transactions and the amounts received as a result of such sales are listed in
the table under the heading "Value Realized." See "Stock Options."
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-
ACQUIRED AT FY-END (#) MONEY OPTIONS AT FY-END
NAME ON EXERCISE (#) VALUE REALIZED ($) COMMON/PREFERRED ($) COMMON/PREFERRED (6)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles G. Hanson, III 1,780(1) $3,406,400 50,782/3,297.95(5) $951,950/$6,310,407
Russell M. Gard 1,691(2) 3,251,379 48,235/3,132.55(5) 911,742/6,023,323
Gregory M. Benson 1,244(3) 2,401,584 35,497/2,305.29(5) 675,151/4,448,940
Timothy E. Needham 372(4) 1,737,238 -- --
Edward Norton 302(4) 1,371,708 -- --
Martin R. Lewis 448(4) 2,045,895 -- --
</TABLE>
___________________________
(1) Number includes options for (i) 1,683.8732 shares of Preferred Stock sold
pursuant to the Option Purchase Agreement and (ii) 96.38 shares of
Preferred Stock sold pursuant to the 1995 Option Purchase Agreement.
(2) Number includes options for (i) 1,595.2501 shares of Preferred Stock sold
pursuant to the Option Purchase Agreement and (ii) 95.6967 shares of
Preferred Stock sold pursuant to the 1995 Option Purchase Agreement.
(3) Number includes options for (i) 1,152.2049 shares of Preferred Stock sold
pursuant to the Option Purchase Agreement and (ii) 92.2100 shares of
Preferred Stock sold pursuant to the 1995 Option Purchase Agreement.
(4) Options were for common stock of WR Acquisition, Inc., the parent
corporation of Williamhouse. See "Certain Relationships and Related
Transactions - Acquisition Arrangements."
(5) Amounts shown represent options to purchase common stock and Preferred
Stock of APP. If APP consummates the Proposed Equity Offering and the
Recapitalization, all options will be converted into options to purchase
Class A Common Stock. This will result the executives owning the following
options: Mr. Hanson - 712,693; Mr. Gard - 676,949; and Mr. Benson -
498,177.
(6) Assumes a fair market value of the common stock and Preferred Stock at
December 31, 1995 equal to $19.33 and $1,948.50 per share, respectively.
Amounts shown represent the value of options to purchase common stock and
Preferred Stock of APP. If APP consummates the Proposed Equity Offering and
the Recapitalization, all options will be converted into options to
purchase Class A Common Stock. The value of the resulting options would be
as follows: Mr. Hanson - $7,245,318; Mr. Gard - $7,019,961; and
Mr. Benson - $5,166,095.
DIRECTOR COMPENSATION
Directors of the Company or Subsidiary Guarantors currently do not receive
a salary or an annual retainer for their services.
54
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION
There is currently no compensation committee of the Boards of WR, the
Company or the Subsidiary Guarantors. The principal decisions respecting
compensation of executive officers of the Company and Subsidiary Guarantors are
made by the Compensation Committee of the APP Board, of which Messrs. Gay and
Walpow are members.
MANAGEMENT AGREEMENTS
Change in Control Agreements. Prior to the Acquisition, WR Acquisition
entered into change in control agreements (the "Change in Control Agreements")
with Timothy E. Needham, Edward Norton, Frank Ginolfi, and certain other
officers of Williamhouse, to provide income and benefit protection in the event
of a Change in Control (as defined therein) of WR Acquisition. The term of each
Change in Control Agreement will continue until the expiration of thirty-six
(36) months after the Acquisition. Generally, each officer or employee is
entitled to receive, upon termination of employment during the term of the
Change in Control Agreements (unless such termination is because of death or
disability, by the Company for "Cause" (as defined in the Change in Control
Agreements), or by the officer or employee other than for "Good Reason" (as
defined in the Change in Control Agreements)), (i) a lump sum severance payment
equal to thirty-six (36) months of his or her current annual base salary, as it
may subsequently be increased, (ii) all amounts accrued (but not paid) under any
compensation plan of the Company plus a lump sum payment equal to three times
the average annual amount accrued under any such plan for the three fiscal years
preceding such termination, (iii) continued coverage for three years under
Company's medical and disability plans, and certain other specified benefits,
(iv) all legal fees and expenses incurred by such officer or employee in
enforcing his or her rights under the Change in Control Agreements, and (v) an
amount equal to the sum of (A) any federal excise taxes imposed on such officer
or employee by virtue of receiving the aforementioned payments and (B) any
federal, state or local income taxes which are imposed on such officer or
employee as a result of the Company's payment of such excise taxes. To date, the
Company has paid approximately $2.25 million under such Change in Control
Agreements and believes, based on current compensation levels, that the maximum
amount of the severance payments that could be paid under the Change in Control
Agreements will not exceed $11 million.
1992 Management Agreements. APP, Mr. Hanson, and Tyler Capital Fund, L.P.,
Tyler Massachusetts, L.P., and Tyler International, L.P. II (collectively, the
"Tyler Entities") entered into a Management Agreement, dated as of December 31,
1992 (the "Management Agreement"), pursuant to which Mr. Hanson purchased from
the Tyler Entities (i) 1,800 shares of Class P Common Stock, (ii) 16,200 shares
of APP common stock and (iii) 15% subordinated Ampad promissory notes ("Ampad
Notes") in the aggregate principal amount of $46,034.53, for an aggregate
purchase price of $106,034.53. All the securities described above are referred
to herein as the "Executive Stock." The Management Agreement provides for
certain transfer restrictions on the Executive Stock.
Pursuant to the Management Agreement, Mr. Hanson must consent to a sale of
all or substantially all of the assets or outstanding capital stock of APP to
any person or entity if such sale is approved by the Board of Directors of APP
(the "Board") and the holders of a majority of the common stock then outstanding
(the "Majority"). Mr. Hanson does have limited participation rights under the
Management Agreement if any of the Bain Capital Funds (as defined) sells,
pledges, or otherwise transfers any Common Stock. Under the Management
Agreement, Mr. Hanson is to receive a base salary of at least $250,000 per
annum, a bonus of up to 100% of his average base salary, and severance pay if
his employment is terminated either without cause or due to death or permanent
disability. In addition, Mr. Hanson agreed to certain restrictions on his
ability to compete with APP following his termination of employment. In
connection with Mr. Hanson's relocation from New York to Dallas, Mr. Hanson
received a $117,000 loan from APP. At December 31, 1995, an aggregate of
$112,000 remained outstanding under the loan (the largest amount during the last
fiscal year). Interest on the loan accrues at an annual rate of 6.19% and the
loan is due in 1998.
Messrs. Gard and Benson entered into similar management agreements with APP
and the Tyler Entities. Pursuant to their agreements, Messrs. Gard and Benson
each purchased from the Tyler Entities (i) 1,800 shares of Class P Common Stock,
(ii) 16,200 shares of common stock, and (iii) Ampad Notes in the aggregate
principal amount of
55
<PAGE>
$40,000, for an aggregate purchase price of $100,000. In addition, Messrs. Gard
and Benson are to receive an annual base salary of at least $225,000 and
$175,000, respectively.
1992 IRA Note Purchases. APP, Mr. Hanson, the Tyler Entities and Mr.
Hanson's Individual Retirement Account ("IRA") entered into a Note Purchase
Agreement dated as of December 31, 1992 (the "IRA Note Purchase Agreement")
pursuant to which Mr. Hanson's IRA purchased on his behalf from the Tyler
Entities Ampad Notes in the aggregate principal amount of $13,965.47. Messrs.
Gard and Benson entered into similar IRA note purchase agreements with APP, the
Tyler Entities and their respective IRAs. Pursuant to Messrs. Gard's and
Benson's agreements, the IRA of each purchased on their behalf from Tyler
Entities Ampad Notes in the aggregate principal amount of $20,000.00.
1992 Key Employees Stock Option Plan. On July 31, 1992, the Board of
Directors of the APP ("APP Board") adopted the Ampad Holding Corporation 1992
Key Employees Stock Option Plan (the "1992 Stock Plan"), which authorizes grants
of stock options (including options that are intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code)
and the sales of Common Stock to current or future employees, directors,
consultants or advisers of APP or its subsidiaries. The 1992 Stock Plan
authorizes the granting of stock options for up to an aggregate of 200,000
shares of common stock, subject to adjustment upon the occurrence of certain
events (including, but not limited to, reorganizations, recapitalizations and
stock dividends) to prevent any dilution or expansion of the rights of
participants that might otherwise result form the occurrence of such events.
Under the 1992 Stock Plan, APP Board is authorized to grant options for, or sell
any class or classes of common stock at any time prior to the termination of the
1992 Stock Plan in such quantity, at such price, on such terms and subject to
such conditions as established by the APP Board. To date, options to purchase
an aggregate of 134,514 shares of common stock have been granted to the
executive officers of APP under the 1992 Stock Plan. As a result of the anti-
dilution adjustments associated with the Preferred Stock Dividend, options for
an aggregate of 13,451 shares of Preferred Stock have also been granted under
the 1992 Stock Plan to the executive officers of the APP. APP has not sold any
shares of common stock under the 1992 Stock Plan.
Currently, all options granted pursuant to the 1992 Stock Plan are
exercisable and expire on the termination of the option holder's employment with
APP or any of its subsidiaries. Furthermore, pursuant to all existing
agreements under which options have been granted under the 1992 Stock Plan,
option holders are required to consent to a sale of all or substantially all of
the assets or outstanding capital stock of APP to any person or entity if such
sale is approved by the APP Board or the holders of a majority of the common
stock then outstanding.
1996 Stock Option Plan. Prior to the consummation of the Proposed Equity
Offering, APP plans to adopt the American Pad & Paper Company 1996 Key Employees
Stock Option Plan. The 1996 Stock Plan will provide for the granting to
employees and other key individuals who perform services for the Company the
following types of incentive awards: options to purchase Class A Common Stock,
stock appreciation rights with respect to the Class A Common Stock, restricted
shares of Class A Common Stock, performance grants and other types of awards
that the Compensation Committee deems to be consistent with the purposes of the
1996 Stock Plan. The 1996 Stock Plan will afford APP flexibility in tailoring
incentive compensation to support corporate and business objectives, an to
anticipate and respond to changing business environments and competitive
compensation practices.
An aggregate of ______ shares of Class A Common Stock will be reserved for
issuance under the 1996 Stock Plan. Except for any other adjustments made by
the APP Board relating to a stock split or certain other changes in the number
of shares of Class A Common Stock, or to reflect extraordinary corporate
transactions, further increases in the number of shares authorized for issuance
under the 1996 Stock Plan must be approved by the stockholders of APP.
Non-Employee Director Plan. Prior to the consummation of the Proposed
Equity Offering, APP plans to adopt the American Pad & Paper Company Non-
Employee Director Stock Option Plan. Pursuant to the Non-Employee Director
Plan, each Director (other than Directors who are employees of the Company) will
receive grants of options to purchase Class A Common Stock at the fair market
value as of the time of such grant. Options granted under the Non-Employee
Director Plan will generally terminate ten years after the date of the grant.
An aggregate of _______ shares of Class A Common Stock will be reserved for
issuance under the Non-Employee Director Plan.
56
<PAGE>
Outstanding Options. On July 31, 1992, Messrs. Hanson, Gard and Benson each
entered into a stock option agreement (the "1992 Stock Option Agreement"),
pursuant to which each was granted options to purchase common stock at an
exercise price of $0.42 per share in the following amounts: Mr. Hanson and Mr.
Gard - 40,449 shares; and Mr. Benson - 30,338 shares. In October 1995, the
Company made equitable adjustments to the terms of such agreements to reflect
changes in APP's capital structure as a result of the Preferred Stock Dividend.
As a result, Messrs. Hanson, Gard and Benson were granted options to purchase
4,044.9, 4,044.9 and 3,033.8 shares of Preferred Stock, respectively, at an
exercise price of $3.60 per share and the exercise price for the options to
purchase Common Stock was reduced to $0.06 per share. On December 31, 1994,
Messrs. Hanson, Gard and Benson each entered into a stock option agreement (the
"1994 Stock Option Agreement"), pursuant to which each was granted options to
purchase Common Stock at an exercise price of $25.00 per share in the following
amounts: Mr. Hanson - 7,584 shares; Mr. Gard - 5,056 shares; and Mr. Benson -
2,529 shares. As a result of the Preferred Stock Dividend, the Company made
equitable adjustments to such agreements to reduce the exercise price to $3.57
per share and to issue options for Preferred Stock at an exercise price of
$214.29 per share in the following amounts: Mr. Hanson -758.4 shares; Mr. Gard -
505.6 shares; and Mr. Benson - 252.9 shares.
On December 22, 1995, Messrs. Hanson, Gard and Benson each entered into a
stock option agreement (the "1995 Stock Option Agreement"), pursuant to Messrs.
Hanson, Gard and Benson were granted options to purchase shares of common stock
at an exercise price of $0.06 per share and options to purchase shares of
Preferred Stock at an exercise price of $3.60 per share in the following
amounts: Mr. Hanson - 2,749 shares of Common Stock and 274.93 shares of
Preferred Stock; Mr. Gard - 2,730 shares of common stock and 272.98 shares of
Preferred Stock; and Mr. Benson - 2,630 shares of common stock and 263.03 shares
of Preferred Stock.
If APP consummates the Proposed Equity Offering and the Recapitalization,
all options will be converted into options to purchase Class A Common Stock.
The following options would then be outstanding under the foregoing option
agreements: Mr. Hanson - options to purchase 712,693 shares of Class A Common
Stock at a weighted average purchase price of $.20 per share; Mr. Gard - options
to purchase 676,949 shares of Class A Common Stock at a weighted average
purchase price of $.15 per share; and Mr. Benson -options to purchase 498,177
shares of Class A Common Stock at a weighted average purchase price of $.11 per
share
Option Repurchases. APP and Messrs. Hanson, Gard and Benson entered into
an Option Purchase Agreement, dated as of December 1, 1995 ("Option Purchase
Agreement"), pursuant to which APP purchased from Messrs. Hanson, Gard and
Benson options to acquire in the aggregate 12,640.5 shares of Preferred Stock.
Mr. Hanson sold (i) options acquired pursuant to the 1992 Stock Option Agreement
(the "1992 Options") to purchase 1,418.004 shares of Preferred Stock at a price
of $1,944.90 per share and (ii) options acquired pursuant to the 1994 Stock
Option Agreement (the "1994 Options") to purchase 265.8692 shares of Preferred
Stock at a price of $1,734.21 per share. Mr. Gard sold (i) 1992 Options to
purchase 1,418.004 shares of Preferred Stock at a price of $1,944.90 per share
and (ii) 1994 Options to purchase 177.2461 shares of Preferred Stock at a price
of $1,734.21 per share. Mr. Benson sold (i) 1992 Options to purchase 1,063.5468
shares of Preferred Stock at a price of $1,944.90 per share and (ii) Options to
purchase 92.21 shares of Preferred Stock at a price of $1,734.21 per share.
In addition, APP and Messrs. Hanson, Gard and Benson entered into an Option
Purchase Agreement, dated as of December 22, 1995 ("1995 Option Purchase
Agreement"), pursuant to which (i) Messrs. Hanson, Gard and Benson repaid APP in
the aggregate amount of $14,074.24 due to overpayment to each such individual
under the Option Purchase Agreement, and (ii) APP purchased from Messrs. Hanson,
Gard and Benson options to originally acquired by each such individual under the
1995 Stock Option Agreements purchase shares of Preferred Stock at a price of
$1,944.90 per share. Messrs. Hanson, Gard and Benson (i) repaid APP $5,401.90,
$5054.65 and $3,617.69, respectively, and (ii) sold APP options to acquire
96.3800, 95.6967 and 92.2100, respectively, shares of Preferred Stock.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The Company is a wholly owned subsidiary of WR, which is a wholly owned
subsidiary of APP. APP's authorized capital stock currently consists of
2,000,000 shares of common stock and 150,000 shares of Preferred Stock. The
Preferred Stock has a liquidation value of $1,948.50 per share and, except as
required by law, is nonvoting. As of December 30, 1995, the Class P Common Stock
of APP previously outstanding was converted on a share-for-share basis into
common stock. APP currently has outstanding 900,000 shares of common stock and
58,449 shares of Preferred Stock. The table below sets forth certain
information as of May __, 1996 and after giving effect to the Proposed Equity
Offering (after completion of the related Recapitalization) regarding equity
ownership of APP by (i) each person or entity who beneficially owns five percent
or more of the Common Stock or Preferred Stock, (ii) each Director and executive
officer named in the Summary Compensation Table, and (iii) all Directors and
executive officers of APP as a group. Beneficial ownership of the securities
listed in the table has been determined in accordance with the applicable rules
and regulations promulgated under the Exchange Act.
<TABLE>
<CAPTION>
COMMON STOCK OWNED AFTER THE PROPOSED EQUITY
EXISTING COMMON STOCK PREFERRED STOCK OFFERING (1)
----------------------- ------------------------- ---------------------------------------------
PERCENTAGE NUMBER PERCENTAGE PERCENTAGE OF
NUMBER OF OF NUMBER OF PERCENTAGE OF OF OF TOTAL VOTING
NAME AND ADDRESS SHARES SHARES SHARES SHARES SHARES SHARES POWER
- --------------------------- -------- ---------- -------- ------------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Bain Capital Funds (2) 820,499.91 91.17% 53,286.06 91.17% 8,418,520 33.50% 76.06%
c/o Bain Venture Capital
Two Copley Place
Boston, Massachusetts 02116
DIRECTORS AND EXECUTIVE
OFFICERS:
Charles G. Hanson, III 68,782.00 7.23 4,466.93 7.23 965,311 3.74 2.91
(3)(4)
Russell M. Gard (3)(5) 66,235.00 6.99 4,301.53 6.99 929,567 3.60 2.88
Gregory M. Benson (3)(6) 53,497.00 5.72 3,474.93 5.72 750,795 2.93 2.72
Robert C. Gay (7)(8) 820,499.91 91.17 53,286.06 91.17 8,418,520 33.50 76.06
Jonathan S. Lavine (7)(9) 61,536.24 6.84 3,996.37 6.84 631,376 2.51 5.70
Marc B. Wolpow (7)(10) 61,536.24 6.84 3,996.37 6.84 631,376 2.51 5.70
Timothy E. Needham -- -- -- -- -- -- --
Edward Norton -- -- -- -- -- -- --
Martin R. Lewis -- -- -- -- -- -- --
All directors and
executive officers as a 1,009,013.91 97.54% 65,529.45 97.54% 11,064,193 40.95% 83.19%
group (9 persons)(11)
</TABLE>
- ---------------
(1) Gives effect to the Recapitalization and the Proposed Equity Offering. In
connection with the Recapitalization, all outstanding shares of common
stock and Preferred Stock will be converted into shares of Class B Common
Stock and all outstanding options to purchase shares of common stock and
Preferred Stock will be converted into options to purchase shares of Class
A Common Stock. See "Proposed Initial Public Offering."
(2) Includes 600,043.907 shares of common stock and 38,968.8975 shares of
Preferred Stock held by Tyler Capital Fund, L.P.; 122,944.808 shares of
common stock and 7,984.4551 shares of Preferred Stock held by Tyler
Massachusetts, L.P.; 35,974.951 shares of common stock and 2,336.3360
shares of Preferred Stock held by Tyler International, L.P. -II; 51,213.451
shares of common stock and 3,325.9761 shares of Preferred Stock held
58
<PAGE>
by BCIP Associates ("BCIP Associates"); and 10,322.792 shares of common
stock and 670.3973 shares of Preferred Stock held by BCIP Trust Associates,
L.P. ("BCIP Trust" and, collectively with BCIP Associates and the Tyler
Entities, the "Bain Capital Funds"). The Bain Capital Funds are offering an
aggregate of 3,096,694 shares of Class A Common Stock in the Proposed
Equity Offering on a pro rata basis.
(3) The address of such person is c/o the Company, 17304 Preston Road, Dallas,
Texas 75252.
(4) Includes 50,782 shares of common stock and 3,297.95 shares of Preferred
Stock that can be acquired through currently exercisable options. Such
options will be converted into options to purchase 50,316 shares of Class A
Common Stock in connection with the Proposed Equity Offering. See "Stock
Options."
(5) Includes 48,235 shares of common stock and 3,132.55 shares of Preferred
Stock that can be acquired through currently exercisable options. Such
option will be converted into options to purchase 49,968 shares of Class
Common Stock in connection with the Proposed Equity Offering. See "Stock
Options."
(6) Includes 35,497 shares of common stock and 2,305.95 shares of Preferred
Stock that can be acquired through currently exercisable options. See
"Stock Options." Such option will be converted into options to purchase
48,138 shares of Class A Common Stock in connection with the Proposed
Equity Offering.
(7) The address of such person is c/o Bain Venture Capital, Two Copley Place,
Boston, Massachusetts 02116.
(8) Mr. Gay is a Director of APP. Mr. Gay is also a general partner of Bain
Venture Capital, the general partner of the Tyler Entities, and a general
partner of BCIP Associates and BCIP Trust. Accordingly, Mr. Gay may be
deemed to beneficially own shares owned by the Bain Capital Funds, although
Mr. Gay disclaims beneficial ownership of any such shares.
(9) Mr. Lavine is a Director of APP. Mr. Lavine is also a general partner of
BCIP Associates and BCIP Trust. Accordingly, Mr. Lavine may be deemed to
beneficially own shares owned by BCIP Associates and BCIP Trust, although
Mr. Lavine disclaims beneficial ownership of any such shares.
(10) Mr. Wolpow is a Director of APP. Mr. Wolpow is also a general partner of
BCIP Associates and BCIP Trust. Accordingly, Mr. Wolpow may be deemed to
beneficially own shares owned by BCIP Associates and BCIP Trust, although
Mr. Wolpow disclaims beneficial ownership of any such shares.
(11) Includes shares which may be deemed to be beneficially owned by Messrs.
Gay, Lavine and Wolpow and shares that Messrs. Hanson, Gard and Benson can
acquire through currently exercisable options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION ARRANGEMENTS
In connection with the Acquisition, members of Williamhouse's management
received substantial payments for their equity interests in Williamhouse.
Messrs. Needham, Norton and Ginolfi, together with Mr. Lewis and his family,
received an aggregate of approximately $19.8 million at the Closing of the
Acquisition for their shares of Williamhouse and pursuant to other equity-based
arrangements. Bain Capital was paid a fee of $5 million by Ampad for, among
other things, its services in analyzing, negotiating and arranging the financing
for the Acquisition. Prior to the Acquisition, APP recapitalized its common
stock and Class P Common Stock into common stock, Class P Common Stock and
approximately $200 million aggregate liquidation value of Preferred Stock. In
connection with such recapitalization, APP declared a dividend on its Class P
Common Stock of one share of Preferred Stock for each ten shares of common stock
and Class P Common Stock. In December 1995, APP redeemed on a pro rata basis a
portion of such Preferred Stock with an aggregate liquidation value of
approximately $65 million from the proceeds of the Offering. At the same time,
APP declared a cash dividend of approximately $4.63 million on its Class P
Common Stock and,
59
<PAGE>
thereafter, converted all outstanding Class P Common Stock on a share-for-share
basis into common stock. The executive officers of the Company received an
aggregate of 5,400 shares of Preferred Stock as a result of the Preferred Stock
Dividend and cash consideration of approximately $267,819 as a result of their
respective equity ownership in APP. In addition, approximately $8,901,520 of the
proceeds from the Offering was used by the Company to repurchase from the
executive officers of the Company options to acquire Preferred Stock. See "1992
Key Employees Stock Option Plan."
MANAGEMENT SERVICES AGREEMENT
In October 1995, the Company entered into a ten-year Management Services
Agreement with Bain Capital to replace Bain Capital's agreement with Ampad
pursuant to which the Company (i) paid Bain Capital at Closing, in the
aggregate, a cash financial advisory fee of $2.0 million, plus its out-of-pocket
expenses and (ii) will pay Bain Capital an aggregate annual fee of no less than
$2.0 million, plus its out-of-pocket expenses. Pursuant to the Management
Services Agreement, Bain Capital will provide management consulting, advisory
services and support, negotiation and analysis of financial alternatives,
acquisitions and dispositions and other services agreed upon by the Company and
Bain Capital. For the twelve months ended December 31, 1995, Ampad paid Bain
Capital $937,000 in financial advisory fees. The Company believes that the fees
received for the professional services rendered are at least as favorable to the
Company as those which could be negotiated with a third party.
DESCRIPTION OF BANK CREDIT AGREEMENT
The Company entered into a Bank Credit Agreement with Bankers Trust
Company, as agent (the "Agent"), providing for term loans of $245.0 million and
a revolving credit facility of $45.0 million. Loans under the Bank Credit
Agreement are comprised of a multi-tranche facility with principal payments
scheduled in years one through eight and one-half years from the closing date in
the form of (i) a term loan facility (the "Tranche A Term Loan Facility") in the
amount of $95 million ($25.2 million of which was borrowed in January 1996),
(ii) a second term loan facility (the "Tranche B Term Loan Facility") in the
amount of $65 million, (iii) a third term loan facility (the "Tranche C Term
Loan Facility") in the amount of $45 million, (iv) a fourth term loan facility
(the "Tranche D Term Loan Facility", and together with the Tranche A Term Loan
Facility, the Tranche B Term Loan Facility and the Tranche C Term Loan Facility,
the "Term Loan Facilities") in the amount of $40 million, (v) a revolving credit
facility (the "Revolving Credit Facility", and together with the Term Loan
Facilities, the "Senior Bank Financing") in the amount of $45 million which
includes a letter of credit sub-limit of $20 million and (vi) an IRB letter of
credit facility in the amount of $13.4 million. The Company used the Senior Bank
Financing to provide funding necessary to consummate the Acquisition, with the
Revolving Credit Facility being used for working capital needs. This information
relating to the Bank Credit Agreement is qualified in its entirety by reference
to the complete text of the documents entered into in connection therewith. The
following is a description of the material terms of the Bank Credit Agreement.
Indebtedness under the Bank Credit Agreement is guaranteed by APP, WR, and
all current and future domestic subsidiaries of the Company except for the SPC
(as defined), a Receivables Entity as defined in the Indenture, and is secured
by (i) a perfected security interest in substantially all the assets and
property of the Company and its subsidiaries except for the SPC, and (ii) a
first priority perfected pledge of all capital stock of WR, the Company and its
current subsidiaries except for the SPC.
Indebtedness under the Bank Credit Agreement varies by tranche. The Tranche
A Term Loan Facility is a five-year facility with quarterly principal payments
scheduled in years one through five and bears interest at a rate (at the
Company's option) of (a) the Eurodollar Rate (as defined in the Bank Credit
Agreement) plus 275.0 basis points less an interest reduction discount of 25
basis points or 50 basis points if the Company meets certain targets for its
coverage and leverage ratios (the "Interest Reduction Discount") or (b) the
applicable base rate of Bankers Trust Company, which is the higher of 1/2 of 1%
in excess of the Adjusted Certificate of Deposit Rate (as defined in the Bank
Credit Agreement) and the prime lending rate announced from time to time by
Bankers Trust Company (the "Base Rate") plus 175.0 basis points less the
Interest Reduction Discount, if applicable. The Tranche B Term Loan Facility is
a seven-year facility with quarterly principal payments scheduled in years six
and seven, with nominal quarterly principal payments prior to that
60
<PAGE>
time, and bears interest at a rate (at the Company's option) of (a) the
Eurodollar Rate plus 337.5 basis points or (b) the Base Rate plus 237.5 basis
points. The Tranche C Term Loan Facility is an eight-year facility with
quarterly principal payments scheduled in year eight, with nominal quarterly
principal payments prior to that time, and bears interest at a rate (at the
Company's option) of (a) the Eurodollar Rate plus 375.0 basis points or (b) the
Base Rate plus 275.0 basis points. The Tranche D Term Loan Facility is an eight
and one-half year facility with quarterly principal payments scheduled in the
first two quarters of year nine, with nominal quarterly principal payments prior
to that time, and bears interest at a rate (at the Company's option) of (a) the
Eurodollar Rate plus 400.0 basis points or (b) Base Rate plus 300.0 basis
points. The Revolving Credit Facility is a five-year facility bearing interest
at a rate (at the Company's option) of (a) the Eurodollar Rate plus 275.0 basis
points less the Interest Reduction Discount, if applicable or (b) the Base Rate
plus 175.0 basis points less the Interest Reduction Discount, if applicable. In
addition, the Bank Credit Agreement provides for mandatory repayment, subject to
certain exceptions, of the Senior Bank Financing upon the occurrence of certain
events including, but not limited to, asset sales, certain equity and debt
issuances, insurance recovery events and the accumulation of excess cash flow
(with a requirement to pay 50% of Excess Cash Flow (as defined therein) for the
period ending on December 31, 1995 and 75% of Excess Cash Flow per annum
thereafter), each subject to certain exceptions.
The Revolving Credit Facility may be repaid and reborrowed. The Company is
required to pay the lenders under the Bank Credit Agreement in the aggregate a
commitment fee equal to 1/2 of 1% per annum, payable on a quarterly basis, on
the daily average unused portion of the Aggregate Unutilized Commitment (as
defined in the Bank Credit Agreement). The Company also is required to pay to
the lenders participating in the Revolving Credit Facility letter of credit fees
equal to the Applicable Eurodollar Margin (as defined in the Bank Credit
Agreement) in effect as of such time for loans under the Revolving Credit
Facility and to the lender issuing a letter of credit a facing fee of 0.25% on
the average daily stated amount of each outstanding letter of credit issued by
such lender and its customary administrative charges in connection with such
letters of credit.
The Bank Credit Agreement requires the Company to meet certain financial
tests, including (i) a minimum level of consolidated EBITDA (as defined therein)
of $15.5 million on March 31, 1996 and increasing thereafter on a quarterly
basis to $111.5 million on June 30, 2004; (ii) a minimum interests coverage
ratio of 1.2:1.0 on March 31, 1996 and increasing thereafter on a quarterly
basis to 3.6:1.0 on June 30, 2004 and (iii) a maximum leverage ratio for the
quarter ending December 31, 1996 of 6.0:1.0 and decreasing thereafter on a
quarterly basis to 2.2:1.0 for the quarter ended June 30, 2004. The Bank Credit
Agreement also contains covenants which, among other things, limit the
incurrence of additional indebtedness, payment of dividends, transactions with
affiliates, asset sales, acquisitions, mergers, prepayments of other
indebtedness, liens and encumbrances and other matters customarily restricted in
such agreements.
The Bank Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, ERISA, judgment defaults, failure of any guaranty or security
agreement supporting the Bank Credit Agreement to be in full force and effect
and change of control of APP.
DESCRIPTION OF NEW BANK CREDIT AGREEMENT
Contemporaneously with, and conditioned upon, the Proposed Equity Offering,
the Company intends to refinance and retire all remaining indebtedness under the
Bank Credit Agreement with the proceeds of loans under the New Bank Credit
Agreement. The New Bank Credit Agreement will be a revolving credit facility
with a maximum availability of $300 million with the following material terms:
Loans will be made under the New Bank Credit Agreement directly to the Company
and will be guaranteed by APP and each of its subsidiaries (other than the SPC
(as defined below)). Loans made under the New Bank Credit Agreement will bear
interest at a rate per annum equal to, at the Company's option, (i) the Base
Rate plus the Applicable Margin or (ii) the LIBOR Rate plus the Applicable
Margin (as each term is defined in the New Bank Credit Agreement). The
Applicable Margin will vary from 0% to 1.75%, based on the Company's leverage
ratio and the type of loan. Availability under the New Bank Credit Agreement
will be subject
61
<PAGE>
to an unused commitment fee which, like the Applicable Margin, will vary from
.3% to .5% based on the Company's Leverage Ratio.
Availability under the New Bank Credit Agreement will be reduced to the
extent of the net proceeds of a sale of assets by the Company, the net proceeds
of an issuance of debt by the Company or 50% of the net proceeds of an issuance
of equity by the Company. Availability will also be reduced by $50 million
in 1999 and $50 million in 2000. The New Bank Credit Agreement will terminate in
2001. The Company will be permitted to make acquisition under the New Bank
Credit Agreement up to an aggregate of $25 million without the consent of the
Agent and up to $50 million if, on a pro forma basis giving effect to such
acqusition, the Company's Leverage Ratio is less than 3.0:1.0. The New Bank
Credit Agreement will be secured to the same extent as the Bank Credit Agreement
and will contain similar restrictive covenants, financial tests and events of
default.
DESCRIPTION OF ACCOUNTS RECEIVABLE FACILITY
The Accounts Receivable Facility was established simultaneously with the
consummation of the Acquisition. The following summary of the material terms of
the Accounts Receivable Facility is qualified in its entirety by reference to
the complete agreement, which has been filed in an exhibit to the Registration
Statement, of which the Prospectus forms a part. Pursuant to the Accounts
Receivable Facility, the Company and its subsidiaries are deemed to have sold to
a wholly owned special purpose corporation of the Company (the "SPC") all of the
receivables generated by the Company and its subsidiaries upon the creation of
such receivable. The SPC then transfers the receivables purchased from the
Company and its subsidiaries each day to a master trust (the "Trust"). The SPC
is operated in a fashion intended to ensure that its assets and liabilities are
distinct from those of the Company and its other affiliates, and that its assets
are not available to satisfy claims of creditors of the Company and its
subsidiaries.
At the time of the Acquisition, the Company sold all of its receivables to
the SPC. The SPC, in turn, transferred the receivables to the Trust in exchange
for a "Variable Funding Certificate" and a "Transferor Certificate," each
representing an undivided interest in the securities and other assets of the
Trust. Immediately thereafter, the SPC sold the Variable Funding Certificate to
Bankers Trust Company. The interest rate on the Variable Funding Certificate
was initially equal to a reserve-adjusted Eurodollar rate plus .75% per annum
and, assuming the Variable Funding Certificate remains outstanding, will be
increased over the 12 months following the Acquisition to a maximum amount equal
to a reserve-adjusted Eurodollar rate plus 2.75% per annum. The Variable
Funding Certificate has a term of five years until its scheduled amortization
date.
The Trust is in the process of issuing an aggregate principal amount of
approximately $60 million Class A Variable Rate Trade Receivables Backed
Certificates, Series 1996-1 (the "Class A Certificates") and Class B Variable
Rate Trade Receivables Backed Certificates, Series 1996-1 (the "Class B
Certificates"). The Class A Certificates are "revolving" certificates, the
principal amount of which may be increased or decreased by the SPC, subject to
certain standard conditions precedent. The Class B Certificates will have a
fixed principal amount and shall be subordinated to the Class A Certificates.
The Class A Certificates and the Class B Certificates have a term of
approximately 4 1/2 years until their scheduled amortization dates. The
interest rate of the Class A Certificates will be equal to a reserve-adjusted
Eurodollar rate or an alternate base rate plus a given spread. The interest
rate of the Class B Certificates will be equal to a reserve-adjusted Eurodollar
rate plus a given spread. The Company expects that the Class A Certificates
will be rated AAA and that the Class B Certificates will be rated BBB by
Standard & Poor's Rating Group. The SPC will use the proceeds of the issuance
of the Class A Certificates and Class B Certificates to repay the Variable
Funding Certificate described in the preceding paragraph.
DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes offered hereby will be issued as a separate series of
notes pursuant to the Indenture, dated as of December 1, 1995, by and among the
Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust
62
<PAGE>
Company, as Trustee (the "Trustee"). The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Trust Indenture Act of
1939, as amended (the "TIA"), and to all of the provisions of the Indenture,
including the definitions of certain terms therein and those terms made a part
of the Indenture by reference to the TIA as in effect on the date of the
Indenture. A copy of the Indenture has been filed an exhibit to the Registration
Statement, of which this Prospectus forms a part. The definitions of certain
capitalized terms used in the following summary are set forth below under
"Certain Definitions." For purposes of this section, references to the "Company"
include only American Pad & Paper Company of Delaware, Inc. and not its
subsidiaries and the Notes and the Exchange Notes shall be collectively referred
to as the "Senior Notes."
The Exchange Notes will be unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Debt of the Company.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Senior Notes. The
Senior Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
holders of the Senior Notes (the "Holders"). The Company will pay principal (and
premium, if any) on the Senior Notes at the Trustee's corporate office in New
York, New York. At the Company's option, interest may be paid at the Trustee's
corporate trust office or by check mailed to the registered address of Holders.
The form and terms of the Exchange Notes are the same as the form and terms of
the Notes (which they replace) except that (i) the Exchange Notes bear a Series
B designation, (ii) the Exchange Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof, and
(iii) the holders of Exchange Notes will not be entitled to certain rights under
the Registration Rights Agreement, including the provisions providing for an
increase in the interest rate on the Notes in certain circumstances relating to
the timing of the Exchange Offer, which rights will terminate when the Exchange
Offer is consummated. Any Notes that remain outstanding after the completion of
the Exchange Offer, together with the Exchange Notes issued in connection with
the Exchange Offer, will be treated as a single class of securities under the
Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $200 million
and will mature on November 15, 2005. Interest on the Senior Notes will accrue
at the rate of 13% per annum and will be payable semi-annually in cash on each
May 15 and November 15 commencing on May 15, 1996, to the Persons who are
registered Holders at the close of business on the May 1 and November 1
immediately preceding the applicable interest payment date. Interest on the
Senior Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of issuance.
The Senior Notes will not be entitled to the benefit of any mandatory
sinking fund.
REDEMPTION
Optional Redemption. The Senior Notes are redeemable, at the Company's
option, in whole at any time or in part from time to time, on and after November
15, 2000, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on November 15 of the year
set forth below, plus, in each case, accrued interest to the date of redemption:
YEAR PERCENTAGE
- ----- ----------
2000 106.500%
2001 104.333
2002 102.167
63
<PAGE>
2003 and thereafter 100.000
Optional Redemption Upon Public Equity Offerings. At any time, or
from time to time, on or prior to November 15, 1998, the Company may, at its
option, use the net cash proceeds of one or more Public Equity Offerings (as
defined below) to redeem up to 35% of the aggregate principal amount of Senior
Notes originally issued at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on November 15 of the year set forth below, plus, in each
case, accrued interest to the date of redemption:
YEAR PERCENTAGE
- ------ -----------
1995 111.0%
1996 113.0
1997 113.0
provided that at least $100 million aggregate principal amount of Senior Notes
remains outstanding immediately after any such redemption. In order to effect
the foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 120 days after the consummation
of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of APP, WR or the
Company pursuant to a registration statement filed with the Commission in
accordance with the Securities Act; provided that, in the event of a Public
Equity Offering by APP or WR, APP or WR, as the case may be, contributes to the
capital of the Company the portion of the net cash proceeds of such Public
Equity Offering necessary to pay the aggregate redemption price (plus accrued
interest to the redemption date) of the Senior Notes to be redeemed pursuant to
the preceding paragraph.
The net proceeds to APP from the Proposed Equity Offering are
currently estimated to be approximately $187 million. If the Proposed Equity
Offering is consummated, APP intends to use a portion of such proceeds to allow
the Company to redeem approximately $70 million aggregate principal amount of
the Senior Notes from the holders thereof on a pro rata basis and to pay
approximately $8 million in redemption premiums on the redeemed Senior Notes.
There can be no assurance that APP will consummate the Proposed Equity Offering,
or if it does, that it will use the proceeds therefrom to the redeem amounts
outstanding under the Senior Notes. See "Proposed Initial Public Offering."
SELECTION AND NOTICE OF REDEMPTION
In case of a partial redemption, selection of the Senior Notes or
portions thereof for redemption shall be made by the Trustee by lot, pro rata or
in such manner as it shall deem appropriate and fair and in such manner as
complies with any applicable legal requirements; provided, however, that if a
partial redemption is made with the proceeds of a Public Equity Offering,
selection of the Senior Notes or portion thereof for redemption shall be made by
the Trustee only on a pro rata basis, unless such method is otherwise
prohibited. Senior Notes may be redeemed in part in multiples of $1,000
principal amount only. Notice of redemption will be sent, by first class mail,
postage prepaid, at least 30 days and not more than 60 days prior to the date
fixed for redemption to each Holder whose Senior Notes are to be redeemed at the
last address for such Holder then shown on the registry books. If any Senior
Note is to be redeemed in part only, the notice of redemption that relates to
such Senior Note shall state the portion of the principal amount thereof to be
redeemed. A new Senior Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Senior Note. On and after any redemption date, interest will cease
to accrue on the Senior Notes or part thereof called for redemption as long as
the Company has deposited with the Paying Agent funds in satisfaction of the
redemption price pursuant to the Indenture.
64
<PAGE>
SUBORDINATION
The payment of all Obligations on the Senior Notes is subordinated in
right of payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on the Senior Debt. Upon any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to creditors upon any total or partial liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshaling of assets
of the Company or in a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding relating to the Company or its property, whether
voluntary or involuntary, all Obligations due or to become due upon all Senior
Debt shall first be paid in full in cash or Cash Equivalents, or such payment
duly provided for to the satisfaction of the holders of Senior Debt, before any
payment or distribution of any kind or character is made on account of any
Obligations on the Senior Notes, or for the acquisition of any of the Senior
Notes for cash or property or otherwise. If any default occurs and is continuing
in the payment when due, whether at maturity, upon any redemption, by
declaration or otherwise, of any principal of, interest on, unpaid drawings for
letters of credit issued in respect of, or regularly accruing fees with respect
to, any Senior Debt, no payment of any kind or character shall be made by or on
behalf of the Company or any other Person on its or their behalf with respect to
any Obligations on the Senior Notes or to acquire any of the Senior Notes for
cash or property or otherwise.
In addition, if any other event of default occurs and is continuing
with respect to any Designated Senior Debt, as such event of default is defined
in the instrument creating or evidencing such Designated Senior Debt permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Company
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Senior Notes or (y) acquire any
of the Senior Notes for cash or property or otherwise. Notwithstanding anything
herein to the contrary, in no event will a Blockage Period extend beyond 180
days from the date the payment on the Senior Notes was due and only one such
Blockage Period may be commenced within any 360 consecutive days. No event of
default which existed or was continuing on the date of the commencement of any
Blockage Period with respect to the Designated Senior Debt shall be, or be made,
the basis for commencement of a second Blockage Period by the Representative of
such Designated Senior Debt whether or not within a period of 360 consecutive
days, unless such event of default shall have been cured or waived for a period
of not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such Blockage Period that, in either case, would
give rise to an event of default pursuant to any provisions under which an event
of default previously existed or was continuing shall constitute a new event of
default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Senior Notes, may recover less, ratably, than holders of
Senior Debt.
As of March 31, 1996, the Company had approximately $253.5 million of
Senior Debt and the Subsidiary Guarantors had approximately $8.6 million of
Guarantor Senior Debt (excluding guarantees of Senior Debt). As of March 31,
1996, the Company had approximately $45.7 million available to be drawn under
the revolving credit portion and letter of credit facility of the Bank Credit
Agreement, which amounts would have been Senior Debt. Under the Indenture
(without giving effect to the restrictions in the Bank Credit Agreement), the
Company could have incurred approximately $74 million of additional
indebtedness, including indebtedness senior of right of payment to the Senior
Notes, as of March 31, 1996.
65
<PAGE>
GUARANTEES
Each Subsidiary Guarantor has unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture and
the Senior Notes, including the payment of principal of and interest on the
Senior Notes. The Guarantees are subordinated to Guarantor Senior Debt on the
same basis as the Senior Notes are subordinated to Senior Debt. The obligations
of each Subsidiary Guarantor are limited to the maximum amount which, after
giving effect to all other contingent and fixed liabilities of such Subsidiary
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, will result in the obligations of
such Subsidiary Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Subsidiary
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Subsidiary Guarantor in an amount pro
rata, based on the Adjusted Net Assets (as defined in the Indenture) of each
Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into,
liquidate, dissolve or sell its assets to the Company or another Subsidiary
Guarantor that is a Wholly Owned Restricted Subsidiary of the Company without
limitation, or with other Persons upon the terms and conditions set forth in the
Indenture. See "Certain Covenants--Merger, Consolidation and Sale of Assets." In
the event that (i) either all of the Capital Stock of a Subsidiary Guarantor is
sold by the Company (whether by merger, stock purchase or otherwise) or all or
substantially all of the assets of a Subsidiary Guarantor are sold by such
Subsidiary Guarantor and such sale complies with the provisions set forth in
"Certain Covenants--Limitation on Asset Sales" or (ii) the lenders under the
Bank Credit Agreement release a Subsidiary Guarantor of all guarantees under the
Bank Credit Agreement and release all Liens on the property and assets of such
Subsidiary Guarantor relating to such Indebtedness, then in each case the
Subsidiary Guarantor's Guarantee will be released.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of
Control, each Holder will have the right to require that the Company purchase
all or a portion of such Holder's Senior Notes pursuant to the offer described
below (the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued interest to the date of purchase.
The Indenture provides that, prior to the mailing of the notice
referred to below, but in any event within 30 days following any Change of
Control, the Company covenants to (i) repay in full and terminate all
commitments under Indebtedness under the Bank Credit Agreement and all other
Senior Debt the terms of which require repayment upon a Change of Control or
offer to repay in full and terminate all commitments under all Indebtedness
under the Bank Credit Agreement and all other such Senior Debt and to repay the
Indebtedness owed to each lender which has accepted such offer or (ii) obtain
the requisite consents under the Bank Credit Agreement and all such other Senior
Debt to permit the repurchase of the Senior Notes as provided below. The Company
shall first comply with the covenant in the immediately preceding sentence
before it shall be required to repurchase the Senior Notes pursuant to the
provisions described below. The Company's failure to comply with this covenant
shall constitute an Event of Default described in clause (iii) and not in clause
(ii) under "Events of Default" below.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Senior Note purchased pursuant to a
Change of Control Offer will be required to surrender the Senior Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior
Note completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the third business day prior to the Change of
Control Payment Date.
66
<PAGE>
If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the Change of Control
purchase price for all the Senior Notes that might be delivered by Holders
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Senior Notes pursuant to a Change of Control
Offer, the Company expects that it would seek third party financing to the
extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
Neither the Board of Directors of the Company nor the Trustee may
waive the covenant relating to a Holder's right to redemption upon a Change of
Control. Restrictions in the Indenture described herein on the ability of the
Company and its Restricted Subsidiaries to incur additional Indebtedness, to
grant Liens on its property, to make Restricted Payments and to make Asset Sales
may also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
Senior Notes, and there can be no assurance that the Company or the acquiring
party will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of the Company or any of its Subsidiaries by the management of
the Company. While such restrictions cover a wide variety of arrangements which
have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders of Senior Notes protection in all
circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Notes pursuant to a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
"Change of Control" provisions of the Indenture, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Restricted Payments. The Company will not, and will
not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, (a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the Company) on
or in respect of shares of the Company's Capital Stock to holders of such
Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock, other than the exchange of
such Capital Stock for Qualified Capital Stock, or (c) make any Investment
(other than Permitted Investments) (each of the foregoing actions set forth in
clauses (a), (b) and (c) being referred to as a "Restricted Payment"), if at the
time of such Restricted Payment or immediately after giving effect thereto, (i)
a Default or an Event of Default shall have occurred and be continuing, (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, or (iii) the aggregate amount of Restricted
Payments made subsequent to the Issue Date shall exceed the sum of: (x) 50% of
the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned subsequent to
the Issue Date and on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period); plus (y)
100% of the aggregate net proceeds received by the Company (including the fair
market value of property other than cash) from any Person (other than a
Subsidiary of the Company) from the issuance and sale subsequent to the Issue
Date and on or prior to the Reference Date of Qualified Capital Stock of the
Company (including Capital Stock issued upon the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness); plus (z) without
duplication of any amounts included in clause (iii)(y) above, 100% of the
aggregate net proceeds (including the fair market value of property other than
cash) of any equity contribution received by the Company from a holder of the
Company's Capital Stock.
67
<PAGE>
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
or the consummation of any irrevocable redemption within 60 days after the date
of declaration of such dividend or notice of such redemption if the dividend or
payment of the redemption price, as the case may be, would have been permitted
on the date of declaration or notice; (2) if no Event of Default shall have
occurred and be continuing as a consequence thereof, the acquisition of any
shares of Capital Stock of the Company, either (i) solely in exchange for shares
of Qualified Capital Stock, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock; (3) payments for the purpose of
and in an amount equal to the amount required to permit APP to redeem or
repurchase APP's common equity or options in respect thereof, in each case in
connection with the repurchase provisions under employee stock option or stock
purchase agreements or other agreements to compensate management employees;
provided that such redemptions or repurchases pursuant to this clause (3) shall
not exceed $6 million (which amount shall be increased by the amount of any
proceeds to the Company from (x) sales of Capital Stock of APP to management
employees subsequent to the Issue Date and (y) any "key-man" life insurance
policies which are used to make such redemptions or repurchases) in the
aggregate; (4) the making of distributions, loans or advances in an amount not
to exceed $3 million per annum sufficient to permit APP or WR to pay the
ordinary operating expenses of APP or WR (including, without limitation,
directors fees, indemnification obligations, professional fees and expenses)
related to APP's or WR's ownership of Capital Stock of the Company or APP's
ownership of Capital Stock of WR (other than to Bain Capital or a Bain Related
Party); (5) the payment of any amounts pursuant to the Tax Allocation Agreement;
(6) the payment of fees and compensation as permitted under clause (i) of
paragraph (b) of the "Transactions with Affiliates" covenant; (7) so long as no
Default or Event of Default shall have occurred and be continuing, payments not
to exceed $100,000 in the aggregate, to enable APP to make payments to holders
of its Capital Stock in lieu of issuance of fractional shares of its Capital
Stock; (8) payments with respect to the Old Debentures to the extent deemed to
be a payment on behalf of WR in its capacity as guarantor of the Old Debentures;
and (9) the payment of up to $75 million to WR and APP with a portion of the net
proceeds of the sale of the Notes in connection with the Transactions. In
determining the aggregate amount of Restricted Payments made subsequent to the
Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, (a) amounts expended (to the extent such expenditure is in the form
of cash) pursuant to clauses (1), (2) and (3) shall be included in such
calculation; provided such expenditures pursuant to clause (3) shall not be
included to the extent of cash proceeds received by the Company from any "key-
man" life insurance policies and (b) amounts expended pursuant to clauses (4),
(5), (6), (7), (8) or (9) shall be excluded from such calculation.
Limitation on Incurrence of Additional Indebtedness. The Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
incurrence of any such Indebtedness, the Company or any Subsidiary Guarantor may
incur Indebtedness if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than 2.0 to 1.0.
Limitations on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate;
provided, however, that for
68
<PAGE>
a transaction or series of related transactions with an aggregate value of $5
million or more, at the Company's option (i) such determination shall be made in
good faith by a majority of the disinterested members of the Board of the
Directors of the Company or (ii) the Board of Directors of the Company or any
such Restricted Subsidiary party to such Affiliate Transaction shall have
received an opinion from a nationally recognized investment banking firm that
such Affiliate Transaction is on terms no less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate; and provided,
further, that for a transaction or series of related transactions with an
aggregate value of $10 million or more, the Board of Directors of the Company
shall have received an opinion from a nationally recognized investment banking
firm that such Affiliate Transaction is on terms no less favorable than those
that might reasonably have been obtained in a comparable transaction at such
time on an arm's-length basis from a Person that is not an Affiliate.
(b) The foregoing restrictions shall not apply to (i) reasonable fees
and compensation paid to and indemnity provided on behalf of officers,
directors, employees or consultants of the Company or any Subsidiary as
determined in good faith by the Company's Board of Directors or senior
management; (ii) transactions exclusively between or among the Company and any
of its Wholly Owned Restricted Subsidiaries or exclusively between or among such
Wholly Owned Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by the Indenture; (iii) transactions effected as part of a
Qualified Receivables Transaction; (iv) any agreement as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; and (v) Restricted Payments permitted
by the Indenture.
Limitation on Liens. The Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any
Liens of any kind against or upon any of its property or assets, or any proceeds
therefrom, unless (i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Senior Notes, the
Senior Notes are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens and (ii) in all other cases, the Senior Notes
are equally and ratably secured, except for (A) Liens existing as of the Issue
Date and any extensions, renewals or replacements thereof; (B) Liens securing
Senior Debt and Guarantor Senior Debt; (C) Liens securing the Senior Notes and
the Guarantees; (D) Liens of the Company or a Wholly Owned Restricted Subsidiary
on assets of any Subsidiary of the Company; (E) Liens securing Indebtedness
which is incurred to refinance Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced; and (F) Permitted
Liens.
Prohibition on Incurrence of Senior Subordinated Debt. Neither the
Company nor any Subsidiary Guarantor will incur or suffer to exist Indebtedness
that is senior in right of payment to the Senior Notes or such Subsidiary
Guarantor's Guarantee and subordinate in right of payment to any other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends or make any other distributions on or
in respect of its Capital Stock; (b) make loans or advances or to pay any
Indebtedness or other obligation owed to the Company or any other Restricted
Subsidiary of the Company; or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable law;
(2) the Indenture; (3) non-assignment provisions of any contract or any lease
entered into in the ordinary course of business; (4) any instrument governing
Acquired Indebtedness, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) agreements existing on the
Issue Date (including, without limitation, the Bank Credit Agreement and the
Indenture governing the Old Debentures); (6) restrictions on the transfer of
assets subject to any Lien permitted under the Indenture imposed by the holder
of such Lien; (7) restrictions imposed by any agreement to sell assets permitted
under the Indenture to any Person pending the closing of such sale; (8) any
agreement or instrument governing Capital Stock of any Person that is acquired;
(9) Indebtedness or other contractual requirements of a Receivables Entity in
connection with a Qualified Receivables Transaction; provided that such
restrictions apply only to such Receivables Entity; or (10) an agreement
effecting a refinancing, replacement or substitution of Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clause (2), (4) or
(5) above or any other agreement evidencing Indebtedness permitted under the
Indenture; provided, however, that the provisions relating to such encumbrance
or restriction contained in any such refinancing,
69
<PAGE>
replacement or substitution agreement or any such other agreement are not less
favorable to the Company in any material respect as determined by the Board of
Directors of the Company than the provisions relating to such encumbrance or
restriction contained in agreements referred to in such clause (2), (4) or (5).
Limitation on Preferred Stock of Subsidiaries. The Company will not
permit any of its Restricted Subsidiaries to issue any Preferred Stock (other
than to the Company or to a Wholly Owned Restricted Subsidiary of the Company)
or permit any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company) to own any Preferred Stock of any Restricted
Subsidiary of the Company.
Merger, Consolidation and Sale of Assets. The Company will not, in a
single transaction or a series of related transactions, consolidate with or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets to, another Person or Persons
or adopt a plan of liquidation unless (i) either (A) the Company shall be the
survivor of such merger or consolidation or (B) the surviving Person is a
corporation, partnership or trust organized and existing under the laws of the
United States, any state thereof or the District of Columbia and such surviving
Person shall expressly assume all the obligations of the Company under the
Senior Notes and the Indenture; (ii) immediately after giving effect to such
transaction (on a pro forma basis, including any Indebtedness incurred or
anticipated to be incurred in connection with such transaction), the Company or
the surviving Person is able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; (iii) immediately before and
immediately after giving effect to such transaction (including any Indebtedness
incurred or anticipated to be incurred in connection with the transaction), no
Default or Event of Default shall have occurred and be continuing; (iv)
immediately after such transaction or series of related transactions the Company
or the surviving entity, as the case may be, shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction or series of related transactions without giving
effect to (A) any non-cash charges relating to existing stock options as a
direct result of or related to such transaction or series of related
transactions or (B) any purchase accounting adjustments related to such
transaction or series of related transactions; (v) each Subsidiary Guarantor,
unless it is the other party to the transaction, shall have by supplemental
indenture confirmed that after consummation of such transaction its Guarantee
shall apply, as such Guarantee applied on the date it was granted under the
Indenture to the obligations of the Company under the Indenture and the Senior
Notes, to the obligations of the Company or such Person, as the case may be,
under the Indenture and the Senior Notes; and (vi) the Company has delivered to
the Trustee an Officers' Certificate and Opinion of Counsel, each stating that
such consolidation, merger or transfer complies with the Indenture, that the
surviving Person agrees to be bound thereby, and that all conditions precedent
in the Indenture relating to such transaction have been satisfied. For purposes
of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a
single transaction or series of transactions) of all or substantially all of the
properties and assets of one or more Subsidiaries of the Company, the Capital
Stock of which constitutes all or substantially all of the properties and assets
of the Company, shall be deemed to be the transfer of all or substantially all
of the properties and assets of the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, the surviving entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Senior Notes with the same effect as if such surviving
entity had been named as such; provided that solely for purposes of computing
amounts described in clause (iii) of the first paragraph of the covenant
"Limitation on Restricted Payments" above, any such surviving entity to the
Company shall only be deemed to have succeeded to and be substituted for the
Company with respect to periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of its Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales" or as otherwise provided in the Indenture) will
not, and the Company will not cause or permit any Subsidiary Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Subsidiary Guarantor unless: (i) the entity formed by or surviving any
such consolidation or merger (if other than the Subsidiary Guarantor) or to
which such sale, lease, conveyance or other disposition shall have been made is
a corporation organized and existing under the laws of the United States or any
State thereof or the District
70
<PAGE>
of Columbia; (ii) such entity assumes by supplemental indenture all of the
obligations of the Subsidiary Guarantor on the Guarantee; (iii) immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; and (iv) immediately after giving effect to
such transaction and the use of any net proceeds therefrom, on a pro forma
basis, the Company could satisfy the provisions of clause (ii) of the first
paragraph of this covenant.
Limitation on Asset Sales. The Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be cash or Cash Equivalents and is received at the time of
such disposition; and (iii) upon the consummation of an Asset Sale, the Company
shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 365 days of receipt thereof either (A) to
prepay any Senior Debt or Guarantor Senior Debt and, in the case of any Senior
Debt or Guarantor Senior Debt, as the case may be, under any revolving credit
facility, effect a permanent reduction in the availability under such revolving
credit facility, (B) to repurchase Old Debentures required to be repurchased
under the indenture governing the Old Debentures, (C) to reinvest in Productive
Assets or (D) a combination of prepayment, repurchase and investment permitted
by the foregoing clauses (iii)(A), (iii)(B) and (iii)(C). On the 366th day after
an Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Restricted Subsidiary determines not to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B),
(iii)(C) or (iii)(D) of the next preceding sentence (each, a "Net Proceeds Offer
Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been
applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (iii)(A), (iii)(B), (iii)(C) and (iii)(D) of the next preceding sentence
(each a "Net Proceeds Offer Amount") shall be applied by the Company or such
Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on
a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45
days following the applicable Net Proceeds Offer Trigger Date, from all Holders
on a pro rata basis that amount of Senior Notes equal to the Net Proceeds Offer
Amount at a price equal to 100% of the principal amount of the Senior Notes to
be purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the case
may be, in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect to any such non-
cash consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less
than $10 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as
such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds
Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating
to such initial Net Proceeds Offer Amount from all Asset Sales by the Company
and its Restricted Subsidiaries aggregates at least $10 million, at which time
the Company or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to make a
Net Proceeds Offer (the first date the aggregate of all such deferred Net
Proceeds Offer Amounts is equal to $10 million or more shall be deemed to be a
"Net Proceeds Offer Trigger Date").
Notwithstanding the two immediately preceding paragraphs, the Company
and its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Productive Assets and (ii) such
Asset Sale is for fair market value (as determined in good faith by the
Company's Board of Directors); provided that any consideration not constituting
Productive Assets received by the Company or any of its Restricted Subsidiaries
in connection with any Asset Sale permitted to be consummated under this
paragraph shall constitute Net Cash Proceeds subject to the provisions of the
two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown
on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Senior
71
<PAGE>
Notes in whole or in part in integral multiples of $1,000 in exchange for cash.
To the extent Holders properly tender Senior Notes in an amount exceeding the
Net Proceeds Offer Amount, Senior Notes of tendering Holders will be purchased
on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall
remain open for a period of 20 business days or such longer period as may be
required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Senior Notes pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Guarantees of Certain Indebtedness. The Company will not permit any
of its Restricted Subsidiaries, directly or indirectly, to incur, guarantee or
secure through the granting of Liens the payment of any Indebtedness under the
Bank Credit Agreement or any refunding or refinancing thereof, in each case
unless such Restricted Subsidiary, the Company and the Trustee execute and
deliver a supplemental indenture evidencing such Restricted Subsidiary's
Guarantee, such Guarantee to be a senior subordinated unsecured obligation of
such Restricted Subsidiary. Neither the Company nor any such Subsidiary
Guarantor shall be required to make a notation on the Senior Notes or the
Guarantees to reflect any such subsequent Guarantee. Nothing in this covenant
shall be construed to permit any Restricted Subsidiary of the Company to incur
Indebtedness otherwise prohibited by the "Limitation on Incurrence of Additional
Indebtedness" covenant. Thereafter, such Restricted Subsidiary shall be a
Subsidiary Guarantor for all purposes of the Indenture.
Conduct of Business. The Company and its Restricted Subsidiaries
will not engage in any businesses which are not the same, similar, related or
ancillary to the businesses in which the Company and its Restricted Subsidiaries
are engaged on the Issue Date.
Application of Proceeds of Initial Public Offering. The Company will
use 50% of the net cash proceeds from an Initial Public Offering to repay,
redeem, repurchase or otherwise retire up to $50 million of Indebtedness of the
Company (other than Indebtedness under a revolving credit facility unless there
is a permanent reduction in the availability under such revolving credit
facility) within 90 days of the consummation of an Initial Public Offering;
provided that (i) in the event that an Initial Public Offering is by APP or WR,
APP or WR, as the case may be, shall have contributed to the capital of the
Company the portion of the net cash proceeds of an Initial Public Offering
necessary to, and such net cash proceeds shall be used to, repay, redeem,
repurchase or otherwise retire such Indebtedness of the Company and (ii) the
foregoing shall not limit the Company's ability to repay, redeem, repurchase or
otherwise retire Indebtedness of the Company in excess of $50 million.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of
Default": (i) the failure to pay interest on any Senior Notes when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by the subordination provisions
of the Indenture); (ii) the failure to pay the principal on any Senior Notes,
when such principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Senior Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether
or not such payment shall be prohibited by the subordination provisions of the
Indenture); (iii) a default in the observance or performance of any other
covenant or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Senior Notes;
(iv) the failure to pay at final maturity (giving effect to any extensions
thereof) the principal amount of any Indebtedness of the Company or any
Restricted Subsidiary (other than a Receivables Entity) of the Company and such
failure continues for a period of 20 days or more, or the acceleration of the
final stated maturity of any such Indebtedness (which acceleration is not
rescinded, annulled or otherwise cured within 20 days of receipt by the Company
or such Restricted Subsidiary of notice of any such acceleration) if the
aggregate principal amount of such
72
<PAGE>
Indebtedness, together with the principal amount of any other such Indebtedness
in default for failure to pay principal at final maturity or which has been
accelerated, in each case with respect to which the 20-day period described
above has passed, aggregates $10 million or more at any time; (v) one or more
judgments in an aggregate amount in excess of $10 million shall have been
rendered against the Company or any of its Significant Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60 days after
such judgment or judgments become final and non-appealable; (vi) certain events
of bankruptcy affecting the Company or any of its Significant Subsidiaries; and
(vii) any of the Guarantees of the Subsidiary Guarantors that are also
Significant Subsidiaries of the Company ceases to be in full force and effect or
any of such Guarantees is declared to be null and void and unenforceable or any
of such Guarantees is found to be invalid or any of such Subsidiary Guarantors
denies its liability under its Guarantee (other than by reason of release of
such Subsidiary Guarantor in accordance with the terms of the Indenture).
Upon the happening of any Event of Default specified in the Indenture,
the Trustee or the Holders of at least 25% in principal amount of outstanding
Senior Notes may declare the principal of and accrued interest on all the Senior
Notes to be due and payable by notice in writing to the Company and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Bank Credit Agreement, shall become immediately due and payable upon the
first to occur of an acceleration under the Bank Credit Agreement or 5 business
days after receipt by the Company and the Representative under the Bank Credit
Agreement of such Acceleration Notice but only if such Event of Default is then
continuing. If an Event of Default with respect to bankruptcy proceedings of the
Company occurs and is continuing, then such amount shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any holder of Senior Notes.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Senior Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Senior Notes may
rescind and cancel such declaration and its consequences (i) if the rescission
would not conflict with any judgment or decree, (ii) if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration, (iii) to the extent the
payment of such interest is lawful, interest on overdue installments of interest
and overdue principal, which has become due otherwise than by such declaration
of acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) or (vii) of the
description above of Events of Default, the Trustee shall have received an
Officers' Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived. The holders of a majority in principal amount of the
Senior Notes may waive any existing Default or Event of Default under the
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any Senior Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Senior Notes ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Senior Notes, except for
(i) the rights of holders of the Senior Notes to receive payments in respect of
the principal of, premium, if any, and interest on the Senior Notes when such
payments are due, (ii) the Company's obligations with respect to the Senior
Notes concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an
office or agency for payments, (iii) the rights, powers, trust, duties and
immunities of the Trustee and the Company's obligations in connection therewith
and (iv) the Legal Defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Senior Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, reorganization and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Senior Notes.
73
<PAGE>
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Senior Notes cash in U.S. dollars, non-callable
U.S. government obligations, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the Senior Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holders of the Senior
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
with respect to the Indenture resulting from the incurrence of Indebtedness, all
or a portion of which will be used to defease the Senior Notes concurrently with
such incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under the Indenture
or any other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Senior Notes over any other creditors of the
Company or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others; (vii) the Company shall have delivered
to the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Indebtedness of the
Company other than the Senior Notes and (B) assuming no intervening bankruptcy
of the Company between the date of deposit and the 91st day following the
deposit and that no Holder of the Senior Notes is an insider of the Company,
after the 91st day following the deposit, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further
effect (except as to surviving rights or registration of transfer or exchange of
the Senior Notes, as expressly provided for in the Indenture) as to all
outstanding Senior Notes when (i) either (a) all the Senior Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Senior Notes which
have been replaced or paid and Senior Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust) have
been delivered to the Trustee for cancellation or (b) all Senior Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable and the Company has irrevocably deposited or caused to be deposited with
the Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Senior Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the Senior
Notes to the date of deposit together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be; (ii) the Company has paid all other
sums payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
74
<PAGE>
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the
Trustee, without the consent of the Holders of the Senior Notes, may amend the
Indenture for certain specified purposes, including curing ambiguities, defects
or inconsistencies, so long as such change does not, in the opinion of the
Trustee, adversely affect the rights of any of the Holders in any material
respect. In formulating its opinion on such matters, the Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an Opinion of Counsel. Other modifications and amendments
of the Indenture may be made with the consent of the Holders of a majority in
principal amount of the then outstanding Senior Notes issued under the
Indenture, except that, without the consent of each holder of the Senior Notes
affected thereby, no amendment may: (i) reduce the amount of Senior Notes whose
holders must consent to an amendment; (ii) reduce the rate of or change or have
the effect of changing the time for payment of interest, including
defaulted interest, on any Senior Notes; (iii) reduce the principal of or change
or have the effect of changing the fixed maturity of any Senior Notes, or change
the date on which any Senior Notes may be subject to redemption or repurchase,
or reduce the redemption or repurchase price therefor; (iv) make any Senior
Notes payable in money other than that stated in the Senior Notes; (v) make any
change in provisions of the Indenture protecting the right of each holder of a
Senior Note to receive payment of principal of and interest on such Senior Note
on or after the due date thereof or to bring suit to enforce such payment, or
permitting holders of a majority in principal amount of Senior Notes to waive
Defaults or Events of Default (other than Defaults or Events of Default with
respect to the payment of principal of or interest on the Senior Notes); (vi)
amend, change or modify in any material respect the obligation of the Company to
make and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate a Net Proceeds Offer with respect to any Asset
Sale that has been consummated or modify any of the provisions or definitions
with respect thereto; (vii) modify the subordination provisions of the Indenture
to adversely affect the holders of Senior Notes in any material respect; or
(viii) release any Subsidiary Guarantor that is a Significant Subsidiary of the
Company from any of its obligations under its Guarantee or the Indenture
otherwise than in accordance with the terms of the Indenture.
ADDITIONAL INFORMATION
The Indenture provides that the Company will deliver to the Trustee
within 15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company and
the Subsidiary Guarantors will also comply with the other provisions of TIA (S)
314(a).
CERTAIN DEFINITIONS
Set forth below is a summary of the material defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or assumed in connection with the acquisition of assets from such
Person and not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary of the Company or
such acquisition.
"Affiliate" means a Person who directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, the Company. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the
75
<PAGE>
ownership of voting securities, by contract or otherwise. Notwithstanding the
foregoing, no Person (other than the Company or any Subsidiary of the Company)
in whom a Receivables Entity makes an Investment in connection with a Qualified
Receivables Transaction shall be deemed to be an Affiliate of the Company or any
of its Subsidiaries solely by reason of such Investment .
"all or substantially all" shall have the meaning given such phrase in the
Revised Model Business Corporation Act.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person which
constitute all or substantially all of the assets of such Person, any division
or line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business; provided, however,
that Asset Sales shall not include (i) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration of less than $500,000, (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under "Merger, Consolidation and Sale of Assets," (iii) the
sale or discount, in each case without recourse, of accounts receivable arising
in the ordinary course of business, but only in connection with the compromise
or collection thereof, (iv) the factoring of accounts receivable arising in the
ordinary course of business pursuant to arrangements customary in the region,
(v) the licensing of intellectual property, (vi) disposals or replacements of
obsolete equipment in the ordinary course of business, (vii) the sale, lease,
conveyance, disposition or other transfer by the Company or any Restricted
Subsidiary of assets or property to one or more Wholly Owned Restricted
Subsidiaries in connection with Investments permitted under the "Limitations on
Restricted Payments" covenant, (viii) sales of accounts receivable and related
assets of the type specified in the definition of "Qualified Receivables
Transaction" to a Receivables Entity for the fair market value thereof,
including cash in an amount at least equal to 75% of the book value thereof as
determined in accordance with GAAP, and (ix) transfers of accounts receivable
and related assets of the type specified in the definition of "Qualified
Receivables Transaction" (or a fractional undivided interest therein) by a
Receivables Entity in a Qualified Receivables Transaction. For the purposes of
clause (viii), Purchase Money Notes shall be deemed to be cash.
"Bain Related Party" means Bain Capital, Inc. and any Affiliate of
Bain Capital, Inc.
"Bank Credit Agreement" means the Credit Agreement dated as of October
31, 1995, among the Company, APP, WR, the lenders party thereto in their
capacities as lenders thereunder and Bankers Trust Company, as agent, together
with the related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder or
adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
76
<PAGE>
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participation or other equivalents
(however designated) of corporate stock, including each class of common stock
and preferred stock of such Person and (ii) with respect to any Person that is
not a corporation, any and all partnership or other equity interests of such
Person.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either S&P or Moody's; (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances (or, with respect to foreign
banks, similar instruments) maturing within one year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $200 million; provided that instruments
issued by banks not having one of the two highest ratings obtainable from either
S&P or Moody's shall not constitute "Cash Equivalents" for purposes of the
subordination provisions of the Indenture; (v) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company, APP or WR to any Person or group of related Persons
(other than Bain Capital and Bain Related Parties) for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than Bain Capital and Bain Related Parties) shall become the owner,
directly or indirectly, beneficially or of record, of shares representing more
than 50% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company, APP or WR; or (iv) the replacement of
a majority of the Board of Directors of the Company, APP or WR over a two-year
period from the directors who constituted such Board of Directors at the
beginning of such period, and such replacement shall not have been approved by a
vote of at least a majority of such Board of Directors then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to
the extent Consolidated Net Income has been reduced thereby, (A) all income
taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period, (B) Consolidated Interest Expense and (C)
Consolidated Non-cash Charges.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment
77
<PAGE>
of any Indebtedness of such Person or any of its Restricted Subsidiaries (and
the application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof) occurring during the Four Quarter Period or
at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the case
may be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being liable
for Acquired Indebtedness and also including any Consolidated EBITDA (including
any pro forma expense and cost reductions calculated on a basis consistent with
Regulation S-X under the Securities Act) attributable to the assets which are
the subject of the Asset Acquisition or Asset Sale during the Four Quarter
Period) occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the Transaction Date,
as if such Asset Sale or Asset Acquisition (including the incurrence,
assumption or liability for any such Indebtedness or Acquired Indebtedness)
occurred on the first day of the Four Quarter Period. If such Person or any of
its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such
Person had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; and (3) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(before amortization or write-off of debt issuance costs), plus (ii) the product
of (x) the amount of all dividend payments on any series of Preferred Stock of
such Person (other than dividends paid in Qualified Capital Stock) times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated Federal, state and local tax rate
of such Person expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of, without duplication, (i) the aggregate of all cash and
non-cash interest expense with respect to all outstanding Indebtedness of such
Person and its Restricted Subsidiaries, including the net costs associated with
Interest Swap Obligations, for such period determined on a consolidated basis in
conformity with GAAP, and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the
aggregate net income (or loss) of the Company and its Subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP; provided
that there shall be excluded therefrom (a) gains and losses from Asset Sales
(without regard to the $500,000 limitation set forth in the definition thereof)
or abandonments or reserves relating thereto and the related tax effects
according to GAAP, (b) gains and losses due solely to fluctuations in currency
values and the related tax effects according to GAAP, (c) items classified as
extraordinary, unusual or nonrecurring gains and losses, and the related tax
effects according to GAAP, including, without limitation, any compensation
expense incurred in connection with the Transactions, (d) the net income (or
loss) of any Person acquired in a pooling of interests transaction accrued prior
to the date it becomes a Subsidiary of the Company or is merged or consolidated
with the Company or any Subsidiary, (e) the net income of any Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is restricted by contract, operation of law or
otherwise, (f) the net loss of any Person, other than a Restricted Subsidiary
78
<PAGE>
of the Company and (g) the net income of any Person, other than a Restricted
Subsidiary, except to the extent of cash dividends or distributions paid to the
Company or a Restricted Subsidiary of the Company by such Person.
"Consolidated Net Worth" means, with respect to any Person for any
date of determination, the sum of (i) stated capital with respect to Capital
Stock of such Person and additional paid-in-capital, and (ii) retained earnings
(or minus accumulated deficit) of such Person and its Subsidiaries (or, in the
case of the Company, the Restricted Subsidiaries), less, to the extent included
in the foregoing, amounts attributable to Disqualified Capital Stock, each item
determined on a consolidated basis in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any Person for
any period, the aggregate depreciation, amortization and other non-cash expenses
(including any last-in, first-out (LIFO) provisions) of such Person and its
Restricted Subsidiaries reducing Consolidated Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means (i) Indebtedness under or in respect of
the Bank Credit Agreement and (ii) any other Indebtedness constituting Senior
Debt which, at the time of determination, has an aggregate principal amount of
at least $25 million and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any event
(other than an event which would constitute a Change of Control), matures
(excluding any maturity as the result of an optional redemption by the issuer
thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder thereof (except, in
each case, upon the occurrence of a Change of Control) on or prior to the final
maturity date of the Senior Notes.
"fair market value" means, unless otherwise specified, with respect to
any asset or property, the price which could be negotiated in an arm's-length,
free market transaction, for cash, between a willing seller and a willing and
able buyer, neither of whom is under undue pressure or compulsion to complete
the transaction. Fair market value shall be determined by the Board of Directors
of the Company acting reasonably and in good faith and shall be evidenced by a
resolution of the Board of Directors of the Company delivered to the Trustee.
"GAAP" is defined to mean generally accepted accounting principles in
the United States of America as in effect as of the date of the Indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that calculations
made for purposes of determining compliance with the terms of the covenants and
with other provisions of the Indenture shall be made without giving effect to
(i) the deduction or amortization of any premiums, fees, and expenses incurred
in connection with the Transactions and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles Board
Opinion Nos. 16 (including non-cash write-ups and non-cash charges relating to
inventory, fixed assets and in-process research and development, in each case
arising in connection with the Acquisition) and 17 (including non-cash charges
relating to intangibles and goodwill arising in connection with the
Acquisition).
79
<PAGE>
"Guarantor Senior Debt" means, with respect to any Subsidiary
Guarantor, the principal of, premium, if any, and interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of such
Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Guarantee of such Subsidiary Guarantor.
Without limiting the generality of the foregoing, "Guarantor Senior Debt" shall
also include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of, (x) all monetary obligations (including guarantees thereof)
of every nature of such Subsidiary Guarantor under the Bank Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations (including guarantees thereof)
and (z) all obligations (including guarantees thereof) under Currency
Agreements, in each case whether outstanding on the Issue Date or thereafter
incurred. Notwithstanding the foregoing, "Guarantor Senior Debt" shall not
include (i) any Indebtedness, if the instrument creating or evidencing the same
or the assumption or guarantee thereof expressly provides that such Indebtedness
shall not be senior in right of payment to the Guarantee of such Subsidiary
Guarantor, (ii) any Indebtedness of such Subsidiary Guarantor to a Subsidiary of
such Subsidiary Guarantor or to a Subsidiary of the Company, (iii) Indebtedness
to, or guaranteed on behalf of, any shareholder, director, officer or employee
of such Subsidiary Guarantor or any Subsidiary of such Subsidiary Guarantor
(including, without limitation, amounts owed for compensation), (iv)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (v) Indebtedness represented by
Disqualified Capital Stock, (vi) any liability for federal, state, local or
other taxes owed or owing by such Subsidiary Guarantor, (vii) that portion of
any Indebtedness incurred in violation of the Indenture provisions set forth
under "Limitation on Incurrence of Additional Indebtedness" (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of this
clause (vii) if the holder(s) of such obligation or their representative and the
Trustee shall have received an Officers' Certificate of the Company to the
effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made)
would not violate such provisions of the Indenture) and (viii) any Indebtedness
which is, by its express terms, subordinated in right of payment to any other
Indebtedness of such Subsidiary Guarantor.
"Indebtedness" means with respect to any Person, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business), (v) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (vi)
guarantees and other contingent obligations in respect of Indebtedness referred
to in clauses (i) through (v) above and clause (viii) below, (vii) all
obligations of any other Person of the type referred to in clauses (i) through
(vi) which are secured by any lien on any property or asset of such Person, the
amount of such obligation being deemed to be the lesser of the fair market value
of such property or asset or the amount of the obligation so secured, (viii) all
obligations under currency swap agreements and interest swap agreements of such
Person and (ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any. For
purposes hereof, (x) the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital Stock
and (y) any transfer of accounts receivable or other assets which constitute a
sale for purposes of GAAP shall not constitute Indebtedness hereunder.
80
<PAGE>
"Initial Public Offering" means the first underwritten public offering
of Qualified Capital Stock by any of APP, WR or the Company pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act.
"Interest Swap Obligations" means the obligations of any Person,
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company or such Subsidiary, as the case may be.
For the purposes of the "Limitation on Restricted Payments" covenant, (i)
"Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions (including tax sharing payments) in
connection with such Investment or any other amounts received in respect of such
Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Subsidiaries from such Asset
Sale net of (a) out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale, (d) any portion of
cash proceeds which the Company determines in good faith should be reserved for
post-closing adjustments, it being understood and agreed that on the day that
all such post-closing adjustments have been determined, the amount (if any) by
which the reserved amount in respect of such Asset Sale exceeds the actual post-
closing adjustments payable by the Company or any of its Subsidiaries shall
constitute Net Cash Proceeds on such date.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness, without duplication.
"Permitted Indebtedness" means, without duplication (i) the Senior
Notes and the Guarantees, (ii) Indebtedness incurred pursuant to the Bank Credit
Agreement in an aggregate principal amount at any time outstanding not to exceed
81
<PAGE>
$305 million (A) less the amount of all mandatory principal payments actually
made by the Company in respect of term loans thereunder (excluding any such
payments to the extent refinanced at the time of payment under a replaced Bank
Credit Agreement) and (B) reduced by any required permanent repayments (which
are accompanied by a corresponding permanent commitment reduction) thereunder,
(iii) other Indebtedness of the Company and its Subsidiaries outstanding on the
Issue Date reduced by the amount of any scheduled amortization payments or
mandatory prepayments when actually paid or permanent reductions thereon, (iv)
Interest Swap Obligations of the Company or any of its Subsidiaries covering
Indebtedness of the Company or any of its Subsidiaries; provided that any
Indebtedness to which any such Interest Swap Obligations correspond is otherwise
permitted to be incurred under the Indenture; provided, further, that such
Interest Swap Obligations are entered into, in the judgment of the Company, to
protect the Company from fluctuation in interest rates on their respective
outstanding Indebtedness, (v) Indebtedness under Currency Agreements, (vi)
intercompany Indebtedness owed by the Company to any Wholly Owned Restricted
Subsidiary of the Company or by any Restricted Subsidiary of the Company to the
Company or any Wholly Owned Restricted Subsidiary of the Company, (vii) Acquired
Indebtedness to the extent the Company could have incurred such Indebtedness in
accordance with the "Limitation on Incurrence of Additional Indebtedness"
covenant on the date such Indebtedness became Acquired Indebtedness, (viii)
guarantees by the Company and its Wholly Owned Restricted Subsidiaries of each
other's Indebtedness; provided that such Indebtedness is permitted to be
incurred under the Indenture; (ix) any refinancing, modification, replacement,
renewal, restatement, refunding, deferral, extension, substitution, supplement,
reissuance or resale of existing or future Indebtedness, including any
additional Indebtedness incurred to pay interest or premiums required by the
instruments governing such existing or future Indebtedness as in effect at the
time of issuance thereof ("Required Premiums") and fees in connection therewith;
provided that any such event shall not (1) result in an increase in the
aggregate principal amount of Permitted Indebtedness (except to the extent such
increase is a result of a simultaneous incurrence of additional Indebtedness (A)
to pay Required Premiums and related fees or (B) otherwise permitted to be
incurred under the Indenture) of the Company and its Subsidiaries and (2) create
Indebtedness with a Weighted Average Life to Maturity at the time such
Indebtedness is incurred that is less than the Weighted Average Life to Maturity
at such time of the Indebtedness being refinanced, modified, replaced, renewed,
restated, refunded, deferred, extended, substituted, supplemented, reissued or
resold (except that this subclause (2) will not apply in the event the
Indebtedness being refinanced, modified, replaced, renewed, restated, refunded,
deferred, extended, substituted, supplemented, reissued or resold was originally
incurred in reliance upon clauses (vii) or (xi) of this definition), (x) the
incurrence by a Receivables Entity of Indebtedness in a Qualified Receivables
Transaction that is not recourse to the Company or any Subsidiary of the Company
(except for Standard Securitization Undertakings), and (xi) additional
Indebtedness of the Company and its Restricted Subsidiaries in an aggregate
principal amount not to exceed $26 million at any one time outstanding (which
amount may, but need not, be incurred in whole or in part under the Bank Credit
Agreement); provided that such amount shall increase to $40 million in the event
that the Company uses the proceeds from an Initial Public Offering to repay,
redeem, repurchase or otherwise retire at least $50 million of Indebtedness of
the Company (other than Indebtedness under a revolving credit facility unless
there is a permanent reduction in the availability under such revolving credit
facility).
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Wholly Owned Restricted Subsidiary
of the Company (whether existing on the Issue Date or created thereafter) and
Investments in the Company by any Restricted Subsidiary of the Company; (ii)
cash and Cash Equivalents; (iii) Investments existing on the Issue Date; (iv)
loans and advances to employees and officers of the Company and its Restricted
Subsidiaries not in excess of $5 million at any one time outstanding; (v)
accounts receivable created or acquired in the ordinary course of business; (vi)
Currency Agreements and Interest Swap Obligation entered into in the ordinary
course of the Company's or its Restricted Subsidiaries' businesses and otherwise
in compliance with the Indenture; (vii) Investments in securities of trade
creditors or customers received pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (viii) guarantees by the Company or any of its Restricted
Subsidiaries of Indebtedness otherwise permitted to be incurred by the Company
or any of its Restricted Subsidiaries under the Indenture; (ix) additional
Investments in Persons not to exceed $12.5 million at any one time outstanding;
(x) any Investment by the Company or a Wholly Owned Subsidiary of the Company in
a Receivables Entity or any Investment by a Receivables Entity in any other
Person in connection with a Qualified Receivables Transaction; provided that any
Investment in a Receivables Entity is in the form of a Purchase Money Note or an
equity interest; and (xi) Investments received by the Company or its Restricted
Subsidiaries as consideration for
82
<PAGE>
asset sales, including Asset Sales; provided in the case of an Asset Sale, such
Asset Sale is effected in compliance with the "Limitation on Asset Sales"
covenant.
"Permitted Liens"means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or any
of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary of the Company acquired in the ordinary
course of business; provided, however, that (A) the related purchase money
Indebtedness shall not exceed the cost of such property or assets and shall not
be secured by any property or assets of the Company or any Restricted Subsidiary
of the Company other than the property and assets so acquired and (B) the Lien
securing such Indebtedness shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment, or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company or
any of its Restricted Subsidiaries, including rights of offset and set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in reliance on
clause (vii) of the definition of Permitted Indebtedness;
83
<PAGE>
(xiv) Liens on assets transferred to a Receivables Entity or on
assets of a Receivables Entity, in either case incurred in connection with a
Qualified Receivables Transaction;
(xv) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its Restricted
Subsidiaries;
(xvi) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xvii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods; and
(xviii) Liens existing on the Issue Date, together with any Liens
securing Indebtedness incurred in reliance on clause (ix) of the definition of
Permitted Indebtedness in order to refinance the Indebtedness secured by Liens
existing on the Issue Date; provided that the Liens securing the refinancing
Indebtedness shall not extend to property other than that pledged under the
Liens securing the Indebtedness being refinanced.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Productive Assets" means assets (including Capital Stock) of a kind
used or usable in the businesses of the Company and its Restricted Subsidiaries
as, or related to such business, conducted on the date of the relevant Asset
Sale.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified Receivables Transaction
to a Receivables Entity, which note shall be repaid from cash available to the
Receivables Entity, other than amounts required to be established as reserves
pursuant to agreements, amounts paid to investors in respect of interest,
principal and other amounts owing to such investors and amounts paid in
connection with the purchase of newly generated receivables.
"Qualified Capital Stock" means any stock that is not Disqualified
Capital Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any or its Subsidiaries may sell, convey or
otherwise transfer to (a) a Receivables Entity (in the case of a transfer by the
Company or any of its Subsidiaries) and (b) any other Person (in the case of a
transfer by a Receivables Entity), or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of the
Company or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Entity" means a Wholly Owned Subsidiary of the Company
(or another Person in which the Company or any Subsidiary of the Company makes
an Investment and to which the Company or any Subsidiary of the Company
transfers accounts receivable and related assets) which engages in no activities
other than in connection with the financing of accounts receivable and which is
designated by the Board of Directors of the Company (as provided below) as a
Receivables Entity (a) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which (i) is guaranteed by the Company or any
Subsidiary of the Company (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness)) pursuant to Standard
Securitization Undertakings, (ii) is recourse to or obligates the Company or any
Subsidiary of the Company in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or asset of the
Company or any Subsidiary of the Company, directly or
84
<PAGE>
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to Standard Securitization Undertakings, (b) with which neither the
Company nor any Subsidiary of the Company has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of the Company, other than fees payable in the
ordinary course of business in connection with servicing accounts receivable,
and (c) to which neither the Company nor any Subsidiary of the Company has any
obligation to maintain or preserve such entity's financial condition or cause
such entity to achieve certain levels of operating results. Any such designation
by the Board of Directors of the Company shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the resolution of the Board of
Directors of the Company giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Representative" means the indenture trustee or other trustee, agent
or representative in respect of any Designated Senior Debt; provided that if,
and for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times constitute
the holders of a majority in outstanding principal amount of such Designated
Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such
Person which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Corporation and its successors.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Senior Notes. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations (including guarantees thereof) of every nature of the Company under
the Bank Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, (y) all Interest Swap Obligations (including
guarantees thereof) and (z) all obligations (including guarantees thereof) under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, Senior Debt shall not
include (i) any Indebtedness, if the instrument creating or evidencing the same
or the assumption or guarantee thereof expressly provides that such Indebtedness
shall not be senior in right of payment to the Senior Notes, (ii) any
Indebtedness of the Company to a Subsidiary of the Company, (iii) Indebtedness
to, or guaranteed on behalf of, any shareholder, director, officer or employee
of the Company or any Subsidiary of the Company (including, without limitation,
amounts owed for compensation), (iv) Indebtedness to trade creditors and other
amounts incurred in connection with obtaining goods, materials or services, (v)
Indebtedness represented by Disqualified Capital Stock, (vi) any liability for
federal, state, local or other taxes owed or owing by the Company, (vii) that
portion of any Indebtedness incurred in violation of the Indenture provisions
set forth under "Limitation on Incurrence of Additional Indebtedness" (but, as
to any such obligation, no such violation shall be deemed to exist for purposes
of this clause (vii) if the holder(s) of such obligation or their representative
and the Trustee shall have received an Officers' Certificate of the Company to
the effect that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is made)
would not violate such provisions of the Indenture) and (viii)
85
<PAGE>
any Indebtedness which is, by its express terms, subordinated in right of
payment to any other Indebtedness of the Company.
"Significant Subsidiary" means, as of any date of determination, for
any Person, each Subsidiary of such Person which (i) for the most recent fiscal
year of such Person (on or prior to December 31, 1996, the fiscal period
beginning on the Issue Date and ending on the most recently completed fiscal
quarter of such Person) accounted for more than 10% of consolidated revenues or
consolidated net income of such Person or (ii) as at the end of such fiscal year
(on or prior to December 31, 1996, the fiscal period beginning on the Issue Date
and ending on the most recently completed fiscal quarter of such Person), was
the owner of more than 10% of the consolidated assets of such Person.
"Standard Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company which are reasonably customary in an accounts
receivable transaction.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantors" means (i) each of the Company's Subsidiaries
existing on the Issue Date that guarantees the Indebtedness under the Bank
Credit Agreement and (ii) each of the Company's Subsidiaries that in the future
executes a supplemental indenture in which such Subsidiary agrees to be bound by
the terms of the Indenture as a Subsidiary Guarantor whether pursuant to the
provisions set forth under "--Certain Covenants--Guarantees of Certain
Indebtedness" or otherwise.
"Tax Allocation Agreement" means the tax allocation agreement between
the Company, American Pad & Paper Company and WR Acquisition, Inc. and certain
other Subsidiaries of the Company as in effect on the Issue Date.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of
such Person that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such Person
in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided that (x) the
Company certifies to the Trustee that such designation complies with the
"Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so
designated and each of its Subsidiaries have not at the time of designation, and
do not thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving
effect to such designation, the Company is able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
86
<PAGE>
"Wholly Owned Restricted Subsidiary" of any Person means any
Restricted Subsidiary of such Person of which all the outstanding voting
securities (other than directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Restricted Subsidiary of such Person.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes (and the
related guarantees) initially will be replaced by a single permanent global
certificate in definitive, fully registered form (the "Global Note"). The
Global Note will be deposited promptly after the Expiration Date with, or on
behalf of, the Depository and registered in the name of a nominee of the
Depository.
Exchange Notes (i) originally issued to or transferred to "foreign
purchasers" or to Accredited Investors (as defined in Regulation D under the
Securities Act) who are not "qualified institutional buyers" (as defined in Rule
144A) ("QIBs") or (ii) held by QIBs who elect to take physical delivery of their
certificates instead of holding their interest through the Global Note (and
which are thus ineligible to trade through the Depository) (collectively
referred to herein as the "Non-Global Purchasers") will be issued in registered
form (the "Certificated Security"). Upon the transfer to a QIB of any
Certificated Security initially issued to a Non-Global Purchaser, such
Certificated Security will, unless the transferee requests otherwise or the
Global Certificates have previously been exchanged in whole for Certificated
Securities, be exchanged for an interest in the Global Certificates.
The Global Note. The Company expects that pursuant to procedures
established by the Depository (i) upon issuance of the Global Note, the
Depository or its custodian will credit, on its internal system, the principal
amount of Exchange Notes of the individual beneficial interests represented by
such global securities to the respective accounts of persons who have accounts
with such depositary and (ii) ownership of beneficial interests in the Global
Note will be shown on, and the transfer of such ownership will be effected only
through, records maintained by the Depository or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Ownership of beneficial
interests in the Global Note will be limited to persons who have accounts with
the Depository ("participants") or persons who hold interests through
participants. QIBs may hold their interests in the Global Note directly through
the Depository if they are participants in such system, or indirectly through
organizations which are participants in such system.
So long as the Depository, or its nominee, is the registered owner or
holder of the Exchange Notes, the Depository or such nominee, as the case may
be, will be considered the sole owner or holder of the Notes represented by such
Global Note for all purposes under the Indenture. No beneficial owner of an
interest in any of the Global Notes will be able to transfer that interest
except in accordance with the Depository's procedures, in addition to those
provided for under the Indenture with respect to the Exchange Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Note will be made to the Depository or its
nominee, as the case may be, as the registered owner thereof. None of the
Company, the Trustee or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company expects that the Depository or its nominee, upon receipt
of any payment of principal, premium, if any, or interest (including Additional
Interest) in respect of the Global Note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the Global Note as shown on the records of the
Depository or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in the Global Note held through
such participants will be governed by standing instructions and customary
practice, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
87
<PAGE>
Transfers between participants in the Depository will be effected in
the ordinary way in accordance with the Depository rules and will be settled in
clearinghouse funds. If a holder requires physical delivery of a Certified
Security for any reason, including to sell Exchange Notes to persons in states
which require physical delivery of the Exchange Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of the Depository and with the procedures
set forth in the Indenture.
The Depository has advised the Company that it will take any action
permitted to be taken by a holder of Exchange Notes (including the presentation
of Exchange Notes for exchange as described below) only at the direction of one
or more participants to whose account the Depository interests in the Global
Note are credited and only in respect of such portion of the aggregate principal
amount of Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
the Depository will exchange the Global Note for Certificated Securities.
The Depository has advised the Company as follows: the Depository is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depository
was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the Depository
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although the Depository has agreed to the foregoing procedures in
order to facilitate transfers of interests in the Global Note among participants
of the Depository, it is under no obligation to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by the Depository or
its participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
Certificated Securities. If the Depository is at any time unwilling
or unable to continue as a depositary for the Global Note and a successor
depositary is not appointed by the Company within 90 days, Certificated
Securities will be issued for the Global Note.
88
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were originally sold by the Company on December 1, 1995, to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Notes to qualified institutional buyers and
accredited investors in reliance on Rule 144A under the Securities Act. As a
condition to the Purchase Agreement, the Company and the Subsidiary Guarantors
entered into the Registration Rights Agreement with the Initial Purchasers (the
"Registration Rights Agreement") pursuant to which the Company has agreed, for
the benefit of the holders of the Notes, at the Company's cost, to use its best
efforts to (i) file the Exchange Offer Registration Statement within 120 days
after the date of the original issue (the "Issue Date") of the Notes with the
Commission with respect to the Exchange Offer for the Exchange Notes, and (ii)
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act within 180 days after the Issue Date. Upon the Exchange
Offer Registration Statement being declared effective, the Company will offer
the Exchange Notes in exchange for surrender of the Notes. The Company will
keep the Exchange Offer open for not less than 20 calendar days (or longer if
required by applicable law) after the date on which notice of the Exchange Offer
is mailed to the holders of the Notes. For each Note surrendered to the Company
pursuant to the Exchange Offer, the holder of such Note will receive an Exchange
Note having a principal amount equal to that of the surrendered Note. Interest
on each Exchange Note will accrue from the last interest payment date on which
interest was paid on the Note surrendered in exchange therefor or, if no
interest has been paid on such Note, from the Issue Date.
Under existing interpretations of the staff of the Commission
contained in several no-action letters to third parties, the Exchange Notes (and
the related guarantees) would in general be freely tradeable after the Exchange
Offer without further registration under the Securities Act if the holder of the
Exchange Notes represents that it is acquiring the Exchange Notes in the
ordinary course of business, that it has no arrangement or understanding with
any person to participate in the distribution of the Exchange Notes and that it
is not an affiliate of the Company or the Subsidiary Guarantors, as such terms
are interpreted by the Commission; provided that Participating Broker-Dealers
receiving Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to resales of such Exchange Notes. The Commission has
taken the position that the Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other than
a resale of an unsold allotment from the original sale of the Notes) with the
prospectus contained in the Exchange Offer Registration Statement. The Company
and the Subsidiary Guarantors have agreed for a period of 180 days after
consummation of the Exchange Offer to make available a prospectus meeting
requirements of the Securities Act to Participating Broker-Dealers and other
persons, if any, with similar prospectus delivery requirements for use in
connection with any resale of such Exchange Notes. However, any purchaser of
Notes who is an "affiliate" of the Company or the Subsidiary Guarantors or who
intends to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (i) will not be able to rely on the interpretation of the staff
of the Commission, (ii) will not be able to tender its Notes in the Exchange
Offer and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Notes, unless such sale or transfer is made pursuant to any exemption from
such requirements. If the holder is not a broker-dealer, it will be required to
represent that it is not engaged in, and does not intend to engage in, the
distribution of the applicable Exchange Notes. If the holder is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Notes that
were acquired as a result of market-making activities or other trading
activities, it will be required to acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes.
Each holder of the Notes who wishes to exchange the Notes for Exchange
Notes in the Exchange Offer will be required to represent in the Letter of
Transmittal that (i) it is not an affiliate of the Company or Subsidiary
Guarantors, (ii) the Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of commencement of the
Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
89
<PAGE>
In the event that applicable interpretations of the staff of the
Commission do not permit the Company and the Subsidiary Guarantors to effect the
Exchange Offer, or if for any other reason the Exchange Offer is not consummated
within 225 days after the Issue Date, or, under certain circumstances, if the
Initial Purchasers shall so request, each of the Company and the Subsidiary
Guarantors, jointly and severally, will at their cost, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Notes
(a "Shelf Registration Statement"), (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act and (c)
use its best efforts to keep effective such Shelf Registration Statement until
the earlier of three years after the Issue Date and such time as all of the
applicable Notes have been sold thereunder. The Company will, in the event of
the filing of a Shelf Registration Statement, provide to each holder of the
Notes copies of the prospectus which is a part of such Shelf Registration
Statement, notify each such holder when such Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes. A holder that sells its Notes pursuant to a
Shelf Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
holder (including certain indemnification obligations).
If the Company and the Subsidiary Guarantors fail to comply with the
above provisions or if such registration statement fails to become effective,
then, as liquidated damages, additional interest (the "Additional Interest")
shall become payable with respect to the Notes as follows:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 120 days following the Issue Date, Additional
Interest shall accrue on the Notes over and above the stated interest at a rate
of 0.50% per annum for the first 90 days commencing on the 121st day after the
Issue Date, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period;
(ii) if the Exchange Offer Registration Statement or Shelf
Registration Statement is not declared effective within 180 days following the
Issue Date, Additional Interest shall accrue on the Notes over and above the
stated interest at a rate of 0.50% per annum for the first 90 days commencing on
the 181st day after the Issue Date, such Additional Interest rate increasing by
an additional 0.50% per annum at the beginning of each subsequent 90-day period;
or
(iii) If (A) the Company and the Subsidiary Guarantors have not
exchanged all Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to 225 days after the Issue Date or (B) the Exchange
Offer Registration Statement ceases to be effective at any time prior to the
time that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf Registration
Statement ceases to be effective at any time prior to the third anniversary of
the Issue Date (unless all the Notes have been sold thereunder), then Additional
Interest shall accrue on the Notes over and above the stated interest at a rate
of 0.50% per annum for the first 90 days commencing on (x) the 226th day after
the Issue Date with respect to the Notes validly tendered and not exchanged by
the Company, in the case of (A) above, or (y) the day the Exchange Offer
Registration Statement ceases to be effective or usable for its intended purpose
in the case of (B) above, or (z) the day such Shelf Registration Statement
ceases to be effective in the case of (C) above, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each subsequent
90-day period;
provided, however, that the Additional Interest rate on the Notes may not exceed
in the aggregate 1.0% per annum; and provided further, that (1) upon the filing
of the Exchange Offer Registration Statement or Shelf Registration Statement (in
the case of clause (i) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the case of (ii)
above), or (3) upon the exchange of Exchange Notes for all Notes tendered (in
the case of clause (iii)(A) above), or upon the effectiveness of the Exchange
Offer Registration Statement which had ceased to remain effective in the case of
clause (iii)(B) above, or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause (iii)(C)
above), Additional Interest on the Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii)
or (iii) above will be payable in cash, on the same original interest payment
dates as the Notes. The amount of Additional Interest will be determined by
90
<PAGE>
multiplying the applicable Additional Interest rate by the principal amount of
the Notes multiplied by a fraction, the numerator of which is the number of days
such Additional Interest rate was applicable during such period (determined on
the basis of a 360-day year comprised of twelve 30-day months), and the
denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
Following the consummation of the Exchange Offer, holders of the Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Notes will not have any further registration rights and such Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for such Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and all
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding Notes
accepted in the Exchange Offer. Holders may tender some or all of their Notes
pursuant to the Exchange Offer. However, Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and
terms of the Notes except (i) the Exchange Notes bear a Series B designation and
a different CUSIP Number from the Notes, (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof, and (iii) the holders of the Exchange Notes will not be
entitled to certain rights under the Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Notes in
certain circumstances relating to the timing of the Exchange Offer, all of which
rights will terminate when the Exchange Offer is terminated. The Exchange Notes
will evidence the same debt as the Notes and will be entitled to the benefits of
the Indenture.
As of the date of this Prospectus, $200 million aggregate principal
amount of Notes were outstanding. The Company has fixed the close of business
on _________, 1996 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions of the Letter
of Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
the transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses."
91
<PAGE>
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time,
on ______, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a..m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "--Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance.
Holders of Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on May 15, 1996. Interest on the Notes accepted for exchange
will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each
May 15 and November 15, commencing on May 15, 1996.
PROCEDURES FOR TENDERING
Only a holder of Notes may tender such Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Notes
and any other required documents, to the Exchange Agent prior to 5:00 p.m., New
York City time, on the Expiration Date. To be tendered effectively, the Notes,
Letter of Transmittal and other required documents must be completed and
received by the Exchange Agent at the address set forth below under "Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery
of the Notes may be made by book-entry transfer in accordance with the
procedures described below. Confirmation of such book-entry transfer must be
received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the
Company the representations set forth above in the third paragraph under the
heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
92
<PAGE>
Any beneficial owner whose Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instruction
to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as defined
below) unless the Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as are required to be
guaranteed, such guarantee must be by a member firm of the Medallion System (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the Depository (the "Book-Entry Transfer Facility"), for the
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of Notes by causing such
Book-Entry Transfer Facility to transfer such Notes into the Exchange Agent's
account with respect to the Notes in accordance with the Book-Entry Transfer
Facility's procedures for such transfer. Although delivery of the Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the Exchange Agent at its address set forth below on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right in its sole discretion to waive any defects, irregularities
or conditions of tender as to particular Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Notes must
be cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Notes, neither the Company, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Notes received by the Exchange Agent that are not
Properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
93
<PAGE>
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder, the certificate number(s) of such
Notes and the principal amount of Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof) together with the certificate(s) representing the Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal are
received by the Exchange Agent upon five New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received by
the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Notes to be withdrawn (the
"Depositor"), (ii) identify the Notes to be withdrawn (including the certificate
number(s) and principal amount of such Notes, or, in the case of Notes
transferred by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited), (iii) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by which
such Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Notes register the transfer of such Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Notes are to
be registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Notes so withdrawn are validly retendered. Any
Notes which have been tendered but which are not accepted for exchange will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time prior
to the Expiration Date.
94
<PAGE>
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company
shall not be required to accept for exchange, or Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the ability
of the Company to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect to
the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to proceed
with the Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Notes (see "-
- -Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect
to the Exchange Offer and accept all properly tendered Notes which have not been
withdrawn.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
IBJ Schroder Bank & Trust Company
Attention: Reorganization Department
One State Street
New York, New York 10004
Telephone: (212) 858-2103
Facsimile: (212) 858-2611
Delivery to an address other than as set forth above, or transmission
of instructions via a facsimile number other than the one set forth above, will
not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
95
<PAGE>
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may
be resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
so long as the Notes are eligible for resale pursuant to Rule 144A, to a person
inside the United States whom the seller reasonable believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company) , (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by
the staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with person to participate,
in the distribution of the Exchange Notes, will be allowed to resell the
Exchange Notes to the public without further registration under the Securities
Act and without delivering to the purchasers of the Exchange Notes a prospectus
that satisfies the requirements of Section 10 of the Securities Act. However,
if any holder acquires Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the Exchange Notes, such
holder cannot rely on the position of the staff of the Commission enunciated in
such no-action letters or any similar interpretive letters, and must Comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Notes, where such Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder or the person receiving such Exchange Notes, whether or
not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, and (v) the holder or any such other person acknowledges that if
such holder or other person participates in the Exchange Offer for the purpose
of distributing the Exchange Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives an
96
<PAGE>
Exchange Note for its own account in exchange for Notes must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
For a description of the procedures for such resales by Participating Broker-
Dealers, see "Plan of Distribution."
CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal
income tax consequences of the Exchange Offer and the acquisition, ownership and
disposition of the Exchange Notes. The summary is based upon provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Department Regulations, judicial authority and current administrative rulings
and practice, all of which are subject to change at any time by legislative,
judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the Exchange
Notes. Further, there can be no assurance that the Internal Revenue Service
(the "IRS") will not take a contrary view, and no rulings from the IRS have been
or will be sought as to any of the matters discussed below.
This summary is for general informational purposes only and generally
addresses only the Notes and the Exchange Notes that are held as capital assets.
This summary does not purport to discuss all of the tax consequences that may be
relevant to the particular circumstances of a holder or to holders subject to
special rules, such as financial institutions, broker-dealers, insurance
companies, or tax exempt organizations, and persons in special situations such
as those who hold the Exchange Notes as part of a straddle. In addition, this
summary does not address any aspect of state, local or foreign taxation.
PROSPECTIVE PURCHASERS OF THE EXCHANGE NOTES ARE URGED TO CONSULT
THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
TO THEM OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES AND EXCHANGE NOTES AS
WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
As used herein, the term "United States Holder" means a holder of an
Exchange Note that is, for United States federal income tax purposes, (a) a
citizen or resident of the United States, (b) a corporation, partnership or
other entity created under the laws of the United States or of any political
subdivision thereof or (c) an estate or trust the income of which is subject to
United States federal income taxation regardless of source. The term "Foreign
Holder" means a holder of an Exchange Note that is not a United States Holder.
THE EXCHANGE
The exchange of the Notes for the Exchange Notes pursuant to the
Exchange Offer should not be a taxable event to the holder and thus the holder
should not recognize any taxable gain or loss as a result of the exchange. A
holder's adjusted tax basis in the Exchange Notes will be the same as his
adjusted tax basis in the Notes exchanged therefor, and his holding period for
the Notes will be included in his holding period for the Exchange Notes.
Although the exchange of the Notes for the Exchange Notes will not create
additional "market discount" or "amortizable bond premium" (described below), to
the extent that a holder acquired the Notes at a market discount or with
amortizable bond premium, such discount or premium would generally carry over to
the Exchange Notes received in exchange for the Notes. Such holders should
consult their tax advisors regarding the United States federal income tax
treatment of market discount or amortizable bond premium.
UNITED STATES HOLDERS
Generally, interest paid on an Exchange Note will be taxable to a
United States Holder as ordinary interest income in accordance with such
holder's method of accounting for United States federal income tax purposes.
Upon the sale, exchange, redemption, retirement or other disposition of an
Exchange Note, a holder generally will recognize gain or loss equal to the
difference between the amount realized on the disposition and the holder's
adjusted tax basis in the Exchange Note. Subject to the market discount rules
discussed below, gain or loss recognized by a holder on the
97
<PAGE>
disposition of an Exchange Note will be long-term capital gain or loss provided
that the Exchange Note was a capital asset in the hands of the holder and had
been held for more than one year.
Bond Premium
If a subsequent holder purchases an Exchange Note at a cost that is
greater than its stated redemption price at maturity, the holder may elect to
deduct the excess amount as amortizable bond premium (with a corresponding
reduction in the holder's tax basis) over the remaining term of the Exchange
Note. The election would apply to all taxable debt instruments held by the
holder at any time during the first taxable year to which the election applies
and to any such debt instruments which are later acquired by the holder. The
election may not be revoked without the consent of the IRS. Under the
amortizable bond premium rules, the amount of market discount, if any, which
such holder must include in its gross income with respect to such Exchange Notes
for any taxable year will be reduced by the portion of such premium properly
allocable to such year.
Market Discount
If a subsequent holder purchases an Exchange Note for an amount that
is less than the stated redemption price at maturity of such Exchange Note, the
amount of the difference will be treated as market discount for U.S. federal
income tax purposes, unless such difference is less than a specified de minimis
amount. Under the market discount rules, a holder will be required to treat any
principal payment on, or any amount received on the sale, exchange, retirement
or other disposition of, an Exchange Note as ordinary income to the extent of
any market discount which has not previously been included in income and is
treated as having accrued on such Exchange Note by the time of such payment or
disposition. If a holder makes a gift of an Exchange Note, accrued market
discount, if any, will be recognized as if such holder had sold such Exchange
Note for a price equal to its fair market value. In addition, the holder may be
required to defer, until the maturity of the Exchange Note or its earlier
disposition in a taxable transaction, the deduction of a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry such
Exchange Note.
A holder of an Exchange Note acquired at a market discount may elect
to include market discount in income as interest as it accrues, in which case
the foregoing rules would not apply. This election would apply to all bonds
with market discount acquired by the electing holder on or after the first day
of the first taxable year to which the election applies. The election may be
revoked only with the consent of the IRS.
FOREIGN HOLDERS
Payments of principal, retirement premium, if any, interest received
or discount accrued by a Foreign Holder of an Exchange Note who is not engaged
in a trade or business within the United States will not be subject to United
States federal income or withholding tax provided that, in the case of interest,
(a)(i) the Foreign Holder does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Company entitled
to vote, (ii) the Foreign Holder is not a controlled foreign corporation for
United States tax purposes that is related to the Company through stock
ownership, and (iii) such interest is not received by a bank on an extension of
credit made pursuant to a loan agreement entered into in the ordinary course of
business and (b) either (i) the beneficial owner of the Exchange Note, under
penalties of perjury, provides the Company or its agent with its name and
address and certifies that it is not a United States Holder or (ii) a securities
clearing organization, bank, or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") certifies to the Company or its agent, under penalties
of perjury, that such a statement has been received from the beneficial owner by
it or another financial institution and furnishes the payor a copy thereof. A
Foreign Holder, however, may be subject to United States Federal income tax at
the normal graduated rates on its net interest income if such interest is
effectively connected with the conduct of a United States trade or business of
such holder.
A Foreign Holder will not be subject to United States federal income
or withholding tax on any gain realized on the sale or exchange of an Exchange
Note, unless (a) the gain is effectively connected, or treated as effectively
connected, with a United States trade or business of the Foreign Holder or (b)
in the case of a Foreign Holder who is an individual, such Foreign Holder is
present in the United States for a period or periods aggregating 183 days or
more
98
<PAGE>
during the taxable year of the sale or exchange and either (i) the Foreign
Holder has a "tax home" (as defined in Code section 911(d)(3)), in the United
States or (ii) the gain is attributable to an office or other fixed place of
business maintained by the Foreign Holder in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING ON EXCHANGE NOTES
Certain noncorporate United States Holders generally will be subject
to information reporting and may be subject to backup withholding at a rate of
31% on payments of principal, premium, if any, and interest (including "original
issue discount" and market discount) on, and the proceeds of disposition of, an
Exchange Note. Backup withholding will apply only if the United States Holder
(a) fails to furnish its Taxpayer Identification Number ("TIN"), which for an
individual would be the holder's Social Security number, (b) furnishes an
incorrect TIN or (c) is notified by the Internal Revenue Service that it is
subject to backup withholding for failure to report interest and dividend
payments. Holders should consult their own tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
Information reporting and backup withholding will not apply to
payments of principal, premium, if any, and interest made by the Company or a
paying agent to a Foreign Holder on an Exchange Note if the certification
described in clause (b) of the first paragraph under "Foreign Holders" above is
received, provided that the payor does not have actual knowledge that the holder
is a United States person.
Payments of the proceeds from the sale by a Foreign Holder of an
Exchange Note made to or through a foreign office of a broker will not be
subject to information reporting or backup withholding, except that if the
broker is a United States person, a controlled foreign corporation for United
States Federal income tax purposes or a foreign person 50% or more of whose
gross income is effectively connected with a United States trade or business for
a specified three-year period, information reporting may apply to such payments.
Payments of the proceeds from the sale of an Exchange Note to or through the
United States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its non-United
States status or otherwise establishes an exemption from information reporting
and backup withholding.
The amount of any backup withholding from a payment to a holder will
be allowed as a credit against such holder's United States federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating Broker-
Dealer for use in connection with any such resale. In addition, until
____________, all dealers effecting transactions in the Exchange Notes may be
required to deliver a prospectus.
The Company and the Subsidiary Guarantors will not receive any
proceeds from any sales of the Exchange Notes by Participating Broker-Dealers.
Exchange Notes received by Participating Broker-Dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to the purchaser or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such Exchange Notes.
Any Participating Broker-Dealer that resells the Exchange Notes that were
99
<PAGE>
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
EXPERTS
The Company's consolidated financial statements as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 included in the Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The WR Acquisition, Inc. consolidated balance sheets as of October 31,
1995 and December 31, 1994, and the statements of operations, of cash flows and
of changes in stockholders' equity (deficiency) for the ten months ended October
31, 1995 and each of the two years ended December 31, 1993 and 1994 have been
included in this Prospectus in reliance on the report of KPMG Peat Marwick LLP,
independent accountants, appearing elsewhere herein, on the authority of said
firm as experts in auditing and accounting.
The Globe-Weis statements of net sales and cost of sales for the nine
months ended July 31, 1994 and the twelve months ended July 31, 1995 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
LEGAL MATTERS
The validity of the issuance of securities offered hereby will be
passed upon for the Company by Kirkland & Ellis, New York, New York (a
partnership which includes professional corporations). Karl E. Lutz, whose
professional corporation is a partner of Kirkland & Ellis, beneficially owns
7,500.011 shares of common stock, and 487.0763 shares of Preferred Stock of
APP.
100
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
AND SUBSIDIARIES
PAGE
----
<S> <C>
Report of Independent Accountants............................................................................. F-2
Consolidated Balance Sheets at December 31, 1994 and 1995..................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995................... F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1993,
1994 and 1995................................................................................................ F-7
Notes to Consolidated Financial Statements.................................................................... F-8
WR ACQUISITION, INC. AND SUBSIDIARIES
PAGE
----
Independent Auditors' Report.................................................................................. F-35
Consolidated Balance Sheets at December 31, 1994 and October 31, 1995......................................... F-36
Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and for the ten months
ended October 31, 1995........................................................................................ F-38
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1994, 1993 F-39
and for the ten months ended October 31, 1995.................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1994, and 1993 and for the ten months
ended October 31, 1995........................................................................................ F-40
Notes to Consolidated Financial Statements.................................................................... F-41
</TABLE>
<TABLE>
<CAPTION>
GLOBE-WEIS
PAGE
----
<S> <C>
Report of Independent Accountants......................................................................... F-59
Statements of Net Sales and Cost of Sales for the nine months ended July 31, 1994 and twelve months
ended July 31, 1995....................................................................................... F-60
Notes to Statements of Net Sales and Cost of Sales........................................................ F-61
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
American Pad & Paper Company of Delaware, Inc.
(successor to Ampad Corporation)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows, and of changes in
stockholder's equity (deficit) present fairly, in all material respects, the
financial position of American Pad & Paper Company of Delaware, Inc. (successor
to Ampad Corporation) and its subsidiaries at December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Dallas, Texas
March 19, 1996
F-2
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- ---------
ASSETS 1994 1995 1996
------ --------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash................................................. $ 4 $ 18,341 $ 20,108
Restricted cash (Note 2)............................. 60 3,619 10,759
Accounts receivable, net (Note 4).................... 16,965 25,943 18,407
Refundable income taxes.............................. 3,657
Inventories (Note 5)................................. 32,974 93,061 93,166
Prepaid expenses and other current assets............ 831 927 2,026
Assets held for sale (Note 3)........................ 724 42,578 43,572
Deferred income taxes, net (Note 11)................. 15,009 14,744
------- -------- --------
Total current assets................................. 51,558 203,135 202,782
Property and equipment, net (Notes 3 and 6)............ 8,889 106,768 106,758
Intangible assets, net of accumulated amortization of
$200 in 1995 and $508 at March 31, 1996 (Note 3)...... 37,700 37,392
Deferred income taxes, net (Note 11)................... 4,312
Debt issuance costs, net of accumulated amortization
of $1,430, $846 and $2,054, respectively (Note 8)..... 958 32,929 32,524
Goodwill, net of accumulated amortization of $114,
$793 and $1,521, respectively (Note 3)................ 2,409 120,383 119,655
Other.................................................. 107 3,441 1,683
------- -------- --------
Total............................................... $68,233 $504,356 $500,794
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
---------------------------------------------
Current liabilities:
Revolving line of credit (Note 8)..................... $22,767 $ $
Current portion of long-term debt (Note 8)............ 2,772 11,834 13,066
Accounts payable...................................... 15,240 37,048 36,689
Accrued expenses (Note 7)............................. 7,928 44,835 43,271
Income taxes payable.................................. 494 518
Deferred income taxes, net (Note 11).................. 1,681
------- -------- --------
Total current liabilities............................ 50,388 94,211 93,544
Long-term debt (Note 8)................................ 19,889 443,794 440,453
Deferred income taxes (Note 11)........................ 30,070 29,911
Other.................................................. 689 2,702 3,179
------- -------- --------
Total liabilities.................................... 70,966 570,777 567,087
------- -------- --------
Commitments and contingencies (Note 12)
Stockholder's equity (deficit) (Note 9)
Common stock, $.01 par value, 1,000 shares
authorized, 100 shares issued and outstanding........ - -
Additional paid-in capital............................ 3,000 28,998 28,998
Accumulated deficit................................... (5,733) (95,419) (95,291)
------- -------- --------
Total stockholder's equity (deficit)................ (2,733) (66,421) (66,293)
------- -------- --------
Total liabilities and stockholder's equity
(deficit)......................................... $68,233 $504,356 $500,794
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 104,277 $ 120,443 $ 259,341 $ 47,691 $ 121,418
Cost of sales....................................... 88,491 113,394 211,814 42,394 97,889
--------- --------- --------- --------- ---------
Gross profit...................................... 15,786 7,049 47,527 5,297 23,529
Operating expenses:
Selling and marketing............................. 4,920 5,059 6,254 1,162 3,328
General and administrative........................ 5,845 5,556 12,291 1,587 7,698
Nonrecurring compensation charge
(Note 9)........................................ 27,632
--------- --------- --------- --------- ---------
Income (loss) from operations....................... 5,021 (3,566) 1,350 2,548 12,503
Other income (expense):
Interest.......................................... (3,320) (4,560) (13,657) (1,656) (12,542)
Other income, net................................. 167 90 735 65 269
--------- --------- --------- --------- ---------
Income (loss) before income taxes................... 1,868 (8,036) (11,572) 957 230
Provision (benefit) for income taxes................ 64 (488) (6,538) 366 102
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item............. 1,804 (7,548) (5,034) 591 128
Extraordinary loss from extinguishment of
debt (net of income tax benefit of $6,434)........ (9,652)
--------- --------- --------- --------- ---------
Net income (loss)................................... $ 1,804 $ (7,548) $ (14,686) $ 591 $ 128
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- --------------------------
1993 1994 1995 1995 1996
-------- --------- ---------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 1,804 $ (7,548) $ (14,686) $ 591 $ 128
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation.......................................... 159 828 3,369 490 1,984
Amortization of goodwill and intangible
assets............................................... 114 879 38 1,036
Noncash portion of nonrecurring compen-
sation charge........................................ 25,998
Extraordinary loss on extinguishment
of debt.............................................. 9,652
Noncash interest expense and accretion
of discount.......................................... 584 135 32
Amortization of debt issuance costs................... 619 696 1,538 206 1,208
Gain on sale of assets................................ (159) (83) (140) (68) (16)
Changes in assets and liabilities, net of
effects of acquisitions:
Decrease (increase) in restricted cash.............. (48) (12) (3,559) (19) (7,140)
Decrease (increase) in accounts
receivable......................................... (944) 2,457 (18,466) (5,038) 7,536
Decrease in refundable income taxes................. 101 3,657
Decrease (increase) in inventories.................. (5,006) 1,655 2,256 (5,728) (105)
Decrease (increase) in prepaid expenses
and other.......................................... 1,173 (302) 905 (712) (1,099)
Decrease (increase) in deferred tax
asset, net......................................... 64 (488) (13,141) 347 106
Increase (decrease) in accounts
payable............................................ 2,565 3,433 4,979 1,747 (359)
Increase (decrease) in accrued
expenses........................................... (2,225) (2,782) 4,877 (2,174) (1,540)
Decrease (increase) in other assets................. (250) 154 1,756
Increase (decrease) in other liabilities............ (92) 11 (7) (26) 477
-------- --------- --------- ----------- -----------
Net cash provided by (used in)
operating activities............................. (1,756) (1,886) 4,709 (10,314) 7,629
-------- --------- --------- ----------- -----------
Cash flows from investing activities:
Purchase of the stock of Delaware, including
acquisition costs...................................... (122,655)
Purchases of property and equipment..................... (1,656) (942) (3,919) (809) (2,321)
Purchase of net assets, including acquisition
costs.................................................. (13,744) (7,046)
Proceeds from sale of assets............................ 1,166 83 140 68 16
Net cash generated from (used by) assets
held for sale........................................... 2,213 (646)
-------- --------- --------- ----------- -----------
Net cash used in investing activities................ (490) (14,603) (131,267) (741) (2,951)
-------- --------- --------- ----------- -----------
</TABLE>
F-5
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- --------------------------
1993 1994 1995 1995 1996
-------- --------- ---------- ----------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from sale of accounts receivable............ $ $ $ 45,000 $ $
Net borrowings (repayments) under line of
credit............................................. 3,937 7,057 (22,767) 11,813
Proceeds from long-term debt......................... 11,252 430,052 25,272
Repayment of long-term debt.......................... (1,725) (1,192) (186,546) (758) (27,380)
Redemption premiums and penalties
included in extraordinary loss..................... (10,812)
Debt issuance costs.................................. (628) (35,032) (803)
-------- --------- --------- ----------- -----------
Dividends paid....................................... (75,000)
Net cash provided by (used in) financing
activities........................................ 2,212 16,489 144,895 11,055 (2,911)
-------- --------- --------- ----------- -----------
Net increase (decrease) in cash................... (34) - 18,337 - 1,767
Cash, beginning of period.............................. 38 4 4 4 18,341
Cash, end of period.................................... $ 4 $ 4 $ 18,341 $ 4 $ 20,108
-------- --------- --------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.............................................. $ 2,113 $ 3,575 $ 9,127 $ 203 $ 4,578
======== ========= ========= ======== ========
Income taxes.......................................... $ - $ 29 $ 99 $ 3 $ 23
======== ========= ========= ======== ========
Supplemental disclosure of noncash investing
and financing activities:
Payment-in-kind interest expense..................... $ 482 $ - $ - $ - $ -
======== ========= ========= ======== ========
Notes payable issued in consideration of
purchase price...................................... $ - $ - $ 36,115 $ - $ -
======== ========= ========= ======== ========
Notes payable issued in consideration for
equipment........................................... $ - $ 544 $ 1,721 $ - $ -
======== ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETAINED
EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992.. $ - $ 3,000 $ 11 $ 3,011
Net income.................... 1,804 1,804
------ ------- -------- --------
Balance at December 31, 1993 - 3,000 1,815 4,815
Net loss (7,548) (7,548)
------ ------- -------- --------
Balance at December 31, 1994..... - 3,000 (5,733) (2,733)
Grant of parent company stock
options to management (Note 9).. 25,998 25,998
Dividends paid................... (75,000) (75,000)
Net loss......................... (14,686) (14,686)
------ ------- -------- --------
Balance at December 31, 1995 - 28,998 (95,419) (66,421)
Net income (unaudited) 128 128
------ ------- -------- --------
Balance at March 31, 1996
(unaudited) $ - $28,998 $(95,291) $(66,293)
====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts
- --------------------------------------------------------------------------------
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS
ORGANIZATION AND BASIS OF PRESENTATION
American Pad & Paper Company (formerly Ampad Holding Corporation and referred to
hereafter as "APP") was incorporated on June 2, 1992 as a holding company to
acquire all of the outstanding stock of Ampad Corporation ("Ampad"), the
surviving entity from the merger between Ampad Acquisition Corporation and
Ampad. APP had no operations through July 31, 1992.
On October 3, 1995, APP agreed to acquire in a merger transaction all of the
outstanding stock of WR Acquisition, Inc. ("WR") (the "Acquisition"). In a
series of transactions, APP exchanged 100% of the stock of its wholly-owned
subsidiary, Ampad, for newly-issued shares of WR. WR then contributed Ampad to
its wholly-owned subsidiary, Williamhouse-Regency of Delaware, Inc., renamed
American Pad & Paper Company of Delaware, Inc. ( referred to hereafter on a pre-
October 31, 1995 basis as "Delaware" and on a post-October 31, 1995 basis as the
"Company") in exchange for a right to receive $140 million of merger
consideration, with Ampad becoming a division of the Company. The Company,
principally using bank borrowings aggregating $245 million, funded WR's right to
receive the merger consideration and WR in turn repurchased 100% of the WR
shares not owned by APP. The transaction was accounted for as a purchase of the
stock of WR by APP. Accordingly, Ampad's historical accounting basis survived;
however, the Company is considered to be the legal successor to Ampad. As a
result of the transactions, APP now owns 100% of WR which in turn owns 100% of
the Company.
The financial statements of the Company now present 100% of the historical
accounts and operations of Ampad and the newly-acquired accounts of Delaware and
its wholly-owned subsidiaries as of October 31, 1995, along with Delaware's
consolidated operating results for the post-October 31, 1995 period (Note 3).
Additionally, the consolidated financial statements include the accounts of
Notepad Funding Corporation, a special purpose corporation utilized in the
accounts receivable facility (Note 4). All significant intercompany balances
have been eliminated. Certain prior year amounts have been reclassified for
comparative purposes.
The Company's ultimate parent is APP. Bain Capital, Inc. (Bain Capital) and its
related investors, along with certain members of management, own all of the
voting capital stock and preferred stock of APP. APP is a holding company with
no operations other than its ownership of 100% of the common stock of WR, which
is also a holding company with no operations other than through its investment
in the Company.
The financial statements of APP and WR are not required to be included herein by
the rules and regulations of the Securities and Exchange Commission ("SEC") as
APP and WR have not issued a guarantee with respect to the repayment of the
Company's 13% Senior Subordinated Notes ("Senior Subordinated Notes"). The
Company is restricted by its existing Bank Credit Agreement and Senior
Subordinated Notes indenture from lending or dividending cash to WR or APP,
except under limited circumstances.
F-8
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
BUSINESS
The Company is one of the largest manufacturers and marketers of paper-based
office products (excluding computer forms) in North America. It offers a broad
assortment of products through two complementary businesses: Ampad (writing
pads, file folders and other paper-based office products) and Williamhouse
(envelopes). The Regency business (personalized stationery and invitations and
greeting cards) was identified by APP management as of the acquisition date as a
nonstrategic business to be sold and is consequently being held for sale as of
December 31, 1995 and March 31, 1996 (unaudited) (Note 3). The Company's
products are distributed through large mass merchant retailers, office product
superstores, warehouse clubs, major contract stationers, office products
wholesalers and independent dealers. Substantially all sales are to customers
within the United States.
INTERIM FINANCIAL INFORMATION
The financial statements for the three months ended March 31, 1996 and 1995 are
unaudited but include all adjustments (consisting of normal recurring
adjustments) that the Company considers necessary for a fair presentation.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. Financial disclosures herein relating to matters subsequent to March 19,
1996 are unaudited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of the consolidated
financial statements are as follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly-liquid, interest-bearing instruments with an
original maturity of three months or less to be cash equivalents. Restricted
cash of $3,619 as of December 31, 1995 and $10,759 as of March 31, 1996
(unaudited) represents funds the Company, as servicer, has made available to the
trustee of the trust that purchased the Company's trade accounts receivable
(Note 4), in the event of nonperformance, defaults or other losses related to
such receivables.
F-9
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of the product. All risks and
rewards of ownership pass to the customer upon shipment. Damaged or defective
products may be returned to the Company for replacement or credit. The Company
also offers sales rebates to customers based on level of sales activity. The
effects of returns and discounts are estimated and recorded at the time of
shipment. Volume rebates are estimated and recorded based on sales activity.
CONCENTRATION OF CREDIT RISK
The Company sells its products into various wholesale and retail channels,
primarily for the commercial office products marketplace. Management believes
its credit policies are prudent and reflect normal industry terms and business
risks. The Company performs credit evaluations of its customers and does not
require collateral. Historically, the Company has not experienced significant
losses related to individual customers or groups of customers in any particular
industry or geographic area. An allowance is maintained at a level which
management believes is sufficient to cover potential credit losses including
potential losses on receivables sold.
INVENTORIES
Inventories, which consist primarily of paper and converted paper products, are
stated at the lower of cost or market. Cost is determined by the last-in,
first-out (LIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the individual assets.
Repairs and maintenance costs are expensed as incurred.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents cost in excess of fair value of the net assets of companies
acquired in purchase transactions. Goodwill is amortized using the straight-
line method over periods ranging from 20 to 40 years (Note 3). Intangible
assets represent trade names acquired in the WR acquisition (Note 3). Trade
names are amortized using the straight-line method. Trade names in the
aggregate gross amount of $31,700 are amortized over 40 years. Trade names in
the aggregate gross amount of $6,200 are amortized over 15 years. The Company
periodically reviews goodwill and other intangible assets to assess
recoverability. Impairment is measured based on the expected undiscounted cash
flows of the operations giving rise to the goodwill and other intangible assets
compared to the carrying cost of the related assets including goodwill and other
intangible assets. Based upon its most recent analysis, the Company believes
that no impairment of goodwill and intangible assets exists at December 31,
1995. Amortization expense was $114 in 1994, $879 in 1995 and $38 and $1,036
for the three months ended March 31, 1995 and 1996, respectively (unaudited).
There was no amortization expense in 1993.
F-10
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
DEBT ISSUANCE COSTS
Costs associated with debt issuances are capitalized and amortized to interest
expense using the effective interest method over the terms of the related debt
agreements (Note 8).
INCOME TAXES
The Company accounts for income taxes following the liability method, as set
forth in Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (FAS 109). FAS 109 prescribes an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Deferred tax assets are recognized, net of
any valuation allowance, for deductible temporary differences and tax operating
loss and credit carryforwards. Deferred tax expense represents the change in
the deferred tax asset or liability balances.
EARNINGS PER SHARE
Earnings per share is not presented as the Company is essentially closely held
and therefore such information is not meaningful.
DERIVATIVES
Premiums paid for interest rate cap agreements are amortized as interest expense
over the term of the agreement. At March 31, 1996 (unaudited) the fair market
value of the interest rate cap was $(1,308). Amounts receivable under interest
rate cap agreements are recorded as a reduction of interest expense (Note
8).
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying values of cash, accounts receivable, accounts payable and accrued
expenses approximate fair value due to the short-term maturities of these assets
and liabilities. The carrying value of senior bank debt bearing interest at
floating rates approximates fair value. The carrying value at December 31, 1995
of the 13% Senior Subordinated Notes approximates fair value as the notes were
issued in a private placement offering near the end of 1995.
3. ACQUISITIONS
WR ACQUISITION, INC./DELAWARE
APP acquired WR and its wholly-owned subsidiary Delaware through a merger
transaction effective October 31, 1995 (Note 1). The transaction was accounted
for under the purchase method of accounting. Accordingly, the aggregate
acquisition cost was allocated to the net assets acquired based on the fair
market value of such net assets in accordance with Accounting Principles Board
Opinion (APB) No. 16. The aggregate acquisition cost totaled $147,853 and
consisted of cash of $140,000 and direct acquisition costs of $7,853. The
acquisition was entirely financed through the Bank Credit Agreement (Note 8) and
an off-balance sheet accounts
F-11
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
receivable facility (Note 4), with Ampad, as APP's former direct wholly-owned
subsidiary, deemed to be the acquiror of Delaware for accounting purposes. The
aggregate acquisition cost has been preliminarily allocated to the assets
acquired and liabilities assumed as follows: accounts receivable of $39,174;
inventories of $49,496; prepaid expenses and other assets of $8,699; net assets
held for sale of $40,851; property and equipment of $88,688; identifiable
intangible assets of $37,900; deferred income tax liability of $27,644; accounts
payable of $17,518; accrued expenses of $36,482; noncurrent liabilities of
$2,019 and assumed debt of $152,905. The aggregate acquisition costs exceeded
fair market value of the net assets acquired by $119,613. Accordingly, goodwill
was recorded in accordance with APB No. 16. The goodwill is being amortized over
40 years. The operating results of Delaware have been included in the
accompanying consolidated financial statements since the date of acquisition.
The businesses acquired include the Williamhouse division, a manufacturer of a
wide range of mill branded, specialty and commodity envelopes; and the Regency
division, which provides custom imprinting services.
The Regency personalized stationery and invitations division (the Personalizing
Division) acquired in the Acquisition was held for sale at December 31, 1995 and
March 31, 1996 (unaudited). The purchase price allocated to the net assets
acquired includes the expected proceeds from sale plus the net cash flows
expected to be generated from the Personalizing Division from date of
acquisition through the expected date of sale (the holding period), offset by
interest expense incurred during the holding period on debt incurred to finance
the purchase of the Personalizing Division. During the period from acquisition
through December 31, 1995 and the three month period ended March 31, 1996
(unaudited), the Personalizing Division had an operating loss of $913 and
operating income of $2,011, respectively, and interest carrying costs of $556
and $942, respectively, which have been excluded from the statement of
operations and included as adjustments to the carrying amount of the net assets
held for sale in the consolidated balance sheets at December 31, 1995 and March
31, 1996 (unaudited). On April 17, 1996, the Company signed a letter of intent
with a potential buyer to sell the Personalizing Division. The Company expects
the transaction will be consummated prior to October 31, 1996.
Certain costs are expected to be incurred in connection with integrating and
consolidating certain plant, administrative and sales functions of Delaware with
Ampad, and the closure of Williamhouse-Regency's corporate headquarters and the
associated net reduction of approximately 200 employees. Such costs,
aggregating $17,500, include lease termination expenses, severance and
contractual change of control benefits, the liability for which was included in
the purchase price allocation within accrued expenses. Substantially all such
actions are expected to be completed prior to October 31, 1996.
GLOBE-WEIS
Effective August 16, 1995, the Company acquired the inventories and certain
equipment of the file folder and hanging file folder product lines of Globe-
Weis's ("Globe") office products division from Globe's parent. For financial
reporting purposes, this acquisition was accounted for under the purchase method
of accounting. Accordingly, the aggregate acquisition cost was allocated to the
net assets acquired based on the fair value of such net assets in accordance
with APB No. 16. The aggregate acquisition costs totaled $19,669 and consisted
of cash of $6,622,
F-12
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
notes issued to the seller of $10,958 and direct acquisition and financing costs
of $2,089. The company principally financed the acquisition through its
financing arrangement with a commercial lender as described in Note 8 and notes
issued to the seller. The allocation of the aggregate acquisition costs was as
follows: inventories of $12,848, equipment of $5,156, and debt issuance costs of
$1,665. The purchase agreement provides for a purchase price adjustment
mechanism pending receipt of final priced inventory listings from Globe. The
purchase price has not yet been finalized. The purchase price allocation was
based on management's estimate of the final purchase price. Management does not
believe the actual purchase price will vary significantly from their estimate.
The operating results of this acquisition have been included in the accompanying
consolidated financial statements since the date of acquisition.
SCM OFFICE SUPPLIES
Effective July 5, 1994, the Company acquired the assets and assumed certain
liabilities of SCM Office Supplies, Inc. For financial reporting purposes, this
acquisition was accounted for under the purchase method of accounting.
Accordingly, the aggregate acquisition cost was allocated among the net assets
acquired based on the fair market value of such net assets in accordance with
APB No. 16. The aggregate acquisition cost totaled $14,372 and consisted of
cash of $12,880 and direct acquisition and financing costs of $1,492. The
Company principally financed the acquisition through its financing arrangement
with a commercial lender as described in Note 8. The allocation of the
aggregate acquisition cost to the assets acquired and liabilities assumed was as
follows: accounts receivable of $7,922, inventories of $6,857, prepaid expenses
and other assets of $16, debt issuance costs of $628, property and equipment of
$5,441, net deferred income tax assets of $1,553, accounts payable of $4,235,
and accrued liabilities of $6,333. The aggregate acquisition cost exceeded fair
market value of the net assets acquired by approximately $2,523. Accordingly,
goodwill was recorded in accordance with APB No. 16. The goodwill is being
amortized over 20 years. The operating results of this acquisition have been
included in the accompanying consolidated financial statements since the date of
acquisition.
The following summary presents the results of operations for the years ended
December 31, 1994 and 1995, on an unaudited pro forma basis, as if the WR
Acquisition, Inc., Globe and SCM acquisitions had occurred as of January 1, 1994
(with appropriate adjustments for amortization of intangible assets, interest
expense, elimination of duplicate selling and administrative expenses and the
related income tax effects). The pro forma operating results are for
illustrative purposes only and do not purport to be indicative of the actual
results which would have occurred had the transactions been consummated as of
those earlier dates, nor are they indicative of results of operations which may
occur in the future.
F-13
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
1994 1995
------------- ------------
(unaudited)
Net sales $ 454,667 $ 511,307
Income (loss) before income taxes and
extraordinary item $ (25,700) $ 4,108
=========== ===========
Net income (loss) before extraordinary
item $ (18,300) $ 3,428
=========== ===========
Net income (loss) from continuing
operations after extraordinary item $ (18,300) $ (6,224)
=========== ===========
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ----------- -----------
(unaudited)
Accounts receivable - trade............. $ 17,376 $ 25,539 $ 17,263
Accounts receivable - other............. 64 2,013 2,795
Less allowance for doubtful accounts and
reserves for customer deductions and
cash discounts........................ (475) (1,609) (1,651)
-------- -------- --------
$ 16,965 $ 25,943 $ 18,407
======== ======== ========
The Company sold an undivided ownership interest in a revolving pool of trade
accounts receivable for $45,000 in October 1995. The sold accounts receivable
are excluded from receivables in the accompanying balance sheets. The full
amount of the allowance for doubtful accounts has been retained because the
Company has retained substantially the same risk of credit loss as if the
receivables had not been sold through the recourse provision of the receivable
sale agreement. Under the agreement, the maximum amount of the purchasers
investment is subject to change based on the level of eligible receivables and
restrictions on concentrations of receivables.
The total cost of the program was $423 in 1995 and $323 for the three months
ended March 31, 1996 (unaudited) and is included in general and administrative
expenses in the consolidated statement of operations. The agreement expires in
2000.
Bad debt expense for 1993, 1994, 1995 and the three months ended March 31, 1995
and 1996 (unaudited) was immaterial.
F-14
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
5. INVENTORIES
Inventories consist of the following:
DECEMBER 31, MARCH 31,
1994 1995 1996
-------- -------- ----------
(unaudited)
Raw materials and semi-finished goods.. $ 15,784 $ 36,129 $ 33,368
Work in process........................ 2,689 7,114 9,203
Finished goods......................... 20,467 60,266 59,409
-------- -------- --------
38,940 103,509 101,980
LIFO reserve (5,966) (10,448) (8,814)
-------- -------- --------
$ 32,974 $ 93,061 $ 93,166
======== ======== ========
In connection with the Acquisition (Note 3), Delaware's total inventories for
financial accounting purposes were written up by $13,948 to fair market value at
October 31, 1995, including reversal of $6,695 related to Delaware's historical
LIFO reserves. Since the Company is on the LIFO method of accounting, such
write-up will form the historical base year cost for the acquired inventories
and will not impact the statement of operations unless a decrement of base
inventory quantities occurs. During the two months subsequent to October 31,
1995, certain acquired inventory quantities were liquidated and $453 of the fair
value write-up was charged to cost of sales.
Inventory quantities of Ampad were reduced during 1995 which resulted in
liquidation of LIFO inventory layers carried at lower costs which prevailed in
prior years. The effect of the liquidation of Ampad inventory in 1995 was to
decrease cost of sales $557 and to increase net income by $334. There were no
liquidations of LIFO inventories in 1994, 1993 or the three month period ended
March 31, 1996 (unaudited).
F-15
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31, MARCH 31,
IN YEARS 1994 1995 1996
------------- ------------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Land........................... $ 31 $ 4,949 $ 4,961
Buildings...................... 40 642 22,997 22,866
Machinery and equipment........ 10-12 6,274 71,094 70,302
Office furniture and fixtures.. 3-5 2,891 5,747 6,432
Construction in progress....... 261 6,560 8,760
------- -------- --------
10,099 111,347 113,321
Less accumulated depreciation
and amortization.............. (1,210) (4,579) (6,563)
------- -------- --------
$ 8,889 $106,768 $106,758
======= ======== ========
</TABLE>
In connection with the Acquisition (Note 3), acquired property, plant and
equipment was appraised at $36,285 in excess of historical book value as of
October 31, 1995, including $1,443, $1,664 and $33,178 allocated to land,
buildings and machinery and equipment, respectively.
Depreciation expense was $159 in 1993, $828 in 1994, $3,369 in 1995 and $490 and
$1,984 for the three months ended March 31, 1995 and 1996, respectively
(unaudited).
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------- -----------
(unaudited)
Acquisition integration costs.. $2,003 $17,567 $15,534
Sales volume discounts......... 2,436 11,414 5,211
Salaries and wages............. 1,148 6,682 5,395
Interest....................... 472 3,748 10,651
Other.......................... 1,869 5,424 6,480
------ ------- -------
$7,928 $44,835 $43,271
====== ======= =======
F-16
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
8. BORROWINGS
Long-term debt of the Company, which is subject to mandatory repayments under
certain conditions (as described below), consists of the following:
DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ----------- -------
(unaudited)
Senior bank debt:
Term Loan A due 1996-2000.......... $ $ 69,843 $92,875
Term Loan B due 1996-2002.......... 65,000 65,000
Term Loan C due 1996-2003.......... 45,000 45,000
Term Loan D due 1996-2004.......... 40,000 40,000
13% Senior Subordinated Notes
due 2005............................ 200,000 200,000
WR seller notes payable due January
1996................................ 25,157
Industrial revenue bonds............. 8,049 8,049
Capitalized lease obligations........ 2,579 2,480
Floating rate bank debt.............. 16,458
15% subordinated notes payable to
stockholders and management......... 3,563
8.5% to 15% Ampad seller notes....... 2,485
Other................................ 155 115
------- -------- --------
22,661 455,628 453,519
Less: current portion (2,772) (11,834) (13,066)
------- -------- --------
$19,889 $443,794 $440,453
Future maturities of long-term debt at December 31, 1995 are as follows:
1996........ $ 11,834
1997........ 16,787
1998........ 21,179
1999........ 27,654
2000........ 31,162
Thereafter.. 347,012
--------
$455,628
SENIOR BANK DEBT
The Company entered into a bank credit agreement effective October 31, 1995
consisting of $245,000 of term loans in the form of a multitranche facility, a
$45,000 revolving credit facility and an IRB Letter of Credit Facility of
$13,400 (the "Bank Credit Agreement"). Interest rates
F-17
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
on the term loans are floating and based, at the Company's option, on either the
Eurodollar rate (as defined in the agreement) plus 275 to 400 basis points or
the bank base rate (as defined in the agreement) plus 175 to 300 basis points.
The basis point additions vary by tranche. Interest is payable quarterly under
the bank base rate option and on the last day of the selected interest period
under the Eurodollar rate option. If the interest period on Eurodollar loans
exceeds three months, then interest payments are due every three months (at
December 31, 1995, the Company selected the Eurodollar rate option). The
effective interest rates by tranche at December 31, 1995 and March 31, 1996
(unaudited) are as follows:
March 31, 1996
December 31, 1995 (unaudited)
Eurodollar Bank base Eurodollar Bank base
option rate option option rate option
----------- ------------ --------------- ------------
Term Loan A.. 8.66% 10.25% 8.22% 10.07%
Term Loan B.. 9.28% 10.88% 8.72% 10.75%
Term Loan C.. 9.66% 11.25% 9.10% 11.13%
Term Loan D.. 9.91% 11.75% 9.34% 11.38%
The revolving credit facility is a five-year facility bearing interest at a
floating rate based, at the Company's option, on either the Eurodollar rate plus
275 basis points or the bank base rate plus 175 basis points, or an effective
rate of 8.66% at December 31, 1995 and 8.13% at March 31, 1996 (unaudited) under
the Eurodollar rate option and 10.25% at December 31, 1995 and 10.00% at March
31, 1996 (unaudited) under the bank base rate option, respectively. A
commitment fee of 0.5% is payable quarterly on the unused portion of the
facility. The revolving credit facility includes a letter of credit sublimit of
$20,000. There were no borrowings outstanding under this facility at December
31, 1995 or March 31, 1996 (unaudited).
The Bank Credit Agreement requires the Company to meet certain financial tests,
including minimum levels of EBITDA (as defined in the agreement), minimum
interest coverage and maximum leverage ratio. The agreement also contains
covenants which, among other things, limit the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers, and other matters customarily restricted in such
agreements. The Bank Credit Agreement contains customary events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-defaults to certain other indebtedness, certain events of
bankruptcy and insolvency, ERISA, judgment defaults, failure of any guaranty or
security agreement supporting the bank credit agreement to be in full force and
effect and change of control.
The Bank Credit Agreement required the Company to purchase an interest rate cap
covering a portion of the outstanding balance under the agreement. In January
1996, the Company entered into a four-year agreement that entitles the Company
to receive from the counterparty on a quarterly basis the amount, if any, by
which LIBOR exceeds 6.5% for the first two years of the agreement and 7.5% for
the last two years on a notional principal amount of $100,000. The counterparty
to this agreement is a large financial institution.
F-18
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The Bank Credit Agreement provides for mandatory prepayment, subject to certain
exceptions, upon the occurrence of certain events including, but not limited to,
asset sales (including the net assets held for sale as described in Note 3),
certain debt and equity issuances, insurance recovery events and the
accumulation of Excess Cash Flows, as defined (with a requirement to pay 50% of
Excess Cash Flow for the period ended December 31, 1995 and 75% of Excess Cash
Flow per annum thereafter).
The Bank Credit Agreement is guaranteed by APP and all subsidiaries of the
Company, except for Notepad Funding Corporation, and is secured by substantially
all assets of the Company and a pledge of all capital stock of the Company and
its subsidiaries.
SENIOR SUBORDINATED NOTES
The Company issued $200,000 of 13% Senior Subordinated Notes through a private
placement in December 1995. The notes are unsecured and subordinated to all
senior bank debt. Interest is payable semi-annually on May 15 and November 15.
The notes are redeemable after November 15, 2000, at the Company's option, at
redemption prices ranging from 106.5% of the face value of the notes in 2000 to
100% of the face value of the notes in 2003 or thereafter. Additionally, at any
time on or prior to November 15, 1998, the Company may, at its option, use the
proceeds of public equity offerings of the Company or APP to redeem up to 35% of
the notes at redemption prices ranging from 111% to 113% of the face value of
the notes.
The notes require the Company to file a registration statement with the
Securities Exchange Commission within 120 days of issuance to exchange the notes
for new notes (the Exchange Notes) of the Company having terms substantially
identical to the notes. The Company must use its best efforts to cause such
registration statement to be declared effective within 180 days after issuance
of the notes and consummate the exchange within 225 days after issuance of the
notes.
The notes are fully and unconditionally guaranteed by all subsidiaries of the
Company, except for Notepad Funding Corporation, on a joint and several and
senior subordinated basis (Note 14). The notes contain restrictive covenants
which, among other things, limit dividends, repurchase of capital stock and
investments, incurrence of additional indebtedness, transactions with affiliates
and other matters customarily restricted in such agreements.
OTHER
WR seller notes in the amount of $25,157 outstanding at December 31, 1995, were
repaid in January 1996 from the proceeds of the remaining borrowings issuable
under Term Loan A of the Bank Credit Agreement. The WR seller notes bore
interest at 1% and are classified as long-term in the consolidated balance sheet
at December 31, 1995 since such debt was refinanced with long-term debt.
At December 31, 1995, the Company had outstanding various industrial revenue
bonds in the aggregate amount of $8,049. The industrial revenue bonds bear
interest at rates ranging from 5.10% to 5.25%. Aggregate annual principal
payments ranging from $350 to $2,970 are due through 2010. Payment of principal
and interest on the industrial revenue bonds are guaranteed
F-19
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
by the Company or various wholly-owned subsidiaries. The industrial revenue
bonds are secured by letters of credit. At December 31, 1995 and March 31, 1996
(unaudited), letters of credit in the aggregate amount of $15,800 and $12,677,
respectively, were outstanding.
At December 31, 1994, the Company had outstanding notes payable to various
lenders in the aggregate amount of approximately $22,700 with effective interest
rates ranging from 8% to 15%. All of the notes payable outstanding at December
31, 1994, were either refinanced with the proceeds of the Bank Credit Agreement
or repaid in accordance with their terms.
At December 31, 1994, the Company had a revolving line of credit with a
commercial lender with an outstanding balance of $22,767. The revolving line of
credit carried an interest rate of 1.5% above the bank's prime rate (an
effective rate of 10% at December 31, 1994). The facility was repaid and
terminated in 1995 and replaced by the Bank Credit Agreement.
The proceeds from the Bank Credit Agreement were used to consummate the
Acquisition (Note 3), and refinance existing indebtedness of the Company.
On December 1, 1995, $200,000 of proceeds were received from the 13% Senior
Subordinated Notes which were used to repurchase $100,000 of publicly-held notes
of Delaware assumed in the Acquisition and pay a dividend to WR and APP to
redeem preferred stock and preferred stock equivalents of APP, as well as APP's
Class P common, in the aggregate amount of $75,000.
The Company incurred fees related to the transactions of approximately $33,200,
which have been deferred and are being amortized using the effective interest
method over the respective lives of the agreements.
An extraordinary after-tax loss on extinguishment of debt of $9,652 ($16,086
pretax) is reflected in the statement of operations for the year ended December
31, 1995 as a result of $10,812 of prepayment penalties associated with the
repurchase of Delaware's $100,000 of notes and Ampad's bank debt and the write-
off of $5,274 of unamortized deferred financing costs in connection with
Delaware's notes redemption and Ampad's debt refinancings.
9. STOCK OPTIONS AND NONRECURRING COMPENSATION CHARGE
At January 1, 1995, options for 126,405 shares of common stock of APP had been
issued to certain members of the Company's management under the 1992 Key
Employee Stock Option Plan (the "1992 Plan") in two separate tranches -- "Core"
stock options for 93,428 shares and "Performance" stock options for 32,977
shares. The exercise price of all options equaled or exceeded the fair market
value at date of grant and the vesting date for both "Core" and "Performance"
stock options is ten years from grant date, unless an Acceleration Event, as
defined, occurs. In connection with the Acquisition of WR effective October 31,
1995 (Note 3), the equity of APP was recapitalized via a stock dividend of one
share of preferred stock for every ten shares of APP common stock and Class P
common and options to purchase common stock. Concurrently, preferred stock
options were granted to holders of common stock options and the respective
exercise prices were adjusted to maintain option holders' pro rata economic
interests pursuant to antidilution provisions included in the existing stock
option plans.
F-20
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The issuance of the preferred stock options was considered additional
consideration to restore the option holders' economic position as a result of
the recapitalization, which was directly related to the Acquisition. Receipt of
such consideration resulted in a nonrecurring, noncash compensation charge equal
to the excess of fair market value over the exercise price of the preferred
stock options of $24,265 with a corresponding credit to additional paid-in
capital. The adjustment to the underlying common stock option's prices did not
result in additional compensation expense in accordance with generally accepted
accounting principles.
Additionally, options for 8,109 shares of APP's common stock and 810.9 shares of
APP's preferred stock were granted to certain members of management in December
1995. The exercise prices of $0.06 per common share and $3.60 per preferred
share were below the fair market value of the respective classes of stock at
date of grant, resulting in a noncash compensation charge equal to the aggregate
excess of fair market value over the exercise price, or $1,733, with a
corresponding credit being recorded to additional paid-in capital.
The following table summarizes the option activity for the years ended December
31, 1993, 1994, 1995 and the three month period ended March 31, 1996
(unaudited):
APP APP
Common Stock Preferred Stock
Number of Exercise Number of Exercise
Shares Price Shares Price
--------- -------- --------- --------
Outstanding,
December 31, 1992
and 1993.......... 111,236 $ 0.42
Granted in 1994...... 15,169 $25.00
-------
Outstanding,
December 31, 1994 126,405 $0.42-$25.00
Granted in 1995 8,109 $.06 13,451.4 $3.60-$214.29
Redeemed in 1995 (4,715.4)
------- ---------
Outstanding,
December 31, 1995
and March 31, 1996
(unaudited) 134,514 $.06-$3.57 8,736.0 $3.60-$214.29
------- -------
All options are exercisable at December 31, 1995 and March 31, 1996 (unaudited).
The Company has elected not to early adopt the provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock Based
Compensation." The Company will adopt the reporting provisions of SFAS 123 in
1996. The Company expects the adoption to have no effect on its financial
condition or results of operations.
F-21
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The Company awarded additional compensation to executives and nonexecutives of
$1,634 in 1995 in recognition of the significant transactions consummated during
the year. The Company does not expect this additional compensation to be
awarded in future years.
10. PENSION PLAN AND 401(K) PLAN
The Company is liable for a supplemental, nonqualified, noncontributory, defined
benefit pension plan covering certain former Ampad executives, which was assumed
in the initial acquisition of Ampad by APP in June 1992. Benefits are based on
a percentage of prior compensation less expected social security benefits. The
present value of the liability associated with this plan is $678, $636 and $611
at December 31, 1994, 1995 and at March 31, 1996 (unaudited), respectively, and
is included in other liabilities in the consolidated balance sheet.
The Company maintains a retirement plan (401(k) plan) for the benefit of all
employees who meet minimum age and service requirements. Company contributions
to the plan may be made at the discretion of the board of directors.
Contributions to the plan were approximately $515, $557, $568, $51 and $78 for
the years ended December 31, 1993, 1994, 1995, and the three months ended March
31, 1995 and 1996 (unaudited), respectively.
11. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ------------------
1993 1994 1995 1995 1996
------- ------- ------ -------- --------
(unaudited)
[S] [C] [C] [C] [C] [C]
Current:
Federal.. $ $ $ $ $ 21
State.... 169 3
----- ----- ------- ----- -------
169 24
Deferred provision
(benefit) for income
taxes 64 (488) (13,141) 366 78
----- ----- ------- ----- -------
$ 64 $(488) $(12,972) $ 366 $ 102
F-22
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
A reconciliation between the statutory U.S. federal income tax rate and the
Company's effective tax rate is as follows:
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- --------------------
1993 1994 1995 1995 1996
------ ------- ------- ------ -----------
(unaudited)
Federal income tax rate.. 35.0% (35.0)% (35.0)% 35.0% 35.0%
Adjustment to valuation
allowance............... (31.9)% 14.7% (6.4)%
Effect of acquisition.... 19.3%
Change in enacted rates.. (7.8)% .4%
Goodwill................. 2.8%
Meals and entertainment.. .2%
Life insurance........... .2%
Miscellaneous permanent
differences............. .9%
State taxes, net......... 6.2% (5.2)% (5.0)% 5.0% 5.0%
Other, net............... 1.9% (.3)% (1.4)% (1.7)% 1.2%
----- ----- ----- ---- ----
Effective tax rate 3.4% (6.1)% (46.9)% 38.3% 44.4%
Temporary tax differences affected and categorized by financial statement line
item are as follows:
DECEMBER 31, MARCH 31,
1994 1995 1996
----------- ---------- -----------
(unaudited)
CURRENT DEFERRED TAX ASSETS
(LIABILITIES):
Accrued expenses.................... $ 1,102 $10,523 $10,503
Accounts receivable and allowances.. 191 900 900
LIFO reserve........................ (2,478) (7,608) (7,608)
NOL/credits......................... (496) 11,194 10,949
------- ------- -------
Current deferred tax asset (liability),
net................................ $(1,681) $15,009 $14,744
F-23
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
DECEMBER 31, MARCH 31,
1994 1995 1996
------------- ---------- -----------
(unaudited)
NONCURRENT DEFERRED TAX ASSETS
(LIABILITIES):
Trademarks and intangibles............. $ $(15,009) $(15,009)
Property and equipment, net............ 2,709 (21,291) (21,291)
NOL carryforwards...................... 4,073
Noncash compensation expense credited
to paid-in-capital.................... 6,776 6,776
Other accrued liabilities.............. 235 254 254
Deferred financing costs............... (15)
Seller note discount................... (117)
State taxes effect and other, net...... (804) (800) (641)
----- -------- --------
Noncurrent deferred tax asset, net..... 6,081 (30,070) (29,911)
Deferred tax asset valuation allowance. (1,769)
----- -------- --------
Noncurrent deferred tax asset (liability),
net................................... $ 4,312 $(30,070) $(29,911)
The valuation allowance represents the amount of the deferred tax assets which
may not be realized through taxable income from future operations. The
Company's provision for income taxes may be impacted by adjustments to the
valuation allowance which may be required if circumstances change regarding the
realizability of the deferred tax assets in future periods.
The effect on the income tax provision related to the valuation allowance was a
benefit of $1,769 for the year ended December 31, 1995. Deferred tax assets
valuation allowances recorded in prior years were reversed in 1995 as a result
of management's assessment of future realizability of deferred tax assets. For
the year ended December 31, 1994, the effect on the income tax provision related
to the valuation allowance was a charge of $1,180. The charge primarily related
to an increase in the NOL carryforwards for which no benefit was recognized
during 1994.
At December 31, 1995, the Company has net operating losses available to reduce
future taxable income of approximately $25,007. These net operating loss
carryforwards expire in the years 2007 through 2010. If certain substantial
changes in the Company's ownership should occur, there would be an annual
limitation on the amount of the carryforwards which can be utilized. In
addition, the Company has approximately $1,200 of alternative minimum tax credit
carryforwards. The acquisition of WR (See Note 3) resulted in a change in
control of Delaware, consequently the utilization of these credits in future
periods are subject to limitation.
F-24
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company is obligated under noncancelable operating leases for office space
and machinery and equipment which expire at various times through 1997. Future
minimum lease commitments under these leases are as follows:
YEARS ENDING
DECEMBER 31,
- ------------
1996........................... $ 2,110
1997........................... 2,026
1998........................... 1,894
1999........................... 1,430
2000........................... 1,214
Thereafter..................... 6,503
-------
Total minimum lease payments.. $15,177
Total rent expense under noncancelable operating leases was approximately $775,
$853, $1,888 and $148 and $1,122 for 1993, 1994, 1995 and the three month
periods ended March 31, 1995 and 1996 (unaudited), respectively.
In October 1995, the Company entered into a ten-year management services
agreement with Bain Capital pursuant to which the Company will pay Bain Capital
an aggregate annual fee of no less than $2.0 million.
LITIGATION
There are various outstanding claims against the Company arising in the normal
course of business. Management, on the advise of counsel, believes that the
claims are without merit and that any losses which might ultimately be sustained
by the Company would not be material to the financial position or results of
operations of the Company.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, and local environmental and
occupational health and safety laws and regulations. Such laws and regulations
impose limitations on the discharge of pollutants and establish standards for
management of waste. While there can be no assurance that the Company is at all
times in complete compliance with all such requirements, the Company has made
and will continue to make capital and other expenditures to comply with such
requirements.
F-25
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The Company's Ampad division has been named a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, at five waste disposal sites. The Company
settled its liability at four of these sites as a de minimis party. The Company
expects to be eligible for a de minimis settlement at the remaining site.
13. RELATED PARTY TRANSACTIONS
For the years ended December 31, 1993, 1994 and 1995, the Company paid $431,
$684, and $937, respectively, for management and directors' fees to the
principal shareholders of APP (Bain Capital). No fees were paid for the three
month periods ended March 31, 1995 and 1996 (unaudited). Unpaid fees of $128
and $500 are included in accrued expenses in the consolidated balance sheets at
December 31, 1994 and March 31, 1996 (unaudited). There were no unpaid fees at
December 31, 1995.
Included in other assets in the consolidated balance sheet at December 31, 1994
and 1995 and March 31, 1996 (unaudited) is a note receivable of $106, $112 and
$114, respectively, due from an officer and shareholder of the Company.
Interest expense is accrued monthly at an annual rate of 6.19% and the note is
due in 1998.
The Company paid $7,000 in 1995 to Bain Capital for services relating to the
Acquisition of WR and the related financing of the transaction. Of this amount,
$4,300 was included in deferred financing fees and $2,700 was a direct
acquisition expense allocated to the net assets acquired as discussed in Note 3.
The Company also paid $450 in 1995 to Bain Capital relating to the Globe-Weis
acquisition (Note 3) which was included in deferred financing fees and
subsequently included as a component of the extraordinary loss from
extinguishment of debt. The Company paid Bain Capital $225 in 1994 for services
related to the SCM acquisition and the related financing of the transaction.
14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
OF GUARANTOR SUBSIDIARIES
The 13% Senior Subordinated Notes are guaranteed by substantially all of the
subsidiaries of the Company. The subsidiary guarantees are full, unconditional
and joint and several. Each of the guarantor subsidiaries are wholly-owned.
Separate financial statements of the guarantor subsidiaries are not presented
because management has determined that they would not be material to investors.
However, condensed consolidating financial information as of December 31, 1995
and for the year then ended, and as of March 31, 1996 and for the three months
then ended (unaudited), are presented. The condensed consolidating financial
information is as follows:
F-26
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------------
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
ASSETS COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
--------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash............................... $ 18,295 $ 33 $ 13 $ $18,341
Restricted Cash.................... 3,619 3,619
Accounts receivable................ (13,490) (154) 39,587 25,943
Intercompany receivable
(payable)......................... 75,423 (72,255) (3,168) -
Refundable income taxes............ 3,657 3,657
Inventories........................ 74,112 18,949 93,061
Assets held for sale............... 864 41,714 42,578
Deferred income taxes.............. 17,395 (2,386) 15,009
Other current assets............... 879 48 927
-------- -------- -------- -------- --------
Total current assets............. 180,754 (14,051) 36,432 203,135
-------- -------- -------- -------- --------
Property and equipment............. 73,097 37,357 110,454
Less: accumulated
depreciation...................... (3,438) (248) (3,686)
-------- -------- -------- -------- --------
Net property and equipment....... 69,659 37,109 106,768
-------- -------- -------- -------- --------
Investment in subsidiaries......... 41,575 (41,575)
Intangible assets, net............. 34,196 3,504 37,700
Debt issuance costs, net........... 30,160 182 2,587 32,929
Goodwill, net...................... 107,076 13,307 120,383
Other.............................. 3,311 130 3,441
-------- -------- -------- -------- --------
Total assets..................... $466,731 $40,181 $39,019 $(41,575) $504,356
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.. $10,652 $ 1,182 $ $ $11,834
Accounts payable and accrued
expenses.......................... 62,869 19,014 81,883
Income taxes payable............... 494 494
-------- -------- -------- -------- --------
Total current liabilities........ 74,015 20,196 94,211
-------- -------- -------- -------- --------
Long-term debt..................... 442,134 1,660 443,794
Other liabilities.................. 2,702 2,702
Deferred income taxes.............. 14,301 15,769 30,070
-------- -------- -------- -------- --------
Total liabilities................ 533,152 37,625 570,777
-------- -------- -------- -------- --------
Commitments and contingencies
Stockholder's equity:
Common stock....................... 1 10 (11)
Additional paid-in capital......... 28,998 37,370 (37,370) 28,998
Retained earnings.................. (95,419) 2,555 1,639 (4,194) (95,419)
-------- -------- -------- -------- --------
Total stockholder's equity....... (66,421) 2,556 39,019 (41,575) (66,421)
-------- -------- -------- -------- --------
Total liabilities and
stockholder's equity............ $466,731 $40,181 $39,019 $(41,575) $504,356
======== ======== ======== ======== ========
</TABLE>
F - 27
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1996 (UNAUDITED)
--------------------------
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
ASSETS COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash............................... $20,026 $ 69 $ 13 $ $20,108
Restricted Cash................... 10,759 10,759
Accounts receivable................ (8,862) (77) 27,346 18,407
Intercompany receivable
(payable)......................... 83,157 (79,132) (4,025)
Refundable income taxes..
Inventories........................ 75,731 17,435 93,166
Assets held for sale............... 764 42,808 43,572
Deferred income taxes.............. 17,302 (2,260) (298) 14,744
Other current assets............... 2,009 17 2,026
-------- -------- -------- -------- --------
Total current assets............. 200,886 (21,140) 23,036 202,782
-------- -------- -------- -------- --------
Property and equipment............. 75,061 38,260 113,321
Less: accumulated depreciation.... (5,892) (671) (6,563)
-------- -------- -------- -------- --------
Net property and equipment....... 69,169 37,589 106,758
-------- -------- -------- -------- --------
Investment in subsidiaries......... 29,447 (29,447)
Intangible assets, net............. 33,924 3,468 37,392
Debt issuance costs, net........... 29,911 160 2,453 32,524
Goodwill, net...................... 107,672 11,983 119,655
Other.............................. 1,556 127 1,683
-------- -------- -------- -------- --------
Total assets..................... $472,565 $32,187 $25,489 $(29,447) $500,794
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt.. $11,886 $ 1,180 $ $ $13,066
Accounts payable and accrued
expenses.......................... 75,036 4,924 79,960
Income taxes payable............... (1,841) 2,359 518
-------- -------- -------- -------- --------
Total current liabilities........ 85,081 8,463 93,544
-------- -------- -------- -------- --------
Long-term debt..................... 438,793 1,660 440,453
Other liabilities.................. 3,179 3,179
Deferred income taxes.............. 11,805 18,106 29,911
-------- -------- -------- -------- --------
Total liabilities................ 538,858 28,229 567,087
-------- -------- -------- -------- --------
Commitments and contingencies
Stockholder's equity:
Common stock....................... 1 10 (11)
Additional paid-in capital......... 28,998 23,392 (23,392) 28,998
Retained earnings.................. (95,291) 3,957 2,087 (6,044) (95,291)
-------- -------- -------- -------- --------
Total stockholder's equity....... (66,293) 3,958 25,489 (29,447) (66,293)
-------- -------- -------- -------- --------
Total liabilities and
stockholder's equity............. $472,565 $32,187 $25,489 $(29,477) $500,794
======== ======== ======== ======== ========
</TABLE>
F - 28
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATMENT OF OPERATIONS
The following condensed consolidating statement of operations includes the
results of operations of the Company for the year ended December 31, 1995,
including the results of Delaware and Notepad Funding Corporation for the post-
October 31, 1995 period.
<TABLE>
<CAPTION>
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
-------- ------------ ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Net sales........................ $238,989 $20,352 $ $ $259,341
Cost of sales.................... 197,033 14,781 211,814
-------- -------- -------- -------- --------
Gross profit................... 41,956 5,571 47,527
-------- -------- -------- -------- --------
Operating expenses:
Selling and marketing........... 5,730 524 6,254
General and admini-
strative....................... 13,278 741 (1,728) 12,291
Nonrecurring compensa-
tion charge.................... 27,632 27,632
-------- -------- -------- -------- --------
Income (loss) from
operations..................... (4,684) 4,306 1,728 1,350
-------- -------- -------- -------- --------
Other income (expense):
Interest........................ (13,531) (37) (89) (13,657)
Other income, net............... 735 1,728 (1,728) 735
Income (loss) before
income taxes................... (17,480) 4,269 1,639 (11,572)
Provision (benefit) for
income taxes................... (8,252) 1,714 (6,538)
-------- -------- -------- -------- --------
Income (loss) before
equity in net earnings of
subsidiaries and extra-
ordinary item.................. (9,228) 2,555 1,639 (5,034)
Equity in net earnings of
subsidiaries................... 4,194 (4,194)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item............. (5,034) 2,555 1,639 (4,194) (5,034)
Extraordinary loss from
extinguishment of debt, net.... (9,652) (9,652)
-------- -------- -------- -------- --------
Net income (loss)............... $(14,686) $2,555 $1,639 $(4,194) $(14,686)
======== ======== ======== ======== ========
</TABLE>
F - 29
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING STATMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 (UNAUDITED)
--------------------------
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales........................ $87,586 $36,989 $ $(3,157) $121,418
Cost of sales.................... 72,009 29,037 (3,157) 97,889
-------- -------- -------- -------- --------
Gross profit................... 15,577 7,952 23,529
-------- -------- -------- -------- --------
Operating expenses:
Selling and marketing........ 2,488 840 3,328
General and admini-
strative..................... 7,412 1,130 8 (852) 7,698
Nonrecurring compensa-
tion charge
-------- -------- -------- -------- --------
Income (loss) from
operations................... 5,677 5,982 (8) 852 12,503
-------- -------- -------- -------- --------
Other income (expense):
Interest..................... (12,388) (56) (98) (12,542)
Other income, net............ 653 (384) 852 (852) 269
-------- -------- -------- -------- --------
Income (loss) before
income taxes.................. (6,058) 5,542 746 230
Provision (benefit) for
income taxes.................. (4,335) 4,139 298 102
-------- -------- -------- -------- --------
Income (loss) before
equity in net earnings of
subsidiaries and extra-
ordinary item................. (1,723) 1,403 448 128
Equity in net earnings of
subsidiaries.................. 1,851 (1,851)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item............ 128 1,403 448 (1,851) 128
Extraordinary loss from
extinguishment of debt, net
-------- -------- -------- -------- --------
Net income (loss).............. $128 $1,403 $448 $(1,851) $128
======== ======== ======== ======== ========
</TABLE>
F - 30
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
The following condensed consolidating cash flow information includes the cash
flows of the Company for the year ended December 31, 1995, including the results
of Delaware and Notepad Funding Corporation for the post-October 31, 1995
period.
<TABLE>
<CAPTION>
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities.................... $ 44,346 $ 2,674 $(42,311) $ $ 4,709
INVESTING ACTIVITIES
Purchase of the stock of
Delaware, including
acquisition costs............. (122,655) (122,655)
Purchase of net assets,
including acquisition
costs......................... (7,046) (7,046)
Other.......................... 1,075 (2,641) (1,566)
-------- -------- -------- -------- --------
Net cash used in investing
activities................... (128,626) (2,641) (131,267)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from sale of
accounts receivable........... 45,000 45,000
Net repayment under line
of credit..................... (22,767) (22,767)
Proceeds from issuance
of debt....................... 430,052 430,052
Repayment of long-term
debt.......................... (186,546) (186,546)
Redemption premiums
and penalties included
in extraordinary loss......... (10,812) (10,812)
Debt issuance costs............ (32,356) (2,676) (35,032)
Dividends paid................. (75,000) (75,000)
-------- -------- -------- -------- --------
Net cash provided by
financing activities........... 102,571 42,324 144,895
-------- -------- -------- -------- --------
Net increase in cash.......... 18,291 33 13 18,337
Cash at beginning of year..... 4 4
-------- -------- -------- -------- --------
Cash at end of year........... $18,295 $33 $13 $ $18,341
======== ======== ======== ======== ========
</TABLE>
F - 31
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 (UNAUDITED)
--------------------------
PARENT GUARANTOR NONGUARANTOR CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities....................... $7,255 $374 $ $ $7,629
INVESTING ACTIVITIES
Purchase of the stock of
Delaware, including
acquisition costs
Purchase of net assets,
including acquisition
costs
Other........................... (2,613) (338) (2,951)
-------- -------- -------- -------- --------
Net cash used in investing
activities....................... (2,613) (338) (2,951)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from sale of
accounts receivable......
Net repayment under line
of credit................
Proceeds from issuance
of debt......................... 25,272 25,272
Repayment of long-term
debt............................ (27,380) (27,380)
Redemption premiums
and penalties included
in extraordinary loss....
Debt issuance costs.............. (803) (803)
Dividends paid............
-------- -------- -------- -------- --------
Net cash provided by
financing activities............. (2,911) (2,911)
-------- -------- -------- -------- --------
Net increase in cash............ 1,731 36 1,767
Cash at beginning of period..... 18,295 33 13 18,341
-------- -------- -------- -------- --------
Cash at end of period........... $20,026 $69 $ 13 $ $ 20,108
======== ======== ======== ======== ========
</TABLE>
F - 32
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
15. INDUSTRY SEGMENTS
The Company conducts its business operations in two industry segments: the
Ampad Division, which primarily manufactures and markets a broad line of office
supplies including writing products, filing supplies, and commodity and
speciality envelopes and the Williamhouse Division, which primarily designs and
manufactures a wide range of mill branded, specialty and commodity envelope
products, invitations and announcements and greeting cards. There were no
intersegment sales in 1995. For the three month period ended March 31, 1996
(unaudited), the Williamhouse division had sales of $644 to the Ampad division.
Prior to the acquisition of WR, the Company operated in one segment consisting
of the Ampad Division.
Substantially all of the Company's operations are conducted within the United
States.
Two customers accounted for 27%, and one customer accounted for 11% of the
Company's total net sales for the year ended December 31, 1995 and the three
month period ended March 31, 1996 (unaudited), respectively.
The following table represents industry segment information. Intersegment sales
are transferred at competitive prices. Operating profit by segment consists of
total sales less operating expenses, and exclude general corporate expenses, net
interest expense or income taxes. Corporate assets are principally cash, cash
equivalents, residual interests in a portfolio of accounts receivable sold, debt
issuance costs and net assets held for sale.
F - 33
<PAGE>
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
(successor to Ampad Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTHS
YEAR-ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net sales:
Unaffiliated customers
Ampad Division......................... $212,687 $57,023
Williamhouse Division.................. 46,654 64,395
-------- --------
Total net sales to unaffiliated
customers....................... $259,341 $121,418
======== ========
Operating profit:
Ampad Division......................... $21,997 $4,540
Williamhouse Division.................. 8,478 8,793
-------- --------
Total operating profit.......... 30,475 13,333
General corporate expense............... (29,125)(1) (830)
Interest expense........................ (13,657) (12,542)
Other income, net....................... 735 269
-------- --------
Income (loss) before income taxes....... $(11,572) $230
======== ========
Capital expenditures:
Ampad Division......................... $2,759 $538
Williamhouse Division.................. 3,089 1,783
-------- --------
Total capital expenditures...... $5,848 $2,321
======== ========
Depreciation and amortization of plant
and equipment:
Ampad Division......................... $2,333 $445
Williamhouse Division.................. 1,036 1,539
-------- --------
Total depreciation and
amortization of plant
and equipment.................. $3,369 $1,984
======== ========
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(UNAUDITED)
<S>..................................... <C> <C>
Identifiable assets:
Ampad Division......................... $ 76,928 $ 75,539
Williamhouse Division.................. 327,743 316,018
Corporate assets....................... 137,055 132,639
Eliminations........................... (37,370) (23,402)
-------- --------
Total assets.................... $504,356 $500,794
======== ========
</TABLE>
(1) Includes $27,632 nonrecurring compensation charge (Note 9).
F - 34
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholder
WR Acquisition, Inc.:
We have audited the accompanying consolidated balance sheets of WR Acquisition,
Inc. and subsidiaries as of December 31, 1994 and October 31, 1995, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the years in the two-year period ended
December 31, 1994 and the ten months ended October 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WR Acquisition, Inc.
and subsidiaries as of December 31, 1994 and October 31, 1995 and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1994 and the ten months ended October 31, 1995, in
conformity with generally accepted accounting principles.
January 10, 1996 /s/ KPMG Peat Marwich LLP
F - 35
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December October
31, 1994 31, 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................................... $ 170,000 $ -
Accounts receivable, less allowances of
$837,000 at December 31, 1994 and
$636,000 at October 31, 1995 ......................................... 30,772,000 39,174,000
Inventories............................................................ 34,141,000 35,548,000
Current assets of discontinued operations.............................. 23,581,000 14,603,000
Prepaid expenses....................................................... 511,000 1,054,000
----------- -----------
Total current assets............................................. 89,175,000 90,379,000
----------- -----------
DUE FROM AMPAD........................................................... - 54,306,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings..................................................... 23,070,000 30,258,000
Machinery, equipment, leasehold
improvements and construction in progress............................. 81,787,000 75,279,000
----------- -----------
104,857,000 105,537,000
Less accumulated depreciation and amortization......................... 54,225,000 53,134,000
----------- -----------
Net property, plant and equipment...................................... 50,632,000 52,403,000
----------- -----------
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization.......................................................... 6,248,000 23,125,000
Funds held for construction............................................ - 2,633,000
Cash surrender value of officers' life insurance
policies, net of loans of $1,236,000 at December 31, 1994
and $1,769,000 at October 31, 1995.................................... 646,000 260,000
Intangibles, less accumulated amortization............................. 378,000 350,000
Other assets........................................................... 533,000 644,000
----------- -----------
Total other assets............................................... 7,805,000 27,012,000
----------- -----------
PURCHASE PRICE FOR THE COMMON STOCK OF WR
ACQUISITION, INC. AND CERTAIN RELATED COSTS............................. - 147,854,000
----------- -----------
NON CURRENT ASSETS OF DISCONTINUED
OPERATIONS............................................................. 29,145,000 27,439,000
----------- -----------
TOTAL ASSETS..................................................... $176,757,000 $399,393,000
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F - 36
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
December October
31, 1994 31, 1995
-------- --------
CURRENT LIABILITIES:
Accounts payable....... $ 16,499,000 $ 17,518,000
Accrued expenses 14,536,000 18,982,000
Taxes payable 354,000 -
Current installments of long-term debt 8,558,000 11,844,000
Current liabilities of discontinued
operations............ 9,380,000 9,100,000
------------ ------------
Total current liabilities 49,327,000 57,444,000
------------ ------------
Non-current liabilities.... 2,179,000 2,019,000
Deferred tax liabilities - net................. 3,610,000 3,740,000
Long-term debt (less current installments)..... 144,750,000 319,380,000
Notes payable to selling stockholders.......... - 25,157,000
Non-current liabilities of discontinued
operations... 8,375,000 5,689,000
STOCKHOLDERS' EQUITY (DEFICIENCY):
Class A common stock, par value $.01
per share, 11,619 shares authorized,
issued and outstanding....... 1,000 1,000
Common stock, par value $.01 per share,
50,000 shares authorized; 10,478 issued
at December 31, 1994 and 13,243 at
October 31, 1995; 10,405 outstanding
at December 31, 1994 and 13,243 at
October 31, 1995..................... 1,000 1,000
Additional paid-in capital............ 42,007,000 56,135,000
Retained earnings..................... 21,841,000 25,080,000
Distribution to stockholders of the
excess of purchase price over book
value of net assets of W.R. Holdings,
Inc. arising from the December 29, 1986
Recapitalization..................... (95,253,000) (95,253,000)
Common stock held in treasury, at
cost, 73 shares at
December 31, 1994.................... (81,000) -
------------ ------------
Total stockholders' equity (deficiency) (31,484,000) (14,036,000)
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)........................ $176,757,000 $399,393,000
============ ============
See accompanying Notes to Consolidated Financial Statements.
F - 37
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended Ten Months
-------------------------------- Ended
December December October
31, 1993 31, 1994 31, 1995
-------------- ------------- ---------------
<S> <C> <C> <C>
Net sales.................. $176,934,000 $ 248,008,000 $219,366,000
Cost of sales............. 118,626,000 173,536,000 152,781,000
------------ ------------ -----------
Gross profit............... 58,308,000 74,472,000 66,585,000
Selling, general and
administrative expenses. 39,765,000 44,906,000 39,866,000
Compensation expense relating
to stock options - 294,000 9,544,000
------------ ------------ -----------
Operating income........... 18,543,000 29,272,000 17,175,000
Interest expense.......... 13,621,000 11,750,000 11,615,000
Interest (626,000) (284,000) (124,000)
------------ ----------- ----------
Earnings from continuing
operations
before taxes on income.... 5,548,000 17,806,000 5,684,000
Provision for taxes on income 1,988,000 6,080,000 2,224,000
------------- ----------- ----------
Earnings from continuing
operations................ 3,560,000 11,726,000 3,460,000
Discontinued operations:
Loss from operations,
net of tax benefits of
$280,000, $380,000 and
$110,000 in 1993,
1994 and 1995, respectively (432,000) (1,328,000) (221,000)
------------ ----------- ----------
Net earnings............... $ 3,128,000 $ 10,398,000 $ 3,239,000
============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-38
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
THE TEN MONTHS ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
Class A Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992....................... $ - $1,000 $10,477,000 $8,315,000
Net earnings....................................... - - - 3,128,000
Issuance of Class A common stock for cash.......... 100 - 1,999,900 -
Issuance of Class A common stock for
redemption of debt............................... 900 - 29,236,100 -
---------------------------------------------------------------------------
Balance at December 31, 1993....................... 1,000 1,000 41,713,000 11,443,000
Net earnings....................................... - - - 10,398,000
Compensation relating to stock options............. - - 294,000 -
---------------------------------------------------------------------------
Balance at December 31, 1994....................... 1,000 1,000 42,007,000 21,841,000
Net earnngs........................................ - - - 3,239,000
Proceeds and compensation relating to
exercise of stock options........................ - - 13,424,000 -
Reissuance of treasury stock....................... - - (81,000) -
Issuance of common stock for cash.................. - - 785,000 -
---------------------------------------------------------------------------
Balance at October 31, 1995........................ $1,000 $1,000 $56,135,000 $25,080,000
===========================================================================
<CAPTION>
Distribution Treasury
to Stock,
Stockholders at Cost Total
----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1992....................... $(95,253,000) $(81,000) $(76,541,000)
Net earnings....................................... - - 3,128,000
Issuance of Class A common stock for cash.......... - - 2,000,000
Issuance of Class A common stock for
redemption of debt............................... - - 29,237,000
----------------------------------------------------------------
Balance at December 31, 1993....................... (95,253,000) (81,000) (42,176,000)
Net earnings....................................... - - 10,398,000
Compensation relating to stock options............. - - 294,000
----------------------------------------------------------------
Balance at December 31, 1994....................... (95,253,000) (81,000) (31,484,000)
Net earnngs........................................ - - 3,239,000
Proceeds and compensation relating to
exercise of stock options........................ - - 13,424,000
Reissuance of treasury stock....................... - 81,000 -
Issuance of common stock for cash.................. - - 785,000
----------------------------------------------------------------
Balance at October 31, 1995........................ $(95,253,000) $ - $(14,036,,000)
================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-39
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Ten Months
------------------------------- Ended
December December October
31, 1993 31, 1994 31, 1995
------------------------------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................. $ 3,128,000 $ 10,398,000 $ 3,239,000
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization....................... 7,237,000 8,860,000 5,598,000
Provision for (benefit from) losses on accounts
receivable...................................... 121,000 372,000 (132,000)
Compensation expense relating to stock options...... - 294,000 10,723,000
Deferred tax liabilities - net...................... 2,194,000 (158,000) 130,000
Writing-off of deferred financing costs............. 2,712,000 108,000 1,828,000
Change in assets and liabilities:
Increase in accounts receivable.................. (6,274,000) (7,624,000) (8,838,000)
Increase in inventories.......................... (1,951,000) (1,350,000) (1,407,000)
Decrease (increase) in prepaid expenses.......... 156,000 (188,000) (543,000)
Increase in accounts payable..................... 2,328,000 7,894,000 1,019,000
Increase in accrued expenses..................... 1,707,000 3,983,000 4,446,000
Increase (decrease) in taxes payable............. 1,404,000 (1,050,000) (354,000)
(Decrease) increase in other - net............... 1,424,000 196,000 152,000
Discontinued operations - net.................... (8,116,000) 366,000 7,718,000
----------- ---------- ----------
Cash provided by operating activities........ 3,222,000 22,101,000 23,579,000
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment - net........... (2,869,000) (4,348,000) (6,363,000)
Acquistions of inventory and machinery and equipment....... (9,728,000) (4,124,000) -
Funds held for construction................................ - - (2,633,000)
----------- ---------- ----------
Cash used for investing activities (12,597,000) (8,472,000) (8,996,000)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt............................... (155,820,000) (34,961,000) (47,168,000)
Proceeds from Recapitalization............................. 152,500,000 - -
Proceeds from long-term debt............................... 9,597,000 17,600,000 5,200,000
Issuance of Class A common stock........................... 2,000,000 - -
Additions to deferred financing costs...................... (7,374,000) (442,000) (19,679,000)
Proceeds from exercise of stock options.................... - - 2,701,000
Proceeds from issuance of debt to effect Merger............ - - 219,843,000
Issuance of common stock................................... - - 785,000
Purchase price for the common stock of
WR Acquisition, Inc. and certain related costs......... - - (147,854,000)
Notes payable to selling stockholders...................... - - 25,157,000
Advances to Ampad.......................................... - - (54,306,000)
Investment in trust........................................ - - (34,518,000)
Proceeds from sale of accounts receivable.................. - - 35,086,000
----------- ---------- ----------
Cash provided by (used for) financing
activities................................ 903,000 (17,803,000) (14,753,000)
----------- ---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS........................ (8,472,000) (4,174,000) (170,000)
Cash and cash equivalents at beginning of period........... 12,816,000 4,344,000 170,000
----------- ---------- ----------
Cash and cash equivalents at end of period................. $ 4,344,000 $ 170,000 $ -
=========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F - 40
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization of the Company
---------------------------
WR Acquisition, Inc. ("Acquisition") was incorporated under Delaware law on
November 17, 1986 for the purpose of acquiring W.R. Holdings, Inc. ("Holdings")
and its wholly-owned subsidiary Williamhouse -Regency of Delaware, Inc. (the
"Company"). On December 29, 1986, Acquisition acquired all of the capital stock
of Holdings through a recapitalization. On May 13, 1993, Acquisition completed a
recapitalization (the "Recapitalization") and Holdings was merged into
Acquisition, whereupon the Company became a direct, wholly-owned subsidiary of
Acquisition. (See Notes 8 and 10.)
On October 31, 1995, all of Acquisition's outstanding capital stock was
acquired by American Pad & Paper Company ("Ampad") through a new wholly-owned
subsidiary, WHR Acquisition, Inc. The consolidated financial statements are
presented on a historical basis, prior to giving effect to a new basis of
accounting for the merger (the "Merger") described below. The financial
statements reflect the following transactions relating to Ampad's acquisition of
Acquisition's capital stock and the related financing executed by Williamhouse-
Regency of Delaware, Inc., a wholly-owned subsidiary of Acquisition, on October
31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Borrowings under bank credit agreement $219,843,000
Sale of accounts receivable* 46,988,000
Purchase of shares from former shareholders of Acquisition:
Cash 117,544,000
Installment notes given to former
shareholders of Acquisition 25,157,000
Certain related costs of the selling shareholders 5,153,000
Repayment of debt* 41,525,000
Proceeds advanced to Ampad 54,306,000
Investment in trust 34,518,000
Costs of financing* 19,663,000
</TABLE>
* Includes components relating to both continuing and discontinued operations.
The purchase price for the common stock of WR Acquisition, Inc. and certain
related costs amounted to $147,854,000 and has been reflected as an asset on the
balance sheet prior to allocation. The $266,831,000 of borrowings were used to
purchase shares from the stockholders, pay expenses of the Merger, and repay
debt of both the Company and Ampad.
Pursuant to an agreement and plan of merger dated October 3, 1995, on October
31, 1995 Acquisition acquired Ampad Corporation, a wholly-owned subsidiary of
Ampad, in exchange for newly issued shares of Acquisition's common stock. Ampad
Corporation was then merged into the Company, a wholly-owned subsidiary of
Acquisition, and WHR Acquisition, Inc. was merged into Acquisition
simultaneously with Ampad's purchase of Acquisition. Consequently, Acquisition
became a wholly-owned subsidiary of Ampad and the Company became an indirect,
wholly-owned subsidiary of Ampad.
Acquisition does not have any properties and does not engage in any business,
other than through the operations of the Company and its wholly-owned
subsidiaries.
(2) Accounting Policies
-------------------
A summary of the significant accounting policies which affect the Company's
consolidated financial statements is listed below:
F - 41
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Principles of Consolidation and Basis of Presentation:
-----------------------------------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation. Prior years figures have been restated to reflect
discontinued operations (See Note 16).
Inventories:
-----------
Inventories are stated at the lower of cost or market (net realizable value).
The Company values its inventories on the last-in, first-out (LIFO) method.
Depreciation and Amortization:
-----------------------------
Property, plant and equipment are stated at cost. These assets, including
assets recorded under capitalized leases, are depreciated on the straight-line
method at rates which vary based upon their estimated useful lives. Leasehold
improvements are amortized on the straight-line method over the shorter of the
terms of the related leases or their useful lives. Depreciation and
amortization of property, plant and equipment from continuing operations was
$6,374,000 and $7,683,000 for the years ended December 31, 1993 and 1994,
respectively and $4,592,000 for the ten months ended October 31, 1995.
Expenditures for maintenance and repairs are charged, as incurred, to
operations. The costs of acquisitions, additions and betterments are
capitalized. When property, plant and equipment is sold or otherwise disposed
of, the cost and the accumulated depreciation are eliminated from the accounts.
Deferred financing costs primarily relate to the issuance of debt to fund the
Merger (See Note 1). Deferred financing costs are amortized on the straight-line
method over the term of the related obligations. Amortization of deferred
financing costs from continuing operations was $838,000 and $1,138,000 for the
years ended December 31, 1993 and 1994, respectively and $974,000 for the ten
months ended October 31, 1995.
Intangibles:
------------
Intangibles are amortized, primarily on the straight-line method, over the
period of the expected benefits. Amortization of intangibles from continuing
operations was $18,000 for the year ended December 31, 1994 and $21,000 for the
ten months ended October 31, 1995.
(3) Acquisitions
------------
On December 20, 1993, KECA Corporation, a newly formed, wholly-owned
subsidiary of the Company, acquired the principal assets of Kimberly-Clark
Corporation's Karolton Envelope business for a purchase price of $9,597,000.
Karolton Envelope is a full-line envelope convertor based in Miamisburg, Ohio
and West Sacramento, California. The Company financed the transaction under its
senior secured financing facility. The acquisition has been accounted for under
the purchase method and, accordingly, the operating results of this acquisition
have been included in the accompanying financial statements since the date of
acquisition.
The following pro forma information has been prepared assuming the
acquisition of Karolton Envelope had occurred on January 1, 1993. This pro forma
information has been prepared for comparative purposes only and does not purport
to be indicative of what would have occurred had the acquisition been made at
the beginning of 1993, or of the results which may occur in the future.
Furthermore, no effect has been given in the pro forma information for operating
and synergistic benefits that are expected to be realized as a result
F - 42
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the acquisition because precise estimates of such benefits cannot be
quantified. Management implemented certain cost saving measures as of the date
of consummation of the acquisition. This pro forma information does not reflect
the impact of such measures.
1993
------------------
(Unaudited)
Net sales............................. $220,609,000
Earnings from continuing operations... $ 3,233,000
On July 29, 1994, two wholly-owned subsidiaries of the Company
acquired from Huxley Envelope Corporation its Giant, Filing and X-Ray envelope
business segments for a purchase price of $4,249,000. The Company financed the
transaction under its senior secured financing facility, a note payable to the
seller and cash. The acquisition has been accounted for under the purchase
method and, accordingly, the operating results of this acquisition have been
included in the accompanying financial statements since the date of acquisition.
This acquisition did not have a material impact on the financial position or
results of operations of the Company.
During the year ended December 31, 1993 and the ten months ended
October 31, 1995, the Company completed certain other acquisitions whose
aggregate purchase price did not have a material impact on the financial
position or results of operations of the Company.
(4) Accounts Receivable
-------------------
The Company entered into an agreement to sell, on a revolving basis,
an undivided interest in a designated pool of trade accounts receivable to a
trust on October 31, 1995. Accordingly, the Company transferred $46,988,000 and
Ampad transferred $33,412,000 of accounts receivable to the trust. The trust
sold investor certificates representing an interest in $45,000,000 of trust
assets for which the Company received cash of $45,000,000 and credited due from
Ampad for $33,044,000. The Company holds seller certificates representing an
interest in the remaining assets of the trust of $34,518,000 which is included
in accounts receivable in the Company's balance sheet at October 31, 1995. The
Company has retained substantially the same risks for all losses, credits or
other adjustments on receivables owned by the trust as if the receivables had
not been sold. Accordingly, the full amount of the allowance for doubtful
accounts has been retained.
(5) Inventories
-----------
The major components of inventories of continuing operations are as follows:
December 31, October 31,
1994 1995
------------ -----------
Finished goods and work in progress.......... $19,521,000 $20,902,000
Raw materials................................ 14,620,000 14,646,000
------------- -----------
Total inventories............................ $34,141,000 $35,548,000
============= ===========
F - 43
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company values its inventories on the LIFO method. Had the first-in,
first-out (FIFO) method been used, inventories would have been $1,869,000 and
$6,695,000 higher than reported at December 31, 1994 and October 31, 1995,
respectively.
(6) Income Taxes
------------
Acquisition, the Company and its subsidiaries file a consolidated federal
income tax return.
The provision for taxes on income from continuing operations is as
follows:
<TABLE>
<CAPTION>
Years Ended Ten Months
---------------------------- Ended
December 31, December 31, October 31,
1993 1994 1995
------------- ------------- -----------
<S> <C> <C> <C>
Current:
Federal income taxes $1,902,000 $5,317,000 $1,938,000
State and local income taxes. 301,000 786,000 156,000
Deferred:
Federal income taxes (148,000) 152,000 125,000
State and local income taxes (67,000) (175,000) 5,000
---------- ---------- ----------
Provision for taxes on income $1,988,000 $6,080,000 $2,224,000
========== ========== ==========
</TABLE>
The difference between the provision computed at the statutory rate and the
actual provision on consolidated earnings from continuing operations is as
follows:
<TABLE>
<CAPTION>
Years Ended Ten Months
---------------------------- Ended
December 31, December 31, October 31,
1993 1994 1995
------------- ------------- -----------
<S> <C> <C> <C>
Federal income taxes at statutory
rate............................ 35.0% 35.0% 35.0%
Tax on permanent differences, net of
federal jobs
tax credit..................... 6 (1.6) 0.1
State and local income taxes,
net of related federal
income tax benefit............ 2.8 .4 1.8
Other-net....................... (2.6) .3 2.2
---- ---- ----
Effective tax rate.............. 35.8% 34.1% 39.1%
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities of continuing
operations are presented below:
December 31, October 31,
1994 1995
-------------- --------------
Deferred tax assets:
Allowance for doubtful accounts........ $ 378,000 $ 211,000
Inventory - uniform capitalization..... 495,000 364,000
Vacation pay accruals.................. 754,000 573,000
Other.................................. 850,000 560,000
--------- -----------
Total gross deferred tax assets........ 2,477,000 1,708,000
F - 44
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
--------------------
December 31, October 31,
1994 1995
------------ -----------
Deferred tax liabilities:
Depreciation.......................... 6,029,000 5,382,000
Other................................. 58,000 66,000
------------ -----------
Total gross deferred tax liabilities.. 6,087,000 5,448,000
------------ -----------
Net deferred tax liabilities.......... $3,610,000 $3,740,000
------------ -----------
The ultimate realization of deferred tax assets is dependant upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities and projected future taxable income in making this
assessment. As of October 31, 1995, management considers all deferred tax assets
to be realizable.
The Company adopted, effective January 1, 1993, the Financial Accounting
Standards Board's ("FASB") Statement 109, "Accounting for Income Taxes." The
adoption of FASB 109 did not have a material impact on the Company's
consolidated financial position or results of operations for the year ended
December 31, 1993.
(7) Accrued Expenses
----------------
Accrued expenses consist of the following:
December 31, October 31,
1994 1995
------------ ------------
Salaries and wages................. $ 4,344,000 $ 4,438,000
Taxes, other than taxes on income.. 402,000 4,293,000
Interest........................... 1,014,000 4,455,000
Sales volume discounts............. 5,179,000 3,638,000
Other.............................. 3,597,000 2,158,000
----------- -----------
Total accrued expenses............. $14,536,000 $18,982,000
=========== ===========
F - 45
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) Debt Arrangements
-----------------
<TABLE>
<CAPTION>
Long-term debt is comprised of the following:
December 31, October 31,
1994 1995
--------------------------- -----------------------
<S> <C> <C> <C> <C>
Current Long-Term Current Long-Term
---------- ----------- ---------- -----------
Senior secured financing facility:
Senior bank financing term loans and revolving
credit facility due in varying amounts from 1996
through 2004..................................... $ - $ - $10,000,000 $209,843,000
Term loans due through 1998 payable to banks
with quarterly principal payments of $1,461,250
except for the final payment of $2,392,000........ 5,845,000 14,082,000 - -
Revolving credit line due 1998 payable to banks - 20,000,000 - -
Senior subordinated debentures due 2005 payable to
institutions with interest at 11 1/2%.......... - 100,000,000 - 100,000,000
Industrial revenue bond, interest at 7 3/4%; with
monthly principal payments varying from $11,000
to $16,300 due through 2000 (less unamortized
discount of $41,000 in 1994)................... 132,000 720,000 - -
Industrial revenue bonds, interest at 89.2% of prime;
with quarterly principal payments varying from
$85,000 to $57,000 due through 2002............ 341,000 2,102,000 - -
Industrial revenue bonds, interest at 3.99%; with
annual principal payments of $700,000 due
through 1998................................... 700,000 1,400,000 700,000 1,400,000
Industrial revenue bonds, interest ranging from
4.24% to 4.28% in 1994 and 4.28% in 1995;
with annual principal payments of $480,000 due
through 1998................................... 800,000 2,475,000 480,000 960,000
Industrial revenue bonds, interest at 5.11%; with quarterly
principal payments varying from $320,000 to $395,000
due through 2010............................... - - 320,000 4,880,000
Note payable, interest at prime plus 1.75%; with quarterly
principal payments of $62,500 due through 1998. 250,000 688,000 - -
Other, interest ranging from 2.0% to 3.0%;
due through 2004............................... 490,000 3,283,000 344,000 2,297,000
----------- --------------- ----------- ------------
Total long-term debt............................... $8,558,000 $144,750,000 $11,844,000 $319,380,000
=========== ============
</TABLE>
F - 46
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the Recapitalization in 1993, $100,000,000 in aggregate
principal amount of senior subordinated debentures were issued in a private
placement. The senior subordinated debentures bore interest at the rate of 11
1/2% per annum, payable June 15 and December 15, and matured on June 15, 2005,
unless redeemed prior to such date. The senior subordinated debentures were
unsecured, general obligations of the Company, and were subordinated to all
senior debt of the Company and its subsidiaries, including the senior secured
financing facility. Payment of the principal and interest on the senior
subordinated debentures was guaranteed by Acquisition. On December 1, 1995,
$99,990,000 of the senior subordinated debentures were redeemed at a price of
109% of the aggregate principal amount, plus accrued interest, excluding $10,000
in principal amount which was not tendered in response to the offer. Payment of
this outstanding debenture was made on February 22, 1996.
In connection with the Recapitalization, the Company repaid, at par,
all $27,500,000 in aggregate principal amount of the senior variable rate notes;
repaid, at par, all $50,000,000 in aggregate principal amount of the 12 3/4%
senior notes; repaid, at par, all $45,000,000 in aggregate principal amount of
the 13 1/2% senior subordinated notes; and repaid, at par, $25,000,000 in
aggregate principal amount (of the $40,000,000 in aggregate principal amount
outstanding) of the 14% subordinated debentures. The remaining $15,000,000 in
aggregate principal amount of the 14% subordinated debentures were exchanged, at
par, for 5,715 shares of Acquisition's Class A common stock; and all $15,000,000
in aggregate principal amount of Acquisition's 14 1/2% junior subordinated
debentures were exchanged, at 90% of par, for 5,142 shares of Acquisition's
Class A common stock. (See Note 10.)
In connection with the Merger on October 31, 1995, new debt in the
amount of $219,843,000 was issued. The existing term and revolving credit loans,
in the amounts of $15,544,000 and $20,000,000, respectively, were redeemed. The
Company wrote-off unamortized deferred financing costs, in the amount of
$1,762,000, related to the redemption of these loans. In addition, the Company
retired, ahead of scheduled maturities, certain industrial revenue bonds and
other indebtedness totaling $5,981,000.
Ampad, Acquisition and the Company entered into a Bank Credit
Agreement with Bankers Trust Company as agent (the "Agent"), providing for term
loans of $245.0 million and a revolving credit facility of $45.0 million. Loans
under the Bank Credit Agreement are comprised of a multi-tranche facility with
principal payments scheduled from 1996 through 2004 in the form of (i) a term
loan facility (the "Tranche A Term Loan Facility") in the amount of $95.0
million ($25.2 million of which will be borrowed in January 1996), (ii) a second
term loan facility (the "Tranche B Term Loan Facility") in the amount of $65.0
million, (iii) a third term loan facility (the "Tranche C Term Loan Facility")
in the amount of $45 million, (iv) a fourth term loan facility (the "Tranche D
Term Loan Facility", and together with the Tranche A Term Loan Facility, the
Tranche B Term Loan Facility and the Tranche C Term Loan Facility, the "Term
Loan Facilities") in the amount of $40.0 million, (v) a revolving credit
facility (the "Revolving Credit Facility", and together with the Term Loan
Facilities, the "Senior Bank Financing") in the amount of $45 million which
includes a letter of credit sub-limit of $20.0 million and (vi) an IRB letter of
credit facility in the amount of $13.4 million. Ampad and the Company used the
Senior Bank Financing to provide funding necessary to consummate the acquisition
and merger described in Note 1, with the Revolving Credit Facility being used
for working capital needs.
Indebtedness under the Bank Credit Agreement is guaranteed by Ampad,
Acquisition and the Company and all current and future domestic subsidiaries of
the Company and is secured by (i) a perfected security interest in substantially
all the assets and property of the Company and its subsidiaries, and (ii) a
first priority perfected pledge of all capital stock of the Company and its
current subsidiaries.
Indebtedness under the Bank Credit Agreement varies by tranche. The
Tranche A Term Loan Facility is a five-year facility with quarterly principal
payments scheduled from 1996 through 2000 and bears interest at a rate (at the
Company's option) of (a) the Eurodollar Rate (as defined in the Bank Credit
Agreement) plus 275.0 basis points less an interest reduction discount of 25
basis or 50 basis points if the Company meets certain targets for its coverage
and leverage ratios (the "Interest Reduction Discount") or (b) the applicable
base rate of Bankers Trust Company, which is the higher of 1/2 of 1% in excess
of the Adjusted Certificate of Deposit Rate (as defined
F - 47
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
in the Bank Credit Agreement) and the prime lending rate announced from time to
time by Bankers Trust Company (the "Base Rate") plus 175.0 basis points less the
Interest Reduction Discount, if applicable. The Tranche B Term Loan Facility is
a seven-year facility with quarterly principal payments scheduled in 2001 and
2002, with nominal quarterly payments prior to that time, and bears interest at
a rate (at the Company's option) of (a) the Eurodollar Rate plus 337.5 basis
points or (b) the Base Rate plus 237.5 basis points. The Tranche C Term Loan
Facility is an eight-year facility with quarterly principal payments scheduled
in 2003, with nominal annual principal payments prior to that time, and bears
interest at a rate (at the Company's option) of (a) the Eurodollar Rate plus
375.0 basis points or (b) the Base Rate plus 275.0 basis points. The Tranche D
Term Loan Facility is an eight and one-half year facility with quarterly
principal payments scheduled for 2004, with nominal annual principal payments
prior to that time and bears interest at a rate (at the Company's option) of (a)
the Eurodollar Rate plus 400.0 basis points or (b) the Base Rate plus 300.0
basis points. The Revolving Credit Facility is a five-year facility bearing
interest at a rate (at the Company's option) of (a) the Eurodollar Rate plus
275.0 basis points less the Interest Reduction Discount, if applicable. In
addition, the Bank Credit Agreement provides for mandatory repayment, subject to
certain expectations, of the Senior Bank Financing upon the occurrence of
certain events including, but not limited to, asset sales, certain equity and
debt issuances, insurance recovery events and the accumulation of excess cash
(with a requirement to pay 50% of Excess Cash Flow (as defined therein) for the
period ending on December 31, 1995 and 75% of Excess Cash Flow per annum
thereafter), each subject to certain exceptions.
The Revolving Credit Facility may be repaid and reborrowed. The
Company is required to pay the lenders under the Bank Credit Agreement in the
aggregate a commitment fee equal to 1/2 of 1% per annum, payable on a quarterly
basis, on the daily average unused portion of the Aggregate Unutilized
Commitment (as defined in the Bank Credit Agreement). The Company also is
required to pay to the lenders participating in the Revolving Credit Facility
letter of credit fees equal to the Applicable Eurodollar Margin (as defined in
the Bank Credit Agreement) in effect as of such time for loans under the
Revolving Credit Facility and to the lender issuing a letter of credit a facing
fee of 0.25% on the average daily stated amount of each outstanding letter of
credit issued by such lender and its customary administrative charges in
connection with such letters of credit.
The Bank Credit Agreement requires the Company to meet certain
financial tests, including minimum levels of consolidated EBITDA (as defined
therein), minimum interest coverage and maximum leverage ratio. The Bank Credit
Agreement also contains covenants which, among other things, limit the
incurrence of additional indebtedness, dividends, transactions with affiliates,
asset sales, acquisitions, mergers, prepayment of other indebtedness, liens and
encumbrances and other matters customarily restricted in such agreements.
The Bank Credit Agreement contains customary events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-defaults to certain other indebtedness, certain events of
bankruptcy and insolvency, ERISA, judgement defaults, failure of any guaranty or
security agreement supporting the Bank Credit Agreement to be in full force and
effect and change of control of Ampad.
The Company and certain of its subsidiaries had letters of credit
issued to guaranty the payment obligation due, as required, for industrial
revenue bond financings. At December 31, 1994 and October 31, 1995, the amounts
were $5,375,000 and $8,740,000, respectively. In addition, the Company had
letters of credit issued for other than industrial revenue bond financings. As
of December 31, 1994 and October 31, 1995, the amounts were $2,102,000 and
$2,602,000, respectively.
Certain manufacturing facilities of the Company were financed from the
proceeds of industrial revenue bonds. Lease purchase and other financing
arrangements, directly or indirectly, with the respective industrial development
authorities provide that the Company may purchase the manufacturing facilities
at any time during the lease or financing term. At December 31, 1994 and
October 31, 1995, the net book value of manufacturing facilities acquired
pursuant to these lease purchase and other financing arrangements was
approximately $16,122,000 and $12,162,000, respectively. Such assets are
included within property, plant and equipment.
F - 48
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Payments of the principal and interest on the industrial revenue bonds are
guaranteed by one or more of the following: Acquisition, the Company or a
whollY-owned subsidiary.
The aggregate amount of long-term debt, including industrial revenue bonds,
maturing during each of the years in the five-year period subsequent to October
31, 1995 is as follows: 1996, $11,844,000; 1997, $16,785,000; 1998, $21,793,000;
1999, $27,697,000; 2000, $6,003,000 and $247,102,000 thereafter.
(9) Notes Payable to Selling Stockholders
-------------------------------------
On October 31, 1995, in conjunction with the Merger, Acquisition issued notes
payable, due January 3, 1996, bearing interest at 1%, to certain selling
stockholders who elected to defer payment, for an aggregate of 4,383 shares of
common stock, until 1996 rather than on the Merger date. Acquisition issued
letters of credit to guaranty the payment obligation due. Subsequent to October
31, 1995, the notes were refinanced on a long term basis; and therefore, the
notes have been reflected as a non-current liability on the October 31, 1995
financial statements.
(10) Stockholders' Equity (Deficiency)
---------------------------------
Class A Common Stock:
--------------------
In 1993, in connection with the Recapitalization, Acquisition's Certificate
of Incorporation was amended to authorize the issuance of 11,619 shares, par
value $.01 per share, of Acquisition's Class A common stock. The Class A common
stock is identical to Acquisition's common stock, except for a preference on
liquidation equal to $2,625 per share, the initial purchase price thereof, and
is convertible on a share-for-share basis into common stock.
On May 13, 1993, in connection with the Recapitalization, 762 shares were
issued to the Chief Executive Officer of Acquisition and the Company, for
$2,000,000; 5,715 shares were exchanged for $15,000,000 in aggregate principal
amount of the 14% subordinated debentures due 1998, at par; and 5,142 shares
were exchanged for $15,000,000 in aggregate principal amount of the 14 1/2%
junior subordinated debentures due 1998, at 90% of par. (See Note 8).
Common Stock:
------------
On December 29, 1986, in connection with the 1986 recapitalization, holders
of the common stock of Holdings received an aggregate of $100,000,000, or
$100,000 per share, resulting in an excess of cost over book value of the net
assets acquired in the amount of $95,253,000. This was treated as a distribution
to stockholders resulting in a reduction of stockholders' equity.
Stock Option Plan:
-----------------
In March, 1987, the Board of Directors adopted a Stock Option Plan which
provides for the granting of stock options for shares of Acquisition's common
stock to key employees of the Company and its subsidiaries who are responsible
for managing the operations of the Company and its subsidiaries. The Stock
Option Plan provided for an aggregate of 1,722 shares of common stock to be
available for stock grants. The exercise price for the options was $1,000 per
share, which was the fair value of the stock on the date of grant.
In May, 1993, in connection with the Recapitalization, the Stock Option
Plan was amended, making 1,243 shares of Acquisition's common stock available
for grant. Of these shares, 688 were granted to key employees of the Company and
its subsidiaries in 1993 and the remaining 555 shares were granted in 1995. The
exercise
F - 49
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
price of these options was $1,312.50 per share, which represented one half of
the negotiated per share price for the Class A common stock issued pursuant to
the Recapitalization. The aggregate compensation expense related to the 1,243
shares granted of $1,631,000 was being amortized over the period January, 1994
through May, 1998. As a result of the change in control of Acquisition resulting
from the Merger, the stock options, which were vesting over a period of five
years, became 100% vested. As a result, in accordance with the Emerging Issues
Task Force 85-45 "Business Combinations: Settlement of Stock Options and
Awards," Acquisition recorded compensation expense of $9,544,000 from
continuing operations for the ten month period ended October 31, 1995.
A summary of transactions under the plan is as follows:
December 31, October 31,
----------------
1993 1994 1995
------- ----- -----------
Outstanding and exercisable, January 1.. 1,317 2,283 2,283
Granted at $1,000 per share............. 278 - -
Granted at $1,312.50 per share.......... 688 - 555
Exercised at $1,000 per share........... - - (1,595)
Exercised at $1,312.50 per share........ - - (1,243)
----- ----- ------
Outstanding and exercisable............. 2,283 2,283 -
===== ===== ======
Available for grant..................... 555 555 -
===== ===== ======
(11) Commitments and Contingencies
-----------------------------
The Company is involved in various litigation incidental to the conduct of its
business, the outcome of which is not expected to be material to the Company's
financial position or results of operations.
Change in Control Severance Compensation Agreements:
----------------------------------------------------
Prior to the Merger, the Company entered into change in control severance
compensation agreements with certain of its executives. These agreements are
effective for thirty six months after the Merger and provide for income and
benefit protection upon termination of employment (as defined). The Company
believes that the maximum amount of the severance payments that could be paid
will not exceed $11 million based upon current compensation. This liability has
been assumed by Ampad.
Leases:
-------
Future minimum payments under operating leases, primarily for
buildings and equipment relating to continuing operations, consisted of the
following at October 31, 1995:
Amounts
-----------
1996 $ 2,001,000
1997 1,872,000
1998 1,711,000
1999 1,172,000
2000 956,000
Later years 6,474,000
-----------
Total minimum lease payments $14,186,000
===========
F - 50
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
------------------
Rent expense from continuing operations was $1,565,000 and $2,358,000 for
the years ended December 31, 1993 and 1994, respectively and $1,552,000 for the
ten months ended October 31, 1995.
(12) Employee Benefit Plans
----------------------
On March 11, 1992, the Board of Directors authorized the termination of the
Company's defined benefit plan covering certain salaried and non-union
employees. The termination was effective June 30, 1992, and all participants in
the plan became fully vested as of that date.
As of October 31, 1995, the initial payout for the account of each
participant, using current U.S. Government approved discount rates, has been
made. Excess assets are to be distributed based upon a formula adopted by the
plan and approved by the Internal Revenue Service. These payments will commence
in early 1996 and will consist of lump-sum payments. It is anticipated that this
distribution will be substantially completed by June 30, 1996.
The Company established a voluntary 401(k) savings plan covering certain
salaried and non-union employees effective July 1, 1992. The Company's matching
contribution, based on employee contributions, is vested after five years of
participation. The Company's matching contribution from continuing operations
amounted to $79,000 and $146,000 for the years ended December 31, 1993 and 1994,
respectively and $171,000 for the ten months ended October 31, 1995.
(13) Executive Incentive Compensation Plan
-------------------------------------
The Company's executive incentive compensation plan, which commenced in 1983,
provides for incentive awards to certain key executives of the Company and its
subsidiaries. The plan is administered by the Board of Directors. At the end
of each year during the life of the plan, the Board will make cash awards based
upon the attainment of annual predefined operating profit objectives.
Awards under the plan are charged to operations in the year earned. For the
ten months ended October 31, 1995, $600,000 was charged to continuing
operations. Attainment of the annual predefined objective will be based on
results of operations for the twelve months ended December 31, 1995. In 1993 and
1994, awards of $650,000 and $1,010,000 were charged to continuing operations,
respectively.
(14) Statements of Cash Flows
------------------------
Supplemental disclosure of cash flow information from continuing operations
is as follows:
Ten Months
Years Ended Ended
--------------------------
December 31, December 31, October 31,
1993 1994 1995
------------ ------------ ------------
Cash paid for:
Interest............... $18,883,000 $16,298,000 $10,372,000
Income taxes $ 2,332,000 $ 6,725,000 $ 5,906,000
The Consolidated Statement of Cash Flows for 1993 excludes the effect of
certain non-cash financing activities related to the Recapitalization. (See
Notes 8 and 10.) The following is a summary of the non-cash effects of this
transaction.
Decrease in long-term debt.......... $(30,000,000)
Increase in Class A common stock.... 1,000
Increase in additional paid-in capital 29,999,000
------------
$ -
============
F - 51
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Consolidated Statement of Cash Flows for 1995 excludes the effect of
certain non-cash financing activities related to the Merger. The following is a
summary of the non-cash effects of this transaction.
Increase in treasury stock............. $81,000
Decrease in additional paid-in capital. (81,000)
-------
$ -
=======
(15) Fair Value of Financial Instruments
-----------------------------------
Cash, Trade Accounts Receivable, Trade Accounts Payable:
The carrying amount of cash, trade accounts receivable and trade accounts
payable approximates fair value because of the short maturity of these
instruments. As is customary for the industry, the Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral.
Long-term Debt:
The fair values of the Company's long-term debt instruments are based on
the amount of future cash flows associated with each instrument, discounted
using the Company's current borrowing rate for which it could replace its
existing long-term debt.
At October 31, 1995, the estimated fair value of the Company's term loans
was $219,843,000, which was the carrying amount of these long-term debt
instruments. The estimated fair value of the Company's term loans was based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The estimated
fair value of the Company's senior subordinated debentures was $109,000,000,
which was the redemption price, (See Note 8), while the carrying value of these
long-term debt instruments was $100,000,000.
It was not practical to estimate the fair value of the Company's industrial
revenue bonds which are not publicly traded, or considered comparable to any
financial instruments currently in the market. As of October 31, 1995, these
industrial revenue bonds have a carrying amount of $8,740,000, including
$1,500,000 which is currently due. The bonds have interest rates ranging from
3.99% to 5.11%. The bonds are due on varying dates through the year 2010.
Limitations:
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(16) Discontinued Operations
-----------------------
In December, 1995, the management of Ampad made a decision to sell the
Personalizing segment of the business. The Company expects to sell the
discontinued operations at a gain within one year. Accordingly, the
consolidated financial statements have been restated to report separately the
net assets and operating results of this segment. The Company's prior years
operating results have been restated to reflect continuing operations.
The Company allocated interest to the discontinued operations in the
amounts of $5,837,000, $4,823,000 and $2,130,000 for the years ended December
31, 1993 and 1994 and the ten months ended October 31, 1995, respectively.
Consolidated interest that is not attributable to specific operations of the
Company was allocated based on the ratio of net assets of the discontinued
operations to the sum of total net assets of the consolidated company plus
consolidated debt that is not attributable to specific operations of the Company
or debt of the discontinued operations that will be assumed by a buyer.
F - 52
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
---------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) Guarantor Subsidiaries of 13% Senior Subordinated Notes Due November 15,
------------------------------------------------------------------------
2005
- ----
On December 1, 1995, the Company sold, at par, $200 million of 13% Senior
Subordinated Notes due November 15, 2005 (the "13% Notes"). The 13% Notes are
guaranteed by all of the Company's principal subsidiaries. The following
financial information presents condensed consolidating financial statements for
(i) the Company only ("Parent"); (ii) the guaranteeing subsidiaries on a
combined basis ("Guarantor Subsidiaries") and (iii) the Company on a
consolidated basis. The following statements do not include WR Acquisition,
Inc., which is not a party to the 13% Senior Subordinated Notes agreement.
The guarantor subsidiaries include the discontinued operations prior to
allocation of interest and elimination of management fee.
F - 53
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse-
Regency of
Delaware, Inc. Guarantor Intercompany
(Parent) Subsidiaries Eliminations
December 31, 1994 ------------------- ------------------ ----------------
- -----------------
CURRENT ASSETS
<S> <C> <C> <C>
Cash $ 138 $ 887 $ -
Accounts receivable, net 15,639 27,582 -
Inventories 21,497 24,177 (1,716)
Prepaid expenses 478 493 -
------------- -------------- -------------
Total current assets 37,752 53,139 (1,716)
------------- -------------- -------------
PROPERTY, PLANT AND EQUIPMENT 55,467 110,018 -
Less accumulated depreciation and amortization 25,956 60,264 -
------------- -------------- -------------
Net property, plant and equipment 29,511 49,754 -
------------- -------------- -------------
ADVANCES TO AND RECEIVABLE FROM ACQUISITION 184,329 - -
ADVANCES TO AND INVESTMENT IN SUBSIDIARIES 16,533 - (16,533)
ADVANCES TO PARENT - 38,057 (38,057)
DEFERRED FINANCING COSTS,LESS ACCUMULATED
AMORTIZATION 5,978 604 -
OTHER ASSETS (876) 336 2,275
------------- -------------- -------------
TOTAL ASSETS $ 273,227 $ 141,890 $ (54,031)
============= ============== =============
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 14,207 $ 24,867 $ (103)
Current installments of long-term debt 6,726 3,630 -
------------- -------------- -------------
Total current liabilities 20,933 28,497 (103)
------------- -------------- -------------
NON-CURRENT LIABILITIES 2,179 - -
DEFERRED TAX LIABILITIES - NET 3,202 1,942 (428)
LONG-TERM DEBT (LESS CURRENT
INSTALLMENTS) 139,120 12,899 -
ADVANCES FROM PARENT - 10,399 (10,399)
ADVANCES FROM SUBSIDIARIES 38,057 - (38,057)
STOCKHOLDERS' EQUITY(DEFICIENCY)
Common stock 845 659 (1,004)
Additional paid-in capital 67,931 56,523 (1,936)
Retained earnings 960 30,971 (2,104)
------------- -------------- -------------
Total stockholders' equity (deficiency) 69,736 88,153 (5,044)
------------- -------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 273,227 $ 141,890 $ (54,031)
============= ============== =============
<CAPTION>
Williamhouse-
Regency of
Delaware, Inc.
Consolidated
December 31, 1994 --------------
- -----------------
CURRENT ASSETS
<S> <C>
Cash 1,025
Accounts receivable, net 43,221
Inventories 43,958
Prepaid expenses 971
------------
Total current assets 89,175
------------
PROPERTY, PLANT AND EQUIPMENT 165,485
Less accumulated depreciation and amortization 86,220
------------
Net property, plant and equipment 79,265
------------
ADVANCES TO AND RECEIVABLE FROM ACQUISITION 184,329
ADVANCES TO AND INVESTMENT IN SUBSIDIARIES -
ADVANCES TO PARENT -
DEFERRED FINANCING COSTS,LESS ACCUMULATED
AMORTIZATION 6,582
OTHER ASSETS 1,735
------------
TOTAL ASSETS 361,086
============
CURRENT LIABILITIES
Accounts payable and other current liabilities 38,971
Current installments of long-term debt 10,356
------------
Total current liabilities 49,327
------------
NON-CURRENT LIABILITIES 2,179
DEFERRED TAX LIABILITIES - NET 4,716
LONG-TERM DEBT (LESS CURRENT
INSTALLMENTS) 152,019
ADVANCES FROM PARENT -
ADVANCES FROM SUBSIDIARIES -
STOCKHOLDERS' EQUITY(DEFICIENCY)
Common stock 500
Additional paid-in capital 122,518
Retained earnings 29,827
------------
Total stockholders' equity (deficiency) 152,845
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) 361,086
============
</TABLE>
F - 54
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse-
Regency of
Delaware, Inc. Guarantor Intercompany
(Parent) Subsidiaries Eliminations
October 31, 1995 ---------------- ------------------ -----------------
- ----------------
CURRENT ASSETS
<S> <C> <C> <C>
Cash $ (719) $ 758 $ -
Accounts receivable, net 21,920 17,397 103
Inventories 23,755 24,218 (2,742)
Prepaid expenses 951 3,995 -
--------------------- ------------------- ------------
Total current assets 45,907 46,368 (2,639)
--------------------- ------------------- ------------
PROPERTY, PLANT AND EQUIPMENT 61,127 102,932 -
Less accumulated depreciation and amortization 28,871 55,880 -
--------------------- ------------------- ------------
Net property, plant and equipment 32,256 47,052 -
--------------------- ------------------- ------------
DUE FROM AMPAD 54,306 - -
ADVANCES TO AND RECEIVABLE FROM ACQUISITION 158,751 - -
ADVANCES TO AND INVESTMENT IN SUBSIDIARIES 16,050 - (16,050)
ADVANCES TO PARENT - 48,662 (48,662)
DEFERRED FINANCING COSTS,LESS ACCUMULATED
AMORTIZATION 22,928 445 -
OTHER ASSETS 1,475 423 2,275
PURCHASE PRICE FOR THE COMMON STOCK OF WR
ACQUISITION, INC. AND CERTAIN RELATED COSTS 147,854 - -
--------------------- ------------------- ------------
TOTAL ASSETS $ 479,527 $ 142,950 $ (65,076)
===================== =================== ============
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 25,812 $ 17,463 $ -
Current installments of long-term debt 10,662 2,767 -
--------------------- ------------------- ------------
Total current liabilities 36,474 20,230 -
--------------------- ------------------- ------------
NON-CURRENT LIABILITIES 2,019 - -
DEFERRED TAX LIABILITIES - NET (2,444) 8,409 (786)
LONG-TERM DEBT (LESS CURRENT
INSTALLMENTS) 317,020 6,611 -
ADVANCES FROM PARENT - 3,416 (3,416)
ADVANCES FROM SUBSIDIARIES 48,662 - (48,662)
STOCKHOLDERS' EQUITY(DEFICIENCY)
Common stock 845 662 (1,007)
Additional paid-in capital 83,529 61,398 (8,434)
Retained earnings (6,578) 42,224 (2,771)
--------------------- ------------------- ------------
Total stockholders' equity (deficiency) 77,796 104,284 (12,212)
--------------------- ------------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 479,527 $ 142,950 $ (65,076)
===================== =================== ============
<CAPTION>
Williamhouse-
Regency of
Delaware, Inc.
Consolidated
October 31, 1995 ----------------
- ----------------
CURRENT ASSETS
<S> <C>
Cash 39
Accounts receivable, net 39,420
Inventories 45,231
Prepaid expenses 4,946
--------------
Total current assets 89,636
--------------
PROPERTY, PLANT AND EQUIPMENT 164,059
Less accumulated depreciation and amortization 84,751
--------------
Net property, plant and equipment 79,308
--------------
DUE FROM AMPAD 54,306
ADVANCES TO AND RECEIVABLE FROM ACQUISITION 158,751
ADVANCES TO AND INVESTMENT IN SUBSIDIARIES -
ADVANCES TO PARENT -
DEFERRED FINANCING COSTS,LESS ACCUMULATED
AMORTIZATION 23,373
OTHER ASSETS 4,173
PURCHASE PRICE FOR THE COMMON STOCK OF WR
ACQUISITION, INC. AND CERTAIN RELATED COSTS 147,854
--------------
TOTAL ASSETS 557,401
==============
CURRENT LIABILITIES
Accounts payable and other current liabilities 43,275
Current installments of long-term debt 13,429
--------------
Total current liabilities 56,704
--------------
NON-CURRENT LIABILITIES 2,019
DEFERRED TAX LIABILITIES - NET 5,179
LONG-TERM DEBT (LESS CURRENT
INSTALLMENTS) 323,631
ADVANCES FROM PARENT -
ADVANCES FROM SUBSIDIARIES -
STOCKHOLDERS' EQUITY(DEFICIENCY)
Common stock 500
Additional paid-in capital 136,493
Retained earnings 32,875
--------------
Total stockholders' equity (deficiency) 169,868
--------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) 557,401
==============
</TABLE>
F - 55
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse- Williamhouse-
Regency of Regency of
Delaware, Inc. Guarantor Intercompany Delaware, Inc.
(Parent) Subsidiaries Eliminations Consolidated
Year Ended December 31,1993 ----------------- --------------- -------------- -----------------
- ---------------------------
<S> <C> <C> <C> <C>
Net sales 79,301 215,048 - 294,349
--------------- ---------- --------- ----------
Cost of sales 50,114 140,095 144 190,353
--------------- ---------- --------- ----------
Gross profit 29,187 74,953 (144) 103,996
Selling, general and administrative expenses 24,553 53,241 - 77,794
--------------- ---------- --------- ----------
Operating income 4,634 21,712 (144) 26,202
Management fee charged by Parent (8,491) 8,491 - -
Interest expense 18,718 1,622 - 20,340
Interest income (319) (311) - (630)
--------------- ---------- --------- ----------
Earnings before taxes on income (5,274) 11,910 (144) 6,492
Provision for taxes on income (1,689) 3,910 50 2,271
--------------- ---------- --------- ----------
Net earnings (3,585) 8,000 (194) 4,221
=============== ========== ========= ==========
Year Ended December 31,1994
- ---------------------------
Net sales 135,073 232,979 - 368,052
--------------- ---------- --------- ----------
Cost of sales 94,372 154,079 154 248,605
--------------- ---------- --------- ----------
Gross profit 40,701 78,900 (154) 119,447
Selling, general and administrative expenses 29,229 56,893 - 86,122
--------------- ---------- --------- ----------
Operating income 11,472 22,007 (154) 33,325
Management fee charged by Parent (5,486) 5,486 - -
Interest expense 15,946 1,311 - 17,257
Interest income (253) (71) - (324)
--------------- ---------- --------- ----------
Earnings before taxes on income 1,265 15,281 (154) 16,392
Provision for taxes on income 103 5,754 (54) 5,803
--------------- ---------- --------- ----------
Net earnings 1,162 9,527 (100) 10,589
=============== ========== ========= ==========
Ten Months Ended October 31,1995
- --------------------------------
Net sales 109,849 201,986 - 311,835
Cost of sales 77,442 130,496 1,026 208,964
--------------- ---------- --------- ----------
Gross profit 32,407 71,490 (1,026) 102,871
Selling, general and administrative expenses 27,243 45,890 - 73,133
Compensation expense relating to stock option 8,837 1,886 - 10,723
--------------- ---------- --------- ----------
Operating income (3,673) 23,714 (1,026) 19,015
Management fee charged by Parent (4,444) 4,444 - -
Interest expense 13,360 720 - 14,080
Interest income (117) (8) - (125)
--------------- ---------- --------- ----------
Earnings before taxes on income (12,472) 18,558 (1,026) 5,060
Provision for taxes on income (3,868) 6,239 (359) 2,012
--------------- ---------- --------- ----------
Net earnings (8,604) 12,319 (667) 3,048
=============== ========== ========= ==========
</TABLE>
F-56
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse- Williamhouse-
Regency of Regency of
Delaware, Inc. Guarantor Delaware, Inc.
DECEMBER 31, 1993 (Parent) Subsidiaries Consolidated
- ----------------- ---------------- ----------------- -------------------
<S> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,062 $ 9,065 $ 10,127
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment - net (2,344) (2,377) (4,721)
Acquisitions of inventory and machinery and equipment (9,728) (693) (10,421)
----------- ---------- -----------
Cash used for investing activities (12,072) (3,070) (15,142)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (169,666) (3,977) (173,643)
Proceeds from Recapitalization 152,500 - 152,500
Proceeds from long-term debt 9,597 - 9,597
Additions to deferred financing costs (7,374) - (7,374)
Advances from Parent 2,387 14,413 16,800
Advances from (to) Subsidiaries 15,131 (15,131) -
----------- ---------- -----------
Cash provided by (used for) financing activities 2,575 (4,695) (2,120)
----------- ---------- -----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (8,435) 1,300 (7,135)
Cash and cash equivalents at beginning of period 12,672 23 12,695
----------- ---------- -----------
Cash and cash equivalents at end of period $ 4,237 $ 1,323 $ 5,560
=========== ========== ===========
DECEMBER 31, 1994
- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 9,140 $ 16,829 $ 25,969
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment - net (3,404) (2,829) (6,233)
Acquisitions of inventory and machinery and equipment (1,293) (2,831) (4,124)
----------- ---------- -----------
Cash used for investing activities (4,697) (5,660) (10,357)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (33,098) (3,953) (37,051)
Proceeds from long-term debt 16,600 1,000 17,600
Additions to deferred financing costs (177) (622) (799)
Advances from (to) Parent 7,701 (7,598) 103
Advances from (to) Subsidiaries 432 (432) -
----------- ---------- -----------
Cash used for financing activities (8,542) (11,605) (20,147)
----------- ---------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (4,099) (436) (4,535)
Cash and cash equivalents at beginning of period 4,237 1,323 5,560
----------- ---------- -----------
Cash and cash equivalents at end of period $ 138 $ 887 $ 1,025
=========== ========== ===========
</TABLE>
F-57
<PAGE>
WR ACQUISITION, INC.
AND SUBSIDIARIES
----------------
Notes to Consolidated Financial Statements (Continued)
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
($000's Omitted)
<TABLE>
<CAPTION>
Williamhouse- Williamhouse-
Regency of Regency of
Delaware, Inc. Guarantor Delaware, Inc.
OCTOBER 31, 1995 (Parent) Subsidiaries Consolidated
- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,117 $ 15,532 $ 16,649
---------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment - net (5,735) (2,821) (8,556)
Funds held for construction (2,633) - (2,633)
---------------- ---------------- ----------------
Cash used for investing activities (8,368) (2,821) (11,189)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of long-term debt (43,248) (7,151) (50,399)
Proceeds from long-term debt 5,200 - 5,200
Additions to deferred financing costs (19,679) - (19,679)
Proceeds from exercise of stock options 2,701 - 2,701
Proceeds from issuance of debt to effect Merger 219,843 - 219,843
Purchase price for the common stock of WR
Acquisition, Inc. and certain related expenses (147,854) - (147,854)
Advances to Ampad (54,306) - (54,306)
Investment in trust (34,518) - (34,518)
Proceeds from sale of accounts receivable 35,086 11,902 46,988
Advances from (to) Parent 36,183 (10,605) 25,578
Advances from (to) Subsidiaries 6,986 (6,986) -
---------------- ---------------- ----------------
Cash provided by (used for) financing activities 6,394 (12,840) (6,446)
---------------- ---------------- ----------------
DECREASE IN CASH AND CASH EQUIVALENTS (857) (129) (986)
Cash and cash equivalents at beginning of period 138 887 1,025
---------------- ---------------- ----------------
Cash and cash equivalents at end of period $ (719) $ 758 $ 39
================ ================ ================
</TABLE>
F-58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
American Pad & Paper Company of Delaware, Inc.
(successor to Ampad Corporation)
We have audited the accompanying statements of net sales and cost of sales of
the Globe-Weis Office Products Group product lines purchased by American Pad &
Paper Company of Delaware, Inc. (successor to Ampad Corporation) from American
Trading and Production Corporation for the twelve months ended July 31, 1995 and
the nine months ended July 31, 1994. These statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of net sales and cost of sales
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in these statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
these statements. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying historical statements were prepared for the purposes of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form S-1 of American
Pad & Paper Company) as described in Note 3 and are not intended to be a
complete presentation of the results of operations of the product lines
purchased from American Trading and Production Corporation.
In our opinion, the historical statements referred to above present fairly, in
all material respects, the net sales and cost of sales of the product lines
acquired, as described in Note 2, for the twelve months ended July 31, 1995 and
the nine months ended July 31, 1994, in conformity with generally accepted
accounting principles.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
Dallas, Texas
March 22, 1996
F-59
<PAGE>
GLOBE-WEIS
(Office Products Group Product Lines Acquired from American Trading and
Production Corporation)
STATEMENTS OF NET SALES AND COST OF SALES
- --------------------------------------------------------------------------------
NINE MONTHS TWELVE MONTHS
ENDED ENDED
JULY 31, 1994 JULY 31, 1995
------------- -------------
(IN THOUSANDS)
Net sales $43,762 $60,047
Cost of sales 37,754 54,706
------- -------
Gross profit $ 6,008 $ 5,341
The accompanying notes are an integral part of these statements.
F-60
<PAGE>
GLOBE-WEIS
(Office Products Group Product Lines Acquired from American Trading and
Production Corporation)
NOTES TO STATEMENTS OF NET SALES AND COST OF SALES
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Globe-Weis is one of five brand names marketed by the Office Products Group of
American Trading and Production Corporation (ATAPCO). The Globe-Weis brand
comprises file folders, hanging file folders, expandables, file guides, storage
cases and trays. The products are distributed through the large mass merchant
retailers, office products superstores, office products wholesalers and contract
stationers.
2. ACQUISITION
On August 16, 1995, the inventory and certain equipment of the file folder and
hanging file folder product lines of Globe-Weis were acquired by Ampad
Corporation ("Ampad") in a transaction accounted for as a purchase by Ampad.
Ampad is the predecessor to American Pad & Paper Company of Delaware, Inc.
(hereafter referred to as the "Company") as a result of Ampad's merger with and
into the Company effective October 31, 1995. The Company also entered into a
license agreement with ATAPCO for use of the Globe-Weis name and other trade
names. The acquired product lines are hereafter referred to as the Globe-Weis
assets. Sales of the acquired product lines represented approximately 59% of
the sales of the Globe-Weis brand. The Globe-Weis product lines not acquired
remain an ongoing business of ATAPCO.
3. BASIS OF PRESENTATION
The accompanying statements of net sales and cost of sales were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission ( SEC) (for the inclusion in the registration statement on
Form S-1 of the Company).
The acquisition of the Globe-Weis assets constituted a significant acquisition
to the Company pursuant to regulations of the SEC. ATAPCO did not maintain
separate, complete accounting records for each of the product lines within the
Office Products Group, nor did ATAPCO allocate general and administrative
expenses or selling and marketing expenses to individual product lines.
Accordingly, complete financial statements of the acquired Globe-Weis assets are
not presented. However, in accordance with approval from the SEC staff, audited
net sales and cost of sales information is presented for the twelve months ended
July 31, 1995 (month-end closest to acquisition date) and the nine months ended
July 31, 1994. The statements of net sales and cost of sales include only those
net sales and cost of sales directly related to the production and distribution
of the acquired product lines.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Globe-Weis recognized revenue from the sale of products upon shipment to the
customer. Costs of sales are recorded when the related revenue is recognized.
F-61
<PAGE>
GLOBE-WEIS
(Office Products Group Product Lines Acquired from American Trading and
Production Corporation)
NOTES TO STATEMENTS OF NET SALES AND COST OF SALES
- --------------------------------------------------------------------------------
CONCENTRATION OF CUSTOMERS
During the twelve months ended July 31, 1995, three customers accounted for 79%
of net sales. Three customers accounted for 81% of net sales during the nine
months ended July 31, 1994.
COST OF SALES
Cost of sales were determined at standard cost, which approximates actual first-
in, first-out cost in accordance with generally accepted accounting principles.
Standard cost for raw material inventory includes material, freight, duties and
brokerage fees. Standard cost for work in process and finished goods
inventories include material, direct labor and overhead with costs allocated by
identifiable activity. Revaluations of standard costs were amortized to cost of
sales based on inventory turnover. Obsolescence and other variances to standard
cost were charged to cost of sales in the period incurred.
F-62
<PAGE>
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR AMERICAN PAD &
PAPER COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR AMERICAN PAD &
PAPER COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION......................... i
PROSPECTUS SUMMARY............................ 1
RISK FACTORS.................................. 16
THE TRANSACTIONS.............................. 21
PROPOSED INITIAL PUBLIC OFFERING.............. 21
USE OF PROCEEDS............................... 22
CAPITALIZATION................................ 23
UNAUDITED PRO FORMA FINANCIAL DATA............ 24
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA............................... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 32
INDUSTRY...................................... 38
BUSINESS...................................... 41
MANAGEMENT.................................... 49
PRINCIPAL STOCKHOLDERS........................ 58
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 59
DESCRIPTION OF BANK CREDIT AGREEMENT.......... 60
DESCRIPTION OF NEW BANK CREDIT AGREEMENT...... 61
DESCRIPTION OF ACCOUNTS RECEIVABLE FACILITY... 62
DESCRIPTION OF EXCHANGE NOTES................. 62
THE EXCHANGE OFFER............................ 89
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS..... 97
PLAN OF DISTRIBUTION.......................... 99
EXPERTS....................................... 100
LEGAL MATTERS................................. 100
INDEX TO FINANCIAL STATEMENTS................. F-1
PROSPECTUS
$200,000,000
AMERICAN PAD & PAPER
COMPANY
OF DELAWARE, INC.
OFFER TO EXCHANGE ITS
13% SENIOR SUBORDINATED
NOTES DUE 2005, SERIES B
FOR ANY AND ALL ITS OUTSTANDING
13% SENIOR SUBORDINATED
NOTES DUE 2005
______________, 1996
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely
by the Company, of the issuance and distribution of the securities being
registered:
Securities and Exchange Commission
Registration Fee...................... $68,966
Printing Expenses...................... *
Accounting Fees and Expenses........... *
Legal Fees and Expenses................ *
Exchange Agent Fee..................... *
Miscellaneous Expenses................. *
-------
Total............................. $ *
=======
- -------------------
* To be provided by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any persons who are, or
are threatened to be made, parties 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 such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests except that no indemnification
is permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The Company's By-Laws and Articles of Incorporation provide for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.
II-1
<PAGE>
In that regard, the By-Laws provide that the Company shall indemnify any
person whom it has the power to indemnify by Section 145 from or against any and
all of the expenses, liabilities or other matters referred to or covered in
Section 145, and such indemnification is not exclusive of other rights to which
such person shall be entitled under any By-Law, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in such person's
official capacity for or in behalf of the Company and/or any subsidiary of the
Company and as to action in another capacity while holding such office and shall
continue as to such person who has ceased to be a director, officer, employee,
or agent of the Company and/or subsidiary of the Company and shall inure to the
benefit of the heirs, executors, and administrators of such person.
The By-Laws of each Subsidiary Guarantor provides for the indemnification
of its directors and officers to the fullest extent permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the Transactions, the Company offered and sold, on
December 1, 1995, $200,000,000 aggregate principal amount of its 13% Senior
Subordinated Notes due 2005. These Notes were initially sold to BT Securities
Corporation and Wasserstein Perella Securities, Inc. with an initial purchasers'
discount of 3% (or $6 million). The offer and sale of the Notes were deemed to
be exempt from registration under Section 4(2) of the Securities Act as an offer
and sale not involving a public offering and were made in accordance with Rule
144A and Regulation D promulgated under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
*3.1(i) Certificate of Incorporation of the Company.
*3.1(ii) By-laws of the Company.
*3.2(i) Certificate of Incorporation of each Subsidiary Guarantor.
*3.2(ii) By-laws of each Subsidiary Guarantor.
**4.1 Indenture, dated as of December 1, 1995, among the Company,
the Subsidiary Guarantors and the Trustee (including Form of
Exchange Note).
**4.2 Form of Subsidiary Guarantee with respect to the 13% Senior
Subordinated Notes.
*4.3 Purchase Agreement, dated as of November 17, 1994, among the
Company, the Subsidiary Guarantors and the Initial Purchasers.
*4.4 Registration Rights Agreement, dated as of December 1, 1995,
among the Company, the Subsidiary Guarantors and the Initial
Purchasers.
*4.5 Credit Agreement, dated as of October 31, 1995, among American
Pad & Paper Company, WR Acquisition, Inc., the Company,
various Lending Institutions and Bankers Trust Company as
Agent.+
*4.6 Security Agreement, dated as of October 31, 1995, among
American Pad & Paper Company, WR Acquisition, Inc., the
Company, certain other subsidiaries of American Pad & Paper
Company and Bankers Trust Company, as Collateral Agent.+
II-2
<PAGE>
*4.7 Pledge Agreement, dated as of October 31, 1995, by the Company
and the Subsidiary Guarantors in favor of Bankers Trust Company,
as Collateral Agent.+
4.8 Notepad Funding Receivables Master Trust Pooling and Servicing
Agreement, dated October 31, 1995, among the Company, Notepad
Funding Corporation and Manufacturers and Traders Trust Company
(the "Pooling and Service Agreement").
4.9 Series 1995-1 Supplement to the Pooling and Service Agreement,
dated October 31, 1995.
4.10 Revolving Certificate Purchase Agreement, dated October 31, 1995,
among the Company, Notepad Funding Corporation, Bankers Trust
Company and the Purchasers described therein.
4.11 Receivables Purchase Agreement, dated October 31, 1995, among the
Company, Notepad Funding Corporation and certain subsidiaries.
5.1 Opinion and consent of Kirkland & Ellis.
*10.1 Agreement and Plan of Merger, dated as of October 3, 1995, among
Ampad Holding Corporation, WHR Acquisition, Inc. and WR
Acquisition, Inc.+
*10.2 Amendment No. 1 to WHR Merger Agreement, dated as of October 31,
1995, among American Pad & Paper Company, WR Acquisition, Inc.
and WR Acquisition, Inc.
*10.3 Stock Purchase Agreement, dated as of October 30, 1995, among WR
Acquisition, Inc. and American Pad & Paper Company.
*10.4 Tax Sharing Agreement, dated as of October 30, 1995, among
American Pad & Paper Company and the Subsidiary Guarantors.
*10.5 Agreement and Plan of Merger, dated as of October 31, 1995,
among the Company and Ampad Corporation.
*10.6 Advisory Agreement, dated as of October 31, 1995, among the
Company and Bain Capital, Inc.
*10.7 Ampad Holding Corporation 1992 Key Employees Stock Option Plan.
*10.8 Amended and Restated Management Agreement between APP and
Charles G. Hanson, III.
*10.9 Amended and Restated Management Agreement between APP and
Russell M. Gard.
*10.10 Amended and Restated Management Agreement between APP and
Gregory M. Benson.
*10.11 Preferred Stock Redemption Agreement between APP and the
stockholders of APP.
**10.12 Asset Purchase Agreement, dated as of June 29, 1994, by and
between Huxley Envelope Corp., The Kent Paper Co., Inc. and
Williamhouse of California, Inc.+
*10.13 Lease Agreement for City of Industry, California.
*10.14 Lease Agreement for Dubuque, Iowa.
*10.15 Lease Agreement for Miamisburg, Ohio.
II-3
<PAGE>
*10.16 Lease Agreement for North Salt Lake City, Utah.
*10.17 Lease Agreement for Tacoma, Washington.
*10.18 Change of Control Agreement between WR Acquisition, Inc. and
certain officers of the Company.
**10.19 Registration Rights Agreement between APP and the
stockholders of APP.
*12.1 Statement of Computation of Ratios.
21.1 Subsidiaries of the Company.
23.1 Consents of Price Waterhouse LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24.1 Powers of Attorney (included in signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
___________________________________
* Previously filed.
** Previously filed in connection with a Registration Statement on Form
S-1 of American Pad & Paper Company (File No. 333-4000).
+ The Company agrees to furnish supplementally to the Commission a copy
of any omitted schedule or exhibit to such agreement upon request by
Commission.
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993;
II-4
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(5) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on May 22, 1996.
AMERICAN PAD & PAPER COMPANY OF
DELAWARE, INC.
By: /s/ Gregory M. Benson
-----------------------------
Gregory M. Benson
Chief Administrative Officer
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO.
1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE CAPACITY DATE
--------- -------- ----
* CHAIRMAN, CHIEF EXECUTIVE OFFICER MAY 22, 1996
- ------------------------- AND DIRECTOR (PRINCIPAL EXECUTIVE
CHARLES G. HANSON, III OFFICER)
* DIRECTOR MAY 22, 1996
- -------------------------
RUSSELL M. GARD
* DIRECTOR (PRINCIPAL FINANCIAL AND MAY 22, 1996
- ------------------------- ACCOUNTING OFFICER)
GREGORY M. BENSON
* DIRECTOR MAY 22, 1996
- -------------------------
JONATHAN S. LAVINE
* DIRECTOR MAY 22, 1996
- -------------------------
MARC B. WOLPOW
* DIRECTOR MAY 22, 1996
- -------------------------
ROBERT C. GAY
- ----------
* THE UNDERSIGNED, BY SIGNING HIS NAME HERETO, DOES SIGN AND EXECUTE THIS
AMENDMENT NO. 1 TO REGISTRATION STATEMENT ON BEHALF OF THE ABOVE NAMED
OFFICERS AND DIRECTORS OF THE COMPANY PURSUANT TO THE POWER OF ATTORNEY
EXECUTED BY SUCH OFFICERS AND DIRECTORS AND PREVIOUSLY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
/S/ GREGORY M. BENSON
- ---------------------------
GREGORY M. BENSON
ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on May 22, 1996.
WILLIAMHOUSE OF CALIFORNIA, INC.
By: /s/ Gregory M. Benson
-------------------------------
Gregory M. Benson
President, Secretary and Chief
Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
[S] [C] [C]
* President, Secretary, Chief May 22, 1996
- ------------------------- Financial Officer and Director
Gregory M. Benson (principal executive and financial
officer)
* Director May 22, 1996
- -------------------------
Jonathan S. Lavine
- ----------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- -----------------------------
Gregory M. Benson
Attorney-in-fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on May 22, 1996.
THE PRECIOUS COLLECTION, INC.
By: /s/ Gregory M. Benson
------------------------------------
Gregory M. Benson
President, Secretary and Chief
Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
* President, Secretary, Chief May 22, 1996
- ----------------------- Financial Officer and Director
Gregory M. Benson (principal executive and financial
officer)
* Director May 22, 1996
- ------------------------
Jonathan S. Lavine
- ----------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- ---------------------------
Gregory M. Benson
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on May 22, 1996.
STATIONARY HOUSE INC. VIP DIVISION
By: /s/ Gregory M. Benson
-------------------------------
Gregory M. Benson
President, Secretary and Chief
Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
* President, Secretary, Chief May 22, 1996
- -------------------------- Financial Officer and Director
Gregory M. Benson (principal executive and financial
officer)
* Director May 22, 1996
- --------------------------
Jonathan S. Lavine
- ----------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- ---------------------------
Gregory M. Benson
Attorney-in-fact
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on May 22, 1996.
REGENCY SONNELL GREETINGS, INC.
By: /s/ Gregory M. Benson
----------------------------------
Gregory M. Benson
President, Secretary and Chief
Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
* President, Secretary, Chief May 22, 1996
- -------------------------- Financial Officer and Director
Gregory M. Benson (principal executive and financial
officer)
* Director May 22, 1996
- --------------------------
Jonathan S. Lavine
- ----------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- ---------------------------
Gregory M. Benson
Attorney-in-fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on May 22, 1996.
REGENCY THERMOGRAPHERS, INC.
By: /s/ Gregory M. Benson
--------------------------------
Gregory M. Benson
President, Secretary and Chief
Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
* President, Secretary, Chief May 22, 1996
- ------------------------- Financial Officer and Director
Gregory M. Benson (principal executive and financial
officer)
* Director May 22, 1996
- -------------------------
Jonathan S. Lavine
- ----------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- ---------------------------
Gregory M. Benson
Attorney-in-fact
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on May 22, 1996.
REGENCY THERMOGRAPHERS OF CALIFORNIA,
INC.
By: /s/ Gregory M. Benson
------------------------------------
Gregory M. Benson
President, Secretary and Chief
Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
* President, Secretary, Chief May 22, 1996
- ------------------------- Financial Officer and Director
Gregory M. Benson (principal executive and financial
officer)
* Director May 22, 1996
- -------------------------
Jonathan S. Lavine
- ----------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- ---------------------------
Gregory M. Benson
Attorney-in-fact
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on May 22, 1996.
REGENCY THERMOGRAPHERS OF ILLINOIS, INC.
By: /s/ Gregory M. Benson
-------------------------------------
Gregory M. Benson
President, Secretary and Chief
Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
* President, Secretary, Chief May 22, 1996
- -------------------------- Financial Officer and Director
Gregory M. Benson (principal executive and financial
officer)
* Director May 22, 1996
- --------------------------
Jonathan S. Lavine
- ----------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- --------------------------
Gregory M. Benson
Attorney-in-fact
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on May 22, 1996.
REGENCY THERMOGRAPHERS OF WASHINGTON,
INC.
By: /s/ Gregory M. Benson
-----------------------------------
Gregory M. Benson
President, Secretary and Chief
Financial Officer
* * * *
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
* President, Secretary, Chief May 22, 1996
- ------------------------- Financial Officer and Director
Gregory M. Benson (principal executive and financial
officer)
* Director May 22, 1996
- -------------------------
Jonathan S. Lavine
- ----------
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
/s/ Gregory M. Benson
- ---------------------------
Gregory M. Benson
Attorney-in-fact
II-14
<PAGE>
Registration No. 333-3006
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
EXHIBITS
TO
AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
___________________
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
STATIONERY HOUSE INC. VIP DIVISION
WILLIAMHOUSE OF CALIFORNIA, INC.
THE PRECIOUS COLLECTION, INC.
REGENCY SONNELL GREETINGS, INC.
REGENCY THERMOGRAPHERS, INC.
REGENCY THERMOGRAPHERS OF CALIFORNIA, INC.
REGENCY THERMOGRAPHERS OF ILLINOIS, INC.
REGENCY THERMOGRAPHERS OF WASHINGTON, INC.
(Exact name of Registrant as specified in its charter)
____________________________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ---------- ----------- -----
<S> <C> <C>
*3.1(i) Certificate of Incorporation of the Company.
*3.1(ii) By-laws of the Company.
*3.2(i) Certificate of Incorporation of each Subsidiary Guarantor.
*3.2(ii) By-laws of each Subsidiary Guarantor.
**4.1 (*)Indenture, dated as of December 1, 1995, among the Company,
the Subsidiary Guarantors and the Trustee (including Form of
Exchange Note).
**4.2 (*)Form of Subsidiary Guarantee with respect to the 13% Senior
Subordinated Notes.
*4.3 Purchase Agreement, dated as of November 17, 1994, among the
Company, the Subsidiary Guarantors and the Initial Purchasers.
*4.4 Registration Rights Agreement, dated as of December 1, 1995,
among the Company, the Subsidiary Guarantors and the Initial
Purchasers.
*4.5 Credit Agreement, dated as of October 31, 1995, among American
Pad & Paper Company, WR Acquisition, Inc., the Company, various
Lending Institutions and Bankers Trust Company as Agent.+
*4.6 Security Agreement, dated as of October 31, 1995, among American
Pad & Paper Company, WR Acquisition, Inc., the Company, certain
other subsidiaries of American Pad & Paper Company and Bankers
Trust Company, as Collateral Agent.+
*4.7 Pledge Agreement, dated as of October 31, 1995, by the Company
and the Subsidiary Guarantors in favor of Bankers Trust Company,
as Collateral Agent.+
4.8 Notepad Funding Receivables Master Trust Pooling and Servicing
Agreement, dated October 31, 1995, among the Company, Notepad
Funding Corporation and Manufacturers and Traders Trust Company
(the "Pooling and Service Agreement").
4.9 Series 1995-1 Supplement to the Pooling and Service Agreement,
dated October 31, 1995.
4.10 Revolving Certificate Purchase Agreement, dated October 31, 1995,
among the Company, Notepad Funding Corporation, Bankers Trust
Company and the Purchasers described therein.
4.11 Receivables Purchase Agreement, dated October 31, 1995, among the
Company, Notepad Funding Corporation and certain subsidiaries.
5.1 Opinion and consent of Kirkland & Ellis.
*10.1 Agreement and Plan of Merger, dated as of October 3, 1995, among
Ampad Holding Corporation, WHR Acquisition, Inc. and WR
Acquisition, Inc.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ---------- ----------- -----
<S> <C> <C>
*10.2 Amendment No. 1 to WHR Merger Agreement, dated as of October 31,
1995, among American Pad & Paper Company, WR Acquisition, Inc.
and WR Acquisition, Inc.
*10.3 Stock Purchase Agreement, dated as of October 30, 1995, among WR
Acquisition, Inc. and American Pad & Paper Company.
*10.4 Tax Sharing Agreement, dated as of October 30, 1995, among
American Pad & Paper Company and the Subsidiary Guarantors.
*10.5 Agreement and Plan of Merger, dated as of October 31, 1995, among
the Company and Ampad Corporation.
*10.6 Advisory Agreement, dated as of October 31, 1995, among the
Company and Bain Capital, Inc.
*10.7 Ampad Holding Corporation 1992 Key Employees Stock Option Plan.
*10.8 Amended and Restated Management Agreement between APP and Charles
G.Hanson, III.
*10.9 Amended and Restated Management Agreement between APP and Russell
M. Gard.
*10.10 Amended and Restated Management Agreement between APP and Gregory
M. Benson.
*10.11 Preferred Stock Redemption Agreement between APP and the
stockholders of APP.
**10.12 Asset Purchase Agreement, dated as of June 29, 1994, by and
between Huxley Envelope Corp., The Kent Paper Co., Inc. and
Williamhouse of California, Inc.+
*10.13 Lease Agreement for City of Industry, California.
*10.14 Lease Agreement for Dubuque, Iowa.
*10.15 Lease Agreement for Miamisburg, Ohio.
*10.16 Lease Agreement for North Salt Lake City, Utah.
*10.17 Lease Agreement for Tacoma, Washington.
*10.18 Change of Control Agreement between WR Acquisition, Inc. and
certain officers of the Company.
**10.19 Registration Rights Agreement between APP and the stockholders
of APP
*12.1 Statement of Computation of Ratios.
21.1 Subsidiaries of the Company.
23.1 Consents of Price Waterhouse LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ---------- ----------- -----
<S> <C> <C>
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
*24.1 Powers of Attorney (included in signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Tender Instructions.
</TABLE>
- ---------------------------------------------
* Previously filed.
** Previously filed in connection with a Registration Statement on Form S-1
of American Pad & Paper Company (File No. 333-4000).
+ The Company agrees to furnish supplementally to the Commission a copy of
any omitted schedule or exhibit to such agreement upon request by
Commission.
<PAGE>
EXHIBIT 4.8
================================================================================
NOTEPAD FUNDING RECEIVABLES MASTER TRUST
POOLING AND SERVICING AGREEMENT
dated as of October 31, 1995
among
NOTEPAD FUNDING CORPORATION,
as Transferor,
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.,
as Servicer,
and
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
================================================================================
<PAGE>
<TABLE>
<CAPTION>
|| TABLE OF CONTENTS
<S> <C>
ARTICLE I DEFINITIONS
SECTION 1.1 Definitions........................................ 1
ARTICLE II CONVEYANCE OF ASSETS
SECTION 2.1 Creation of the Trust; Conveyance of Certain
Assets..................................................... 1
SECTION 2.2 Acceptance by Trustee.............................. 3
SECTION 2.3 Representations and Warranties of Transferor
Relating to the Transferred Assets......................... 3
SECTION 2.4 No Assumption of Obligations Relating to
Receivables, Related Transferred Assets or Contracts....... 5
SECTION 2.5 Conveyance of Receivables by the Trust............. 5
ARTICLE III ADMINISTRATION AND SERVICING
SECTION 3.1 Acceptance of Appointment; Other Matters........... 5
SECTION 3.2 Duties of Servicer and Transferor.................. 6
SECTION 3.3 Lockbox Accounts; Concentration Accounts........... 10
SECTION 3.4 Servicing Compensation............................. 12
SECTION 3.5 Records of Servicer and Reports to be Prepared
by Servicer................................................ 13
SECTION 3.6 Monthly Servicer's Certificate..................... 15
SECTION 3.7 Servicing Report of Independent Public
Accountants; Forms 10-Q and 10-K........................... 15
SECTION 3.8 Rights of Trustee.................................. 16
SECTION 3.9 Ongoing Responsibilities of WRO.................... 18
SECTION 3.10 Further Action Evidencing Transfers............... 18
ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS;
ALLOCATIONS
SECTION 4.1 Rights of Certificateholders....................... 19
SECTION 4.2 Establishment of Transaction Accounts.............. 20
SECTION 4.3 Trust-Level Calculations and Funds Allocations..... 21
SECTION 4.4 Investment of Funds in Transaction Accounts........ 22
SECTION 4.5 Attachment of Transaction Accounts................. 23
ARTICLE V DISTRIBUTIONS AND REPORTS
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI THE CERTIFICATES
SECTION 6.1 The Certificates................................... 23
SECTION 6.2 Authentication of Certificates..................... 24
SECTION 6.3 Registration of Transfer and Exchange of
Certificates............................................... 24
SECTION 6.4 Mutilated, Destroyed, Lost or Stolen Certificates.. 27
SECTION 6.5 Persons Deemed Owners.............................. 27
SECTION 6.6 Appointment of Paying Agent........................ 28
SECTION 6.7 Access to List of Certificateholders' Names and
Addresses.................................................. 28
SECTION 6.8 Authenticating Agent............................... 29
SECTION 6.9 Tax Treatment...................................... 30
SECTION 6.10 Issuance of Additional Series of Certificates and
Sales of Purchased Interests............................... 31
SECTION 6.11 Book-Entry Certificates........................... 36
SECTION 6.12 Notices to Clearing Agency........................ 40
SECTION 6.13 Definitive Certificates........................... 41
SECTION 6.14 Letter of Representations......................... 41
ARTICLE VII TRANSFEROR
SECTION 7.1 Representations and Warranties of Transferor
Relating to Transferor and the Transaction Documents....... 41
SECTION 7.2 Covenants of Transferor............................ 44
SECTION 7.3 Indemnification by Transferor...................... 51
ARTICLE VIII SERVICER
SECTION 8.1 Representations and Warranties of Servicer......... 52
SECTION 8.2 Covenants of Servicer.............................. 54
SECTION 8.3 Merger or Consolidation of, or Assumption of
the Obligations of, Servicer............................... 55
SECTION 8.4 Indemnification by Servicer........................ 55
SECTION 8.5 Servicer Liability................................. 56
SECTION 8.6 Limitation on Liability of Servicer and Others..... 56
ARTICLE IX EARLY AMORTIZATION EVENTS
SECTION 9.1 Early Amortization Events.......................... 57
SECTION 9.2 Remedies........................................... 57
SECTION 9.3 Additional Rights Upon the Occurrence of
Certain Events............................................. 57
ARTICLE X SERVICER DEFAULTS
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 10.1 Servicer Defaults................................. 59
SECTION 10.2 Trustee to Act; Appointment of Successor.......... 60
SECTION 10.3 Notification of Servicer Default; Notification
of Appointment of Successor Servicer....................... 63
ARTICLE XI TRUSTEE
SECTION 11.1 Duties of Trustee................................. 63
SECTION 11.2 Certain Matters Affecting Trustee................. 66
SECTION 11.3 Limitation on Liability of Trustee................ 68
SECTION 11.4 Trustee May Deal with Other Parties............... 69
SECTION 11.5 Servicer To Pay Trustee's Fees and Expenses....... 69
SECTION 11.6 Eligibility Requirements for Trustee.............. 70
SECTION 11.7 Resignation or Removal of Trustee................. 71
SECTION 11.8 Successor Trustee................................. 72
SECTION 11.9 Merger or Consolidation of Trustee................ 72
SECTION 11.10 Appointment of Co-Trustee or Separate
Trustee.................................................... 72
SECTION 11.11 Tax Returns...................................... 74
SECTION 11.12 Trustee May Enforce Claims Without
Possession of Certificates................................. 74
SECTION 11.13 Suits for Enforcement............................ 75
SECTION 11.14 Rights of Required Investors To Direct Trustee... 75
SECTION 11.15 Representations and Warranties of Trustee........ 76
SECTION 11.16 Maintenance of Office or Agency.................. 75
ARTICLE XII TERMINATION
SECTION 12.1 Termination of Trust.............................. 76
SECTION 12.2 Final Distribution................................ 77
SECTION 12.3 Rights Upon Termination of the Trust.............. 78
SECTION 12.4 Optional Repurchase of Investor Interests......... 79
ARTICLE XIII MISCELLANEOUS PROVISIONS
SECTION 13.1 Amendment, Waiver, Etc............................ 79
SECTION 13.2 Actions by Certificateholders and Purchasers...... 81
SECTION 13.3 Limitation on Rights of Certificateholders........ 82
SECTION 13.4 Limitation on Rights of Purchasers................ 83
SECTION 13.5 Governing Law..................................... 84
SECTION 13.6 Notices........................................... 84
SECTION 13.7 Severability of Provisions........................ 85
SECTION 13.8 Certificates Nonassessable and Fully Paid......... 85
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
SECTION 13.9 Nonpetition Covenant.............................. 85
SECTION 13.10 No Waiver; Cumulative Remedies................... 86
SECTION 13.11 Counterparts..................................... 86
SECTION 13.12 Third-Party Beneficiaries........................ 86
SECTION 13.13 Integration...................................... 86
SECTION 13.14 Binding Effect; Assignability; Survival
of Provisions.............................................. 87
SECTION 13.15 Recourse to Transferor........................... 87
SECTION 13.16 Recourse to Transferred Assets................... 87
SECTION 13.17 Submission to Jurisdiction....................... 87
SECTION 13.18 Waiver of Jury Trial............................. 88
SECTION 13.19 Certain Partial Releases......................... 88
SECTION 13.20 No Recourse...................................... 89
</TABLE>
-iv-
<PAGE>
||
EXHIBITS
EXHIBIT A Form of Lockbox Account Letter Agreement
EXHIBIT B Form of Concentration Account Letter Agreement
EXHIBIT C Form of Monthly Servicer's Certificate
EXHIBIT D Annual Agreed-Upon Procedures
EXHIBIT E Form of Transferor Certificate
EXHIBIT F Form of Owner Regulation S Certification
EXHIBIT G Form of Depositary Regulation S Certification
EXHIBIT H Form of Transferee Regulation S Certification
EXHIBIT I Form of Transferor Regulation S Certification
EXHIBIT J Form of Placement Agent Exchange Instructions
SCHEDULES
SCHEDULE 1 Account Banks - Lockbox Banks
APPENDIX
APPENDIX A Definitions
-v-
<PAGE>
This POOLING AND SERVICING AGREEMENT, dated as of October 31, 1995 (this
"Agreement"), is made among NOTEPAD FUNDING CORPORATION, a Delaware corporation
("Transferor"), WILLIAMHOUSE-REGENCY OF DELAWARE, INC., a Delaware corporation
("WRO"), and MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking
corporation, as Trustee.
ARTICLE I DEFINITIONS
SECTION 1.1 Definitions. Capitalized terms used in this Agreement have the
meanings that Appendix A assigns to them, and this Agreement shall be
interpreted in accordance with Part B of Appendix A.
ARTICLE II CONVEYANCE OF ASSETS
SECTION 2.1 Creation of the Trust; Conveyance of Certain Assets. (a)
Transferor hereby transfers, assigns, sets over, grants and otherwise conveys to
Trustee, in its capacity as representative of the Certificateholders and the
Purchasers, without recourse (except as expressly provided herein), all of its
right, title and interest in, to and under, (i) each Receivable that has been or
is hereafter transferred by the Sellers to Transferor, (ii) all Related Assets,
(iii) all of Transferor's rights to receive payment or pursue remedies under the
Seller Transaction Documents (the property described in clauses (ii) and (iii)
being called the "Related Transferred Assets"), (iv) all funds from time to time
on deposit in each of the Transaction Accounts (including funds deposited in a
Transaction Account in connection with the issuance of any prefunded Series) and
all funds from time to time on deposit in each of the Bank Accounts representing
Collections on, or other proceeds of, the foregoing and, in each case, all
certificates and instruments, if any, from time to time evidencing such funds,
all investments made with such funds, all claims thereunder or in connection
therewith and all interest, dividends, monies, instruments, securities and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the foregoing, (v) any Enhancements
obtained for the benefit of any Series or Purchased Interest and (vi) all moneys
due or to become due and all amounts received or receivable with respect to any
of the foregoing and all proceeds of the foregoing. Such property, whether now
existing or hereafter acquired, shall constitute the assets of the Trust
(collectively, the "Transferred Assets"). The foregoing transfer, assignment,
setover, grant and conveyance to the Trust shall be made to Trustee, on behalf
of the Trust, and each reference in this Agreement to such transfer, assignment,
setover and conveyance shall be construed accordingly.
<PAGE>
(b) In connection with the transfer described in subsection (a), Transferor
and Servicer shall record and file or cause to be recorded and filed, as an
expense of Servicer paid out of the Servicing Fee, financing statements with
respect to the Transferred Assets meeting the requirements of applicable state
law in such manner and in such jurisdictions as are necessary to perfect the
transfer and assignment of the Transferred Assets to the Trust. In connection
with the transfer described in subsection (a), Transferor and Servicer further
agree to deliver to Trustee each Transferred Asset (including any original
documents or instruments included in the Transferred Assets as are necessary to
effect such transfer) in which the transfer of an interest is perfected under
the UCC or otherwise by possession. Transferor or Servicer shall deliver each
such Transferred Asset to Trustee, as an expense of Servicer paid out of the
Servicing Fee, immediately upon the transfer of any such Transferred Asset to
Trustee pursuant to subsection (a).
(c) In connection with the transfer described above in subsection (a),
Servicer shall, on behalf of Transferor, as an expense of Servicer
paid out of the Servicing Fee, on or prior to the First Issuance
Date, mark the master data processing records evidencing the
Receivables with the following legend:
"THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO NOTEPAD FUNDING
CORPORATION ("NFC") PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT, DATED AS
OF OCTOBER 31, 1995, AMONG WILLIAMHOUSE-REGENCY OF DELAWARE, INC. ("WRO")
AND CERTAIN OF ITS SUBSIDIARIES, AS SELLERS, AND NFC, AS BUYER; AND SUCH
RECEIVABLES HAVE BEEN TRANSFERRED TO THE NOTEPAD FUNDING RECEIVABLES MASTER
TRUST PURSUANT TO A POOLING AND SERVICING AGREEMENT, DATED AS OF OCTOBER
31, 1995, AMONG NFC, AS TRANSFEROR, WRO, AS SERVICER, AND MANUFACTURERS AND
TRADERS TRUST COMPANY, AS TRUSTEE."
(d) Upon the request of Transferor, Trustee will cause Certificates in
authorized denominations evidencing the entire interest in the Trust to be duly
authenticated and delivered to or upon the order of Transferor pursuant to
Section 6.2. Pursuant to the Transferor Certificate, Transferor shall be
entitled to receive current and deferred transfer payments at the times and in
the amounts specified in the various Supplements and PI Agreements executed from
time to time.
(e) If the transfer, assignment, set-over, grant and conveyance described
in subsection (a) of this Section 2.1 are deemed to create a security
page 2
<PAGE>
interest in the property described in that Section, Transferor hereby grants to
the Trustee, for the benefit of the Certificateholders and the Purchasers, a
security interest in that property (which shall be deemed to be a first
perfected security interest), and agrees that this Agreement shall constitute a
security agreement under applicable law.
SECTION 2.2 Acceptance by Trustee. Trustee hereby acknowledges its
acceptance on behalf of the Trust of all right, title and interest to the
Transferred Assets and declares that it shall maintain such right, title and
interest, upon the trust herein set forth, for the benefit of all
Certificateholders and Purchasers, on the terms and subject to the conditions
hereinafter set forth.
SECTION 2.3 Representations and Warranties of Transferor Relating to the
Transferred Assets.
(a) Representations and Warranties. At the time that any Receivable or
Related Asset is transferred by Transferor to the Trust, Transferor hereby
represents and warrants that:
(i) Valid Transfer. Each transfer made by Transferor pursuant to this
Agreement constitutes a valid transfer and assignment of all of its right,
title and interest in, to and under the Receivables and the Related
Transferred Assets to the Trust that is perfected and of first priority
under the UCC and otherwise, enforceable against creditors of, and
purchasers from, Transferor and the Sellers and free and clear of any
Adverse Claim (other than any Permitted Adverse Claim).
(ii) Quality of Title. (A) Immediately before each transfer to be made
by Transferor hereunder, each Receivable and Related Transferred Asset that
was then to be transferred to the Trust hereunder was owned by Transferor
free and clear of any Adverse Claim (other than any Permitted Adverse
Claim); and, in connection with the First Issuance Date, Transferor and
Servicer made, or caused to be made, all filings and took all other action
under applicable law in each relevant jurisdiction in order to protect and
perfect the Trust's interest in such Receivables, such Related Transferred
Assets and the funds in the Transaction Accounts against all creditors of,
and purchasers from, Transferor and the Sellers.
(B) Each transfer of Receivables and other Transferred Assets by
Transferor to the Trust pursuant to this Agreement constitutes a valid
transfer and assignment to the Trust of all right, title and interest
page 3
<PAGE>
of Transferor in the Receivables and the Related Transferred Assets, free
and clear of any Adverse Claim (other than any Permitted Adverse Claim),
and constitutes either an absolute transfer of such property to the Trust
or a grant of a first priority perfected security interest in such property
to the Trust. Whenever the Trust accepts a transfer of a Receivable or a
Related Transferred Asset hereunder, it shall have acquired a valid and
perfected first priority interest in such Receivable or Related Transferred
Asset free and clear of any Adverse Claim (other than any Permitted Adverse
Claim).
(C) No effective financing statement or other instrument similar in
effect that covers all or part of any Receivable, any Related Transferred
Asset, any other Transferred Asset or any interest in any proceeds thereof
is on file in any recording office except financing statements as to which
termination statements or releases are filed on the First Issuance Date
within three Business Days after the First Issuance Date and except any
filings relating to any Permitted Adverse Claim.
(D) No acquisition of any Receivable or Related Transferred Asset by
Transferor or the Trust constitutes a fraudulent transfer or fraudulent
conveyance under the United States Bankruptcy Code or applicable state
bankruptcy or insolvency laws or is otherwise void or voidable or subject
to subordination under similar laws or principles or for any other reason.
(iii) Governmental Approvals. With respect to each Receivable and
Related Transferred Asset, all consents, licenses, approvals or
authorizations of, or notices to or registrations, declarations or filings
with, any Governmental Authority required to be obtained, effected or made
by the Sellers, Servicer or Transferor in connection with the conveyance of
the Receivable and Related Transferred Asset by the Sellers to Transferor,
or by Transferor to the Trust, have been duly obtained, effected or given
and are in full force and effect.
(iv) Eligible Receivables. (A) On the date on which the applicable
Seller transfers a Receivable to Transferor, and Transferor transfers such
Receivable to the Trust, unless otherwise identified by Servicer in the
Daily Report for such date, such Receivable is an Eligible Receivable, and
(B) on the date of each Daily Report or Monthly Report that identifies a
Receivable as an Eligible Receivable, such Receivable is an Eligible
Receivable.
page 4
<PAGE>
(b) Notice of Breach. The representations and warranties set forth in
subsection (a) shall survive the transfer of the Receivables and the Related
Transferred Assets to the Trust. Upon discovery by Transferor, Servicer or
Trustee of a breach of any of the representations and warranties set forth in
subsection (a), the party discovering the breach shall give written notice to
the others within four Business Days following the discovery. Trustee's
obligations in respect of discovering any breach are limited as provided in
Section 11.2(g).
SECTION 2.4 No Assumption of Obligations Relating to Receivables, Related
Transferred Assets or Contracts. The transfer, assignment, set over, grant and
conveyance described in Section 2.1 does not constitute and is not intended to
result in a creation or an assumption by the Trust, Trustee or any Investor
Certificateholder of any obligation of Servicer, Transferor, the applicable
Seller or any other Person in connection with the Receivables or the Related
Transferred Assets or under the related Contracts or any other agreement or
instrument relating thereto. None of Trustee, the Trust or any Investor
Certificateholder shall have any obligation or liability to any Obligor.
SECTION 2.5 Conveyance of Receivables by the Trust. Pursuant to the terms
of a PI Agreement, Trustee, on behalf of the Trust, from time to time may sell,
transfer, assign, set over and otherwise convey Purchased Interests to a
Purchaser or an Agent for the account of a Purchaser; and Trustee, on behalf of
the Trust, is authorized and directed (subject to the applicable terms of
Section 6.10), upon the written request of Transferor, to enter into one or more
PI Agreements in the form annexed to each such written request. Pursuant to a PI
Agreement, Collections allocated to Purchased Interests may be reinvested and
such Purchased Interests may be recomputed, each from time to time as provided
therein.
ARTICLE III ADMINISTRATION AND SERVICING
SECTION 3.1 Acceptance of Appointment; Other Matters.
(a) Designation of Servicer. The servicing, administering and collection
of the Receivables and the Related Transferred Assets shall be conducted by the
Person designated as Servicer hereunder from time to time in accordance with
this section. Until Trustee gives a Termination Notice to WRO pursuant to
Section 10.1, WRO is designated (and agrees to act) as Servicer.
(b) Delegation of Certain Servicing Activities. In the ordinary course of
business, Servicer may at any time delegate its duties hereunder with respect to
the Receivables and the Related Transferred Assets to any Person. Each
Person to whom any such duties are delegated in accordance with this Section
page 5
<PAGE>
is called a "Sub-Servicer". Notwithstanding any such delegation, Servicer shall
remain liable for the performance of all duties and obligations of Servicer
pursuant to the terms of this Agreement and the other Transaction Documents. The
fees and expenses of any Sub-Servicers shall be as agreed between Servicer and
the Sub-Servicers from time to time and none of the Trust, Trustee or the
Certificateholders shall have any responsibility therefor. Upon any termination
of a Servicer pursuant to Section 10.1, all Sub-Servicers designated pursuant to
this subsection by such Servicer shall automatically also be terminated.
(c) Termination. The designation of Servicer (and each Sub-Servicer) under
this Agreement shall automatically terminate upon termination of the Trust
pursuant to Section 12.1.
(d) Resignation of Servicer. WRO shall not resign as Servicer unless it
determines that (i) the performance of its duties is no longer permissible under
applicable law and (ii) there is no reasonable action that it could take to make
the performance of its duties permissible under applicable law. If WRO
determines that it must resign for the reasons stated above, it shall, prior to
the tendering of its resignation, deliver to Trustee an Opinion of Counsel
confirming the satisfaction of the conditions set forth in clause (i) of the
preceding sentence. No resignation by WRO shall become effective until Trustee
or another Successor Servicer shall have assumed the responsibilities and
obligations of Servicer in accordance with Section 10.2. Trustee shall give
prompt notice to the Rating Agencies of the appointment of any Successor
Servicer.
SECTION 3.2 Duties of Servicer and Transferor.
(a) Duties of Servicer in General. Servicer shall service the Receivables
and the Related Transferred Assets and, subject to the terms and provisions of
this Agreement, shall have full power and authority, acting alone or through any
Sub-Servicer, to do any and all things in connection with such servicing that it
may deem necessary or appropriate. Trustee shall execute and deliver to Servicer
any powers of attorney or other instruments or documents that are prepared by
Servicer and stated in an Officer's Certificate to be, and shall furnish
Servicer with any documents in its possession, necessary or appropriate to
enable Servicer to carry out its servicing duties. Servicer shall exercise the
same care and apply the same policies with respect to the collection and
servicing of the Receivables and the Related Transferred Assets that it would
exercise and apply if it owned such Receivables and the Related
Transferred Assets, all in substantial compliance with applicable law and in
accordance with the Credit and Collection Policy.
page 6
<PAGE>
Servicer shall take or cause to be taken (and shall cause each Sub-Servicer
(if any) to take or cause to be taken) all such actions as Servicer deems
necessary or appropriate to collect each Receivable and Related Transferred
Asset, all in accordance with applicable law and the Credit and Collection
Policy.
Without limiting the generality of the foregoing and subject to the next
preceding paragraph and Section 10.1, Servicer or its designee is hereby
authorized and empowered, unless such power and authority is revoked by Trustee
on account of the occurrence of a Servicer Default, (i) to instruct Trustee to
make withdrawals and payments from the Transaction Accounts as set forth in this
Agreement, (ii) to execute and deliver, on behalf of the Trust for the benefit
of the Certificateholders, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Receivables and the Related
Transferred Assets, (iii) to make any filings, reports, notices, applications
and registrations with, and to seek any consents or authorizations from, the
Securities and Exchange Commission and any state securities authority on behalf
of the Trust as may be necessary or appropriate to comply with any federal or
state securities laws or reporting requirements or other laws or regulations,
and (iv) to the extent permitted under and in compliance with the Credit and
Collection Policy and with all applicable laws, rules, regulations, judgments,
orders and decrees of courts and other governmental authorities (whether
federal, state, local or foreign) and all other tribunals, to commence or settle
collection proceedings with respect to such Receivable and otherwise to enforce
the rights and interests of the Trust and the Certificateholders in, to and
under such Receivable or Related Transferred Asset (as applicable).
(b) Identification and Transfer of Collections. Servicer shall cause
Collections and all other Transferred Assets that consist of cash or cash
equivalents to be deposited into the Bank Accounts and the Transaction Accounts
pursuant to the terms and provisions of Section 3.3 and Article IV. Following
notification from any Seller to Servicer or discovery by Servicer that
collections of any receivable or other asset that is not a Collection of a
Receivable or a Related Transferred Asset have been deposited into a Bank
Account or the Master Collection Account, Servicer shall cause all such
collections to be segregated, apart and in different accounts, from the Bank
Accounts and the Transaction Accounts. Servicer and, to the extent applicable,
Trustee shall hold all such funds in trust, separate and apart from such
Person's other funds. On each Business Day, after such misapplied collections
have been reasonably identified by Servicer to Trustee, Servicer shall instruct
Trustee to, and Trustee shall, turn over to the appropriate Lockbox Bank,
applicable Seller or other applicable WRO Person (or their designees) all such
page 7
<PAGE>
misapplied collections less all reasonable and appropriate out-of-pocket costs
and expenses, if any, incurred by Servicer in collecting such receivables.
All payments made by an Obligor that is obligated to make payments with
respect to both Receivables included in the Transferred Assets and Receivables
not included in the Transferred Assets shall be applied against the Receivables,
if any, that are designated by such Obligor by reference to the applicable
invoice as the Receivables with respect to which such payments should be
applied. In the absence of such designation, such payments shall be applied
first against the oldest outstanding Receivables owed by such Obligor.
Following notification from a Lockbox Bank that any item has been returned
or is uncollected and that such Lockbox Bank has not been otherwise reimbursed
pursuant to the terms of the applicable Lockbox Agreement for any amounts it
credited to the relevant Lockbox Account (and then transferred to the Master
Collection Account), Servicer shall instruct Trustee to, and Trustee shall, turn
over to such Lockbox Bank Collections in such amount from Collections on deposit
in the Master Collection Account.
(c) Modification of Receivables, Etc. So long as no Servicer Default shall
have occurred and be continuing, Servicer may adjust, and may permit each Sub-
Servicer to adjust, in accordance with Section 3.2(a) and the Credit and
Collection Policy, the Unpaid Balance of any Receivable, or otherwise modify the
terms of any Receivable or amend, modify or waive any term or condition of any
Contract related thereto, all as it may determine to be appropriate to maximize
collection thereof. Servicer shall, or shall cause the applicable Sub-Servicer
to, write off Receivables from time to time in accordance with the Credit and
Collection Policy.
(d) Documents and Records. At any time when WRO is not Servicer,
Transferor, to the extent that it is entitled to do so under the Purchase
Agreement, shall, upon the request of the then-acting Servicer, cause the
applicable Seller to deliver to Servicer, and Servicer shall hold in trust for
Transferor and Trustee in accordance with their respective interests, all
Records that evidence or relate to the Receivables and Related Transferred
Assets of the applicable Seller.
(e) Certain Duties to the Sellers. Servicer, if other than WRO, shall, as
soon as practicable after a demand by any Seller, deliver to the Seller all
documents, instruments and records in its possession that evidence or relate to
accounts receivable of the Seller or other WRO Persons that are not Receivables
or Related Transferred Assets, and copies of all documents,
page 8
<PAGE>
instruments and records in its possession that evidence or relate to Receivables
and Related Transferred Assets.
(f) Identification of Eligible Receivables. The initial Servicer will (i)
establish and maintain such procedures as are necessary for determining no less
frequently than each Business Day whether each Receivable qualifies as an
Eligible Receivable, and for identifying, on any Business Day, all Receivables
that are not Eligible Receivables, and (ii) include in each Daily Report
information that shows whether, and to what extent, the Receivables described in
such Daily Report are Eligible Receivables.
(g) Authorization to Act as Transferor's Agent. Without limiting the
generality of subsection (a), Transferor hereby appoints Servicer as its agent
for the following purposes: (i) specifying accounts to which payments are to be
made to Transferor, (ii) making transfers among, and deposits to and withdrawals
from, all deposit accounts of Transferor for the purposes described in the
Transaction Documents, and (iii) arranging payment by Transferor of all fees,
expenses and other amounts payable by Transferor pursuant to the Transaction
Documents. Transferor irrevocably agrees that (A) it shall be bound by all
actions taken by Servicer pursuant to the preceding sentence, and (B) Trustee
and the banks holding all deposit accounts of Transferor are entitled to accept
submissions, determinations, selections, specifications, transfers, deposits and
withdrawal requests, and payments from Servicer on behalf of Transferor.
(h) Grant of Power of Attorney. Transferor and Trustee hereby each grant
to Servicer a power of attorney, with full power of substitution, to take in the
name of Transferor and Trustee all steps that are necessary or appropriate to
endorse, negotiate, deposit or otherwise realize on any writing of any kind held
or transmitted by Transferor or transmitted or received by Trustee (whether or
not from Transferor) in connection with any Receivable or Related Transferred
Asset. The power of attorney that Transferor and Trustee have granted to
Servicer may be revoked by Trustee, and shall be revoked by Transferor, on the
date on which Trustee shall be entitled to exercise the powers granted to
Trustee pursuant to Section 3.8(b). In exercising its power granted hereby,
Servicer shall take directions from Trustee, if any, arising out of the exercise
of the rights granted under Section 11.14.
(i) Turnover of Collections. If Servicer, Transferor or any of their
respective agents or representatives shall at any time receive any cash, checks
or other instruments constituting Collections, such recipient shall segregate
such payments and hold such payments in trust for Trustee and shall, promptly
upon receipt (and in any event within two Business Days following receipt),
page 9
<PAGE>
remit all such cash, checks and instruments, duly endorsed or with duly executed
instruments of transfer, to a Bank Account or the Master Collection Account.
(j) Annual Statement as to Compliance. Servicer will deliver to Trustee
and each Rating Agency on or before March 31 of each year, beginning with March
31, 1996 an Officer's Certificate stating, as to each signer thereof, that (i) a
review of the activities of the Servicer during the preceding calendar year and
of performance under this Pooling Agreement has been made under such officer's
supervision and (ii) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all its obligations under this Pooling
Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof and remedies therefor being pursued.
SECTION 3.3 Lockbox Accounts; Concentration Accounts. (a) Each Lockbox
Account shall be subject to a Lockbox Agreement substantially in the form of
Exhibit A. Unless instructed otherwise by Servicer (or, after the occurrence and
continuance of an Early Amortization Event, Trustee), each Lockbox Bank shall be
instructed by Servicer to remit, on a daily basis (but subject to the Lockbox
Bank's customary funds availability schedule), all amounts deposited in the
Lockbox Accounts maintained with it to a Concentration Account or the Master
Collection Account. Any Concentration Account shall be maintained in the name of
Trustee on behalf of the Trust pursuant to a Concentration Account Agreement
substantially in the form of Exhibit B. Except as provided in this Agreement and
the applicable Account Agreements, none of any Seller, Transferor, Servicer, or
any Person claiming by, through or under any Seller, Transferor or Servicer
shall have any control over the use of, or any right to withdraw any item or
amount from, any Lockbox Account or Concentration Account. Servicer and Trustee
are each hereby irrevocably authorized and empowered, as Transferor's attorney-
in-fact, to endorse any item deposited in a lockbox or presented for deposit in
any Lockbox Account or Concentration Account requiring the endorsement of
Transferor, which authorization is coupled with an interest and is irrevocable.
Each Lockbox Account shall be an Eligible Deposit Account.
(b) Servicer shall instruct (or shall cause the applicable Seller to
instruct) all Obligors to make all payments due to Transferor or the applicable
Seller relating to or constituting Collections (or any proceeds thereof) (i) to
lockboxes maintained at the Lockbox Banks for deposit in a Lockbox Account or a
Concentration Account or (ii) directly to a Lockbox Account. If Transferor or
the applicable Seller receives any Collections or any other payment of proceeds
of any other Related Transferred Asset, Servicer shall
page 10
<PAGE>
cause such recipient to (x) segregate such payment and hold it in trust for the
benefit of Trustee, and (y) as soon as practicable, but no later than the second
Business Day following receipt of such item by such Person, deposit such payment
in a Bank Account or the Master Collection Account. Servicer shall, and shall
cause Transferor and the applicable Seller to, use reasonable efforts to prevent
the deposit of any amounts other than Collections in any Lockbox Account or
Concentration Account. If Servicer is notified by the applicable Seller that any
amount other than Collections has been deposited in any Lockbox Account or
Concentration Account, Servicer shall promptly instruct the appropriate Account
Bank and Trustee to segregate such amount, and shall direct such Account Bank or
Trustee (as appropriate) to turn over such amounts to the applicable Seller or
other WRO Person (or their designees) to whom such amounts are owed.
(c)(i) Servicer may, from time to time after the First Issuance Date,
designate a new account as a Lockbox Account or a Concentration Account, and
such account shall become a Lockbox Account or Concentration Account (and the
bank at which such account is maintained shall become a Lockbox Bank or a
Concentration Account Bank for purposes of this Agreement); provided that
Trustee shall have received not less than 15 Business Days' prior written notice
of the account and/or the bank that are proposed to be added as a Bank Account
or an Account Bank (as applicable) and, not less than ten Business Days prior to
the effective date of any such proposed addition, Trustee shall have received
(x) counterparts of a Lockbox Agreement or a Concentration Account Agreement, as
applicable, with each new Account Bank, duly executed by such new Account Bank
and all other parties thereto and (y) copies of all other agreements and
documents signed by the new Account Bank or such other parties with respect to
any new Lockbox Account or Concentration Account, as applicable.
(ii) Servicer may, from time to time after the First Issuance Date,
terminate an account as a Lockbox Account or a Concentration Account or a bank
as an Account Bank; provided that (x) no such termination shall occur unless
Trustee shall have received not less than five Business Days' prior written
notice of the account and/or the bank that are proposed to be terminated as a
Bank Account or an Account Bank (as applicable) and, not less than five Business
Days prior to the effective date of any such proposed termination, Trustee shall
have received counterparts of an agreement, duly executed by the applicable
Account Bank and reasonably satisfactory in form and substance to Trustee,
pursuant to which such Account Bank agrees that, if it receives any funds or
items that constitute Collections on or after the effective date of the
termination of the applicable Bank Account or the effective date of its
termination as an Account Bank (as the case may be), such
page 11
<PAGE>
Account Bank or former Account Bank (as applicable) shall cause such funds and
items to be delivered in the form received to another lockbox or transferred to
another Lockbox Account, Concentration Account or the Master Collection Account
promptly after such Account Bank or former Account Bank (as applicable)
discovers that it has received any such funds or items, and (y) notwithstanding
clause (x), Transferor and Servicer may at any time establish alternative
collection procedures that do not require the use of Lockbox Accounts with the
consent of each Agent and any Enhancement Provider and upon satisfaction of the
Rating Agency Condition if any Investor Certificates are then rated.
(d) Servicer shall instruct each Concentration Account Bank (if any), to
transfer on a daily basis in same day funds to the Master Collection Account all
collected funds on deposit in the Concentration Account maintained with such
Concentration Account Bank. All such transfers shall be made in accordance with
the relevant Concentration Account Agreement.
SECTION 3.4 Servicing Compensation. As full compensation for its servicing
activities hereunder and under any Supplement or PI Agreement, and as
reimbursement for any expense incurred by it in connection therewith, Servicer
shall be entitled to receive a monthly servicing fee (the "Servicing Fee") in
respect of each Series and Purchased Interest, payable in arrears on each
Distribution Date in respect of each Distribution Period (or portion thereof)
during which that Series or Purchased Interest is outstanding. The Servicing Fee
in respect of any Series or Purchased Interest shall be payable solely as
provided in the related Supplement or PI Agreement.
Unless otherwise provided in the applicable Supplement or PI Agreement, the
Servicing Fee payable with respect to any Series or Purchased Interest shall be
calculated as follows. At any time when WRO or any of its Affiliates is
Servicer, the Servicing Fee for any Distribution Period shall be equal to one-
twelfth of the product of (a) 0.5%, multiplied by (b) the aggregate Unpaid
Balance of the Receivables as measured on the first Business Day of that
Distribution Period, multiplied by (c) the applicable Series Collection
Allocation Percentage. If WRO ceases to be Servicer, the Servicing Fee for a
Successor Servicer that is not a WRO Person shall be an amount equal to the
greater of (i) the amount calculated pursuant to the preceding sentence and (ii)
an alternative amount specified by such Servicer not exceeding the sum of (x)
110% of the aggregate reasonable costs and expenses incurred by such Servicer
during such Distribution Period in connection with the performance of its
obligations under this Agreement and the other Transaction Documents, and (y)
the other costs and expenses that are to be paid out of the Servicing Fee, as
described in the next sentence; provided that
page 12
<PAGE>
the amount provided for in clause (ii) shall not exceed one-twelfth of 2% of the
aggregate Unpaid Balance of the Receivables as measured on the first Business
Day of the Distribution Period. The fees, costs and expenses of Trustee, the
Paying Agent, any authenticating agent, the Lockbox Banks, the Concentration
Account Banks and the Transfer Agent and Registrar, and certain other costs and
expenses payable from the Servicing Fee pursuant to other provisions of this
Agreement, and all other fees and expenses that are not expressly stated in this
Agreement, any Series Supplement or any PI Agreement to be payable by the Trust
or Transferor, other than Excluded Losses, shall be paid out of the Servicing
Fee and shall be paid by Servicer from the funds that constitute the Servicing
Fee.
SECTION 3.5 Records of Servicer and Reports to be Prepared by Servicer.
(a) Keeping of Records and Books of Account. Servicer shall maintain at
all times accurate and complete books, records and accounts relating to the
Receivables, Related Transferred Assets and Contracts of each Seller and all
Collections thereon in which timely entries shall be made. Servicer shall
maintain and implement administrative and operating procedures (including an
ability to generate duplicates of Records evidencing Receivables and the Related
Transferred Assets in the event of the destruction of the originals thereof),
and shall keep and maintain all documents, books, records and other information
that Servicer deems reasonably necessary for the collection of all Receivables
and Related Transferred Assets.
(b) Receivables Reviews. Servicer shall provide Trustee access to the
documentation regarding the Receivables when Trustee is required, in connection
with the enforcement of the rights of Certificateholders or the Purchasers or by
applicable statutes or regulations, to review such documentation, such access
being afforded without charge but only (i) upon reasonable request, (ii) during
normal business hours, (iii) subject to Servicer's normal security and
confidentiality procedures, (iv) at reasonably accessible offices in the
continental United States of America designated by Servicer and (v) upon five
Business Days' prior notice; provided that no notice shall be required if an
Early Amortization Event shall have occurred and be continuing.
(c) Daily Reports. Prior to 11:00 a.m., New York City time, on each
Business Day, Servicer shall prepare and deliver to Trustee and any Agent a
report relating to each outstanding Series and Purchased Interest, substantially
in the form specified by the applicable Supplement or PI Agreement or in such
other form as is reasonably acceptable to Trustee and Servicer (each such report
being a "Daily Report") setting out, among other things, the Base
page 13
<PAGE>
Amount and Series Collection Allocation Percentage for that Series or Purchased
Interest as of the end of business on the preceding Business Day; provided that
if, on any Business Day, Servicer is unable to prepare and deliver a Daily
Report to Trustee because of acts of God or the public enemy, riots, acts of
war, acts of terrorism, epidemics, fire, failure of communication lines,
equipment or power failure, computer systems failure, flood, embargoes, weather,
earthquakes or other unanticipated disruptions of Servicer's ability to monitor
the origination and/or preparation of Receivables, then (x) the Base Amount for
purposes of each outstanding Series and Purchased Interest shall be the lowest
Base Amount shown in the related Daily Reports delivered during the immediately
preceding month (such amount, an "Estimated Base Amount") and (y) the Series
Collection Allocation Percentage for that Series or Purchased Interest shall be
the one most recently reported. Servicer may use an Estimated Base Amount and
the most recently reported Series Collection Allocation Percentage to prepare
the Daily Report until the earlier to occur of (i) the day upon which disruption
no longer prevents Servicer from preparing the Daily Report using the actual
data required by the Daily Report and delivering it to Trustee, and (ii) the
sixth Business Day following the commencement of such disruption.
(d) Monthly Report. On each Report Date, Servicer shall prepare and
deliver to Trustee and the Rating Agencies a report relating to each outstanding
Series and Purchased Interest, substantially in the form specified by the
applicable Supplement or PI Agreement or in such other form as is reasonably
acceptable to Trustee and Servicer (each such report being a "Monthly Report").
(e) Notice of Seller Change Events; Supplements to Monthly Reports.
Sections 1.4 and 1.5 of the Purchase Agreement describe circumstances under
which (i) additional Sellers may be added to the Program and (ii) a Seller may
terminate its status as Seller under the Program (each such event being a
"Seller Change Event"). Those Sections of the Purchase Agreement require WRO to
give written notice to Transferor of the occurrence of a Seller Change Event not
less than 30 days prior to the occurrence thereof, and Transferor hereby agrees
to give prompt written notice of its receipt of any such notice to Trustee and
the Rating Agencies. If the notice is given to Trustee, within five Business
Days after the receipt of the notice by Trustee (or such later date, as
specified in the notice, on which the applicable Seller Change Event shall
become effective), Servicer shall deliver to Trustee and the Rating Agencies a
supplement to the Monthly Report then in effect for each outstanding Series or
Purchased Interest, which supplement shall show (A) the calculation or
recalculation of the Required Receivables and the "Applicable Reserve Ratio" (as
defined in the applicable Supplement or PI Agreement) to reflect the
page 14
<PAGE>
addition of accounts receivable originated by any Person that is being added to
the Program as a Seller, and the exclusion of any Receivables originated by any
such Person that is terminating its status as a Seller (as applicable), and (B)
the Loss Discount and the Purchase Discount for any such Person that is being
added to the Program as a Seller. For purposes of all calculations hereunder and
under the Purchase Agreement, the Required Receivables and (if applicable) the
Loss Discount and the Purchase Discount for the relevant Person shown in such
supplement shall supersede and/or supplement the calculation of such items in
the then outstanding Monthly Report, effective as of the fifth Business Day
following Trustee's receipt of such notice (or such later date, as specified in
such notice, on which the applicable Seller Change Event shall become
effective).
SECTION 3.6 Monthly Servicer's Certificate. On each Report Date, Servicer
shall deliver to Trustee, the Paying Agent, Transferor and the Rating Agencies a
certificate of an Authorized Officer of Servicer substantially in the form of
Exhibit C, with such additions as may be required by any Supplement.
SECTION 3.7 Servicing Report of Independent Public Accountants; Forms 10-Q
and 10-K. (a)(i) On or before 120 days after the end of each fiscal year of
Transferor (or, in the case of the 1995 fiscal year, 60 days after the end of
such year), Servicer shall, as an expense of Servicer paid out of the Servicing
Fee, cause Price Waterhouse or another firm of recognized independent public
accountants that is generally recognized as being among the "big six" (which may
also render other services to Servicer, the Sellers or Transferor) to furnish a
report to Trustee, Servicer, the Rating Agencies and Transferor (which report
shall be addressed to Trustee and shall relate to Transferor's most recently
ended fiscal year). The accountants' report shall set forth the results of their
performance of the procedures described in Exhibit D with respect to the Monthly
Reports and Daily Reports delivered to Trustee pursuant to Section 3.5 during
the prior fiscal year.
(ii) Each accountants' report shall state that the accountants have
compared the amounts contained in the Monthly Reports and a sample randomly
selected from all Daily Reports delivered to Trustee during the period covered
by the report with the records (including computer records) from which the
amounts were derived and that, on the basis of such comparison, the amounts are
in agreement with the documents and records, except for such exceptions as they
believe to be immaterial and such other exceptions as shall be set forth in the
report. Except as provided otherwise in a Supplement, a copy of the report may
be obtained by any Investor Certificateholder by a request in writing to Trustee
addressed to the Corporate Trust Office.
page 15
<PAGE>
(b) Promptly after the filing of such reports with the Securities and
Exchange Commission, Servicer shall provide each of the Rating Agencies with
copies of each Quarterly Report on Form 10-Q and each Annual Report on Form 10-K
of Servicer.
SECTION 3.8 Rights of Trustee.
(a) Trustee has the exclusive dominion and control over the Bank Accounts,
and Transferor shall take any action that Trustee may reasonably request to
effect or evidence such dominion and control. At any time following the
occurrence of a Servicer Default, Trustee is hereby authorized to give notice to
the Account Banks, as provided in the Account Agreements, of the revocation of
Servicer's authority to give instructions or take any other actions with respect
to the Bank Accounts that Servicer would otherwise be authorized to give or to
take.
(b) At any time following the designation of a Servicer other than WRO
until a Successor Servicer (if other than Trustee) has been appointed:
(i) Trustee may direct any Obligors of Receivables to pay all amounts
payable under any Receivable or any Related Transferred Assets directly to
Trustee or its designee; provided that Trustee shall provide the applicable
Seller with a copy of such notice at least one Business Day prior to
sending it to any Obligor and consult in good faith with the applicable
Seller as to the text of the notice.
(ii) Trustee may direct any Seller to make payment of all amounts
payable to Transferor under any Transaction Document to which the Seller is
a party directly to Trustee or its designee.
(iii) Transferor and Servicer shall, at Trustee's request and as an
expense of Servicer paid out of the Servicing Fee, give notice of the
Trust's ownership of the Receivables and the Related Transferred Assets to
each Obligor and direct that payments be made directly to Trustee or its
designee.
(iv) Transferor shall, and shall instruct (in accordance with the
Purchase Agreement) the Sellers to, at Trustee's request, (A) assemble all
of the Records that are necessary or appropriate to collect the Receivables
and Related Transferred Assets, and shall make the same available to
Trustee at one or more places selected by Trustee or its designee, (B)
segregate all cash, checks and other instruments received by it from time
to time constituting Collections in a manner acceptable
page 16
<PAGE>
to Trustee and shall, promptly upon receipt (and, subject to Section
3.2(i), in no event later than the first Business Day following receipt),
remit all such cash, checks and instruments, duly endorsed or with duly
executed instruments of transfer, to a Bank Account or the Master
Collection Account and (C) permit, upon not less than two Business Days'
prior written notice, any Successor Servicer and its agents, employees and
assignees access to their respective facilities and their respective
Records.
(c) Each of Transferor and Servicer hereby authorizes Trustee, from time
to time after the designation of a Servicer other than WRO, to take any and all
steps in Transferor's name and on behalf of Transferor and Servicer that are
necessary or appropriate, in the reasonable determination of Trustee, to collect
all amounts due under any and all Receivables or Related Transferred Assets,
including endorsing the name of Transferor or the applicable Seller on checks
and other instruments representing Collections and enforcing such Receivables
and the Related Transferred Assets.
(d) Transferor hereby irrevocably appoints Trustee to act as Transferor's
attorney-in-fact, with full authority in the place and stead of Transferor and
in the name of Transferor or otherwise, from time to time after the designation
of a Servicer other than WRO, to take (subject to Section 11.14 hereof) any
action and to execute any instrument or document that Trustee, in its reasonable
determination, may deem necessary to accomplish the purposes of this Agreement,
including:
(i) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any Receivable or any Related Transferred Asset;
(ii) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (i);
(iii) to file any claims or take any action or institute any proceedings
that Trustee in its reasonable determination may deem necessary or
appropriate for the collection of any of the Receivables or any Related
Transferred Asset or otherwise to enforce the rights of Trustee and the
Certificateholders with respect to any of the Receivables or any Related
Transferred Asset; and
(iv) to perform the affirmative obligations of Transferor under any
Transaction Document.
page 17
<PAGE>
Transferor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 3.9 Ongoing Responsibilities of WRO. Anything herein to the
contrary notwithstanding:
(a) If at any time WRO shall not be Servicer, it shall deliver all
Collections received or deemed received by it or its Subsidiaries to
Trustee no later than two Business Days after receipt or deemed receipt
thereof and Trustee shall distribute such Collections to the same extent as
if such Collections had actually been received from the related Obligor on
the applicable dates. So long as WRO or any of its Subsidiaries shall hold
any Collections or deemed Collections required to be paid to Trustee, each
of them shall hold such amounts in trust (and separate and apart from its
own funds) and shall clearly mark its records to reflect such trust. WRO
hereby grants to Trustee an irrevocable power of attorney, with full power
of substitution, coupled with an interest, upon the occurrence of a
Servicer Default, to take in the name of WRO all steps necessary or
appropriate to endorse, negotiate or otherwise realize on any writing or
other right of any kind held or transmitted by WRO or transmitted and
received by Trustee (whether or not from WRO) in connection with any
Receivable or Related Transferred Asset.
(b) In addition, if at any time WRO shall not be Servicer, it shall act
(if the Successor Servicer so requests) as the data processing agent of
Servicer and, in such capacity, WRO shall conduct (and shall cause any
other necessary Persons to conduct) the data processing functions of the
administration of the Receivables, the Related Transferred Assets and the
Collections thereon in substantially the same way that WRO (or its Sub-
Servicers) conducted such data processing functions while WRO acted as
Servicer. WRO and each such other Person shall be entitled to reasonable
compensation for such service to be paid from the Servicing Fee.
(c) Notwithstanding any termination of WRO as Servicer hereunder, WRO
shall continue to indemnify Trustee on the terms set out in Section 11.5
with respect to circumstances existing, or actions taken or omitted, prior
to such termination.
SECTION 3.10 Further Action Evidencing Transfers. Servicer shall cause all
financing statements and continuation statements and any other
page 18
<PAGE>
necessary documents relating to the right, title and interest of Trustee in and
to the Transferred Assets to be promptly recorded, registered and filed, and at
all times to be kept recorded, registered and filed, all in such manner and in
such places as may be required by law fully to preserve, maintain and protect
the right, title and interest of Trustee hereunder in and to all property
comprising the Transferred Assets. Servicer shall deliver to Trustee file-
stamped copies of, or filing receipts for, any document recorded, registered or
filed as provided above, as soon as available following such recording,
registration or filing. Transferor shall cooperate fully with Servicer in
connection with the obligations set forth above and will execute any and all
documents that are reasonably required to fulfill the intent of this section.
If Transferor or Servicer fails to perform any of its agreements or
obligations under any Transaction Document and does not remedy such failure
within the applicable cure period, if any, then Trustee or its designee may (but
shall not be required to) itself perform, or cause performance of, such
agreement or obligation, and the reasonable expenses of Trustee or its designee
incurred in connection therewith shall be payable by Servicer as provided in
Section 11.5 and (if applicable) by Transferor as provided in Section 7.3.
ARTICLE IV RIGHTS OF CERTIFICATEHOLDERS; ALLOCATIONS
SECTION 4.1 Rights of Certificateholders. Each Series of Investor
Certificates shall collectively represent a fractional undivided beneficial
interest (as to any Series, the "Series Interest") in the Trust, and the amount
of that undivided beneficial interest shall equal the Series Collection
Allocation Percentage for that Series from time to time. Each Certificate within
a Series shall represent a partial ownership interest in the related Series
Interest, representing the right to receive, to the extent necessary to make the
required payments with respect to that Certificate at the times and in the
amounts specified in this Article IV and in the related Supplement, the portion
of Collections allocable to Investor Certificateholders of such Series pursuant
to this Agreement and such Supplement, funds on deposit in the Transaction
Accounts allocable to Investor Certificateholders of such Series and funds
available pursuant to any related Enhancement. Unless the applicable Supplement
or PI Agreement provides otherwise, the Investor Certificates of any Series or
class shall not represent any interest in any funds allocable to, or Enhancement
for the benefit of, any other Series or Purchased Interest. The Transferor
Certificate shall represent an interest in the Trust (the "Transferor Interest")
consisting of the right to receive current and deferred transfer payments in
respect of the various Series and Purchased Interests outstanding from time to
time at the times and in the amounts specified in the related Supplements and PI
Agreements.
page 19
<PAGE>
SECTION 4.2 Establishment of Transaction Accounts. (a) On or prior to the
date of this Agreement, Trustee has established, and until the Trust is
terminated Trustee shall (except as expressly permitted or required below)
maintain, in the name of Trustee and for the benefit of the Certificateholders
and Purchasers, the following accounts:
(i) account no. 185-585767, which shall be called the "Master Collection
Account" and into which all Collections and all other Transferred Assets
consisting of cash or cash equivalents shall be transferred on a daily
basis from the Bank Accounts;
(ii) account no. 185-585858, which shall be called the "Carrying Cost
Account" and into which funds allocated to a particular Series or Purchased
Interest shall be allocated from time to time to cover carrying costs
allocable to that Series or Purchased Interest (including interest payable
on, and the Servicing Fee allocated to, that Series or Purchased Interest);
(iii) account no. 185-585940, which shall be called the "Equalization
Account" and into which funds will from time to time be transferred from
the Master Collection Account to compensate for fluctuations in the Base
Amounts for the various outstanding Series and Purchased Interests; and
(iv) account no. 185-586039, which shall be called the "Principal
Funding Account" and into which funds will from time to time be transferred
in anticipation of distributions to the Holders of Investor Certificates or
Purchasers on account of their respective principal investments.
(b) In addition, if an Early Amortization Period occurs with respect to
any Series or Purchased Interest, Trustee shall establish an additional account
which shall be called the "Holdback Account" and into which funds that would
otherwise be remitted by Trustee to the Transferor in respect of the Transferor
Certificate will be deposited to the extent so provided in the related
Supplement or PI Agreement.
(c) The Master Collection Account, the Carrying Cost Account, the
Equalization Account, the Principal Funding Account, any Holdback Account and
any additional accounts required by any Supplement or PI Agreement to be
established (unless otherwise indicated in such Supplement or PI Agreement) are
collectively called the "Transaction Accounts." Each of the Transaction Accounts
shall be established and maintained as an Eligible
page 20
<PAGE>
Deposit Account and shall bear a designation clearly indicating that funds
deposited therein are held for the benefit of the Certificateholders and the
Purchasers. If any Transaction Account ceases to be an Eligible Deposit Account,
Servicer shall cause Trustee to open a substitute Transaction Account that is an
Eligible Deposit Account and transfer the funds in the existing Transaction
Account to the substitute Transaction Account, and thereafter all references in
any Transaction Document to the original Transaction Account shall be deemed
instead to refer to the substitute Transaction Account.
(d) The Master Collection Account, the Carrying Cost Account, the
Equalization Account, the Principal Funding Account and any Holdback Account
shall be held by Trustee for the benefit of all Certificateholders and
Purchasers. However, there shall be established within each of the Carrying Cost
Account, the Equalization Account, the Principal Funding Account and any
Holdback Account an administrative sub-account for each outstanding Series and
Purchased Interest. Funds allocated to the Carrying Cost Account, the
Equalization Account, the Principal Funding Account and any Holdback Account
pursuant to any Supplement or PI Agreement shall be allocated to the applicable
Series' or Purchased Interest's sub-account and shall be available solely to the
holders of the Certificates in that Series or the Purchaser of that Purchased
Interest, as applicable, except to the extent that such funds are subsequently
reallocated to another Series or Purchased Interest, or the Transferor, in
accordance with the terms of the applicable Supplement or Purchase Agreement and
this Agreement. Any additional Transaction Accounts established pursuant to any
Supplement or PI Agreement shall be held by Trustee for the benefit of only the
related Series or Purchased Interest.
(e) Trustee shall possess (for its benefit and for the benefit of the
Certificateholders and the Purchasers) all right, title and interest in and to
all funds on deposit from time to time in each of the Transaction Accounts and
in all proceeds thereof. The Transaction Accounts shall be under the sole
dominion and control of Trustee for the benefit of the applicable
Certificateholders and/or Purchasers. Each of Servicer and Trustee agrees that
it shall have no right of setoff against, and no right otherwise to deduct from,
any funds held in any of the Transaction Accounts or the Bank Accounts for any
amount owed to it by the Trust, any party hereto or any Certificateholder or
Purchaser.
SECTION 4.3 Trust-Level Calculations and Funds Allocations.
(a) Allocation of Daily Collections. On each Business Day, Servicer shall
determine the amount of collected funds received in the Master Collection
Account (other than (i) funds transferred to the Master Collection Account
page 21
<PAGE>
pursuant to any Supplement or PI Agreement and (ii) funds that are required to
be returned to WRO Persons (or their designees) pursuant to Sections 3.2(b) and
3.3(b)) since the preceding Business Day and shall allocate to each outstanding
Series and Purchased Interest a share of such funds in an amount equal to the
product of the applicable Series Collection Allocation Percentage and the amount
of such funds. The portion of such funds allocated to any Series or Purchased
Interest shall be further allocated and otherwise dealt with in accordance with
the terms of the related Supplement or PI Agreement. In addition, funds
initially allocated to a Series or Purchased Interest on any Business Day that
are designated as Shared Investor Collections shall be reallocated to other
Series or Purchased Interests pro rata based upon the respective Shortfalls (if
any) of the other Series and Purchased Interests.
(b) Allocation of Charge-Offs and Dilution. In each Monthly Report
relating to a Series or Purchased Interest that is in an Early Amortization
Period, Servicer shall calculate the amount of (i) Write-Offs (net of
Recoveries) and (ii) Dilutions as to which no settlement payment has been made
pursuant to Section 3.3 of the Purchase Agreement, in each case during the
related Calculation Period (or the portion of that Calculation Period falling in
the Early Amortization Period) and shall allocate to such Series or Purchased
Interest a portion of the amounts referred to in clauses (i) and (ii) equal to
the product of each such amount and the related Series Loss Allocation
Percentage.
SECTION 4.4 Investment of Funds in Transaction Accounts. On any day when
funds on deposit in any Transaction Account exceed $10,000 (after giving effect
to the allocations of such funds required by this Article IV and the various
Supplements and PI Agreements), and at such other times as investment is
practicable, Trustee, at the direction of Servicer, shall invest and reinvest
monies on deposit in such Transaction Account (in the name of Trustee) in such
Eligible Investments as are specified in a notice from Servicer, subject to the
restrictions set forth hereinafter. All Eligible Investments made from funds in
any Transaction Account, and the interest, dividends and income received thereon
and therefrom and the net proceeds realized on the sale thereof, shall be
deposited in such Transaction Account. Trustee may liquidate an Eligible
Investment prior to maturity if such liquidation would not result in a loss of
all or part of the principal portion of such Eligible Investment or if, prior to
the maturity of such Eligible Investment, a default occurs in the payment of
principal, interest or any other amount with respect to such Eligible
Investment. In the absence of negligence of Trustee or willful misconduct by
Trustee, Trustee shall have no liability in connection with investment losses
incurred on Eligible Investments. It is
page 22
<PAGE>
intended for income tax purposes that the income earned through investment of
funds in the Transaction Accounts shall be treated as income of Transferor.
SECTION 4.5 Attachment of Transaction Accounts. If Trustee receives
written notice that any Transaction Account has or will become subject to any
writ, judgment, warrant of attachment, execution or similar process, Trustee
shall (notwithstanding any other provision of the Transaction Documents)
promptly notify Transferor, Servicer and the Certificateholders thereof, and
shall not deposit or transfer funds into such Transaction Account but shall
cause funds otherwise required to be deposited into such Transaction Account to
be held in another account pending distribution of such funds in the manner
required by the Transaction Documents.
ARTICLE V DISTRIBUTIONS AND REPORTS
DISTRIBUTIONS SHALL BE MADE, AND REPORTS SHALL BE PROVIDED, TO
CERTIFICATEHOLDERS AS SET FORTH IN THE APPLICABLE SUPPLEMENT.
ARTICLE VI THE CERTIFICATES
SECTION 6.1 The Certificates. The Investor Certificates in each Series
shall be substantially in the forms contemplated by the Supplements
pursuant to which the Investor Certificates are issued, and the Transferor
Certificate shall be substantially in the form of Exhibit E. Upon issuance,
all Certificates shall be executed and delivered by Transferor to Trustee
for authentication and redelivery as provided in Sections 6.2 and 6.10.
Except to the extent provided otherwise in an applicable Supplement,
Investor Certificates shall be issued in minimum denominations of
$1,000,000 and in integral multiples of $100,000 and shall not be
subdivided for resale into Certificates smaller than a Certificate, the
initial offering price for which would have been at least $1,000,000.
Notwithstanding any other provision of this Agreement, no transfer,
assignment or other conveyance of a Certificate shall be made unless the
aggregate outstanding principal amounts of Certificates transferred
pursuant to such transfer is equal to at least 2.1% of the aggregate
principal amounts of all outstanding Certificates. Any attempted transfer,
assignment or conveyance in contravention of the preceding restriction
shall be void ab initio and the purported transferor of such Certificates
shall continue to be treated as the Certificate Owner of any such
Certificate for all purposes of this Agreement.
page 23
<PAGE>
Each Certificate issued as a Definitive Certificate shall be executed by
manual or facsimile signature on behalf of Transferor by its President or any
Vice President or by any attorney-in-fact duly authorized to execute the
Definitive Certificate on behalf of any such officer. The Definitive
Certificates shall be authenticated on behalf of the Trust by manual signature
of a duly authorized signatory of Trustee. Definitive Certificates bearing the
manual or facsimile signature of the individual who was, at the time when the
signature was affixed, authorized to sign on behalf of Transferor or the Trust
(as applicable) shall be valid and binding, notwithstanding that the individuals
or any of them ceased to be so authorized prior to the authentication and
delivery of the Definitive Certificates or does not hold such office on the date
of issuance of such Definitive Certificates. No Definitive Certificates shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
unless there appears on the Definitive Certificate a certificate of
authentication substantially in the form provided for herein executed by or on
behalf of Trustee by the manual signature of a duly authorized signatory, and
the certificate of authentication upon any Definitive Certificate shall be
conclusive evidence, and the only evidence, that the Definitive Certificate has
been duly authenticated and delivered hereunder and is entitled to the benefits
of this Agreement. Except as otherwise provided in the applicable Supplement,
all Definitive Certificates shall be dated the date of their authentication.
As provided in any Supplement, Investor Certificates of any Series may be
issued and sold pursuant to an exemption from the Securities Act. Any Series
sold pursuant to Rule 144A, Regulation S or another exemption under the
Securities Act may be delivered in book-entry form as provided in Sections 6.12
and 6.13.
SECTION 6.2 Authentication of Certificates. Contemporaneously with the
assignment and transfer of the Receivables and the other Transferred Assets to
the Trust, Trustee shall authenticate and deliver the Transferor Certificate to
Transferor. On each Issuance Date, upon the order of Transferor, Trustee shall
authenticate and deliver to Transferor the Series of Certificates that are to be
issued originally on such Issuance Date pursuant to the applicable Supplement.
SECTION 6.3 Registration of Transfer and Exchange of Certificates. (a)
Trustee, as agent for Transferor, shall keep, or shall cause to be kept, at the
office or agency to be maintained in accordance with the provisions of Section
11.16, a register in written form or capable of being converted into written
form within a reasonable time (the "Certificate Register") in which, subject to
such reasonable regulations as it may prescribe, a transfer agent and registrar
(which may be Trustee) (the "Transfer Agent and Registrar") shall
page 24
<PAGE>
provide for the registration of the Certificates and of transfers and exchanges
of the Certificates as herein provided. Transferor hereby appoints Trustee as
the initial Transfer Agent and Registrar.
Transferor, or Trustee as agent for Transferor, may revoke the
appointment as Transfer Agent and Registrar and remove the then-acting Transfer
Agent and Registrar if Trustee or Transferor (as applicable) determines in its
sole discretion that the then-acting Transfer Agent and Registrar has failed to
perform its obligations under this Agreement in any material respect. The then-
acting Transfer Agent and Registrar shall be permitted to resign as Transfer
Agent and Registrar upon 30 days' prior written notice to Trustee, Transferor
and Servicer; provided that such resignation shall not be effective and the then
- -acting Transfer Agent and Registrar shall continue to perform its duties as
Transfer Agent and Registrar until Trustee has appointed a successor Transfer
Agent and Registrar reasonably acceptable to Transferor and the Person so
appointed has given Trustee written notice that it accepts the appointment. The
provisions of Sections 11.1 through 11.5 shall apply to the Transfer Agent and
Registrar as if all references to "Trustee" in the applicable provisions of
Sections 11.1 through 11.5 were references to the Transfer Agent and Registrar.
It is intended that the registration of Certificates that is described in
this Section comply with the registration requirements contained in Section
163 of the Internal Revenue Code.
(b) No transfer of all or any part of the Transferor Certificate shall be
made unless (i) Transferor shall have given the Rating Agencies and Trustee
prior written notice of the proposed transfer, (ii) the Rating Agency Condition
shall have been satisfied in connection with the proposed transfer and (iii)
Transferor shall have delivered to Trustee a Tax Opinion with respect to such
transfer.
(c) Subject to the requirements of subsection (e), if applicable, having
been fulfilled, upon surrender for registration of transfer of any Certificate,
and, in the case of Investor Certificates, at any office or agency of the
Transfer Agent and Registrar maintained for such purpose, Transferor shall
execute, and Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the
appropriate class and Series that are in authorized denominations of like
aggregate fractional interest in the related Series Interest that bear numbers
that are not contemporaneously outstanding.
page 25
<PAGE>
At the option of an Investor Certificateholder, its Investor Certificates
may be exchanged for other Investor Certificates of the same class and Series
(and bearing the same interest rate as the Investor Certificate surrendered for
registration of exchange) of authorized denominations of like aggregate
fractional interests in the related Series Interest and bearing numbers that are
not contemporaneously outstanding, upon surrender of the Investor Certificates
to be exchanged at any such office or agency. Whenever any Investor Certificates
are so surrendered for exchange, Transferor shall execute, and Trustee shall
authenticate and deliver, the appropriate number of Investor Certificates of the
class and Series that the Investor Certificateholder making the exchange is
entitled to receive. Every Investor Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in a form satisfactory to Trustee or the Transfer Agent
and Registrar duly executed by the Certificateholder thereof or his attorney-in-
fact duly authorized in a writing delivered to the Transfer Agent and Registrar.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Transfer Agent and Registrar may require the
Certificateholder to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Investor Certificates.
All Certificates surrendered for registration of transfer and exchange
shall be cancelled and disposed of in a manner satisfactory to Trustee.
(d) Certificates may be surrendered for registration of transfer or
exchange at the office of the Transfer Agent and Registrar designated in Section
13.6.
(e) Unless otherwise provided in the applicable Supplement,
Certificateholders holding Definitive Certificates shall not sell, transfer or
otherwise dispose of the Certificates unless the sale, transfer or disposition
is being made pursuant to an exemption from the registration requirements of the
Securities Act and applicable state securities laws and, prior to the proposed
sale, transfer or disposition, the Certificateholder and the proposed transferee
each provide Trustee and Transferor with representations and, if requested by
Trustee or Transferor, an Opinion of Counsel concerning the proposed sale,
transfer or disposition and the availability of the exemption.
(f) The Investor Certificates shall bear such restrictive legends as
shall be set forth in the applicable Supplements.
page 26
<PAGE>
SECTION 6.4 Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any
mutilated Certificate is surrendered to the Transfer Agent and Registrar, or the
Transfer Agent and Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there is delivered to the
Transfer Agent and Registrar and Trustee such security or indemnity as may be
required by them and Transferor to hold each of them, the Trust and Transferor
harmless, then, in the absence of notice to Trustee that such Certificate has
been acquired by a bona fide purchaser, Transferor shall execute and, upon the
request of Transferor, Trustee shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like class, Series, tenor, terms and principal amount and bearing
a number that is not contemporaneously outstanding. In connection with the
issuance of any new Certificate under this section, Trustee or the Transfer
Agent and Registrar may require the payment by the Certificateholder of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the reasonable fees and
expenses of Trustee and Transfer Agent and Registrar) connected therewith. Any
duplicate Certificate issued pursuant to this section shall constitute
conclusive and indefeasible evidence of ownership of an interest in the Trust,
as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be enforceable by anyone, and shall be entitled to all the
benefits of this Agreement equally and proportionately with any and all
Certificates of the same class and Series that are duly issued hereunder.
SECTION 6.5 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, Transferor, Trustee, the Paying Agent,
the Transfer Agent and Registrar and any agent of any of them may treat the
Person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Article V and
for all other purposes whatsoever, and none of Transferor, Trustee, the Paying
Agent, the Transfer Agent and Registrar or any agent of any of them shall be
affected by any notice to the contrary; provided that, in determining whether
the Holders of the requisite principal amount or Stated Amount (as applicable)
of Certificates or Purchased Interests have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Certificates and
Purchased Interests owned by Transferor, Servicer or any Affiliate thereof shall
be disregarded and deemed not to be outstanding, except that, in determining
whether Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Certificates and
Purchased Interests that Trustee knows to be so owned shall be so disregarded.
Certificates and Purchased Interests so owned that have been pledged in good
faith shall not be disregarded and may be regarded as
page 27
<PAGE>
outstanding if the pledgee establishes to the satisfaction of Trustee the
pledgee's right so to act with respect to such Certificates or Purchased
Interests and that the pledgee is not Transferor, Servicer or an Affiliate
thereof.
SECTION 6.6 Appointment of Paying Agent. The Paying Agent initially shall
be Trustee. Transferor hereby appoints the Paying Agent as its agent to make
distributions to Certificateholders pursuant to the applicable Supplements and
to report the amounts of the distributions to Trustee. Any Paying Agent shall
have the revocable power to withdraw funds from the Master Collection Account
for the purpose of making the distributions. Trustee or, at any time when
Trustee is also the Paying Agent, Transferor may revoke such power of the Paying
Agent and remove the Paying Agent if Trustee or Transferor (as applicable)
determines in its sole discretion that the Paying Agent shall have failed to
perform its obligations under this Agreement in any material respect. The Paying
Agent shall be permitted to resign as Paying Agent upon 30 days' prior written
notice to Trustee, Transferor, Servicer and the Rating Agencies. Any resignation
or removal of the Paying Agent, and appointment of a successor Paying Agent,
shall not become effective until the appointment has been accepted by the
successor Paying Agent. If no successor Paying Agent shall have been appointed
and shall have accepted appointment within 30 days after the giving of the
notice of resignation, the resigning Paying Agent may petition any court of
competent jurisdiction to appoint a successor Paying Agent. In the event that
Trustee shall no longer be the Paying Agent, Trustee shall appoint a successor
Paying Agent (which shall be a bank or trust company) reasonably acceptable to
Transferor, which appointment shall be effective on the date on which the Person
so appointed gives Trustee written notice that it accepts the appointment.
Trustee shall cause the successor Paying Agent or any additional Paying Agent
appointed by Trustee to execute and deliver to Trustee an instrument in which it
shall agree with Trustee that, as Paying Agent, it will hold all sums, if any,
held for payment to the Certificateholders and Purchasers in trust for the
benefit of the Certificateholders and Purchasers entitled thereto until the sums
shall be paid to the Certificateholders and Purchasers. The Paying Agent shall
return all unclaimed funds to Trustee, and upon removal of a Paying Agent such
Paying Agent shall also return all funds in its possession to Trustee. The
provisions of Sections 11.1 through 11.5 shall apply to the Paying Agent as if
all references in the applicable provisions thereof to "Trustee" were references
to the Paying Agent.
SECTION 6.7 Access to List of Certificateholders' Names and Addresses.
Trustee will furnish or cause to be furnished by the Transfer Agent and
Registrar to Transferor, Servicer, any Seller or the Paying Agent, within
page 28
<PAGE>
two Business Days after receipt by Trustee of a written request therefor from
Servicer or the Paying Agent, a list in the form Servicer or the Paying Agent
may reasonably require of the names and addresses of the Certificateholders as
of the most recent Distribution Date. If any Holder or group of Holders of
Investor Certificates in any Series evidencing not less than 10% of the
aggregate unpaid principal amount of the Series (the "Applicant") applies in
writing to Trustee, and the application states that the Applicant desires to
communicate with other Certificateholders with respect to their rights under
this Agreement, any Supplement or the Certificates and is accompanied by a copy
of the communication that the Applicant proposes to transmit, then Trustee,
after having been adequately indemnified by the Applicant for its costs and
expenses, shall afford or shall cause the Transfer Agent and Registrar to afford
the Applicant access during normal business hours to the most recent list of
Certificateholders held by Trustee, within five Business Days after the receipt
of the application and indemnification. The list shall be as of a date no more
than 45 days prior to the date of receipt of the Applicant's request.
Every Certificateholder, by receiving and holding a Certificate, agrees
with Trustee that neither Trustee, the Transfer Agent and Registrar, Transferor,
Servicer, any Seller nor any of their respective agents shall be held
accountable by reason of the disclosure of any information as to the names and
addresses of the Certificateholders hereunder, regardless of the sources from
which the information was derived.
SECTION 6.8 Authenticating Agent. (a) Trustee may appoint one or more
authenticating agents with respect to the Certificates that shall be authorized
to act on behalf of Trustee in authenticating the Certificates in connection
with the issuance, delivery, registration of transfer, exchange or repayment of
the Certificates. Either Trustee or the authenticating agent, if any, then
appointed and acting on behalf of Trustee shall authenticate the Certificates.
Whenever reference is made in this Agreement to the authentication of
Certificates by Trustee or Trustee's certificate of authentication, such
reference shall be deemed to include authentication on behalf of Trustee by an
authenticating agent and a certificate of authentication executed on behalf of
Trustee by an authenticating agent. Each authenticating agent must be acceptable
to Transferor.
(b) Any institution succeeding to the corporate agency business of an
authenticating agent shall continue to be an authenticating agent without the
execution or filing of any document or any further act on the part of Trustee,
the authenticating agent or any other Person.
page 29
<PAGE>
(c) An authenticating agent may at any time resign by giving written
notice of resignation to Trustee and Transferor. Trustee may at any time
terminate the agency of an authenticating agent by giving notice of termination
to the authenticating agent and Transferor. Upon receiving a notice of
resignation or upon a termination, or in case at any time an authenticating
agent shall cease to be acceptable to Trustee or Transferor, Trustee may
promptly appoint a successor authenticating agent. Any successor authenticating
agent, upon acceptance of its appointment, shall become vested with all the
rights, powers and duties of its predecessor, with like effect as if originally
named as an authenticating agent. No successor authenticating agent shall be
appointed unless acceptable to Trustee and Transferor.
(d) Servicer agrees to pay to each authenticating agent (if any), as an
expense of Servicer paid out of the Servicing Fee, reasonable compensation from
time to time for services performed under this section.
(e) The provisions of Sections 11.1, 11.2 and 11.3 shall be applicable to
any authenticating agent as if the references in the applicable provisions
thereof to "Trustee" were references to the authenticating agent.
(f) Pursuant to an appointment made under this section, the Certificates
may have endorsed thereon, in lieu of Trustee's certificate of authentication,
an alternate certificate of authentication in substantially the following form:
"This is one of the Certificates described in the Supplement
dated as of __________ ___, 199_.
MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee
By:_________________________
as Authenticating Agent
for Trustee,
By:_________________________
Authorized Officer."
page 30
<PAGE>
SECTION 6.9 Tax Treatment. It is the intent of Transferor and the
Investor Certificateholders that, for purposes of Federal, state, foreign and
local income and franchise taxes and other taxes measured by or imposed on
income, the Investor Certificates will be treated as evidence of indebtedness
(or, if so provided in the applicable Supplement, an interest in a partnership)
secured by the Transferred Assets and the Trust will not be characterized as an
association taxable as a corporation. Transferor, by entering into this
Agreement, and each Investor Certificateholder, by its acceptance of its
Investor Certificate, agree to treat the Investor Certificates as indebtedness
(or, if so provided in the applicable Supplement, an interest in a partnership)
for purposes of Federal, state, foreign and local income and franchise taxes and
any other taxes measured by or imposed on income. The provisions of this
Agreement and all related Transaction Documents shall be construed to further
these intentions of the parties. In accordance with the foregoing, Transferor
agrees that it will report its income for purposes of Federal, state and local
income or franchise taxes, and any other taxes measured by or imposed on income,
on the basis that it is the owner of the Receivables. Except as may be required,
Trustee hereby agrees to treat the Trust as a security device only, and shall
not file tax returns or obtain an employer identification number on behalf of
the Trust.
SECTION 6.10 Issuance of Additional Series of Certificates and Sales of
Purchased Interests. (a) Transferor may from time to time issue and direct
Trustee to authenticate one or more classes of any newly issued Series of
Investor Certificates (a "New Issuance"). In addition, to the extent permitted
for any Series of Investor Certificates as specified in the related Supplement,
the Investor Certificateholders of the Series may tender their Investor
Certificates to Trustee, and Transferor may allocate a portion of the Transferor
Amount pursuant to the terms and conditions set forth in the Supplement, in
exchange for one or more newly issued Series of Investor Certificates (an
"Investor Exchange"). New Issuances and Investor Exchanges collectively are
referred to as "Issuances".
(b) Transferor may direct Trustee to authenticate an Issuance by notifying
Trustee, in writing, at least five Business Days (or such shorter period as
shall be acceptable to Trustee) in advance (an "Issuance Notice") of the date
upon which the Issuance is to occur (an "Issuance Date"). Any Issuance Notice
shall state the designation of any Series to be issued on the Issuance Date and,
with respect to each class or Series: (i) its initial invested amount (or the
method for calculating the initial invested amount), (ii) its interest rate (or
the method for allocating interest payments or other cash flows to the Series),
if any, and (iii) the Enhancement Provider, if any, with respect to the Series.
page 31
<PAGE>
(c) On the Issuance Date, Transferor shall deliver to Trustee for
authentication under Section 6.2, and Trustee shall authenticate and deliver any
such class or classes of Series of Investor Certificates only upon delivery to
it of the following:
(i) a Supplement satisfying the criteria set forth in subsection (d) and
in form reasonably satisfactory to Trustee executed by Transferor and
Servicer and specifying the principal terms of the Series;
(ii) the applicable Enhancement, if any;
(iii) the agreement, if any, pursuant to which the Enhancement Provider
agrees to provide the Enhancement, if any;
(iv) a Tax Opinion with respect to such Issuance;
(v) evidence that the Rating Agency Condition has been satisfied with
respect to such Issuance;
(vi) an Officer's Certificate of Servicer that on the Issuance Date,
after giving effect to the Issuance (and the repayment, on the date of the
Issuance Date, of any existing Investor Certificates with funds (including
proceeds of sale of the new Series) on deposit in the Principal Funding
Account), any requirements set out in the Supplement with respect to any
then-outstanding Series with respect to the amount of Certificates that may
not, by their terms, be transferred has been satisfied;
(vii) an Officer's Certificate of Servicer stating that no Early
Amortization Event or Unmatured Early Amortization Event has occurred and
is continuing and that the Issuance is not reasonably expected to result in
an Early Amortization Event at any time in the future;
(viii) in the case of an Investor Exchange, any Investor Certificates
that are being exchanged in connection therewith;
(ix) any other documents, certificates and Opinions of Counsel as may be
required by the applicable Supplement; and
(x) an Officer's Certificate of Servicer to the effect that all
conditions specified in clauses (i) through (ix) have been satisfied.
page 32
<PAGE>
Upon satisfaction of the conditions, Trustee shall cancel any applicable
Investor Certificates and issue, as provided above, the new Series of Investor
Certificates dated the Issuance Date. Any such Series of Investor Certificates
shall be substantially in the form specified in the related Supplement and shall
bear, upon its face, the designation for the Series to which it belongs, as
selected by Transferor. There is no limit to the number of Issuances that may be
performed under this Agreement.
(d) In conjunction with an Issuance, the parties hereto shall execute a
Supplement, which shall specify the relevant terms with respect to any newly
issued Series of Investor Certificates, which may include: (i) its name or
designation, (ii) the initial invested amount or the method of calculating the
initial invested amount, (iii) the applicable interest rate (or formula for the
determination thereof), (iv) the Issuance Date, (v) the rating agency or
agencies rating the Series, (vi) the name of the Clearing Agency, if any, (vii)
the interest payment date or dates and the date or dates from which interest
shall accrue, (viii) the method of allocating Collections with respect to
Receivables for the Series and, if applicable, with respect to any paired Series
and the method by which the principal amount of Investor Certificates of the
Series shall amortize or accrete and the method for allocating write-offs, (ix)
the names of any accounts to be used by the Series and the terms governing the
operation of any such account, (x) the terms of any Enhancement with respect to
the Series, (xi) the Enhancement Provider, if applicable, (xii) the base rate
applicable to the Series, (xiii) the terms on which the Certificates of the
Series may be repurchased or remarketed to other investors, (xiv) any deposit
into any account provided for the Series, (xv) the number of classes of the
Series, and if more than one class, the rights and priorities of each class,
(xvi) whether any fees, breakage payments or early termination payments will be
included in the funds available to be paid for the Series, (xvii) the
subordination of the Series to any other Series, (xviii) whether the Series will
be a part of a group or subject to being paired with any other Series, (xix)
whether the Series will be prefunded and (xx) any other relevant terms of the
Series. The terms of the Supplement may modify or amend the terms of this
Agreement solely as applied to the new Series.
(e) Except as specified in any Supplement for the related Series, all
Investor Certificates of any Series shall rank pari passu and be equally and
ratably entitled as provided herein to the benefits hereof (except that the
Enhancement provided for any Series shall not be available for any other Series)
without preference, priority or distinction on account of the actual time or
times of authentication and delivery, all in accordance with the terms and
provisions of this Agreement and the related Supplement.
page 33
<PAGE>
(f) Transferor may from time to time direct Trustee, on behalf of the
Trust, to sell one or more Purchased Interests pursuant to, and direct Trustee
to enter into, a PI Agreement. No Purchased Interest shall represent any
interest in any Enhancement for the benefit of any Series, any class of Investor
Certificates or any other Purchased Interest, any Transaction Account
established pursuant to any Supplement or the PI Agreement relating to any other
Purchased Interest except to the extent set forth in the PI Agreement with
respect to such other Purchased Interest. Each PI Agreement may provide that no
Investor Certificateholder, Purchaser under any other PI Agreement or
Enhancement Provider shall be a third-party beneficiary thereof or have any
benefit or any legal or equitable right, remedy or claim under the PI Agreement.
(g) On or before the date of the initial sale of a Purchased Interest
pursuant to a particular PI Agreement, the parties hereto and the related
Purchaser will execute and deliver a PI Agreement that will specify the terms of
the Purchased Interest. The terms of the PI Agreement may modify or amend the
terms of this Agreement solely as applied to the Purchased Interest. The
obligation of Trustee to execute and deliver the related PI Agreement is subject
to the satisfaction of the following conditions:
(i) on or before the tenth Business Day (or a shorter period as shall be
acceptable to the parties) immediately preceding the related Issuance Date,
Servicer shall have given Trustee, Transferor, each Rating Agency (if any
rated Investor Certificates are outstanding), each Purchaser and each
Enhancement Provider (if any) written notice of the sale of the Purchased
Interest and the Issuance Date;
(ii) Transferor shall have delivered to Trustee the related PI
Agreement, in form reasonably satisfactory to Trustee, each executed by
each party thereto other than Trustee;
(iii) the Rating Agency Condition shall have been satisfied with respect
to the sale (if any rated Investor Certificates are outstanding);
(iv) the sale will not (A) contravene any provision of this Agreement,
any Supplement, any agreement pursuant to which any Enhancement is provided
or any PI Agreement (or any agreement related thereto) or (B) constitute,
or result in (or reasonably be expected to result, at any time in the
future, in) the occurrence of, an Early Amortization Event or an Unmatured
Early Amortization Event;
page 34
<PAGE>
(v) counsel to Transferor shall have delivered to Trustee, each
Rating Agency (if any rated Investor Certificates are outstanding), each
Purchaser and any Enhancement Provider, a Tax Opinion, dated the Issuance
Date, with respect to the sale; and
(vi) Servicer shall have delivered to Trustee an Officer's Certificate,
dated the Issuance Date for such Purchased Interest, to the effect that all
conditions set forth in clauses (i) and (iv) of this Section for the sale
of the Purchased Interest and the execution and delivery of the related PI
Agreement has been satisfied.
Upon satisfaction of the above conditions, Trustee shall execute and, at the
written direction of Transferor, deliver the related PI Agreement and any
related documents that Transferor shall reasonably request.
(h) Transferor may from time to time direct Trustee to extend any PI
Agreement, subject to the satisfaction of the following conditions:
(i) on or before the tenth Business Day (or a shorter period as shall be
acceptable to the parties) immediately preceding the date of the extension,
Transferor shall have given Trustee, Servicer, the Rating Agency (if any
rated Investor Certificates are outstanding) and any Enhancement Provider
written notice of the extension and the date on which the extension shall
occur;
(ii) Transferor shall have delivered to Trustee the required agreements,
certificates, documents and filings, in form satisfactory to Trustee,
executed by each party thereto other than Trustee;
(iii) the extension will not (A) contravene any provision of this
Agreement, any Supplement, any agreement pursuant to which any Enhancement
is provided or any PI Agreement (or any agreement related thereto) or (B)
constitute, or result in the occurrence of, an Early Amortization Event or
an Unmatured Early Amortization;
(iv) counsel for Transferor shall have delivered to the Trust, the
Rating Agency (if any rated Investor Certificates are outstanding) and any
Enhancement Provider a Tax Opinion, dated the date of the extension, with
respect to the extension;
(v) Servicer shall have delivered to Trustee an Officer's Certificate,
dated the date of the extension, to the effect that all conditions set
forth in clauses (i) and (iii) of this Section for the
page 35
<PAGE>
extension of such PI Agreement and the execution and delivery of the
related documents has been satisfied; and
(vi) the Rating Agency Condition shall have been satisfied.
SECTION 6.11 Book-Entry Certificates. (a) If provided in any Supplement,
the Investor Certificates of any Series, upon original issuance, will be issued
in the form of one or more Book-Entry Certificates, to be delivered to the
applicable Clearing Agency, by, or on behalf of, Transferor. The Investor
Certificates of the Series initially shall be registered on the Certificate
Register in the name of the nominee of the Clearing Agency, and no Certificate
Owner will receive a Definitive Certificate representing such Certificate
Owner's interest in the Investor Certificates, except as provided in Section
6.13. Unless and until Definitive Certificates have been issued to Certificate
Owners pursuant to Section 6.13:
(i) the provisions of this section shall be in full force and effect;
(ii) Transferor, Servicer, the Paying Agent, the Transfer Agent and
Registrar and Trustee may deal with the Clearing Agency and the Clearing
Agency Participants for all purposes (including the making of distributions
on the Investor Certificates) as the authorized representatives of the
Certificate Owners;
(iii) to the extent that the provisions of this section conflict with
any other provisions of this Agreement, the provisions of this section
shall control; and
(iv) the rights of Certificate Owners shall be exercised only through
the Clearing Agency and the Clearing Agency Participants and shall be
limited to those established by law and agreements between the Certificate
Owners and the Clearing Agency and/or the Clearing Agency Participants.
Unless and until Definitive Certificates are issued pursuant to Section
6.13, the initial Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit distributions of
principal and interest on the Investor Certificates to the Clearing Agency
Participants.
(b) Certificates sold to Qualified Institutional Buyers in reliance on
Rule 144A under the Securities Act shall be represented by one or more Book-
Entry Certificates (the "144A Book-Entry Certificates"), in registered form,
without coupons, which will be deposited upon the order of Transferor on the
page 36
<PAGE>
Issuance Date with Trustee as custodian for and registered in the name of Cede &
Co., as nominee of the Clearing Agency.
(c) Certificates sold in offshore transactions in reliance on Regulation S
shall be represented initially by temporary Book-Entry Certificates (the
"Regulation S Temporary Book-Entry Certificates"). The Regulation S Temporary
Book-Entry Certificates shall be exchanged on the later of (i) 40 days after the
later of (A) the Issuance Date and (B) the completion of the distribution of the
Certificates, as certified by the Lead Placement Agent and (ii) the date on
which the requisite certifications are due to and provided to Trustee (the later
of clauses (i) and (ii) is referred to as the "Exchange Date") for permanent
Book-Entry Certificates (the "Unrestricted Book-Entry Certificates," and
together with the Regulation S Temporary Book-Entry Certificates, the
"Regulation S Book-Entry Certificates"). The Regulation S Book-Entry
Certificates shall be issued in registered form, without coupons, and deposited
upon the order of Transferor with Trustee as custodian for and registered in the
name of a nominee of the Clearing Agency for credit to the account of the
depositaries for Euroclear and Cedel, which depositaries shall, on behalf of
Euroclear and Cedel, hold the interests on behalf of account holders (each a
"Member Organization"), which have rights in respect of the Certificates
credited to their securities accounts with Euroclear or Cedel from time to time.
(d) A Certificate Owner holding an interest in a Regulation S Temporary
Book-Entry Certificate may receive payments in respect of the Certificates on
the Regulation S Temporary Book-Entry Certificate only after delivery to
Euroclear or Cedel, as the case may be, of a written certification substantially
in the form of a certification in the form set forth in Exhibit F, and upon
delivery by Euroclear or Cedel, as the case may be, to the Transfer Agent and
Registrar of a certification or certifications substantially in the form set
forth in Exhibit G. The delivery by a Certificate Owner of the certification
referred to above shall constitute its irrevocable instruction to Euroclear or
Cedel, as the case may be, to arrange for the exchange of the Certificate
Owner's interest in the Regulation S Temporary Book-Entry Certificate for a
beneficial interest in the Unrestricted Book-Entry Certificate after the
Exchange Date in accordance with the paragraph below.
After (i) the Exchange Date and (ii) receipt by the Transfer Agent and
Registrar of written instructions from Euroclear or Cedel, as the case may be,
directing the Transfer Agent and Registrar to credit or cause to be credited to
either Euroclear's or Cedel's, as the case may be, depositary's account a
beneficial interest in the Unrestricted Book-Entry Certificate in a principal
amount not greater than that of the beneficial interest in the Regulation S
page 37
<PAGE>
Temporary Book-Entry Certificate, the Transfer Agent and Registrar shall
instruct the Clearing Agency to reduce the principal amount of the Regulation S
Book-Entry Certificate and increase the principal amount of the Unrestricted
Book-Entry Certificate, by the principal amount of the beneficial interest in
the Regulation S Temporary Book-Entry Certificate to be so transferred, and to
credit or cause to be credited to the account of Euroclear, Cedel or a Person
who has an account with the Clearing Agency (a "Clearing Agency Participant"),
as the case may be, a beneficial interest in the Unrestricted Book-Entry
Certificate having a principal amount of the Regulation S Temporary Book-Entry
Certificate that was reduced upon the transfer.
Upon return of the entire principal amount of the Regulation S Temporary
Book-Entry Certificate to Trustee in exchange for beneficial interests in the
Unrestricted Book-Entry Certificate, Trustee shall cancel the Regulation S
Temporary Book-Entry Certificate by perforation and shall forthwith destroy it.
(e) Transfers within a single Series between different Book-Entry
Certificates shall be made in accordance with this Section.
(i) For transfer of an interest in an Unrestricted Book-Entry
Certificate for an interest in the 144A Book-Entry Certificate, if the
Certificateholder of a beneficial interest in an Unrestricted Book-Entry
Certificate deposited with the Clearing Agency wishes at any time to
exchange its interest in the Unrestricted Book-Entry Certificate, or to
transfer its interest in the Unrestricted Book-Entry Certificate to a
Person who wishes to take delivery thereof in the form of an interest in
the 144A Book-Entry Certificate, the Certificateholder may, subject to the
rules and procedures of Euroclear or Cedel and the Clearing Agency, as the
case may be, give directions for the Transfer Agent and Registrar to
exchange or cause the exchange or transfer or cause the transfer of the
interest for an equivalent beneficial interest in the 144A Book-Entry
Certificate. Upon receipt by the Transfer Agent and Registrar of
instructions from Euroclear or Cedel (based on instructions from a Member
Organization) or from a Clearing Agency Participant, as applicable, or the
Clearing Agency, as the case may be, directing the Transfer Agent and
Registrar to credit or cause to be credited a beneficial interest in the
144A Book-Entry Certificate equal to the beneficial interest in the
Unrestricted Book-Entry Certificate to be exchanged or transferred (such
instructions to contain information regarding the Clearing Agency
Participant account to be credited with the increase, and, with respect to
an exchange or transfer of an interest in the Unrestricted Book-Entry
Certificate, information regarding the
page 38
<PAGE>
Clearing Agency Participant account to be debited with the decrease), the
Transfer Agent and Registrar shall instruct the Clearing Agency to reduce
the Unrestricted Book-Entry Certificate by the aggregate principal amount
of the beneficial interest in the Unrestricted Book-Entry Certificate to be
exchanged or transferred, and the Transfer Agent shall instruct the
Clearing Agency, concurrently with the reduction, to increase the principal
amount of the 144A Book-Entry Certificate by the aggregate principal amount
of the beneficial interest in the Unrestricted Book-Entry Certificate to be
so exchanged or transferred, and to credit or cause to be credited to the
account of the Person specified in the instructions a beneficial interest
in the 144A Book-Entry Certificate equal to the reduction in the principal
amount of the Unrestricted Book-Entry Certificate.
(ii) For transfers of an interest in the 144A Book-Entry Certificate for
an interest in a Regulation S Book-Entry Certificate, if a Certificate
Owner holding a beneficial interest in the 144A Book-Entry Certificate
wishes at any time to exchange its interest in the 144A Book-Entry
Certificate for an interest in a Regulation S Book-Entry Certificate, or to
transfer its interest in the 144A Book-Entry Certificate to a Person who
wishes to take delivery thereof in the form of an interest in the
Regulation S Book-Entry Certificate, the Certificateholder may, subject to
the rules and procedures of the Clearing Agency, give directions for the
Transfer Agent and Registrar to exchange or cause the exchange or transfer
or cause the transfer of the interest for an equivalent beneficial interest
in the Regulation S Book-Entry Certificate. Upon receipt by the Transfer
Agent and Registrar of (A) instructions given in accordance with the
Clearing Agency's procedures from a Clearing Agency Participant directing
the Transfer Agent and Registrar to credit or cause to be credited a
beneficial interest in the Regulation S Book-Entry Certificate in an amount
equal to the beneficial interest in the 144A Book-Entry Certificate to be
exchanged or transferred, (B) a written order given in accordance with the
Clearing Agency's procedures containing information regarding the account
of the depositaries for Euroclear or Cedel or another Clearing Agency
Participant, as the case may be, to be credited with the increase and the
name of the account and (C) certificates in the forms of Exhibits H and I,
respectively, given by the Certificate Owner and the proposed transferee of
the interest, the Transfer Agent and Registrar shall instruct the Clearing
Agency to reduce the 144A Book-Entry Certificate by the aggregate principal
amount of the beneficial interest in the 144A Book-Entry Certificate to be
so exchanged or transferred and the Transfer Agent and Registrar
page 39
<PAGE>
shall instruct the Clearing Agency, concurrently with the reduction, to
increase the principal amount of the Regulation S Book-Entry Certificate by
the aggregate principal amount of the beneficial interest in the 144A Book-
Entry Certificate to be so exchanged or transferred, and to credit or cause
to be credited to the account of the Person specified in the instructions a
beneficial interest in the Regulation S Book-Entry Certificate equal to the
reduction in the principal amount of the 144A Book-Entry Certificate.
(iii) Notwithstanding any other provisions of this section, a placement
agent for the Investor Certificates may exchange beneficial interests in
the Regulation S Temporary Book-Entry Certificate held by it for interests
in the 144A Book-Entry Certificate only after delivery by the placement
agent of instructions for the exchange substantially in the form of Exhibit
J. Upon receipt of the instructions provided in the preceding sentence, the
Transfer Agent and Registrar shall instruct the Clearing Agency to reduce
the principal amount of the Regulation S Temporary Book-Entry Certificate
to be so transferred and shall instruct the Clearing Agency to increase the
principal amount of the 144A Book-Entry Certificate and credit or cause to
be credited to the account of the placement agent a beneficial interest in
the 144A Book-Entry Certificate having a principal amount equal to the
amount by which the principal amount of the Regulation S Temporary Book-
Entry Certificate was reduced upon the transfer pursuant to the
instructions provided in the first sentence of this subclause.
(iv) If Book-Entry Certificate is exchanged for a Definitive Certificate,
the Certificates may be exchanged or transferred for one another only in
accordance with such procedures as are substantially consistent with the
provisions of clauses (i) through (iii) above (including the certification
requirements intended to ensure that the exchanges or transfers comply with
Rule 144 or Regulation S under the Securities Act, as the case may be) and
as may be from time to time adopted by Trustee.
SECTION 6.12 Notices to Clearing Agency. Whenever notice or other
communication to the Investor Certificateholders of any Series represented by
Book-Entry Certificates is required under this Agreement, unless and until
Definitive Certificates shall have been issued to Certificate Owners pursuant to
Section 6.13, Trustee, Servicer and the Paying Agent shall give all such notices
and communications specified herein to be given to the Investor
Certificateholders of the Series to the Clearing Agency.
page 40
<PAGE>
SECTION 6.13 Definitive Certificates. If (a)(i) Transferor advises Trustee
in writing that the Clearing Agency is no longer willing or able to discharge
its responsibilities under any Letter of Representations properly, and (ii)
Transferor is unable to locate a qualified successor, (b) Transferor, at its
option, advises Trustee in writing that, with respect to any Series, it elects
to terminate the Book-Entry system through the Clearing Agency or (c) after the
occurrence of a Servicer Default, Certificate Owners representing beneficial
interests aggregating not less than 50% of the Invested Amount of the Series
advise Trustee and the Clearing Agency through the Clearing Agency Participants
in writing that the continuation of a Book-Entry system through the Clearing
Agency is no longer in the best interests of the Certificate Owners of the
Series, Trustee shall notify the Clearing Agency of the occurrence of any such
event and of the availability of Definitive Certificates of the Series to
Certificate Owners of the Series requesting the same. Upon surrender to Trustee
of the Investor Certificates of the Series by the Clearing Agency accompanied by
registration instructions from the Clearing Agency for registration, Trustee
shall authenticate and deliver Definitive Certificates of the Series. Neither
Transferor, the Transfer Agent and Registrar nor Trustee shall be liable for any
delay in delivery of the instructions and may conclusively rely on, and shall be
protected in relying on, the instructions. Upon the issuance of Definitive
Certificates of any Series, all references herein to obligations with respect to
the Series imposed upon or to be performed by the Clearing Agency shall be
deemed to be imposed upon and performed by Trustee, to the extent applicable
with respect to the Definitive Certificates and Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder.
SECTION 6.14 Letter of Representations. Notwithstanding anything to the
contrary in this Agreement or any Supplement, the parties hereto shall comply
with the terms of each Letter of Representations.
ARTICLE VII TRANSFEROR
SECTION 7.1 Representations and Warranties of Transferor Relating to
Transferor and the Transaction Documents. On the date hereof and on each
Issuance Date, Transferor hereby represents and warrants that:
(a) Organization and Good Standing. Transferor is a corporation duly
organized and validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all necessary corporate power and
authority to acquire, own and transfer the Receivables and the Related
Transferred Assets.
page 41
<PAGE>
(b) Due Qualification. Transferor is duly qualified to do business
and is in good standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals, in
all jurisdictions in which the ownership or lease of property or the
conduct of its business requires qualification, licenses or approvals and
where the failure so to qualify, to obtain the licenses and approvals or to
preserve and maintain the qualification, licenses or approvals would have a
substantial likelihood of having a Material Adverse Effect.
(c) Power and Authority. Transferor has (i) all necessary corporate
power and authority to execute, deliver and perform its obligations under
this Agreement and the other Transaction Documents to which it is a party.
(d) Binding Obligations. This Agreement constitutes, and each other
Transaction Document to which Transferor is a party when executed and
delivered will constitute, a legal, valid and binding obligation of
Transferor, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity, regardless of whether enforceability
is considered in a proceeding in equity or at law.
(e) Authorization; No Conflict or Violation. The execution, delivery and
performance of, and the consummation of the transactions contemplated by,
this Agreement and the other Transaction Documents to be signed by
Transferor and the fulfillment of the terms hereof and thereof have been
duly authorized by all necessary action and will not (i) conflict with,
violate, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default
under, (A) its Certificate of Incorporation or Bylaws or (B) any indenture,
loan agreement, mortgage, deed of trust or other material agreement or
instrument to which Transferor is a party or by which it or any of its
properties is bound, (ii) result in the creation or imposition of any
Adverse Claim upon any of its properties pursuant to the terms of any such
contract, indenture, loan agreement, mortgage, deed of trust, or other
agreement or instrument, other than this Agreement and the other
Transaction Documents, or (iii) conflict with or violate any federal,
state, local or foreign law or any decision, decree, order, rule or
regulation applicable to it or any of its properties of any court or of any
federal, state, local or foreign regulatory body,
page 42
<PAGE>
administrative agency or other governmental instrumentality having
jurisdiction over it or any of its properties, which conflict, violation,
breach, default or Adverse Claim, individually or in the aggregate, would
have a substantial likelihood of having a Material Adverse Effect.
(f) Litigation and Other Proceedings. (i) There is no action, suit,
proceeding or investigation pending or, to the best knowledge of
Transferor, threatened against it before any court, regulatory body,
arbitrator, administrative agency or other tribunal or governmental
instrumentality and (ii) it is not subject to any order, judgment, decree,
injunction, stipulation or consent order of or with any court or other
government authority that, in the case of clauses (i) and (ii), (A) asserts
the invalidity of this Agreement or any other Transaction Document, (B)
seeks to prevent the transfer of any Receivables or Related Transferred
Assets to the Trust, the issuance of the Certificates or the consummation
of any of the transactions contemplated by this Agreement or any other
Transaction Document, (C) seeks any determination or ruling that would
materially and adversely affect the performance by Transferor of its
obligations under this Agreement or any other Transaction Document or the
validity or enforceability of this Agreement or any other Transaction
Document, (D) seeks to affect adversely the income tax attributes of the
transfers hereunder or the Trust under the United States Federal income tax
system or any state income tax system or (E) individually or in the
aggregate for all such actions, suits, proceedings and investigations would
have a substantial likelihood of having a Material Adverse Effect.
(g) Governmental Approvals. All authorizations, consents, orders and
approvals of, or other action by, any Governmental Authority that are
required to be obtained by Transferor, and all notices to and filings with
any Governmental Authority, that are required to be made by it, in the case
of each of the foregoing in connection with the transfer of Receivables and
Related Transferred Assets to the Trust or the execution, delivery and
performance by it of this Agreement and any other Transaction Documents to
which it is a party and the consummation of the transactions contemplated
by this Agreement, have been obtained or made and are in full force and
effect, except where the failure to obtain or make any such authorization,
consent, order, approval, notice or filing, individually or in the
aggregate for all such failures, would not reasonably be expected to have a
Material Adverse Effect.
page 43
<PAGE>
(h) Offices. Transferor's principal place of business and chief
executive office is, and since the date of its incorporation has been,
located at the address set forth under Transferor's signature hereto (or at
such other locations, notified to Servicer and Trustee in accordance with
Section 7.2(c), in jurisdictions where all action required by Section
7.2(c) has been taken and completed).
(i) Account Banks. The names and addresses of all the Account Banks are
specified in Schedule 1 or, after the First Issuance Date, have been
provided by Servicer to Trustee pursuant to Section 3.3(c), and the account
numbers of the Bank Accounts at such Account Banks have been specified in a
letter provided on or prior to the First Issuance Date to Trustee or, after
the First Issuance Date, have been provided by Servicer to Trustee pursuant
to Section 3.3(c). The Account Agreements to which Transferor is a party
constitute the legal, valid and binding obligations of the parties thereto
enforceable against such parties in accordance with their respective terms
subject to applicable bankruptcy, reorganization, insolvency, moratorium
and other laws affecting creditors' rights generally and general equitable
principles.
(j) Investment Company Act. Transferor is not, and is not controlled by,
an "investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended.
The representations and warranties set forth in this section shall survive
the transfer and assignment of the Receivables and the other Transferred Assets
to the Trust. Upon discovery by Transferor, Servicer or Trustee of a breach of
any of the foregoing representations and warranties, the party discovering the
breach shall give written notice to the other parties to this Agreement within
three Business Days following the discovery. Trustee's obligations in respect of
discovering any breach are limited as provided in Section 11.2(g).
SECTION 7.2 Covenants of Transferor. So long as any Investor Certificates
or Purchased Interests remain outstanding (other than any Investor Certificates
or Purchased Interests payment for which has been duly provided for in
accordance with this Agreement), Transferor shall:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations, judgments, decrees and orders
(including those relating to the Receivables, the Related Transferred
Assets, the funds in the Transaction Accounts and the related Contracts and
any other agreements related thereto), in each
page 44
<PAGE>
case to the extent the failure to comply, individually or in the aggregate
for all such failures, would have a substantial likelihood of having a
Material Adverse Effect.
(b) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified in good standing as
a foreign corporation in each jurisdiction where the failure to preserve
and maintain such existence, rights, franchises, privileges and
qualifications would have a substantial likelihood of having a Material
Adverse Effect.
(c) Location of Offices. Keep its principal place of business and chief
executive office at the address referred to in Section 7.1(h) or, upon not
less than 30 days' prior written notice given by Transferor to Servicer and
Trustee, at such other location in a jurisdiction where all action required
pursuant to Section 3.10 shall have been taken and completed. Transferor
will at all times maintain its chief executive offices within the United
States of America, and will cause Servicer to maintain at all times
Servicer's chief executive offices within the United States of America.
(d) Reporting Requirements of Transferor. Unless Trustee and the
Required Investors shall otherwise consent in writing, furnish to Trustee,
the Investor Certificateholders and the Rating Agencies:
(i) Early Amortization Events. Within five Business Days after
an Authorized Officer of Transferor has obtained knowledge of the
occurrence of any Early Amortization Event or any Unmatured Early
Amortization Event, a written statement of an Authorized Officer of
Transferor describing the event and the action that Transferor
proposes to take with respect thereto, in each case in reasonable
detail,
(ii) Material Adverse Effect. Within five Business Days after an
Authorized Officer of Transferor has knowledge thereof, written notice
that describes in reasonable detail any Adverse Claim, other than any
Permitted Adverse Claim, against the Transferred Assets or any other
event or occurrence that, individually or in the aggregate for all
such events or occurrences, has had, or would have a substantial
likelihood of having, in the reasonable, good faith judgment of
Transferor, a Material Adverse Effect,
page 45
<PAGE>
(iii) Proceedings. Within five Business Days after an Authorized
Officer of Transferor has knowledge thereof, written notice of (A) any
litigation, investigation or proceeding of the type described in
Section 7.1(f) not previously disclosed to Trustee and (B) any
material adverse development that has occurred with respect to any
such previously disclosed litigation, investigation or proceeding,
(iv) Other. Promptly, from time to time, any other information,
documents, records or reports respecting the Receivables or the
Related Transferred Assets or any other information to which
Transferor reasonably has access respecting the condition or
operations, financial or otherwise, of Transferor, in each case as
Trustee may from time to time reasonably request in order to protect
the interests of Trustee, the Trust or the Investor Certificateholders
under or as contemplated by this Agreement.
(e) Adverse Claims. Except for any conveyances under the Transaction
Documents, not permit to exist any Adverse Claim (other than Permitted Adverse
Claims) to or in favor of any Person upon or with respect to, or cause to be
filed any financing statement or equivalent document relating to perfection that
covers, any Receivable, related Contract, Related Transferred Asset or other
Transferred Asset, or any interest therein. Transferor shall defend the right,
title and interest of the Trust in, to and under the Transferred Assets, whether
now existing or hereafter created, against all claims of third parties claiming
through or under Transferor.
(f) Extension or Amendment of Receivables; Change in Credit and
Collection Policy or Contracts. Not (i) extend, amend or otherwise modify the
terms of any Receivable or Contract (except as permitted by the Credit and
Collection Policy) in a manner that would have a material adverse effect on the
Investor Certificateholders or the Purchasers, or (ii) permit any Seller to make
any change in its Credit and Collection Policy that would have a material
adverse effect on the Investor Certificateholders or the Purchasers; provided
that Transferor or Servicer, as applicable, may change the terms and provisions
of the Credit and Collection Policy if (A) with respect to any material change
of collection policies, the change is made with the prior written approval of
each Agent and the Rating Agency Condition is satisfied with respect thereto,
(B) with respect to any material change of collection procedures, the change is
made with prior written notice to
page 46
<PAGE>
each Agent and no material adverse effect on any Series or Purchased Interest
would result, and (C) with respect to any material change in accounting policies
relating to Write-Offs, the change is made in accordance with GAAP.
(g) Mergers, Acquisitions, Sales, Etc. Not:
(i) except pursuant to the Transaction Documents (A) be a party
to any merger or consolidation, or directly or indirectly purchase or
otherwise acquire all or substantially all of the assets or any stock of
any class of, or any partnership or joint venture interest in, any other
Person, or (B) directly or indirectly, sell, transfer, assign, convey or
lease, whether in one transaction or in a series of transactions, all or
substantially all of its assets, or sell or assign with or without
recourse any Receivables or Related Transferred Assets (other than
pursuant hereto) unless:
(x)(1) the corporation formed by the consolidation or into which
Transferor is merged or the Person that acquires by conveyance
or transfer the properties and assets of Transferor
substantially as an entirety shall be, if Transferor is not the
surviving entity, organized and existing under the laws of the
United States of America or any state thereof or the District of
Columbia, and shall expressly assume, by an agreement
supplemental hereto, executed and delivered to Trustee, in form
satisfactory to Trustee and each Agent, the performance of every
covenant and obligation of Transferor hereunder, including its
obligations under Section 7.3, under each Supplement and under
each PI Agreement, and (2) Transferor has delivered to Trustee
an Officer's Certificate stating that the consolidation, merger,
conveyance or transfer and the supplemental agreement comply
with this section and an Opinion of Counsel stating that the
supplemental agreement is a valid and binding obligation of the
surviving entity enforceable against it in accordance with its
terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally from
time to time in effect and except as such enforceability may be
page 47
<PAGE>
limited by general principles of equity (whether considered in a
suit at law or in equity),
(y) the Rating Agency Condition shall have been satisfied with
respect to the consolidation, merger, conveyance or transfer,
and the Transferor's independent director shall have approved
such consolidation, merger, conveyance or transfer,
(z) counsel to the Transferor shall have delivered to Trustee,
each Rating Agency and each Enhancement Provider a Tax Opinion,
dated the date of the consolidation, merger, conveyance or
transfer, with respect thereto, or
(ii) except as contemplated in the Purchase Agreement in
connection with Transferor's purchases of Receivables and Related Assets
from the Sellers, (A) make, incur or suffer to exist an investment in,
equity contribution to, or payment obligation in respect of the deferred
purchase price of property or services from, any Person, or (B) make any
loan or advance to any Person other than for reasonable and customary
operating expenses.
(h) Change in Name. Not change its corporate name or the name under or by
which it does business, or permit any Seller to change its corporate name or the
name under or by which it does business, unless prior to the change in name,
Transferor shall have filed (or shall have caused to be filed) any financing
statements or amendments as Servicer or Trustee determines may be necessary to
continue the perfection of the Trust's interest in the Receivables, the Related
Transferred Assets and the proceeds thereof.
(i) Amendment of Certificate of Incorporation; Change in Business. Not
amend Article X or XI of its Certificate of Incorporation, or engage in any
business other than as contemplated by the Transaction Documents, unless the
Rating Agency Condition has been satisfied in connection with the amendment or
change in Transferor's business.
(j) Amendments to Purchase Agreement. Except as expressly provided
otherwise in this Agreement, make no amendment to the Purchase Agreement
that would adversely affect in any material respect
page 48
<PAGE>
the interests of the Investor Certificateholders, the Purchasers or any
Enhancement Provider.
(k) Enforcement of Purchase Agreement. Perform all its obligations under
and otherwise comply with the Purchase Agreement and, if requested by Trustee,
enforce, for the benefit of the Trust, the covenants and agreements of any
Seller in the Purchase Agreement.
(l) Other Indebtedness. Not (i) create, incur or permit to exist any
Indebtedness, Guaranty or liability or (ii) cause or permit to be issued for its
account any letters of credit or bankers' acceptances, except for (A)
Indebtedness incurred pursuant to the Seller Account and the Purchase Money
Note, (B) a management fee, not to exceed $40,000 per annum, payable by
Transferor to AMACAR Group, L.L.C. and (C) other liabilities specifically
permitted to be created, incurred or owed by Transferor pursuant to or in
connection with the Transaction Documents.
(m) Separate Corporate Existence. Hereby acknowledge that Trustee and the
Investor Certificateholders are, and will be, entering into the transactions
contemplated by the Transaction Documents in reliance upon Transferor's identity
as a legal entity separate from any Seller, Servicer and any other Person.
Therefore, from and after the First Issuance Date, Transferor shall take all
reasonable steps to maintain its existence as a corporation separate and apart
from Servicer, each Seller and any other WRO Person. Without limiting the
generality of the foregoing, Transferor shall take such actions as shall be
reasonably required in order that:
(i) Transferor will not incur any material indirect or overhead
expenses for items shared between Transferor and any WRO Person that are
not reflected in the Servicing Fee, other than shared items of expenses
not reflected in the Servicing Fee, such as legal, auditing and other
professional services, that will be allocated to the extent practical on
the basis of actual use or the value of services rendered, and otherwise
on a basis reasonably related to the actual use or the value of services
rendered, it being understood that WRO will pay all expenses owing by
Transferor or any WRO Person relating to the preparation, negotiation,
execution and delivery of the Transaction Documents, including, without
limitation, legal, commitment, agency and other fees.
page 49
<PAGE>
(ii) Transferor will account for and manage its liabilities separately
from those of every other WRO Person, including payment of all payroll
and administrative expenses and taxes from its own assets.
(iii) Transferor will conduct its business at an office segregated
from the offices of each WRO Person, which office of Transferor may
consist of office space shared with a WRO Person, a portion of which is
allocated solely to Transferor.
(iv) Transferor will maintain corporate records, books of account and
stationery separate from those of every WRO Person.
(v) Transferor's assets will be maintained in a manner that
facilitates their identification and segregation from those of any WRO
Person.
(vi) Transferor shall not, directly or indirectly, be named and shall
not enter into an agreement to be named as a direct or contingent
beneficiary or loss payee on any insurance policy with respect to any
loss relating to the property of a WRO Person.
(vii) Any transaction between Transferor and any WRO Person will be
the type of transaction which would be entered into by a prudent Person
in the position of Transferor with a WRO Person, and will be on terms
that are at least as favorable as may be obtained from a Person that is
not a WRO Person (it being understood and agreed that the transactions
contemplated in the Transaction Documents meet the requirements of this
clause).
(viii) Neither Transferor nor any WRO Person will be or will hold
itself out to be responsible for the debts of the other.
(n) Taxes. File or cause to be filed all Federal, state and local tax
returns that are required to be filed by it, except where the failure to file
such returns could not reasonably be expected to have an adverse effect, and pay
or cause to be paid all taxes shown to be due and payable on such returns or on
any assessments received by it, other than any taxes or assessments, the
validity of which are being contested
page 50
<PAGE>
in good faith by appropriate proceedings and with respect to which
Transferor shall have set aside adequate reserves on its books in
accordance with GAAP and which proceedings could not reasonably be expected
to have a Material Adverse Effect.
The covenants set forth in this section shall survive the transfer and
assignment of the Receivables and the other Transferred Assets to the Trust.
Upon discovery by Transferor, Servicer or Trustee of a breach of any of the
foregoing covenants, the party discovering the breach shall give written notice
to the other parties to this Agreement within three Business Days following such
discovery. Trustee's obligations in respect of discovering any breach are
limited as provided in Section 11.2(g).
SECTION 7.3 Indemnification by Transferor. (a) Transferor hereby agrees to
indemnify the Trust, Trustee and each of the successors, permitted transferees
and assigns of any such Person and all officers, directors, shareholders,
controlling Persons, employees, affiliates and agents of any of the foregoing
(each of the foregoing Persons individually being called an "Indemnified
Party"), forthwith on demand, from and against any and all damages, losses,
claims (whether on account of settlement or otherwise, and whether or not the
relevant Indemnified Party is a party to any action or proceeding that gives
rise to any Indemnified Losses (as defined below)), judgments, liabilities and
related reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) (all of the foregoing collectively being called "Indemnified
Losses") awarded against or incurred by any of them that arise out of or relate
to Transferor's performance of, or failure to perform, any of its obligations
under or in connection with any Transaction Document.
Notwithstanding the foregoing, in no event shall any Indemnified Party be
indemnified against any Indemnified Losses that constitute Excluded Losses.
If for any reason the indemnification provided in this Section is
unavailable to an Indemnified Party or is insufficient to hold it harmless, then
Transferor shall contribute to the amount paid by the Indemnified Party as a
result of any loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
Indemnified Party on the one hand and Transferor on the other hand, but also the
relative fault of the Indemnified Party (if any) and Transferor and any other
relevant equitable consideration.
page 51
<PAGE>
(b) Transferor shall be liable to all creditors of the Trust (but not to
the Trust, Trustee or Investor Certificateholders) for all liabilities of the
Trust to the same extent as it would be if the Trust constituted a partnership
under the Delaware Revised Uniform Limited Partnership Act and Transferor were a
general partner thereof (to the extent Transferred Assets remaining after
Investor Certificateholders have been paid in full are insufficient to pay such
losses, claims, damages or liabilities). Notwithstanding anything to the
contrary herein, any such creditor shall be a third party beneficiary of this
Section 7.3. Nothing in this provision shall be construed as waiving any rights
or claims (including rights of recoupment or subrogation) which the Transferor
may have against any third party under this Agreement or applicable laws.
ARTICLE VIII SERVICER
SECTION 8.1 Representations and Warranties of Servicer. On the date hereof
and on each Issuance Date, Servicer hereby makes, and any Successor Servicer
also shall be deemed to make by its acceptance of its appointment hereunder, the
following representations and warranties for the benefit of Trustee and the
Certificateholders and the Purchasers:
(a) Organization and Good Standing. Servicer is a corporation duly
organized and validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all necessary corporate power and
authority to own its properties and to conduct its business as the
properties presently are owned and as the business presently is conducted.
(b) Due Qualification. Servicer is duly qualified to do business and is
in good standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals, in
all jurisdictions in which the servicing of the Receivables and the Related
Transferred Assets as required by this Agreement requires qualification,
licenses or approvals and where the failure so to qualify, to obtain the
licenses and approvals or to preserve and maintain the qualification,
licenses or approvals would have a substantial likelihood of having a
material adverse effect on its ability to perform its obligations as
Servicer under this Agreement or a Material Adverse Effect.
(c) Power and Authority. Servicer has all necessary corporate power and
authority to execute, deliver and perform its obligations under this
Agreement and the other Transaction Documents to which it is a party.
page 52
<PAGE>
(d) Binding Obligations. This Agreement constitutes, and each other
Transaction Document to which Servicer is a party when executed and
delivered will constitute, a legal, valid and binding obligation of
Servicer, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity, regardless of whether enforceability
is considered in a proceeding in equity or at law.
(e) Authorization; No Conflict or Violation. The execution and delivery
by Servicer of this Agreement and the other Transaction Documents to which
it is a party, the performance by it of its obligations hereunder and
thereunder and the fulfillment by it of the terms hereof and thereof that
are applicable to it have been duly authorized by all necessary action and
will not (i) conflict with, violate, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse of
time or both) a default under, (A) its Certificate of Incorporation or
Bylaws or (B) any indenture, loan agreement, mortgage, deed of trust, or
other material agreement or instrument to which it is a party or by which
it or any of its properties is bound (excluding any such agreement that is
terminated on or before the First Issuance Date or under which Servicer has
obtained all necessary consents) or (ii) conflict with or violate any
federal, state, local or foreign law or any decision, decree, order, rule
or regulation applicable to it or any of its properties of any court or of
any federal, state, local or foreign regulatory body, administrative agency
or other governmental instrumentality having jurisdiction over it or any of
its properties, which conflict, violation, breach or default described,
individually or in the aggregate, would have a substantial likelihood of
having a Material Adverse Effect.
(f) Governmental Approvals. All authorizations, consents, orders and
approvals of, or other action by, any Governmental Authority that are
required to be obtained by Servicer, and all notices to and filings with
any Governmental Authority that are required to be made by it, in the case
of each of the foregoing in connection with the execution, delivery and
performance by it of this Agreement and any other Transaction Documents to
which it is a party and the consummation of the transactions contemplated
by this Agreement, have been obtained or made and are in full force and
effect (other than the filing of the UCC financing statements referred to
in Section 2.3(a)(ii)(A), all of which, at the time required in Section
2.3(a)(ii)(A), will be duly made), except where the failure to obtain or
make such
page 53
<PAGE>
authorization, consent, order, approval, notice or filing, individually or
in the aggregate for all such failures, would not reasonably be expected to
have a Material Adverse Effect.
(g) Litigation and Other Proceedings. (i) There is no action, suit,
proceeding or investigation pending or, to the best knowledge of Servicer,
threatened against it before any court, regulatory body, arbitrator,
administrative agency or other tribunal or governmental instrumentality and
(ii) it is not subject to any order, judgment, decree, injunction,
stipulation or consent order of or with any court or other government
authority that, in the case of clauses (i) and (ii), (A) seeks to affect
adversely the income tax attributes of the transfers hereunder or the Trust
under the United States federal income tax system or any state income tax
system or (B) individually or in the aggregate for all such actions, suits,
proceedings and investigations would have a substantial likelihood of
having a Material Adverse Effect.
The representations and warranties set forth in this section shall survive
the transfer and assignment of the Receivables and the other Transferred Assets
to the Trust. Upon discovery by Transferor, Servicer or Trustee of a breach of
any of the foregoing representations and warranties, the party discovering the
breach shall give written notice to the other parties to this Agreement within
three Business Days following the discovery. Trustee's obligations in respect of
discovering any breach are limited as provided in Section 11.2(g).
SECTION 8.2 Covenants of Servicer. So long as any Investor Certificates or
Purchased Interests remain outstanding (other than any Investor Certificates or
Purchased Interests payment for which has been duly provided for in accordance
with this Agreement), Servicer shall:
(a) Compliance with Laws, Etc. Maintain in effect all qualifications
required under applicable law in order to service properly the Receivables
and shall comply in all material respects with all applicable laws, rules,
regulations, judgments, decrees and orders, in each case to the extent the
failure to comply, individually or in the aggregate for all such failures,
would have a substantial likelihood of having a Material Adverse Effect.
(b) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified in good standing as
a foreign corporation in each jurisdiction where the
page 54
<PAGE>
failure to preserve and maintain such existence, rights, franchises,
privileges and qualification would have a substantial likelihood of having
a Material Adverse Effect.
(c) As soon as possible (and in any event within five Business Days
after an Authorized Officer has knowledge thereof), furnish to Transferor,
Trustee, the Investor Certificateholders and the Rating Agencies notice of
any of the events described in clauses (i), (ii) and (iii) of Section
7.2(d).
The covenants set forth in this section shall survive the transfer and
assignment of the Transferred Assets to the Trust. Upon discovery by Transferor,
Servicer or Trustee of a breach of any of the foregoing covenants, the party
discovering the breach shall give written notice to the other parties to this
Agreement within three Business Days following the discovery. Trustee's
obligations in respect of discovering any breach are limited as provided in
Section 11.2(g).
SECTION 8.3 Merger or Consolidation of, or Assumption of the Obligations
of, Servicer. Servicer shall not consolidate with or merge into any other Person
or convey, transfer or sell all or substantially all of its properties and
assets to any Person, unless (a) Servicer is the surviving entity or, if it is
not the surviving entity, the Person formed by the consolidation or into which
Servicer is merged or the Person that acquires by conveyance, transfer or sale
all or substantially all of the properties and assets of Servicer shall be a
corporation organized and existing under the laws of the United States of
America or any State thereof or the District of Columbia and such corporation
shall expressly assume, by an agreement supplemental hereto, executed and
delivered to Trustee and in form and substance satisfactory to Trustee, the
performance of every covenant and obligation of Servicer hereunder and under the
other Transaction Documents to which Servicer is a party, and (b) Servicer shall
have delivered to Trustee an Officer's Certificate stating that the
consolidation, merger, conveyance, transfer or sale and the supplemental
agreement comply with this Section and an Opinion of Counsel stating that the
supplemental agreement is a valid and binding obligation of the surviving entity
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general principles of equity.
SECTION 8.4 Indemnification by Servicer. Servicer hereby agrees to
indemnify each Indemnified Party forthwith on demand, from and against any and
all Indemnified Losses awarded against or incurred by any of them that
page 55
<PAGE>
arise out of or relate to Servicer's performance of, or failure to perform, any
of its obligations under or in connection with any Transaction Document.
Notwithstanding the foregoing, in no event shall any Indemnified Party be
indemnified against any Indemnified Losses (a) resulting from gross negligence
or willful misconduct on the part of such Indemnified Party (or the gross
negligence or willful misconduct on the part of any of its officers, directors,
employees, affiliates or agents), (b) to the extent they include Indemnified
Losses in respect of Receivables and reimbursement therefore that would
constitute credit recourse to Servicer for the amount of any Receivable or
Related Transferred Asset not paid by the related Obligor, (c) to the extent
they are or result from lost profits, (d) to the extent they are or result from
taxes (including interest and penalties thereon) asserted with respect to (i)
distributions on the Investor Certificates, (ii) franchise or withholding taxes
imposed on any Indemnified Party other than the Trust or Trustee in its capacity
as Trustee or (iii) federal or other income taxes on or measured by the net
income of the Indemnified Party and costs and expenses (including, without
limitation, interest, and additions to tax) in defending against the same, or
(e) to the extent that they constitute consequential, special or punitive damage
(collectively, "Excluded Losses").
If for any reason the indemnification provided in this section is
unavailable to an Indemnified Party or is insufficient to hold it harmless, then
Servicer shall contribute to the amount paid by the Indemnified Party as a
result of any loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
Indemnified Party on the one hand and Servicer on the other hand, but also the
relative fault of the Indemnified Party (if any) and Servicer and any other
relevant equitable consideration.
SECTION 8.5 Servicer Liability. Servicer shall be liable in accordance
with this Agreement only to the extent of the obligations specifically
undertaken by Servicer in such capacity herein and as set forth herein.
SECTION 8.6 Limitation on Liability of Servicer and Others. No recourse
under or upon any obligation or covenant of this Agreement, any Supplement, any
Certificate or any other Transaction Document, or for any claim based thereon or
otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of Servicer
or of any successor corporation, either directly or through Servicer, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that this
Agreement, any Supplement, all other relevant Transaction
page 56
<PAGE>
Documents and the obligations incurred hereunder or thereunder are solely
corporate obligations, and that no such personal liability whatsoever shall
attach to, or is or shall be incurred by the incorporators, shareholders,
officers or directors, as such, of Servicer or of any successor corporation, or
any of them, by reason of the obligations, covenants or agreements contained in
this Agreement, any Supplement, any of the Certificates or any other Transaction
Documents, or implied therefrom; and that any and all such personal liability
of, either at common law or in equity or by constitution or statute, and any and
all such rights and claims against, every such incorporator, shareholder,
officer or director, as such, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations or covenants contained in
this Agreement, any Supplement, any of the Certificates or any other Transaction
Documents, or implied therefrom, are hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Agreement and
any Supplement. Servicer and any director, officer, employee or agent of
Servicer may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
Servicer shall not be under any obligation to appear in, prosecute or defend any
legal action that is not incidental to its duties to service the Receivables in
accordance with this Agreement or any Supplement that in its reasonable opinion
may involve it in any expense or liability. Servicer may, in its sole
discretion, undertake any legal action relating to the servicing, collection or
administration of Receivables and Related Transferred Assets that it may
reasonably deem necessary or appropriate for the benefit of the
Certificateholders and the Purchasers with respect to this Agreement and the
rights and duties of the parties hereto and the interests of the
Certificateholders hereunder.
ARTICLE IX EARLY AMORTIZATION EVENTS
SECTION 9.1 Early Amortization Events. The Early Amortization Events with
respect to each Series and Purchased Interest shall be specified in the related
Supplement or PI Agreement.
SECTION 9.2 Remedies. Upon the occurrence of an Early Amortization Event,
Trustee shall have, in addition to all other rights and remedies available to
Trustee under this Agreement or otherwise, (a) the right to apply Collections to
the payment of the obligations of Transferor and Servicer under the Transaction
Documents, as provided herein, and (b) all rights and remedies provided under
all other applicable laws, which rights, in the case of each and all of the
foregoing, shall be cumulative. Trustee shall exercise the rights at the
direction of the Investor Certificateholders pursuant to (and subject to the
limitations specified in) Section 11.14.
page 57
<PAGE>
SECTION 9.3 Additional Rights Upon the Occurrence of Certain Events. (a)
If a Bankruptcy Event shall occur with respect to Transferor, this Agreement
(other than this Section 9.3) and the Trust shall be deemed to have terminated
on the day of the Bankruptcy Event. Within seven Business Days of the date of
written notice to Trustee of the Bankruptcy Event, Trustee shall:
(i) publish a notice in an Authorized Newspaper that a Bankruptcy Event
has occurred with respect to Transferor, that the Trust has terminated, and
that Trustee intends to sell, dispose of or otherwise liquidate the
Receivables and the Related Transferred Assets pursuant to this Agreement
in a commercially reasonable manner and on commercially reasonable terms,
which shall include the solicitation of competitive bids (a "Disposition"),
and
(ii) send written notice to the Investor Certificateholders and
Purchasers describing the provisions of this section and requesting each
Investor Certificateholder and Purchaser to advise Trustee in writing
whether (A) it wishes Trustee to instruct Servicer not to effectuate a
Disposition, (B) it refuses to advise Trustee as to the specific action
Trustee shall instruct Servicer to take or (C) it wishes Servicer to effect
a Disposition.
If, after 60 days from the day notice pursuant to subsection (a)(i) is
first published (the "Publication Date"), Trustee shall not have received the
written instruction described in subsection (a)(ii)(A) from Holders representing
in excess of 50% of the outstanding principal amount of each Series of Investor
Certificates and Purchased Interests, Trustee shall instruct Servicer to
effectuate a Disposition, and Servicer shall proceed to consummate a
Disposition. If, however, Holders representing in excess of 50% of the
outstanding principal amount of each Series of Investor Certificates and
Purchased Interests instruct Trustee not to effectuate a Disposition, the Trust
shall be reconstituted and continue pursuant to the terms of this Agreement.
(b) Notwithstanding the termination of this Agreement and the Trust
pursuant to subsection (a), the proceeds from any Disposition of the Receivables
and the Related Transferred Assets pursuant to subsection (a) shall be treated
as Collections on the Receivables and shall be allocated and deposited in
accordance with the provisions of Article IV.
(c) Trustee may appoint an agent or agents to assist with its
responsibilities pursuant to this section with respect to competitive bids.
page 58
<PAGE>
(d) Transferor or any of its Affiliates shall be permitted to bid for the
Receivables and the Related Transferred Assets. Trustee may obtain a prior
determination from any bankruptcy Trustee, receiver or liquidator that the terms
and manner of any proposed Disposition are commercially reasonable.
(e) Notwithstanding the termination of this Agreement and the Trust
pursuant to subsection (a), Trustee shall continue to have the rights described
in Section 9.2 and Article XI, and be subject to direction on terms consistent
with those set out in Section 11.14, pending the completion of any Disposition
and/or the reconstitution of the Trust.
ARTICLE X SERVICER DEFAULTS
SECTION 10.1 Servicer Defaults. Any of the following events shall
constitute a "Servicer Default":
(a) any failure by Servicer in its capacity as Servicer to make any
payment, transfer or deposit required by any Transaction Document to be
made by it or to give instructions or to give notice to Trustee to make
such payment, transfer or deposit, which failure continues unremedied for
three Business Days,
(b) failure on the part of Servicer in its capacity as Servicer duly to
observe or perform in any material respect any other covenants or
agreements of Servicer set forth in this Agreement or any other Transaction
Document, which failure continues unremedied for a period of 30 days after
the date on which written notice of the failure, requiring the same to be
remedied, shall have been given to Servicer by Trustee, or to Servicer and
Trustee by any Investor Certificateholder or Purchaser,
(c) Servicer shall assign its duties under this Agreement, except as
permitted by Sections 3.1(b) and 8.3,
(d) any Daily Report or Monthly Report or any representation, warranty
or certification made by Servicer in any Transaction Document or in any
certificate or other document or instrument delivered pursuant to any
Transaction Document shall fail to have been correct in any material
respect when made or delivered, which failure has a materially adverse
effect on the Certificateholders or any Purchased Interest and which
materially adverse effect continues unremedied for a period of 3 Business
Days.
page 59
<PAGE>
(e) any Bankruptcy Event shall occur with respect to Servicer.
In the event of any Servicer Default, so long as Servicer Default shall not have
been remedied, Trustee may (and, at the direction of the Required Investors,
shall), by notice then given in writing to Servicer (a "Termination Notice"),
terminate all (but not less than all) the rights and obligations of Servicer as
Servicer under this Agreement and in and to the Receivables, the Related
Transferred Assets and the proceeds thereof.
As soon as possible, and in any event within five Business Days, after an
Authorized Officer of Servicer has obtained knowledge of the occurrence of any
Servicer Default, Servicer shall furnish Trustee, each Agent and the Rating
Agencies, and Trustee shall promptly furnish each Investor Certificateholder,
notice of such Servicer Default.
Notwithstanding the foregoing, a delay in or failure in performance
referred to in subsection (a) for a period of ten Business Days after the
applicable grace period, or in subsection (b) or (d) for a period of 30 Business
Days after the applicable grace period, shall not constitute a Servicer Default
if the delay or failure could not have been prevented by the exercise of
reasonable diligence by Servicer and the delay or failure was caused by an act
of God or the public enemy, riots, acts of war, acts of terrorism, epidemics,
flood, embargoes, weather, landslides, fire, earthquakes or similar causes. The
preceding sentence shall not relieve Servicer from using its best efforts to
perform its obligations in a timely manner in accordance with the terms of the
Transaction Documents, and Servicer shall promptly give Trustee, each Agent and
Transferor an Officer's Certificate notifying them of its failure or delay.
SECTION 10.2 Trustee to Act; Appointment of Successor. (a) On and after
Servicer's receipt of a Termination Notice pursuant to Section 10.1, Servicer
shall continue to perform all servicing functions under this Agreement until the
date specified in the Termination Notice or otherwise specified by Trustee in
writing or, if no such date is specified in the Termination Notice, or otherwise
specified by Trustee, until a date mutually agreed upon by Servicer and Trustee.
Trustee shall, as promptly as possible after the giving of a Termination Notice,
nominate an Eligible Servicer as successor servicer (the "Successor Servicer");
provided that (a) in so appointing any Successor Servicer, Trustee shall give
due consideration to any Successor Servicer proposed by any Agent and (b) the
Successor Servicer shall accept its appointment by a written assumption in a
form acceptable to Trustee and each Agent. Any Person who is nominated to be a
Successor Servicer shall accept its appointment by a written assumption in form
and substance acceptable to Trustee. In the event that a Successor Servicer has
not been appointed or has
page 60
<PAGE>
not accepted its appointment at the time when Servicer ceases to act as
Servicer, Trustee without further action shall automatically be appointed the
Successor Servicer. Trustee may delegate any of its servicing obligations to an
affiliate or agent in accordance with Section 3.1(b). If Trustee is prohibited
by applicable law from performing the duties of Servicer hereunder, Trustee may
appoint, or may petition a court of competent jurisdiction to appoint, a
Successor Servicer hereunder. Trustee shall give prompt notice to the Rating
Agencies and each Investor Certificateholder upon the appointment of a Successor
Servicer.
(b) After Servicer's receipt of a Termination Notice, and on the date that
a Successor Servicer shall have been appointed by Trustee and shall have
accepted the appointment pursuant to subsection (a), all authority and power of
Servicer under this Agreement shall pass to and be vested in the Successor
Servicer (a "Service Transfer"); and, without limitation, Trustee is hereby
authorized and empowered to execute and deliver, on behalf of Servicer, as
attorney-in-fact or otherwise, all documents and instruments, and to do and
accomplish all other acts or things that Trustee reasonably determines are
necessary or appropriate to effect the purposes of the Service Transfer. Upon
the appointment of the Successor Servicer and its acceptance thereof, Servicer
agrees that it will terminate its activities as Servicer hereunder in a manner
that Trustee indicates will facilitate the transition of the performance of such
activities to the Successor Servicer. Servicer agrees that it shall use
reasonable efforts to assist the Successor Servicer in assuming the obligations
to service and administer the Receivables and the Related Transferred Assets, on
the terms and subject to the conditions set forth herein, and to effect the
termination of the responsibilities and rights of Servicer to conduct servicing
hereunder, including the transfer to such Successor Servicer of all authority of
Servicer to service the Receivables and Related Transferred Assets provided for
under this Agreement and all authority over all cash amounts that shall
thereafter be received with respect to the Receivables or the Related
Transferred Assets. Servicer shall, within five Business Days after the
designation of a Successor Servicer, transfer its electronic records (including
software) relating to the Receivables, the related Contracts and the Related
Transferred Assets to the Successor Servicer in such electronic form as the
Successor Servicer may reasonably request and shall promptly transfer to the
Successor Servicer all other records, correspondence and documents necessary for
the continued servicing of the Receivables and the Related Transferred Assets in
the manner and at such times as the Successor Servicer shall request. To the
extent that compliance with this Section shall require Servicer to disclose to
the Successor Servicer information of any kind that Servicer reasonably deems to
be confidential, prior to the transfer contemplated by the preceding sentence
the Successor Servicer shall be required to enter into such
page 61
<PAGE>
licensing and confidentiality agreements as Servicer shall reasonably deem
necessary to protect its interest. All reasonable costs and expenses (including
attorneys' fees and disbursements) incurred in connection with transferring the
Receivables, the Related Transferred Assets and all related Records (including
the related Contracts) to the Successor Servicer and amending this Agreement and
the other Transaction Documents to reflect the succession as Servicer pursuant
to this Section shall be paid by the predecessor Servicer (or, if Trustee serves
as Successor Servicer on an interim basis, the initial Servicer) within 15 days
after presentation of reasonable documentation of the costs and expenses.
(c) Upon its appointment and acceptance thereof, the Successor Servicer
shall be the successor in all respects to Servicer with respect to servicing
functions under this Agreement and shall be subject to all the responsibilities
and duties relating thereto placed on Servicer by the terms and provisions
hereof (and shall carry out such responsibilities and duties in accordance with
standards of reasonable commercial prudence), and all references in this
Agreement to Servicer shall be deemed to refer to the Successor Servicer.
(d) All authority and power granted to Servicer or the Successor Servicer
under this Agreement shall automatically cease and terminate upon termination of
the Trust pursuant to Section 12.1, and shall pass to and be vested in
Transferor and, without limitation, Transferor is hereby authorized and
empowered, on and after the effective date of such termination, to execute and
deliver, on behalf of the Servicer or the Successor Servicer, as attorney-in-
fact or otherwise, all documents and other instruments and to do and accomplish
all other acts or things that Transferor reasonably determines are necessary or
appropriate to effect the purposes of such transfer of servicing rights. The
Successor Servicer agrees to cooperate with Transferor in effecting the
termination of the responsibilities and rights of the Successor Servicer to
conduct servicing of the Receivables and the Related Transferred Assets. The
Successor Servicer shall, within five Business Days after such termination,
transfer its electronic records relating to the Receivables and the Related
Transferred Assets to Transferor in such electronic form as Transferor may
reasonably request and shall transfer all other records, correspondence and
documents relating to the Receivables and the Related Transferred Assets to
Transferor in the manner and at such times as Transferor shall reasonably
request. To the extent that compliance with this Section shall require the
Successor Servicer to disclose to Transferor information of any kind that the
Successor Servicer deems to be confidential, Transferor shall be required to
enter into such customary licensing and confidentiality agreements as the
Successor Servicer shall reasonably deem necessary to protect its interests. All
page 62
<PAGE>
reasonable costs and expenses (including attorneys' fees and disbursements)
incurred by Trustee, in its capacity as Successor Servicer, in connection with
the termination shall be paid by Transferor within 15 days after presentation of
reasonable documentation of the costs and expenses.
SECTION 10.3 Notification of Servicer Default; Notification of Appointment
of Successor Servicer. Within four Business Days after an Authorized Officer of
Servicer becomes aware of any Servicer Default, Servicer shall give written
notice thereof to Trustee and the Rating Agencies, and Trustee shall, promptly
upon receipt of the written notice, give notice to the Investor
Certificateholders at their respective addresses appearing in the Certificate
Register and to the Purchasers. Upon any termination or appointment of a
Successor Servicer pursuant to this Article X, Trustee shall give prompt written
notice thereof to the Investor Certificateholders at their respective addresses
appearing in the Certificate Register and to the Purchasers and the Rating
Agencies.
ARTICLE XI TRUSTEE
SECTION 11.1 Duties of Trustee. (a) Trustee undertakes to perform the
duties and only the duties as are specifically set forth in this Agreement. The
provisions of this Article XI shall apply to Trustee solely in its capacity as
Trustee, and not to Trustee in its capacity as Servicer if it is acting as
Servicer. Following the occurrence of a Servicer Default of which a Responsible
Officer has actual knowledge, Trustee shall exercise such of the rights and
powers vested in it by this Agreement and use the same degree of care and skill
in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs; provided that if Trustee
shall assume the duties of Servicer pursuant to Section 10.2, Trustee in
performing the duties shall use the degree of skill and attention customarily
exercised by a servicer with respect to trade receivables that it services for
itself or others. Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in, or incidental to the performance of its duties under, the
Transaction Documents.
(b) Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to Trustee
that are specifically required to be furnished pursuant to any provision of this
Agreement, shall examine them to determine whether they are substantially in the
form required by this Agreement. Trustee shall give written notice to the Person
who furnished any item of the type listed in the preceding sentence of any lack
of substantial conformity of any such item to the applicable
page 63
<PAGE>
requirements of this Agreement. In addition, Trustee shall give prompt written
notice to the Investor Certificateholders and each Agent of any lack of
substantial conformity of any such instrument to the applicable requirements of
this Agreement discovered by Trustee that would entitle a specified percentage
of the Investor Certificateholders or the Holders of any Series of Certificates
or Purchasers or Agents to take any action pursuant to this Agreement. Within
two Business Days of its receipt of any Monthly Report, Trustee shall verify the
mathematical computations contained therein and shall notify Servicer and each
of the Rating Agencies of the accuracy of such computations or of any
discrepancies therein (provided that the rounding of numbers will not constitute
a discrepancy) whereupon Servicer shall deliver to the Rating Agencies within 5
Business Days thereafter a certificate describing the nature and cause of such
discrepancies and the action that Servicer proposes to take with respect
thereto. During the first week of each year, Trustee shall provide the Rating
Agencies with a certificate, signed by a Responsible Officer, to the effect that
Trustee is not aware of any Early Amortization Event (or, if it is aware of any
Early Amortization Event, specifying the nature of that event).
(c) Subject to subsection (a), no provision of this Agreement shall be
construed to relieve Trustee from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct; provided that:
(i) Trustee shall not be liable for an error of judgment made in good
faith by a Responsible Officer or Responsible Officers of Trustee, unless
it shall be proved that Trustee was negligent in ascertaining the pertinent
facts,
(ii) Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken by it in good faith in accordance with the
direction (as applicable) of the Majority Investors, the Required
Investors, all Investors, any Agent, or the Required Series Holders
relating to the time, method and place of conducting any proceeding for any
remedy available to Trustee, or exercising any trust or power conferred
upon Trustee, under this Agreement,
(iii) Trustee shall not be charged with knowledge of (A) any failure by
Servicer to comply with the obligations of Servicer referred to in
subsections (a), (b) or (c) of Section 10.1, (B) any breach of the
representations and warranties of Transferor set forth in Section 2.3 or
7.1 or the representations and warranties of Servicer set forth in Section
8.1, (C) any breach of the covenants of Transferor set forth in Section 7.2
or the covenants of Servicer set forth in Section 8.2 or (D) the ownership
of any Certificate or Purchased Interest for purposes of
page 64
<PAGE>
Section 6.5, in each case unless a Responsible Officer of Trustee obtains
actual knowledge of the matter or Trustee receives written notice of the
matter from Servicer or from any Holder,
(iv) the duties and obligations of Trustee shall be determined solely by
the express provisions of this Agreement, Trustee shall not be liable
except for the performance of the duties and obligations that specifically
shall be set forth in this Agreement, no implied covenants or obligations
shall be read into this Agreement against Trustee and, in the absence of
bad faith on the part of Trustee, Trustee may conclusively rely on the
truth of the statements and the correctness of the opinions expressed in
any certificates or opinions that are furnished to Trustee and that conform
to the requirements of this Agreement, and
(v) without limiting the generality of this section or Section 11.2,
Trustee shall have no duty (A) to see to any recording, filing, or
depositing of this Agreement or any agreement referred to herein or any
financing statement evidencing a security interest in the Receivables or
the Related Transferred Assets, or to see to the maintenance of any such
recording or filing or depositing or to any rerecording, refiling or
redepositing of any thereof (except that Trustee (x) shall note in its
records the date of filing of each UCC financing statement identified to it
in writing as having been filed in connection with the Transaction
Documents, or filed in connection with a predecessor receivables
securitization and amended and/or assigned in connection with the
Transaction Documents, and naming Trustee as secured party or assignee of
the secured party and (y) shall, unless it shall have received an Opinion
of Counsel to the effect that no such filing is necessary to continue the
perfection of Transferor's or Trustee's interests in the Receivables and
the Related Assets, cause continuation statements to be filed with respect
to each such financing statement not less than four years and six months
and not more than five years after (1) its filing date and (2) the date of
filing of any prior continuation statement), (B) to see to the payment or
discharge of any tax, assessment, or other governmental charge or any
Adverse Claim or encumbrance of any kind owing with respect to, assessed or
levied against, any part of the Trust, (C) to confirm or verify the
contents of any reports or certificates of Servicer delivered to Trustee
pursuant to this Agreement that are believed by Trustee to be genuine and
to have been signed or presented by the proper party or parties or (D) to
ascertain or inquire as to the performance or observance of any of
Transferor's or Servicer's representations, warranties or covenants or
Servicer's duties and obligations as Servicer.
page 65
<PAGE>
(d) Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers, if Trustee
reasonably believes that the repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it, and none of the
provisions contained in this Agreement shall in any event require Trustee to
perform, or be responsible for the manner of performance of, any obligations of
Servicer under this Agreement except during the time, if any, that Trustee shall
be the successor to, and be vested with the rights, duties, powers and
privileges of, Servicer in accordance with the terms of this Agreement.
(e) Except for actions expressly authorized by this Agreement, Trustee
shall take no action reasonably likely to impair the interests of the Trust in
any Transferred Asset now existing or hereafter created or to impair the value
of any Transferred Asset now existing or hereafter created.
(f) Except to the extent expressly provided otherwise in this Agreement,
Trustee shall have no power to vary the Transferred Assets.
(g) In the event that the Paying Agent or the Transfer Agent and Registrar
shall fail to perform any obligation, duty or agreement in the manner or on the
day on which such obligation, duty or agreement is required to be performed by
the Paying Agent or the Transfer Agent and Registrar, as the case may be, under
this Agreement, Trustee shall be obligated, promptly upon its actual knowledge
thereof, to perform the obligation, duty or agreement in the manner so required.
SECTION 11.2 Certain Matters Affecting Trustee. Except as otherwise
provided in Section 11.1:
(a) Trustee may rely on and shall be protected in acting on, or in
refraining from acting in accordance with, any resolution, Officer's
Certificate, opinion of counsel, certificate of auditors or any other
certificate, statement, instrument, instruction, opinion, report, notice,
request, consent, order, appraisal, bond or other paper or document and any
information contained therein believed by it to be genuine and to have been
signed or presented to it pursuant to this Agreement by the proper party or
parties including, but not limited to, reports and records required by
Article III,
(b) Trustee may consult with counsel and any opinion of counsel rendered
by counsel reasonably satisfactory to Transferor shall be full and complete
authorization and protection in respect of any
page 66
<PAGE>
action taken or permitted or omitted by it hereunder in good faith and in
accordance with such opinion of counsel,
(c) Trustee (including in its role as Successor Servicer, if it ever
acts in that capacity) shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct
or defend any litigation or other proceeding hereunder or in relation
hereto, at the request, order or direction of any of the
Certificateholders, the Purchasers or any Agent, pursuant to the provisions
of this Agreement, unless such Certificateholders, the Purchasers or Agent
shall have offered to Trustee reasonable security or indemnity against the
costs, expenses and liabilities that may be incurred therein or thereby;
provided that nothing contained herein shall relieve Trustee of the
obligations, upon the occurrence and continuance of a Servicer Default that
has not been cured, to exercise such of the rights and powers vested in it
by this Agreement and to use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances
in the conduct of his or her own affairs,
(d) Trustee shall not be personally liable for any action taken,
permitted or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Agreement,
(e) Trustee shall not be bound to make any investigation into the facts
of matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other
paper or document, unless requested in writing to do so by the Required
Investors; provided that if the payment within a reasonable time to Trustee
of the costs, expenses, or liabilities likely to be incurred by it in
connection with making such investigation shall be, in the opinion of
Trustee, not reasonably assured to Trustee by the security afforded to it
by the terms of this Agreement, Trustee may require reasonable indemnity
against such cost, expense, or liability as a condition to proceeding with
the investigation. The reasonable expense of every examination shall be
paid by Servicer or, if paid by Trustee, shall be reimbursed by Servicer
upon demand,
(f) Trustee may execute any of the trusts or powers hereunder or perform
any duties hereunder either directly or by or through agents,
representatives, attorneys or a custodian, and Trustee shall not be
responsible for any misconduct or negligence on the part of any agent,
page 67
<PAGE>
representative, attorney or custodian appointed with due care by it
hereunder,
(g) except as may be required by Section 11.1(b) hereof, Trustee shall
not be required to make any initial or periodic examination of any
documents or records related to the Transferred Assets for the purpose of
establishing the presence or absence of defects or for any other purpose,
(h) whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to Trustee shall be subject to the provisions of this
section,
(i) Trustee shall have no liability with respect to the acts or
omissions of Servicer (except and to the extent Servicer is Trustee),
including, but not limited to, acts or omissions in connection with: (A)
the servicing, management or administration of the Receivables or the
Related Transferred Assets, (B) calculations made by Servicer whether or
not reported to Trustee, and (C) deposits into or withdrawals from any Bank
Accounts or Transaction Accounts established pursuant to the terms of this
Agreement, and
(j) in the event that Trustee is also acting as Paying Agent or Transfer
Agent and Registrar hereunder, the rights and protections afforded to
Trustee pursuant to this Article XI shall also be afforded to Trustee
acting as Paying Agent or as Transfer Agent and Registrar.
SECTION 11.3 Limitation on Liability of Trustee. Trustee shall at no time
have any responsibility or liability for or with respect to the correctness of
the recitals contained herein or in the Certificates (other than the certificate
of authentication on the Certificates) or the Purchased Interests. Except as set
forth in Section 11.15, Trustee makes no representations as to the validity or
sufficiency of this Agreement, any PI Agreement, any Supplement, the
Certificates (other than the certificate of authentication on the Certificates)
or the Purchased Interests, any other Transaction Document or any Transferred
Asset or related document. Trustee shall not be accountable for the use or
application by Transferor of any of the Certificates or the Purchased Interests
or of the proceeds of such Certificates or the Purchased Interests, or for the
use or application of any funds paid to Transferor or Servicer in respect of the
Transferred Assets or deposited by Servicer in or withdrawn by Servicer from the
Bank Accounts, the Transaction Accounts or any other accounts hereafter
page 68
<PAGE>
established to effectuate the transactions contemplated herein or in the other
Transaction Documents and in accordance with the terms hereof or thereof.
Trustee shall at no time have any responsibility or liability for or with
respect to the legality, validity, or enforceability of any ownership or
security interest in any Transferred Asset, or the perfection or priority of
such a security interest or the maintenance of any such perfection or priority,
or for the generation of the payments to be distributed to Certificateholders or
Purchasers under this Agreement, including: (a) the existence and substance of
any Transferred Asset or any related Record or any computer or other record
thereof, (b) the validity of the transfer of any Transferred Asset to the Trust
or of any preceding or intervening transfer, (c) the performance or enforcement
of any Transferred Asset, (d) the compliance by Transferor or Servicer with any
warranty or representation made under this Agreement or in any other Transaction
Document and the accuracy of any such warranty or representation prior to
Trustee's receipt of actual notice of any noncompliance therewith or any breach
thereof, (e) any investment of monies pursuant to Section 4.4 or any loss
resulting therefrom, (f) the acts or omissions of Transferor, Servicer or any
Obligor, (g) any action of Servicer taken in the name of Trustee, or (h) any
action by Trustee taken at the instruction of Servicer; provided that the
foregoing shall not relieve Trustee of its obligation to perform its duties
under the Agreement in accordance with the terms hereof.
Except with respect to a claim based on the failure of Trustee to perform
its duties under this Agreement or based on Trustee's negligence or willful
misconduct, no recourse shall be had against Trustee in its individual capacity
for any claim based on any provision of this Agreement, any other Transaction
Document, the Certificates, the Purchased Interests, any Transferred Asset or
any assignment thereof. Trustee shall not have any personal obligation,
liability, or duty whatsoever to any Certificateholder, any Purchaser or any
other Person with respect to any such claim, and any such claim shall be
asserted solely against the Trust or any indemnitor who shall furnish indemnity
to the Trust or Trustee as provided in this Agreement.
SECTION 11.4 Trustee May Deal with Other Parties. Subject to any
restrictions that may otherwise be imposed by Section 406 of ERISA or Section
4975(e) of the Internal Revenue Code, Trustee in its individual or any other
capacity may deal with the other parties hereto (other than Transferor) and
their respective affiliates, with the same rights as it would have if it were
not Trustee.
SECTION 11.5 Servicer To Pay Trustee's Fees and Expenses. (a) To the
extent not paid by Servicer to Trustee from funds constituting the Servicing
page 69
<PAGE>
Fee, Servicer covenants and agrees to pay to Trustee from time to time, and
Trustee shall be entitled to receive, such reasonable compensation as is agreed
upon in writing between Trustee and Servicer (which shall not be limited by any
provision of law in regard to the compensation of a Trustee of an express trust)
for all services rendered by it in connection with the Transaction Documents and
in the exercise and performance of any of the powers and duties hereunder of
Trustee, and Servicer will pay or reimburse Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by Trustee in
accordance with any of the provisions of the Transaction Documents to which it
is a party (including the reasonable fees and expenses of its agents, any co-
Trustee and counsel) except any expense, disbursement or advance that may arise
from Trustee's negligence or willful misconduct.
(b) In addition, Servicer agrees to indemnify Trustee from, and hold it
harmless against, any and all losses, liabilities, damages, claims or expenses
incurred by Trustee in connection with the Transaction Documents or in the
exercise or performance of any of the powers or duties of Trustee hereunder,
other than those resulting from the negligence or willful misconduct of Trustee.
(c) If Trustee is appointed Successor Servicer pursuant to Section 10.2,
the provisions of this section shall not apply to expenses, disbursements and
advances made or incurred by Trustee in its capacity as Successor Servicer,
which shall be paid out of the Servicing Fee. Servicer's covenant to pay the
fees, expenses, disbursements and advances provided for in this section shall
survive the resignation or removal of Trustee and the termination of this
Agreement.
(d) Trustee shall look solely to Servicer for payment of amounts described
in this Section 11.5, and Trustee shall have no claim for payment of such
amounts against Transferor or the Transferred Assets.
SECTION 11.6 Eligibility Requirements for Trustee. Trustee hereunder shall
at all times: (a) be (i) a banking institution organized under the laws of the
United States, (ii) a member bank of the Federal Reserve System or (iii) any
other banking institution or trust company, incorporated and doing business
under the laws of any State or of the United States, a substantial portion of
the business of which consists of receiving deposits or exercising fiduciary
powers similar to those permitted to national banks under the authority of the
Comptroller of the Currency, and that is supervised and examined by a state or
federal authority having supervision over banks, (b) not be an Enhancement
Provider or an Affiliate of BT Securities Corporation, (c) have, in the case of
an entity that is subject to risk-based capital adequacy
page 70
<PAGE>
requirements, risk-based capital of at least $250,000,000 or, in the case of an
entity that is not subject to risk-based capital adequacy requirements, a
combined capital and surplus of at least $250,000,000 and (d) have an unsecured
long-term debt rating of at least "A" or its equivalent from at least one
nationally recognized statistical rating agency. If such corporation or
association publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purpose of this section, the combined capital and surplus of the
corporation or association shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time Trustee shall cease to be eligible in accordance with the provisions of
this section, Trustee shall resign immediately in the manner and with the effect
specified in Section 11.7.
SECTION 11.7 Resignation or Removal of Trustee. (a) Trustee may at any
time resign and be discharged from its obligations hereunder by giving 30 days'
prior written notice thereof to Transferor, Servicer, the Rating Agencies, the
Investor Certificateholders and the Agents. Upon receiving the notice of
resignation, Transferor shall promptly appoint, subject to satisfaction of the
Rating Agency Condition, a successor Trustee who meets the eligibility
requirements set forth in Section 11.6 by written instrument, in duplicate, one
copy of which shall be delivered to the resigning Trustee and one copy to the
successor Trustee. If no successor Trustee shall have been so appointed and
shall have accepted appointment within 30 days after the giving of the notice of
resignation, the resigning Trustee, upon notice to each Agent, may petition any
court of competent jurisdiction to appoint a successor Trustee.
(b) If at any time Trustee shall cease to be eligible to be Trustee
hereunder in accordance with the provisions of Section 11.6 hereof and shall
fail to resign promptly after its receipt of a written request therefor by
Servicer, or if at any time Trustee shall be legally unable to act, or shall be
adjudged bankrupt or insolvent, or if a receiver for Trustee or of its property
shall be appointed, or any public officer shall take charge or control of
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then Servicer may remove Trustee and, subject to
the consent of each Agent (which consent shall not be unreasonably withheld or
delayed) and satisfaction of the Rating Agency Condition, promptly appoint a
successor Trustee by written instrument, in duplicate, one copy of which shall
be delivered to Trustee so removed and one copy to the successor Trustee.
(c) Any resignation or removal of Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this section shall not become
effective until (i) acceptance of appointment by the successor Trustee
page 71
<PAGE>
as provided in Section 11.8 hereof, and (ii) such successor Trustee shall have
agreed in writing to be bound by any Intercreditor Agreements then in effect.
SECTION 11.8 Successor Trustee. (a) Any successor Trustee appointed as
provided in Section 11.7 shall execute, acknowledge and deliver to Transferor,
Servicer, the Investor Certificateholders, the Purchasers and the predecessor
Trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall, upon payment of its
fees and expenses and other amounts owed to it pursuant to Section 11.5, become
effective and the successor Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee herein. The predecessor Trustee shall deliver to the successor
Trustee, at the expense of Servicer, all documents or copies thereof and
statements held by it hereunder; and Transferor and the predecessor Trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for fully vesting and confirming in the successor Trustee
all such rights, powers, duties and obligations. Servicer shall promptly give
notice to the Rating Agencies upon the appointment of a successor Trustee.
(b) No successor Trustee shall accept appointment as provided in this
section unless at the time of the acceptance the successor Trustee shall be
eligible to become Trustee under the provisions of Section 11.6.
(c) Upon acceptance of appointment by a successor Trustee as provided in
this section, the successor Trustee shall mail notice of the succession
hereunder to all Investor Certificateholders at their addresses as shown in the
Certificate Register and to each Rating Agency.
SECTION 11.9 Merger or Consolidation of Trustee. Any Person into which
Trustee may be merged or converted or with which it may be consolidated, or any
Person resulting from any merger, conversion or consolidation to which Trustee
shall be a party, or any Person succeeding to all or substantially all of the
corporate trust business of Trustee, shall be the successor of Trustee
hereunder, if the Person meets the requirements of Section 11.6, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. Servicer shall
promptly give notice to the Rating Agencies upon any merger or consolidation of
Trustee.
SECTION 11.10 Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Agreement, at any time, for
page 72
<PAGE>
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust may at the time be located, Trustee shall have the power and
may execute and deliver all instruments to appoint one or more Persons (who may
be an employee or employees of Trustee) to act as a co-Trustee or co-Trustees,
or separate Trustee or separate Trustees, with respect to all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders and the Purchasers, such title to the Trust,
or any part thereof, and, subject to the other provisions of this section, such
powers, duties, obligations, rights and trusts as Trustee may consider necessary
or appropriate; provided, that such appointment shall be subject to the prior
written consent of Transferor unless an Early Amortization Event or Servicer
Termination Event is continuing; and provided further, that in any event Trustee
will give Transferor and Servicer prior written notice of such appointment. No
co-Trustee or separate Trustee shall be required to meet the terms of
eligibility as a successor Trustee under Section 11.6 and no notice to
Certificateholders, Agents or Purchasers of the appointment of any co-Trustee or
separate Trustee shall be required under Section 11.8.
(b) Every separate Trustee and co-Trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed upon
Trustee shall be conferred or imposed upon and exercised or performed by
Trustee and the separate Trustee or co-Trustee jointly (it being understood
that the separate Trustee or co-Trustee is not authorized to act separately
without Trustee joining in such act), except to the extent that under any
law of any jurisdiction in which any particular act or acts are to be
performed (whether as Trustee hereunder or as successor to Servicer
hereunder), Trustee shall be incompetent or unqualified to perform such act
or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in any
such jurisdiction) shall be exercised and performed singly by such separate
Trustee or co-Trustee, but solely at the direction of Trustee,
(ii) no Trustee hereunder shall be personally liable by reason of any
act or omission of any other Trustee hereunder, and
(iii) Trustee may at any time accept the resignation of or remove any
separate Trustee or co-Trustee.
page 73
<PAGE>
(c) Any notice, request or other writing given to Trustee shall be deemed
to have been given to each of the then separate Trustees and co-Trustees, as
effectively as if given to each of them. Every instrument appointing any
separate Trustee or co-Trustee shall refer to this Agreement and the conditions
of this Article XI. Each separate Trustee and co-Trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with Trustee or separately, as may
be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection or indemnity to,
Trustee. Every such instrument shall be filed with Trustee and a copy thereof
given to Servicer.
(d) Any separate Trustee or co-Trustee may at any time constitute Trustee,
its agent or attorney-in-fact with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect to this Agreement or
any other Transaction Document on its behalf and in its name. If any separate
Trustee or co-Trustee shall die, become incapable of acting, resign or be
removed, all its estates, properties, rights, remedies and trusts shall vest in
and be exercised by Trustee, to the extent permitted by law, without the
appointment of a new or successor Trustee.
SECTION 11.11 Tax Returns. No Federal, state, local or foreign income tax
return shall be filed on behalf of the Trust unless either (i) Trustee or
Servicer shall receive an Opinion of Counsel that there is no substantial
authority for not filing such return, or (ii) the Internal Revenue Service or
the applicable Governmental Authority shall determine that the Trust is required
to file such a return, or (iii) the Trust is required to file such a return by
order of a court of competent jurisdiction. In the event the Trust shall be
required to file tax returns, Servicer shall prepare or shall cause to be
prepared any tax returns required to be filed by the Trust and shall remit the
returns to Trustee for signature at least five Business Days before the returns
are due to be filed. Trustee shall promptly sign and deliver the returns to
Servicer and Servicer shall promptly file the returns. Subject to the
responsibilities of Trustee set forth in any Supplement, Servicer, in accordance
with that Supplement, shall also prepare or shall cause to be prepared all tax
information required by law to be made available to Certificateholders and
Purchasers and shall deliver the information to Trustee at least five Business
Days prior to the date it is required by law to be made available to the
Certificateholders and Purchasers. Trustee, upon request, will furnish Servicer
with all the information known to Trustee as may be reasonably required in
connection with the preparation of all tax returns of the Trust and shall, upon
request, execute such returns as Trustee determines are appropriate.
page 74
<PAGE>
SECTION 11.12 Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement, the
Certificates, the Purchased Interests or the other Transaction Documents may be
prosecuted and enforced by Trustee without the possession of any of the
Certificates or Purchased Interests or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by Trustee shall be brought
in its own name as Trustee. Any recovery of judgment shall, after provision for
the payment of the reasonable compensation, expenses, disbursements and advances
of Trustee, its agents and counsel, be distributed to the Certificateholders or
Purchasers in respect of which such judgment has been obtained in accordance
with the related Supplement or PI Agreement.
SECTION 11.13 Suits for Enforcement. If an Early Amortization Event or a
Servicer Default shall occur and be continuing, Trustee, in its discretion may,
subject to the provisions of Sections 11.1 and 11.14, proceed to protect and
enforce its rights and the rights of the Certificateholders or Purchasers under
this Agreement by suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained in
this Agreement or any other Transaction Document or in aid of the execution of
any power granted in this Agreement or any other Transaction Document or for the
enforcement of any other legal, equitable or other remedy as Trustee, being
advised by counsel, shall deem most effectual to protect and enforce any of the
rights of Trustee or the Certificateholders or Purchasers. Nothing herein
contained shall be deemed to authorize Trustee to authorize or consent to or
accept or adopt on behalf of any Certificateholder or Purchaser any plan of
reorganization, arrangement, adjustment or composition affecting the Investor
Certificates or the rights of any Holder thereof, or the Purchasers, or to
authorize Trustee to vote in respect of the claim of any Investor
Certificateholder or Purchaser in any such proceeding.
SECTION 11.14 Rights of Required Investors To Direct Trustee. The Required
Investors shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to Trustee, or exercising any
trust or power conferred on Trustee; provided that, subject to Section 11.1,
Trustee may decline to follow any such direction if Trustee, being advised by
counsel, determines that the action so directed may not be taken lawfully, or if
a Responsible Officer or Responsible Officers of Trustee shall determine, in
good faith, that the proceedings so directed would be illegal or involve Trustee
in personal liability or be unduly prejudicial to the rights of the Investor
Certificateholders not giving such direction; and provided further, that nothing
in this Agreement shall impair the right of Trustee to take any action deemed
proper by Trustee and that is not inconsistent with such direction of the
Required Investors.
page 75
<PAGE>
SECTION 11.15 Representations and Warranties of Trustee. Trustee
represents and warrants that:
(a) it is a banking corporation organized, existing and in good standing
under the laws of the State of New York,
(b) it has full power, authority and right to execute, deliver and
perform the Transaction Documents to which it is a party, and has taken all
necessary action to authorize the execution, delivery and performance by it
of the Transaction Documents, and
(c) the Transaction Documents to which it is a party have been duly
executed and delivered by Trustee and, in the case of all such Transaction
Documents, are legal, valid and binding obligations of Trustee, enforceable
in accordance with their respective terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
SECTION 11.16 Maintenance of Office or Agency. Trustee will maintain, at
its address designated pursuant to Section 13.6, an office, offices, agency or
agencies where notices and demands to or upon Trustee in respect of the
Certificates, the Purchased Interests and the Transaction Documents to which it
is a party may be served. Trustee will give prompt written notice to Servicer
and to the Certificateholders and Agents of any change in the location of the
Certificate Register or any such office or agency.
ARTICLE XII TERMINATION
SECTION 12.1 Termination of Trust. (a) If not earlier terminated pursuant
to Section 9.3, the Trust and the respective obligations and responsibilities of
Transferor, Servicer and Trustee created hereby (other than the obligation of
Trustee to make payments to Certificateholders or Purchasers as hereinafter set
forth and the obligations of Servicer contained in Sections 11.11) shall
terminate, except with respect to the duties and obligations described in
Sections 3.9(c), 7.3, 8.4, 11.5, 12.2(b), 13.9, 13.15 and 13.16 upon the
earliest to occur of (i) the day on which the Investor Certificateholders, the
Purchasers and Trustee shall have been paid all amounts required to be paid to
them pursuant to this Agreement and Trustee has disposed of all property held
hereunder (including pursuant to Section 12.3) and (ii) the day which is 21
years less one day after the death of the officers
page 76
<PAGE>
and the last survivor of all the lineal descendants of every officer of the
Trustee who are living on the date hereof.
(b) Notwithstanding the foregoing, the last payment of the principal of
and interest on the Investor Certificates of any Series shall be due and payable
no later than the Final Scheduled Payment Date for that Series. If, on the
Distribution Date immediately prior to the Final Scheduled Payment Date for any
Series, Servicer determines that the Invested Amount for the Series on the
applicable Final Scheduled Payment Date (after giving effect to all changes
therein on such date) will exceed zero, Servicer shall solicit bids for the sale
of interests in the Transferred Assets in an amount equal to the sum of 110% of
the Base Amount for the Series on the Final Scheduled Payment Date for the
Series (after giving effect to all distributions required to be made on the
Final Scheduled Payment Date for the Series), but in no event more than the
Series Collection Allocation Percentage for that Series of the Receivables held
by the Trust on that day. Transferor shall be entitled to participate in and to
receive notice of each bid submitted in connection with the bidding process.
Upon the expiration of the period, Servicer shall determine (x) the Highest Bid
and (y) the Available Final Distribution Amount for the Series. Servicer shall
sell the interests in the Transferred Assets on the Final Scheduled Payment Date
for the applicable Series to the bidder with the Highest Bid and shall deposit
the proceeds of such sale in the Master Collection Account for allocation
(together with the Available Final Distribution Amount for such Series) to the
Certificateholders of such Series.
SECTION 12.2 Final Distribution. (a) Servicer shall give Trustee at least
ten days' prior written notice of the date on which the Trust is expected to
terminate in accordance with Section 12.1(a). The notice shall be accompanied by
a certificate of an Authorized Officer of Servicer setting forth the information
specified in Section 3.6 covering the period during the then current calendar
year through the date of the notice. Upon receiving the notification from
Servicer, Trustee shall give the Certificateholders and/or the Agents (as
applicable) written notice as soon as practicable after Trustee's receipt of
notice from Servicer, which notice shall specify (i) the Distribution Date upon
which final payment with respect to the Certificates is expected to be made and
(ii) the amount of any such final payment. Trustee shall give the notice to the
Transfer Agent and Registrar and the Paying Agent at the time such notice is
given to Certificateholders. On the Distribution Date specified in the notice,
Trustee shall, based upon the Daily Report relating to such Distribution Date,
cause to be distributed to the Certificateholders the amounts distributable to
them on such Distribution Date pursuant to the applicable Supplement. Each
Certificateholder shall present its Certificate to Trustee and surrender its
Certificate for cancellation at the address of Trustee set forth in
page 77
<PAGE>
Section 13.6 not more than ten Business Days after the Distribution Date upon
which final payment with respect to the Certificates has been made.
(b) Notwithstanding the termination of the Trust pursuant to Section
12.1(a), all funds then on deposit in the Master Collection Account shall
continue to be held in trust for the benefit of the Certificateholders and the
Purchasers and the Paying Agent or Trustee shall pay such funds to the
Certificateholders and the Purchasers at the time set forth in Section 12.1(a).
In the event that any of the Certificateholders shall not have received final
payment with respect to their Certificates within six months after the date
specified in the above-mentioned written notice from Trustee, Trustee shall give
a second written notice to the remaining Certificateholders concerning payment
of the final distribution with respect thereto and surrender of their
Certificates for cancellation. If within one year after the second notice all
the Certificates shall not have been surrendered for cancellation, Trustee may
take appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds in the Master
Collection Account held for the benefit of such Certificateholders. Trustee and
the Paying Agent shall pay to Transferor any monies held by them for the payment
of principal of or interest on the Certificates that remains unclaimed for two
years after the termination of the Trust pursuant to Section 12.1(a). After
payment of the monies to Transferor, Certificateholders entitled to the money
must look to Transferor for payment as general creditors unless an applicable
abandoned property law designates another Person.
SECTION 12.3 Rights Upon Termination of the Trust. Upon the termination of
the Trust pursuant to Section 12.1 and the surrender of the Transferor
Certificate by Transferor to Trustee, Trustee shall transfer, assign, set over
and otherwise convey to Transferor (without recourse, representation or
warranty), all right, title and interest of the Trust in the Receivables,
whether then existing or thereafter created, the Related Transferred Assets and
all of the other property and rights previously conveyed to Trustee hereunder,
except for amounts held by Trustee pursuant to Section 12.2(b) and except for
the rights of RPA Indemnified Parties (other than Transferor and its officers,
directors, shareholders, controlling Persons, employees and agents) to
indemnification and contribution under Section 9.1 of the Purchase Agreement.
Trustee shall execute and deliver the instruments of transfer and assignment
(including any document necessary to release the security interest in favor of
Trustee (for the benefit of the Certificateholders or the Purchasers) in such
Receivables and Related Transferred Assets, to release any filing evidencing or
perfecting such security interest and to terminate all powers of attorney
created by the Transaction Documents), in each case without recourse,
representation
page 78
<PAGE>
or warranty, that shall be reasonably requested by Transferor to vest in
Transferor all right, title and interest that Trustee had in the Transferred
Assets.
SECTION 12.4 Optional Repurchase of Investor Interests. Any Supplement may
provide that on any Distribution Date occurring on or after the date that the
Invested Amount of the related Series is reduced to 10% or less of the initial
aggregate principal amount of the Investor Certificates of such Series,
Transferor shall have the option, upon the giving of ten days' prior written
notice by Transferor to Servicer, Trustee and the Rating Agencies, to repurchase
the undivided interest of the Series in the Trust by depositing into the
Principal Funding Account, on such Distribution Date, an amount equal to the
unpaid Invested Amount of the Series plus accrued and unpaid interest on the
unpaid principal amount of the Series (and accrued and unpaid interest with
respect to interest amounts that were due but not paid on a prior Distribution
Date) through the day preceding the Distribution Date at the Certificate Rate
applicable to such Series. Upon tender of all outstanding Certificates of the
Series by the Certificateholders, Trustee shall then distribute such amounts,
together with all other amounts on deposit in the Principal Funding Account and
the Principal Funding Account with respect to that Series to the
Certificateholders of the Series on the next Distribution Date in repayment of
the principal amount and all accrued and unpaid interest owing to the
Certificateholders. Following any such repurchase, the Certificateholders of the
Series shall have no further rights with respect to the Receivables and Trustee
shall execute and deliver the instruments of transfer and assignment (including
any document necessary to release the security interest in favor of Trustee (for
the benefit of the Certificateholders) in the Receivables and Related
Transferred Assets and to release any filing evidencing or perfecting the
security interest), in each case without recourse, representation or warranty,
as shall be reasonably requested by Transferor to vest in Transferor all right,
title and interest that Trustee had in the Transferred Assets. In the event that
Transferor fails for any reason to deposit the aggregate purchase price for the
Invested Amount of any Series, payments shall continue to be made to the
Certificateholders of the Series in accordance with the terms of this Agreement.
ARTICLE XIII MISCELLANEOUS PROVISIONS
SECTION 13.1 Amendment, Waiver, Etc. (a) This Agreement and any
Supplement may be amended from time to time by Servicer, Transferor and Trustee
by a written instrument signed by each of them, without the consent of any of
the Certificateholders, the Purchasers or the Agents; provided that such action
shall not adversely affect in any material respect the interests of any
page 79
<PAGE>
Certificateholder or Purchaser; and provided further, that any amendment of this
Agreement to effect any modification of the Lockbox Account arrangements
pursuant to Section 3.3(c)(ii)(y) shall not require the consent of any of the
Certificateholders, the Purchasers or the Agents. This Agreement and any
Supplement may not be amended unless Transferor shall have delivered the
proposed amendment to each Agent and the Rating Agencies at least ten Business
Days (or such shorter period as shall be acceptable to each of them) prior to
the execution and delivery thereof and the Rating Agency Condition has been
satisfied with respect to such amendment; provided, however, that the Rating
Agency Condition shall not apply to proposed amendments the purpose of which is
to correct any ambiguities or inconsistencies in this Agreement or such
Supplement.
(b) Any PI Agreement may be amended from time to time by the parties
thereto but without the consent of the Investor Certificateholders; provided
that any amendment will not adversely affect in any material respect the
interests of the Certificateholders, as evidenced by an Officer's Certificate of
Servicer.
(c) The provisions of this Agreement, any Supplement and any PI Agreement
may also be amended, modified or waived from time to time by Servicer,
Transferor and Trustee with the consent of: (i) in the case of this Agreement or
any Supplement, (A) the Required Series Holders of each affected Series and (B)
if any Purchased Interest shall or would be adversely affected, each Agent of a
Purchaser, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement or any Supplement or of
modifying in any manner the rights of the Certificateholders or the Purchasers;
provided that no amendment shall (w) reduce in any manner the amount of or delay
the timing of any distributions to be made to Investor Certificateholders or
deposits of amounts to be so distributed or the amount available under any
Enhancement without the consent of each affected Certificateholder, (x) change
the definition of or the manner of calculating the interest of any Investor
Certificateholder without the consent of each affected Investor
Certificateholder, (y) reduce the aforesaid percentage required to consent to
any amendment without the consent of each Investor Certificateholder or (z)
adversely affect the rating of any Series or class by any Rating Agency without
the consent of the Holders of Investor Certificates of the Series or class
evidencing not less than 66 2/3% of the aggregate unpaid principal amount of the
Investor Certificates of the Series or class or (ii) in the case of any PI
Agreement, (A) each Agent of a Purchaser and the other parties thereto and (B)
if any Series of Investor Certificates shall or would be adversely affected, the
Required Series Holders of each such adversely affected Series.
page 80
<PAGE>
Transferor or Trustee shall establish a record date for determining which
Certificateholders may give such waivers and consents. No waiver of any Early
Amortization Event or other default hereunder given at any time shall apply to
any other prior or subsequent Early Amortization Event or default.
(d) Promptly after the execution of any amendment, consent or waiver
described in subsection (b) or (c), Trustee shall furnish written notification
of the substance of the amendment or consent to each Investor Certificateholder,
and Servicer shall furnish written notification of the substance of the
amendment or consent to the Rating Agency and each Enhancement Provider.
(e) It shall not be necessary for any waiver or consent given by the
Certificateholders under this section to approve the particular form of any
proposed amendment, but it shall be sufficient if the consent shall approve the
substance thereof. The manner of obtaining such waivers and consents and of
evidencing the authorization of the execution thereof by the Certificateholders
shall be subject to such reasonable requirements as Trustee may prescribe.
(f) Notwithstanding anything in this section to the contrary, no amendment
may be made to this Agreement, any Supplement or any PI Agreement that would
adversely affect in any material respect the interests of any Enhancement
Provider without the consent of the Enhancement Provider.
(g) Any Supplement or PI Agreement executed in accordance with the
provisions of Section 6.10 shall not be considered an amendment to this
Agreement for the purposes of this section.
(h) Prior to the execution of any amendment to this Agreement, Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of the amendment is authorized or permitted by this Agreement and
that all conditions precedent to the execution and delivery have been satisfied.
Trustee may, but shall not be obligated to, enter into any amendment that
affects Trustee's own rights, duties or immunities under this Agreement.
SECTION 13.2 Actions by Certificateholders and Purchasers. (a) By its
acceptance of Certificates pursuant to this Agreement and the applicable
Supplement, each Certificateholder (other than Transferor and any WRO Person)
acknowledges and agrees that, wherever in this Agreement a provision states that
an action may be taken or a notice, demand or instruction given by any Series of
Investor Certificateholders, any class of Investor Certificateholders or the
Investor Certificateholders, the action, notice or
page 81
<PAGE>
instruction may be taken or given by any Holder of an Investor Certificate of
the Series or class or by any Investor Certificateholder, respectively, unless
the provision requires a specific percentage of the Series or class of Investor
Certificateholders or of all Investor Certificateholders.
(b) By its acceptance of Certificates pursuant to this Agreement and the
applicable Supplement, each Certificateholder (other than Transferor and any WRO
Person) acknowledges and agrees that any request, demand, authorization,
direction, notice, consent, waiver or other act by the Holder of a Certificate
shall bind the Holder and every subsequent Holder of the Certificate and of any
Certificate issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done or omitted to be done by
Trustee or Servicer in reliance thereon, whether or not notation of the action
is made upon such Certificate.
(c) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement, any Supplement or any PI Agreement
to be given or taken by Certificateholders or any Agent for a Purchaser may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by the Certificateholders or any Agent for a Purchaser in person or
by agent duly appointed in writing; and except as herein otherwise expressly
provided, the action shall become effective when the instrument or instruments
are delivered to Trustee and, when required, to Servicer. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement, any Supplement or any PI Agreement
and conclusive in favor of Trustee and Servicer, if made in the manner provided
in this section.
(d) The fact and date of the execution by any Certificateholder or any
Agent for a Purchaser of any such instrument or writing may be proved in any
reasonable manner that Trustee deems sufficient.
SECTION 13.3 Limitation on Rights of Certificateholders. (a) The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor shall the death or incapacity entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a partition or
winding up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
(b) No Certificateholder shall have any right to vote (except as expressly
provided otherwise in this Agreement) or in any manner otherwise to control the
operation and management of the Trust, or the obligations of the
page 82
<PAGE>
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Certificates, be construed so as to constitute the Certificateholders
from time to time as partners or members of an association, nor shall any
Certificateholder be under any liability to any third Person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
(c) No Certificateholder shall have any right by virtue of any provisions
of this Agreement to institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Agreement, unless the
Certificateholder previously shall have given to Trustee, and unless the
Required Investors shall have made, written request upon Trustee to institute
such action, suit or proceeding in its own name as Trustee hereunder and shall
have offered to Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and Trustee,
for 60 days after its receipt of such notice, request and offer of indemnity,
shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and Trustee, that no
one or more Certificateholders shall have any right in any manner whatever by
virtue of, or by availing itself or themselves of, any provisions of this
Agreement to affect, disturb or prejudice the rights of any other Investor
Certificateholder or any Holder of any other Series of Investor Certificates, or
to obtain or seek to obtain priority over or preference to any such other
Investor Certificateholder or any such Holder of any other Series of Investor
Certificates, or to enforce any right under this Agreement, except in the manner
herein provided and for the equal, ratable and common benefit of, in the case of
actions affecting the Investor Certificateholders as a class, all Investor
Certificateholders or, in the case of actions affecting the Holders of any
Series of Certificates, the Holders of Certificates of such Series, as
applicable. For the protection and enforcement of the provisions of this
section, each and every Certificateholder and Trustee shall be entitled to such
relief as can be given either at law or in equity.
(d) By their acceptance of Certificates pursuant to this Agreement and the
applicable Supplement, the Certificateholders (other than Transferor and any WRO
Person) agree to the provisions of this section.
SECTION 13.4 Limitation on Rights of Purchasers. (a) Except as expressly
provided in this Agreement or a PI Agreement, neither any Purchaser nor any
Agent for a Purchaser shall have any right to vote, or in any manner otherwise
control the operation and management of the Trust, or the obligations of the
parties hereto.
page 83
<PAGE>
(b) The Purchasers and any Agent for a Purchaser shall not have the right
to institute any suit, action or proceeding in equity or at law against Servicer
or Transferor for the enforcement of this Agreement, the Purchase Agreement or
any PI Agreement, except to the extent that such PI Agreement creates
independent and non-duplicative rights against Transferor or Servicer, unless
any Agent for a Purchaser previously shall have (i) made a request in writing to
Trustee to institute such action, suit or proceeding and (ii) offered to Trustee
reasonable security or indemnity against the costs, expenses and liabilities to
be incurred by it in compliance with such request, and Trustee, shall either
have refused to institute any such suit, action or proceeding or, for 15 days
after the request and offer of security or indemnity, shall have neglected to
institute any such action, suit or proceeding.
(c) It is understood and intended, and upon the purchase of each Purchased
Interest the related Agent and Purchaser shall be deemed to have expressly
covenanted and agreed with every other Purchaser and Investor Certificateholder
and Trustee, that neither such Agent nor any Purchaser shall have any right
hereunder or under a PI Agreement (i) to surrender, waiver, impair, disturb or
prejudice the rights of the holders of any other of the Purchased Interests or
the Investor Certificates, (ii) to obtain or seek to obtain priority over or
preference to any other such Purchaser or Investor Certificateholder or (iii) to
enforce any right under this Agreement or any PI Agreement against Servicer or
Transferor, except in the manner herein provided and for the equal, ratable and
common benefit of all Purchasers and Investor Certificateholders and except as
otherwise expressly provided in this Agreement or any PI Agreement. For the
protection and enforcement of the provisions of this section, each and every
Purchaser and Investor Certificateholder and Trustee shall be entitled to such
relief as can be given either at law or in equity.
SECTION 13.5 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF
LAWS PRINCIPLES, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
SECTION 13.6 Notices. All demands, notices, instructions and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered, four Business Days after mailing if mailed
by registered mail, return receipt requested, or sent by facsimile transmission
(a) in the case of Transferor, to its address set forth below its signature
hereto, (b) in the case of WRO, to its address set forth below its
page 84
<PAGE>
signature hereto, and (c) in the case of Trustee, the Paying Agent or the
Transfer Agent and Registrar, to the address of Trustee set forth on the
signature pages hereof; or, as to each party, at such other address or facsimile
number as shall be designated by it in a written notice to each other party
given in accordance with this section. Except to the extent expressly provided
otherwise in an applicable Supplement, any notice required or permitted to be
mailed to a Certificateholder shall be sent by first-class mail, postage
prepaid, to the address of the Certificateholder as shown in the Certificate
Register. Except to the extent expressly provided otherwise in an applicable
Supplement, any notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given on the fourth Business
Day after the notice is so mailed, whether or not the Certificateholder receives
the notice. Servicer shall deliver or make available to the Rating Agencies each
certificate and report required to be prepared, forwarded or delivered pursuant
to Section 3.5 (excluding the Daily Reports) or 3.6 and a copy of any amendment,
consent or waiver to this Agreement, at the address of the Rating Agency set
forth above or at the other address as shall be designated by the Rating Agency
in a written notice to Servicer.
SECTION 13.7 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement or any of the other
Transaction Documents shall for any reason whatsoever be held invalid, then the
unenforceable covenants, agreements, provisions or terms shall be deemed
severable from the remaining covenants, agreements, provisions or terms of this
Agreement or the other Transaction Documents (as applicable) and shall in no way
affect the validity or enforceability of the other provisions of this Agreement,
the Certificates, the Purchased Interests or any of the other Transaction
Documents or the rights of the Certificateholders or the Purchasers.
SECTION 13.8 Certificates Nonassessable and Fully Paid. Except to the
extent otherwise expressly provided in Section 7.3 with respect to Transferor,
it is the intention of the parties to this Agreement that the Certificateholders
shall not be personally liable for obligations of the Trust, that the interests
in the Trust represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever and that
Certificates upon authentication thereof by Trustee pursuant to Section 6.2 are
and shall be deemed fully paid.
SECTION 13.9 Nonpetition Covenant. Notwithstanding any prior termination
of this Agreement, each of Trustee, Servicer, Transferor, the Paying Agent, the
Authenticating Agent and the Transfer Agent and Registrar (and each Investor
Certificateholder or Purchaser by its acceptance of a
page 85
<PAGE>
Certificate or Purchased Interest) agrees that it shall not, with respect to the
Trust or Transferor, institute or join any other Person in instituting any
proceeding of the type referred to in the definition of "Bankruptcy Event" so
long as any Certificates issued by the Trust shall be outstanding or there shall
not have elapsed one year plus one day since the last day on which any such
Certificates shall have been outstanding. The foregoing shall not limit the
right of Servicer, Transferor, the Paying Agent, the Authenticating Agent and
the Transfer Agent and Registrar to file any claim in or otherwise take any
action with respect to any such insolvency proceeding that was instituted
against Transferor or the Trust by any Person other than Servicer, Transferor,
the Paying Agent, the Authenticating Agent or the Transfer Agent and Registrar.
In addition, each of Servicer, the Paying Agent, the Authenticating Agent, the
Transfer Agent and Registrar and (as to the Trust) Transferor agree that all
amounts owed to them by the Trust or Transferor shall be payable solely from
amounts that become available for such payment pursuant to this Agreement and
the Receivables Purchase Agreement, and no such amounts shall constitute a claim
against the Trust or Transferor to the extent that they are in excess of the
amounts available for their payment.
SECTION 13.10 No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of Trustee, the Investor Certificateholders,
the Purchasers or the Holders of any Series of Investor Certificates, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and are not exhaustive of any rights,
remedies, powers and privileges provided by law.
SECTION 13.11 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which together shall constitute one and the same instrument.
SECTION 13.12 Third-Party Beneficiaries. This Agreement will inure to the
benefit of and be binding upon the parties hereto and the Certificateholders,
the Purchasers and their respective successors and permitted assigns. Except as
otherwise expressly provided in this Agreement, nothing contained in this
Agreement shall confer any rights upon any Person that is not a party to, or a
permitted assignee of a party to, this Agreement.
page 86
<PAGE>
SECTION 13.13 Integration. This Agreement and the other Transaction
Documents contain a final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and thereof and
shall together constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof, superseding all prior oral or
written understandings.
SECTION 13.14 Binding Effect; Assignability; Survival of Provisions. This
Agreement shall be binding upon and inure to the benefit of Transferor, Servicer
and Trustee and their respective successors and permitted assigns; provided,
that Transferor shall not delegate any of its obligations hereunder. This
Agreement shall create and constitute the continuing obligations of the parties
hereto in accordance with its terms, and shall remain in full force and effect
until the termination of the Trust pursuant to Section 12.1. The rights and
remedies with respect to (a) any breach of any representation and warranty made
by Transferor in Section 2.3 or Section 7.1, (b) any breach of any
representation and warranty made by Servicer in Section 8.1 and (c) the
indemnification and payment provisions in Sections 3.9, 7.3, 8.4, 11.5 and
12.2(b) shall be continuing and shall survive any termination of this Agreement.
SECTION 13.15 Recourse to Transferor. Except to the extent expressly
provided otherwise in the Transaction Documents, the obligations of Transferor
under the Transaction Documents to which it is a party are solely the
obligations of Transferor, and no recourse shall be had for payment of any fee
payable by or other obligation of or claim against Transferor that arises out of
any Transaction Document to which Transferor is a party against any director,
officer or employee of Transferor. Payments to be made by Transferor pursuant to
this Agreement shall be paid to the extent that funds are available to make the
payments after all amounts to be paid to the Certificateholders and the
Purchasers pursuant to the applicable Supplement and PI Agreement shall have
been paid, and there shall be no recourse to Transferor for all or any part of
any amounts payable pursuant to this Agreement if the funds are at any time
insufficient to make all or part of any such payments. The provisions of this
section shall survive the termination of this Agreement.
SECTION 13.16 Recourse to Transferred Assets. The Certificates do not
represent an obligation of, or an interest in, Transferor, any Seller, Servicer,
Trustee or any Affiliate of any of them. Except as expressly provided otherwise
in this Agreement, the Certificates and Purchased Interests are limited in right
of payment to the Transferred Assets.
page 87
<PAGE>
SECTION 13.17 Submission to Jurisdiction. EACH PARTY HERETO HEREBY
IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE
OR FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK,
NEW YORK OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE
TRANSACTION DOCUMENTS, (B) IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF THE
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN THE STATE OR FEDERAL COURT,
(C) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF THE ACTION OR PROCEEDING,
AND (D) IN THE CASE OF TRANSFEROR AND WRO, IRREVOCABLY APPOINTS THE PROCESS
AGENT AS ITS AGENT TO RECEIVE ON BEHALF OF IT AND ITS PROPERTY SERVICE OF COPIES
OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS THAT MAY BE SERVED IN ANY
ACTION OR PROCEEDING. THE SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF
THE PROCESS TO TRANSFEROR OR WRO IN CARE OF THE PROCESS AGENT AT THE PROCESS
AGENT'S ADDRESS, AND TRANSFEROR HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE
PROCESS AGENT TO ACCEPT THE SERVICE ON ITS BEHALF. AS AN ALTERNATIVE METHOD OF
SERVICE, EACH OF TRANSFEROR AND SERVICER ALSO IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY AND ALL PROCESS IN ANY ACTION OR PROCEEDING BY THE MAILING OF
COPIES OF THE PROCESS TO TRANSFEROR OR SERVICER (AS APPLICABLE) AT ITS ADDRESS
SPECIFIED HEREIN. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY PARTY
HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE
RIGHT OF ANY PARTY HERETO TO BRING ANY ACTION OR PROCEEDING AGAINST ANY OR ALL
OF THE OTHER PARTIES HERETO OR ANY OF THEIR RESPECTIVE PROPERTIES IN THE COURTS
OF ANY OTHER JURISDICTION.
SECTION 13.18 Waiver of Jury Trial. EACH PARTY HERETO WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR RELATING TO THE TRANSACTION DOCUMENTS, OR ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN
CONNECTION THEREWITH OR ARISING FROM ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), ACTIONS OF ANY OF THE PARTIES HERETO OR
ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THE TRANSACTION DOCUMENTS,
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
SECTION 13.19 Certain Partial Releases. If any Seller is discontinued as a
Seller pursuant to Section 1.5(a) or 1.5(c) of the Purchase Agreement, Trustee
shall, upon the request (and at the expense) of WRO, execute and deliver to WRO
such statements of partial release and/or amendment relating to the UCC-1
financing statements filed against such Seller pursuant to the Purchase
Agreement as shall be prepared by WRO and provided to Trustee to evidence such
termination; provided that Trustee shall have received (i) an
page 88
<PAGE>
Officer's Certificate of Servicer to the effect that all conditions to such
termination specified in subclauses (i), (ii) and (iii) of such Section 1.5(a)
have been satisfied (and shall not have received notice from any Investor
Certificateholder or Agent to the contrary) and (ii) an Opinion of Counsel to
the effect that the filing of such statements of partial release and/or
amendment will not impair the validity, perfection or priority of Transferor's
or Trustee's rights in and to (A) any Receivables or Related Assets conveyed
prior to the effective date of such termination or (B) any Receivables or
Related Assets generated by WRO on or after the effective date of such
termination. In addition, after a termination that complies with the
requirements set out in the preceding sentence, Trustee shall, upon the request
(and at the expense) of WRO, execute and deliver to WRO the termination
statements relating to the UCC-1 financing statements filed against the Seller
pursuant to the Purchase Agreement as shall be prepared by WRO and provided to
Trustee to evidence the termination; provided that Trustee shall have received
an Officer's Certificate of Servicer to the effect that Trustee no longer holds
any right, title or interest in the Receivables generated by the terminated
Seller. In connection with a termination described in Section 1.5(c) of the
Purchase Agreement, Trustee shall, if demanded by Transferor, convey all of its
right, title and interest in all (but not less than all) of the Receivables (and
Related Assets with respect thereto) originated by the terminating Seller to a
Person designated by the terminating Seller, provided that such conveyance by
Trustee shall be made only against receipt by Trustee from the purchaser, in
cash, of a release price of not less than the aggregate Unpaid Balance of the
released Receivables. No such release and conveyance by Trustee shall, however,
be permitted if as a result thereof any WRO Person would acquire the released
Receivables.
SECTION 13.20 No Recourse. None of the directors, officers or employees of
Transferor shall have any liability to any Person, including, without
limitation, the Trustee or any Purchaser, for any action undertaken or any
certificate delivered or information delivered by such director, officer or
employee hereunder, except to the extent of the gross negligence or willful
misconduct of such director, officer or employee in connection therewith.
[Remainder of page intentionally left blank.]
page 89
<PAGE>
IN WITNESS WHEREOF, Transferor, Servicer and Trustee have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
NOTEPAD FUNDING CORPORATION,
as Transferor
By:____________________________
- ------
Name:__________________________
Title:_________________________
Address: c/o AMACAR Group
6707D Fairview Road
Charlotte, North Carolina 28210
Attention: Juliana C. Johnson____________________
Telephone: (704) 365-0569________________________
Facsimile: (704) 365-1362________________________
- ----- WILLIAMHOUSE-REGENCY OF DELAWARE, INC.,
as initial Servicer
By:____________________________
Name:__________________________
Title:_________________________
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
<PAGE>
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
By:
Title:
Address: 1 M&T Plaza, 7th Floor
Buffalo, New York 14203-2399
Attention: Russell Whitley
Telephone: (716) 842-5602
Facsimile: (716) 842-4474
page 91
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On _______, 1995 before me personally came __________________, who, being
by me duly sworn, did depose and say that he resides at ___________________;
that he is the ____________ of NOTEPAD FUNDING CORPORATION, a Delaware
corporation, the corporation described in and that executed the foregoing
instrument; and that he signed his name thereto by order of the board of
directors of the corporation.
Given under my hand and notarial seal, this _______, 1995.
_____________________________
Notary Public
Type or
Print Name: _________________
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On _______, 1995 before me personally came __________________, who, being
by me duly sworn, did depose and say that he resides at ___________________;
that he is the ____________ of WILLIAMHOUSE-REGENCY OF DELAWARE, INC., a
Delaware corporation, the corporation described in and that executed the
foregoing instrument; and that he signed his name thereto by order of the board
of directors of the corporation.
Given under my hand and notarial seal, this _______, 1995.
_____________________________
Notary Public
Type or
Print Name: _________________
My commission expires:
- ----------------------
<PAGE>
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
On October 31, 1995 before me personally came Russell T. Whitley, who,
being by me duly sworn, did depose and say that he resides at 1 M&T Plaza,
Buffalo, New York; that he is the Assistant Vice President of MANUFACTURERS AND
TRADERS TRUST COMPANY, a New York banking corporation, the corporation described
in and that executed the foregoing instrument; and that he signed his name
thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this October 31, 1995.
_____________________________
Notary Public
Type or
Print Name: _________________
My commission expires:
_____________________
<PAGE>
EXHIBIT A
to Pooling Agreement
FORM OF
LOCKBOX ACCOUNT LETTER AGREEMENT
--------------------------------
[To come]
<PAGE>
EXHIBIT B
to Pooling Agreement
FORM OF
CONCENTRATION ACCOUNT LETTER AGREEMENT
--------------------------------------
[To come]
<PAGE>
EXHIBIT C
to Pooling Agreement
FORM OF
MONTHLY SERVICER'S CERTIFICATE
------------------------------
TO: MANUFACTURERS AND TRADERS TRUST COMPANY
[Paying Agent]
NOTEPAD FUNDING CORPORATION
[Name of Rating Agency]
WILLIAMHOUSE-REGENCY OF DELAWARE, INC. (the "Servicer") hereby certifies
that:
(A) This Certificate is being delivered pursuant to Section 3.6 of the
Pooling and Servicing Agreement, dated as of October 31, 1995, (as the same may
be amended, supplemented or otherwise modified from time to time, the "Pooling
Agreement"), among NOTEPAD FUNDING CORPORATION, as Transferor, Servicer, and
MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee.
(B) As of the date of this Certificate, the Authorized Officer (as defined
in the Pooling Agreement) that is executing this Certificate is not aware of the
occurrence and continuance of any Early Amortization Event or Unmatured Early
Amortization Event (each as defined in the Pooling Agreement). [If an Early
Amortization Event or Unmatured Early Amortization Event has occurred and is
continuing, specify each such Early Amortization Event or Unmatured Early
Amortization Event (as applicable) of which the Authorized Officer executing
this Certificate is aware and the nature and status thereof and further certify
that such information is true and accurate in all material respects.]
<PAGE>
IN WITNESS WHEREOF, Servicer has caused this Certificate to be executed by
its duly authorized officer this __ day of _______________, 19__.
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
INC.
By:
--------------------------
Title:
- ---- -----------------------
<PAGE>
EXHIBIT D
to Pooling Agreement
MONTHLY REPORTS
---------------
Select at random four Monthly Reports prepared during the fiscal year and:
1. Compare/reconcile the following Monthly Report items with the
Servicer's original source documents noted below for five selected
operating units (letters refer to the applicable section of the
Monthly Report):
A. Monthly Receivable Activity:
---------------------------
1. Monthly Sales Journal
2. Cash Application Journal
3. Aged Trial Balance
4. Journal entries and related support affecting cash
application or receivables
5. Receivable Write-off Approval List
6. Lockbox Bank Statements and PC generated Lockbox Reports
7. Credit Memo Report
D. Loss Reserve Ratio:
------------------
1. Schedule A of the Monthly Report
2. Applicable Daily Report for Cutoff Date
3. Previous Monthly Reports
E. Dilution Reserve Ratio:
----------------------
1. Section A of the Monthly Report
2. Previous Monthly Reports
G. Carrying Cost Receivables Reserve:
---------------------------------
1. Section C of the Monthly Report
2. Carrying Cost Worksheet
H. Loss to Liquidation Ratio:
-------------------------
1. Receivable Write-off Approval List
2. Aged Trial Balance
3. Journal entries and related back-up on write-offs and
recoveries
4. Previous Monthly Reports
<PAGE>
J. Discount Rate:
-------------
1. Carrying Cost Worksheet
Schedule A. Aged Receivables Ratio:
----------------------
1. Section A of the Monthly Report
2. Previous Monthly Reports
3. Aged Trial Balance Summary - invoices only, and
2. Recalculate the mathematical accuracy of Sections A,B,C,D,E,F,G,H,J
and K and Schedule A.
For each quarter end date that a Monthly Report is obtained, obtain the accounts
receivable Write-Off Report for five selected operating units and randomly
select a total of five write-offs greater than $1000 individually. Then obtain
the write-off documentation and verify that the write-offs had been approved and
were deleted from the Aged Trial Balance Report.
DAILY REPORTS
-------------
Select at random ten Daily Reports prepared during the fiscal year (of which not
more than two shall relate to any single fiscal month) and:
1. Compare/reconcile the following Daily Report items with the Servicer's
original source documents noted below for five selected operating
units (letters refer to the applicable section of the Daily Report):
A. Daily Receivable Activity:
-------------------------
1. Daily Sales Summary
2. Cash Application Journal
3. Aged Trial Balance
4. Journal entries and related support affecting cash
applications or receivables
5. Receivable Write-off Approval List
6. Lockbox Bank Statement and PC generated Lockbox Reports
B. Net Eligible Receivables Calculation (if not closing period):
------------------------------------------------------------
1. Ineligible Receivables Program Reports
C. Excess Concentration Balances:
-----------------------------
1. Ineligible Receivables Program Reports
2
<PAGE>
Schedule A (if settlement date):
1. Most recent Monthly Report
2. Daily Report last day prior to settlement date, and
2. Recalculate the mathematical accuracy of sections A-C and Schedule A.
CREDIT DOCUMENTATION
--------------------
Select at random two fiscal month ends during the fiscal year and:
1. Direct the Servicer to prepare a Credit File Contents Schedule (the
"Credit Schedule") that summarizes the contents of the credit files
for each customer the accountants select for testing. The Credit
Schedule will include the following information as of the cut-off date
selected: customer name, customer account number, customer statement,
approved credit limit, date of credit limit approval, name and title
of highest authority that approved the credit limit and other
supporting documentation in support of extension of the credit limit
(e. g., Dun & Bradstreet report, customer financial statement and bank
or trade references), and
2. For each customer selected:
A. Compare the customer's account receivables balance with the
approved credit limit to verify that the balance is less than or
equal to the approved limit
B. Compare the customer's account balance per the Credit Schedule
with the balance per the Account Receivable Aged Trial Balance
C. Compare the date of the customer's most recent invoice indicated
on the customer's statement to the date of the credit approval to
verify that the date of the invoice is the date of or subsequent
to, but within one year of the date of, credit approval
D. Note that at least one of the following items is included with
the credit documentation: Dun & Bradstreet Credit Report or other
credit report, bank or trade reference,
3
<PAGE>
financial statements or a memorandum or workpapers regarding
credit evaluation/justification.
For each of the ten Daily Reports selected:
1. Invoices: Obtain the detail Aged Trial Balance Report for five
--------
selected operating units and randomly select a total of 15 different invoices
and verify the invoice date, amount and customer name with a system generated
copy of the invoice;
2. Dilutions and Credits: Obtain the detail Aged Trial Balance Report for
---------------------
five selected operating units and randomly select a total of 15 different credit
names and verify the credit memo date, amount and customer name with a system
generated copy of the credit memo;
3. Cash Application: Randomly select a total of 15 individual cash
----------------
receipts comprising the cash collection amount and verify the bank receipt date
with the receipt date and application amount on the Daily Report, adjusted for
available balances;
4. Ineligible Receivables: Obtain the Aged Trial Balance for five
----------------------
selected operating units and randomly select a total of ten customers that have
balances over 90 days past due and calculate the customer balances over 90 days
past due as a percentage of the customer's total balance. If this calculated
percentage is more than 50%, determine if the customer is classified as part of
the Ineligible Receivables;
5. Aging Reports: Using the 15 invoices selected in paragraph 1 above,
-------------
find that the invoice is in the appropriate aging category on the Aged Trial
Balance; and
6. Purchase Options: Using the 15 invoices selected in paragraph 1 above,
----------------
verify the purchase order reference number on the invoice with the purchase
order (if available).
4
<PAGE>
EXHIBIT E
to Pooling Agreement
FORM OF
TRANSFEROR CERTIFICATE
----------------------
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE
OR THE LAWS OF ANY FOREIGN COUNTRY. THIS CERTIFICATE MAY NOT BE RESOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH RESALE, TRANSFER OR DISPOSITION
IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS AND FOREIGN LAWS. IN ADDITION TO THE
RESTRICTIONS SET FORTH ABOVE, RESALE, TRANSFER OR DISPOSITION OF THIS
CERTIFICATE IS PROHIBITED TO THE EXTENT SET FORTH IN THE POOLING AGREEMENT (AS
DEFINED BELOW).
NOTEPAD FUNDING RECEIVABLES MASTER TRUST
TRANSFEROR CERTIFICATE
THIS CERTIFIES THAT NOTEPAD FUNDING CORPORATION is the registered owner of
an interest in the Notepad Funding Receivables Master Trust (the "Trust"), which
was created pursuant to the Pooling and Servicing Agreement, dated as of October
31, 1995 (as the same may be amended, supplemented or otherwise modified from
time to time, the "Pooling Agreement"), by and among NOTEPAD FUNDING
CORPORATION, a Delaware corporation, as Transferor ("Transferor"), WILLIAMHOUSE-
REGENCY OF DELAWARE, INC., as initial Servicer (in such capacity, the
"Servicer"), and MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee (in such
capacity, together with its successors and assigns in such capacity, the
"Trustee"). This Certificate is the duly authorized Transferor Certificate
designated and issued under the Pooling Agreement. To the extent not otherwise
defined herein, capitalized terms have the meanings assigned to them in Appendix
A to the Pooling Agreement. This Certificate is subject to the terms, provisions
and conditions of, and is entitled to the benefits afforded by, the Pooling
Agreement, to which terms, provisions and conditions the holder of this
Certificate by virtue of the acceptance hereof assents and by which the holder
is bound.
<PAGE>
This Certificate shall not bear interest.
The Pooling Agreement may be amended and the rights and obligations of the
parties thereto and of the holder of this Certificate modified as set forth in
the Pooling Agreement.
Unless the certificate of authentication hereon shall have been executed by
or on behalf of Trustee by the manual signature of a duly authorized signatory,
this Certificate shall not entitle the holder hereof to any benefit under the
Pooling Agreement or under any other Transaction Document or be valid for any
purpose.
This Certificate is limited in right of payment to the Transferred Assets.
Transferor may not transfer, assign, exchange or otherwise convey or
pledge, hypothecate or otherwise grant a security interest in this Certificate
or any interest represented hereby except in compliance with the terms,
conditions and restrictions set forth in the Pooling Agreement.
This Certificate shall be construed in accordance with the laws of the
State of Illinois, without reference to its conflict of laws principles, and all
obligations, rights and remedies under, or arising in connection with, this
Certificate shall be determined in accordance with the laws of the State of
Illinois.
2
<PAGE>
IN WITNESS WHEREOF, Transferor has caused this Certificate to be executed
by its officer thereunto duly authorized.
NOTEPAD FUNDING CORPORATION
By: __________________________
Title: _____________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the Transferor Certificate referred to in the Pooling Agreement.
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
By: ___________________________
Title: ______________________
Dated:__________________ , 199_
3
<PAGE>
EXHIBIT F
to Pooling Agreement
FORM OF CERTIFICATE TO BE GIVEN BY CERTIFICATE OWNER
[Euroclear [Cedel, societe anonyme
151 Boulevard Jacqmain 67 Boulevard Grand-Duchesse Charlotte
B-1210 Brussels, Belgium] L-1331 Luxembourg]
Re: [Description of Certificates] issued pursuant to the Pooling and
Servicing Agreement dated as of October 31, 1995, among NOTEPAD
FUNDING CORPORATION, WILLIAMHOUSE-REGENCY OF DELAWARE, INC. and
MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee, (the
"Certificates").
This is to certify that as of the date hereof, and except as set forth
below, the beneficial interest in the Certificates held by you for our account
is owned by persons that are not U.S. persons (as defined in Rule 901 under the
Securities Act of 1933, as amended).
The undersigned undertakes to advise you promptly by tested telex on or
prior to the date on which you intend to submit your certification relating to
the Certificates held by you in which the undersigned has acquired, or intends
to acquire, a beneficial interest in accordance with your operating procedures
if any applicable statement herein is not correct on such date. In the absence
of any such notification, it may be assumed that this certification applies as
of such date.
[This certification excepts beneficial interests in and does not relate to
U.S. $_________ principal amount of the Certificates appearing in your books as
being held for our account but that we have sold or as to which we are not yet
able to certify.]
We understand that this certification is required in connection with
certain securities laws in the United States of America. If administrative or
legal proceedings are commenced or threatened in connection with which this
certification is or would be relevant, we irrevocably authorize you to produce
this certification or a copy thereof to any interested party in such
proceedings.
Dated: ___________________,* By:___________________,
Account Holder
* Certification must be dated on or after the 15th day before the date of the
Euroclear or Cedel certificate to which this certification relates.
<PAGE>
EXHIBIT G
to Pooling Agreement
FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR OR CEDEL
[Trustee and Transfer Agent and Registrar]
Re: [Description of Certificates] issued pursuant to the Pooling and
Servicing Agreement dated as of October 31, 1995 among NOTEPAD FUNDING
CORPORATION, WILLIAMHOUSE-REGENCY OF DELAWARE, INC. and MANUFACTURERS
AND TRADERS TRUST COMPANY, as Trustee, (the "Certificates").
This is to certify that, based solely on certifications we have received in
writing, by tested telex or by electronic transmission from member organizations
appearing in our records as persons being entitled to a portion of the principal
amount set forth below (our "Member Organizations") as of the date hereof,
$__________ principal amount of the Certificates is owned by persons (a) that
are not U.S. persons (as defined in Rule 901 under the Securities Act of 1933,
as amended (the "Securities Act")) or (b) who purchased their Certificates (or
interests therein) in a transaction or transactions that did not require
registration under the Securities Act.
We further certify (a) that we are not making available herewith for
exchange any portion of the related Regulation S Temporary Book-Entry
Certificate excepted in such certifications and (b) that as of the date hereof
we have not received any notification from any of our Member Organizations to
the effect that the statements made by them with respect to any portion of the
part submitted herewith for exchange are no longer true and cannot be relied
upon as of the date hereof.
<PAGE>
We understand that this certification is required in connection with
certain securities laws of the United States of America. If administrative or
legal proceedings are commenced or threatened in connection with which this
certification is or would be relevant, we irrevocably authorize you to produce
this certification or a copy hereof to any interested party in such proceedings.
Date: _________________* Yours faithfully,
* To be dated no earlier By: ______________________________________________
than the Effective Date. [Morgan Guaranty Trust Company of New York,
Brussels Office, as Operator of the Euroclear
Clearance System] [Cedel, societe anonyme]
<PAGE>
EXHIBIT H
to Pooling Agreement
FORM OF CERTIFICATE TO BE GIVEN BY TRANSFEREE
OF BENEFICIAL INTEREST IN A REGULATION S TEMPORARY
BOOK-ENTRY CERTIFICATE
[Euroclear [Cedel, societe anonyme
151 Boulevard Jacqmain 67 Boulevard Grand-Duchesse Charlotte
B-1210 Brussels, Belgium] L-1331 Luxembourg]
Re: [Description of Certificates] issued pursuant to the Pooling and
Servicing Agreement dated as of October 31, 1995 among NOTEPAD FUNDING
CORPORATION, WILLIAMHOUSE-REGENCY OF DELAWARE, INC. and MANUFACTURERS
AND TRADERS TRUST COMPANY, as Trustee, (the "Certificates").
This is to certify that as of the date hereof, and except as set forth
below, for purposes of acquiring a beneficial interest in the Certificates, the
undersigned certifies that it is not a U.S. person (as defined in Rule 901 under
the Securities Act of 1933, as amended).
The undersigned undertakes to advise you promptly by tested telex on or
prior to the date on which you intend to submit your certification relating to
the Certificates held by you in which the undersigned intends to acquire a
beneficial interest in accordance with your operating procedures if any
applicable statement herein is not correct on such date. In the absence of any
such notification, it may be assumed that this certification applies as of such
date.
We understand that this certification is required in connection with
certain securities laws in the United States of America. If administrative or
legal proceedings are commenced or threatened in connection with which this
certification is or would be relevant, we irrevocably authorize you to produce
this certification or a copy thereof to any interested party in such
proceedings.
Dated: ___________________, By: ______________________
<PAGE>
EXHIBIT I
to Pooling Agreement
FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR
TRANSFER FROM 144A BOOK-ENTRY CERTIFICATE TO
REGULATION S BOOK-ENTRY CERTIFICATE
[Trustee and Transfer Agent and Registrar]
Re: [Description of Certificates] issued pursuant to the Pooling and
Servicing Agreement dated as of October 31, 1995 (the "Agreement"),
among NOTEPAD FUNDING CORPORATION, WILLIAMHOUSE-REGENCY OF DELAWARE,
INC. and MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee, (the
"Certificates").
Capitalized terms used but not defined herein shall have the meanings given
to them in the Agreement.
This letter relates to U.S. $___________ principal amount of Certificates
that are held as a beneficial interest in the 144A Book-Entry Certificate (CUSIP
No. _______) with DTC in the name of [insert name of transferor] (the
"Transferor"). The Transferor has requested an exchange or transfer of the
beneficial interest for an interest in the Regulation S Book-Entry Certificate
(CUSIP No. _______) to be held with [Euroclear] [Cedel] through DTC.
In connection with the request and in receipt of the Certificates, the
Transferor does hereby certify that the exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Agreement and the
Certificates and:
(a) pursuant to and in accordance with Regulation S under the
Securities Act of 1933, as amended (the "Securities Act"), and accordingly
the Transferor does hereby certify that:
(i) the offer of the Certificates was not made to a person in
the United States of America,
[(ii) at the time the buy order was originated, the transferee
was outside the United States of America or the Transferor and any
person acting on its behalf reasonably
<PAGE>
believed that the transferee was outside the United States of America.
(ii) believed that the transferee was outside the United States of
America, the transaction was executed in, on or through the
facilities of a designated offshore securities market and neither the
Transferor nor any person acting on its behalf knows that the
transaction was pre-arranged with a buyer in the United States of
America,]*
(iii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or 904(b) of
Regulation S, as applicable,
(iv) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act, and
(b) with respect to transfers made in reliance on Rule 144 under the
Securities Act, the Transferor does hereby certify that the Certificates
are being transferred in a transaction permitted by Rule 144 under the
Securities Act.
This certification and the statements contained herein are made for your
benefit and the benefit of the issuer and the [placement agent].
[Insert name of Transferor]
Dated: By:
--------------- -------------------
Title:
----------------
- ------
- ------
* Insert one of these two provisions, which come from the definition of
"offshore transactions" in Regulation S.
2
<PAGE>
EXHIBIT J
to Pooling Agreement
FORM OF PLACEMENT AGENT EXCHANGE INSTRUCTIONS
Depository Trust Company
55 Water Street
50th Floor
New York, New York 10041
Re: [Description of Certificates] issued pursuant to the Pooling and
Servicing Agreement dated as of October 31, 1995 (the "Agreement"),
among NOTEPAD FUNDING CORPORATION, WILLIAMHOUSE-REGENCY OF DELAWARE,
INC. and MANUFACTURERS AND TRADERS TRUST COMPANY, as Trustee, (the
"Certificates").
Pursuant to Section 6.11 of the Agreement, _______________________ (the
"Placement Agent") hereby requests that $____________ aggregate principal amount
of the Certificates held by you for our account and represented by the
Regulation S Temporary Book-Entry Certificate (CUSIP No. _______) (as defined in
the Agreement) be exchanged for an equal principal amount represented by the
144A Book-Entry Certificate (CUSIP No. _______) to be held by you for our
account.
Dated: [placement agent]
By:
---------------------------
Title:
------------------------
<PAGE>
SCHEDULE 1
to Pooling Agreement
ACCOUNT BANKS - LOCKBOX BANKS
-----------------------------
ACCOUNT BANKS - CONCENTRATION ACCOUNT BANK
------------------------------------------
<PAGE>
EXHIBIT 4.9
SERIES 1995-1 SUPPLEMENT
TO POOLING AND SERVICING AGREEMENT
dated as of October 31, 1995
among
NOTEPAD FUNDING CORPORATION
as Transferor,
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
as Servicer,
and
MANUFACTURERS AND TRADERS TRUST COMPANY
as Trustee
WILLIAMHOUSE-REGENCY RECEIVABLES MASTER TRUST
$45,000,000 SERIES 1995-1 CERTIFICATES
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS; INCORPORATION OF TERMS
SECTION 1.1 Definitions.................................. 1
SECTION 1.2 Incorporation of Terms....................... 22
ARTICLE II DESIGNATION
SECTION 2.1 Designation.................................. 22
ARTICLE III CONDITIONS TO ISSUANCE
SECTION 3.1 Conditions to Issuance....................... 23
ARTICLE IV PAYMENTS AND ALLOCATIONS
SECTION 4.1 Interest; Additional Amounts................. 23
SECTION 4.2 Daily Calculations and Series Allocations.... 24
SECTION 4.3 Allocations of Daily Series Collections
(Other Than in an Early Amortization
Period)................................... 24
SECTION 4.4 Allocations of Daily Series Collections
During an Early Amortization Period....... 26
SECTION 4.5 Withdrawals from the Equalization Account.... 27
SECTION 4.6 Available Subordinated Amount................ 28
SECTION 4.7 Write-Offs and Recoveries.................... 29
SECTION 4.8 Certain Dilution in an Early Amortization
Period.................................... 29
SECTION 4.9 Defeasance................................... 30
SECTION 4.10 Calculation of Dilution...................... 30
ARTICLE V DISTRIBUTIONS AND REPORTS
SECTION 5.1 Distributions................................ 31
SECTION 5.2 Special Distributions on the Refinancing Date 32
SECTION 5.3 Payments in Respect of Transferor Certificate 32
SECTION 5.4 Daily Reports and Monthly Reports............ 32
SECTION 5.5 Annual Tax Information....................... 33
SECTION 5.6 Periodic Perfection Certificate.............. 33
ARTICLE VI EARLY AMORTIZATION EVENTS
SECTION 6.1 Early Amortization Events.................... 34
SECTION 6.2 Early Amortization Period.................... 36
<PAGE>
ARTICLE VII OPTIONAL REDEMPTION; INDEMNITIES
SECTION 7.1 Optional Redemption of Investor Interests..... 37
SECTION 7.2 Indemnification by Transferor................. 37
SECTION 7.3 Indemnification by Servicer................... 39
ARTICLE VIII MISCELLANEOUS
SECTION 8.1 Governing Law................................. 39
SECTION 8.2 Counterparts.................................. 39
SECTION 8.3 Severability of Provisions.................... 39
SECTION 8.4 Amendment, Waiver, Etc........................ 39
SECTION 8.5 Trustee....................................... 39
SECTION 8.6 Instructions in Writing....................... 40
SECTION 8.7 Rule 144A..................................... 40
SECTION 8.8 Supplemental Ratings Requirement.............. 40
SECTION 8.9 No Recourse................................... 40
EXHIBITS
EXHIBIT A Form of Certificate
EXHIBIT B Form of Daily Report
Part 1. For Use other than in Early Amortization Period
Part 2. For Use in Early Amortization Period
EXHIBIT C Form of Monthly Report
Part 1. For Use other than in Early Amortization Period
Part 2. For Use in Early Amortization Period
EXHIBIT D Form of Seller Guaranty
<PAGE>
This SERIES 1995-1 SUPPLEMENT, dated as of October 31, 1995 (this
"Supplement"), is made among NOTEPAD FUNDING CORPORATION, a Delaware
corporation, as Transferor, WILLIAMHOUSE-REGENCY OF DELAWARE, INC., a Delaware
corporation ("WRO"), as Servicer, and MANUFACTURERS AND TRADERS TRUST COMPANY,
a New York banking corporation, as Trustee.
Pursuant to the Pooling and Servicing Agreement, dated as of October 31,
1995, (as it may be amended, supplemented or otherwise modified from time to
time, and as supplemented hereby, the "Pooling Agreement"), among Transferor,
Servicer and Trustee, Transferor may from time to time direct Trustee to issue
and authenticate, on behalf of the Trust, one or more Series of Certificates
representing undivided interests in the Transferred Assets. Certain terms
applicable to a Series are to be set forth in a Supplement. This Supplement is
a "Supplement" as that term is defined in the Pooling Agreement.
Pursuant to this Supplement, Transferor and Trustee shall create a Series
of Certificates and specify certain of their terms.
ARTICLE I DEFINITIONS; INCORPORATION OF TERMS
SECTION 1.1 Definitions. (a) Capitalized terms used and not otherwise
defined herein are used as defined in Appendix A to the Pooling Agreement. This
Supplement shall be interpreted in accordance with the conventions set forth in
Part B of that Appendix A.
(b) Each reference in this Supplement to funds on deposit in the Carrying
Cost Account, the Equalization Account or the Principal Funding Account (or
similar phrase) refers only to funds in the administrative sub-accounts of
those Accounts that are allocated to Series 1995-1. Unless the context
otherwise requires, in this Supplement: (i) each reference to a "Daily Report"
or "Monthly Report" refers to a Daily Report or Monthly Report for the Series
1995-1 Certificates; (ii) each reference to the "Servicing Fee" refers to the
Servicing Fee allocable to Series 1995-1; (iii) each reference to the "Series
Collection Allocation Percentage" or the "Series Loss Allocation Percentage"
refers to the Series Collection Allocation Percentage or Series Loss Allocation
Percentage for the Series 1995-1 Certificates, and (iv) each reference to the
Transaction Documents shall include reference to the Certificate Purchase
Agreement and the Supplemental Agreement.
(c) Each capitalized term defined below relates only to the Series 1995-1
Certificates and to no other Series of Certificates. Whenever used in
<PAGE>
this Supplement, the following words and phrases shall have the following
meanings:
"ABR Tranche" means, at any time, the portion of the Invested Amount that
is designated by Transferor in accordance with the Certificate Purchase
Agreement to accrue interest based on the Alternate Base Rate.
"Accrual Reserve" means with respect to either Seller Group on any day,
the sum of (a) 1.1 times the Incentive Payment Accrual, plus (b) the aggregate
amount of obligations owed by such Seller Group in respect of Incentive Payment
Dilution that accrued prior to the current calendar year and have not been
paid, plus (c) the Incentive Payment Liquidation Reserve.
"Acquisition Amount" is defined in Section 2.1.
"Additional Amounts" means amounts payable pursuant to Sections 4.2, 4.3,
4.5, 4.6 and 10.5 of the Certificate Purchase Agreement.
"Adjusted Eligible Receivables" means the sum of the Group Specific
Adjusted Eligible Receivables for Ampad Group and the Group Specific Adjusted
Eligible Receivables for WRO Group.
"Adjusted Invested Amount" means, on any Business Day falling in an Early
Amortization Period, the result (but not less than zero) of the Invested Amount
on the last day of the Revolving Period, reduced by the amount of all Investor
Write-Offs that have been applied to reduce the Invested Amount (net of
Investor Allocable Recoveries and Investor Allocable Dilution Adjustments that
have been applied to reinstate the Invested Amount).
"Aged Receivables Ratio" means, with respect to a Seller Group and as
calculated in each Monthly Report as of the Cut-Off Date for the related
Calculation Period, a fraction (expressed as a percentage) having (a) a
numerator that is the sum of (i) the aggregate Unpaid Balance of Receivables
generated by such Seller Group that remained outstanding (x) 91 to 120 days
after their respective invoice dates, in the case of WRO Group, or (y) 121 to
150 days after their respective due dates, in the case of Ampad Group, in each
case as determined as of the Cut-Off Date for such Calculation Period, plus
(ii) the aggregate Unpaid Balance of Receivables generated by such Seller Group
that were written off as uncollectible during the most recently ended
Calculation Period and that, if not so written off, would have been outstanding
not more than (x) 120 days after their respective invoice dates, in the case of
WRO Group, or (y) 150 days after their respective due dates, in the case of
page 2
<PAGE>
Ampad Group, in each case as determined as of that Cut-Off Date and (b) a
denominator that is the aggregate amount payable pursuant to invoices giving
rise to Receivables that were generated by such Seller Group during the
Calculation Period that occurred three Calculation Periods (in the case of WRO
Group) or five Calculation Periods (in the case of Ampad Group) prior to the
most recently ended Calculation Period, as determined as of the Cut-Off Date
for such prior Calculation Period.
"Agent" means Bankers Trust Company, in its capacity as Agent under (and
as defined in) the Certificate Purchase Agreement, together with its
respective successors in that capacity. The Agent is an "Agent" for purposes
of the Pooling Agreement.
"Aggregate Retained Balances" means, on any Business Day and with respect
to either Seller Group, the aggregate of the balances retained in Lockbox
Accounts or Concentration Accounts for items in the process of collection but
for which funds have not been made available by the related Lockbox Bank or
Concentration Account Bank, provided that (i) no notice of insufficient funds
or similar situation shall exist with respect thereto and (ii) the Unpaid
Balance of receivables shall have been reduced by an amount equal to such
balances.
"Alternate Base Rate" means, on any day, a fluctuating rate of interest
per annum equal to the higher of:
(a) the rate of interest announced, from time to time, by the
Agent as its prime commercial rate for United States dollar loans made in
the United States for any day, and
(b) the Federal Funds Rate.
Any change in the interest rate resulting from a change in the prime commercial
rate announced by the Agent shall become effective without prior notice to
Transferor or the Servicer as of 12:01 a.m., New York City time, on the
Business Day on which each change in the prime commercial rate is announced by
the Agent. The prime commercial rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged by the Agent to
any customer. The Agent may make commercial loans or other loans at rates of
interest at, above or below the prime commercial rate.
"Amortization Period" means the period beginning on the Distribution Date
which is two months prior to the Expected Final Payment Date, and ending on the
earlier of (a) the Expected Final Payment Date and (b) the date,
page 3
<PAGE>
if any, on which an Early Amortization Period commences on or prior to the date
specified above for the beginning of the Amortization Period.
"Applicable Ratings Factor" means 2.5.
"Applicable Reserve Ratio" means, with respect to a Seller Group during
any Distribution Period, the greater of (a) the Minimum Required Reserve Ratio
for such Seller Group and (b) the Required Reserve Ratios for such Seller
Group, in each case as calculated in the Monthly Report required to be
delivered on the Report Date immediately prior to the start of that
Distribution Period, provided that during the period from the Closing Date to
the first Distribution Date thereafter, the Applicable Reserve Ratio for Ampad
Group shall be 27.5% and the Applicable Reserve Ratio for WRO Group shall be
19.91%.
"Approval Condition" means, with respect to any event or change in the
terms applicable to this Supplement or the Series 1995-1 Certificates, (i) if
the Series 1995-1 Certificates have been rated, the Rating Agency Condition
shall be satisfied with respect to such event or change, and (ii) if the Series
1995-1 Certificates have not been rated, such event or change shall have been
approved in writing, prior to becoming effective, by the Agent.
"ASA Measuring Period" means, for any Cut-Off Date falling in an Early
Amortization Period, the Calculation Period ending on that Cut-Off Date (or the
portion thereof falling after the Early Amortization Calculation Date, in the
case of the first Cut-Off Date falling in the Early Amortization Period).
"Available Subordinated Amount" means, at any time during an Early
Amortization Period, the amount calculated pursuant to Section 4.6.
"Average Turnover Days" means the sum of (a) the Group Allocation
Percentage for Ampad Group times the Turnover Days for Ampad Group plus (b) the
Group Allocation Percentage for WRO Group times the Turnover Days for WRO
Group.
"Base Amount" means, on any Business Day, the sum of (x) the Group
Specific Base Amount for Ampad Group, plus (y) the Group Specific Base Amount
for WRO Group, minus the Carrying Cost Receivables Reserve as reported in the
Daily Report for such Business Day; provided that: (a) from and after the date
upon which Transferor gives notice of prepayment of the Series 1995-1
Certificates pursuant to Section 4.9, the Base Amount shall equal the lower of
(i) the Base Amount as calculated above and (ii) the Base Amount as calculated
for purposes of any Series of Certificates being issued in
page 4
<PAGE>
connection with that prepayment; and (b) on any Business Day, the Base Amount
shall be reduced by the aggregate amount (if any) in excess of $1,000,000
secured by liens referred to in clause (b)(ii) of the definition of Permitted
Adverse Claims.
"Carrying Cost Cash Required Amount" means, on any Business Day, an
amount equal to the Current Carrying Costs.
"Carrying Cost Receivables Reserve" means, on any Business Day, the
result of:
(a) the Current Carrying Costs; plus
(b) the product of (i) the Invested Amount, multiplied by (ii) 1.75
times the Certificate Rate, multiplied by (iii) a fraction the numerator
of which is the product of 2 and the number of Average Turnover Days and
the denominator of which is 360; plus
(c) the product of (i) the Series Collection Allocation Percentage
on the next preceding Distribution Date, multiplied by (ii) the aggregate
Unpaid Balance of Receivables held by Trustee on the next preceding
Distribution Date, multiplied by (iii) 2% multiplied by (iv) a fraction
the numerator of which is the product of 2 multiplied by the number of
Average Turnover Days and the denominator of which is 360; minus
(d) the balance on deposit in the Carrying Cost Account at the
beginning of that Business Day.
"Certificate Purchase Agreement" means the Revolving Certificate Purchase
Agreement dated as of the Closing Date among Transferor, Servicer, the
purchasers of the Series 1995-1 Certificates and the Agent. The Certificate
Purchase Agreement is hereby designated a "Transaction Document" for purposes
of the Pooling Agreement.
"Certificate Rate" means, at any time, the weighted average of the
interest rates on all outstanding Tranches.
"Certificate Spread" means:
(a) for the period from the Closing Date up to (but not including)
the day corresponding to the Closing Date in the month falling six months
after the month in which the Closing Date occurs (or if there is no such
corresponding day, through the last day of that sixth
page 5
<PAGE>
month), (i) with respect to any Eurodollar Tranche, 0.75% per annum, and
(ii) with respect to any ABR Tranche, 0% per annum;
(b) thereafter up to (but not including) the day corresponding to
the Closing Date in the month falling nine months after the month in
which the Closing Date occurs (or if there is no such corresponding day,
through the last day of that ninth month), (i) with respect to any
Eurodollar Tranche, 1.25% per annum, and (ii) with respect to any ABR
Tranche, 0.25% per annum; and
(c) thereafter up to (but not including) the day corresponding to
the Closing Date in the month falling twelve months after the month in
which the Closing Date occurs (or if there is no such corresponding day,
through the last day of that twelfth month), (i) with respect to any
Eurodollar Tranche, 2.00% per annum, and (ii) with respect to any ABR
Tranche, 1.00% per annum; and
(d) thereafter, (i) with respect to any Eurodollar Tranche, 2.75%
per annum, and (ii) with respect to any ABR Tranche, 1.75% per annum.
"Closing Date" means October 31, 1995.
"Concentration Factor" means, as of any Cut-Off Date and with respect to
a Seller Group, the greatest of:
(i) such Seller Group's "Benchmark Percentage" for purposes of
clause (b) of the definition of "Excess Concentration Balances,"
(ii) two times such Seller Group's "Benchmark Percentage" for
purposes of clause (c) of that definition,
(iii) three times such Seller Group's "Benchmark Percentage" for
purposes of clause (d) of that definition, and
(iv) the sum of (A) all Special Concentration Limits then in effect
for such Seller Group, plus (B) the product of (x) such Seller Group's
"Benchmark Percentage" for purposes of clause (e) of the definition of
Excess Concentration Balances times (y) the excess of five over the
number of Special Obligors for such Seller Group.
"Current Carrying Costs" means, during any Distribution Period, the sum
of the amount of interest on the Series 1995-1 Certificates and the amount
page 6
<PAGE>
of the Servicing Fee that will be payable on the next Interest Payment Date and
any other Interest Payment Date falling not later than one week after such
Interest Payment Date.
"Daily Series Collections" is defined in Section 4.2.
"Debt" means, with respect to any Person, without duplication, (i) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such Person in connection with any letters of credit and acceptances issued
under letter of credit facilities, acceptance facilities or other similar
facilities, (ii) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, (iii) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (iv) all capitalized lease
obligations of such Person, (v) all indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv) above of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any lien upon or in property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such indebtedness, (vi) all
guaranteed debt of such Person, (vii) all redeemable capital stock issued by
such Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends, (viii) all obligations
under interest rate contracts of such Person and (ix) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (viii) above. For
purposes hereof, the "maximum fixed repurchase price" of any redeemable capital
stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such redeemable capital stock as if such
redeemable capital stock were purchased on any date on which the amount thereof
shall be required to be determined pursuant to any Transaction Document, and if
such price is based upon, or measured by, the fair market value of such
redeemable capital stock, such fair market value to be determined in good faith
by the board of directors of the issuer of such redeemable capital stock.
page 7
<PAGE>
"Deferred Portion" means, on any day the portion of the Acquisition
Amount as to which payment is deferred, which portion shall equal the sum of
the following amounts (as shown in the Daily Report for such day): (i) the
Excess Concentration Balances for both Seller Groups, plus (ii) the Excess New
Seller Reserves for both Seller Groups, plus (iii) the dollar amount of the
Adverse Claims that attach to the Transferred Assets unless such Adverse Claims
are of the type described in clause (a) or (b)(i) of the definition of
Permitted Adverse Claims or have been bonded in a manner that satisfies the
Approval Condition, plus (iv) the Accrual Reserves (if any) for both Seller
Groups, plus (v) the aggregate unpaid balance of Receivables that are not
Eligible Receivables, plus (vi) the Carrying Cost Receivables Reserve, plus
(vii) the Applicable Reserve Ratio for Ampad Group times the Net Eligible
Receivables for Ampad Group, plus (viii) the Applicable Reserve Ratio for WRO
Group times Net Eligible Receivables for WRO Group (it being understood that
the Deferred Portion may vary from day to day); provided that the Deferred
Portion shall be fixed as of the last day of the Revolving Period.
"Dilution Horizon Variable" means, at any time with respect to a Seller
Group, a fraction having (a) a numerator equal to the sum of the aggregate
amounts payable pursuant to invoices giving rise to Receivables and generated
by such Seller Group during the Calculation Period ending on the most recent
Cut-Off Date (as of that Cut-Off Date) and (b) a denominator equal to the Group
Specific Adjusted Eligible Receivables for such Seller Group as of the most
recent Cut-Off Date.
"Dilution Ratio" means, with respect to a Seller Group and as calculated
in each Monthly Report as of the most recent Cut-Off Date, a fraction
(expressed as a percentage) having (a) a numerator equal to the aggregate
amount of Dilution on the Receivables generated by such Seller Group occurring
during the Calculation Period ending on the most recent Cut-Off Date, and (b) a
denominator equal to the aggregate amounts payable pursuant to invoices giving
rise to Receivables that were generated by such Seller Group during the
preceding Calculation Period (so that, for example, if the Calculation Period
specified in clause (a) corresponded to the March fiscal month, the Calculation
Period in this clause (b) would be the one corresponding to the February fiscal
month).
"Dilution Reserve Ratio" means, with respect to a Seller Group and as
calculated in each Monthly Report, the result (expressed as a percentage)
calculated in accordance with the following formula:
{(ARF x ADR) + [(HDR-ADR) x (HDR/ADR)]} x DHV
page 8
<PAGE>
where:
ADR = the average of the Dilution Ratios for such Seller Group
during the period of 12 consecutive Calculation Periods
ending on the related Cut-Off Date;
ARF = the Applicable Ratings Factor;
DHV = the Dilution Horizon Variable for such Seller Group; and
HDR = the highest Dilution Ratio for such Seller Group for any
Calculation Period within the 12 consecutive Calculation
Periods ending on the related Cut-Off Date.
"Dilution Reserve Ratio (Z-value)" means, with respect to a Seller Group
and as calculated in each Monthly Report, the result (expressed as a
percentage) calculated in accordance with the following formula:
[(ARF x ADR) + (Z-value x SD)] x DHV
where:
ADR = the average of the Dilution Ratios for such Seller Group
during the period of 12 consecutive Calculation Periods
ending on the related Cut-Off Date;
ARF = the Applicable Ratings Factor;
DHV = the Dilution Horizon Variable for such Seller Group;
SD = the sample standard deviation, during the period of 12
consecutive Calculation Periods ending on the related Cut-Off
Date, of the Dilution Ratio for such Seller Group; and
Z-value = the Z-value.
"Early Amortization Calculation Date" means the day before an Early
Amortization Period begins.
"Early Amortization Period" means the period beginning on the date (if
any) specified in Section 6.2 and ending on the day on which the Invested
Amount has been reduced to zero.
"Eurodollar Tranche" means, during any Interest Period, any portion of
the Invested Amount that is designated by Transferor in accordance with the
Certificate Purchase Agreement to accrue interest based on the Reserve-Adjusted
Eurodollar Rate.
page 9
<PAGE>
"Excess Concentration Balances" means, on any day and with respect to a
Reported Obligor, the aggregate outstanding balances of Eligible Receivables it
owes that, expressed as a percentage of the Adjusted Eligible Receivables,
exceeds the following percentages for the following Obligors (other than
Special Obligors):
(a) 100% for any Tier-1 Obligor of Ampad Group and 100% for any
Tier-1 Obligor of WRO Group;
(b) 25% for any Tier-2 Obligor of Ampad Group and 17.5% for any
Tier-2 Obligor for WRO Group;
(c) 12.5% for any Tier-3 Obligor of Ampad Group and 8.75% for any
Tier-3 Obligor for WRO Group;
(d) 8.33% for any Tier-4 Obligor of Ampad Group and 5.83% for any
Tier-4 Obligor for WRO Group; and
(e) 2.5% for any Tier-5 Obligor of Ampad Group and 2.5% for any
Tier-5 Obligor for WRO Group;
provided, that any Excess Concentration Balance for a Shared Obligor shall be
deducted (for purposes of calculating the Net Eligible Receivables for either
Group) from the Group Specific Adjusted Eligible Receivables for Ampad Group
until Ampad Group's Net Eligible Receivables are reduced to zero, at which time
the remainder of such Excess Concentration Balance shall (for such purposes) be
deducted from the Group Specific Adjusted Eligible Receivables for WRO Group.
Each of the percentages above is called a "Benchmark Percentage." Transferor
may from time to time, by notice in any Monthly Report (and, in each case,
after satisfying the Approval Condition) increase or decrease any Benchmark
Percentage. Any such change shall also be given effect for purposes of the
definition of "Concentration Factor" and consequently may result in a change to
the Concentration Factor. "Excess Concentration Balances" means on any day and
with respect to any Special Obligor, the aggregate outstanding balances of
Eligible Receivables it owes that, expressed as a percentage of Adjusted
Eligible Receivables, exceeds the Special Concentration Limit for such Special
Obligor. Excess Concentration Balances will be measured on each day during the
period from one Distribution Date to but excluding the next Distribution Date
with respect to Reported Obligors for such period.
"Excess New Seller Reserve" means, on any day and with respect to a
Seller Group, the sum of the following amounts (if positive) calculated for
page 10
<PAGE>
each New Seller in such Seller Group (other than any New Seller as to which the
Approval Condition has been satisfied):
(a) the aggregate outstanding balances of Eligible Receivables
generated by such New Seller (net of any Excess Concentration Balances);
minus
(b) 5% of the sum of the Group Specific Adjusted Eligible
Receivables for both Seller Groups.
"Expected Final Payment Date" means the October, 2000 Distribution Date.
"Federal Funds Rate" means (a) the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for the day (or, if the day is
not a Business Day, the immediately preceding Business Day) by the Federal
Reserve Bank of New York; provided that if the rate is not so published for any
Business Day, the rate for purposes of this clause will be the average of the
quotations for the day on such transactions received by the Agent from three
Federal funds brokers of recognized standing selected by it, plus (b) 100 basis
points.
"Final Scheduled Payment Date" means the October, 2001 Distribution Date.
"First Issuance Date" means October 31, 1995.
"Fully Funded Date" means the first date falling in the Amortization
Period or an Early Amortization Period on which there are funds on deposit in
the Carrying Cost Account and the Principal Funding Account that, in the
aggregate, equal or exceed the Investor Repayment Amount and any Servicing Fee
payable to anyone other than a WRO Person on the first Distribution Date
falling after that date.
"Group Allocation Percentage" means, at any time and with respect to
either Seller Group, a fraction, the numerator of which is such Seller Group's
Net Eligible Receivables and the denominator of which is the sum of such Seller
Group's Net Eligible Receivables and other Seller Group's Net Eligible
Receivables.
"Group Specific Adjusted Eligible Receivables" means, on any Business Day
and with respect to either Seller Group, the result of (a) the aggregate
page 11
<PAGE>
unpaid balance of Eligible Receivables generated by such Seller Group and held
by the Trust on that day, minus (b) such Seller Group's Group Allocation
Percentage (as shown in the Daily Report for the preceding Business Day) of
Unapplied Cash held by the Trust on that day, as shown in the Daily Report for
the current Business Day, plus (c) the Aggregate Retained Balances for such
Seller Group.
"Group Specific Base Amount" means, for either Seller Group, the result
of the following formula:
[NER x SCAP x (100%-ARR)]
where:
ARR = the Applicable Reserve Ratio in effect for that Business Day
and such Seller Group;
NER = the Net Eligible Receivables for such Seller Group as
reported in the Daily Report for that Business Day; and
SCAP = the Series Collection Allocation Percentage for that Business
Day.
"Guarantor" means WRO, in its capacity as the guarantor under the Seller
Guaranty.
"Holdback Account Termination Date" is defined in Section 4.4.
"Holder" means a Holder (as defined in the Pooling Agreement) of a Series
1995-1 Certificate.
"Incentive Payment Accrual" means, at any time, the reserve then shown on
the consolidated books of the Sellers in respect of Incentive Payment Dilution,
which reserve shall be updated weekly and shall be calculated in accordance
with generally accepted accounting principles.
"Incentive Payment Adjustment Factor" means, with respect to either
Seller Group at any time, a fraction, the numerator of which is the aggregate
amount of Incentive Payment Dilution accrued by such Seller Group during the
immediately preceding calendar quarter and the denominator of which is the
portion of Year Earlier Incentive Payments accrued during the corresponding
quarter in the preceding calendar year.
"Incentive Payment Dilution" means, with respect to a Seller Group, such
Seller Group's liability for incentive payments or discounts to obligors
page 12
<PAGE>
under monthly, quarterly and annual purchasing incentive programs (including
volume rebate programs) for its customers.
"Incentive Payment Liquidation Reserve" means, with respect to either
Seller Group, the product of (a) the Incentive Payment Adjustment Factor, times
(b) the Incentive Payment Per Diem, times (c) a number equal to 2 times the
number of Turnover Days for such Seller Group.
"Incentive Payment Per Diem" for a Seller Group at any time will equal
the quotient of the Year Earlier Incentive Payments divided by 365.
"Intercreditor Provisions" means (i) Section 8.13(vi) of the WRO Credit
Agreement, (ii) the following definitions in the WRO Credit Agreement: Accounts
Receivable Bridge Facility, Accounts Receivable Facility Documents, Accounts
Receivable Facility Pooling and Servicing Agreement, Accounts Receivable
Facility Purchase Agreement, Certificate, Maximum Funding Amount, Purchased
Interest, Receivables Entity, Receivables Purchase Money Note, and Stated
Amount and (iii) the provisions of the Security Agreement (as defined in the
WRO Credit Agreement) relating to the release of Receivables and Related
Assets.
"Interest Payment Date" means any date upon which interest is payable
with respect to the ABR Tranche or any Eurodollar Tranche, as specified in
Section 4.1.
"Interest Period" means:
(a) as to the ABR Tranche (if any) from time to time, (i) the
period from the Closing Date to the first subsequent Distribution Date
and (ii) each Distribution Period thereafter; and
(b) as to each Eurodollar Tranche (if any) from time to time, each
period from the date upon which that Eurodollar Tranche was first
designated as such pursuant to the Certificate Purchase Agreement (or the
end of the next preceding Yield Period for such Eurodollar Tranche, if
there has been one) to the date that is 30 days, 60 days or 90 days, at
the option of Transferor, thereafter; and if any Yield Period for a
Eurodollar Tranche would otherwise end on a day that is not a Business
Day, such Eurodollar Tranche shall instead end on the next Business Day
(or, if the next Business Day falls in the next calendar month, then on
the preceding Business Day).
page 13
<PAGE>
"Invested Amount" means, at any time, the sum of the purchase prices paid
for Purchases made pursuant to (and as defined in) the Certificate Purchase
Agreement at or prior to that time, reduced (but not below zero) by (a) the
aggregate amount of all distributions that have been made to the Holders of the
Series 1995-1 Certificates on account of principal, and (b) the amount of all
Investor Write-Offs that have been applied to reduce the 1995-1 Invested Amount
(net of Investor Allocable Recoveries and Investor Allocable Dilution
Adjustments that have been applied to reinstate the Invested Amount).
"Investor Allocable Dilution" means
(x) on any Business Day falling in the Revolving Period, a fraction
(expressed as a percentage, which in any event may not exceed 100%)(a)
the numerator of which is the Net Invested Amount as of that Business
Day, and (b) the denominator of which is the Base Amount as of that
Business Day; and
(y) for any ASA Measuring Period, the product of the aggregate amount of
Dilution for that ASA Measuring Period as to which neither the applicable
Seller nor the Guarantor has made any payment required by Section 3.4 of
the Purchase Agreement, multiplied by the Series Loss Allocation
Percentage as of the beginning of that ASA Measuring Period, multiplied
by the Investor Allocation Percentage as of the first Business Day of
that ASA Measuring Period.
"Investor Allocable Dilution Adjustments" is defined in Section 4.8.
"Investor Allocable Loss Amount" means, for any ASA Measuring Period, the
product of the Loss Amount for that ASA Measuring Period, multiplied by the
Series Loss Allocation Percentage as of the beginning of that ASA Measuring
Period, multiplied by the Investor Allocation Percentage as of the beginning of
that ASA Measuring Period.
"Investor Allocable Recoveries" means, for any ASA Measuring Period, the
product of the Net Recoveries for that ASA Measuring Period, multiplied by the
Series Loss Allocation Percentage as of the beginning of that ASA Measuring
Period, multiplied by the Investor Allocation Percentage as of the first
Business Day of that ASA Measuring Period.
"Investor Allocation Percentage" means:
page 14
<PAGE>
(x) on any Business Day falling in the Revolving Period, a fraction
(expressed as a percentage, which in any event may not exceed 100%) (a)
the numerator of which is the Net Invested Amount as of that Business
Day, and (b) the denominator of which is the Base Amount as of that
Business Day; and
(y) on any Business Day falling in the Amortization Period or an Early
Amortization Period, a fraction (expressed as a percentage, which in any
event may not exceed 100%) (a) the numerator of which is the Net Invested
Amount as of the beginning of the Amortization Period or the Early
Amortization Calculation Date, as applicable, and (b) the denominator of
which is the Base Amount as of (i) that Business Day, if it falls in the
Amortization Period, and (ii) otherwise, the Early Amortization
Calculation Date.
"Investor Ownership Percentage" means, on any day, a fraction, (x) the
numerator of which is the Acquisition Amount on such day and (y) the
denominator of which is the excess of (i) the Unpaid Balance of Receivables on
such day over (ii) the Unapplied Cash on such day; provided that the Investor
Ownership Percentage shall be fixed on the last day of the Revolving Period.
"Investor Repayment Amount" means, on any Business Day falling in the
Amortization Period or an Early Amortization Period, the sum of (a) the
outstanding principal amount of the Series 1995-1 Certificates, plus (b) the
interest and any Additional Amounts known to be payable on the Series 1995-1
Certificates on the first Distribution Date falling after that date.
"Investor Write-Offs" means, as calculated in any Monthly Report relating
to a Calculation Period falling completely or partially in an Early
Amortization Period:
(a) if the Available Subordinated Amount is greater than zero at
the end of the related ASA Measuring Period, zero; and
(b) if the Available Subordinated Amount is zero at the end of the
related ASA Measuring Period, the excess (if any) of (x) the sum of the
Investor Allocable Loss Amount and the Investor Allocable Dilution for
the related ASA Measuring Period, over (y) the Available Subordinated
Amount as of the beginning of that ASA Measuring Period.
page 15
<PAGE>
"Loss Amount" means, with respect to any ASA Measuring Period, an amount
equal to the positive difference (if any) of (a) the amount of Receivables held
by the Trust that became Write-Offs during that ASA Measuring Period, minus (b)
the amount of Recoveries received during that ASA Measuring Period.
"Loss Reserve Ratio" means, with respect to a Seller Group and as
calculated in each Monthly Report, the result (expressed as a percentage) of
(a) the Applicable Ratings Factor multiplied by (b) the highest average of the
Aged Receivables Ratio for such Seller Group in any three consecutive
Calculation Periods that occurred during the preceding 12 consecutive
Calculation Periods ending on the most recent Cut-Off Date multiplied by (c) a
fraction having (i) a numerator equal to the sum of the aggregate amounts
payable pursuant to invoices giving rise to Receivables generated by such
Seller Group during the five Calculation Periods (in the case of Ampad Group)
or three Calculation Periods (in the case of WRO Group) preceding or ending on
the most recent Cut-Off Date, and (ii) a denominator equal to the Group
Specific Adjusted Eligible Receivables, as of the most recent Cut-Off Date.
"Loss Reserve Ratio (Z-value)" means, with respect to a Seller Group and
as calculated in each Monthly Report, the result (expressed as a percentage) of
(a) the Loss Reserve Ratio for such Seller Group plus (b) the product of the
Z-value multiplied by the sample standard deviation of the Aged Receivables
Ratio for such Seller Group during the preceding 12 consecutive Calculation
Periods ending on the most recent Cut-Off Date.
"Loss to Liquidation Ratio" means, with respect to a Seller Group and as
calculated in each Monthly Report, a fraction (a) the numerator of which is the
aggregate Unpaid Balance of Receivables (net of recoveries) for such Seller
Group that were written off as uncollectible or (without duplication) converted
into promissory notes during the three preceding Calculation Periods in
accordance with the Credit and Collection Policy of the applicable Seller, and
(b) the denominator of which is the aggregate amount of Collections on the
Receivables received during such three Calculation Periods with respect to such
Seller Group.
"Minimum Required Reserve Ratio" means with respect to a Seller Group the
sum, as of any Cut-Off Date, of (a) the Concentration Factor for the Cut-Off
Date plus (b) the product of the average of the Dilution Ratios of such Seller
Group for the period of 12 preceding Calculation Periods ending on the Cut-Off
Date, multiplied by the Dilution Horizon Variable of such Seller Group for the
Cut-Off Date; provided that in no event shall the Minimum Required Reserve
Ratio be less than 12%.
page 16
<PAGE>
"Net Eligible Receivables" means, at any time and with respect to either
Seller Group, (a) the Group Specific Adjusted Eligible Receivables for such
Seller Group, minus (b) the then aggregate amount of all Excess Concentration
Balances with respect to all Obligors for such Seller Group, minus (c) the
Excess New Seller Reserve for such Seller Group, minus (d) the dollar amount of
the Adverse Claims that attach to the Transferred Assets attributable to such
Seller Group unless such Adverse Claims are of the type described in clauses
(a) or (b)(i) of the definition of Permitted Adverse Claims or have been bonded
in a manner that satisfies the Approval Condition, minus (e) the Accrual
Reserve for such Seller Group, if the Approval Condition is satisfied and if
Incentive Payment Dilution is excluded from the determination of "Dilution"; it
being understood that the amounts referred to in the preceding clauses (b)
through (e) shall be calculated without duplication.
"Net Invested Amount" means, on any Business Day, the Invested Amount,
reduced by the aggregate balance on deposit in the Equalization Account and the
Principal Funding Account.
"Net Recoveries" means, with respect to any ASA Measuring Period, an
amount equal to the positive difference (if any) of (a) the amount of
Recoveries received in that ASA Measuring Period minus (b) the amount of
Receivables that became Write-Offs in that ASA Measuring Period.
"New Seller" means, on any day, any Seller that became a Seller during
the preceding twelve months.
"Principal Payment Date" means (i) any date on which the Invested Amount
is to be reduced pursuant to Section 3.1 of the Certificate Purchase Agreement,
(ii) any date on which any prepayment is to be made pursuant to Section 4.9,
(iii) the end of each Interest Period in respect of the next maturing
Eurodollar Tranche and/or ABR Tranche, in such order as the Agent shall select
so as to minimize "breakage costs", (iv) each Distribution Date falling in an
Early Amortization Period (beginning with the Distribution Date falling in the
Calculation Period after the Calculation Period in which the Early Amortization
Period begins) and (v) any Distribution Date falling on or after the Expected
Final Payment Date.
"Rating Agency" means S&P and DCR.
"Reference Bank" means Bankers Trust Company.
"Refinancing Date" is defined in Section 4.9.
page 17
<PAGE>
"Reported Obligor" means, with respect to either Seller Group, (i) the
twenty Obligors that owe the highest aggregate unpaid balance of Eligible
Receivables to Sellers in such Seller Group as of the most recent Cut-Off Date
for which a Monthly Report has been delivered, and (ii) any other Obligor that
owes an aggregate unpaid balance of Eligible Receivables to Sellers in such
Seller Group as of such Cut-Off Date that is at least 1% of the aggregate
unpaid balance of all Eligible Receivables owed to Sellers in such Seller
Group, in each case as identified in such Monthly Report.
"Required Purchasers" is defined in Section 8.1 of the Certificate
Purchase Agreement.
"Required Receivables" means, on any Business Day:
(a) So long as an Early Amortization Period has not commenced, the
sum of the amounts determined for each Seller Group according to the
following formula:
IA + CCRR X GAPX R
---
(1 - ARR) NER
where:
ARR = the Applicable Reserve Ratio for such Seller Group in
effect for that Business Day;
CCRR = the Carrying Cost Receivables Reserve, as reported in
the Daily Report for that Business Day;
GAP = the Group Allocation Percentage for such Seller Group;
IA = the Invested Amount, as reported in the Daily Report
for that Business Day;
NER = the Net Eligible Receivables for such Seller Group as
reported in the Daily Report for that Business Day; and
R = the aggregate Unpaid Balance of Receivables originated
by such Seller Group and held by the Trust as reported
in the Daily Report for that Business Day.
page 18
<PAGE>
(b) If an Early Amortization Period has commenced, the result of
the following formula:
AIA + ASA + UCCRR
where:
AIA = the Adjusted Invested Amount on that Business Day;
UCCRR = the Unfunded Carrying Cost Receivables Reserve on that
Business Day; and
ASA = the Available Subordinated Amount on that Business Day.
"Required Reserve Ratios" means, with respect to a Seller Group, as
calculated in each Monthly Report, the greater of (a) the Loss Reserve Ratio
for such Seller Group plus the Dilution Reserve Ratio for such Seller Group and
(b) the Loss Reserve Ratio (Z-value) for such Seller Group plus the Dilution
Reserve Ratio (Z-value) for such Seller Group.
"Reserve-Adjusted Eurodollar Rate" means for any Interest Period, the
rate per annum obtained by dividing (i) the arithmetic average (rounded upward
to the nearest 1/100 of one percent) of the offered quotation, if any, to first
class banks in the interbank Eurodollar market by Reference Bank for U.S.
dollar deposits of amounts in same day funds comparable to the principal amount
of the Certificate of that Reference Bank with maturities comparable to such
Interest Period as of approximately 10:00 a.m. (New York time) on the second
Business Day prior to the first day of that Interest Period by (ii) a
percentage equal to 100% minus the stated maximum rate of all reserve
requirements (including any marginal, emergency, supplemental, special or other
reserves) applicable on such second preceding Business Day to any member bank
of the Federal Reserve System in respect of "Eurocurrency liabilities" as
defined in Regulation D of the Federal Reserve Board (or any successor category
of liabilities under Regulation D); provided that if any Reference Bank fails
to provide Agent with its aforementioned quotation, then the Reserve-Adjusted
Eurodollar Rate shall be determined based on the quotation(s) provided to Agent
by the other Reference Bank(s).
"Revolving Period" means the period beginning on the Closing Date and
ending on the day before the first day of the Amortization Period or an Early
Amortization Period.
"Seller Group" means Ampad Group or WRO Group.
page 19
<PAGE>
"Series Allocable Dilution Adjustments" means, for any ASA Measuring
Period, the product of the aggregate amount of payments pursuant to Section 3.4
of the Purchase Agreement or pursuant to the Seller Guaranty received during
that ASA Measuring Period relating to Dilution that occurred prior to that ASA
Measuring Period, multiplied by the Series Loss Allocation Percentage as of the
beginning of that ASA Measuring Period.
"Series 1995-1 Certificates" means any of the Series 1995-1 Certificates
issued pursuant to this Supplement, each of which shall be substantially in the
form of Exhibit A.
"Shared Obligor" means, at any time, an Obligor that is a Reported
Obligor for both Seller Groups.
"Special Concentration Limit" means
(i) with respect to the Obligor that owes the highest aggregate
Unpaid Balance of Eligible Receivables to Ampad Group, 10%;
(ii) with respect to the Obligors that owe the second and third
highest aggregate Unpaid Balances of Eligible Receivables to Ampad Group,
5%;
(iii) with respect to the Obligor that owes the highest aggregate
Unpaid Balance of Eligible Receivables to WRO Group, 7%; and
(iv) with respect to the Obligor that owes the second highest
aggregate Unpaid Balance of Eligible Receivables to WRO Group, 3%.
"Special Obligor" means, at any time, any of the following: (i) the
three Obligors that owe the highest aggregate Unpaid Balances of Eligible
Receivables to the Ampad Group, and (ii) the two Obligors that owe the highest
aggregate Unpaid Balances of Receivables to WRO Group.
"Stated Amount" means as to any Certificate, the maximum principal amount
that may be required to be funded by the Holder of such Certificate.
"Supplemental Agreement" has the meaning set forth in Section 7.1(f) of
the Certificate Purchase Agreement.
"Tier-1 Obligor" means any Obligor that has (a) a commercial paper rating
from the Rating Agencies of at least "A-1+" (or its equivalent) or (b) a
page 20
<PAGE>
senior actual or implied debt rating from the Rating Agencies of at least "AAA"
(or its equivalent).
"Tier-2 Obligor" means any Obligor (other than a Tier-1 Obligor) that has
(a) a commercial paper rating from the Rating Agencies of at least "A-1" (or
its equivalent) or (b) a senior actual or implied debt rating from the Rating
Agencies of at least "A+" (or its equivalent).
"Tier-3 Obligor" means any Obligor (other than a Tier-1 Obligor or a
Tier-2 Obligor) that has (a) a commercial paper rating from the Rating Agencies
of at least "A-2" (or its equivalent) or (b) a senior actual or implied debt
rating from the Rating Agencies of at least "BBB+" (or its equivalent).
"Tier-4 Obligor" means any Obligor (other than a Tier-1 Obligor, a Tier-2
Obligor or a Tier-3 Obligor) that has (a) a commercial paper rating from the
Rating Agencies of at least "A-3" (or its equivalent) or (b) a senior actual or
implied debt rating from the Rating Agencies of at least "BBB-" (or its
equivalent).
"Tier-5 Obligor" means any Obligor other than a Tier-1 Obligor, a Tier-2
Obligor, a Tier-3 Obligor or a Tier-4 Obligor.
"Tranche" means each of the ABR Tranche and each Eurodollar Tranche.
"Transferor Indemnified Losses" is defined in Section 7.2.
"Transferor Indemnified Party" is defined in Section 7.2.
"Transferor Payment Percentage" means, on any Business Day, the
difference of 100% minus the Investor Allocation Percentage on that Business
Day.
"Unapplied Cash" means, on any Business Day, available funds received in
the Master Collection Account and reflected in the Daily Report for that
Business Day that have not been applied as Collections on a particular
Receivable on or prior to the time as of which that Daily Report is prepared.
"Unfunded Carrying Cost Receivables Reserve" means, on any Business Day
falling in an Early Amortization Period, the difference (but not less than
zero) of (a) the Carrying Cost Receivables Reserve as of the Early Amortization
Calculation Date, minus (b) the aggregate Collections deposited
page 21
<PAGE>
into the Carrying Cost Account during the portion of the Early Amortization
Period up to and including that Business Day.
"Unmatured Early Amortization Event" means an event or condition that,
upon the giving of notice or the passage of time, would become an Early
Amortization Event.
"Year Earlier Incentive Payments" means, at any time with respect to
either Seller Group, the aggregate amount of payments made (or to be made) or
discounts given (or to be given) to customers by such Seller Group on account
of Incentive Payment Dilution during the then most recently ended calendar
year.
"WRO Credit Agreement" means the Credit Agreement dated as of October 31,
1995 among WRO, the financial institutions named therein and Bankers Trust
Company, as Agent, as in effect on the Closing Date.
"Z-value" means 2.58.
SECTION 1.2 Incorporation of Terms. The terms of the Pooling Agreement
are incorporated in this Supplement as if set forth in full herein. As
supplemented by this Supplement, the Pooling Agreement is in all respects
ratified and confirmed and both together shall be read, taken and construed as
one and the same agreement. If the terms of this Supplement and the terms of
the Pooling Agreement conflict, the terms of this Supplement shall control with
respect to the Series 1995-1 Certificates.
ARTICLE II DESIGNATION
SECTION 2.1 Designation. There is hereby created a Series to be known as
the "Series 1995-1 Certificates." Subject to the conditions set forth in
Article III, Trustee shall authenticate and deliver the Series 1995-1
Certificates, to or upon the order of Transferor in an aggregate Stated Amount
equal to $45,000,000. Notwithstanding the terms of Section 6.1 of the Pooling
Agreement, the Series 1995-1 Certificates shall be in minimum denominations of
$5,000,000 and in integral multiples of $1,000,000 in excess of that
amount.
The Series 1995-1 Certificates represent an undivided interest in the
portion of the Transferred Assets allocable to this Series, which undivided
interest (expressed as a percentage) shall equal the Investor Ownership
Percentage. The amount payable on any day by the Holders of such Certificates
for the acquisition such undivided interest (the "Acquisition
page 22
<PAGE>
Amount") shall equal the Invested Amount plus the Deferred Portion (it being
understood that the Acquisition Amount may vary from day to day); provided that
Acquisition Amount shall be fixed on the last day of the Revolving Period.
The Deferred Portion of the Acquisition Amount shall be subject to a
holdback and shall be paid to the extent (and only to the extent) Daily Series
Collections are not required to pay amounts described in clauses first through
fourth of Section 4.3 or Section 4.4 (as applicable), it being understood that
the Holders of Series 1995-1 Certificates shall not be liable to pay any
portion of the Deferred Portion not paid out of Daily Series Collections.
ARTICLE III CONDITIONS TO ISSUANCE
SECTION 3.1 Conditions to Issuance. Trustee will not authenticate the
Series 1995-1 Certificates unless all conditions to the issuance of the Series
1995-1 Certificates under Section 6.10 of the Pooling Agreement shall have been
satisfied.
ARTICLE IV PAYMENTS AND ALLOCATIONS
SECTION 4.1 Interest; Additional Amounts. (a) Subject to Section 4.1 of
the Revolving Certificate Purchase Agreement, Transferor may from time to time
allocate the outstanding principal amount under the Series 1995-1 Certificates
to an ABR Tranche and up to four Eurodollar Tranches. Interest on the ABR
Tranche shall be payable on each Distribution Date, and interest on a
Eurodollar Tranche shall be payable at the end of the applicable Interest
Period, except that (i) interest on the amount of any principal repaid on any
other date shall be payable on the date of the repayment and (ii) in the case
of any six-month Interest Period, accrued interest shall be payable on the date
corresponding to the first day of that Interest Period in the third following
month (or if there is no such corresponding day, the last day of that third
month). If any such day is not a Business Day, interest shall instead be due on
the next Business Day (or, if the next Business Day falls in the next calendar
month, then on the next preceding Business Day).
(b) Interest on a Eurodollar Tranche shall accrue during any Interest
Period at a rate per annum equal to the Reserve Adjusted Eurodollar Rate plus
the Certificate Spread and shall be calculated on the basis of actual days over
a year of 360 days.
(c) Interest on the ABR Tranche shall accrue at the Alternate Base Rate
in effect from time to time plus the Certificate Spread and shall be
page 23
<PAGE>
calculated on the basis of actual days over a year of 365 or 366 days, as the
case may be.
(d) Interest with respect to the Series 1995-1 Certificates due but not
paid on any Distribution Date or the last day of an Interest Period, as the
case may be, will be due on the next Distribution Date or last day of an
Interest Period with additional interest on the amount at 2% per annum above
the Alternate Base Rate to the extent permitted by law.
(e) Additional Amounts shall also be payable with respect to the Series
1995-1 Certificates as specified in the Certificate Purchase Agreement and to
the extent (but only to the extent) that funds become available for such
Additional Amounts in accordance with Sections 4.2 and 4.3.
SECTION 4.2 Daily Calculations and Series Allocations. On each Business
Day, Servicer shall calculate the Series Collection Allocation Percentage for
Series 1995-1 (and, if necessary for that calculation, the Required
Receivables), the Carrying Cost Cash Required Amount and, during the Revolving
Period and the Amortization Period, the Base Amount. On each Business Day
during the Revolving Period or the Amortization Period, Servicer shall also
determine whether the Net Invested Amount is greater than, equal to or less
than the Base Amount.
Pursuant to Section 4.3 of the Pooling Agreement, Servicer shall allocate
the Series Collection Allocation Percentage of available funds received in the
Master Collection Account (other than any Shared Investor Collections) since
the preceding Business Day's allocation to the Series Interest of Series
1995-1. The portion of funds so allocated, together with any funds released
from the Equalization Account in accordance with Section 4.5 on that Business
Day, are called the "Daily Series Collections."
SECTION 4.3 Allocations of Daily Series Collections (Other Than in an
Early Amortization Period). On each Business Day (other than a Business Day
falling in an Early Amortization Period or after the Fully Funded Date),
Servicer shall allocate the Investor Allocation Percentage of the Daily Series
Collections (or, if less, the aggregate amount of Daily Series Collections
required to fund the items described in priorities first through fourth below)
to the following purposes, in the priority indicated (and to the extent of
Daily Series Collections available):
first, to the Carrying Cost Account until the amount allocated to
the Carrying Cost Account equals the Carrying Cost Cash Required Amount;
page 24
<PAGE>
second, if Transferor shall have notified the Agent in accordance
with Section 3.1 of the Certificate Purchase Agreement that it desires to
reduce the Invested Amount or if the Amortization Period has begun, to
the Principal Funding Account until the funds on deposit in that account
equal the amount of such reduction or (during the Amortization Period)
the Invested Amount, provided that the amount allocated pursuant to this
priority second on any Business Day shall not exceed the product of (x)
the Investor Ownership Percentage multiplied by (y) the excess of the
Daily Series Collections over the amounts allocated on that Business Day
pursuant to priority first;
third, if the Net Invested Amount is greater than the Base Amount,
to the Equalization Account (during the Revolving Period) or the
Principal Funding Account (during the Amortization Period) in an amount
sufficient to reduce the Net Invested Amount to an amount equal to the
Base Amount; and
fourth, to hold in the Master Collection Account the amount
necessary to pay on the next Distribution Date all Additional Amounts
payable to the Holders.
On such Business Day, Servicer shall allocate the remainder of the Daily Series
Collections to make current and/or deferred transfer payments to Transferor in
respect of the Transferor Certificate, provided that Transferor may, from time
to time, direct Servicer to direct Trustee to hold all or part of the funds to
be paid pursuant to this sentence in the Master Collection Account to be
applied as Daily Series Collections on the following Business Day.
If, on any day, the amount of Collections that is then allocated to the
Carrying Cost Account exceeds the amount of Collections that is then required
to be allocated to the Carrying Cost Account, the Servicer shall reallocate
such Collections on such day to one or more of the obligations described in
priorities second through fourth, and in the last sentence of the preceding
paragraph, in the order of priority set forth therein.
In addition, if, on any day, funds on deposit in the Master Collection
Account and available for allocation under priority fourth are less than the
amount of the obligations described therein, then the available Collections
shall be allocated by Servicer to the holders of such obligations pro rata
according to the respective amounts of such obligations held by them.
page 25
<PAGE>
On any Business Day falling after the Fully Funded Date, all Daily Series
Collections shall be paid to Transferor as current and/or deferred transfer
payments.
SECTION 4.4 Allocations of Daily Series Collections During an Early
Amortization Period. On each Business Day falling in an Early Amortization
Period and prior to or on the Fully Funded Date, Servicer shall allocate the
Daily Series Collections to the following purposes, in the priority indicated
(and to the extent of Daily Series Collections available):
first, to the Carrying Cost Account to the extent that the balance
therein is less than the amount of Current Carrying Costs (other than any
Servicing Fee payable to any WRO Person) payable on the Distribution Date
relating to the Calculation Period during which such Business Day falls;
second, to the Principal Funding Account and to Transferor (or,
prior to the Holdback Account Termination Date, to the Holdback Account)
in the following amounts:
(a) the amount to be transferred to the Principal Funding
Account shall equal the product of (i) the Investor Allocation
Percentage, multiplied by (ii) the excess of the Daily Series
Collections over the amount allocated on that Business Day pursuant
to priority first, provided that the aggregate amount so deposited
shall in no event exceed the lesser of (x) the Invested Amount and
(y) the Investor Ownership Percentage times the aggregate Unpaid
Balance of Receivables as of the last day of the Revolving Period;
and
(b) the amount to be transferred to Transferor (or, prior to
the Holdback Account Termination Date, to the Holdback Account)
shall equal the product of (i) the Transferor Payment Percentage,
multiplied by (ii) the excess of the Daily Series Collections over
the amount allocated on that Business Day pursuant to priority
first;
third, to hold in the Master Collection Account the amount
necessary to pay on the next Distribution Date all Additional Amounts
payable to the Holders;
page 26
<PAGE>
fourth, to pay any Servicing Fee payable to any WRO Person on the
Distribution Date relating to the Calculation Period during which such
Business Day falls; and
fifth, the balance to Transferor, provided that prior to the
Holdback Account Termination Date, amounts payable to Transferor pursuant
to this priority fifth shall be deposited into the Holdback Account and
held as provided below.
The "Holdback Account Termination Date" shall be the earlier to occur of
(i) the date that falls twelve months after the beginning of the Early
Amortization Period and (ii) the Fully Funded Date. If at any time prior to the
Holdback Account Termination Date, the amount of funds on deposit in the
Holdback Account exceeds the difference of (1) the Investor Repayment Amount
minus (2) the amount of funds then held in the Carrying Cost Account and the
Principal Funding Account that are available to pay the Investor Repayment
Amount, then the amount of such excess funds shall be released from the
Holdback Account and paid to Transferor as current and/or deferred transfer
payments. On the Holdback Account Termination Date, Servicer shall calculate an
amount equal to (x) the aggregate amount of funds held in the Holdback Account,
minus (y) the aggregate Investor Allocable Dilution for the Early Amortization
Period as to which no Series Allocable Dilution Adjustments have been received.
The amount of such difference, if positive, will be paid to Transferor. The
funds remaining in the Holdback Account after the payment of such amount to
Transferor shall be transferred to the Master Collection Account and applied to
the items listed in priorities first through fifth above, in that order (except
that no such funds shall be allocated to Transferor or the Holdback Account
pursuant to priority second and the amount allocable to the Principal Funding
Account shall not be limited by application of the Investor Allocation
Percentage).
If, on any day, funds on deposit in the Master Collection Account and
available for allocation under priority third are less than the amount of the
obligations described therein, then the available Collections shall be
allocated by Servicer to the holders of such obligations pro rata according to
the respective amounts of such obligations held by them.
On any Business Day falling after the Fully Funded Date, all Daily Series
Collections shall be paid to Transferor in respect of the Transferor
Certificate.
SECTION 4.5 Withdrawals from the Equalization Account. On any Business
Day during the Revolving Period on which no Early Amortization
page 27
<PAGE>
Event or Unmatured Early Amortization Event exists, Servicer may instruct
Trustee in writing to withdraw funds from the Equalization Account and apply
such funds as Daily Series Collections, so long as the Net Invested Amount
would not exceed the Base Amount after giving effect to such transfer and
application. On the first day of the Amortization Period or an Early
Amortization Period, Servicer shall instruct Trustee to transfer the entire
balance in the Equalization Account to the Principal Funding Account.
SECTION 4.6 Available Subordinated Amount. (a) If an Early Amortization
Period begins, Servicer shall promptly calculate the Available Subordinated
Amount as of the Early Amortization Calculation Date and report such amount in
the Daily Report for the first day in the Early Amortization Period. Servicer
shall also calculate the Available Subordinated Amount as of each Cut-Off Date
falling in the Early Amortization Period, such calculation to be reflected in
the related Monthly Report.
(b) The Available Subordinated Amount as of the Early Amortization
Calculation Date shall equal the product of (x) the Investor Allocation
Percentage, multiplied by (y) the result of:
(i) the product of the Unpaid Balance of Receivables held by
Trustee at the opening of Business on the Early Amortization Calculation
Date, multiplied by the Series Collection Allocation Percentage on that
date; minus
(ii) the sum of the lesser of the Base Amount and the Net Invested
Amount and (B) the Carrying Cost Receivables Reserve at the opening of
Business on the Early Amortization Calculation Date.
(c) The Available Subordinated Amount, as of any Cut-Off Date in the
Early Amortization Period, shall equal the result of:
(i) the Available Subordinated Amount as of the preceding Cut-Off
Date (or as of the Early Amortization Calculation Date, in the case of
the first Cut-Off Date falling in the Early Amortization Period); minus
(ii) the Investor Allocable Loss Amount with respect to the ASA
Measuring Period ending on that Cut-Off Date; minus
(iii) any Investor Allocable Dilution with respect to the ASA
Measuring Period ending on that Cut-Off Date; plus
page 28
<PAGE>
(iv) subject to Sections 4.7 and 4.8, the Investor Allocable
Recoveries and Investor Allocable Dilution Adjustments with respect to
the ASA Measuring Period ending on that Cut-Off Date.
(d) Notwithstanding the foregoing, in no event shall the Available
Subordinated Amount at any time be less than zero or greater than the initial
Available Subordinated Amount calculated pursuant to subsection (b).
SECTION 4.7 Write-Offs and Recoveries. (a) In each Monthly Report
required to be delivered during the Early Amortization Period, Servicer shall
calculate the Investor Write-Offs and the Investor Allocable Recoveries for the
most recently ended ASA Measuring Period.
(b) If the Investor Write-Offs calculated in any Monthly Report exceed
zero, the Invested Amount and the outstanding principal amount of the Series
1995-1 Certificates shall be reduced by the amount of the Investor Write-Offs
with effect from the related Distribution Date.
(c) If the Invested Amount has been reduced on account of any Investor
Write-Offs, then any Investor Allocable Recoveries with respect to any
Calculation Period ending after the reduction takes place shall be applied to
reinstate the Invested Amount and the outstanding principal amount of the
Series 1995-1 Certificates, to the extent of such prior reductions that have
not previously been reinstated, with effect from the related Distribution Date.
If Investor Allocable Recoveries are so applied to reinstate the Invested
Amount and the outstanding principal amount of the Series 1995-1 Certificates
on any Distribution Date, then Investor Allocable Recoveries shall be applied
to increase the Available Subordinated Amount on the same Distribution Date
only to the extent of the excess, if any, of the Investor Allocable Recoveries,
minus the amount of Investor Allocable Recoveries so applied.
SECTION 4.8 Certain Dilution in an Early Amortization Period. (a) In
each Monthly Report required to be delivered during the Early Amortization
Period, Servicer shall calculate the Investor Allocable Dilution and the Series
Allocable Dilution Adjustments for the most recently ended ASA Measuring
Period.
(b) If the Investor Allocable Dilution calculated in any Monthly Report
is greater than zero, and there are funds in the Holdback Account, then those
funds (up to an amount equal to the amount of the Investor Allocable Dilution),
shall be allocated (i) first, in accordance with priority first of Section 4.4,
(ii) second, to the Principal Funding Account, so long as the aggregate
page 29
<PAGE>
amount on deposit therein does not exceed the Invested Amount and (iii) third,
in accordance with priorities third through fifth of Section 4.4, in that
priority.
(c) If the Available Subordinated Amount or the Invested Amount has been
reduced on account of any Investor Allocable Dilution, then (i) any Series
Allocable Dilution Adjustments with respect to any Calculation Period ending
after the reduction takes place and (ii) any additional funds deposited in the
Holdback Account (the "Investor Allocable Dilution Adjustments") shall be
allocated (x) first, to reinstate the Invested Amount and the outstanding
principal amount of the Series 1995-1 Certificates, and (y) second, to
reinstate the Available Subordinated Amount, in each case to the extent not
previously reinstated. Any amount so allocated on any day shall be allocated
(i) first, in accordance with priority first of Section 4.4, (ii) second, to
the Principal Funding Account, so long as the aggregate amount on deposit
therein does not exceed the Invested Amount and (iii) third, in accordance with
priorities third through fifth of Section 4.4, in that priority.
SECTION 4.9 Defeasance. On any Business Day falling in the Revolving
Period (but with not less than three Business Days prior written notice from
Servicer to the Holders), Servicer may, upon instruction from Transferor, cause
the Series 1995-1 Certificates to be prepaid in full (but not in part) by
causing the Series Interest to be conveyed to one or more Persons (who may be
the holders of a new Series issued substantially contemporaneously with such
prepayment, which new Series may have a greater Series Interest than Series
1995-1) for a cash purchase price in an amount equal to the sum of (a) the
Invested Amount, plus (b) to the extent not available in the Carrying Cost
Account, accrued and unpaid interest on the Series 1995-1 Certificates through
the day of such prepayment (the "Refinancing Date"), plus (c) to the extent not
available from funds set aside pursuant to priority fourth of Section 4.3, any
Additional Amounts owed with respect to the Series 1995-1 Certificates
(including any Additional Amounts arising as a result of such prepayment). No
such prepayment or conveyance shall, however, be permitted if as a result
thereof Transferor or any of its Affiliates would acquire such Series Interest
or the underlying Receivables. The purchase price shall be deposited in the
Principal Funding Account and shall be distributed to the Agent, for further
distribution to the Holders, on the Refinancing Date in accordance with the
terms of Section 5.2.
SECTION 4.10 Calculation of Dilution. The Servicer may, in any Daily
Report or Monthly Report, calculate Dilution for either Seller Group to exclude
Incentive Payment Dilution if the following conditions are satisfied: (i) the
Accrual Reserve is deducted in the calculation of Net Eligible Receivables for
such Seller Group, and (ii) during the term of the Certificates
page 30
<PAGE>
and with respect to any calendar quarter or calendar year, Incentive Payment
Dilution paid by the Sellers shall not have exceeded the Incentive Payment
Accrual for such quarter or year by more than 20%.
ARTICLE V DISTRIBUTIONS AND REPORTS
SECTION 5.1 Distributions. On each Distribution Date and, with respect
to clause (b), on each Principal Payment Date, other than a Distribution Date
that may be a Refinancing Date, Trustee shall, in accordance with instructions
set out in the applicable Daily Report, distribute to the Agent, for further
distribution among the Holders, the following amounts:
(a) accrued and unpaid interest on the ABR Tranche, and any
additional interest payable pursuant to Section 4.1, to the extent funds
are available for such payment in the Carrying Cost Account;
(b) on each Principal Payment Date, all funds deposited in the
Principal Funding Account on or prior to the most recent Cut-Off Date
(but in no event in excess of the Invested Amount) shall be distributed
in reduction of the Invested Amount;
(c) if, on the Expected Final Payment Date or any Distribution
Date falling in an Early Amortization Period, the funds on deposit in the
Carrying Cost Account (less any Servicing Fee payable on that day to
anyone other than a WRO Person) will be equal to or greater than the
Invested Amount (after giving effect to the distribution required by
subsection (b)), then an amount equal to such remaining Invested Amount
shall be withdrawn from the Carrying Cost Account and distributed in
reduction of the Invested Amount; and
(d) any Additional Amounts payable with respect to Series 1995-1
Certificates to the extent that funds have been allocated for those
Additional Amounts pursuant to priority fourth of Section 4.3 or priority
fifth of Section 4.4.
On each Distribution Date, Trustee shall also, in accordance with
instructions set out in the applicable Daily Report, distribute the Servicing
Fee to the Servicer to the extent that funds are available for that purpose in
the Carrying Cost Account.
On the last day of each Interest Period for a Eurodollar Tranche, Trustee
shall, in accordance with instructions set out in the applicable Daily Report,
distribute to the Agent, for further distribution among the Holders,
page 31
<PAGE>
accrued and unpaid interest on such Eurodollar Tranche, to the extent funds are
available for such payment in the Carrying Cost Account.
SECTION 5.2 Special Distributions on the Refinancing Date. On the
Refinancing Date, Trustee shall, in accordance with instructions set out in the
applicable Daily Report, distribute to the Agent, for further distribution
among the Holders, the following amounts:
(a) all interest accrued on the Series 1995-1 Certificates through
the Refinancing Date, to the extent funds are available for such payment
in the Carrying Cost Account or have been deposited in the Principal
Funding Account pursuant to Section 4.9;
(b) all funds deposited in the Principal Funding Account pursuant
to Section 4.9; and
(c) any Additional Amounts payable with respect to the Series
1995-1 Certificates to the extent that funds for those Additional Amounts
have been allocated pursuant to priority fourth of Section 4.3 or
priority fifth of Section 4.4 or deposited in the Principal Funding
Account pursuant to Section 4.9.
SECTION 5.3 Payments in Respect of Transferor Certificate. On each day
on which funds are allocated for this purpose pursuant to Sections 4.3 and 4.4
(and subject to the terms of Section 4.4 relating to the Holdback Account),
Trustee shall, in accordance with instructions set out in the applicable Daily
Report, distribute to Transferor, in respect of the Transferor Certificate, all
funds allocated for that purpose in accordance with those Sections. In
addition, after the Invested Amount has been repaid in full and all interest
and Additional Amounts owed to the Holders have been paid, any additional funds
on deposit in the Carrying Cost Account, the Equalization Account or the
Principal Funding Account shall similarly be paid to Transferor, in respect of
the Transferor Certificate.
SECTION 5.4 Daily Reports and Monthly Reports. Each Daily Report and
Monthly Report shall be substantially in the applicable form set out in Exhibit
B or C or in such other form as may be satisfactory to Servicer and Trustee and
consistent with the terms of this Supplement and the Pooling Agreement. Copies
of each Monthly Report shall be provided free of charge by the Trustee to
purchasers of Series 1995-1 Certificates in connection with the initial
distribution thereof and may be obtained free of charge upon request from the
Trustee (and presentation of a confirmation evidencing the purchase of such
beneficial interest) by subsequent purchasers.
page 32
<PAGE>
SECTION 5.5 Annual Tax Information. On or before February 15 of each
calendar year, beginning with calendar year 1996, Servicer, on behalf of
Trustee, shall furnish or cause to be furnished to each Person who at any time
during the preceding calendar year was a Holder the information for the
preceding calendar year, or the applicable portion thereof during which the
Person was a Holder, as is required to be provided by an issuer of indebtedness
under the Internal Revenue Code to the holders of the issuer's indebtedness and
such other customary information as is necessary to enable such Holders to
prepare their federal income tax returns. Servicer's obligations under the
preceding sentence shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Agent to the
specified Persons pursuant to the Pooling Agreement or any requirements of the
Internal Revenue Code as from time to time in effect. Notwithstanding anything
to the contrary contained in this Agreement, Trustee shall, to the extent
required by applicable law, from time to time furnish to the appropriate
Persons a Form 1099-INT within the period required by applicable law.
SECTION 5.6 Periodic Perfection Certificate. On or before February 15 of
each calendar year, beginning with calendar year 1996, Servicer, on behalf of
Trustee, shall furnish or cause to be furnished to Trustee and the Agent an
Officer's Certificate setting forth a list of all changes in (a) the name,
identity or corporate structure of Transferor or any Seller and (b) the chief
executive office of Transferor or any Seller (or in the place of business of
Transferor or any Seller that has only one place of business) that have taken
place since the date of the Officer's Certificate most recently delivered
pursuant to this Section 5.6 (or since the Closing Date, in the case of the
first such Officer's Certificate to be delivered), or indicating that no such
events have taken place, and stating in each case what filings of UCC financing
statements, or amendments thereto, relating to the Transaction Documents have
been made in connection with each such event (identified the date and filing
index numbers for each). Any financing statement identified in such an
Officer's Certificate delivered to Trustee shall be deemed to have been
identified to Trustee in writing for purposes of subsection 11.1(c)(v) of the
Pooling Agreement. If any such new UCC financing statements are filed, Servicer
shall cause Trustee to be named as secured party (in the case of any filing
against Transferor) or assignee of the secured party (in the case of any filing
against a Seller). Notwithstanding the foregoing, if any "Event of Default" or
"Potential Event of Default" under (and as defined in) the WRO Credit Agreement
occurs, Servicer shall deliver an Officer's Certificate covering the matters
described above to Trustee and Agent not later than 10 days after the
occurrence of such event, and for so long as any such event
page 33
<PAGE>
remains outstanding Servicer shall deliver such an Officer's Certificate on the
last Business Day falling in each of March, June, September and December.
ARTICLE VI EARLY AMORTIZATION EVENTS
SECTION 6.1 Early Amortization Events. Each of the following shall
constitute an "Early Amortization Event":
(a)(i) failure on the part of Transferor or Servicer to make any
payment of the principal amount of or any interest on the Series 1995-1
Certificates when due, or to make any deposit required by the terms of
any Transaction Document on or before one Business Day after the date the
deposit is required to be made, or to make any other payment, except any
payment of the Servicing Fee to a WRO Person, required by the terms of
any Transaction Document on or before five Business Days after the date
such payment is required to be made; or (ii) failure on the part of any
Seller to duly observe or perform in any material respect Section 6.1(f),
6.1(h), 6.1(j), 6.3(a), 6.3(b), 6.3(c), or 6.3(e) of the Purchase
Agreement or Transferor to duly observe or perform in any material
respect Section 7.2(c), 7.2(e), 7.2(f), 7.2(h), 7.2(i), 7.2(j), 7.2(k) or
7.2(n) of the Pooling Agreement or clause (i) or (ii) of Section 7.02(d)
of the Pooling Agreement, which failure continues unremedied for a period
of five Business Days; or (iii) failure on the part of Transferor,
Servicer or any Seller to duly observe or perform any provision of the
Supplemental Agreement, which failure continues unremedied for a period
of five Business Days; or (iv) failure on the part of Transferor,
Guarantor, Servicer or any Seller duly to observe or perform any other
covenant or agreement set forth in any Transaction Document, which
failure continues unremedied for a period of 30 days; or (v) Guarantor
gives notice of termination of the Seller Guaranty;
(b) any representation or warranty made by a Seller in Section
5.1(d), 5.1(i), 5.1(o) or 5.1(r) of the Purchase Agreement or by
Transferor in Section 2.3(a)(i), 2.3(a)(ii) or 7.1(i) of the Pooling
Agreement shall prove to have been incorrect in any material respect when
made, and continues to be incorrect in any material respect for a period
of five Business Days, or any other representation or warranty made by
Transferor, Servicer or any Seller in any Transaction Document shall
prove to have been incorrect in any material respect when made, and
continues to be incorrect in any material respect for a period of thirty
days; provided that a mistake in representation of a Receivable as an
Eligible Receivable shall not constitute an Early Amortization Event
unless and until the applicable Seller has failed to
page 34
<PAGE>
make the cash payments (if any) owed under Section 3.3 of the Purchase
Agreement in respect of the misrepresentation (it being understood that
certain of such mistakes may result in a non-cash adjustment under the
Purchase Agreement);
(c) a Bankruptcy Event shall occur with respect to Transferor,
Servicer, Guarantor or any Seller, or Transferor shall become unable, for
any reason, to transfer Receivables Related Transferred Assets to the
Trust in accordance with the provisions of this Agreement and the Pooling
Agreement; provided that if, at the time any event that would, with the
passage of time, become a Bankruptcy Event occurs as a result of a
bankruptcy proceeding being filed against Transferor or any Seller, then,
on and after the day on which the bankruptcy proceeding is filed until
the earlier to occur of the dismissal of the proceeding and the Early
Amortization Commencement Date, Transferor shall not purchase Receivables
and Related Assets from the affected Seller or, if Transferor is the
subject of the proceeding, transfer Receivables and Related Transferred
Assets to the Trust;
(d) the Trust or Transferor shall become an "investment company"
within the meaning of the Investment Company Act of 1940, as amended;
(e) the Net Invested Amount exceeds the Base Amount for a period
of five or more consecutive Business Days;
(f) a Servicer Default occurs;
(g) AMACAR Group and WRO, together, shall cease to own, directly
or indirectly, 100% of the issued and outstanding capital stock of
Transferor;
(h) the Internal Revenue Service or the PBGC shall have filed one
or more Tax or ERISA Liens against the assets of Transferor or any Seller
(including Receivables) in an aggregate amount exceeding $250,000,
unless such amounts (i) are bonded in a manner that satisfies the
Approval Condition or (ii) relate to taxes in an aggregate amount not
exceeding $250,000 which are contested in good faith by
appropriate proceedings and with respect to which adequate reserves are
being maintained under GAAP;
page 35
<PAGE>
(i) the cessation of, or the failure to create, a valid
first-priority perfected ownership or security interest in favor of
Trustee in the Receivables or the rights of Transferor under the Purchase
Agreement;
(j) the Invested Amount is not paid in full on the Expected Final
Payment Date;
(k) any foreclosure or similar proceeding in respect of any
adverse claim on the Purchase Money Note or the Transferor's common stock
shall have been commenced; or title to any Transferor Note or
Transferor's common stock shall pass to the holders of such adverse
claim, it being understood that the grant of a security interest in the
stock of Transferor or the Purchase Money Note to a creditor of a Seller
that is party to an Intercreditor Agreement shall not be an Early
Amortization Event;
(l) an event of default shall have occurred under the WRO Credit
Agreement or any other any mortgage, bond, indenture, loan agreement or
other document evidencing any Debt of WRO or any Subsidiary, which Debt
is outstanding in a principal amount of at least $2,500,000 in the
aggregate, and the existence of such default would permit the holders of
such Debt to cause it to become, whether by declaration or otherwise, due
and payable prior to the date on which it would otherwise become due and
payable or (ii) a default shall have occurred in any payment when due at
final maturity of any such Debt;
(m) Transferor shall not be able to pay the purchase price for new
Receivables by increasing the principal amount of the Seller Account and
such condition continues for five consecutive Business Days; or
(n) the Intercreditor Provisions shall be amended without the
prior written consent of the Trustee, and such condition shall continue
unremedied for a period of 5 Business Days.
SECTION 6.2 Early Amortization Period. Upon the occurrence and
continuance of any Early Amortization Event described in subsection 6.1(c),
(d), (i), (j) or (k), an Early Amortization Period shall commence without any
notice or other action on the part of Trustee or the Series 1995-1
Certificateholders, immediately upon the occurrence of such Early Amortization
Event, except that if an Early Amortization Event described in subsection
6.1(c) occurs as the result of the occurrence of a Bankruptcy Event with
respect to one or more Sellers the Receivables originated by which made up less
than 10% of the aggregate Unpaid Balance of Receivables held by the
page 36
<PAGE>
Trust as of the date of the commencement of the proceeding that gave rise to
the first such Bankruptcy Event, then an Early Amortization Period shall not
commence unless Required Series Holders declare it to have commenced. On the
tenth day after Transferor receives notice or otherwise becomes aware of the
occurrence of any Early Amortization Event described in subsection 6.1(a), (e),
(h) or (l) an Early Amortization Period shall commence without any notice or
other action on the part of Trustee or the Series 1995-1 Certificateholders,
unless waived by the Required Series Holders or otherwise cured prior to such
tenth day. Upon the occurrence and continuance of any event described in any
subsection above (including subsection 6.1(a), (c), (d), (e), (h), (i) or (j)),
after the applicable grace period, if any, set forth in such subsection,
Trustee may (and, at the direction of the Required Series Holders, shall) by
notice then given in writing to Transferor and Servicer, declare that an Early
Amortization Period has commenced as of the date of Transferor's receipt of the
notice.
ARTICLE VII OPTIONAL REDEMPTION; INDEMNITIES
SECTION 7.1 Optional Redemption of Investor Interests. On any
Distribution Date occurring during an Early Amortization Period with respect to
the Series 1995-1 Certificates on or after the date that the Invested Amount is
reduced to ten percent or less of the sum of the Stated Amounts, Transferor
shall have the option to redeem the Series 1995-1 Series Interest. The purchase
price will be an amount equal to the Invested Amount plus accrued and unpaid
interest (and accrued and unpaid interest with respect to interest that was due
but not paid on any prior Distribution Date) through the day preceding the
Distribution Date at the Certificate Rate applicable to the Series plus the
aggregate amount by which the Invested Amount has been reduced on account of
Investor Write-Offs and Investor Allocable Dilution (and not subsequently
reinstated). Upon the tender of the outstanding Certificates of the Series by
the Certificateholders, Trustee shall distribute the amounts, together with all
funds on deposit in the Principal Funding Account that are allocable to the
Series 1995-1 Certificates, to the Certificateholders of the Series on the next
Distribution Date in repayment of the principal amount and accrued and unpaid
interest owing to the Certificateholders. Following any redemption, the
Certificateholders of the Series shall have no further rights with respect to
the Receivables. In the event that Transferor fails for any reason to deposit
in the Principal Funding Account the aggregate purchase price for the Series
1995-1 Certificates, payments shall continue to be made to the
Certificateholders of the Series in accordance with the terms of the Pooling
Agreement and this Supplement.
SECTION 7.2 Indemnification by Transferor. Transferor hereby agrees to
indemnify the Trust, Trustee, each Holder of a Series 1995-1 Certificate and
each of the successors, permitted transferees and assigns of any such Person
and all officers, directors, shareholders, controlling Persons,
page 37
<PAGE>
employees, affiliates and agents of any of the foregoing (each of the foregoing
Persons individually being called a "Transferor Indemnified Party"), forthwith
on demand, from and against any and all damages, losses, claims (whether on
account of settlements or otherwise, and whether or not the relevant
Indemnified Party is a party to any action or proceeding that gives rise to any
Transferor Indemnified Losses (as defined below)), judgments, liabilities and
related reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) (all of the foregoing collectively being called "Transferor
Indemnified Losses") awarded against or incurred by any of them that arise out
of or relate to this Agreement, any other Transaction Document or any of the
transactions contemplated herein or therein or the use of proceeds herefrom or
therefrom (including any Transferor Indemnified Losses (i) relating to any
Adverse Claim, without regard to whether such Adverse Claim was a Permitted
Adverse Claim or (ii) arising from any failure to make any filing or obtain any
consent as required by the Federal Assignment of Claims Act with respect to any
Receivables).
Notwithstanding the foregoing, in no event shall any Transferor
Indemnified Party be indemnified for any Transferor Indemnified Losses (i)
resulting from gross negligence or willful misconduct on the part of such
Transferor Indemnified Party (or the gross negligence or willful misconduct on
the part of any of its officers, directors, employees, affiliates or agents),
(ii) to the extent they include Transferor Indemnified Losses in respect of
Receivables and reimbursement therefor that would constitute credit recourse to
Transferor for the amount of any Receivable or Related Transferred Asset not
paid by the related Obligor, (iii) to the extent they are or result from lost
profits, (iv) to the extent they are or result from taxes (including interest
and penalties thereon) asserted with respect to (A) distributions on the Series
1995-1 Certificates, (B) franchise or withholding taxes imposed on any
Transferor Indemnified Party other than the Trust or Trustee in its capacity as
Trustee, or (C) federal or other income taxes on or measured by the net income
of such Transferor Indemnified Party and costs and expenses in defending
against the same, or (v) to the extent they constitute consequential, special
or punitive damages.
If for any reason the indemnification provided in this section is
unavailable to a Transferor Indemnified Party or is insufficient to hold a
Transferor Indemnified Party harmless, then Transferor shall contribute to the
amount paid by the Transferor Indemnified Party as a result of any loss, claim,
damage or liability in such proportion as is appropriate to reflect not only
the relative benefits received by the Transferor Indemnified Party on the one
hand and Transferor on the other hand, but also the relative fault (if any) of
the Transferor Indemnified Party and Transferor and any other relevant
equitable considerations.
page 38
<PAGE>
SECTION 7.3 Indemnification by Servicer. Servicer agrees that each Agent
and each Holder of a Series 1995-1 Certificate shall be an "Indemnified Party"
for purposes of the Pooling Agreement.
ARTICLE VIII MISCELLANEOUS
SECTION 8.1 Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
SECTION 8.2 Counterparts. This Supplement may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which together shall constitute one and the same instrument.
SECTION 8.3 Severability of Provisions. If any one or more of the
provisions or terms of this Supplement shall for any reason whatsoever be held
invalid, then the unenforceable provision(s) or term(s) shall be deemed
severable from the remaining provisions or terms of this Supplement and shall
in no way affect the validity or enforceability of the other provisions or
terms of this Supplement.
SECTION 8.4 Amendment, Waiver, Etc. This Supplement may be amended,
subject to Section 13.1 of the Pooling Agreement and Section 10.1 of the
Certificate Purchase Agreement, from time to time by Servicer, Transferor and
Trustee by a written instrument signed by each of them, without the consent of
any Holders; provided that such action shall not adversely affect in any
material respect the interests of any Holder; and provided further, that for
purposes of this Supplement, any decrease in an applicable Certificate Rate or
any postponement of the applicable Expected Final Payment Date shall be deemed
to materially adversely affect the interests of a Holder. This Supplement also
may be amended, modified or waived from time to time by Servicer, Transferor
and Trustee with the consent of the Required Series Holders to the extent
permitted by Section 13.1 of the Pooling Agreement and Section 10.1 of the
Certificate Purchase Agreement, and the terms of that section shall apply to
any such amendment, modification or waiver.
SECTION 8.5 Trustee. Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplement
or for or in respect of the recitals contained herein, all of which recitals
are made solely by Transferor and Servicer.
page 39
<PAGE>
SECTION 8.6 Instructions in Writing. All instructions given by Servicer
to Trustee pursuant to this Supplement shall be in writing, and may be included
in a Daily Report or Monthly Report.
SECTION 8.7 Rule 144A. So long as any of the Series 1995-1 Certificates
are "restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, Transferor shall, unless it becomes subject to and complies
with the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, or rule 12g3-2(b) thereunder, provide to any
Holder of such restricted securities, or to any prospective purchaser of such
restricted securities designated by a Holder, upon the request of such Holder
or prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Act.
SECTION 8.8 Supplemental Ratings Requirement. So long as any of the
Series 1995-1 Certificates are outstanding, if any provision of the Purchase
Agreement, the Pooling Agreement, this Supplement or the Certificate Purchase
Agreement requires a person or investment to have a certain rating from S&P,
and such person or investment is also rated by DCR, such provision shall be
read to also require a rating from DCR that is equivalent to the required
rating from S&P.
SECTION 8.9 No Recourse. None of the directors, officers or employees
of Transferor shall have any liability to any Person, including, without
limitation, the Trustee or any Purchaser, for any action undertaken or any
certificate delivered or information delivered by such director, officer or
employee hereunder, except to the extent of the gross negligence or willful
misconduct of such director, officer or employee in connection therewith.
page 40
<PAGE>
IN WITNESS WHEREOF, Transferor, Servicer and Trustee have caused this
Supplement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
NOTEPAD FUNDING CORPORATION,
as Transferor
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
WILLIAMHOUSE-REGENCY OF
DELAWARE, INC., as Servicer
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
MANUFACTURERS AND TRADERS
TRUST COMPANY, as Trustee
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
EXHIBIT A
to the Series 1995-1 Supplement
FORM OF SERIES 1995-1 CERTIFICATE
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN CONTRAVENTION OF
THAT ACT. THIS CERTIFICATE WILL BE NOT ACCEPTED FOR REGISTRATION OF TRANSFER
EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY TO THE REGISTRAR AND AGENT
THAT THE RESTRICTIONS ON TRANSFER SET FORTH IN THE POOLING AGREEMENT HAVE BEEN
COMPLIED WITH.
THIS CERTIFICATE MAY NOT BE TRANSFERRED, ASSIGNED OR OTHERWISE CONVEYED UNLESS
THE PRINCIPAL AMOUNTS BALANCE OF CERTIFICATES TRANSFERRED PURSUANT TO SUCH
TRANSFER IS EQUAL TO AT LEAST 2.1% OF THE AGGREGATE PRINCIPAL AMOUNTS BALANCE
OF ALL OUTSTANDING CERTIFICATES. THIS CERTIFICATE MAY NOT BE SUBDIVIDED INTO A
PRINCIPAL AMOUNTS BALANCE LESS THAN 2.1% OF THE AGGREGATE PRINCIPAL AMOUNTS
BALANCE OF ALL OUTSTANDING CERTIFICATES.
NOTEPAD FUNDING TRADE RECEIVABLES BACKED CERTIFICATES
SERIES 1995-1 CERTIFICATE
Maximum Principal Amount:
First Distribution Date: $_________________
THIS CERTIFIES THAT _________________ is the registered owner of a
nonassessable, fully-paid, fractional undivided interest in the Notepad Funding
Receivables Master Trust (the "Trust") that was created pursuant to (a) the
Pooling and Servicing Agreement, dated as of October 31, 1995 (as the same may
be amended, supplemented or otherwise modified from time to time, the "Pooling
Agreement"), among NOTEPAD FUNDING CORPORATION, a Delaware corporation,
("Transferor"), WILLIAMHOUSE-REGENCY OF DELAWARE, INC., a Delaware corporation,
("Servicer"), and MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking
corporation, as trustee (together with its successors and assigns in such
capacity, "Trustee") and (b) the Supplement dated as of October 31, 1995
<PAGE>
relating to the Series 1995-1 Certificates (the "Supplement"). This Certificate
is one of the duly authorized Series 1995-1 Certificates designated and issued
under the Pooling Agreement and the Supplement. Except as otherwise defined
herein, capitalized terms have the meanings that Appendix A to the Pooling
Agreement assigns to them. This Certificate is subject to the terms,
provisions and conditions of, and is entitled to the benefits afforded by, the
Pooling Agreement and the Supplement, to which terms, provisions and conditions
the Holder of this Certificate by virtue of the acceptance hereof assents and
by which the Holder is bound.
Unless the certificate of authentication hereon shall have been executed
by or on behalf of Trustee by the manual signature of a duly authorized
signatory, this Certificate shall not entitle the Holder hereof to any benefit
under the Transaction Documents or be valid for any purpose.
This Certificate does not represent a recourse obligation of, or an
interest in, Transferor, any Seller, Servicer, Trustee or any Affiliate of any
of them. This Certificate is limited in right of payment to the Transferred
Assets.
By its acceptance of this Certificate, each Holder hereof (a)
acknowledges that it is the intent of Transferor, and agrees that it is the
intent of the Holder that, for Federal, state and local income and franchise
tax purposes only, the Series 1995-1 Certificates (including this Certificate)
will be treated as evidence of indebtedness secured by the Transferred Assets
and the Trust not be characterized as an association taxable as a corporation,
(b) agrees to treat this Certificate for Federal, state and local income and
franchise tax purposes as indebtedness and (c) agrees that the provisions of
the Transaction Documents shall be construed to further these intentions of the
parties.
This Certificate shall be construed in accordance with the laws of the
State of New York, without regard to its conflict of laws principles, and all
obligations, rights and remedies under or arising in connection with this
Certificate shall be determined in accordance with the laws of the State of New
York.
IN WITNESS WHEREOF, Transferor has caused this Certificate to be
executed by its officer thereunto duly authorized.
NOTEPAD FUNDING
CORPORATION
By:
-----------------------
Title:
-----------------------
page 2
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Series 1995-1 Certificates referred to in the Pooling
Agreement, as supplemented by the Supplement.
MANUFACTURERS AND TRADERS TRUST COMPANY, as
Trustee
By:
---------------------------
Title:
----------------------
Dated: ____________, 1995
page 3
<PAGE>
PURCHASES AND REPAYMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Principal
Amount Outstanding
Purchase Principal
Amount Purchased Repaid Balance Stated Account
- ---------------- -------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
Interest
Based Eurodollar Period (if Based Eurodollar Base Eurodollar
Rate Rate applicable) Rate Rate Rate Rate Reduction
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
page 4
<PAGE>
EXHIBIT 4.10
REVOLVING CERTIFICATE PURCHASE AGREEMENT
(SERIES 1995-1)
dated as of October 31, 1995
among
NOTEPAD FUNDING CORPORATION,
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.,
THE PURCHASERS DESCRIBED HEREIN,
and
BANKERS TRUST COMPANY,
as Agent
<PAGE>
TABLE OF CONTENTS
||
ARTICLE I DEFINITIONS
SECTION 1.1 Definitions................................... 1
ARTICLE II PURCHASE AND SALE OF CERTIFICATES
SECTION 2.1 The Commitments............................... 2
SECTION 2.2 Purchase Mechanics............................ 2
SECTION 2.3 Reduction of Stated Amounts................... 4
SECTION 2.4 Certificates.................................. 4
ARTICLE III REDUCTIONS IN INVESTED AMOUNT
SECTION 3.1 Transferor's Right to Reduce Invested Amount.. 5
SECTION 3.2 Notice to Purchasers.......................... 5
ARTICLE IV TRANCHES, INTEREST AND FEES
SECTION 4.1 Tranches...................................... 5
SECTION 4.2 Fees.......................................... 6
SECTION 4.3 Yield Protection.............................. 7
SECTION 4.4 Illegality; Unavailability.................... 9
SECTION 4.5 Indemnity..................................... 10
SECTION 4.6 Taxes......................................... 10
ARTICLE V OTHER PAYMENT TERMS
SECTION 5.1 Time and Method of Payment.................... 12
SECTION 5.2 Pro Rata Treatment............................ 12
ARTICLE VI REPRESENTATIONS AND WARRANTIES
SECTION 6.1 Transferor.................................... 13
SECTION 6.2 WRO........................................... 14
SECTION 6.3 Purchasers.................................... 14
ARTICLE VII CONDITIONS
SECTION 7.1 Conditions to Initial Purchase................ 15
SECTION 7.2 Conditions to Each Purchase................... 18
i
<PAGE>
ARTICLE VIII COVENANTS
SECTION 8.1 Affirmative Covenants......................... 19
SECTION 8.2 Negative Covenants............................ 21
ARTICLE IX AGENT
SECTION 9.1 Appointment................................... 21
SECTION 9.2 Nature of Duties.............................. 21
SECTION 9.3 Lack of Reliance on Agent and Financial Advisor 21
SECTION 9.4 Certain Rights of Agent....................... 23
SECTION 9.5 Reliance...................................... 23
SECTION 9.6 Indemnification............................... 23
SECTION 9.7 Agent in its Individual Capacity.............. 23
SECTION 9.8 Resignation by Agent.......................... 24
ARTICLE X MISCELLANEOUS PROVISIONS
SECTION 10.1 Amendments................................... 24
SECTION 10.2 No Waiver; Remedies.......................... 25
SECTION 10.3 Successors and Assigns; Assignments.......... 25
SECTION 10.4 Survival of Agreement........................ 28
SECTION 10.5 Expenses; Indemnification.................... 28
SECTION 10.6 Entire Agreement............................. 29
SECTION 10.7 Notices...................................... 30
SECTION 10.8 No Third Party Beneficiaries................. 30
SECTION 10.9 Severability of Provisions................... 30
SECTION 10.10 Counterparts................................ 30
SECTION 10.11 Governing Law............................... 30
SECTION 10.12 Tax Characterization........................ 30
SECTION 10.13 No Proceedings.............................. 31
SECTION 10.14 Failure to Refinance........................ 31
SECTION 10.15 Reference Banks............................. 32
SECTION 10.16 No Recourse................................. 32
||
ii
<PAGE>
EXHIBITS
EXHIBIT A Form of Pooling and Servicing Agreement
EXHIBIT B Form of Receivables Purchase Agreement
EXHIBIT C Form of Series 1995-1 Supplement
EXHIBIT D Form of Assignment Agreement
APPENDIX
APPENDIX X Index of Additional Defined Terms
iii
<PAGE>
This REVOLVING CERTIFICATE PURCHASE AGREEMENT, dated as of October 31,
1995 (this "Agreement"), is made among NOTEPAD FUNDING CORPORATION, a Delaware
corporation ("Transferor"), WILLIAMHOUSE-REGENCY OF DELAWARE, INC., a Delaware
corporation ("Servicer" or "WRO"), the purchasers named on the signatures pages
of this Agreement (together with their respective permitted assigns, the
"Purchasers"), and BANKERS TRUST COMPANY ("Agent").
BACKGROUND
1. Transferor (a) will enter into a Pooling and Servicing Agreement
substantially in the form of Exhibit A (the "Pooling Agreement") with WRO, as
initial Servicer, and MANUFACTURERS AND TRADERS TRUST COMPANY, a New York
banking corporation, as trustee (in that capacity, together with any successors
in that capacity, the "Trustee"), (b) is party to a Receivables Purchase
Agreement substantially in the form of Exhibit B and (c) will enter into a
Series 1995-1 Supplement to the Pooling Agreement substantially in the form of
Exhibit C (the "Supplement"). Pursuant to the Pooling Agreement and the
Supplement, Transferor will obtain the Series 1995-1 Certificates (the
"Certificates"), which will represent fractional undivided beneficial interests
in the assets of the Notepad Funding Receivables Master Trust (the "Trust"), a
trust to be organized pursuant to the Pooling Agreement.
2. Transferor wishes to sell the Certificates to the Purchasers and
obtain their commitment to purchase fractional undivided beneficial interests
in the assets of the Trust (each a "Trust Interest") that will be evidenced by
the Certificates. Subject to the terms and conditions of this Agreement, each
Purchaser is willing (a) to purchase a Certificate with an initial Stated
Amount in the amount set forth below its name on the signature pages to this
Agreement and (b) to agree to make purchases of Trust Interests. WRO has
joined in this Agreement to confirm certain representations, warranties and
covenants for the benefit of the Purchasers and the Agent.
3. The Certificates and the Trust Interests represented hereby will serve
as a bridge financing until Transferor is able to effect a more widely
distributed securitization, and it is intended that they will be repaid in full
and cancelled as soon as practicable from the proceeds of such a
securitization.
ARTICLE I DEFINITIONS
SECTION 1.1 Definitions. Capitalized terms used and not otherwise
defined herein have the meanings assigned to them in the Supplement or, if not
<PAGE>
defined in the Supplement, in Appendix A to the Pooling Agreement. An index of
terms defined directly in this Agreement is attached as Appendix X.
ARTICLE II PURCHASE AND SALE OF CERTIFICATES
SECTION 2.1 The Commitments. Subject to the terms and conditions of this
Agreement, the Pooling Agreement and the Supplement, each Purchaser agrees,
severally and for itself alone, upon Transferor's request (through Servicer),
to make purchases (each a "Purchase") of Trust Interests from time to time
during the Revolving Period; provided, that no Purchaser will be required or
permitted to make a Purchase on any date if the funded principal amount of its
Certificate, after giving effect to the Purchase, would exceed the lesser of
(a) the Stated Amount of its Certificate and (b) its Percentage multiplied by
the Invested Amount. In addition, no Purchaser will be required or permitted
to make a Purchase if, after giving effect thereto (and any corresponding
reduction to the Invested Amount pursuant to Section 3.1), the Net Invested
Amount would exceed the Base Amount. The Purchases by the Purchasers shall be
made ratably in accordance with their respective Percentages; provided, that
the failure of any Purchaser to make any Purchase shall not relieve any other
Purchaser of its obligation to make Purchases hereunder. No Purchaser shall,
however, be responsible for the failure of any other Purchaser to make any
Purchase. Subject to the terms of this Agreement, the aggregate principal
amount of a Purchaser's investment represented by its Certificate may be
increased or decreased from time to time.
For purposes of this Agreement, "Percentage" means, with respect to each
Purchaser, the percentage equivalent (carried out to twelve decimal places) of
a fraction the numerator of which is the Stated Amount of such Purchaser's
Certificate and the denominator of which is the sum of the Stated Amounts of
all of the Purchasers' Certificates. The initial Percentages of the initial
Purchasers, and the Stated Amounts of their Certificates, are set out below
their names on the signature pages to this Agreement.
SECTION 2.2 Purchase Mechanics. (a) Whenever Transferor wishes the
Purchasers to make Purchases, it shall cause Servicer to notify the Agent if
the Trust Interests to be purchased initially will form a part of (i) the ABR
Tranche, not later than noon, New York City time, one Business Day prior to the
date of the proposed Purchase and (ii) a Eurodollar Tranche, not later than
2:00 p.m., New York City time, three Business Days prior to the date of the
proposed Purchase; provided that the notice for the initial Purchase hereunder
may be given one Business Day prior to the Purchase even if such Purchase will
constitute a Eurodollar Tranche, so long as notice is given by noon, New York
City time, on such day. Each notice shall be irrevocable and shall in
page 2
<PAGE>
each case refer to this Agreement and specify (x) the aggregate purchase price
for the requested Purchases (which shall be in a minimum amount of $1,000,000
or a greater integral multiple of $1,000,000 (or in the total unutilized amount
of the various Purchasers' Stated Amounts)), (y) whether the Trust Interests to
be purchased will form a part of the ABR Tranche or a Eurodollar Tranche and
(z) the date of the Purchase (which shall be a Business Day) and the amount
thereof. If no election required by clause (y) is made in any notice, then the
Trust Interests obtained in the Purchase shall form a part of the ABR Tranche.
The Agent shall promptly advise the Purchasers of any notice given pursuant to
this section and of the amount of each Purchaser's Purchase.
(b) After receiving notice from the Agent of any notice given pursuant
to subsection (a) and subject to the conditions in Article VII, each Purchaser
shall make a Purchase in the amount of its pro rata portion of aggregate
Purchases requested to be made, ratably according to its Percentage, on the
proposed date thereof by wire transfer in Dollars of immediately available
funds to the Agent at the office designated from time to time by the Agent, not
later than 10:00 a. m., New York City time, and the Agent shall (unless
notified in writing that any condition precedent has not been satisfied), by
noon, New York City time, on the same day, make available to Transferor by wire
transfer of Dollars in immediately available funds the aggregate amount of the
funds received. Unless the Agent shall have received written notice from a
Purchaser prior to the date of any Purchase that the Purchaser will not make
available to the Agent its purchase price, the Agent may (but shall not be
required to) assume that the Purchaser has made that portion available to the
Agent on the date of the Purchase in accordance with this subsection, and the
Agent may, in reliance upon that assumption, make available to Transferor on
that date a corresponding amount.
(c) If and to the extent that any Purchaser shall not have made its
purchase price available to the Agent and the Agent has made available a
corresponding amount to Transferor, the Purchaser agrees to repay to the Agent
forthwith on demand a corresponding amount, together with interest thereon, for
each day from the date the amount is made available to Transferor until the
date the amount is repaid to the Agent (i) for the first three days following
the date the amount is made available, at a rate per annum equal to the Federal
Funds Rate and (ii) thereafter, at a rate per annum equal to the Federal Funds
Rate plus 1%. If the Purchaser shall repay to the Agent a corresponding
amount, the amount shall constitute its Purchase for purposes of this
Agreement, and if Transferor shall have already made the repayment (as provided
below), the Purchaser shall make a corresponding amount immediately available
to Transferor. At any time after the Agent learns that a
page 3
<PAGE>
Purchaser has failed to make the purchase price for a Purchase available as
described above, the Agent may give notice to Transferor and Servicer of that
failure, and upon notice Transferor will be required to refund to the Agent an
amount equal to that purchase price, together with interest on the amount at
the rate applicable to the Purchase of which the defaulting Purchaser's
Purchase was to form a part. In the event that Transferor fails to make the
payment, the amount of the purchase price shall, if elected by the Agent, be
allocated to the outstanding principal investment under the Certificate held by
the Agent (in its capacity as Purchaser), and any funds subsequently
transferred to the Agent pursuant to Section 3.1 or 3.2 shall be applied first
to reduce the outstanding principal investment under its Certificate until the
Agent has been repaid an aggregate amount equal to the amount of the increase
referred to above before being applied for any other purpose. Nothing
contained in this subsection shall, or shall be construed to, relieve any
Purchaser from its obligations hereunder to make available to the Agent its
purchase price for each Purchase.
SECTION 2.3 Reduction of Stated Amounts. Upon at least three Business
Days' prior irrevocable notice to the Agent in writing, Transferor may reduce
the Stated Amounts of the Certificates; provided that (a) each partial
reduction of the Stated Amounts shall be, in the aggregate for all
Certificates, in an integral multiple of $1,000,000 and in a minimum principal
amount of $5,000,000 and (b) no partial reduction shall be made that would
reduce the aggregate Stated Amounts to an amount less than the Invested Amount
at the time of the reduction. Each reduction in the Stated Amounts shall be
made ratably among the Purchasers in accordance with their respective Stated
Amounts. The Agent shall promptly advise the Purchasers of any notice given
pursuant to this section. Each reference in this Agreement to the "Stated
Amount" of a Certificate means the Stated Amount of the Certificate after
giving effect to any reductions made pursuant to this section.
SECTION 2.4 Certificates. The outstanding amounts of the Purchases made
by each Purchaser shall be evidenced by its Certificate, to be issued on the
Closing Date substantially in the form of Exhibit A to the Supplement. Each
Purchaser shall and is hereby authorized to record on the grid attached to its
Certificate (or at its option, in its internal books and records) the date and
amount of each Purchase made by it, the amount of each repayment of the
principal amount represented by its Certificate, the portions of its Purchases
that are from time to time allocated to the ABR Tranche and any Eurodollar
Tranche, and any reductions to the Stated Amount of its Certificate made
pursuant to Section 2.3 (which shall be conclusive absent manifest error);
provided, that failure to make any recordation on the grid or records or any
error in the grid or records shall not adversely affect the Purchaser's rights
page 4
<PAGE>
with respect to its interest in the assets of the Trust and its right to
receive interest in respect of the outstanding principal amount of all
Purchases made by the Purchaser.
ARTICLE III REDUCTIONS IN INVESTED AMOUNT
SECTION 3.1 Transferor's Right to Reduce Invested Amount. Transferor
may, on at least one Business Day's prior notice by Transferor or Servicer to
the Agent, reduce the Invested Amount by causing an amount of funds equal to
the desired amount of the reduction that are available for this purpose in
accordance with the terms of the Supplement to be transferred to the Agent, for
the account of the Purchasers (and application to the respective and ratable
reduction of the funded principal amount of the Certificate of each Purchaser),
provided that any reduction to the aggregate funded principal amounts
represented by the Certificates must be in a minimum amount of $5,000,000 (or
the entire funded principal amount, if less) or a greater integral multiple of
$1,000,000.
SECTION 3.2 Notice to Purchasers. The Agent shall promptly advise the
Purchasers of any notice received by the Agent pursuant to Section 3.1.
ARTICLE IV TRANCHES, INTEREST AND FEES
SECTION 4.1 Tranches. (a) Each time Transferor requests the Purchasers
to make Purchases hereunder, Transferor will notify the Agent in writing as to
whether the Trust Interests included in the Purchase shall, in whole or in
part, be deemed part of the ABR Tranche or (subject to subsections (b)(iii) and
(b)(iv) below) a Eurodollar Tranche.
(b) Subject to the terms and conditions set forth in this section and
Section 4.4, Transferor shall have the option: (x) on any Business Day, to
convert all or part of the ABR Tranche to a Eurodollar Tranche and (y) on the
last day of any Interest Period of a Eurodollar Tranche, to convert all or any
part of that Eurodollar Tranche to form a part of the ABR Tranche and/or to
continue all or any part of that Eurodollar Tranche as a new Eurodollar
Tranche, the Interest Period for which shall commence on the last day of the
prior Interest Period; provided, that:
(i) each conversion or continuation shall be made ratably among
the Purchasers in accordance with their respective amounts of the
Purchases comprising the converted or continued Tranche,
page 5
<PAGE>
(ii) if less than all of the outstanding amount of any Tranche
shall be converted or continued, the aggregate amount of the Tranche
converted or continued shall be in an integral multiple of $1,000,000 and
in a minimum principal amount of $2,000,000,
(iii) no outstanding Eurodollar Tranche may be continued as a
Eurodollar Tranche, and no portion of the ABR Tranche may be converted
into a Eurodollar Tranche, at any time that an Early Amortization Event
has occurred and is continuing; and any Interest Period for a Eurodollar
Tranche that commences after the commencement of the Amortization Period
must begin on a Settlement Date and end on the next Settlement Date, and
(iv) there shall not be more than four separate Eurodollar
Tranches outstanding at any one time.
(c) If Transferor wishes to convert and/or continue a Tranche under this
section, Transferor shall notify the Agent in writing (i) in the case of a
conversion to or continuation of a Eurodollar Tranche, not later than 2:00
p.m., New York City time, three Business Days prior to the date of the proposed
conversion or continuation date and (ii) otherwise, not later than noon, New
York City time, one Business Day prior to the date of the proposed conversion
or continuation. Each notice shall be irrevocable and shall refer to this
Agreement and specify (x) the identity and amount of the Tranche that
Transferor wishes to convert or continue, (y) whether all or part of the
Tranche is to be converted into or continued as a Eurodollar Tranche and (z)
the date of the proposed conversion or continuation (which shall be a Business
Day). If Transferor shall not have delivered a timely notice in accordance
with this section with respect to any Tranche, the Tranche shall, at the end of
the Interest Period applicable to it (unless repaid pursuant to the terms
hereof), automatically be converted into or continued as the ABR Tranche. The
Agent shall promptly advise the Purchasers of any notice given pursuant to this
section and of each Purchaser's portion of any converted or continued Tranche.
(d) In accordance with Section 4.1 of the Supplement, each Purchaser
and the Agent will be entitled to receive additional interest (at the rate
specified therein) on amounts that are not paid when due under this Agreement
or under its Certificate.
SECTION 4.2 Fees. (a) Each Purchaser shall be entitled to receive from
Collections a fee (a "Non-Usage Fee") for the period from and including the
date hereof, until the end of the Revolving Period, equal to:
page 6
<PAGE>
(i) for the period from the Closing Date up to (but not including) the
day corresponding to the Closing Date in the month falling ten
months after the month in which the Closing Date occurs (or if
there is no such corresponding day, through the last day of that
tenth month), 0.25%,
(ii) thereafter up to (but not including) the day corresponding to the
Closing Date in the month falling twelve months after the month in
which the Closing Date occurs (or if there is no such corresponding
day, through the last day of that twelfth month), 0.375%, and
(iii) thereafter, 0.50%,
on the daily average of (i) the Stated Amount of its Certificate minus (ii) the
amount represented by the Purchaser's Percentage of the Invested Amount. The
Non-Usage Fee shall be payable in arrears on each Distribution Date. The
Non-Usage Fee for any Distribution Date shall be calculated on the basis of the
actual number of days elapsed since the preceding Distribution Date (or, if
prior to the first subsequent Distribution Date after the Closing Date, during
the period from the Closing Date to such Distribution Date) over a year of 365
or 366 days, as applicable.
(b) [Intentionally deleted].
SECTION 4.3 Yield Protection. (a) Notwithstanding any other provision
herein, if, after the date hereof, either:
(i) the adoption of any law, rule or regulation (including any
imposition or increase of reserve requirements) or any change after the
date hereof in the interpretation or administration of any law, rule or
regulation by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or
(ii) the compliance by a Purchaser with any new or revised
guideline or request from any central bank or other Governmental
Authority or quasi-governmental authority exercising control over banks
or financial institutions generally (whether or not having the force of
law),
shall subject a Purchaser to the imposition or modification of any reserve
(including any imposed by the Federal Reserve Board), special deposit or
similar requirement (including a reserve, special deposit or similar
requirement
page 7
<PAGE>
that takes the form of a tax) against assets of, deposits with or for the
account of, or credit extended by, the Purchaser or the office from time to
time that it designates to the Agent as the office through which it makes and
maintains its Purchases comprising part of a Eurodollar Tranche (as to each
Purchaser, its "LIBOR Office") or impose any other condition on a Purchaser
affecting its Eurodollar Tranches or its obligations hereunder, and as a result
of either of the foregoing there shall be any increase in the cost to the
Purchaser of agreeing to make or making, funding or maintaining Purchases as
Eurodollar Tranches (except to the extent already included in the determination
of the Reserve-Adjusted Eurodollar Rate), or there shall be a reduction in the
amount received or receivable by the Purchaser or its LIBOR Office, then, upon
written notice from the Purchaser to Transferor and Servicer (with a copy to
the Agent), signed by an officer of the Purchaser with knowledge of and
responsibility for such matters, and setting forth in reasonable detail the
calculation used to arrive at the amounts, additional amounts sufficient to
indemnify that Purchaser against the increased cost or reduction in amounts
received or receivable shall constitute "Additional Amounts" for purposes of
the Supplement, and the Purchaser shall be entitled to receive these additional
amounts, solely from amounts allocated thereto and paid pursuant to the
Supplement.
(b) If a Purchaser shall reasonably determine that the adoption after
the date hereof of any law, rule or regulation regarding capital adequacy or
capital maintenance, or any change after the date hereof in any of the
foregoing or in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Purchaser, any
of its lending offices or its holding company with any new or revised request
or directive regarding capital adequacy or capital maintenance (whether or not
having the force of law) of any such Governmental Authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Purchaser's capital or the capital of its holding company as a
consequence of this Agreement, the commitment of the Purchaser to make
Purchases or the Purchases made by the Purchaser pursuant hereto to a level
below what the Purchaser or its holding company could have achieved but for the
adoption, change or compliance (taking into consideration the Purchaser's
policies, and the policies of its holding company, with respect to capital
adequacy), then, upon written notice from the Purchaser to Transferor and
Servicer (with a copy to the Agent), signed by an officer of the Purchaser with
knowledge of and responsibility for such matters, and setting forth in
reasonable detail the calculation used to arrive at the amounts, any additional
amounts as will compensate the Purchaser or its holding company for the
reduction shall constitute "Additional Amounts" for purposes of the Supplement,
and the
page 8
<PAGE>
Purchaser shall be entitled to receive these additional amounts, solely from
amounts allocated thereto and paid pursuant to the Supplement.
(c) A Purchaser shall promptly notify Transferor, Servicer and the Agent
in writing of any event of which it has knowledge occurring after the date
hereof that will entitle it to compensation pursuant to this section. A
certificate of the Purchaser, signed by an officer of the Purchaser with
knowledge of and responsibility for such matters, and setting forth in
reasonable detail the calculation used to arrive at the amounts necessary to
compensate the Purchaser or its holding company as specified in subsection (a)
or (b), as the case may be shall be delivered to Transferor and Servicer and
shall be conclusive absent demonstrable error.
(d) Failure on the part of a Purchaser to demand compensation for any
amounts as specified in subsection (a) or (b) with respect to any period shall
not constitute a waiver of its right to demand compensation with respect to
that period or any other period. The protection of this section shall be
available to the Purchasers regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, guideline or other
change or condition that shall have occurred or been imposed.
(e) Promptly after giving any notice to Transferor pursuant to this
section, a Purchaser will seek to designate one of its offices located at an
address other than that previously designated pursuant to this Agreement as the
office from which its Purchases will be made after the designation if it will
avoid the need for, or materially reduce the amount of, any payment to which
the Purchaser would otherwise be entitled pursuant to this section and will
not, in the sole discretion of the Purchaser, be otherwise disadvantageous to
the Purchaser.
SECTION 4.4 Illegality; Unavailability. (a) In the event that on any
date any Purchaser shall have determined (which determination shall be final
and conclusive and binding upon all parties) that the making or continuation of
its Purchases as Eurodollar Tranches has become unlawful by compliance by the
Purchaser in good faith with any law, governmental rule, regulation or order or
has become impossible as a result of a contingency occurring after the date
hereof that materially and adversely affects its interbank eurodollar market,
then, and in any such event, that Purchaser shall promptly give notice (by
telephone confirmed in writing) to Transferor, Servicer and the Agent (which
notice the Agent shall promptly transmit to each Purchaser) of that
determination. The obligation of the affected Purchaser to make or maintain
its Purchases as Eurodollar Tranches during any such period shall be terminated
at the earlier of the termination of the Interest Period then in effect
page 9
<PAGE>
for each Eurodollar Tranche or when required by law, and Transferor shall, no
later than the time specified for the termination, convert any Purchases of the
affected Purchaser that constitute part of any Eurodollar Tranche into a part
of the ABR Tranche.
(b) If, prior to the beginning of any Interest Period, the Agent shall
have determined (which determination shall be final and conclusive and binding
upon all parties) that: (i) Dollar deposits in the relevant amount and for the
Interest Period are not available in the relevant interbank eurodollar market
or (ii) by reason of circumstances affecting the interbank eurodollar market,
that adequate and fair means do not exist for ascertaining the Reserve Adjusted
Eurodollar Rate applicable to a Eurodollar Tranche, then the Agent shall
promptly give notice of this determination to Transferor and to each Purchaser.
Thereafter, and continuing until the Agent shall notify Transferor that the
circumstances giving rise to this determination no longer exist, (x) each
Eurodollar Tranche will, on the last day of the applicable Interest Period,
convert into a part of the ABR Tranche, (y) the right of Transferor to request
Eurodollar Tranches shall be suspended and (z) any Purchases requested to be
made as Eurodollar Tranches prior to such time but not yet made shall be made as
ABR Tranches.
SECTION 4.5 Indemnity. If a Purchaser shall incur any losses, expenses
or liabilities (including any interest paid to lenders of funds borrowed by it
to fund any Purchase of a Certificate as a Eurodollar Tranche and any loss
sustained in connection with the re-deployment of such funds) as a result of
(a) the failure of a Purchase to be made on a date specified therefor in a
notice delivered pursuant to Section 2.2 (other than any such failure resulting
from the Purchaser's default in the performance of its obligations hereunder)
or (b) any payment, including under Section 3.1, of a Eurodollar Tranche on a
date that is not the last day of the Interest Period applicable thereto or on
any date specified in a notice of payment given by Servicer, then, upon written
notice (which notice shall be signed by an officer of the Purchaser with
knowledge of and responsibility for such matters and shall set forth in
reasonable detail the basis for requesting the amounts) from the Purchaser to
Transferor and Servicer, additional amounts sufficient to indemnify the
Purchaser against the losses, expenses and liabilities, but not for any lost
profits associated therewith, shall constitute "Additional Amounts" for
purposes of the Supplement, and the Purchaser shall be entitled to receive
these additional amounts, solely from amounts allocated thereto and paid
pursuant to the Supplement.
SECTION 4.6 Taxes. (a) Any and all payments made to each Purchaser
under its Certificate shall be made free and clear of and without
page 10
<PAGE>
deduction for any and all present or future taxes, levies, imposts, duties,
charges, fees, deductions or withholdings of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed, excluding taxes imposed by the jurisdiction in which that Purchaser's
principal office (and/or the office where it books its investment in its
Certificate) is located on all or part of the net income, profits or gains of
that Purchaser (whether worldwide, or only insofar as such income, profits or
gains are considered to arise in or to relate to a particular jurisdiction, or
otherwise) (all the nonexcluded taxes, levies, imposts, charges, deductions,
withholdings and liabilities being hereinafter referred to as "Taxes"). If
Trustee or the Agent are required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Certificate to the Purchasers, then
the sum payable shall be increased by the amount necessary to yield to each
Purchaser (after payment of all Taxes) an amount equal to the sum it would have
received had no deductions been made, and the additional amount shall
constitute "Additional Amounts" for purposes of the Supplement, and the
Purchaser shall be entitled to receive these additional amounts, solely from
amounts allocated thereto and paid pursuant to the Supplement.
(b) Whenever any Taxes are paid by Trustee pursuant to subsection (a),
as promptly as possible thereafter Servicer shall send to the relevant
Purchaser the original or a certified copy of an original official receipt
showing payment thereof (if any) or any other evidence of the payment as may be
available to Servicer through the exercise of its reasonable efforts. If
Trustee fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Purchaser the required receipts or other required
documentary evidence, the Purchaser shall be entitled to receive, solely from
amounts allocated with respect thereto and paid pursuant to the Supplement,
additional amounts necessary to indemnify it for any incremental taxes,
interest or penalties that may become payable by the Purchaser as a result of
any such failure, and the amounts shall constitute "Additional Amounts" for
purposes of the Supplement, and the Purchaser shall be entitled to receive
these additional amounts, solely from amounts allocated thereto and paid
pursuant to the Supplement.
(c) On or before the date it becomes a party to this Agreement (and, so
long as it may properly do so, periodically thereafter, as requested by
Servicer, to keep forms up to date), each Purchaser that is organized under the
laws of a jurisdiction outside the United States of America shall deliver to
Trustee any certificates, documents or other evidence that shall be required by
the Internal Revenue Code or Treasury Regulations issued pursuant thereto to
establish that, assuming the Certificates are properly characterized as
indebtedness, it is exempt from existing United States Federal withholding
page 11
<PAGE>
requirements, including (i) two original copies of Internal Revenue Service
Form 1001 or Form 4224 or successor applicable form, properly completed and
duly executed by the Purchaser certifying that it is entitled to receive
payments under this Agreement without deduction or withholding of any United
States Federal income taxes, and (ii) an original copy of Internal Revenue
Service Form W-8 or W-9 or applicable successor form, properly completed and
duly executed; provided, that if any Purchaser does not comply with this
subsection 4.5(c), amounts payable to such Purchaser under this Section 4.5
shall be limited to amounts that would have been payable under this section if
such Purchaser had so complied.
ARTICLE V OTHER PAYMENT TERMS
SECTION 5.1 Time and Method of Payment. (a) All amounts payable to any
Purchaser hereunder or with respect to its Certificate shall be made to the
Agent for the account of the Purchaser by wire transfer of immediately
available funds in Dollars not later than 2:00 p.m., New York City time, on the
date due. Any funds received after that time will be deemed to have been
received on the next Business Day. The Agent shall distribute all payments to
the Purchasers, in accordance with their respective interests, prior to the
close of business on the Business Day on which any payment is deemed received.
(b) On any date on which a payment to one or more Purchasers hereunder
or under the Certificates is due and payable, the Agent may (but in no event
shall be required to) assume that the payment has been made available to the
Agent on the date of the payment in accordance with this section, and the Agent
may (but in no event shall be required to), in reliance upon this assumption,
make payment of a corresponding amount to the Purchasers. If and to the extent
any amounts shall not have so been made available to the Agent, each Purchaser
irrevocably and unconditionally agrees to repay to the Agent forthwith on
demand the amount of payment it received together with interest thereon, for
each day from the date payment is made by the Agent until the date the amount
is repaid to the Agent, (i) for the first three days following the date the
payment is made, at a rate per annum equal to the Federal Funds Rate and (ii)
thereafter, at a rate per annum equal to the Federal Funds Rate plus 1%.
SECTION 5.2 Pro Rata Treatment. Each repayment of the principal of the
Certificates, (except as otherwise required by Section 2.2(c)), each payment of
interest thereon, each payment of the Non-Usage Fee, each reduction of the
Stated Amounts and each conversion or continuation of any Tranche (except as
otherwise required by Sections 4.3(c) and 4.4(b) with respect to conversions)
shall be allocated pro rata among the Purchasers on the
page 12
<PAGE>
date of payment or reduction, in accordance with their respective Percentages
(unless the Agent has made the election specified in Section 2.2(c), in which
case such allocation shall be pro rata in accordance with funded principal
amounts). Each Purchaser agrees that in computing its portion of any Purchases
to be made hereunder, the Agent may, in its discretion, round each Purchaser's
pro rata share of the Purchases to the next higher or lower whole dollar
amount.
ARTICLE VI REPRESENTATIONS AND WARRANTIES
SECTION 6.1 Transferor. As of the Closing Date, Transferor represents
and warrants to the Purchasers that each of its representations and warranties
in the Pooling Agreement and Purchase Agreement is true and correct, as if made
on the Closing Date, and further represents and warrants that:
(a) no Early Amortization Event or Unmatured Early Amortization
Event exists;
(b) assuming the accuracy of the Purchaser's representations set
out in Section 6.3 and that no Purchaser (and no Person acting on any
Purchaser's behalf) has made a general solicitation or general
advertising within the meaning of the Securities Act, the offer and sale
of the Certificates in the manner contemplated by this Agreement is a
transaction exempt from the registration requirements of the Securities
Act, and the Pooling Agreement is not required to be qualified under the
Trust Indenture Act of 1939, as amended;
(c) except for BT Securities Corporation, in its capacity as
financial advisor for Transferor ("Financial Advisor"), Transferor has
not dealt with any financial advisor, or other Person who may be entitled
to any commission or compensation in connection with the sale of the
Certificates, and the fees of the Financial Advisor shall not be an
obligation of the Purchasers or the Agent; and
(d) no information supplied by or on behalf of Transferor or
WRO to the Agent or the Purchasers in connection with the Transaction
Documents contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein
or therein not misleading in light of the circumstances under which they
were made.
page 13
<PAGE>
SECTION 6.2 WRO. As of the Closing Date, WRO represents and warrants to
the Purchasers that:
(a) each of its representations and warranties in the Pooling
Agreement (in its capacity as Servicer) and the Purchase Agreement (in
its capacity as a Seller) is true and correct, as if made on the Closing
Date with the same effect as if made on that date (unless specifically
stated to relate to an earlier date);
(b) the Pro Forma Financial Data present fairly in all material
respects the pro forma financial position, results of operations and cash
flows of WRO and its consolidated Subsidiaries at the dates specified
therein and for the periods to which they relate and have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis, except as otherwise stated therein;
(c) since September 30, 1995 through the date hereof (and except
as contemplated in the Pro Forma Financial Data) (i) there has been no
material adverse change in the condition, financial or otherwise, or the
earnings, business affairs or business prospects of Transferor or WRO,
whether or not arising in the ordinary course of business, and (ii) there
have been no transactions entered into by Transferor or WRO that are
material with respect to the condition, financial or otherwise, or the
earnings, business affairs or business prospects of Transferor or WRO;
and
(d) no information supplied by or on behalf of Transferor or WRO
to the Agent or the Purchasers in connection with the Transaction
Documents contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein
or therein not misleading in light of the circumstances under which they
were made.
SECTION 6.3 Purchasers. As of the Closing Date (or such later date on
which it acquires its Certificate in accordance with Section 10.3), each
Purchaser represents and warrants that it is an "accredited investor" as that
term is defined in any of paragraphs (1), (2), (3) or (7) of Rule 501(a) under
the Securities Act and is not purchasing its Certificate with a view to making
a distribution thereof (within the meaning of the Securities Act).
page 14
<PAGE>
ARTICLE VII CONDITIONS
SECTION 7.1 Conditions to Initial Purchase. The obligation of each
Purchaser to Purchase its Certificate shall be subject to the satisfaction of
the conditions precedent that (x) the Agent shall have received, for the
account of such Purchaser, a duly executed and authenticated Certificate
registered in its name and in a Stated Amount equal to the amount set out
opposite its name on the signature pages of this Agreement, (y) the Agent shall
have received certain fees and reimbursement of any expenses referred to in
Section 10.5 for which invoices have been presented and (z) the Agent shall
have received, for the account of such Purchaser, an original (except as
indicated below) counterpart of the following (each of which, if not in a form
attached to this Agreement, shall be in form and substance satisfactory to the
Agent):
(a) the Pooling Agreement, the Purchase Agreement and the
Guaranty, each of which shall be in full force and effect, and all
actions required to be taken under those documents in connection with the
issuance of the Certificates shall have been taken;
(b) photocopies of each Account Agreement;
(c) a certificate of the Secretary, or an Assistant Secretary, of
each of Transferor, Servicer, Guarantor and each Seller with respect to:
(i) attached copies of resolutions of its Board of Directors
then in full force and effect authorizing the execution, delivery
and performance of the Transaction Documents,
(ii) the incumbency and signatures of those of its officers
authorized to act with respect to the Transaction Documents,
(iii) attached copies of its certificate of incorporation
and by-laws;
(d) a certificate of an Authorized Officer of each of Servicer,
and each Seller as to the satisfaction of the conditions precedent set
forth in Section 7.2 and a certificate of Transferor that the
representations and warranties of the Transferor set out in this
Agreement are true and correct as of the date of such initial purchase
and that, to the best of Transferor's knowledge, no Early Amortization
Event or Unmatured Early Amortization Event exists;
page 15
<PAGE>
(e) a certificate of an appropriate officer of Trustee stating
that the Pooling Agreement has been duly authorized, executed and
delivered by Trustee and the Certificates have been duly authenticated by
Trustee in accordance with the Pooling Agreement and an opinion of
counsel to Trustee as to related matters;
(f) confirmation satisfactory to the Agent that the following have
been placed with Lexis Document Services or another filing service
selected by the Agent for filing, the filing to occur on the Closing Date
or the third Business Day thereafter:
(i) UCC financing statements naming each Seller, as
seller/debtor, and Transferor, as secured party/purchaser, in each
office where the filing is necessary for the perfection of the
sales of Receivables and Related Transferred Assets by each Seller
to Transferor;
(ii) assignments of such existing UCC financing statements
to Trustee, as assignee of the secured party, in each office where
the filing is necessary for the perfection of the sales of
Receivables and Related Transferred Assets by each Seller to
Transferor; and
(iii) UCC financing statements naming Transferor, as
seller/debtor, and Trustee, as secured party, in each office where
the filing is necessary for the perfection of the transfers of
Receivables, Related Assets and other Transferred Assets by
Transferor to Trustee;
(g) results of recent searches of the UCC filing records and tax
and ERISA and judgment lien records in each jurisdiction in which a
filing referred to in subsection (f) is to be made for filings against
each Seller (including any predecessors in interest to any Seller going
back five years) and Transferor, showing no filings of record that cover
any of the Receivables or the Related Transferred Assets other than (i)
the financing statements referred to in subsection (f) (to the extent
shown in the searches) and (ii) any other filings as to which the Agent
have received signed UCC-3 termination statements or pay-off letters in
form and substance satisfactory to it;
(h) the opinions referred to in Section 4.1(f) of the Purchase
Agreement, which opinions shall be addressed to the Agent and the
Purchasers;
page 16
<PAGE>
(i) the Daily Report for the Closing Date;
(j) evidence, reasonably satisfactory to the Agent and the
Purchasers, of the payment of all taxes, fees and other governmental
charges, if any, incidental to the issuance of the Certificates and to
the consummation of the transactions contemplated hereunder and under the
Pooling Agreement;
(k) a solvency opinion, in form and substance satisfactory to the
Agent, with respect to (i) Transferor and (ii) WRO and its consolidated
subsidiaries, signed by an independent valuation firm acceptable to the
Agent and permitting reliance by the Agent and initial Purchaser thereon;
(l) [Intentionally deleted];
(m) agreed-upon procedures letters, in form and substance
satisfactory to the Agent, from Price Waterhouse LLP and KPMG Peat
Marwick, with respect to certain historical information provided by WRO
relating to the Receivables; and a form of agreed-upon procedures letter,
in form and substance satisfactory to the Agent, as to the reports to be
delivered under Section 3.7 of the Pooling Agreement;
(n) [Intentionally deleted];
(o) a certificate of the Secretary of WRO to the effect that the
conditions precedent to the effectiveness of the WRO Credit Agreement
shall have been satisfied or waived;
(p) an Intercreditor Agreement executed by Trustee and the
appropriate agent under the WRO Credit Agreement, and evidence
satisfactory to the Agent that UCC financing statements filed under the
WRO Credit Agreement do not cover the Transferred Assets;
(q) such sublicenses and assignments as the initial Purchasers
shall require with regard to all computer and data recovery software used
by Servicer or any Seller in connection with the servicing of the
Transferred Assets;
(r) [intentionally deleted];
page 17
<PAGE>
(s) copies of any management or other agreements with regard to
the administration of Transferor's business, certified by an Authorized
Officer of Transferor;
(t) a fully executed counterpart of a supplemental agreement,
dated as of the date hereof (the "Supplemental Agreement"), describing
certain agreements regarding cash management and other matters among the
parties hereto; and
(u) any other information, certificates, opinions and documents as
the Agent may have reasonably requested.
In addition, the initial Purchase hereunder shall be subject to the
conditions precedent that (x) Transferor and WRO shall have disclosed to the
Agent their plans for the refinancing of the Certificates, including reasonable
detail as to the timing of the refinancing and any potential restrictions
thereon or impediments thereto, and (y) the Agent shall be satisfied with the
form and substance of the plans.
If the conditions specified above have not been fulfilled on the Closing
Date, any condition specified in this Agreement shall not have been fulfilled
when and as required in this Agreement or waived by the Purchasers, in each
case a Purchaser's obligations to purchase the Certificates pursuant to this
Agreement may be terminated by notice to Transferor. In addition, if, under the
circumstances, it shall not be feasible for the Purchasers to invest on the
date the funds that are held available by the Purchasers for the Purchase,
Transferor shall pay the Purchasers interest on the funds at the Alternate Base
Rate from the date of the notice until the next succeeding Business Day on
which it is feasible for the Purchasers to invest the funds. Nothing in this
paragraph shall operate to relieve Transferor from any of its obligations
hereunder or otherwise waive any of the Purchasers' rights against Transferor.
SECTION 7.2 Conditions to Each Purchase. The obligation of each
Purchaser to make any Purchase on any day (including those comprising the
initial Purchase) shall be subject to the Agent's receipt of the Daily Report
for that day and to the conditions precedent that on the date of the Purchase,
before and after giving effect thereto and to the application of any proceeds
therefrom, the following statements shall be true:
(a) the representations and warranties of Transferor and WRO set
out in this Agreement are true and accurate as of that date with the same
effect as though made on that date (unless specifically stated to relate
to an earlier date); and
page 18
<PAGE>
(b) no Early Amortization Event or Unmatured Early Amortization
Event has occurred and is continuing.
The giving of any notice pursuant to Section 2.2 shall constitute a
representation and warranty by Transferor and WRO that the foregoing statements
(limited, in the case of subsection (a) to the representations and warranties
of the Person deemed to make the representation and warranty referred to in
this sentence) are true.
ARTICLE VIII COVENANTS
SECTION 8.1 Affirmative Covenants. Transferor and WRO each severally
covenant and agree that, until the Certificates have been paid in full, it
will:
(a) duly and timely perform all of its covenants and obligations
under each Transaction Document to which it is a party;
(b) not, except as contemplated by Section 13.1 of the Pooling
Agreement, amend or otherwise modify any Transaction Document to which it
is a party or grant any waiver or consent thereunder, without the prior
written consent of Purchasers having Percentages that aggregate over 50%
(the "Required Purchasers"); provided that no amendment shall (i) reduce
in any manner the amount of, or delay the timing of, allocations,
payments or distributions in respect of any Certificate without the
consent of the related Purchaser; (ii) amend, modify or waive any
provision of this Agreement that requires the approval or consent of a
specified percentage of Purchasers without the consent of that percentage
of Purchasers; or (iii) amend, modify or waive the provisions of this
section with respect to the rights of any Purchaser without the consent
of that Purchaser; provided further that neither the execution and
delivery of a Supplement relating to a refinancing of the Certificates as
contemplated by Section 4.9 of the Supplement relating to the
Certificates, nor any other amendment to the Transaction Documents in
connection with such a refinancing, shall require any consent from any
Purchaser, so long as the prior or contemporaneous repayment in full of
the Certificates in accordance with Section 5.2 of the Supplement
relating to the Certificates is a condition to the issuance of the
refinancing certificates, and of the effectiveness of such related
amendment;
(c) with reasonable promptness deliver to each Purchaser such
information, documents, records or reports respecting the Program or
page 19
<PAGE>
the Receivables as the Purchaser may from time to time reasonably request
(to the extent that such items are reasonably accessible to Transferor);
(d) at the same time any report (including any Daily Report,
Monthly Report or annual auditors' report), notice or other document is
provided, or caused to be provided, by Transferor or Servicer to Trustee
under the Pooling Agreement, provide the Agent with a copy of the report;
(e) use reasonable efforts (i) to cause Trustee to issue one or
more additional Series or Purchased Interests in order to repay in full
the Invested Amount and all other amounts and obligations owed in respect
of the Certificates as soon as practicable, and (ii) not cause Trustee to
issue any other Series or Purchased Interest except for the purposes
described in clause (i); provided, that any such issuance must yield at
least sufficient proceeds to repay in full the Invested Amount and all
other amounts and obligations owed in respect of the Certificates;
(f) if the Purchasers cause the Certificates to be rated by one or
more nationally recognized rating agencies, cause Kirkland & Ellis to
issue an opinion, as to Federal and New York state tax matters, in
substantially the form of the opinion on such matters delivered on the
Closing Date, except that the conclusion expressed therein would take
into account the rating of the Certificates (which opinion shall be in
form and substance satisfactory to the Purchasers); and
(g) if the Certificates remain outstanding after July 31, 1996,
WRO shall, as an expense of Servicer paid out of the Servicing Fee, cause
Price Waterhouse or another firm of recognized independent public
accountants that is generally recognized as being among the "big six"
(which may also render other services to Servicer, the Sellers or
Transferor to furnish the report to Trustee, Servicer, Transferor and the
Purchasers (which report shall be addressed to Trustee and shall relate
to Transferor's two most recently ended fiscal quarters. The
accountants' report shall be delivered prior to August 31, 1995, and
shall set forth the results of their performance of procedures described
in Exhibit D to the Pooling Agreement with respect to the Monthly Reports
and Daily Reports delivered to Trustee pursuant to Section 3.5 of the
Pooling Agreement during such fiscal quarters.
page 20
<PAGE>
In addition, it is understood and agreed that so long as the Certificates
remain outstanding, Servicer and Transferor shall (and Servicer shall cause
each Seller to) during regular business hours and (so long as no Early
Amortization Event has occurred and is continuing) upon two Business Days prior
written notice, permit the Agent (or such other Person as Trustee or the Agent
may designate from time to time), or their respective agents or representatives
(including certified public accountants or other auditors), as an expense of
Servicer paid out of the Servicing Fee, (i) to examine and make copies of and
abstracts from, and to conduct accounting reviews of, all Records in the
possession or under the control of Servicer, Transferor or any Seller,
including the related Contracts and purchase orders, invoices and other
agreements related thereto, and (ii) to visit the offices and properties of
Servicer, Transferor or any Seller for the purpose of examining such materials
described in clause (i), and to discuss matters relating to the Receivables or
the Related Transferred Assets or the performance by Servicer, Transferor or
any Seller of their respective obligations under any Transaction Document with
any officer, employee or representative of Servicer, Transferor or any Seller.
The Agent may (but shall not be obligated to) conduct, or cause their
respective agents or representatives to conduct, reviews of the types described
in this paragraph (each such review, a "Receivables Review") whenever the
Agent, in their reasonable judgment, deems any such review appropriate.
In connection with clause (e) above, WRO will assist the Financial
Advisors in the marketing of any additional Series and Purchased Interests to
be issued and (promptly upon request) provide all the information necessary to
the Financial Advisors to market such facilities. In addition, WRO will
use its reasonable best efforts to make appropriate officers and
representatives of WRO available to participate in the information meetings
for potential investors at such times and places as may reasonably be
requested. Transferor will cooperate with WRO and the Financial Advisors in
the matters described in this paragraph.
SECTION 8.2 Negative Covenants. Notwithstanding Section 1.7 of the
Purchase Agreement, WRO shall not cause or permit any of its Subsidiaries to
become a new Seller without satisfying the Rating Agency Condition unless the
Required Purchasers have consented in writing to that addition.
ARTICLE IX AGENT
SECTION 9.1 Appointment. The Purchasers hereby designate Bankers Trust
Company as Agent. Each Purchaser hereby irrevocably authorizes the Agent to
take action on its behalf under the provisions of the Transaction Documents and
any other instruments and agreements referred to therein and
page 21
<PAGE>
to exercise the powers and perform the duties hereunder and thereunder that are
specifically delegated to or required of the Agent by the terms hereof and
thereof, and any other powers as are reasonably incidental thereto. The Agent
may perform any of their duties by or through their respective officers,
directors, agents or employees.
SECTION 9.2 Nature of Duties. The Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement. Neither
the Agent nor any of their respective officers, directors, agents or employees
shall be liable for any action taken or omitted by it or them under any
Transaction Document or in connection herewith or therewith, unless caused by
their gross negligence or willful misconduct. The duties of the Agent shall be
mechanical and administrative in nature, the Agent shall not have by reason of
this Agreement a fiduciary relationship in respect of any Purchaser, and
nothing in any Transaction Document, expressed or implied, is intended to or
shall be construed as to impose upon the Agent any obligations in respect of
any Transaction Document except as expressly set forth herein.
SECTION 9.3 Lack of Reliance on Agent and Financial Advisor.
Independently and without reliance upon the Agent or the Financial Advisor,
each Purchaser, to the extent it deems appropriate, has made and shall continue
to make (a) its own independent investigation of the financial condition and
affairs of Transferor, the Seller, Servicer and the Trust in connection with
the making and the continuation of each Purchase and the taking or not taking
of any action in connection herewith and (b) its own appraisal of the
creditworthiness of Transferor, the Seller and Servicer and the merits and
risks of an investment in the Certificates, and, except as expressly provided
in this Agreement, the Agent shall not have any duty or responsibility, either
initially or on a continuing basis, to provide any Purchaser with any credit or
other information with respect thereto, whether coming into their possession
before the making of a Purchase or at any time or times thereafter. The Agent
shall not be responsible to any Purchaser for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of the Transaction Documents or the
financial condition of Transferor, the Sellers, Servicer or the Trust or be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of any Transaction Document, or the
financial condition of Transferor, the Sellers, Servicer or the Trust or the
existence or possible existence of any Early Amortization Event or Unmatured
Early Amortization Event.
page 22
<PAGE>
SECTION 9.4 Certain Rights of Agent. If the Agent shall request
instructions from the Required Purchasers with respect to any act or action
(including failure to act) in connection with any Transaction Document, the
Agent shall be entitled to refrain from acting or taking the action unless and
until the Agent shall have received instructions from the Required Purchasers,
and the Agent shall not incur liability to any person by reason of so
refraining. Without limiting the foregoing, no Purchaser shall have any right
of action whatsoever against the Agent as a result of the Agent acting or
refraining from acting under any Transaction Document in accordance with the
instructions of the Required Purchasers as for refraining to act in the absence
of instruction.
SECTION 9.5 Reliance. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any person that such Agent believed to be the proper person. The Agent may
consult with legal counsel (including counsel for any WRO Person), independent
public accountants and other experts selected by the Agent and shall not be
liable for any action taken or omitted to be taken in accordance with the
advice of such counsel, accountants or experts.
SECTION 9.6 Indemnification. To the extent the Agent is not reimbursed
and indemnified by Transferor or Servicer, the Purchasers will reimburse and
indemnify the Agent ratably in accordance with their respective Percentages
from and against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses or disbursements
of whatsoever kind or nature that may be imposed on, asserted against or
incurred or suffered by the Agent (including fees and expenses of legal
counsel, accountants and experts) in performing their duties or as a result of
any action taken or omitted to be taken by such Agent under any Transaction
Document or in any way relating to or arising out of any Transaction Document;
provided that no Purchaser shall be liable for any portion of these
liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses or disbursements resulting from such Agent's
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final and non-appealable order).
SECTION 9.7 Agent in its Individual Capacity. With respect to their
obligation to purchase a Certificate under this Agreement, the Agent shall have
the rights and powers specified herein for a Purchaser and may exercise the
same rights and powers as though they were not performing the duties of the
"Agent" specified herein, and the term "Purchasers," "Required Purchasers" and
"Holders" or "payees" of any Certificates or any similar terms shall,
page 23
<PAGE>
unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent and their respective Affiliates may accept
deposits from, lend money to and generally engage in any kind of banking, trust
or other business with Transferor or Servicer or any WRO Person as if the Agent
were not performing the duties specified herein, and may accept fees and other
consideration from Transferor or Servicer for services in connection with this
Agreement and otherwise without having to account for the same to the
Purchasers. Each of the parties hereto acknowledges that the Agent will be
acting both as agent and as lender under the WRO Credit Agreement and as
Purchasers and Agent under this Agreement.
SECTION 9.8 Resignation by Agent. (a) Either Agent may resign at any
time by giving notice to Transferor, the Purchasers and the other Agent, if
any. Such resignation shall be effective immediately unless the resigning Agent
is the only Agent, in which event the resignation of such Agent shall take
effect upon the appointment of a successor Agent pursuant to subsections (b)
and (c) below or as otherwise provided below.
(b) In the event that there is only one Agent, upon any notice of
resignation of such Agent, the Required Purchasers shall appoint a successor
Agent hereunder who shall be a commercial bank or trust company reasonably
acceptable to Transferor (it being understood and agreed that any Purchaser is
deemed to be acceptable to Transferor).
(c) If a successor Agent is not appointed pursuant to subsection (b)
within 30 days after the delivery of the notice referred to in subsection (a),
the resigning Agent, with the consent of Transferor, shall then appoint a
successor Agent who shall serve as Agent hereunder until the time, if any, that
the Required Purchasers appoint a successor Agent as provided above.
(d) If no successor Agent has been appointed pursuant to subsection (b)
or (c) above by the 60th day after the date notice of resignation was given by
the resigning Agent, such Agent's resignation shall become effective and the
Purchasers shall thereafter perform all the duties of the Agent under the
Transaction Documents until the time, if any, that the Purchasers appoint a
successor Agent as provided above.
ARTICLE X MISCELLANEOUS PROVISIONS
SECTION 10.1 Amendments. Except as provided in the Pooling Agreement, no
amendment to or waiver of any provision of any Transaction Document, nor
consent to any departure by Transferor therefrom, shall in any event be
effective unless the same shall be in writing and signed by
page 24
<PAGE>
Transferor, the Agent and the Required Purchasers; provided that no amendment
shall (a) decrease the outstanding amount of, or extend the repayment of or any
scheduled payment date for the payment of, any interest in respect of a
Certificate owed to a Purchaser without the Purchaser's prior written consent,
(b) forgive or waive or otherwise excuse any repayment of the Invested Amount
without the prior written consent of each Purchaser affected thereby, (c) waive
any Early Amortization Event arising from a Bankruptcy Event with respect to
Transferor or the Seller without the consent of each Purchaser, (d) amend or
modify the Percentage of any Purchaser without its prior written consent, (e)
waive any of the requirements hereunder that the interests of Trustee in the
Receivables and the other Transferred Assets be perfected by appropriate UCC
filings without the prior written consent of each Purchaser or (f) amend,
modify or otherwise affect the rights or duties of the Agent hereunder without
the prior written consent of the Agent. Each Purchaser shall be bound by any
modification, waiver or consent authorized by this section, whether or not its
Certificate shall have been marked to indicate the modification, waiver or
consent.
SECTION 10.2 No Waiver; Remedies. Any waiver, consent or approval given
by any party hereto shall be effective only in the specific instance and for
the specific purpose for which given, and no waiver by a party of any breach or
default under this Agreement shall be deemed a waiver of any other breach or
default. No failure on the part of any party hereto to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder, or any abandonment or
discontinuation of steps to enforce the right, power or privilege, preclude any
other or further exercise thereof or the exercise of any other right. No notice
to or demand on any party hereto in any case shall entitle such party to any
other or further notice or demand in the same, similar or other circumstances.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 10.3 Successors and Assigns; Assignments. (a) This Agreement
shall be binding upon, and inure to the benefit of, Transferor, Servicer, the
Agent, the Purchasers and their respective successors and assigns; provided
that neither Transferor nor Servicer may assign its rights or obligations
hereunder or in connection herewith or any interest herein (voluntarily, by
operation of law or otherwise) without the prior written consent of all the
Purchasers, except that the Servicer may be terminated in accordance with
Sections 10.1 and 10.2 of the Pooling Agreement; and provided further, that no
Purchaser may transfer, pledge, assign, sell participations in or otherwise
encumber its rights or obligations hereunder or any interest herein except as
permitted under this section.
page 25
<PAGE>
(b) Each Purchaser may at any time sell to one or more banks or other
entities ("Participants") participating interests in all or any portion of its
Certificate and its obligations hereunder (its "Credit Exposure"). In the event
of any sale by a Purchaser of participating interests to a Participant, the
Purchaser shall notify Transferor of the identity of the Participant upon a
request by Transferor, the Purchaser's obligations under this Agreement shall
remain unchanged, the Purchaser shall remain solely responsible for the
performance thereof, and the Purchaser shall remain the holder of its rights
under its Certificate and this Agreement for all purposes under this Agreement,
and the other parties to the Transaction Documents shall continue to deal
solely and directly with the Purchaser in connection with such rights and
obligations under this Agreement. Transferor agrees that each Participant shall
be entitled to the benefits of Sections 4.2, 4.3 and 4.4 with respect to its
participation in the Certificate. The Purchasers agree that any agreement
between them and any Participant in respect of a participating interest shall
require the Participant to comply with the terms of Section 10.5 and shall not
restrict the Purchasers' right to agree to any amendment, supplement or
modification of the Transaction Documents except to (i) extend the final
maturity of any obligation, (ii) reduce the rate or extend the time of payment
of interest thereon or any fees owed to the Purchasers under the Transaction
Documents, (iii) reduce the principal amount of any obligation, (iv) release or
direct the release of all or substantially all of the Transferred Assets or
Trustee's claim to the Transferred Assets, (v) reduce substantially the amount
of any reserve included in the calculation of the Base Amount, (vi) increase
the amount of the participation from the amount thereof then in effect, or
(vii) permit assignment or transfer by Transferor or WRO of its rights or
obligations under the Transaction Documents.
(c) Any Purchaser may at any time assign to one or more banks or other
financial institutions ("Assignees") all or any part of its Credit Exposure;
provided that (i) unless assigned to an Affiliate of the Purchaser, it assigns
all of its Credit Exposure or a portion of its Credit Exposure in an amount not
less than $5,000,000, (ii) any Assignee, other than an existing Purchaser or an
Affiliate of the Purchaser, must be reasonably acceptable to the Agent and
Transferor, which acceptance shall not be delayed or withheld unreasonably and
(iii) if such Assignee is organized under the laws of a jurisdiction outside
the United States of America, such Assignee shall satisfy the requirements of
Section 4.4(c), or amounts payable to it under Section 4.4 shall be limited to
amounts that would be payable if such Assignee had complied with Section
4.4(c). In the event of any assignment, the Purchaser shall comply with Article
VI of the Pooling Agreement and also shall give notice to Transferor and the
Agent and shall deliver to the Agent, for acceptance and recording in its
records, an assignment agreement substantially in the form of Exhibit D
page 26
<PAGE>
together with a processing and recordation fee of, in the case of assignments
to a Purchaser or an Affiliate of a Purchaser, $1,500 and, in cases of any
other assignment, $3,500. Within five Business Days of receipt thereof, the
Agent shall, if the assignment agreement has been fully executed by the
Assignee, the assignor Purchaser and Transferor, is completed and is in
substantially the form of Exhibit D, execute the assignment agreement and
record the information contained therein in its records. Upon the earlier of
the expiration of the five Business Day period or the date of the recording,
the assignment will become effective. Transferor, the Agent and the Purchasers
agree to extend the rights and benefits with respect to Transferor under this
Agreement to the Assignee to the extent the Assignee would have had if it were
a Purchaser that was an original signatory to this Agreement; provided, that
Transferor shall be entitled to continue to deal solely and directly with the
assignor Purchaser in connection with the interests so assigned to the Assignee
until the assignment agreement and any required fee, as described above, shall
have been delivered to Transferor and the Agent by the Purchaser and the
Assignee and the assignment shall have become effective. Upon the effective
assignment of its Credit Exposure, the Purchaser shall be relieved of its
obligations hereunder to the extent of the assignment.
(d) The sale or assignment of any Credit Exposure to any Assignee or
Participant (each, a "Transferee") shall not be effective until it has agreed
to be bound by the provisions of Section 10.15. Transferor and WRO each
authorize the Purchasers to disclose to any Transferee and any prospective
Transferee any and all information in their possession concerning Transferor
and WRO that has been delivered to them by Transferor, WRO or Trustee in
connection with their credit evaluation of the Program prior to entering into
this Agreement.
(e) Notwithstanding any other provisions set forth in this Agreement,
the Purchasers may at any time create a security interest in all or any portion
of their rights under this Agreement and the Certificates in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of Governors
of the Federal Reserve System.
(f) WRO agrees to assist the Agent in any marketing of the Certificates
issued under the Supplement, or any other Certificates or Purchased Interests
issued or sold in a restructuring of the transactions contemplated in the
Transaction Documents, and WRO agrees (promptly upon request) to review any
related marketing materials and to provide all reasonably available information
deemed necessary by the Agent in such marketing so long as WRO is satisfied
with the integrity of such information. In addition, WRO will use their
reasonable best efforts to make appropriate officers and
page 27
<PAGE>
representatives of WRO available to participate in the information meetings for
potential investors at such times and places as the Agent may reasonably
request. Transferor will cooperate with WRO and the agent in the matters
described in this paragraph.
(g) No transfer, assignment or other conveyance of a Certificate shall
be made unless the aggregate outstanding principal amount of all Certificates
transferred pursuant to such transfer is equal to at least 2.1% of the
aggregate principal amount of all outstanding Certificates. No Certificate may
be subdivided into an aggregate principal amount of less than 2.1% of the
aggregate principal amount of all outstanding Certificates. Any attempted
transfer, assignment or conveyance in contravention of the preceding
restrictions shall be void ab initio and the purported transferor of such
Certificate shall continue to be treated as the Certificateholder of any such
Certificate for all purposes of this Agreement.
SECTION 10.4 Survival of Agreement. All covenants, agreements,
representations and warranties made herein and in the Certificates delivered
pursuant hereto shall survive the making and the repayment of the Purchases and
the execution and delivery of this Agreement and the Certificates and shall
continue in full force and effect until all obligations have been paid in full
and all commitments of the Purchasers hereunder have been terminated. In
addition, the obligations of Transferor under Sections 4.2, 4.3, 4.4 and 10.5
and the obligations of the Purchasers under Section 9.6 shall survive the
termination of this Agreement.
SECTION 10.5 Expenses; Indemnification. Transferor and WRO jointly and
severally shall pay on demand (a) all reasonable out-of-pocket fees and
expenses (including reasonable attorneys fees and expenses) of the Agent
incurred in connection with the preparation, execution, delivery,
administration, amendment, modification and waiver of the Transaction Documents
and the making and repayment of the Purchases, including any Servicer or
collection agent fees paid to any third party for services rendered to the
Purchasers and the Agent in collecting the Receivables and (b) all reasonable
out-of-pocket fees and expenses of the Purchasers and the Agent (including
reasonable attorneys fees and expenses of their counsel) incurred in connection
with the enforcement of the Transaction Documents against Transferor, Servicer
and the Seller and in connection with any workout or restructuring of the
Transaction Documents. In addition, Transferor will pay any and all stamp and
other taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing, recording or enforcement of this Agreement or any
payment made under the Transaction Documents, and hereby indemnifies and saves
each Agent and the Purchasers
page 28
<PAGE>
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay the taxes and fees. Transferor and
WRO jointly and severally agree to reimburse and indemnify each Agent and each
Purchaser and their respective officers, directors, shareholders, controlling
Persons, employees and agents (collectively, the "Indemnitees") from and
against any and all actions, judgments, costs, expenses or disbursements of
whatsoever kind or nature that may be imposed on, asserted against or incurred
or suffered by either Agent or the Purchasers (including fees and expenses of
legal counsel, accountants and experts) in any way relating to or arising out
of any Transaction Document.
Notwithstanding the foregoing (and with respect to clause (w) below,
without prejudice to the rights that an Indemnitee may have pursuant to the
other provisions of the Transaction Documents), in no event shall any
Indemnitee be indemnified against any amounts (w) resulting from gross
negligence or willful misconduct on the part of any of its officers, directors,
employees or agents, (x) to the extent they include amounts in respect of
Receivables and reimbursement therefore that would constitute credit recourse
to Servicer for the amount of any Receivable or Related Transferred Asset not
paid by the related Obligor, (y) to the extent they are or result from lost
profits or (z) to the extent they would constitute consequential, special or
punitive damages.
If for any reason the indemnification provided in this section is
unavailable to an Indemnitee or is insufficient to hold it harmless, then
Transferor and WRO jointly and severally shall contribute to the amount paid by
the Indemnitee as a result of any loss, claim, damage or liability in a
proportion that is appropriate to reflect not only the relative benefits
received by the Indemnitee on the one hand and Transferor and WRO on the other
hand, but also the relative fault of the Indemnitee (if any), Transferor and
WRO and any other relevant equitable considerations; provided that Transferor's
obligations under this section shall be paid by Transferor only to the extent
that funds are available to make the payments after all amounts to be paid to
Holders pursuant to Section 4.3(f) or 4.3(a) (as applicable) shall have been
paid, and there shall be no recourse to Transferor for all or any part of any
amounts payable pursuant to this section if the funds are at any time
insufficient to make all or part of any such payments.
SECTION 10.6 Entire Agreement. This Agreement, together with the
documents delivered pursuant to Section 7.1 and the other Transaction
Documents, including the exhibits and schedules thereto, contains a final and
complete integration of all prior expressions by the parties hereto with
respect to the subject matter hereof and shall constitute the entire agreement
among
page 29
<PAGE>
the parties hereto with respect to the subject matter hereof, superseding all
previous oral statements and other writings with respect thereto.
SECTION 10.7 Notices. All communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered, sent by
overnight courier or mailed by registered mail, postage prepaid and return
receipt requested, or transmitted by facsimile transmission and confirmed by a
similar mailed writing to any party at the address for that party set forth (a)
on the signature page to this Agreement or (b) to another address as that party
may designate in writing to the Agent and Transferor.
SECTION 10.8 No Third Party Beneficiaries. Nothing expressed herein is
intended or shall be construed to give any Person (other than the Persons
listed in Section 10.3) any legal or equitable right, remedy or claim under or
in respect of this Agreement.
SECTION 10.9 Severability of Provisions. Any covenant, provision,
agreement or term of this Agreement that is prohibited or is held to be void or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of the prohibition or unenforceability without
invalidating the remaining provisions of this Agreement.
SECTION 10.10 Counterparts. This Agreement may be executed in any number
of counterparts (which may include facsimile) and by the different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original, and all of which together shall constitute one and the same
instrument.
SECTION 10.11 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
SECTION 10.12 Tax Characterization. Each party to this Agreement (a)
acknowledges that it is the intent of the parties to this Agreement that, for
Federal, state and local income and franchise tax purposes, the Certificates
will be treated as evidence of indebtedness secured by the Transferred Assets
and the Trust will not be characterized as an association (or publicly traded
partnership) taxable as a corporation, (b) agrees to treat the Certificates for
Federal, state and local income and franchise tax purposes as indebtedness and
(c) agrees that the provisions of the Transaction Documents shall be construed
to further these intentions.
page 30
<PAGE>
SECTION 10.13 No Proceedings. Each of Servicer, the Agent (solely in
their capacities as such) and each Purchaser (solely in its capacity as such)
hereby agrees that it will not institute against Transferor, or join any other
Person in instituting against Transferor, any insolvency proceeding (namely,
any proceeding of the type referred to in the definition of "Bankruptcy Event")
so long as any Certificates shall be outstanding or there shall not have
elapsed one year plus one day since the last day on which any Certificates
shall have been outstanding. The foregoing shall not limit the right of
Servicer, any Agent or any Purchaser to file any claim in or otherwise take any
action with respect to any insolvency proceeding that was instituted against
Transferor by any other Person.
SECTION 10.14 Failure to Refinance. If the Purchasers shall not have
been repaid in full and their Stated Amount reduced to zero on or prior to the
180th day falling after the date of the initial Purchase, then:
(a) Transferor and WRO will cooperate in good faith with the Agent
to restructure the transactions contemplated by the Transaction Documents
and to design securities to be issued by the Trust in order to facilitate
the refinancing in full of the Certificates and/or the complete
assignment by the initial Purchasers of their Credit Exposure, which
restructuring and design may include, but not be limited to, (i) the
creation of senior and subordinated classes of securities, (ii) the
creation of fixed principal and variable principal securities with
varying maturities and interest rates, it being understood that no
specified proportion of securities with fixed versus variable principal
or fixed versus variable interest rates need be maintained, and that the
proportion with respect with either type of principal may be 0%
(provided, that the aggregate principal amount of fixed principal
certificates shall not, without Transferor's and WRO's consent, exceed
the average, for the preceding six Calculation Periods (or, if less, the
number of complete Calculation Periods elapsed since the date of this
Agreement), of the lowest Base Amount properly reported in any Daily
Report during each such Calculation Period), (iii) changes to the number
and type of investors required to take (or omit to take a particular
action (such as a waiver, amendment or instruction to the Trustee)), (iv)
the imposition of make-whole payments or other prepayment premiums if the
securities are repaid prior to their scheduled maturity, (v) any changes
or modification necessary to enable an investor to qualify for the
portfolio interest exemption, thus permitting the securities to be
marketed to investors who do not have a place of business in the United
States, and (vi) any changes or modifications necessary to satisfy then
current requirements of S&P (or
page 31
<PAGE>
any other Rating Agency) for trade receivables securitizations rated
"AAA" (in the case of senior securities) or "A" (in the case of
subordinate securities), and
(b) if requested to do so by any Purchaser, the Trustee or the
Agent shall exercise its rights under Section 8.1 to conduct a
Receivables Review.
Transferor and WRO shall enter into the amendments to the Transaction
Documents as may be requested by the Agent as necessary or desirable to effect
the restructuring and design securities as contemplated in subsection (a);
provided, that, notwithstanding the foregoing, neither Transferor nor WRO shall
be required to consent to any amendment to any Transaction Document that it
determines in its reasonable discretion to be materially adverse to its own
interests.
SECTION 10.15 Reference Banks. By its execution of this Agreement, each
Purchaser identified as "Reference Bank" in the Supplement agrees to act as a
Reference Bank for purposes of the Supplement. The Agent shall notify Servicer
of the Reserve-Adjusted Eurodollar Rate applicable to each Interest Period and
of each change in the Alternate Base Rate.
SECTION 10.16 No Recourse. None of the directors, officers or employees
of Transferor shall have any liability to any Person, including, without
limitation, the Trustee or any Purchaser, for any action undertaken or any
certificate delivered or information delivered by such director, officer or
employee hereunder, except to the extent of the gross negligence or willful
misconduct of such director, officer or employee in connection therewith.
page 32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and delivered as of the day and
year first above written.
NOTEPAD FUNDING CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Address:
----------------------
Attention:
--------------------
Facsimile:
--------------------
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
By:
---------------------------
Name:
-------------------------
Title:
-----------------------
Address:
----------------------
Attention:
--------------------
Facsimile:
--------------------
BANKERS TRUST COMPANY, as Agent and as a
Purchaser
By:
---------------------------
Title:
---------------------
Address:
----------------------
Attention:
--------------------
Facsimile:
--------------------
STATED AMOUNT: $45,000,000
PERCENTAGE: 100%
<PAGE>
EXHIBIT A
to Revolving Certificate Purchase
Agreement Series 1995-1
FORM OF POOLING AND SERVICING AGREEMENT
---------------------------------------
<PAGE>
EXHIBIT B
to Revolving Certificate Purchase
Agreement Series 1995-1
FORM OF RECEIVABLES PURCHASE AGREEMENT
--------------------------------------
<PAGE>
EXHIBIT C
to Revolving Certificate Purchase
Agreement Series 1995-1
FORM OF SERIES 1995-1 SUPPLEMENT
--------------------------------
<PAGE>
EXHIBIT D
to Revolving Certificate Purchase
Agreement Series 1995-1
FORM OF ASSIGNMENT AGREEMENT
----------------------------
This ASSIGNMENT AGREEMENT, dated as of ____________ (this "Agreement"),
is made between ____________________ ("Assignor"), and _____________________
("Assignee"). Except as otherwise defined herein, capitalized terms have the
meanings assigned to them in the Certificate Purchase Agreement (as defined
below).
BACKGROUND
1. Assignor is a party to the Revolving Certificate Purchase Agreement,
dated as of October 31, 1995 (as amended, supplemented or otherwise modified
from time to time, the "Certificate Purchase Agreement"), among Notepad Funding
Corporation, a Delaware corporation ("Transferor"), Williamhouse-Regency of
Delaware, Inc., a Delaware corporation, the Purchasers party thereto (including
Assignor), and Bankers Trust Company, as Agent.
2. Assignor wishes to assign, and Assignee wishes to be so assigned,
Assignor's rights and obligations arising on and after the Effective Date (as
defined below) under the Certificate Purchase Agreement and its Certificate
including (a) its obligations to make Purchases (its "Credit Exposure") and (b)
its outstanding Purchases (the "Purchases").
3. Assignor and Assignee also wish (a) Assignee to assume the obligations
of Assignor under the Certificate Purchase Agreement with respect to Assignee's
Share (as defined below) to the extent of the rights assigned and (b) Assignor
to be released from the obligations assumed by Assignee.
4. Transferor, by its execution hereof, is providing its written consent
to the assignment accomplished by this Agreement.
SECTION 1. Assignment. Effective on the Effective Date (as defined below)
and upon payment of the amount specified in Section 3(a), Assignor
<PAGE>
hereby assigns and transfers to Assignee, without recourse, representation or
warranty of any kind, express or implied (except as provided in Sections 6(a)
and (b)), and subject to Section 4(b), Assignee's Share (as specified in Annex
I hereto) (the "Assignee's Share") of all of Assignor's rights, title and
interest arising under (a) the Certificate Purchase Agreement relating to
Assignor's Credit Exposure including all rights and obligations with respect to
the Purchases attributable to Assignee's Share and (b) Assignor's Certificate
with respect to Assignee's Share as will result in Assignee having from and
after the Effective Date the Percentage ("Assignee's Percentage") specified in
Annex I.
SECTION 2. Assumption. Effective on the Effective Date, Assignee hereby
irrevocably purchases, assumes and takes from Assignor, and Assignor is hereby
expressly and absolutely released from, all of Assignor's obligations arising
under the Certificate Purchase Agreement relating to Assignee's Share and of
any outstanding Purchases attributable to Assignee's Share.
SECTION 3. Payment. In consideration of the assignment by Assignor to
Assignee as set forth above, Assignee agrees to pay to Assignor, in Dollars and
in immediately available funds, (a) on or prior to the Effective Date, an
amount specified by Assignor in writing on or prior to the Effective Date that
represents Assignee's Share attributable to the principal amount of the
Purchases made pursuant to the Certificate Purchase Agreement and outstanding
on the Effective Date, and (b) from time to time thereafter, other amounts (if
any) that Assignee has agreed in writing to pay to Assignor after the Effective
Date. In consideration of the assumption by Assignee, Assignor agrees to pay to
Assignee within two Business Days of the Effective Date, an assignment fee (if
any) that previously has been agreed to in writing by both parties.
Notwithstanding anything to the contrary in this Agreement, if and when
Assignee receives or collects (x) any payment of principal or interest relating
to any Purchases or (y) any payment of fees that are required to be paid to
Assignor pursuant to this Agreement, then Assignee shall forward the payment to
Assignor.
To the extent payment of funds to Assignee or Assignor are not made
within two Business Days, each, as the case may be, shall be entitled to
recover the due amount, together with interest thereon at the Federal Funds
Rate per annum accruing from the date of payment or the date of receipt of the
funds by the other party.
page 2
<PAGE>
SECTION 4. Effectiveness. (a)(i) This Agreement shall become effective on
the date (the "Effective Date") on which it shall have been duly executed by
all parties and the Agent shall have recorded the information contained herein
in its records (or automatically if not so recorded within five Business Days
from the Agent's receipt of this Agreement signed by Assignor, Assignee and
Transferor). Assignor hereby notifies the Agent of the assignment, effective as
of the Effective Date, of Assignee's Share and any Purchases attributable to
the Assignee's Share, and directs the Agent to pay Assignee (A) any payment of
principal of, or interest on, any Purchase attributable to the Assignee's Share
of any Purchases and (B) any Non-Usage Fees attributable to the Assignee's
Share of the Credit Exposure. No (x) failure of either Assignee or Assignor to
settle any amount owed to the other (except with respect to the payment of the
processing and recordation fee to the Agent and the payment due under Section
3(a)), (y) dispute respecting any other settlement, including in respect of
Transferor, or (z) bankruptcy, insolvency or other condition whatsoever
respecting any Person, shall in any way impair, reduce or otherwise affect the
effectiveness of this Agreement.
(ii) Assignor, Assignee and the Agent each acknowledges and agrees that
from and after the Effective Date, the Agent shall make all payments under the
Certificate Purchase Agreement in respect of Assignee's Share (including all
payments of principal, interest and Non-Usage Fees with respect thereto,
whether or not the payments shall have accrued prior to or after the Effective
Date) to Assignee only. Assignor and Assignee hereby agree further to make all
appropriate adjustments in payments to either of them under the Certificate
Purchase Agreement for periods prior to the Effective Date directly between
themselves.
(b) With respect to any Purchase attributable to Assignee's Share, if
and when Assignor receives or collects any payment of principal, interest,
Non-Usage Fees or Additional Amounts with respect to Assignee's Share for any
period commencing on or after the Effective Date, Assignor shall distribute to
Assignee the portion attributable to Assignee's Share, but only to the extent
it accrued on or after the Effective Date and was not theretofore paid to
Assignee by Transferor or otherwise. Any principal, interest, Non-Usage Fees
and Additional Amounts paid prior to the Effective Date shall be retained by
Assignor. Any principal, interest, Non-Usage Fees and Additional Amounts
received by Assignee that accrued prior to the Effective Date shall be
forwarded promptly, in the form received, to Assignor. Assignee recognizes and
agrees that (i) it shall receive no payment on account of any Agent's fees or
other amounts or expenses (including counsel fees) payable to the Agent (in
such capacities and for their own account), (ii) this Agreement shall not
operate to assign any rights or delegate any obligations of the Agent (in such
page 3
<PAGE>
capacities), and (iii) notwithstanding anything to the contrary in this
Agreement, Assignor shall retain all of its rights to indemnification under the
Certificate Purchase Agreement for any events, acts or omissions occurring
prior to the Effective Date.
(c) The Agent, by its execution hereof, acknowledges the assignment and
agrees to make payments in respect of principal, interest, fees and Additional
Amounts as described in clause (a).
SECTION 5. Rights as Purchaser under Certificate Purchase Agreement. In
accordance with Section 10.3 of the Certificate Purchase Agreement, (a) as of
the Effective Date, Assignee will be a Purchaser under, and party to, the
Certificate Purchase Agreement and shall have (i) all of the rights and
obligations of a Purchaser (to the extent of the assignment and assumption of
Assignee's Share effected by this Agreement) and (ii) the addresses for (A)
notice purposes and (B) LIBOR Office as set forth in items 2 and 3,
respectively, of Annex I hereto and (b) promptly on or after the Effective
Date, Transferor will execute and deliver any documents and instruments that
Assignor or Assignee reasonably may require.
SECTION 6. Representations and Warranties. (a) Each of Assignor and
Assignee represents and warrants to the other as follows:
(i) it has full power and authority, and has taken all action
necessary, to execute and deliver this Agreement, to fulfill the
obligations hereunder and to consummate the transactions contemplated
hereby,
(ii) the making and performance of this Agreement and all
documents required to be executed and delivered hereunder do not and will
not violate any law or regulation of the jurisdiction of its
incorporation or any other applicable law or regulation,
(iii) this Agreement has been duly executed and delivered and
constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms, and
(iv) all approvals, authorizations or other actions by, or filing
with, any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been
obtained.
page 4
<PAGE>
(b) Assignor represents and warrants to Assignee that Assignee's Share
and the Purchases attributable to Assignee's Share are not subject to any liens
or security interests created by Assignor.
(c) Except as set forth in subsections (a) and (b), Assignor makes no
representations or warranties, express or implied, to Assignee and shall not be
responsible to Assignee for (i) the execution, effectiveness, genuineness,
legality, validity, enforceability, collectibility, regulatory status or
sufficiency of the Certificate Purchase Agreement or any of the other
Transaction Documents, (ii) the perfection, priority, value or adequacy of any
collateral security or guaranty, (iii) the taking of any action, or the failure
to take any action, with respect to any of the Transaction Documents, (iv) any
representations, warranties, recitals or statements made in any of the
Transaction Documents or in any written or oral financial or other statements,
instruments, reports, certificates or documents made or furnished by Assignor
to Assignee or by or on behalf of Transferor or any of its Affiliates to
Assignor or Assignee in connection with the Transaction Documents and the
transactions contemplated thereby, (v) the financial or other condition of
Transferor or any other Person or (vi) any other matter having any relation to
any of the foregoing. Assignor shall not be required to ascertain or inquire as
to the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained in any of the Transaction Documents or the
existence or possible existence of any Unmatured Early Amortization Event,
Early Amortization Event or Servicer Default. Additionally, Assignor shall not
have any duty or responsibility either initially or on a continuing basis to
make any investigation or any appraisal on Assignee's behalf or to provide
Assignee with any credit or other information with respect thereto, whether
coming into Assignor's possession before the execution of the Certificate
Purchase Agreement or at any time thereafter. Assignor shall have no
responsibility with respect to the accuracy of, or the completeness of, any
information provided to Assignee, whether by Assignor or by or on behalf of
Transferor or any other Person obligated under the Certificate Purchase
Agreement or any related instrument or document.
(d) Assignee represents and warrants that it has made its own
independent investigation of each of the foregoing matters, including the
financial condition and affairs of Transferor and its Affiliates, in connection
with the making of the Purchases and the execution of this Agreement (including
the solvency of Transferor and its Affiliates, their ability to pay their
respective debts as they mature and the capital of Transferor and its
Affiliates remaining after the closing under the Transaction Documents and the
consummation of the transactions contemplated thereby) and has made and shall
continue to make its own appraisal of the creditworthiness of Transferor
page 5
<PAGE>
and its Affiliates. Assignee (i) confirms that it has received copies of the
Transaction Documents together with copies of certain other closing documents
delivered in connection with the Certificate Purchase Agreement, financial
statements and any other documents and information that it has requested or
deemed appropriate to make its own credit analysis and decision to enter into
this Agreement and (ii) agrees that it will, independently and without reliance
upon the Agent, Assignor or any other Purchaser and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Transaction
Documents.
SECTION 7. No Proceedings. Assignee hereby agrees to be bound by the
provisions of Section 10.13 of the Certificate Purchase Agreement.
SECTION 8. [Withholding Taxes. In accordance with Section 4.6 of the
Certificate Purchase Agreement, Assignee agrees to execute and deliver to the
Agent, for delivery to Transferor, on or before the Effective Date, (a) an
Internal Revenue Service Form 1001 or 4224 or successor applicable form,
properly completed and duly executed by the Purchaser certifying that it is
entitled to receive payments under the Certificate Purchase Agreement without
deduction or withholding of any United States Federal income taxes, and (b) an
original copy of Internal Revenue Service Form W-8 or W-9 or applicable
successor form, properly completed and duly executed. Assignee represents and
warrants to Transferor and Assignor that, as of the Effective Date, it shall be
entitled to receive payments of principal and interest under its Certificate
and hereunder without deduction for or on account of any taxes imposed by the
United States of America or any political subdivision thereof. In the event
that, after delivering the applicable form, Assignee shall cease to be exempt
from withholding and/or deduction of taxes, then the Agent may withhold and/or
deduct the applicable amount from any payments of principal, interest and any
fees to which Assignee otherwise would be entitled, and the Agent shall have no
liability whatsoever to Assignee for any such withholding or deduction.
Assignee shall indemnify Transferor and the Agent from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs or expenses that result from Assignee's breach of such
representation and warranty.[*]
SECTION 9. ]Miscellaneous. (a) Each of the parties hereto agrees to take
any action and execute and deliver any documents that any party hereto
reasonably may request from time to time in order to implement more fully the
purposes of this Agreement. Without limiting the generality of the foregoing,
- ---------------
[*] If the Assignee is a foreign entity.
page 6
<PAGE>
Assignor and Assignee will cooperate in obtaining for Assignee a Certificate
(as well as a replacement Certificate for Assignor representing any retained
interest of Assignor).
(b) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
(c) Except as otherwise set forth herein, this Agreement sets forth the
entire agreement between the parties relating to the subject matter hereof, and
no term or provision of this Agreement may be amended, changed, waived,
discharged or terminated orally or otherwise, except in a writing signed by
Assignor and Assignee.
(d) This Agreement may be executed in any number of counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
(e) Each of the parties hereto agrees that each party shall bear its own
expenses in connection with the preparation and execution of this Agreement and
the consummation of the Assignment described herein. Assignee further agrees
that it shall send a check in the amount of $[_____] [_____] to the Agent on or
prior to the Effective Date, as payment of the processing and recordation fee
described in Section 10.3(c) of the Certificate Purchase Agreement. [Select
correct amount in accordance with that Section.]
(f) All representations and warranties made, and indemnities provided
for, herein shall survive the consummation of the transactions contemplated
hereby.
(g) Assignor may at any time or from time to time grant assignments and
participations in its rights and obligations under the Certificate Purchase
Agreement and its Certificate to other Persons, but not in the portions thereof
assigned to Assignee.
(h) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Neither Assignor
nor Assignee may assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the other party. The preceding
sentence shall not limit the right of Assignee to assign all or part of
Assignee's Share in the manner contemplated by the Certificate Purchase
Agreement.
page 7
<PAGE>
(i) Assignee acknowledges that all obligations of the Agent are subject
to Article IX of the Certificate Purchase Agreement.
page 8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and delivered as of the day and
year first above written.
,
----------------------------
as Assignor
By:
-------------------------
Title:
--------------------
,
----------------------------
as Assignee
By:
-------------------------
Title:
----------------------
The undersigned hereby acknowledges the terms and provisions of this
Agreement, and agrees to make payments in respect of principal, interest and
fees as described in Section 4(a).
BANKERS TRUST COMPANY, as Agent
By:
--------------------
Title:
---------------
page 9
<PAGE>
ANNEX I
to Assignment Agreement
ITEM 1. ASSIGNEE'S SHARE:
(a) Assignee's Stated Amount $______________
(b) Assignee's Percentage _____________%
ITEM 2. ADDRESS OF ASSIGNEE FOR NOTICE PURPOSES:
---------------------
---------------------
---------------------
Attention:
-----------------
Telephone:
-----------------
Facsimile:
-----------------
ITEM 3. LIBOR OFFICE OF ASSIGNEE:
---------------------
---------------------
<PAGE>
|| APPENDIX X
to Revolving Certificate Purchase
Agreement Series 1995-1
INDEX OF ADDITIONAL DEFINED TERMS
---------------------------------
Agents...........................................................1
Agreement........................................................1
Assignees.......................................................26
BTCo.............................................................1
Certificates.....................................................1
Credit Exposure.................................................25
Designated Agent.................................................2
Financial Advisors..............................................13
Indemnitees.....................................................28
LIBOR Office.....................................................8
Non-Usage Fee....................................................6
Participants....................................................25
Percentage.......................................................2
Pooling Agreement................................................1
Purchase.........................................................2
Purchasers.......................................................1
Receivables Review..............................................20
Required Purchasers.............................................19
Servicer.........................................................1
Stated Amount....................................................4
Supplement.......................................................1
Taxes...........................................................11
Transferee......................................................26
Transferor.......................................................1
Trust............................................................1
Trust Interest...................................................1
Trustee..........................................................1
WRO..............................................................1
||
<PAGE>
EXHIBIT 4.11
PROJECT NOTEPAD
================================================================================
RECEIVABLES PURCHASE AGREEMENT
dated as of October 31, 1995
between
WILLIAMHOUSE-REGENCY OF DELAWARE INC.
and
CERTAIN SUBSIDIARIES,
as Sellers
and
NOTEPAD FUNDING CORPORATION,
as Buyer
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
AGREEMENT TO PURCHASE AND SELL
SECTION 1.1 Agreement to Purchase and Sell.......................... 1
SECTION 1.2 Timing of Purchases..................................... 2
SECTION 1.3 Consideration for Purchases............................. 2
SECTION 1.4 No Recourse............................................. 2
SECTION 1.5 No Assumption of Obligations Relating to Receivables,
Related Assets or Contracts........................ 2
SECTION 1.6 True Sales.............................................. 3
SECTION 1.7 Addition of Sellers..................................... 3
SECTION 1.8 Termination of Status as a Seller....................... 3
ARTICLE II
CALCULATION OF PURCHASE PRICE
SECTION 2.1 Calculation of Purchase Price........................... 5
SECTION 2.2 Definitions and Calculations Related to Purchase Price
Percentage......................................... 6
ARTICLE III
PAYMENT OF PURCHASE PRICE; SERVICING, ETC.
SECTION 3.1 Purchase Price Payments................................. 8
SECTION 3.2 The Purchase Money Note................................. 10
SECTION 3.3 Application of Collections and Other Funds.............. 11
SECTION 3.4 Servicing of Receivables and Related Assets............. 11
SECTION 3.5 Adjustments for Noncomplying Receivables, Dilution and
Cash Discounts..................................... 12
SECTION 3.6 Payments and Computations, Etc.......................... 12
ARTICLE IV
CONDITIONS TO PURCHASES
SECTION 4.1 Conditions Precedent to Initial Purchase................ 13
SECTION 4.2 Certification as to Representations and Warranties...... 14
SECTION 4.3 Effect of Payment of Purchase Price..................... 14
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Representations and Warranties of the Sellers........... 14
SECTION 5.2 Representations and Warranties of Buyer................. 20
ARTICLE VI
GENERAL COVENANTS OF THE SELLERS
SECTION 6.1 Affirmative Covenants................................... 20
SECTION 6.2 Reporting Requirements.................................. 24
SECTION 6.3 Negative Covenants ..................................... 25
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE SPECIFIED ASSETS
SECTION 7.1 Rights of Buyer......................................... 28
SECTION 7.2 Responsibilities of the Sellers......................... 28
SECTION 7.3 Further Action Evidencing Purchases..................... 29
SECTION 7.4 Collection of Receivables; Rights of Buyer and
Its Assignees......................................... 30
ARTICLE VIII
TERMINATION
SECTION 8.1 Termination by the Sellers.............................. 31
SECTION 8.2 Automatic Termination................................... 31
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Indemnities by the Sellers.............................. 32
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Amendments; Waivers, Etc............................... 34
SECTION 10.2 Notices, Etc........................................... 34
SECTION 10.3 Cumulative Remedies.................................... 35
SECTION 10.4 Binding Effect; Assignability; Survival of Provisions.. 35
SECTION 10.5 Governing Law.......................................... 35
SECTION 10.6 Costs, Expenses and Taxes.............................. 35
ii
<PAGE>
SECTION 10.7 Submission to Jurisdiction............................. 36
SECTION 10.8 Waiver of Jury Trial................................... 36
SECTION 10.9 Integration............................................ 36
SECTION 10.10 Counterparts........................................... 37
SECTION 10.11 Acknowledgment and Consent............................. 37
SECTION 10.12 No Partnership or Joint Venture........................ 37
SECTION 10.13 No Proceedings......................................... 37
SECTION 10.14 Severability of Provisions............................. 38
SECTION 10.15 Recourse to Buyer...................................... 38
EXHIBITS
EXHIBIT A Form of Purchase Money Note
EXHIBIT B Form of Seller Assignment Certificate
SCHEDULES
SCHEDULE 1 Litigation and Other Proceedings
SCHEDULE 2 Changes in Financial Condition
SCHEDULE 3 Offices of the Seller where Records are Maintained
SCHEDULE 4 Legal Names, Trade Names and Names Under Which the
Companies Do Business
APPENDIX
APPENDIX A Definitions
iii
<PAGE>
This RECEIVABLES PURCHASE AGREEMENT, dated as of October 31, 1995 (this
"Agreement"), is made between WILLIAMHOUSE-REGENCY OF DELAWARE INC. , a
Delaware corporation ("WRO"), certain subsidiaries of WRO that are listed on
the signature pages hereto or that become party hereto in accordance with the
terms hereof (together with WRO, the "Sellers"), and NOTEPAD FUNDING
CORPORATION, a Delaware corporation ("Buyer"). Except as otherwise defined
herein, capitalized terms have the meanings that Appendix A assigns to
----------
them, and this Agreement shall be interpreted in accordance with the
conventions set forth in Parts B, C and D of Appendix A.
------- - - ----------
WHEREAS, pursuant to the Pooling Agreement, Buyer intends to transfer its
interests in the Receivables sold pursuant hereto, together with Receivables
contributed to Buyer by WRO from time to time, to the Trust in order to, among
other things, finance its purchases hereunder;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE I
AGREEMENT TO PURCHASE AND SELL
SECTION 1.1 Agreement to Purchase and Sell. On the terms and
------------------------------
subject to the conditions set forth in this Agreement (including the conditions
to purchases set forth in Article IV), each Seller agrees to sell,
----------
transfer, assign, set over and otherwise convey to Buyer and Buyer agrees to
purchase from each Seller, at the times set forth in Section 1.2, all of
-----------
such Seller's right, title and interest in, to and under:
(a) each Receivable of such Seller that existed and was owing to
such Seller as at the closing of such Seller's business on the Initial
Cut-Off Date,
(b) each Receivable created by such Seller that arises during the
period from and including the closing of such Seller's business on the
Initial Cut-Off Date to but excluding the Purchase Termination Date,
(c) all Related Security with respect to all Receivables of such
Seller,
(d) all proceeds of the foregoing, including all funds received by
any Person in payment of any amounts owed (including invoice prices,
finance charges, interest and all other charges, if any) in respect of
any Receivable described above or Related Security with respect to any
such Receivable, or otherwise applied to repay or discharge any such
Receivable (including insurance payments that a Seller or the
<PAGE>
Servicer applies in the ordinary course of its business to amounts owed
in respect of any such Receivable (it being understood that property
insurance covering inventory is not so applied and is not included in
this grant) and net proceeds of any sale or other disposition of
repossessed goods that were the subject of any such Receivable) or other
collateral or property of any Obligor or any other party directly or
indirectly liable for payment of such Receivables, and
(e) all Records relating to any of the foregoing.
As used herein, (i) "Purchased Receivables" means the items listed above
in clauses (a) and (b), (ii) "Related Assets" means the items listed
----------- ---
above in clauses (c), (d) and (e), and (iii) "Specified Assets"
----------- --- ---
means the Purchased Receivables and the Related Assets.
SECTION 1.2 Timing of Purchases.
-------------------
(a) Initial Closing Date Purchases. All of the Specified Assets of
------------------------------
the Sellers that existed at the closing of WRO's business on the Initial
Cut-Off Date will be sold automatically to Buyer on the Initial Closing Date.
(b) Regular Purchases. Except to the extent otherwise provided in
-----------------
Section 8.2 or (with respect to any Seller) Section 1.8, after the
- ----------- -----------
closing of WRO's business on the Initial Cut-Off Date until the closing of
WRO's business on the Business Day immediately preceding the Purchase
Termination Date, all Receivables and the Related Assets of the Sellers shall
be deemed to have been sold to Buyer pursuant hereto immediately (and without
further action by any Person) upon the creation of the Receivable.
SECTION 1.3 Consideration for Purchases. On the terms and subject
---------------------------
to the conditions set forth in this Agreement, Buyer agrees to make Purchase
Price payments to the Sellers in accordance with Article III.
-----------
SECTION 1.4 No Recourse. Except as specifically provided in this
-----------
Agreement, the sale and purchase of Specified Assets under this Agreement shall
be without recourse to the Sellers; it being understood that (i) each Seller
shall be liable to Buyer for all representations, warranties, covenants and
indemnities made by such Seller pursuant to the terms of this Agreement, all of
which obligations are limited so as not to constitute recourse to such Seller
for the credit risk of the Obligors, and (ii) WRO shall be liable to Buyer to
the extent specified in the Seller Guaranty.
SECTION 1.5 No Assumption of Obligations Relating to Receivables,
------------------------------------------------------
Related Assets or Contracts. None of Buyer, the Servicer nor the Trustee
- ---------------------------
shall have any obligation or liability to any Obligor or other customer or
client of a Seller (including any obligation to perform any of the obligations
of such Seller under any Receivable, related Contracts or any other related
purchase orders or other agreements). No such obligation or liability is
page 2
<PAGE>
intended to be assumed by Buyer, the Servicer or the Trustee hereunder, and any
assumption is expressly disclaimed.
SECTION 1.6 True Sales. The Sellers and Buyer intend the transfers
----------
of Receivables hereunder to be true sales by the Sellers to Buyer that are
absolute and irrevocable and that provide Buyer with the full benefits of
ownership of the Receivables, and none of the Sellers nor Buyer intends the
transactions contemplated hereunder to be, or for any purpose to be
characterized as, loans from Buyer to any Seller.
SECTION 1.7 Addition of Sellers. Any Subsidiary of WRO may become a
-------------------
Seller hereunder and sell its accounts receivable and property of the types
that constitute Related Assets hereunder to Buyer if (x) the last sentence of
this Section applies or (y) the Rating Agency Condition is satisfied with
respect to such addition (or, if no outstanding Investor Certificates are
rated, the Trustee shall have consented in writing to such addition). WRO and
its Subsidiary that is proposed to be added as a Seller shall give to Buyer and
the Trustee (and, if any outstanding Investor Certificates are rated, the
Applicable Rating Agencies) not less than 30 days' prior written notice of the
effective date of the addition of the Subsidiary as a Seller. Once the notice
has been given, any addition of a Subsidiary of WRO as a Seller pursuant to
this section shall become effective on the first Business Day following the
expiration of the 30-day period (or such later date as may be specified in the
notice) on which (i) the Rating Agency Condition has been satisfied (or, if no
outstanding Investor Certificates are rated, the Trustee shall have consented
in writing to such addition), (ii) WRO has given the notice described in
Section 3.05(e) of the Pooling Agreement to Buyer, (iii) the Servicer shall
have delivered to the Trustee a supplement to the Settlement Statement then in
effect as described in Section 3.05(e) of the Pooling Agreement and shall have
confirmed in writing to the Trustee that the Seller Guaranty covers Obligations
of such Seller, and (iv) the Subsidiary and the parties hereto shall have
executed and delivered the agreements, instruments and other documents and the
amendments or other modifications to the Transaction Documents, in form and
substance reasonably satisfactory to Buyer and the Trustee, that Buyer or the
Trustee reasonably determines are necessary or appropriate to effect the
addition. The Rating Agency Condition need not be satisfied as to any new
Seller if (x) the new Seller is in the same line of business as one or more
existing Sellers or a related line of business, (y) the aggregate Unpaid
Balance of the new Seller's outstanding Receivables on the last Cut-Off Date
prior to the day that it becomes a Seller is less than 5% of the aggregate
Unpaid Balance of all Receivables on such Cut-Off Date and (z) after giving
effect to the addition of such new Seller, there shall be no more than three
Exempt Persons during the twelve month period ending on such day. At the time
any Subsidiary of WRO becomes a Seller, it will be identified by the Servicer
to the Trustee as a member of one of the Seller Groups.
SECTION 1.8 Termination of Status as a Seller. (a) At any time
---------------------------------
when more than one Person is a Seller, a Seller may terminate its obligation to
sell its Receivables and Related Assets to Buyer if:
page 3
<PAGE>
(i) the Seller (a "Terminating Seller") shall have given Buyer not
less than 30 days' prior written notice of its intention to terminate the
obligations, which notice shall be given by Buyer to the Trustee and the
Applicable Rating Agencies (the date on which such notice is given being
the "Terminating Seller Notice Date"),
(ii) an Authorized Officer of the Terminating Seller shall have
certified that the termination by the Terminating Seller of its status as
a Seller will not have a Material Adverse Effect,
(iii) both immediately before and after giving effect to the
termination by the Terminating Seller, no Liquidation Event or Unmatured
Liquidation Event or Pay-Out Event shall have occurred and be continuing
or shall reasonably be expected to occur; and
(iv) either the Terminating Seller will cease to be an Affiliate
of WRO concurrently with the effectiveness of such termination, or such
Terminating Seller is a Permitted Terminating Seller; provided that this
subclause (iv) may be waived by Investor Certificateholders that evidence
more than 50% of the outstanding principal amount of the Investor
Certificates if the Rating Agency Condition is satisfied (or, if no
outstanding Investor Certificates are rated, the Trustee shall have
approved such waiver in writing).
"Permitted Terminating Seller" means a Terminating Seller that
----------------------------
satisfies the following requirements:
(x) the aggregate Unpaid Balance of such Terminating Seller's
Receivables on the Cut-Off Date immediately preceding the Terminating
Seller Notice Date would not exceed 20% of the aggregate Unpaid Balance
of all Receivables originated, calculated as of such Cut-Off Date, and
(y) the aggregate Unpaid Balance of such Terminating Seller's Receivables
on such Cut-Off Date, together with the Previously Terminated Seller
Amount, would not exceed 33% of the sum of the Previously Terminated
Seller Amount and the aggregate Unpaid Balance of all Receivables.
"Previously Terminated Seller Amount" means, on any day, the
-----------------------------------
aggregate Unpaid Balance of Receivables originated by all Sellers previously
terminated pursuant to this subsection 1.8(a), calculated with respect to any
Seller as of the Cut-Off Date immediately preceding its Terminating Seller
Notice Date.
(b) Any termination by a Seller shall become effective on the first
Business Day that follows the day on which the requirements of clause (a)
----------
shall have been satisfied (or such later date specified in the notice or
certificate referred to in the clauses). Any termination by a Seller shall
terminate its rights and obligations hereunder to sell Receivables and Related
Assets hereunder to Buyer and Buyer's agreement, with respect to the
page 4
<PAGE>
Terminating Seller, to purchase the Receivables and Related Assets; provided,
however, that the termination shall not relieve the Terminating Seller of any
of its other Obligations, to the extent the Obligations relate to Receivables
(and Related Assets with respect thereto) originated by the Terminating Seller
prior to the effective date of the termination.
(c) A Seller's rights and obligations to sell its Receivables and
Related Assets to Buyer shall terminate immediately if such Seller ceases to be
a Subsidiary of WRO; provided, however, that the termination shall not relieve
such Seller of any of its other Obligations, to the extent the Obligations
relate to Receivables (and Related Assets with respect thereto) originated by
such Seller prior to the effective date of the termination. In connection with
a termination described in the preceding sentence, the Terminating Seller may
require Buyer to exercise its rights under Section 13.19 of the Pooling and
-------------
Servicing Agreement to cause the Trustee to convey all of its right, title and
interest in all (but not less than all) of the Receivables (and Related Assets
with respect thereto) originated by the Terminating Seller to a Person
designated by the Terminating Seller against receipt, in cash, of a release
price of not less than the aggregate unpaid balance of the released
Receivables. No such release and conveyance shall, however, be permitted if as
a result thereof, any WRO Person would acquire the Receivables.
ARTICLE II
CALCULATION OF PURCHASE PRICE
SECTION 2.1 Calculation of Purchase Price. (a) On each Business
-----------------------------
Day (including the Closing Date), the Servicer shall deliver to Buyer, the
Trustee and WRO a Daily Report with respect to Buyer's purchases of Receivables
from the Sellers:
(i) that are to be made on the Closing Date (in the case of the
Daily Report to be delivered on the Closing Date) or
(ii) that were made on the immediately preceding Business Day (in
the case of each subsequent Daily Report).
(b) On each day when Receivables are purchased by Buyer from a Seller
pursuant to Article I, the "Purchase Price" to be paid to such Seller on
---------
such day for the Purchased Receivables and Related Assets that are to be sold
by such Seller on such day shall be determined in accordance with the following
formula:
page 5
<PAGE>
PP = AUB x PPP
where:
PP = the aggregate Purchase Price for the Purchased Receivables
and Related Assets to be purchased from such Seller on such
day
AUB = the "Aggregate Unpaid Balance" of the Purchased Receivables
that are to be purchased from such Seller on such day. For
purposes of this calculation, "Aggregate Unpaid Balance"
shall mean (i) for purposes of calculating the Purchase Price
to be paid to such Seller on the Closing Date, the sum of the
Unpaid Balance of each Receivable generated by such Seller,
as measured as at the closing of such Seller's business on
the Initial Cut-Off Date, and (ii) for purposes of
calculating the Purchase Price on each Business Day
thereafter, the sum of the Unpaid Balance of each Receivable
to be purchased from such Seller on such day, calculated at
the time of the Receivable's sale to Buyer
PPP = the Purchase Price Percentage applicable to the Receivables
to be purchased from such Seller on such day, as determined
pursuant to Section 2.2.
-----------
SECTION 2.2 Definitions and Calculations Related to Purchase Price
-------------------------------------------------------
Percentage.
- ----------
(a) "Purchase Price Percentage" for the Receivables to be sold by a
Seller on any day during a Settlement Period shall mean the percentage
determined in accordance with the following formula:
PPP = 100% - (LD + PDRR)
where:
PPP = the Purchase Price Percentage in effect during such
Settlement Period for such Seller,
LD = the Loss Discount (expressed as a percentage) in effect
during such Settlement Period for the Seller Group that
includes such Seller, as determined pursuant to subsection
----------
(b) below, and
---
PDRR = the Purchase Discount Reserve Ratio (expressed as a
percentage) in effect during such Settlement Period for the
Seller Group that includes such Seller, as determined on such
day pursuant to subsection (c) below, and
--------------
page 6
<PAGE>
The Purchase Price Percentage, the Loss Discount and the Purchase Discount
Reserve Ratio for each Seller shall be recomputed by the Servicer on each
Report Date, in each case as of the then most recent Cut-Off Date, and shall
become effective on the next Settlement Date and shall be effective for the
Settlement Period beginning on such Settlement Date.
(b) "Loss Discount" in effect during such Settlement Period for a Seller
means a percentage equal to the Loss to Liquidation Ratio for the Seller Group
that includes such Seller (expressed as a percentage) as in effect during such
Settlement Period (it being understood that the allocation of certain
miscellaneous items will be required to be estimated for this purpose).
(c) "Purchase Discount Reserve Ratio" for the Receivables to be sold by
a Seller on any day during a Settlement Period shall mean a percentage
determined in accordance with the following formula:
PDRR = (TD/360) x (DR + PD)
where:
PDRR = the Purchase Discount Reserve Ratio in effect during such
Settlement Period for such Seller,
TD = the Turnover Days for the Receivables originated by the
Seller Group that includes such Seller during the Calculation
Period preceding the first day of such Settlement Period,
DR = the Discount Rate (expressed as a percentage) in effect
during such Settlement Period as determined pursuant to
subsection (d) below, and
--------------
PD = a profit discount equal to 0.05%.
(d) "Discount Rate" for the Receivables to be sold by a Seller on any
day during a Settlement Period shall mean a fraction (expressed as a
percentage) having (i) a numerator equal to 12, multiplied by an amount equal
to the sum of (x) the accrued Carrying Costs for the Calculation Period
---
preceding the first day of such Settlement Period and (y) the Current Purchase
Money Note Carrying Costs, and (ii) a denominator equal to the aggregate Unpaid
Balance of the Receivables as of the last day of the Calculation Period
preceding the first day of such Settlement Period.
page 7
<PAGE>
ARTICLE III
PAYMENT OF PURCHASE PRICE; SERVICING, ETC.
SECTION 3.1 Purchase Price Payments. (a) On the Closing Date
-----------------------
and on the Business Day following each day on which any Receivables are
purchased from a Seller by Buyer pursuant to Article I, on the terms and
---------
subject to the conditions of this Agreement, Buyer shall pay to such Seller the
Purchase Price for the Receivables and Related Assets purchased on such day by
Buyer from such Seller by (i) making a cash payment (on the basis of the
Purchase Price owing to such Seller) to WRO to the extent that Buyer has cash
available to make the payment pursuant to Section 3.3 and (ii) if the
-----------
Purchase Price to be paid for the Receivables and Related Assets exceeds the
amount of any cash payment on such day to such Seller pursuant to clause
-------
(i), by automatically increasing the principal amount outstanding in the
- ---
Seller Account by the amount of the excess; provided, however, that Buyer may
not pay such portion of the Purchase Price by increasing the principal amount
outstanding in the Seller Account if, after giving effect thereto, the sum of
such principal amount plus the outstanding principal amount of the Purchase
Money Note would exceed the Maximum Exposure Amount.
The Seller Account shall be a bookkeeping account maintained by WRO for
the benefit of the Sellers, and shall evidence the obligation of Buyer to pay
each Seller the portion of the Purchase Price for such Seller's Receivables
that has been deferred pursuant to the preceding paragraph. WRO shall be
responsible for allocating cash payments and amounts evidenced by the Seller
Account among the Sellers and shall maintain sufficient records with respect to
the Seller Account such that, on any day, it would be able to identify the
amount owed by Buyer to each Seller. On each Distribution Date (and on such
other days as Buyer and WRO agree), Buyer shall borrow funds from WRO to pay
each Seller the amount so owed to it, and such borrowing shall be evidenced by
the Purchase Money Note. WRO (in its capacity as Seller and holder of the
Purchase Money Note) and each other Seller agree that, prior to the Seller
Maturity Date, Buyer shall be required to make payments in respect of the
payment obligations evidenced by the Seller Account and the Purchase Money Note
only to the extent that it has cash available, after taking into account
amounts required to be established as reserves pursuant to the Transaction
Documents, amounts paid to Holders in respect of interest, principal and other
amounts owing to such Holders and amounts paid in connection with the purchase
of newly generated Receivables.
The "Maximum Exposure Amount" shall be calculated by the Servicer in each
Monthly Report as of the preceding Cut-Off Date and shall equal the positive
result (if any) of (a) the product of (i) the Adjusted Eligible Receivables for
Ampad Group, multiplied by (ii) the result (expressed as a decimal) of 100%
minus the Pro Forma Reserve for Ampad Group, plus (b) the product of (i) the
Adjusted Eligible Receivables for WRO Group, multiplied by
page 8
<PAGE>
(ii) the result (expressed as a decimal) of 100% minus the Pro Forma Reserve
for WRO Group, minus (c) the Net Invested Amount.
The "Pro Forma Reserve" shall be calculated by the Servicer as of the
preceding Cut-Off Date in each Monthly Report, and shall be the greatest of the
amounts determined pursuant to clauses (x), (y) and (z) below:
(x) the greatest of (i) the "Benchmark Percentage" for purposes of
clause (c) of the definition of "Excess Concentration Balances," (ii) two
times the "Benchmark Percentage" for purposes of clause (d) of that
definition and (ii) three times the "Benchmark Percentage" for purposes
of clause (e) of that definition;
(y) a percentage calculated in the same manner as the Loss Reserve Ratio
for such Cut-Off Date, except that the Applicable Ratings Factor shall be
deemed to be 1.5; and
(z) a percentage calculated in the same manner as the Loss Reserve Ratio
(Z-value) for such Cut-Off Date, except that the Z-value shall be deemed
to be 1.96.
(b) On each Business Day, the "Noncomplying Receivables and Dilution
Adjustment" for a Seller shall be equal to the difference (whether the
difference is positive or negative) between (i) the sum of (A) such Seller's
Seller Dilution Adjustment, if any, for the immediately preceding Business Day,
as shown in the Daily Report for such day, plus (B) such Seller's Seller
Noncomplying Receivables Adjustment, if any, for the immediately preceding
Business Day, as shown in the Daily Report for such day, in the case of each of
clauses (A) and (B), as the amounts are determined pursuant to
- ----------- ---
Section 3.5, minus (ii) the amount of any payments (if any) that Buyer
- -----------
shall have received on the immediately preceding Business Day on account of a
Seller Noncomplying Receivable originated by such Seller that has been the
subject of an earlier Seller Noncomplying Receivables Adjustment. If such
Seller's Noncomplying Receivables and Dilution Adjustment is positive on any
day, Buyer shall reduce the Purchase Price payable to such Seller on such day
by the absolute value of such Noncomplying Receivables and Dilution Adjustment.
If instead the Noncomplying Receivables and Dilution Adjustment for such Seller
is negative on any day, Buyer shall increase the Purchase Price payable to such
Seller on such day by the absolute value of the Noncomplying Receivables and
Dilution Adjustment.
(c) If a positive Noncomplying Receivables and Dilution Adjustment for a
Seller on any day exceeds the Purchase Price payable by Buyer to such Seller on
such day, or if such day falls on or after the Purchase Termination Date, then
the principal amount of the Purchase Money Note shall be reduced automatically
by the amount of the excess and such Seller (if different than WRO) shall owe
such amount to WRO on open account.
page 9
<PAGE>
(d) If, on any day prior to the Purchase Termination Date, the principal
amount of the Purchase Money Note is zero, then the amount of the excess of a
positive Noncomplying Receivables and Dilution Adjustment for such Seller on
such day over the Purchase Price payable by Buyer to such Seller on such day
(the "Purchase Price Credit") shall be credited against the Purchase Price
payable by Buyer to such Seller for subsequent Purchases of Receivables and
Related Assets by Buyer. If any Purchase Price Credit for such Seller has not
been fully applied on or prior to the fifth Business Day (or a mutually agreed
upon earlier day) after the creation of the Purchase Price Credit, then, on the
Business Day that follows the end of the five Business Day (or shorter) period,
WRO shall pay to Buyer in cash the remaining unapplied amount of the Purchase
Price Credit and such Seller (if different than WRO) shall owe such amount to
WRO on open account.
(e) If, on any day on or after the Purchase Termination Date, the
principal amount of the Purchase Money Note has been reduced to zero and there
is a positive Noncomplying Receivables and Dilution Adjustment for such Seller
for such day, then WRO shall pay to Buyer in cash the amount of the
Noncomplying Receivables and Dilution Adjustment on the next succeeding
Business Day and such Seller (if different than WRO) shall owe such amount to
WRO on open account.
(f) If, on any day on or after the Purchase Termination Date, there is a
negative Noncomplying Receivables and Dilution Adjustment for a Seller for such
day, then Buyer shall pay to such Seller in cash the amount of the Noncomplying
Receivables and Dilution Adjustment no later than the Final Maturity Date, and
the amount, until paid, shall bear interest at the rate of interest publicly
announced from time to time by the Trustee as its reference rate, which
interest shall also be paid no later than the Final Maturity Date.
SECTION 3.2 The Purchase Money Note. On the Closing Date, Buyer
-----------------------
will deliver to WRO a promissory note, substantially in the form of Exhibit
--------
A, payable to the order of WRO (such promissory note, as the same may be
- -
amended, supplemented, endorsed or otherwise modified from time to time,
together with any promissory note issued from time to time in substitution
therefor or renewal thereof in accordance with the Transaction Documents, being
herein called the "Purchase Money Note"), that is subordinated to all Senior
Interests now or hereafter arising under or in connection with the Pooling
Agreement. The Purchase Money Note is payable in full on the date that is
twelve months after the date (the "Seller Maturity Date") on which all Investor
Certificates and Purchased Interests have been repaid in full and the Revolving
Periods for all Investor Revolving Certificates and Purchased Interests have
terminated. The Purchase Money Note bears interest at a rate per annum equal
to the rate publicly announced by the Trustee from time to time as its
"reference" rate, determined as of each Cut-Off Date. Buyer may prepay all or
part of the outstanding balance of the Purchase Money Note from time to time
without any premium or penalty, unless the prepayment would result in a default
in Buyer's payment of any other amount required to be paid by it under any
Transaction Document; provided, however, that no Liquidation Event or Unmatured
Liquidation Event has occurred.
page 10
<PAGE>
SECTION 3.3 Application of Collections and Other Funds. If, on any
------------------------------------------
day, Buyer receives proceeds of transfers pursuant to the Pooling Agreement,
Buyer shall apply the funds as follows:
(a) first, to pay its existing expenses and to set aside funds
for the payment of expenses that are then accrued (in each case to the
extent such expenses are permitted to exist under Section 7.02(m) of
---------------
the Pooling Agreement).
(b) second, to pay the Purchase Price pursuant to Section 3.1
-----------
for Receivables and Related Assets purchased by Buyer from the Sellers on
such day (in the case of the Closing Date) or the next preceding Business
Day,
(c) third, to repay amounts owed by Buyer to WRO or the other
Sellers under the Purchase Money Note or the Seller Account (provided,
however, that no Liquidation Event or Unmatured Liquidation Event has
occurred),
(d) fourth, to pay amounts owed pursuant to Section 3.1(f),
--------------
and
(e) fifth, if Seller shall elect, to declare and pay dividends
to WRO to the extent permitted by law.
SECTION 3.4 Servicing of Receivables and Related Assets. Consistent
-------------------------------------------
with Buyer's ownership of the Receivables and the Related Assets, as between
the parties to this Agreement, Buyer shall have the sole right to service,
administer and collect the Receivables, to assign the right and to delegate the
right to others. Without limiting the generality of Section 10.11, each
-------------
Seller hereby acknowledges and agrees that Buyer shall assign to the Trustee
for the benefit of the Investor Certificateholders the rights and interests
granted by the Sellers to Buyer hereunder and agrees to cooperate fully with
the Servicer and the Trustee in the exercise of the rights. As more fully
described in Section 7.4(b) and in the Pooling Agreement, the Trustee may
--------------
exercise the rights in the place of Buyer (as assignee or otherwise) only after
the designation of a Servicer other than WRO pursuant to Section 10.02 of the
Pooling Agreement. At Trustee's request, each Seller will (A) assemble all of
the Records that are necessary or appropriate to collect the Receivables and
Related Transferred Assets, and shall make the same available to Trustee at one
or more places selected by Trustee or its designee, (B) segregate all cash,
checks and other instruments received by it from time to time constituting
Collections in a manner acceptable to Trustee and shall, promptly upon receipt
(and in no event later than the first Business Day following receipt), remit
all such cash, checks and instruments, duly endorsed or with duly executed
instruments of transfer, to a Bank Account or the Master Collection Account and
(C) permit, upon not less than two Business Days' prior written notice, any
Successor Servicer and its agents, employees and assignees access to their
respective facilities and their respective Records.
page 11
<PAGE>
SECTION 3.5 Adjustments for Noncomplying Receivables, Dilution and
-------------------------------------------------------
Cash Discounts. (a) If at any time any of Buyer, the Servicer, the Trustee
- --------------
or a Seller shall determine that any Receivable identified by the Servicer as
an Eligible Receivable on the date of Purchase thereof by Buyer or the
contribution thereof to Buyer was in fact a Seller Noncomplying Receivable on
such date, or that any of the representations and warranties made by the
related Seller in Section 5.1(k) with respect to the Receivable was not
--------------
true on such date, such Seller shall be deemed to have received on the date of
such determination a Collection of the Receivable in an amount equal to the
Unpaid Balance of the Receivable (the sum of all such amounts for such Seller
on any day being called the "Seller Noncomplying Receivables Adjustment" for
such Seller for such day), and such Seller shall pay the amount of the Seller
Noncomplying Receivables Adjustment to Buyer in the manner provided for in
Section 3.1.
(b) If on any day the aggregate Unpaid Balance of the Receivables sold
or contributed to Buyer on or before such date by a Seller is reduced in any
manner described in the definition of "Dilution" (the total of the reductions
being called the "Seller Dilution Adjustment" for the Seller for such day),
then such Seller shall be deemed to have received on such day a Collection of
Receivables in the amount of the Seller Dilution Adjustment and such Seller
shall pay the amount to Buyer in the manner provided in Section 3.1.
-----------
SECTION 3.6 Payments and Computations, Etc. (a) All amounts to be
------------------------------
paid by a Seller to Buyer hereunder shall be paid in accordance with the terms
hereof no later than 1:00 p. m., New York City time, on the day when due in
Dollars in immediately available funds to an account that Buyer shall from time
to time specify in writing. Payments received by Buyer after such time shall
be deemed to have been received on the next Business Day. In the event that
any payment becomes due on a day that is not a Business Day, then the payment
shall be made on the next Business Day. Each Seller shall, to the extent
permitted by law, pay to Buyer, on demand, interest on all amounts not paid
when due hereunder at 2% per annum above the interest rate on the Purchase
Money Note in effect on the date the payment was due; provided, however, that
the interest rate shall not at any time exceed the maximum rate permitted by
applicable law. All computations of interest payable hereunder shall be made
on the basis of a year of 360 days for the actual number of days (including the
first but excluding the last day) elapsed.
(b) All amounts to be paid by Buyer to a Seller hereunder shall be paid
no later than 2:00 p. m., New York City time, on the day when due in Dollars in
immediately available funds to an account that WRO shall from time to time
specify in writing. Payments received by such Seller after such time shall be
deemed to have been received on the next Business Day. In the event that any
payment becomes due on a day that is not a Business Day, then such payment
shall be made on the next Business Day.
page 12
<PAGE>
ARTICLE IV
CONDITIONS TO PURCHASES
SECTION 4.1 Conditions Precedent to Initial Purchase. The initial
----------------------------------------
purchase hereunder is subject to the conditions precedent that (i) each of the
conditions precedent to the execution, delivery and effectiveness of each other
Transaction Document (other than a condition precedent in any other Transaction
Document relating to the effectiveness of this Agreement) shall have been
fulfilled to the satisfaction of Buyer, and (ii) Buyer shall have received (or
in the case of subsection (g) below, shall have delivered) each of the
--------------
following, on or before the Closing Date, each (unless otherwise indicated)
dated the date hereof or the Closing Date and each in form and substance
satisfactory to Buyer:
(a) Seller Assignment Certificates. A Seller Assignment
------------------------------
Certificate from each Seller in the form of Exhibit B, duly
---------
completed, executed and delivered by such Seller,
(b) Resolutions. A copy of the resolutions of the Board of
-----------
Directors of each Seller approving this Agreement and the other
Transaction Documents to be delivered by it hereunder and the
transactions contemplated hereby and thereby and addressing such other
matters as may be required by Buyer, certified by its Secretary or
Assistant Secretary, each as of a recent date acceptable to Buyer,
(c) Good Standing Certificate of each Seller; Certificates as to
-------------------------------------------------------------
Foreign Qualification of each Seller. A good standing certificate for
------------------------------------
each Seller, issued by the Secretary of State of the jurisdiction of its
incorporation and of each state in which such Seller transacts business,
is required to be in good standing and where the failure to be in good
standing could materially and adversely affect the condition (financial
or otherwise), properties, business or results of operations of such
Seller, each dated as of a recent date,
(d) Incumbency Certificate. A certificate of the Secretary or
----------------------
Assistant Secretary of each Seller certifying, as of a recent date
reasonably acceptable to Buyer, the names and true signatures of the
officers authorized on such Seller's behalf to sign the Transaction
Documents to be delivered by such Seller (on which certificate Buyer, the
Trustee and the Servicer may conclusively rely until such time as Buyer
shall receive from such Seller (with a copy to the Trustee and the
Servicer), a revised certificate meeting the requirements of this
subsection),
(e) Other Transaction Documents. Original copies, executed by
---------------------------
each of the parties thereto in such reasonable number as shall be
specified by Buyer, of each of the other Transaction Documents to be
executed and delivered in connection herewith,
page 13
<PAGE>
(f) Opinions of Counsel. The following opinions, in form and
-------------------
substance satisfactory to Buyer.
(a) opinions of Kirkland & Ellis as to certain corporate
matters, Federal and state tax and UCC matters, true
sale and non-consolidation;
(b) opinions of Moore & Van Allen as to certain corporate
matters and non-consolidation; and
(c) opinion of Hirsch & Westheimer as to Texas state tax
matters.
(g) Purchase Money Note. The Purchase Money Note, executed by
-------------------
Buyer, and
(h) License Agreements. Duly executed counterparts of a
------------------
software license agreement between WRO and Buyer.
SECTION 4.2 Certification as to Representations and Warranties.
--------------------------------------------------
Each Seller, by accepting the Purchase Price paid for each Purchase, shall be
deemed to have certified, with respect to the Receivables and Related Assets to
be sold by it on such day, that its representations and warranties contained in
Article V (excluding, with respect to any day after the Closing Date,
- ---------
Section 5.1(i)) are true and correct on and as of such day, with the same
- --------------
effect as though made on and as of such day.
SECTION 4.3 Effect of Payment of Purchase Price. Upon the payment
-----------------------------------
of the Purchase Price (whether in cash or by an increase in the Seller Account
pursuant to Section 3.1) for any Purchase, title to the Receivables and the
-----------
Related Assets included in the Purchase shall rest in Buyer, whether or not the
conditions precedent to the Purchase were in fact satisfied; provided, however,
that Buyer shall not be deemed to have waived any claim it may have under this
Agreement for the failure by a Seller in fact to satisfy any such condition
precedent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Representations and Warranties of the Sellers. In order
---------------------------------------------
to induce Buyer to enter into this Agreement and to make purchases hereunder,
each Seller hereby makes the representations and warranties set forth in this
section with respect to itself at the times and to the extent set forth in
Section 4.2.
- -----------
page 14
<PAGE>
(a) Organization and Good Standing. Such Seller is a
------------------------------
corporation duly organized and validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has full
power and authority to own its properties and to conduct its business as
the properties presently are owned and the business presently is
conducted. Such Seller had at all relevant times, and now has, all
necessary power, authority, and legal right to own and sell its
Receivables and the Related Assets.
(b) Due Qualification. Such Seller is duly qualified to do
-----------------
business and is in good standing as a foreign corporation (or is exempt
from such requirements), and has obtained all necessary licenses and
approvals, in all jurisdictions in which the ownership or lease of
property or the conduct of its business requires qualification, licenses
or approvals and where the failure so to qualify, to obtain the licenses
and approvals or to preserve and maintain the qualification, licenses or
approvals would have a substantial likelihood of having a Material
Adverse Effect.
(c) Power and Authority; Due Authorization. Such Seller has
--------------------------------------
(i) all necessary power and authority to (A) execute and deliver this
Agreement and the other Transaction Documents to which it is a party, (B)
perform its obligations under this Agreement and the other Transaction
Documents to which it is a party, and (C) sell and assign the Receivables
and the Related Assets on the terms and subject to the conditions herein
and therein provided and (ii) duly authorized by all necessary action the
sale and assignment and the execution, delivery and performance of this
Agreement and the other Transaction Documents to which it is a party and
the consummation of the transactions provided for in this Agreement and
the other Transaction Documents to which it is a party.
(d) Valid Sale; Binding Obligations. Each sale made by such
-------------------------------
Seller pursuant to this Agreement, and each contribution made to Buyer
pursuant to the Subscription Agreement, shall constitute a valid sale,
transfer, and assignment of all of such Seller's right, title and
interest in, to and under the Receivables and the Related Assets of such
Seller to Buyer that is perfected and of first priority under the UCC and
otherwise, enforceable against creditors of, and purchasers from, such
Seller and free and clear of any Adverse Claim (other than any Permitted
Adverse Claim or any Adverse Claim arising solely as a result of any
action taken by Buyer hereunder or by the Trustee under the Pooling
Agreement); and this Agreement constitutes, and each other Transaction
Document to which such Seller is a party when duly executed and delivered
will constitute, a legal, valid and binding obligation of such Seller,
enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity, regardless of whether
enforceability is considered in a proceeding in equity or at law.
page 15
<PAGE>
(e) No Conflict or Violation. The execution, delivery and
------------------------
performance of, and the consummation of the transactions contemplated by,
this Agreement and the other Transaction Documents to be signed by such
Seller and the fulfillment of the terms hereof and thereof will not (i)
conflict with, violate, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time or
both) a default under, (A) its Certificate of Incorporation or Bylaws or
(B) any indenture, loan agreement, mortgage, deed of trust or other
material agreement or instrument to which such Seller is a party or by
which it or any of its properties is bound, (ii) result in the creation
or imposition of any Adverse Claim upon any of the Receivables or Related
Assets other than pursuant to this Agreement and the other Transaction
Documents, or (iii) conflict with or violate any federal, state, local or
foreign law or any decision, decree, order, rule or regulation applicable
to it or any of its properties of any court or of any federal, state,
local or foreign regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over it or any of its
properties, which conflict, violation, breach, default or Adverse Claim,
individually or in the aggregate, would have a substantial likelihood of
having a Material Adverse Effect.
(f) Litigation and Other Proceedings. Except as described in
--------------------------------
Schedule 1, (i) there is no action, suit, proceeding or investigation
----------
pending or, to the best knowledge of such Seller, threatened against it
before any court, regulatory body, arbitrator, administrative agency or
other tribunal or governmental instrumentality and (ii) it is not subject
to any order, judgment, decree, injunction, stipulation or consent order
of or with any court or other government authority that, in the case of
each of clauses (i) and (ii), (A) asserts the invalidity of this
----------- ----
Agreement or any other Transaction Document, (B) seeks to prevent the
sale of any Receivables or Related Assets by such Seller to Buyer, the
issuance of the applicable Seller Assignment Certificate or the
consummation of any of the transactions contemplated by this Agreement or
any other Transaction Document, (C) seeks any determination or ruling
that would materially and adversely affect the performance by such Seller
of its obligations under this Agreement or any other Transaction Document
or the validity or enforceability of this Agreement or any other
Transaction Document, (D) seeks to affect adversely the income tax
attributes of the purchases hereunder or the applicable Seller Assignment
Certificate, in the case of each of the foregoing whether under the
United States Federal income tax system or any state income tax system,
or (E) individually or in the aggregate for all such actions, suits,
proceedings and investigations would have a substantial likelihood of
having a Material Adverse Effect.
(g) Government Approvals. All authorizations, consents,
--------------------
orders and approvals of, or other action by, any Governmental Authority
that are required to be obtained by such Seller, and all notices to and
filings (except, in respect of enforceability against a Federal Obligor,
any filings under the Assignment of Claims Act and any consents required
by states with respect to any Receivables arising from
page 16
<PAGE>
State and Local Obligors so long as such Receivables are not reported as
Eligible Receivables), with any Governmental Authority that are required
to be made by it, in the case of each of the foregoing in connection with
the conveyance of Receivables and Related Assets or the due execution,
delivery and performance by such Seller of this Agreement, such Seller's
Seller Assignment Certificate or any other Transaction Document to which
it is a party and the consummation of the transactions contemplated by
this Agreement, have been obtained or made and are in full force and
effect, except where the failure to obtain or make any such
authorization, consent, order, approval, notice or filing, individually
or in the aggregate for all such failures, would not reasonably be
expected to have a Material Adverse Effect.
(h) Bulk Sales Act. No transaction contemplated by this
--------------
Agreement or any other Transaction Document requires compliance with, or
will be subject to avoidance under, any bulk sales act or similar law.
(i) Financial Condition. The Pro Forma Financial Data, copies
-------------------
of which have been furnished to Buyer and the Trustee, fairly present in
all material respects on a pro forma basis the consolidated financial
position and business of WRO and its consolidated subsidiaries as at the
dates specified therein and the consolidated results of the operations of
WRO and its consolidated Subsidiaries for the periods ended on such
dates, all in accordance with GAAP consistently applied throughout the
periods reflected therein, and, except as set forth in Schedule 2, since
September 30, 1995 through the date hereof there has been no material
adverse change in the condition (financial or otherwise), business or
operations of WRO and its consolidated subsidiaries. "Pro Forma
Financial Data" means the pro forma consolidated financial data included
in the offering memorandum, dated October 23, 1995, with respect to the
proposed offering of Senior Subordinated Notes due 2005 to be issued by
WRO.
(j) Margin Regulations. No use of any funds obtained by such
------------------
Seller under this Agreement will conflict with or contravene any of
Regulations G, T, U and X promulgated by the Federal Reserve Board from
time to time.
(k) Quality of Title.
----------------
(i) Immediately before each purchase to be made by Buyer
hereunder and each contribution to be made under the Subscription
Agreement to Buyer, each Receivable and Related Asset of such
Seller that is then to be transferred to Buyer thereunder, and the
related Contracts, shall be owned by such Seller free and clear of
any Adverse Claim (other than any Permitted Adverse Claim or any
Adverse Claim arising solely as the result of any action taken by
Buyer hereunder or by the Trustee under the Pooling Agreement);
provided that the existence of an Adverse Claim that is released on
the First Issuance Date (upon application of the proceeds of the
issuance of Certificates on that date)
page 17
<PAGE>
shall not constitute a breach of this representation and warranty;
and such Seller shall have made all filings and shall have taken
all other action under applicable law in each relevant jurisdiction
in order to protect and perfect the ownership interest of Buyer and
its successors in the Receivables and Related Assets against all
creditors of, and purchasers from, such Seller.
(ii) Whenever Buyer makes a purchase hereunder or accepts a
contribution under the Subscription Agreement from such Seller, it
shall have acquired a valid and perfected first priority ownership
interest in each Transferred Asset, free and clear of any Adverse
Claim (other than any Permitted Adverse Claim or any Adverse Claim
arising solely as the result of any action taken by Buyer hereunder
or by the Trustee under the Pooling Agreement).
(iii) No effective financing statement or other instrument
similar in effect that covers all or part of any Receivable
originated by such Seller, any interest therein or any Related
Asset with respect thereto is on file in any recording office
except financing statements as to termination statements or
releases that are filed on the Closing Date or within three
Business Days after the Closing Date and (x) such as may be filed
(A) in favor of such Seller in accordance with the Contracts, (B)
in favor of Buyer pursuant to this Agreement or the Subscription
Agreement and (C) in favor of the Trustee, for the benefit of the
Certificateholders, in accordance with the Pooling Agreement and
(y) such as may have been identified to Buyer prior to the Closing
Date and termination statements relating to which have been placed
with LEXIS Document Services for filing on the First Issuance Date
or the first Business Day thereafter. No effective financing
statement or instrument similar in effect relating to perfection
that covers any inventory of such Seller that might give rise to
Receivables is on file in any recording office except for (so long
as an Intercreditor Agreement is in effect) financing statements or
instruments in favor of creditors of such Seller bound by such
Intercreditor Agreement.
(iv) No Purchase by Buyer from such Seller constitutes a
fraudulent transfer or fraudulent conveyance under the United
States Bankruptcy Code or applicable state bankruptcy or insolvency
laws or is otherwise void or voidable or subject to subordination
under similar laws or principles or for any other reason.
(v) Each Purchase by Buyer from such Seller constitutes a
true and valid sale of the Receivables and Related Assets under
applicable state law and true and valid assignments and transfers
for consideration (and not merely a pledge of the Receivables and
Related Assets for security purposes), enforceable against the
creditors of such Seller, and no Receivables or Related
page 18
<PAGE>
Assets transferred to Buyer hereunder or under the Subscription
Agreement shall constitute property of such Seller.
(l) Eligible Receivables. (i) On the date of each purchase
--------------------
of Receivables hereunder, each such Receivable, unless otherwise
identified to Buyer and the Trustee by the Servicer in the Daily Report
for such date, is an Eligible Receivable, and (ii) on the date of each
Daily Report or Settlement Statement that identifies a Receivable as an
Eligible Receivable, such Receivable is an Eligible Receivable.
(m) Accuracy of Information. All written information
-----------------------
furnished on and after the Closing Date by such Seller or any other WRO
Person to Buyer, the Servicer or the Trustee pursuant to or in connection
with any Transaction Document or any transaction contemplated herein or
therein shall not contain any untrue statement of a material fact or omit
to state material facts necessary to make the statements made not
misleading, in each case on the date the statement was made and in light
of the circumstances under which the statements were made or the
information was furnished.
(n) Offices. The principal place of business and chief
-------
executive office of such Seller is located at the address set forth under
such Seller's signature hereto, and any other location which has been
such Seller's principal place of business or chief executive office
during the past 4 months or in which such Seller keeps (or has kept
during the past 4 months) Records, Contracts, purchase orders and
agreements related to the Receivables or Related Assets (and all original
documents relating thereto) is specified in Schedule 3 (or at such
----------
other locations, notified to the Servicer and the Trustee in accordance
with Section 6.1(f), in jurisdictions where all action required
--------------
pursuant to Section 7.3 has been taken and completed).
-----------
(o) Account Banks and Payment Instructions. The names and
--------------------------------------
addresses of all the banks, together with the account numbers of the
accounts at the banks, into which Collections are paid as of the Closing
Date have been accurately identified to Buyer in a letter from such
Seller to Buyer dated the Closing Date or have been specified in the
notices as shall have been delivered thereafter pursuant to Section
--------
6.3(c). Each Account Bank has executed and delivered an Account
------
Agreement to Buyer and the Trustee. Such Seller has instructed all
Obligors to submit all payments on the Receivables and Related Assets
directly to one of the Lockbox Accounts. Any payments not made directly
to the Account Banks will be forwarded to the Account Banks within two
Business Days.
(p) [Intentionally deleted.]
(q) Compliance with Applicable Laws. Such Seller is in
-------------------------------
compliance with the requirements of all applicable laws, rules,
regulations and orders of all Governmental
page 19
<PAGE>
Authorities (federal, state, local or foreign, and including
environmental laws), a violation of any of which, individually or in the
aggregate for all such violations, would have a substantial likelihood of
having a Material Adverse Effect.
(r) Legal Names. Except as set forth in Schedule 4, since
----------
October 31, 1989 such Seller has not been known by any legal name other
than its corporate name as of the date hereof, except to the extent
permitted otherwise pursuant to Section 6.3(e), nor has such Seller
--------------
been the subject of any merger or other corporate reorganization since
October 31, 1989 that resulted in a change of name, identity or corporate
structure. Such Seller uses no trade names other than its actual
corporate name and the trade names set forth in Schedule 4.
----------
(s) Investment Company Act. Such Seller is not, and is not
----------------------
controlled by, an "investment company" registered or required to be
registered under the Investment Company Act of 1940, as amended.
(t) Taxes. Such Seller has filed or caused to be filed all
-----
tax returns and reports required by law to have been filed by it and has
paid all taxes, assessments and governmental charges thereby shown to be
owing, except any such taxes, assessments or charges (i) that are being
contested in good faith, (ii) for which adequate reserves in accordance
with GAAP shall have been set aside on its books and (iii) with respect
to which no Adverse Claim, except Permitted Adverse Claims, has been
imposed upon any Receivables or Related Assets.
SECTION 5.2 Representations and Warranties of Buyer. From the date
---------------------------------------
hereof until the Purchase Termination Date, Buyer hereby represents and
warrants that (a)(i) this Agreement has been duly executed and delivered by
Buyer and (ii) constitutes the legal, valid and binding obligation of Buyer,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether enforceability is considered in a
proceeding in equity or at law, and (b) the execution, delivery and performance
of this Agreement does not violate any applicable law or any agreement to which
Buyer is a party or by which its properties are bound.
ARTICLE VI
GENERAL COVENANTS OF THE SELLERS
SECTION 6.1 Affirmative Covenants. From the Closing Date until the
---------------------
first day following the Purchase Termination Date on which all Obligations of
the Sellers shall have been finally and fully paid and performed and the
Invested Amount for each Series or
page 20
<PAGE>
Purchased Interest shall have been reduced to zero, unless Buyer shall
otherwise give its prior written consent, each Seller hereby agrees that it
will perform the covenants and agreements set forth in this section.
(a) Compliance with Laws, Etc. Such Seller will comply in all
--------------------------
material respects with all applicable laws, rules, regulations,
judgments, decrees and orders (including those relating to the
Receivables, the Related Assets, the related Contracts of such Seller and
any other agreements related thereto), in each case to the extent the
failure to comply, individually or in the aggregate for all such
failures, would have a substantial likelihood of having a Material
Adverse Effect.
(b) Preservation of Corporate Existence. Such Seller will
-----------------------------------
preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and
remain qualified in good standing as a foreign corporation in each
jurisdiction where the failure to preserve and maintain such existence,
rights, franchises, privileges and qualifications would have a
substantial likelihood of having a Material Adverse Effect.
(c) Receivables Reviews. Such Seller shall, during regular
-------------------
business hours upon not less than five Business Days' prior notice,
permit Buyer and its agents or representatives, at the expense of
such Seller, (i) to examine and make copies of and abstracts from, and to
conduct accounting reviews of, all Records in the possession or under the
control of such Seller relating to the Receivables or Related Assets
generated by such Seller, and (ii) to visit the offices and properties of
such Seller for the purpose of examining the materials described in
clause (i) above, and to discuss matters relating to any Receivables
----------
or any Related Assets of such Seller or such Seller's performance
hereunder with any of the Authorized Officers of such Seller or, with the
prior consent of an Authorized Officer of such Seller, with employees of
such Seller having knowledge of such matters (the examinations set forth
in the foregoing clauses (i) and (ii) being herein called a
----------- ----
"Seller Receivables Review"). Buyer and its agents or representatives
shall be entitled to conduct Seller Receivables Reviews whenever Buyer,
in its reasonable judgment, deems it appropriate; provided, that prior to
the occurrence and continuance of a Liquidation Event, Buyer (or its
agent or representative) shall give such Seller at least five Business
Days' prior notice of any Seller Receivables Review, and Buyer shall have
the right to request a Seller Receivables Review not more than twice in
any calendar year.
(d) Keeping of Records and Books of Account. Such Seller
---------------------------------------
shall maintain and implement administrative and operating procedures
(including an ability to recreate records evidencing its Receivables and
Related Assets in the event of the destruction of the originals thereof),
and shall keep and maintain all documents, books, records and other
information that, in the reasonable determination of Buyer and the
Trustee, are necessary or advisable in accordance with prudent industry
page 21
<PAGE>
practice and custom for transactions of this type for the collection of
all Receivables and the Related Assets. Upon the reasonable request of
Buyer made at any time after the occurrence and continuance of a Servicer
Default, such Seller will deliver copies of all books and records
maintained pursuant to this subsection to the Trustee. Such Seller shall
maintain at all times accurate and complete books, records and accounts
relating to the Receivables, Related Assets and Contracts and all
Collections thereon in which timely entries shall be made. Such books
and records shall be marked to indicate the sales of all Receivables and
Related Assets hereunder and shall include (i) all payments received and
all credits and extensions granted with respect to the Receivables and
(ii) the return, rejection, repossession, or stoppage in transit of any
merchandise, the sale of which has given rise to a Receivable that has
been purchased by Buyer.
(e) Performance and Compliance with Receivables and Contracts.
---------------------------------------------------------
Such Seller will, at its expense, timely and fully perform and comply
with all provisions, covenants and other promises required to be observed
by it under the Contracts of such Seller related to the Receivables and
Related Assets, the breach of which provisions, covenants or promises
would have a substantial likelihood of having a Material Adverse Effect.
(f) Location of Records and Offices. Such Seller will keep
-------------------------------
its principal place of business and chief executive office, and the
offices where it keeps all Records related to the Receivables and the
Related Assets (and all original documents relating thereto), at the
addresses referred to in Schedule 3 or, upon not less than 30 days'
----------
prior written notice given by such Seller to Buyer, the Trustee and the
Applicable Rating Agencies, at such other locations in jurisdictions
where all action required by Section 7.3 shall have been taken and
-----------
completed.
(g) Credit and Collection Policies. Such Seller will comply
------------------------------
in all material respects with its Credit and Collection Policy in regard
to each Receivable of such Seller and the Related Assets and the
Contracts related to each such Receivable, where the failure so to
comply, individually or in the aggregate for all such failures, would
have a substantial likelihood of having a Material Adverse Effect.
(h) Separate Corporate Existence of Buyer. Such Seller hereby
-------------------------------------
acknowledges that the Trustee, on behalf of the Trust, is entering into
the transactions contemplated by the Transaction Documents in reliance
upon Buyer's identity as a legal entity separate from such Seller and the
other WRO Persons. Therefore, from and after the date hereof until the
first day following the Purchase Termination Date on which all
Obligations shall have been fully paid and performed and the Invested
Amount for each Series or Purchased Interest shall have been reduced to
zero, such Seller will, and will cause each other WRO Person to, take all
reasonable steps to continue their respective identities as separate
legal entities and to make it apparent to third Persons
page 22
<PAGE>
that each is an entity with assets and liabilities distinct from those of
Buyer and that Buyer is not a division of the Servicer, such Seller, WRO
or any other Person.
(i) Payment Instructions to Obligors. Such Seller will
--------------------------------
instruct all Obligors to submit all payments either (i) to one of the
lockboxes maintained at the Lockbox Banks for deposit in a Lockbox
Account or to a Concentration Account or (ii) directly to one of the
Lockbox Accounts.
(j) Segregation of Collections. Such Seller shall use
--------------------------
reasonable efforts to minimize the deposit of any funds other than
Collections into any of the Lockbox Accounts and, to the extent that any
such funds nevertheless are deposited into any of the Lockbox Accounts,
shall promptly identify any such funds, or shall cause the funds to be so
identified, to Buyer, the Servicer and the Trustee (following which
notice, Buyer shall cause the Servicer to return all the funds to such
Seller).
(k) Identification of Eligible Receivables. Such Seller will
--------------------------------------
(i) establish and maintain such procedures as are necessary for
determining no less frequently than each Business Day whether each
Receivable qualifies as an Eligible Receivable, and for identifying, on
any Business Day, all Receivables to be sold on that date that are not
Eligible Receivables, and (ii) except as permitted in Section 3.05(c) of
the Pooling Agreement, notify Buyer prior to the occurrence of a Purchase
if a Receivable to be sold hereunder will, to such Seller's knowledge,
not be an Eligible Receivable as of the date of Purchase.
(l) Accuracy of Information. All written information
-----------------------
furnished on and after the Closing Date by such Seller or any other WRO
Person to Buyer, the Servicer or the Trustee pursuant to or in connection
with any Transaction Document or any transaction contemplated herein or
therein shall not contain any untrue statement of a material fact or omit
to state material facts necessary to make the statements made not
misleading, in each case on the date the statement was made and in light
of the circumstances under which the statements were made or the
information was furnished.
(m) Taxes. File or cause to be filed all Federal, state and
-----
local tax returns that are required to be filed by it (except where the
failure to file such returns could not reasonably be expected to have an
adverse effect) and pay or cause to be paid all taxes shown to be due and
payable on taxes or assessments, (except only such taxes or assessments
the validity of which are being contested in good faith by appropriate
proceedings and with respect to which such Seller shall have set aside
adequate reserves on its books in accordance with GAAP and which
proceedings could not reasonably be expected to have a Material Adverse
Effect).
page 23
<PAGE>
SECTION 6.2 Reporting Requirements. From the Closing Date until the
----------------------
first day following the Purchase Termination Date on which all Obligations of
the Sellers shall have been finally and fully paid and performed and the
Invested Amount for each Series or Purchased Interest shall have been reduced
to zero, such Seller agrees that it will, unless Buyer and the Trustee shall
otherwise give prior written consent, and (with respect to the notices
described below in subsections (c) and (d)) unless the Rating Agency
--------------- ---
Condition has been satisfied), furnish to Buyer and the Trustee and, in the
case of the notices described below in subsections (c), (d) and
--------------- ---
(f), to the Applicable Rating Agencies:
- ---
(a) Quarterly Financial Statements. Within 45 days after the
------------------------------
end of each of the first three fiscal quarters of each fiscal year of
WRO, copies of the unaudited consolidated balance sheets of WRO and its
Consolidated Subsidiaries as at the end of the fiscal quarter and the
related unaudited statements of earnings and cash flows, in each case for
the fiscal quarter and for the period from the beginning of the fiscal
year through the end of such fiscal quarter, prepared in accordance with
GAAP consistently applied throughout the periods reflected therein and
certified (subject to year end adjustments and the omission of footnotes)
by the chief financial officer or chief accounting officer of WRO,
(b) Annual Financial Statements. As soon as possible and in
---------------------------
any event within 90 days after the end of each fiscal year of WRO, a copy
of the consolidated balance sheet of WRO and its Consolidated
Subsidiaries as at the end of the fiscal year and the related statements
of earnings, stockholders' equity and cash flows of WRO and its
Consolidated Subsidiaries for the fiscal year, setting forth in each case
in comparative form the corresponding figures for the preceding fiscal
year and prepared in accordance with GAAP consistently applied throughout
the periods reflected therein, certified, without Impermissible
Qualification, by Price Waterhouse LLC (or such other independent
certified public accountants of a nationally recognized standing in the
United States of America as shall be selected by WRO),
(c) Liquidation Events. As soon as possible, and in any event
------------------
within five Business Days after an Authorized Officer of such Seller has
obtained knowledge of the occurrence of any Liquidation Event or any
Unmatured Liquidation Event, a written statement of an Authorized Officer
of such Seller describing the event and the action that such Seller
proposes to take with respect thereto, in each case in reasonable detail,
(d) Material Adverse Effect. As soon as possible and in any
-----------------------
event within five Business Days after an Authorized Officer of such
Seller has knowledge thereof, written notice that describes in reasonable
detail any event or occurrence that, individually or in the aggregate for
all such events or occurrences, has had, or that would have a substantial
likelihood of having, a Material Adverse Effect,
page 24
<PAGE>
(e) Proceedings. As soon as possible and in any event within
-----------
five Business Days after an Authorized Officer of such Seller has
knowledge thereof, written notice of (i) any litigation, investigation or
proceeding of the type described in Section 5.1(f) not previously
--------------
disclosed to Buyer and (ii) any judgment, settlement or other final
disposition with respect to any such previously disclosed litigation,
investigation or proceeding, and
(f) Other. Promptly, from time to time, (i) such other
-----
information, documents, records or reports respecting the Receivables or
the Related Assets or (ii) such other publicly available information
respecting the condition or operations, financial or otherwise, of such
Seller, in each case as Buyer may from time to time reasonably request in
order to protect the interests of Buyer, the Trustee or the
Certificateholders under or as contemplated by this Agreement.
SECTION 6.3 Negative Covenants. From the Closing Date until the
------------------
first day following the Purchase Termination Date on which all Obligations of
the Sellers shall have been finally and fully paid and performed and the
Invested Amount for each Series or Purchased Interest shall have been reduced
to zero, unless Buyer shall otherwise give its prior written consent, each
Seller hereby agrees that it will perform the covenants and agreements set
forth in this section.
(a) Sales, Liens, Etc. Except as otherwise provided herein or
------------------
in the Pooling Agreement, such Seller will not (i)(A) sell, assign (by
operation of law or otherwise) or otherwise transfer to any Person, (B)
pledge any interest in, (C) grant, create, incur, assume or permit to
exist any Adverse Claim (other than Permitted Adverse Claims) to or in
favor of any Person upon or with respect to, or (D) cause to be filed any
financing statement or equivalent document relating to perfection with
respect to any Transferred Asset or any Contract related to any
Receivable, or upon or with respect to any lockbox or account to which
any Collections of any such Receivable or any Related Assets are sent or
any interest therein, or (ii) assign to any Person any right to receive
income from or in respect of any of the foregoing.
In the event that such Seller fails to keep any Specified Assets
free and clear of any Adverse Claim (other than a Permitted Adverse
Claim, any Adverse Claims arising hereunder, and other Adverse Claims
permitted by any other Transaction Document), Buyer may (without limiting
its other rights with respect to such Seller's breach of its obligations
hereunder) make reasonable expenditures necessary to release the Adverse
Claim. Buyer shall be entitled to indemnification for any such
expenditures pursuant to the indemnification provisions of Article
--------
IX. Alternatively, Buyer may deduct such expenditures as an offset to
---
the Purchase Price owed to such Seller hereunder.
page 25
<PAGE>
Such Seller will not pledge or grant any security interest in its
inventory, the Seller Account, the Purchase Money Note or the capital
stock of Buyer unless prior to any pledge or grant such Seller, Buyer,
the Trustee and the person for whose benefits the pledge or grant is
being made have entered into an Intercreditor Agreement.
(b) Extension or Amendment of Receivables; Change in Credit and
------------------------------------------------------------
Collection Policy or Contracts. Such Seller will not, (i) without the
------------------------------
prior written consent of Buyer and the Trustee, which consent will not be
unreasonably withheld, extend, amend or otherwise modify the terms of any
Receivable or Contract in a manner that would have a Material Adverse
Effect on the Investor Certificateholders or the Buyer or (ii) change the
terms and provisions of the Credit and Collection Policy in any material
respect unless (x) with respect to collection policies, the change is
made with the prior written approval of the Trustee, Buyer and each Buyer
Agent and the Rating Agency Condition is satisfied with respect thereto,
(y) with respect to collection procedures, the change is made with prior
written notice to the Trustee, Buyer and each Buyer Agent and no Material
Adverse Effect on any Series or Purchased Interest would result and (z)
with respect to accounting policies relating to Receivables that have
become Write-Offs, the change is made in accordance with GAAP.
(c) Change in Payment Instructions to Obligors. Such Seller
------------------------------------------
will not (i) add or terminate any bank as an Account Bank from those
listed in the letter referred to in Section 5.1(o) unless, prior to
--------------
any such addition or termination, Buyer, the Trustee and the Applicable
Rating Agencies shall have received not less than five Business Days'
prior written notice of the addition or termination and, not less than
five Business Days prior to the effective date of any such proposed
addition or termination, Buyer and the Trustee shall have received (A)
counterparts of the applicable type of Account Agreement with each new
Account Bank, duly executed by such new Account Bank and all other
parties thereto and (B) copies of all other agreements and documents
signed by the Account Bank and such other parties with respect to any new
Bank Account, all of which agreements and documents shall be reasonably
satisfactory in form and substance to Buyer and the Trustee, or (ii) make
any change in its instructions to Obligors, given in accordance with
Section 5.1(o), regarding payments to be made to such Seller or
--------------
payments to be made to any Account Bank, other than changes in the
instructions that direct Obligors to make payments to another Bank
Account at such Account Bank or another Account Bank or to the Master
Collection Account.
(d) Mergers, Acquisitions, Sales, etc. Except for (i) mergers
----------------------------------
or consolidations in which such Seller or another Seller is the surviving
Person, (ii) mergers or consolidations of a subsidiary of WRO into such
Seller or (iii) mergers or consolidations in which the surviving Person
expressly assumes the performance of this Agreement and the Rating Agency
Condition shall have been satisfied with respect to the consolidation or
merger (or, if no outstanding Investor Certificates are
page 26
<PAGE>
rated, the Trustee shall have consented to such consolidation or merger
in writing), the Seller will not be a constituent corporation to any
merger or consolidation; provided, however, that satisfaction of the
Rating Agency Condition (or, if applicable, written approval of the
Trustee) will not be required for a merger or consolidation with a Person
referred to in this clause (iii) if (A) such Person is in the same line
of business as one or more of the existing Sellers or a related line of
business, (B) the aggregate Unpaid Balance of Receivables to be added to
the Trust as a result of such merger or consolidation (calculated as of
the last Cut-Off Date prior to the merger or consolidation) is less than
5% of the aggregate Unpaid Balance of all Receivables on such Cut-Off
Date, and (C) after giving effect to such merger or consolidation, there
shall be no more than three Exempt Persons during the twelve month period
ending on the date of such merger or consolidation. Such Seller will
give the Applicable Rating Agencies and the Trustee notice of any such
permitted merger or consolidation promptly following completion thereof.
Such Seller will not, directly or indirectly, transfer, assign, convey or
lease, whether in one transaction or in a series of transactions, all or
substantially all of its assets or sell or assign, with or without
recourse, any Receivables or Related Assets, in each case other than
pursuant to this Agreement or the Subscription Agreement.
(e) Change in Name. Such Seller will not (i) change its
--------------
corporate name or (ii) change the name under or by which it does business
in any manner that would or may make any financing statement filed by
such Seller in accordance herewith seriously misleading within the
meaning of Section 9-402(7) of an applicable enactment of the UCC, in
each case unless such Seller shall have given Buyer, the Servicer, the
Trustee and the Applicable Rating Agencies 30 days' prior written notice
thereof and unless, prior to any change in name, such Seller shall have
taken and completed all action required by Section 7.3.
-----------
(f) Certificate of Incorporation. Such Seller will not cause
----------------------------
Buyer to amend Article X, or XI of its Certificate of Incorporation
without the Trustee's prior written consent, which consent will not be
unreasonably withheld or delayed.
(g) Amendments to Transaction Documents. Such Seller will not
-----------------------------------
amend or otherwise modify or supplement any Transaction Document to which
it is a party unless (i) Buyer shall have given its prior written consent
to each amendment, modification or supplement and (ii) the Rating Agency
Condition shall have been satisfied (or, if no outstanding Investor
Certificates are outstanding, the Trustee shall have consented to such
amendment, modification or supplement in writing).
(h) Accounting for Purchases. Such Seller shall prepare its
------------------------
financial statements in accordance with GAAP, and any financial
statements that are made
page 27
<PAGE>
publicly available and which are consolidated to include Buyer will
contain footnotes stating that such Seller has sold its Receivables. Such
Seller shall not prepare any financial statements that account for the
transactions contemplated in this Agreement in any manner other than as a
sale of the Specified Assets by such Seller to Buyer, or in any other
respect account for or treat the transactions contemplated in this
Agreement (including but not limited to accounting and, where taxes are
not consolidated, for tax reporting purposes) in any manner other than as
a sale of the Specified Assets by such Seller to Buyer.
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE SPECIFIED ASSETS
SECTION 7.1 Rights of Buyer. (a) Subject to Section 7.4(b),
--------------- --------------
each Seller hereby authorizes Buyer, the Servicer and/or their respective
designees to take any and all steps in such Seller's name and on behalf of such
Seller that Buyer, the Servicer and/or their respective designees determine are
reasonably necessary or appropriate to collect all amounts due under any and
all Specified Assets, including endorsing the name of such Seller on checks and
other instruments representing Collections and enforcing such Seller's rights
under such Specified Assets.
(b) Except as set forth in Section 3.5 with respect to Seller
-----------
Noncomplying Receivables, Buyer shall have no obligation to account for, to
replace, to substitute or to return any Specified Asset to any Seller. Buyer
shall have no obligation to account for, or to return Collections, or any
interest or other finance charge collected pursuant thereto, to any Seller,
irrespective of whether such Collections and charges are in excess of the
Purchase Price for the Specified Assets.
(c) Buyer shall have the unrestricted right to further assign, transfer,
deliver, hypothecate, subdivide or otherwise deal with the Specified Assets,
and all of Buyer's right, title and interest in, to and under this Agreement
and the Subscription Agreement, on whatever terms Buyer shall determine,
pursuant to the Pooling Agreement or otherwise.
(d) Buyer shall have the sole right to retain any gains or profits
created by buying, selling or holding the Specified Assets and shall have the
sole risk of and responsibility for losses or damages created by such buying,
selling or holding.
SECTION 7.2 Responsibilities of the Sellers. Anything herein to the
-------------------------------
contrary notwithstanding, each Seller hereby agrees:
page 28
<PAGE>
(a) to deliver directly to the Servicer (for Buyer's account),
within two Business Days after receipt thereof, any Collections that it
receives, in the form so received, and agrees that all such Collections
shall be deemed to be received in trust for Buyer and shall be maintained
and segregated separate and apart from all other funds and moneys of such
Seller until delivery of such Collections to the Servicer.
(b) to perform all of its obligations hereunder and under the
Contracts related to the Receivables and Related Assets to the same
extent as if the Receivables had not been sold hereunder, and the
exercise by Buyer or its designee or assignee of Buyer's rights hereunder
or in connection herewith shall not relieve such Seller from any of its
obligations under the Contracts or Related Assets related to the
Receivables.
(c) Such Seller hereby grants to Buyer an irrevocable power of
attorney, with full power of substitution, coupled with an interest, to
take in the name of such Seller all steps necessary or advisable to
endorse, negotiate or otherwise realize on any writing or other right of
any kind held or transmitted by such Seller or transmitted or received by
Buyer (whether or not from such Seller) in connection with any
Transferred Asset.
(d) To the extent that such Seller does not own the computer
software that such Seller uses to account for Receivables, such Seller
shall use reasonable efforts to provide Buyer and the Trustee with such
licenses, sublicenses and/or assignments of contracts as Buyer or the
Trustee shall require with regard to all services and computer hardware
or software used by such Seller that relate to the servicing of the
Specified Assets.
SECTION 7.3 Further Action Evidencing Purchases. Each Seller agrees
-----------------------------------
that from time to time, at its expense, it will promptly, upon reasonable
request, execute and deliver all further instruments and documents, and take
all further action, in order to perfect, protect or more fully evidence the
purchase by Buyer or contribution to Buyer of the Receivables and the Related
Assets under this Agreement or the Subscription Agreement (as applicable), or
to enable Buyer to exercise or enforce any of its rights under any Transaction
Document. Each Seller further agrees that from time to time, at its expense,
it will promptly, upon request, take all action that Buyer, the Servicer or the
Trustee may reasonably request in order to perfect, protect or more fully
evidence the purchase or contribution of the Receivables and the Related Assets
or to enable Buyer or the Trustee (as the assignee of Buyer) to exercise or
enforce any of its rights hereunder or under any other Transaction Document.
Without limiting the generality of the foregoing, upon the request of Buyer,
each Seller will:
(a) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as Buyer or the Trustee may reasonably determine to be necessary
or appropriate, and
page 29
<PAGE>
(b) mark the master data processing records evidencing the
Receivables with the following legend:
"THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO NOTEPAD
FUNDING CORPORATION ("NFC") PURSUANT TO A RECEIVABLES PURCHASE
AGREEMENT, DATED AS OF OCTOBER 31, 1995, AMONG WILLIAM HOUSE-
REGENCY OF DELAWARE, INC. ("WRO"), CERTAIN OF ITS SUBSIDIARIES
AND NFC; AND SUCH RECEIVABLES HAVE BEEN TRANSFERRED TO THE
NOTEPAD FUNDING RECEIVABLES MASTER TRUST PURSUANT TO A POOLING
AND SERVICING AGREEMENT, DATED AS OF OCTOBER 31, 1995, AMONG
NFC, AS TRANSFEROR, WRO, AS THE INITIAL SERVICER, AND
MANUFACTURERS AND TRADERS TRUST COMPANY, AS TRUSTEE."
Each Seller hereby authorizes Buyer or its designee to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relative to all or any of the Receivables and Related Assets of such
Seller, in each case whether now existing or hereafter generated by such
Seller. Except for material performance obligations of such Seller to any
Obligor hereunder or under any of the Contracts, if (i) such Seller fails to
perform any of its agreements or obligations under this Agreement and does not
remedy the failure within the applicable cure period, if any, and (ii) Buyer in
good faith reasonably believes that the performance of such agreements and
obligations is necessary or appropriate to protect its interests under this
Agreement, then Buyer or its designee may (but shall not be required to)
perform, or cause performance of, such agreement or obligation and the
reasonable expenses of Buyer or its designee or assignee incurred in connection
with such performance shall be payable by such Seller as provided in Section
--------
9.1.
- ---
SECTION 7.4 Collection of Receivables; Rights of Buyer and Its
---------------------------------------------------
Assignees. (a) Each Seller hereby transfers to the Trustee (as transferee
- ---------
of Buyer's interest in the Specified Assets) the ownership of, and the
exclusive dominion and control over, each of the Bank Accounts and all related
lockboxes owned by such Seller, and such Seller hereby agrees to take any
further action that Buyer or the Trustee may reasonably request in order to
effect or complete the transfer. Each Seller further agrees to use reasonable
efforts to prevent funds other than proceeds of the Specified Assets from being
deposited in any Bank Account.
(b) Buyer may, at any time after a Liquidation Event or Servicer
Default, direct the Obligors of Receivables, or any of them, to pay all amounts
payable under any Transferred Asset directly to the Trustee or its designees.
Furthermore, each Seller shall, at the request of Buyer and at such Seller's
expense, promptly give notice of the Trust's interest in the Receivables of the
Obligor and the Related Assets to each such Obligor and direct that payments be
made directly to the Trustee or its designee, which notice shall be acceptable
in
page 30
<PAGE>
form and substance to Buyer. In addition, each Seller hereby authorizes Buyer
to take any and all steps in such Seller's name and on its behalf that are
necessary or desirable, in the reasonable determination of Buyer, to collect
all amounts due under any and all Specified Assets, including endorsing such
Seller's name on checks and other instruments representing Collections and
enforcing the Specified Assets and the Contracts related to the Receivables.
The Trustee may exercise any of the foregoing rights in the place of Buyer (as
assignee or otherwise) at any time following the designation of a Servicer
other than WRO pursuant to Section 10.02 of the Pooling Agreement.
(c) At any time when (i) a Liquidation Event shall have occurred and
remain continuing or (ii) a Servicer other than WRO has been designated
pursuant to Section 10.02 of the Pooling Agreement, each Seller shall, at
Buyer's request, assemble all of the Records that evidence the Receivables and
Related Assets originated by such Seller and the Contracts related to the
Receivables, or that are otherwise necessary or desirable to collect the
Receivables or Related Assets, and make the same available to Buyer or the
Trustee at a place selected by the Trustee or its designee.
ARTICLE VIII
TERMINATION
SECTION 8.1 Termination by the Sellers. Prior to the Liquidation
--------------------------
Commencement Date, the Sellers may terminate all of their agreements to sell
Receivables hereunder to Buyer by giving Buyer and the Trustee not less than
ten Business Days' prior written notice of their election not to continue to
sell Receivables to Buyer; provided that such notice must be given as to all
Sellers. The Trustee shall notify the Certificateholders of all Series
within five Business Days of receiving any notice. Upon receipt of a
termination notice from the Sellers, Buyer shall notify the holders of each
Series of Fixed Principal Certificates that it is electing to cause that Series
to be prepaid in full and shall cause each Series of Investor Revolving
Certificates and Purchased Interests to be repaid as early as is practicable.
The sale of Receivables under this Agreement will not cease until all
prepayments and repayments have been completed.
SECTION 8.2 Automatic Termination. The agreement of each Seller to
---------------------
sell Receivables hereunder, and the agreement of Buyer to purchase Receivables
from such Seller hereunder, shall terminate automatically upon the Liquidation
Commencement Date; provided, however, that if, at any time prior to the
Liquidation Commencement Date, an Event of Bankruptcy occurs as a result of a
bankruptcy proceeding being filed against a Seller, then on and after the date
on which such bankruptcy proceeding is filed until the dismissal of the
proceeding Buyer shall not purchase Receivables and Related Assets from such
Seller.
page 31
<PAGE>
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Indemnities by the Sellers. Without limiting any other
--------------------------
rights that any RPA Indemnified Party (as defined below) may have hereunder or
under applicable law, each Seller agrees to indemnify Buyer, each of its
successors, permitted transferees and assigns, and all officers, directors,
shareholders, controlling Persons, employees, affiliates and agents of any of
the foregoing (each of the foregoing Persons being individually called a "RPA
Indemnified Party"), forthwith on demand, from and against any and all damages,
losses, claims (whether on account of settlements or otherwise), judgments,
liabilities and related reasonable costs and expenses (including reasonable
attorneys' fees and disbursements) awarded against or incurred by any of them
arising out of or as a result of any of the following (all of the foregoing
being collectively called "RPA Indemnified Losses"):
(a) any representation or warranty made in writing by such Seller
(or any of its Authorized Officers) under any of the Transaction
Documents, any Settlement Statement, any Daily Report or any other
information or report delivered by or on behalf of such Seller or the
Servicer with respect to such Seller or the Receivables or Related Assets
originated by such Seller (including without limitation any
representation, warranty, information or report relied upon by Buyer in
connection with the offering or sale of any Certificate or Purchased
Interest), that contained any untrue statement of a material fact or
omitted to state material facts necessary to make the statements not
misleading when made,
(b) the failure by such Seller to comply with any applicable law,
rule or regulation with respect to any Receivable or any Related Asset or
to comply with any Contract related thereto, or the nonconformity of any
Receivable, the related Contract or any Related Assets with any such
applicable law, rule or regulation,
(c) the failure to vest and maintain vested in Buyer a first
priority perfected ownership interest in the Receivables originated by
such Seller, the Related Assets, the related Collections and the proceeds
of each of the foregoing, free and clear of any Adverse Claim (other than
an Adverse Claim created in favor of Buyer pursuant to this Agreement or
in favor of the Trustee pursuant to the Pooling Agreement), whether
existing at the time of the sale of such Receivable or at any time
thereafter and without regard to whether such Adverse Claim was a
Permitted Adverse Claim,
(d) any failure of such Seller to perform its duties or
obligations in accordance with the provisions of the Transaction
Documents,
(e) any products liability claim, personal injury or property
damage suit, environmental liability claim or any other claim or action
by a party other than Buyer
page 32
<PAGE>
of whatever sort, whether sounding in tort, contract or any other legal
theory, arising out of or in connection with the goods or services that
are the subject of any Specified Assets with respect thereto or
Collections thereof,
(f) the failure to file, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Specified Assets or Collections, whether at the time of any sale or at
any subsequent time,
(g) any dispute, claim, offset or defense (other than the
discharge in bankruptcy) of an Obligor to the payment of any Receivable
originated by such Seller or Related Asset, or purported Receivable or
Related Asset, including a defense based on such Receivable's or the
related Contract's not being a legal, valid and binding obligation of the
Obligor enforceable against it in accordance with its terms, and
(h) any tax or governmental fee or charge (other than franchise
taxes and taxes on or measured by the net income of Buyer or any of its
assignees), all interest and penalties thereon or with respect thereto,
and all reasonable out-of-pocket costs and expenses, including the
reasonable fees and expenses of counsel in defending against the same,
that may arise by reason of the purchase or ownership of the Receivables
originated by such Seller or any Related Asset connected with any such
Receivables.
Notwithstanding the foregoing (and with respect to clause (ii) below,
-----------
without prejudice to the rights that Buyer may have pursuant to the other
provisions of this Agreement or the provisions of any of the other Transaction
Documents), in no event shall any RPA Indemnified Party be indemnified for any
RPA Indemnified Losses (i) resulting from gross negligence or willful
misconduct on the part of the RPA Indemnified Party, (ii) to the extent the
same includes losses in respect of Receivables and reimbursement therefor that
would constitute credit recourse to such Seller for the amount of any
Receivable or Related Asset not paid by the related Obligor, (iii) resulting
from the action or omission of the Servicer (unless the Servicer is a WRO
Person), (iv) to the extent the same are or result from lost profits, (v) to
the extent the same are or result from taxes on or measured by the net income
of the RPA Indemnified Party and (vi) to the extent the same constitute
consequential, special or punitive damages.
If for any reason the indemnification provided above in this section is
unavailable to a RPA Indemnified Party or is insufficient to hold a RPA
Indemnified Party harmless, then such Seller shall contribute to the maximum
amount payable or paid to the RPA Indemnified Party as a result of the loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the RPA Indemnified Party on the one
hand and such Seller on the other hand, but also the relative fault of the RPA
Indemnified Party (if any) and such Seller and any other relevant equitable
considerations.
page 33
<PAGE>
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Amendments; Waivers, Etc. (a) The provisions of this
------------------------
Agreement may from time to time be amended, modified or waived, if such
amendment, modification or waiver is in writing and signed by Buyer and each
Seller (with respect to an amendment) or by Buyer (with respect to a waiver or
consent by it) and, in the case of any amendment, modification or waiver, to
the extent provided in Section 7.02(k) of the Pooling Agreement, by the
Trustee, and then the waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. This Agreement shall
not be amended unless Buyer shall have delivered the proposed amendment to the
Applicable Rating Agencies at least ten Business Days (or such shorter period
as shall be acceptable to each of them) prior to the execution and delivery
thereof and the Rating Agency Condition has been satisfied with respect to such
amendment.
(b) No failure or delay on the part of Buyer, any RPA Indemnified Party,
or the Trustee or any other third party beneficiary referred to in Section
--------
10.11(a) in exercising any power or right hereunder shall operate as a waiver
- --------
thereof, nor shall any single or partial exercise of any such power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. No notice to or demand on any Seller in any case shall entitle
it to any notice or demand in similar or other circumstances. No waiver or
approval by Buyer or the Trustee under this Agreement shall, except as may
otherwise be stated in the waiver or approval, be applicable to subsequent
transactions. No waiver or approval under this Agreement shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 10.2 Notices, Etc. All notices and other communications
------------
provided for hereunder shall, unless otherwise stated herein, be in writing
(including facsimile communication) and shall be personally delivered or sent
by certified mail, postage prepaid, by facsimile or by overnight courier, to
the intended party at the address or facsimile number of such party set forth
under its name on the signature pages hereof or at such other address or
facsimile number as shall be designated by the party in a written notice to the
other parties hereto given in accordance with this section. Copies of all
notices and other communications provided for hereunder shall be delivered to
the Trustee and the Applicable Rating Agencies at their respective addresses
for notices set forth in the Pooling Agreement. All notices and communications
provided for hereunder shall be effective, (a) if personally delivered, when
received, (b) if sent by certified mail, four Business Days after having been
deposited in the mail, postage prepaid and properly addressed, (c) if
transmitted by facsimile, when sent, receipt confirmed by telephone or
electronic means and (d) if sent by overnight courier, two Business Days after
having been given to the courier unless sooner received by the addressee.
page 34
<PAGE>
SECTION 10.3 Cumulative Remedies. The remedies herein provided are
-------------------
cumulative and not exclusive of any remedies provided by law. Without limiting
the foregoing, each Seller hereby authorizes Buyer, at any time and from time
to time, to the fullest extent permitted by law, to set-off, against any
Obligations of any Seller to Buyer that are then due and payable or that are
not then due and payable from a Seller to Buyer but have then accrued, any and
all indebtedness or other obligations at any time owing to any Seller by Buyer
to or for the credit or the account of any Seller or that are not then due and
payable from Buyer to a Seller but have then accrued.
SECTION 10.4 Binding Effect; Assignability; Survival of Provisions.
-----------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of Buyer and the
Sellers and their respective successors and permitted assigns. No Seller may
assign any of its rights hereunder or any interest herein without the prior
written consent of Buyer, the Trustee and the Applicable Rating Agencies. This
Agreement shall create and constitute the continuing obligations of the parties
hereto in accordance with its terms, and shall remain in full force and effect
until the first date following the Purchase Termination Date, but not later
than the date on which the Trust is terminated pursuant to Section 12.01 of the
Pooling Agreement, on which all Obligations shall have been finally and fully
paid and performed or such other time as the parties hereto shall agree and as
to which the Trustee (at the direction of the Majority Investors) shall have
given its prior written consent, which consent shall not be unreasonably
withheld or delayed. The rights and remedies with respect to any breach of any
representation and warranty made by a Seller pursuant to Article V and the
---------
indemnification and payment provisions of Article IX and Section 10.6
---------- ------------
shall be continuing and shall survive any termination of this Agreement.
SECTION 10.5 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT
OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS
OF BUYER IN THE RECEIVABLES AND THE RELATED ASSETS ARE GOVERNED BY THE LAWS OF
A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 10.6 Costs, Expenses and Taxes. In addition to the
-------------------------
obligations of the Sellers under Article IX, the Sellers agree jointly and
----------
severally to pay on demand:
(a) all reasonable out-of-pocket and other costs and expenses in
connection with the enforcement of this Agreement, the Seller Assignment
Certificates or the other Transaction Documents by Buyer or any successor
in interest to Buyer, and
(b) all stamp and other taxes and fees payable or determined to be
payable in connection with the execution and delivery, and the filing and
recording, of this Agreement or the other Transaction Documents, and
agrees to indemnify each RPA Indemnified Party against any liabilities
with respect to or resulting from any delay in
page 35
<PAGE>
paying or omission to pay the taxes and fees; provided however,
-------- -------
that in no event shall any Seller be liable for or pay any taxes (or
interest, penalties, or additions to tax with respect thereto) imposed
upon or measured by the income of any RPA Indemnified Party or any taxes
imposed in lieu of income taxes.
SECTION 10.7 Submission to Jurisdiction. EACH PARTY HERETO HEREBY
--------------------------
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK, NEW
YORK OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE
TRANSACTION DOCUMENTS, AND HEREBY (A) IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN THE STATE OR
FEDERAL COURT, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF THE ACTION OR
PROCEEDING, AND (C) BUYER, IRREVOCABLY APPOINTS LEXIS DOCUMENT SERVICES (THE
"PROCESS AGENT"), WITH AN OFFICE ON THE DATE HEREOF AT 194 WASHINGTON AVENUE,
NEW YORK, NEW YORK 12210, AS ITS AGENT TO RECEIVE ON BEHALF OF IT AND ITS
PROPERTY SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS
THAT MAY BE SERVED IN ANY ACTION OR PROCEEDING. THE SERVICE MAY BE MADE BY
MAILING OR DELIVERING A COPY OF THE PROCESS TO BUYER OR THE APPLICABLE SELLER
IN CARE OF THE PROCESS AGENT AT THE PROCESS AGENT'S ABOVE ADDRESS, AND BUYER
AND EACH SELLER HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO
ACCEPT THE SERVICE ON ITS BEHALF.
AS AN ALTERNATIVE METHOD OF SERVICE, EACH OF BUYER AND THE SELLERS ALSO
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY ACTION OR
PROCEEDING BY THE MAILING OF COPIES OF THE PROCESS TO BUYER OR A SELLER (AS
APPLICABLE) AT ITS ADDRESS SPECIFIED HEREIN. NOTHING IN THIS SECTION SHALL
AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF ANY PARTY HERETO TO BRING ANY ACTION OR
PROCEEDING AGAINST THE OTHER PARTY OR ANY OF ITS PROPERTIES IN THE COURTS OF
ANY OTHER JURISDICTION.
SECTION 10.8 Waiver of Jury Trial. EACH PARTY HERETO WAIVES ANY
--------------------
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER OR RELATING TO THE TRANSACTION DOCUMENTS OR ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE
DELIVERED IN CONNECTION THEREWITH OR ARISING FROM ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), ACTIONS OF EITHER OF THE
PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THE
TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.
SECTION 10.9 Integration. This Agreement and the other Transaction
-----------
Documents contain a final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and thereof and
shall together constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and thereof, superseding all prior oral or
written understandings.
page 36
<PAGE>
SECTION 10.10 Counterparts. This Agreement may be executed in any
------------
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which together shall constitute one and the same agreement.
SECTION 10.11 Acknowledgment and Consent. (a) The Sellers
--------------------------
acknowledge that, contemporaneously herewith, Buyer is selling, transferring,
assigning, setting over and otherwise conveying to the Trust all of Buyer's
right, title and interest in, to and under the Specified Assets, this Agreement
and all of the other Transaction Documents pursuant to Sections 2.01 and 2.04
of the Pooling Agreement. The Sellers hereby consent to the sale, transfer,
assignment, set over and conveyance to the Trust by Buyer of all right, title
and interest of Buyer in, to and under the Specified Assets, this Agreement and
the other Transaction Documents, and all of Buyer's rights, remedies, powers
and privileges, and all claims of Buyer against the Sellers, under or with
respect to this Agreement and the other Transaction Documents (whether arising
pursuant to the terms of this Agreement or otherwise available at law or in
equity), including (i) the right of Buyer, at any time, to enforce this
Agreement against the Sellers and the obligations of the Sellers hereunder,
(ii) the right to appoint a successor to the Servicer at the times and upon the
conditions set forth in the Pooling Agreement, and (iii) the right, at any
time, to give or withhold any and all consents, requests, notices, directions,
approvals, demands, extensions or waivers under or with respect to this
Agreement, any other Transaction Document or the obligations in respect of the
Sellers thereunder to the same extent as Buyer may do. Each of the parties
hereto acknowledges and agrees that the Trustee and the Trust are third party
beneficiaries of the rights of Buyer arising hereunder and under the other
Transaction Documents to which any Seller is a party. Each Seller hereby
acknowledges and agrees that it has no claim to or interest in any of the Bank
Accounts or the Trust Accounts.
(b) The Sellers hereby agree to execute all agreements, instruments and
documents, and to take all other action, that Buyer or the Trustee reasonably
determines is necessary or appropriate to evidence its consent described in
subsection (a) above. To the extent that Buyer, individually or through
- --------------
the Servicer, has granted or grants powers of attorney to the Trustee under the
Pooling Agreement, the Sellers hereby grant a corresponding power of attorney
on the same terms to Buyer. The Sellers hereby acknowledge and agree that
Buyer, in all of its capacities, shall assign to the Trustee for the benefit of
the Certificateholders the powers of attorney and other rights and interests
granted by the Sellers to Buyer hereunder and agrees to cooperate fully with
the Trustee in the exercise of the rights.
SECTION 10.12 No Partnership or Joint Venture. Nothing contained in
-------------------------------
this Agreement shall be deemed or construed by the parties hereto or by any
third person to create the relationship of principal and agent or of
partnership or of joint venture.
SECTION 10.13 No Proceedings. Each Seller hereby agrees that it
--------------
will not institute against Buyer or the Trust, or join any other Person in
instituting against Buyer or the Trust,
page 37
<PAGE>
any insolvency proceeding (namely, any proceeding of the type referred to in
the definition of Event of Bankruptcy) so long as any Investor Certificates
issued by the Trust shall be outstanding or there shall not have elapsed one
year plus one day since the last day on which any such Investor Certificates
shall have been outstanding. The foregoing shall not limit the right of a
Seller to file any claim in or otherwise take any action with respect to any
insolvency proceeding that was instituted against Buyer or the Trust by any
Person other than a Seller or any other WRO Person (provided that no such
action may be taken by a Seller until such proceeding has continued
undismissed, unstayed and in effect for a period of 10 days).
SECTION 10.14 Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement or any of the
other Transaction Documents shall for any reason whatsoever be held invalid,
then the unenforceable covenants, agreements, provisions or terms shall be
deemed severable from the remaining covenants, agreements, provisions or terms
of this Agreement or the other Transaction Documents (as applicable) and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or any of the other Transaction Documents.
SECTION 10.15 Recourse to Buyer. Except to the extent expressly
-----------------
provided otherwise in the Transaction Documents, the obligations of Buyer under
the Transaction Documents to which it is a party are solely the obligations of
Buyer, and no recourse shall be had for payment of any fee payable by or other
obligation of or claim against Buyer that arises out of any Transaction
Document to which Buyer is a party against any director, officer or employee of
Buyer. The provisions of this section shall survive the termination of this
Agreement.
[Remainder of page intentionally left blank.]
page 38
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
WILLIAMHOUSE-REGENCY OF DELAWARE, INC.,
as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
CREATIVE CARD COMPANY,
as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
KAROLTON ENVELOPE COMPANY,
as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
<PAGE>
THE PRECIOUS COLLECTION, INC.
as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
REGENCY THERMOGRAPHERS, INC.
as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
REGENCY THERMOGRAPHERS OF CALIFORNIA,
INC., as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
page 40
<PAGE>
REGENCY THERMOGRAPHERS OF ILLINOIS,
INC., as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
REGENCY THERMOGRAPHERS OF WASHINGTON,
INC., as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
REGENCY-SONNELL GREETINGS, INC.,
as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
page 41
<PAGE>
STATIONERY HOUSE INC. VIP DIVISION,
as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
WILLIAMHOUSE SALES CORPORATION
as Seller
By:
-----------------------------------
Title:
-------------------------------
Address: 17304 Preston Road
Suite 700
Dallas, Texas 75252-5613
Attention: Chief Financial Officer
Telephone: (214) 733-6200
Facsimile: (214) 733-6260
NOTEPAD FUNDING CORPORATION
as the Buyer
By:
-----------------------------------
Title:
-------------------------------
Address: c/o AMACAR Group
6707D Fairview Road
Charlotte, North Carolina 28210
Attention: Juliana C. Johnson
Telephone: (704) 365-0569
Facsimile: (704) 365-1362
page 42
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
WILLIAMHOUSE-REGENCY OF DELAWARE, INC., a Delaware corporation, the corporation
described in and that executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
CREATIVE CARD COMPANY, a _____________ corporation, the corporation described
in and that executed the foregoing instrument; and that he signed his name
thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
KAROLTON ENVELOPE COMPANY, a _____________ corporation, the corporation
described in and that executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
THE PRECIOUS COLLECTION, INC., a _____________ corporation, the corporation
described in and that executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
REGENCY THERMOGRAPHERS, INC., a _____________ corporation, the corporation
described in and that executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
REGENCY THERMOGRAPHERS OF CALIFORNIA, INC., a _____________ corporation, the
corporation described in and that executed the foregoing instrument; and that
he signed his name thereto by order of the board of directors of the
corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
REGENCY THERMOGRAPHERS OF ILLINOIS, INC., a _____________ corporation, the
corporation described in and that executed the foregoing instrument; and that
he signed his name thereto by order of the board of directors of the
corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
REGENCY THERMOGRAPHERS OF WASHINGTON, INC., a _____________ corporation, the
corporation described in and that executed the foregoing instrument; and that
he signed his name thereto by order of the board of directors of the
corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
REGENCY-SONNELL GREETINGS, INC., a _____________ corporation, the corporation
described in and that executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of______________, 1995 before me personally came
________________ to me known, who, being by me duly sworn, did depose and say
that he resides at ___________________; that he is a _____________________ of
STATIONERY HOUSE INC. VIP DIVISION, a _____________ corporation, the
corporation described in and that executed the foregoing instrument; and that
he signed his name thereto by order of the board of directors of the
corporation.
Given under my hand and notarial seal, this __th day of _____________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF NEW YORK )
On the __th day of ________________, 1995 before me personally came
______________ to me known, who, being by me duly sworn, did depose and say
that he resides at _________________________; that he is the ______________ of
WILLIAMHOUSE SALES CORPORATION, a __________ corporation, the corporation
described in and that executed the foregoing instrument; and that he signed his
name thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __th day of ______________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
STATE OF NORTH CAROLINA )
) SS.
COUNTY OF MECKLENBURG )
On the __th day of ________________, 1995 before me personally came
______________ to me known, who, being by me duly sworn, did depose and say
that he resides at _________________________; that he is the ______________ of
NOTEPAD FUNDING CORPORATION, a Delaware corporation, the corporation described
in and that executed the foregoing instrument; and that he signed his name
thereto by order of the board of directors of the corporation.
Given under my hand and notarial seal, this __th day of ______________,
1995.
----------------------------------
Notary Public
Type or
Print Name:
----------------------
My commission expires:
- ----------------------
<PAGE>
EXHIBIT A
FORM OF PURCHASE MONEY NOTE
---------------------------
October 31, 1995
FOR VALUE RECEIVED, the undersigned, NOTEPAD FUNDING CORPORATION, a
Delaware corporation ("Buyer"), promises to pay to WILLIAMHOUSE-REGENCY OF
DELAWARE, INC., a Delaware corporation ("WRO" and together with its successors
and assigns, the "Holder"), on the terms and subject to the conditions set
forth in this promissory note (this "Note") and in the Receivables Purchase
Agreement of even date herewith (the "Agreement") between Buyer and WRO, an
amount equal to the aggregate unpaid principal amount of all borrowings deemed
to be made by Buyer from WRO pursuant to Article III of the Agreement. Such
amount, as shown in the records of the Servicer, will be rebuttable presumptive
evidence of the principal amount and interest owing under this Note.
1. Purchase Agreement. This Note is the Purchase Money Note
------------------
described in, and is subject to the terms and conditions set forth in, the
Agreement. Reference is hereby made to the Agreement for a statement of
certain other rights and obligations of Buyer and WRO.
2. Rules of Construction; Definitions. Certain rules of
----------------------------------
construction governing the interpretation of this Note are set forth in
Appendix A to the Agreement and, except as otherwise specifically provided
herein, capitalized terms used but not defined herein have the meanings
ascribed to them in Appendix A to the Agreement. In addition, as used herein,
the following terms have the following meanings:
"Bankruptcy Proceedings" means any dissolution, winding up,
liquidation, readjustment, reorganization or other similar event relating
to Buyer, whether voluntary or involuntary, partial or complete, and
whether in bankruptcy, insolvency, receivership or other similar
proceedings, or upon an assignment for the benefit of creditors, or any
other marshalling of the assets and liabilities of Buyer or any sale of
all or substantially all of the assets of Buyer; provided, however, that
none of the commencement of the Liquidation Period, the allocation and
distribution of Collections and other amounts during the Liquidation
Period in accordance with the terms of the Pooling Agreement and the
liquidation, dissolution and winding up of Buyer during the Liquidation
Period in accordance with the Pooling Agreement after the termination of
the Pooling Agreement in accordance with Section 12.01 thereof shall
constitute a "Bankruptcy Proceeding," so long as no bankruptcy,
insolvency, receivership or other similar proceedings shall have been
commenced by or against Buyer and be continuing.
page 1
<PAGE>
"Final Maturity Date" means the date occurring one year and one day
after the Final Scheduled Payment Date of the latest maturing Series or
Purchased Interest from time to time outstanding.
"Highest Lawful Rate" has the meaning set forth in paragraph 9.
-----------
"Junior Liabilities" means all obligations of Buyer to the Holder
under this Note.
"Reference Rate" means, with respect to any day occurring in a
Calculation Period, the rate of interest publicly announced from time to
time by Bankers Trust Company as its "prime rate" and in effect on the
first day of such Calculation Period, as determined by the Servicer.
"Senior Interests" means all obligations of Buyer to the Trustee or
the Investor Certificateholders under or in connection with the
Transaction Documents, whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due, including
without limitation interest or other amounts due or to become due after
an Event of Bankruptcy.
"Subordination Provisions" means, collectively, the provisions of
paragraph 7.
-----------
3. Interest. Subject to the Subordination Provisions, Buyer
--------
promises to pay interest on the aggregate unpaid principal amount of this Note
outstanding on each day at an adjustable rate per annum equal to the Reference
Rate in effect on such day.
4. Interest Payment Dates. (a) Subject to the Subordination
----------------------
Provisions, Buyer shall pay accrued interest on this Note on each Settlement
Date and on the Final Maturity Date. Buyer also shall pay accrued interest on
the principal amount of each prepayment hereof on the last day of each calendar
month.
(b) Notwithstanding the provisions of paragraph 4(a), in the event
--------------
that on the date an interest payment is due hereunder the amount of funds
available therefor pursuant to the Pooling Agreement is insufficient to pay any
amount due pursuant to paragraph 4(a), then interest shall be payable only
--------------
to the extent that funds are available therefor in accordance with the Pooling
Agreement. All interest on this Note that is not paid when due pursuant to
this paragraph shall be payable on the next date on which an interest payment
on this Note is due and on which funds are available therefor pursuant to the
Pooling Agreement, and all such unpaid interest shall accrue interest at the
Reference Rate until paid in full.
5. Basis of Computation. Interest accrued hereunder shall be
--------------------
computed for the actual number of days elapsed on the basis of a 360-day year.
page 2
<PAGE>
6. Principal Payment Dates. Subject to the Subordination
-----------------------
Provisions, any unpaid principal of this Note shall only become due and payable
on the Final Maturity Date. Subject to the Subordination Provisions, the
principal amount of and accrued interest on this Note may be prepaid on any
Business Day without premium or penalty; provided, that no prepayment shall be
made by Buyer to the extent that such prepayment would result in a default in
the payment of any other amount required to be paid by Buyer under any
Transaction Document.
7. Subordination Provisions. Buyer covenants and agrees, and the
------------------------
Holder, by its acceptance of this Note, likewise covenants and agrees, that the
payment of all Junior Liabilities is hereby expressly subordinated in right of
payment to the payment and performance of the Senior Interests to the extent
and in the manner set forth in this paragraph:
(a) In the event of any Bankruptcy Proceeding, the Senior
Interests shall first be paid and performed in full and in cash before
the Holder shall be entitled to receive and to retain any payment or
distribution in respect of the Junior Liabilities. In order to implement
the foregoing: (i) all payments and distributions of any kind or
character in respect of the Junior Liabilities to which the Holder would
be entitled except for this clause (a) shall be made directly to the
----------
Trustee (for the benefit of itself and the Investor Certificateholders),
and (ii) if a Bankruptcy Proceeding has been commenced, the Holder shall
promptly file a claim or claims, in the form required in any Bankruptcy
Proceedings, for the full outstanding amount of the Junior Liabilities,
and shall use commercially reasonable efforts to cause said claim or
claims to be approved and all payments and other distributions in respect
thereof to be made directly to the Trustee (for the benefit of itself and
the Investor Certificateholders) until the Senior Interests shall have
been paid and performed in full and in cash.
(b) In the event that the Holder receives any payment or other
distribution of any kind or character from Buyer or from any other source
whatsoever, in payment of the Junior Liabilities, after the commencement
of any Bankruptcy Proceeding, such payment or other distribution shall be
received in trust for the Trustee and the Investor Certificateholders and
shall be turned over by the Holder to the Trustee forthwith.
(c) Upon the final indefeasible payment in full and in cash of all
Senior Interests, the Holder shall be subrogated to the rights of the
Trustee and the Investor Certificateholders to receive payments or
distributions from Buyer that are applicable to the Senior Interests
until the Junior Liabilities are paid in full.
(d) These Subordination Provisions are intended solely for the
purpose of defining the relative rights of the Holder, on the one hand,
and the Trustee and the Investor Certificateholders on the other hand.
Nothing contained in these
page 3
<PAGE>
Subordination Provisions or elsewhere in this Note is intended to or
shall impair, as between Buyer, its creditors (other than the Trustee and
the Investor Certificateholders) and the Holder, Buyer's obligation,
which is unconditional and absolute, to pay the Junior Liabilities as and
when the same shall become due and payable in accordance with the terms
hereof and of the Agreement or to affect the relative rights of the
Holder and creditors of Buyer (other than the Trustee and the Investor
Certificateholders).
(e) The Holder shall not, until the Senior Interests have been
finally paid and performed in full and in cash, (i) cancel, waive,
forgive, transfer or assign, or commence legal proceedings to enforce or
collect, or subordinate to any obligation of Buyer (other than to the
Senior Interests), howsoever created, arising or evidenced, whether
direct or indirect, absolute or contingent, or now or hereafter existing,
or due or to become due, the Junior Liabilities or any rights in respect
hereof or (ii) convert the Junior Liabilities into an equity interest in
Buyer, unless, in the case of each of clauses (i) and (ii), the
----------- ----
Holder shall have received the prior written consent of the Trustee in
each case.
(f) The Holder shall not, without the advance written consent of
the Trustee, commence, or join with any other Person in commencing, any
Bankruptcy Proceedings with respect to Buyer until at least one year and
one day shall have passed after the Senior Interests shall have been
finally paid and performed in full and in cash; provided, however, that
the Holder shall at all times have the right to file any claim in or
otherwise take any action with respect to any insolvency proceeding
instituted against Buyer by any Person other than the Holder or any other
WRO Person (provided that no such action may be taken by the Holder
until such proceeding has continued undismissed, unstayed and in effect
for a period of 10 days).
(g) If, at any time, any payment (in whole or in part) made with
respect to any Senior Interest is rescinded or must be restored or
returned by a Certificateholder (whether in connection with any
Bankruptcy Proceedings or otherwise), these Subordination Provisions
shall continue to be effective or shall be reinstated, as the case may
be, as though such payment had not been made.
(h) Each of the Trustee and the Investor Certificateholders may,
from time to time, in its sole discretion, without notice to the Holder,
and without waiving any of its rights under these Subordination
Provisions, take any or all of the following actions: (i) retain or
obtain an interest in any property to secure any of the Senior Interests,
(ii) retain or obtain the primary or secondary obligations of any other
obligor or obligors with respect to any of the Senior Interests, (iii)
extend or renew for one or more periods (whether or not longer than the
original period), alter, increase or exchange any of the Senior
Interests, or release or compromise any
page 4
<PAGE>
obligation of any nature with respect to any of the Senior Interests,
(iv) amend, supplement, amend and restate, or otherwise modify any
Transaction Document to which it is a party, and (v) release its security
interest in, or surrender, release or permit any substitution or exchange
for all or any part of any rights or property securing any of the Senior
Interests, or extend or renew for one or more periods (whether or not
longer than the original period), or release, compromise, alter or
exchange any obligations of any nature of any obligor with respect to any
such rights or property.
(i) The Holder hereby waives: (i) notice of acceptance of these
Subordination Provisions by the Trustee or any of the Investor
Certificateholders, (ii) notice of the existence, creation, non-payment
or non-performance of all or any of the Senior Interests, and (iii) all
diligence in enforcement, collection or protection of, or realization
upon, the Senior Interests, or any thereof, or any security therefor.
(j) These Subordination Provisions constitute a continuing offer
from Buyer to all Persons who become the holders of, or who continue to
hold, Senior Interests, and these Subordination Provisions are made for
the benefit of the Trustee and the Investor Certificateholders, and the
Trustee may proceed to enforce such provisions on behalf of each of such
Persons.
8. General. No failure or delay on the part of the Holder in
-------
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No amendment, modification or waiver of, or consent with respect to, any
provision of this Note shall in any event be effective unless (a) the same
shall be in writing and signed and delivered by Buyer and WRO, and (b) all
consents required for such actions under the Transaction Documents shall have
been received by the appropriate Persons.
9. Limitation on Interest. Notwithstanding anything in this Note to
----------------------
the contrary, Buyer shall never be required to pay unearned interest on any
amount outstanding hereunder, and shall never be required to pay interest on
the principal amount outstanding hereunder, at a rate in excess of the maximum
non-usurious interest rate that may be contracted for, charged or received
under applicable federal or state law (such maximum rate being herein called
the "Highest Lawful Rate"). If the effective rate of interest that would
otherwise be payable under this Note would exceed the Highest Lawful Rate, or
the Holder shall receive any unearned interest or shall receive monies that are
deemed to constitute interest that would increase the effective rate of
interest payable by Buyer under this Note to a rate in excess of the Highest
Lawful Rate, then (a) the amount of interest that would otherwise be payable by
Buyer under this Note shall be reduced to the amount allowed by applicable law,
and (b) any unearned interest paid by Buyer or any interest paid by Buyer in
excess of the Highest Lawful Rate shall be refunded to Buyer. Without
limitation of the foregoing, all calculations
page 5
<PAGE>
of the rate of interest contracted for, charged or received by the Holder under
this Note that are made for the purpose of determining whether such rate
exceeds the Highest Lawful Rate shall be made, to the extent permitted by
applicable usury laws (now or hereafter enacted), by amortizing, prorating and
spreading in equal parts during the actual period during which any amount has
been outstanding hereunder all interest at any time contracted for, charged or
received by WRO in connection herewith. If at any time and from time to time
(i) the amount of interest payable to the Holder on any date shall be computed
at the Highest Lawful Rate pursuant to the provisions of the foregoing
sentence, and (ii) in respect of any subsequent interest computation period the
amount of interest otherwise payable to the Holder would be less than the
amount of interest payable to the Holder computed at the Highest Lawful Rate,
then the amount of interest payable to the Holder in respect of such subsequent
interest computation period shall continue to be computed at the Highest Lawful
Rate until the total amount of interest payable to the Holder shall equal the
total amount of interest that would have been payable to the Holder if the
total amount of interest had been computed without giving effect to the
provisions of the foregoing sentence.
10. No Negotiation. This Note is not negotiable.
--------------
11. Governing Law. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT
-------------
MADE UNDER AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
12. Security Interest. The Seller may grant a security interest in
-----------------
or otherwise pledge this Note as security, and any Person to whom such security
interest is granted or to whom this Note is pledged shall be bound by, and for
all purposes takes this Note subject to, the restrictions and other provisions
(including the Subordination Provisions) set forth herein.
13. Captions. Paragraph captions used in this Note are provided
--------
solely for convenience of reference and shall not affect the meaning or
interpretation of any provision of this Note.
page 6
<PAGE>
NOTEPAD FUNDING CORPORATION
By:
---------------------------------
Title:
-----------------------------
page 7
<PAGE>
EXHIBIT B
FORM OF
SELLER ASSIGNMENT CERTIFICATE
-----------------------------
Reference is made to the Receivables Purchase Agreement of even date
herewith (as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time, the "Agreement") between
Williamhouse-Regency of Delaware, Inc., certain of its subsidiaries and Notepad
Funding Corporation ("Buyer"). Unless otherwise defined herein, capitalized
terms used herein have the meanings provided in Appendix A to the Agreement.
The undersigned (the "Seller") hereby sells, transfers, assigns, sets
over and conveys unto Buyer and its successors and assigns all right, title and
interest of the Seller in, to and under:
(a) each Receivable of the Seller that existed and was owing to
the Seller as at the closing of the Seller's business on the Initial
Cut-Off Date,
(b) each Receivable created by the Seller that arises during the
period from and including the closing of the Seller's business on the
Initial Cut-Off Date to but excluding the Purchase Termination Date,
(c) all Related Security with respect to all Receivables of the
Seller,
(d) all proceeds of the foregoing, including all funds received by
any Person in payment of any amounts owed (including invoice prices,
finance charges, interest and all other charges, if any) in respect of
any Receivable described above or Related Security with respect to any
such Receivable, or otherwise applied to repay or discharge any such
Receivable (including insurance payments that the Seller or the Servicer
applies in the ordinary course of its business to amounts owed in respect
of any such Receivable (it being understood that property insurance
covering inventory is not so applied and is not included in this grant)
and net proceeds of any sale or other disposition of repossessed goods
that were the subject of any such Receivable) or other collateral or
property of any Obligor or any other party directly or indirectly liable
for payment of such Receivables), and
(e) all Records relating to any of the foregoing.
This Seller Assignment Certificate is made without recourse but on the
terms and subject to the conditions set forth in the Transaction Documents to
which the Seller is a party. The Seller acknowledges and agrees that Buyer is
accepting this Seller Assignment
page 1
<PAGE>
Certificate in reliance on the representations, warranties and covenants of the
Seller contained in the Transaction Documents to which the Seller is a party.
THIS SELLER ASSIGNMENT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE
WITH THE AGREEMENT AND THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the undersigned has caused this Seller Assignment
Certificate to be duly executed and delivered by its duly Authorized Officer
this 31st day of October, 1995.
[SELLER FULL NAME]
By:
-----------------------------------
Title:
-----------------------------
page 2
<PAGE>
SCHEDULE 1
to Purchase Agreement
LITIGATION AND OTHER PROCEEDINGS
--------------------------------
<PAGE>
SCHEDULE 2
to Purchase Agreement
CHANGES IN FINANCIAL CONDITION
------------------------------
<PAGE>
SCHEDULE 3
to Purchase Agreement
OFFICES OF THE SELLER WHERE
RECORDS ARE MAINTAINED
-------------------------------
<PAGE>
SCHEDULE 4
to Purchase Agreement
LEGAL NAMES
-----------
[to be completed]
TRADE NAMES
-----------
[to be completed]
<PAGE>
PROJECT NOTEPAD
APPENDIX A
DEFINITIONS
A. Defined Terms. As used in the Purchase Agreement, the Pooling
Agreement or any Supplement:
"Account Agreements" means the Concentration Account Agreements and the
Lockbox Agreements.
"Account Banks" means the Concentration Account Banks and the Lockbox
Banks.
"Adjusted Eligible Receivables" is defined, for the purposes of the
Purchase Agreement, in the Series 1995-1 Supplement.
"Adverse Claim" means any claim of ownership interest or any mortgage,
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other) or other security interest.
"Affiliate" means, with respect to a Person, any other Person directly or
indirectly controlling, controlled by or under common control with such Person.
"Agent" means, with respect to a Series or Purchased Interest, any
Person(s) designated as the agent(s) for the Certificateholders or the
Purchaser in the related Supplement or PI Agreement.
"Aggregate Unpaid Balance" is defined in Section 2.1(b) of the Purchase
Agreement.
"Ampad Group" means (i) divisions or operating units of Sellers engaged
in lines of business that were, prior to the Closing Date, engaged in by Ampad
Corporation and its subsidiaries, and (ii) divisions or operating units of
Sellers engaged in lines of business that were not engaged in by Ampad
Corporation, WRO or their subsidiaries prior to the Closing Date, provided that
such Sellers are included with the Sellers referred to in clause (i) above for
purposes of WRO's management reporting.
"Applicant" is defined in Section 6.7 of the Pooling Agreement.
"Applicable Ratings Factor" is defined, for the purposes of the Purchase
Agreement, in the Series 1995-1 Supplement.
<PAGE>
"Authorized Newspaper" means a newspaper of general circulation in the
Borough of Manhattan, The City of New York printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays and holidays.
"Authorized Officer" means, with respect to Transferor, Servicer or any
Seller, the Chief Executive Officer, the President, the Treasurer, the Chief
Financial Officer, any Vice President and any Assistant Treasurer.
"Available Final Distribution Amount" means, with respect to any Series,
the amount that would be available in the Master Collection Account on the
Final Scheduled Payment Date for the Series for distribution to the
Certificateholders of such Series.
"Bank Accounts" means the Lockbox Accounts and the Concentration
Accounts.
"Bankruptcy Event" means, for any Person, any of the following events:
(a) a case or other proceeding shall be commenced, without the
application or consent of such Person, in any court, seeking the
liquidation, reorganization, debt arrangement, dissolution, winding up or
composition or readjustment of debts of such Person, the appointment of a
trustee, receiver, custodian, liquidator, assignee, sequestrator or the
like for such Person or any substantial part of its assets, or any
similar action with respect to such Person under any law relating to
bankruptcy, insolvency, reorganization, winding up or composition or
adjustment of debts, and such case or proceeding shall continue
undismissed, or unstayed and in effect, for a period of (i) in the case
of any Person other than Transferor, 60 days and (ii) in the case of
Transferor, 10 days; or an order for relief in respect of such Person
shall be entered in an involuntary case under the federal bankruptcy laws
or other similar laws now or hereafter in effect, or
(b) such Person shall commence a voluntary case or other
proceeding under any applicable bankruptcy, insolvency, reorganization,
debt arrangement, dissolution or other similar law now or hereafter in
effect, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or the
like, for such Person or any substantial part of its property, or shall
make any general assignment for the benefit of creditors, or shall fail
to, or admit in writing its inability to, pay its debts generally as they
become due.
"Base Amount" is defined, for purposes of any Series or Purchased
Interest, in the applicable Supplement or PI Agreement.
"Benchmark Percentage" is defined, for purposes of the Purchase
Agreement, in the Series 1995-1 Supplement.
page A-2
<PAGE>
"Book-Entry Certificates" means certificates evidencing a beneficial
interest in the Investor Certificates, ownership and transfers of which shall
be made through book entries by a Clearing Agency as described in Section 6.11
of the Pooling Agreement; provided that after the occurrence of a condition
whereupon book-entry registration and transfer are no longer permitted and
Definitive Certificates are to be issued to the Certificate Owners, such
certificates shall no longer be "Book-Entry Certificates".
"Business Day" means a day (other than a Saturday or Sunday) on which
commercial banks in New York, New York are not authorized or required to be
closed for business.
"Buyer" is defined in the preamble to the Purchase Agreement.
"Calculation Period" means a fiscal month of WRO.
"Carrying Cost Account" is defined in Section 4.2 of the Pooling
Agreement.
"Carrying Costs" means, for any period, (a) interest or yield payable
with respect to any Series or Purchased Interest for that period, (b) the
aggregate Servicing Fee for the period in the applicable amount provided for in
Section 3.4 of the Pooling Agreement, (c) the operating expenses described in
Section 7.2(m) of the Pooling Agreement for the period and (d) other fees,
costs and expenses incurred by Transferor and Trustee for the period and paid
to Persons other than WRO Persons in connection with its duties under the
Transaction Documents (in the case of Trustee, to the extent not included in
the Servicing Fee).
"Certificate" means any Investor Certificate or the Transferor
Certificate.
"Certificateholder" means the Person in whose name a Certificate is
registered in the Certificate Register.
"Certificate Owner" means, with respect to a Book-Entry Certificate, the
Person who is the owner of such Book-Entry Certificate, as reflected on the
books of the Clearing Agency, or on the books of a Person maintaining an
account with such Clearing Agency (directly or as an indirect participant, in
accordance with the rules of such Clearing Agency).
"Certificate Register" means the register maintained pursuant to Section
6.3 of the Pooling Agreement.
"Clearing Agency" means, with respect to any Book-Entry Certificate, any
Person designated as such by Transferor, which person must be registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange Act of
1934.
"Clearing Agency Participant" is defined in Section 6.11(d) of the
Pooling Agreement.
page A-3
<PAGE>
"Collections" means all funds that are received by any Seller,
Transferor, Servicer or Trustee from or on behalf of any Obligor in payment of
any amounts owed (including invoice prices, finance charges, interest and all
other charges, if any) in respect of any Receivable or Related Asset, or
otherwise applied to repay or discharge any Receivable (including insurance
payments that any Seller, Transferor or Servicer applies in the ordinary course
of its business to amounts owed in respect of such Receivable and net proceeds
of sale or other disposition of repossessed goods that were the subject of such
Receivable).
"Concentration Account" means any bank account that is maintained in
accordance with, and to perform the functions contemplated for Concentration
Accounts in, Section 3.3 of the Pooling Agreement.
"Concentration Account Agreement" means a letter agreement, substantially
in the form of Exhibit B to the Pooling Agreement (or such other form as to
which the Rating Agency Condition has been satisfied), among Transferor,
Servicer, a Concentration Account Bank and Trustee that relates to one or more
Concentration Accounts, as it may be amended, supplemented or otherwise
modified from time to time.
"Concentration Account Banks" means any of the banks at which one or more
Concentration Accounts are maintained from time to time.
"Contract" means an agreement between a Seller and any Person pursuant to
which such Person is obligated to make payments in respect of any Receivable or
Related Asset.
"Corporate Trust Office" means the principal office of Trustee in
Buffalo, New York at which at any particular time its corporate trust business
shall be principally administered.
"Credit and Collection Policy" means (a) so long as no Successor Servicer
has been appointed, with respect to any Seller, its credit and collection
policies and practices relating to the Contracts and Receivables of such Seller
in existence on the First Issuance Date, as such credit and collection policies
may be modified without violating Section 7.3(c) of the Purchase Agreement or
Section 7.2(g) of the Pooling Agreement or (b) with respect to any Successor
Servicer, its collection policies and practices with respect to receivables
like the Receivables.
"Current Purchase Money Note Carrying Costs" means the Purchase Money
Note balance on the immediately preceding Distribution Date multiplied by the
prime rate on such day.
"Cut-Off Date" means the last day of any Calculation Period.
"Daily Report" is defined in Section 3.5 of the Pooling Agreement.
page A-4
<PAGE>
"Defaulted Receivable" means a Receivable: (a) as to which any payment,
or part thereof, remains unpaid for more than 120 days after the invoice date
for such Receivable; (b) with regard to the Obligor of which a Bankruptcy Event
has occurred; or (c) which has been written off as uncollectible by a Seller or
which, consistent with the Credit and Collection Policy of the applicable
Seller, should be written off as uncollectible by such Seller.
"Definitive Certificates" means any Certificate other than a Book-Entry
Certificate.
"DCR" means Duff & Phelps Credit Rating Co.
"Dilution" means any reduction in the balance of a Receivable or check
issued by any Seller to an Obligor on account of discounts, incorrect billings,
credits, rebates, allowances, chargebacks, returned or repossessed goods,
allowances for early payments or any other reduction in the balance of a
Receivable other reason unrelated to the inability of the Obligor to pay the
Receivable.
"Discount Rate" is defined in Section 2.2(d) of the Purchase Agreement.
"Disposition" is defined in Section 9.3 of the Pooling Agreement.
"Distribution Date" means the 15th day of each calendar month (or, if not
a Business Day, the next Business Day).
"Distribution Period" means each period from one Distribution Date to the
next Distribution Date.
"Dollars" means dollars in lawful money of the United States of America.
"Domestic Person" means any Person that has a place of business located
in the United States or Puerto Rico or otherwise is subject to the jurisdiction
of one or more civil courts of the United States (other than by reason of
contractual submission to such jurisdiction).
"Early Amortization Event" means, with respect to any Series or Purchased
Interest, any event identified as an Early Amortization Event in the related
Supplement or PI Agreement.
"Early Amortization Period" is defined, for purposes of any Series or
Purchased Interest, in the related Supplement or PI Agreement.
"Eligible Deposit Account" means (a) a segregated trust account maintained
at a national bank with a long-term debt rating of at least A (or, in the case
of a Bank Account, BBB) from S&P, (b) a deposit account maintained with a bank
that has an unsecured long-
page A-5
<PAGE>
term debt rating of A, or a short-term rating of at least A-1,
from S&P or (c) another deposit account as to which the Rating Agency Condition
has been satisfied.
"Eligible Investments" means any of the following:
(a) deposit accounts that are established and maintained at a
financial institution, the short-term debt securities or certificates of
deposit of which have at the time of investment the highest short-term
debt or certificate of deposit rating (as the case may be) available from
the Rating Agencies, and that are held in the name of Trustee in trust
for the benefit of the Certificateholders, subject to the exclusive
custody and control of Trustee and for which Trustee has sole signature
authority; provided that this clause shall not apply to the Lockbox
Accounts or to the Transaction Accounts;
(b) marketable obligations of the United States of America, the
full and timely payment of principal and interest on which is backed by
the full faith and credit of the United States of America, that have a
maturity date not later than the next succeeding Distribution Date;
(c) marketable obligations directly and fully guaranteed by the
United States of America, the full and timely payment of principal and
interest on which is backed by the full faith and credit of the United
States of America, that have a maturity date not later than the next
succeeding Distribution Date;
(d) banker's acceptances, certificates of deposit and other
interest-bearing obligations denominated in Dollars (subject to the
proviso at the end of this definition), that have a maturity date not
later than the next succeeding Distribution Date;
(e) repurchase agreements (i) that are entered into with any
financial institution having the ratings referred to in clause (a) and
(ii) that are secured by a perfected first priority security interest in
an obligation of the type described in clause (b) or (c); provided that
such obligation may mature later than the next succeeding Distribution
Date if such bank is required to repurchase such obligation not later
than the next succeeding Distribution Date; and provided further, that
(i) the market value of the obligation with respect to which such bank
has a repurchase obligation, determined as of the date on which such
obligation is originally purchased, shall equal or exceed 102% of the
repurchase price to be paid by such bank and (ii) Trustee or a custodian
acting on its behalf shall have possession of the instruments or
documents evidencing such obligations;
(f) guaranteed investment contracts entered into with any
financial institution, the short-term debt securities of which have the
highest short-term debt rating
page A-6
<PAGE>
available from the Rating Agencies that, in each case, have a maturity
date not later than the next succeeding Distribution Date;
(g) commercial paper (except for commercial paper issued by any
WRO Person) rated at the time of investment not less than "A-1+" or the
equivalent thereof by the Rating Agencies and having a maturity date not
later than the next succeeding Distribution Date; and
(h) freely redeemable shares in open-end money market mutual funds
(including such mutual funds that are offered by the Person who is acting
as Trustee or by any agent of such Person) that (i) maintain a constant
net-asset value and (ii) at the time of such investment have been rated
not less than "AAAm" or the equivalent thereof by S&P;
provided that (A) Trustee shall only acquire banker's acceptances and
certificates of deposit of, and enter into repurchase agreements with,
institutions whose short-term obligations have been rated not less than "A-1+"
or the equivalent thereof by the Rating Agencies and whose long-term
obligations have been rated not less than "AA-" by S&P, (B) the securities,
banker's acceptances, certificates of deposit, other obligations and repurchase
agreements described above shall only constitute "Eligible Investments" if and
to the extent that Servicer is satisfied that Trustee will have a perfected
security interest therein for the benefit of the Certificateholders and (C)
notwithstanding anything to the contrary herein or in the other Transaction
Documents, the term "Rating Agency," whenever used in this definition of
"Eligible Investments", shall be deemed to not include DCR to the extent that
an investment is rated by S&P, but not by DCR.
"Eligible Obligor" means, for purposes of any Series (unless otherwise
specified in the related Supplement) at any time, an Obligor that satisfies the
following criteria:
(a) it is a Domestic Person and is not (except as otherwise
specified for any Series in the related Supplement) (i) the United States
government or any of its agencies or instrumentalities or (ii) a state or
local government agency or instrumentality;
(b) it is not a direct or indirect Subsidiary of WRO or any other
entity with respect to which WRO or any of its Subsidiaries owns,
directly or indirectly, more than 50% of the entity's equity interests;
(c) with respect to which no Bankruptcy Event had occurred and was
continuing as of the end of the most recent Calculation Period and is
continuing; provided that this clause shall not apply if a bankruptcy
court has approved the Obligor's payment of its obligations on the
Receivables;
page A-7
<PAGE>
(d) as of the end of the most recent Calculation Period, no more
than 50% of all Receivables of the Obligor were (for reasons other than
disputes) aged more than 120 days past their respective invoice dates;
(e) as of the end of the most recent Calculation Period, none of
the Receivables of the Obligor were evidenced by promissory notes; and
(f) it is not an Obligor with whom the applicable Seller has a
"cash in advance" or "cash on account" arrangement (but may be an Obligor
that the applicable Seller bills in advance in accordance with that
Seller's customary practices, and not on account of concerns about the
creditworthiness of the Obligor).
"Eligible Receivable" means, for purposes of any Series (unless otherwise
specified in the related Supplement) at any time, a Receivable:
(a) that arises from the sale of goods or services by a Seller in
the ordinary course of its business;
(b) that represents a bona fide obligation resulting from a sale
of goods that have been shipped or services that have been performed and
is due and payable not more than 120 days after the date on which the
invoice for services or merchandise, the sale of which gave rise to such
Receivable, is provided or delivered;
(c) that, as of that time, is not aged more than (x) 90 days past
its invoice date, in the case of WRO Group, or (y) 60 days past its due
date, in the case of Ampad Group;
(d) that constitutes an account or a general intangible for the
payment of money and not an instrument or chattel paper;
(e) the Obligor of which is an Eligible Obligor;
(f) with regard to which both the representation and warranty of
Transferor in Section 2.3(a)(ii) of the Pooling Agreement and the
representation and warranty of the relevant Seller in Section 5.1(k) of
the Purchase Agreement are true and correct;
(g) the transfer of which (including the sale by the applicable
Seller to Transferor and the transfer by Transferor to the Trust) does
not contravene or conflict with any law, rule or regulation or any
contractual or other restriction, limitation or encumbrance that applies
to the applicable Seller, Transferor or the Trust, and the sale,
assignment or transfer of which, and the granting of a security interest
in which, does not require the consent of the Obligor thereof or any
other Person, other than any such consent that has been obtained;
page A-8
<PAGE>
(h) that is denominated and payable only in Dollars in the United
States of America and is non-interest bearing; provided that a Receivable
shall not be deemed to be interest-bearing solely as a result of the
applicable Seller's imposition of an interest or other charge on any such
Receivable that remains unpaid for some specified period (but such
interest charge or other charge shall not be included in the Unpaid
Balance of a Receivable for purposes of calculating the Base Amount);
(i) that arises under a Contract that has been duly authorized and
that, together with such Receivable, is in full force and effect and
constitutes the legal, valid and binding obligation of the Obligor of
such Receivable enforceable against such Obligor in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of
equity, regardless of whether such enforceability is considered in a
proceeding in equity or at law;
(j) that is not subject to any asserted reduction, cancellation,
or refund or any dispute, offset, counterclaim, lien or defense
whatsoever (including any potential reduction on account of any
offsetting account payable of Transferor or the applicable Seller to an
Obligor or funds of an Obligor held by Transferor or the Seller);
provided that a Receivable that is subject only in part to any of the
foregoing shall be an Eligible Receivable to the extent not subject to
reduction, cancellation, refund, dispute, offset, counterclaim, lien or
other defense;
(k) that, together with the Contract related thereto, was created
in accordance with, and conforms in all material respects with, all
applicable laws, rules, regulations, orders, judgments, decrees and
determinations of all courts and other governmental authorities (whether
Federal, state, local or foreign and including usury laws);
(l) that satisfies all applicable requirements of the Credit and
Collection Policy of the applicable Seller; and
(m) that has not been compromised, adjusted, satisfied,
subordinated, rescinded or modified (including by extension of time or
payment or the granting of any discounts, allowances or credits), except
as permitted by Section 7.2(g) of the Pooling Agreement.
"Eligible Servicer" means (a) WRO (b) Trustee or (c) an entity that, at
the time of its appointment as Servicer, (i) is servicing a portfolio of trade
receivables, (ii) is legally qualified and has the capacity to service the
Receivables, (iii) has demonstrated the ability to service professionally and
competently a portfolio of trade receivables similar to the Receivables in
accordance with high standards of skill and care, (iv) is qualified to use the
software that is then being used to service the Receivables or obtains the
right to use or has
page A-9
<PAGE>
its own software that is adequate to perform its duties under the Pooling
Agreement and (v) as to which the Rating Agency Condition has been satisfied.
"Enhancement" means, with respect to any Series or Purchased Interest,
any surety bond, letter of credit, guaranteed rate agreement, maturity guaranty
facility, cash collateral account or guaranty, tax protection agreement,
interest rate swap or other contract or agreement for the benefit of
Certificateholders of the Series or Purchaser of the Purchased Interest.
"Enhancement Provider" means the Person providing any Enhancement, other
than any Certificateholders, the Certificates of which are subordinated to any
Series or class of Certificates.
"Equalization Account" is defined in Section 4.2 of the Pooling
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Estimated Base Amount" is defined in Section 3.5 of the Pooling
Agreement.
"Excess Concentration Balances" is defined, for the purposes of the
Purchase Agreement, in the Series 1995-1 Supplement.
"Exchange Date" is defined in Section 6.11(c) of the Pooling Agreement.
"Excluded Losses" is defined in Section 8.4 of the Pooling Agreement.
"Exempt Person" means (x) a Person that was added to the Purchase
Agreement as a Seller pursuant to the last sentence of Section 1.7 thereof
without satisfaction of the Rating Agency Condition (or, if applicable, written
approval of the Trustee), or (y) a Person that merged with a Seller in
accordance with Section 6.3(d)(iii) of the Purchase Agreement without
satisfaction of the Rating Agency Condition (or, if applicable, written
approval of the Trustee).
"Existing Indenture" means the Indenture dated as of May 13, 1993 between
WR Acquisition, Inc., Williamhouse-Regency of Delaware, Inc. and United States
Trust Company of New York, as trustee.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto or to the functions thereof.
"Final Scheduled Payment Date" is defined, for purposes of any Series, in
the applicable Supplement.
"First Issuance Date" means October 31, 1995.
page A-10
<PAGE>
"GAAP" means United States generally accepted accounting principles.
"Governmental Authority" means the United States of America, any state or
other political subdivision thereof and any entity in the United States of
America or any applicable foreign jurisdiction that exercises executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" means any agreement or arrangement by which any Person
directly or indirectly guarantees, endorses, agrees to purchase or otherwise
becomes contingently liable upon any liability of any other Person (other than
by endorsements of instruments in the course of collection) or guarantees the
payment of distributions upon the shares of any other Person.
"Highest Bid" means the highest cash purchase offer for a Series received
by Servicer pursuant to Section 12.1 of the Pooling Agreement.
"Holdback Account" is defined in Section 4.2 of the Pooling Agreement.
"Holder" means the Person in whose name a Certificate is registered in
the Certificate Register or a Person who holds a Purchased Interest.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial
statement of WRO, any qualification or exception to such opinion or
certification that is of a "going concern" or similar nature.
"Indebtedness" of any Person means all of that Person's obligations for
borrowed money, obligations evidenced by bonds, debentures, notes or other
similar instruments, obligations as lessee under leases that are required by
GAAP to be recorded as capitalized leases and obligations to pay the deferred
purchase price of property or services.
"Indemnified Losses" is defined in Section 7.3 of the Pooling Agreement.
"Indemnified Party" is defined in Section 7.3 of the Pooling Agreement.
"Initial Cut-Off Date" means the Business Day immediately preceding the
First Issuance Date.
"Intercreditor Agreement" means an intercreditor agreement, in form and
substance satisfactory to the Trustee, between the Trustee and a secured
creditor of a Seller.
"Internal Revenue Code" means the Internal Revenue Code of 1986.
page A-11
<PAGE>
"Invested Amount" is defined, with respect to any Series or Purchased
Interest, in the related Supplement or PI Agreement.
"Investor Certificateholder" means the Person in whose name an Investor
Certificate is registered in the Certificate Register.
"Investor Certificates" means the Certificates issued pursuant to any
Supplement.
"Investor Exchange" is defined in Section 6.10(a) of the Pooling
Agreement.
"Issuance" is defined in Section 6.10(a) of the Pooling Agreement.
"Issuance Date" is defined in Section 6.10(b) of the Pooling Agreement.
"Issuance Notice" is defined in Section 6.10(b) of the Pooling Agreement.
"Lead Placement Agent" means any Person designated as such by Transferor
in connection with the issuance of any Investor Certificates.
"Letter of Representations" means the agreement among Transferor, Trustee
and the applicable Clearing Agency, with respect to any Book-Entry
Certificates, as the same may be amended, supplemented or otherwise modified
from time to time.
"Lockbox Accounts" means the bank accounts, maintained at those certain
locations described in Schedule 1 to the Pooling Agreement, into which
Collections from Receivables are deposited, and any bank account that is
hereafter created in accordance with, and to perform the functions contemplated
for "Lockbox Accounts" in, Section 3.3 of the Pooling Agreement.
"Lockbox Agreement" means any of the letter agreements delivered in
connection with the Pooling Agreement and any other letter agreement,
substantially in the form of Exhibit A to the Pooling Agreement (or such other
form as to which the Rating Agency Condition is satisfied), among a Lockbox
Bank, one or more Sellers, Servicer and Trustee that relates to one or more
Lockbox Accounts, as they may be amended, supplemented or otherwise modified
from time to time.
"Lockbox Bank" means any of the banks at which one or more Lockbox
Accounts are maintained from time to time.
"Loss Discount" is defined in Section 2.2(b) of the Purchase Agreement.
"Loss to Liquidation Ratio" is defined, for purposes of the Purchase
Agreement, in the Series 1995-1 Supplement.
page A-12
<PAGE>
"Loss Reserve Ratio" is defined, for purposes of the Purchase Agreement,
in the Series 1995-1 Supplement.
"Majority Investors" means Holders of Investor Certificates that
collectively evidence more than 50% of the outstanding principal amount of all
Investor Certificates.
"Master Collection Account" is defined in Section 4.2 of the Pooling
Agreement.
"Material Adverse Effect" means, with respect to Transferor, any WRO
Person, any Servicer and any event or circumstance at any time, a material
adverse effect on (a) the ability of that Person to perform its obligations
under any Transaction Document or (b) the validity, enforceability or
collectibility of any Receivables, Related Assets or Contracts that,
individually or in the aggregate, represent or evidence a right to payment in
excess of 5% of the aggregate Unpaid Balance of the Receivables at such time.
"Maximum Exposure Amount" is defined in Section 3.1(a) of the Purchase
Agreement.
"Member Organization" is defined in Section 6.11(c) of the Pooling
Agreement.
"Monthly Report" is defined in Section 3.5(d) of the Pooling Agreement.
"Net Invested Amount" is defined, for purposes of any Series, in the
applicable Supplement.
"New Issuance" is defined in Section 6.10(a) of the Pooling Agreement.
"Noncomplying Receivables and Dilution Adjustment" is defined in Section
3.1(b) of the Purchase Agreement.
"Obligations" means (a) all obligations of Buyer, the Sellers and the
Servicer to the Trustee, the Trust, any other Indemnified Party, the Investor
Certificateholders and their respective successors, permitted transferees and
assigns, arising under or in connection with the Transaction Documents, and (b)
all obligations of a Seller to Buyer, any other RPA Indemnified Party and their
respective successors, transferees and assigns, arising under or in connection
with the Transaction Documents, in each case howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due.
"Obligor" means a Person obligated to make payments on a Receivable.
"Officer's Certificate" means, unless otherwise specified in the Pooling
Agreement or in any Supplement, a certificate signed by an Authorized Officer of
Transferor or the initial Servicer, as the case may be, or, in the case of a
Successor Servicer, a certificate signed by
page A-13
<PAGE>
the President, any Vice President, Assistant Treasurer or the financial
controller (or an officer holding an office with equivalent or more senior
responsibilities) of such Successor Servicer, that, in the case of any of the
foregoing, is delivered to Trustee.
"Opinion of Counsel" means a written opinion of counsel, who shall be
reasonably acceptable to Trustee and, if the Rating Agencies are addressees,
the Rating Agencies.
"Paying Agent" means any paying agent appointed pursuant to Section 6.6
of the Pooling Agreement and shall initially be Trustee.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Adverse Claims" means (a) ownership or security interests
arising under the Transaction Documents, (b) liens for taxes, assessments or
charges of any governmental authority (other than Tax or ERISA Liens) and liens
of landlords, carriers, warehousemen, mechanics and materialmen imposed by law
in the ordinary course of business, in each case (i) for amounts not yet due or
(ii) which are being contested in good faith by appropriate proceedings and
with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP, provided that the aggregate amount
secured by all liens referred to in this clause (ii) does not exceed $1,000,000
(or for purposes of any Series, any different amount that may be specified in
the applicable Supplement), (c) any Tax or ERISA Lien the existence of which
does not give rise to an Early Amortization Event and (d) financing statements
for which the Trustee has received appropriate releases on or before the First
Issuance Date, provided that such termination statements with respect to
releases are recorded in appropriate UCC records within 3 Business Days of the
First Issuance Date.
"Permitted Terminating Seller" is defined in Section 1.8(a) of the
Purchase Agreement.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, government or any agency or political subdivision thereof or any other
entity.
"PI Agreement" means an agreement or agreements executed and delivered in
connection with the sale of a Purchased Interest, as amended, supplemented or
otherwise modified from time to time.
"Pooling Agreement" means the Pooling and Servicing Agreement, dated as
of October 31, 1995 among Transferor, as transferor, WRO, as Servicer, and
Trustee, as it may be amended, supplemented or otherwise modified from time to
time.
"Previously Terminated Seller Amount" is defined in Section 1.8 of the
Purchase Agreement.
page A-14
<PAGE>
"Principal Funding Account" is defined in Section 4.2 of the Pooling
Agreement.
"Process Agent" is defined in Section 10.7 of the Purchase Agreement.
"Pro Forma Financial Data" is defined in Section 5.1(i) of the Purchase
Agreement.
"Pro Forma Reserve" is defined in Section 3.1(a) of the Purchase
Agreement.
"Program" means the transactions contemplated in the Transaction
Documents.
"Publication Date" is defined in Section 9.3(a) of the Pooling Agreement.
"Purchase" means each purchase of Receivables and Related Assets by
Transferor from a Seller under the Purchase Agreement.
"Purchase Agreement" means the Receivables Purchase Agreement, dated as
of October 31, 1995, among the Sellers and Transferor, as it may be amended,
supplemented or otherwise modified from time to time.
"Purchase Money Note" is defined in Section 3.2 of the Purchase
Agreement.
"Purchased Interest" means a fluctuating undivided ownership interest in
the Transferred Assets, purchased pursuant to the PI Agreement related thereto,
that shall include the right to receive, to the extent necessary to make
required payments to Purchasers at the time and in the amounts specified in the
related PI Agreement, the portion of Collections allocable to such Purchased
Interest pursuant to the Pooling Agreement and the PI Agreement, funds on
deposit in the Master Collection Account allocable to the Purchased Interest
pursuant to the Pooling Agreement and the PI Agreement and funds available
pursuant to any related Enhancement.
"Purchase Discount Reserve Ratio" is defined in Section 2.2(c) of the
Purchase Agreement.
"Purchased Receivables" is defined in Section 1.1 of the Purchase
Agreement.
"Purchase Price" is defined in Section 2.1(b) of the Purchase Agreement.
"Purchase Price Credit" is defined in Section 3.1(d) of the Purchase
Agreement.
"Purchase Price Percentage" is defined in Section 2.2(a) of the Purchase
Agreement.
"Purchaser" means a purchaser, or any owner by permitted assignment, of a
Purchased Interest.
page A-15
<PAGE>
"Purchase Termination Date" means the earlier to occur of (a) the date
specified by the Sellers pursuant to Section 8.1 of the Purchase Agreement and
(b) any event referred to in Section 8.2 of the Purchase Agreement.
"Rating Agency" means each statistical rating agency that, at the request
of the Seller or Transferor, has rated any then-issued and outstanding Series
of Investor Certificates.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency has confirmed in writing that such action will not result in a
reduction or withdrawal of the rating of any outstanding Series with respect to
which it is a Rating Agency.
"Receivable" means any right of any Seller to payment, whether
constituting an account, chattel paper, instrument, general intangible or
otherwise, arising from the sale of goods, services or future services by such
Seller and includes the right to payment of any interest or finance charges and
other obligations with respect thereto.
"Receivables Pool" means at any time all Receivables then held by the
Trust.
"Record Date" means the Business Day that is three Business Days prior to
a Distribution Date.
"Records" means all Contracts, purchase orders, invoices and other
agreements, documents, books, records and other media for the storage of
information (including tapes, disks, punch cards, computer programs and
databases and related property) maintained by Transferor, the Sellers or
Servicer with respect to the Transferred Assets and/or the related Obligors.
"Recoveries" means all Collections received by the Trust in respect of
any Write-Off held by the Trust.
"Regulation S Book-Entry Certificate" is defined in Section 6.11(c) of
the Pooling Agreement.
"Regulation S Temporary Book-Entry Certificate" is defined in Section
6.11(c) of the Pooling Agreement.
"Related Assets" is defined in Section 1.1 of the Purchase Agreement.
"Related Security" means, with respect to any Receivable, (a) all of the
applicable Seller's right, title and interest in and to the goods, if any,
relating to the sale that gave rise to the Receivable, (b) all other security
interests or liens and property subject thereto from time to time purporting to
secure payment of the Receivable, whether pursuant to the Contract related to
the Receivable, or otherwise, and (c) all letters of credit, guarantees and
other agreements or arrangements of whatever character from time to time
supporting or
page A-16
<PAGE>
securing payment of the Receivable whether pursuant to the Contract related to
the Receivable or otherwise.
"Related Transferred Assets" is defined in Section 2.1(a) of the Pooling
Agreement.
"Report Date" means the Business Day that is three Business Days prior to
a Distribution Date.
"Required Investors" means Holders of Investor Certificates and
Purchasers that evidence at least 66-2/3% of the total outstanding principal
amount of Investor Certificates and Purchased Interests.
"Required Receivables" is defined, for purposes of any Series, in the
applicable Supplement.
"Required Series Holders" means with respect to any action to be taken by
Investor Certificateholders of any Series, unless otherwise specified in the
related Supplement, Investor Certificateholders that evidence at least 66-2/3%
of the principal amount of those Certificates.
"Responsible Officer" means, when used with respect to Trustee, (a) any
officer within the Corporate Trust Office (or any successor group of Trustee),
including any vice president, assistant vice president or any officer or
assistant trust officer of Trustee customarily performing functions similar to
those performed by the persons who hold the office of vice president, assistant
vice president, or assistant secretary and (b) any other officer within the
Corporate Trust Office with direct responsibility for the administration of the
Pooling Agreement or to whom any corporate trust matter is referred at
Trustee's Corporate Trust Office because of his knowledge of and familiarity
with the particular subject.
"Revolving Period" means, with respect to each Series, the period before
the commencement of the earliest of any applicable amortization period,
accumulation period or early amortization period.
"RPA Indemnified Losses" is defined in Section 9.1 of the Purchase
Agreement.
"RPA Indemnified Party" is defined in Section 9.1 of the Purchase
Agreement.
"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc.
"Securities Act" means the Securities Act of 1933, as amended.
page A-17
<PAGE>
"Seller" means each Person from time to time party to the Purchase
Agreement as a "Seller."
"Seller Account" is defined in Section 3.1(a) of the Purchase Agreement.
"Seller Assignment Certificate" means an assignment by a Seller,
substantially in the form of Exhibit B to the Purchase Agreement, evidencing
Transferor's acquisition of the Receivables and Related Assets generated by the
Seller, as it may be amended, supplemented or otherwise modified from time to
time.
"Seller Change Event" is defined in Section 3.5(e) of the Pooling
Agreement.
"Seller Dilution Adjustment" is defined in Section 3.5(b) of the Purchase
Agreement.
"Seller Guaranty" means the Guaranty, dated October 31, 1995, by
WRO of the Obligations of the other Sellers, as it may be amended,
supplemented or otherwise modified from time to time.
"Seller Maturity Date" is defined in Section 3.2 of the Purchase
Agreement.
"Seller Noncomplying Receivable" means a Receivable that does not meet
the criteria set forth in the definition of Eligible Receivables (after
excluding the criteria contained in clause (c) of such definition and the
criteria contained in clause (d) of the definition of Eligible Obligor).
"Seller Noncomplying Receivables Adjustment" is defined in Section 3.5(a)
of the Purchase Agreement.
"Seller Receivables Review" is defined in Section 6.1(c) of the Purchase
Agreement.
"Seller Transaction Documents" means the Purchase Agreement, the Seller
Assignment Certificates and the Account Agreements.
"Senior Interest" is defined in the Purchase Money Note.
"Series" means any series of Investor Certificates issued pursuant to
Section 6.10 of the Pooling Agreement.
"Series Collection Allocation Percentage" means, for any Series or
Purchased Interest at any time, the percentage equivalent of a fraction the
numerator of which is the Required Receivables for that Series or Purchased
Interest and the denominator of which is the sum of the Required Receivables
for all then outstanding Series and Purchased Interests.
page A-18
<PAGE>
"Series Interest" is defined in Section 4.1 of the Pooling Agreement.
"Series Loss Allocation Percentage" means, for any Series or Purchased
Interest for purposes of any Monthly Report, the percentage equivalent of a
fraction the numerator of which is the Invested Amount of that Series or
Purchased Interest and the denominator of which is the sum of the Invested
Amounts of all then outstanding Series and Purchased Interests, in each case
determined as of the beginning of the related Calculation Period (or such other
date as may be specified in the related Supplement or PI Agreement).
"Series 1995-1 Supplement" means the Series 1995-1 Supplement to Pooling
and Servicing Agreement, dated as of October 31, 1995 among Transferor, WRO and
Trustee, as in effect on the Closing Date.
"Servicer" means at any time the Person then authorized pursuant to
Article III of the Pooling Agreement to service, administer and collect
Receivables and Related Transferred Assets.
"Servicer Default" is defined in Section 10.1 of the Pooling Agreement.
"Service Transfer" is defined in Section 10.2(b) of the Pooling
Agreement.
"Servicing Fee" is defined in Section 3.4 of the Pooling Agreement.
"Settlement Period" means the period starting on one Distribution Date
and ending on the day prior to the next Distribution Date.
"Shared Investor Collections" means any funds identified as such in any
Supplement or PI Agreement.
"Shortfall" is defined, for any Series or Purchased Interest, in the
related Supplement or PI Agreement.
"Specified Assets" is defined in Section 1.1 of the Purchase Agreement.
"Subscription Agreement" means the Subscription and Stockholder
Agreement, dated as of October 31, 1995, between WRO and Buyer, as it
may be amended, supplemented, amended and restated or otherwise modified from
time to time in accordance with the Purchase Agreement and the Pooling
Agreement.
"Sub-Servicer" is defined in Section 3.1 of the Pooling Agreement.
"Subsidiary" means, with respect to any Person, any corporation of which
more than 50% of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time capital stock of
page A-19
<PAGE>
any other class or classes of such corporation shall or might have voting power
upon the occurrence of any contingency) is at the time directly or indirectly
owned by such Person.
"Successor Servicer" is defined in Section 10.2(a) of the Pooling
Agreement.
"Supplement" means each supplement to the Pooling Agreement executed by
Transferor, Servicer and Trustee to specify the terms of a Series of
Certificates, as the same may be amended, supplemented or otherwise modified
from time to time.
"Tax Opinion" means, with respect to any action and any Seller, an
Opinion of Counsel to the effect that, for Federal tax purposes and state
income and franchise tax purposes in New York and Texas, (a) such action will
not adversely affect the characterization of the Investor Certificates of any
outstanding Series or Class or any Purchased Interest as debt or partnership
interests, (b) following such action the Trust will not be treated as an
association (or publicly traded partnership) taxable as a corporation, (c) such
action will not be treated as a taxable event to any Investor
Certificateholder, Certificate Owner or holder of a Purchased Interest and (d)
in the case of the original issuance of any Series or Class of Investor
Certificates or any Purchased Interest, the Investor Certificates of the new
Series or any Purchased Interest will properly be characterized as debt or
partnership interests.
"Tax or ERISA Lien" means a lien arising under Section 6321 of the
Internal Revenue Code or Section 302(f) or 4068 of ERISA.
"Terminating Seller" is defined in Section 1.8(a) of the Purchase
Agreement.
"Termination Notice" is defined in Section 10.1 of the Pooling Agreement.
"Transaction Accounts" is defined in Section 4.2 of the Pooling
Agreement.
"Transaction Documents" means the Purchase Agreement, the Pooling
Agreement, the Seller Guaranty, each Supplement, each PI Agreement and each
other agreement designated as a Transaction Document in any Supplement or PI
Agreement.
"Transfer Agent and Registrar" means any transfer agent and registrar
appointed pursuant to Section 6.3 of the Pooling Agreement and shall initially
be Trustee.
"Transferor" means Notepad Funding Corporation, a Delaware corporation.
"Transferor Certificate" is defined in Section 4.1(b) of the Pooling
Agreement.
"Transferred Assets" is defined in Section 2.1 of the Pooling Agreement.
page A-20
<PAGE>
"Trust" means the trust created by the Pooling Agreement, which shall be
known as the Notepad Funding Receivables Master Trust.
"Trustee" means Manufacturers and Traders Trust Company, in its capacity
as agent for the Certificateholders, or its successor-in-interest, or any
successor trustee appointed as provided in the Pooling Agreement.
"Turnover Days" means, at any time and with respect to a Seller Group,
the product of (a) the sum of the beginning and ending Unpaid Balances of
Receivables generated by such Seller Group during the immediately preceding
Calculation Period divided by two, multiplied by (b) the number of days in the
immediately preceding Calculation Period, divided by the aggregate amount
payable pursuant to invoices giving rise to Receivables that were generated
during the Calculation Period by such Seller Group.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the applicable jurisdiction or jurisdictions.
"Unmatured Early Amortization Event" means any event that, with the
giving of notice or lapse of time, or both, would become an Early Amortization
Event.
"Unpaid Balance" of any Receivable means at any time the unpaid amount
thereof as shown in the books of Servicer at such time.
"Unrestricted Book-Entry Certificate" is defined in Section 6.11(c) of
the Pooling Agreement.
"Write-Off" means any Receivable that, consistent with the applicable
Credit and Collection Policy, has been written off as uncollectible.
"WRO" means Williamhouse-Regency of Delaware, Inc., a Delaware
corporation.
"WRO" means WRO and each of its Affiliates (other than Transferor).
"WRO Group" means (i) divisions or operating units of Sellers engaged in
lines of business that were, prior to the Closing Date, engaged in by WRO and
its subsidiaries, and (ii) divisions or operating units of Sellers engaged in
lines of business that were not engaged in by WRO, Ampad Corporation or their
subsidiaries prior to the Closing Date, provided that such Sellers are included
with the Sellers referred to in clause (i) above for purposes of WRO's
management reporting.
"144A Book-Entry Certificate" is defined in Section 6.12(b) of the
Pooling Agreement.
page A-21
<PAGE>
B. Other Interpretative Matters. For purposes of any Transaction
Document, unless otherwise specified therein: (1) accounting terms used and
not specifically defined therein shall be construed in accordance with GAAP;
(2) terms used in Article 9 of the New York UCC, and not specifically defined
in that Transaction Document, are used therein as defined in such Article 9;
(3) the term "including" means "including without limitation," and other forms
of the verb "to include" have correlative meanings; (4) references to any
Person include such Person's permitted successors; (5) in the computation of a
period of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each means "to but
excluding"; (6) the words "hereof", "herein" and "hereunder" and words of
similar import refer to such Transaction Document as a whole and not to any
particular provision of such Transaction Document; (7) references to "Section",
"Schedule" and "Exhibit" in such Transaction Document are references to
Sections, Schedules and Exhibits in or to such Transaction Document; (8) the
various captions (including any table of contents) are provided solely for
convenience of reference and shall not affect the meaning or interpretation of
such Transaction Document; and (9) references to any statute or regulation
refer to that statute or regulation as amended from time to time, and include
any successor statute or regulation of similar import.
page A-22
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF KIRKLAND & ELLIS]
May 22, 1996
American Pad & Paper Company
17304 Preston Road
Suite 700
Dallas, Texas 75252
Re: American Pad & Paper Company of Delaware, Inc.
Registration Statement on Form S-1
Registration No. 333-3006
---------------------------------------------------
Ladies and Gentlemen:
We are acting as special counsel to American Pad & Paper Company of
Delaware, Inc., a Delaware corporation formerly known as Williamhouse-Regency of
Delaware, Inc. (the "Company"), in connection with the proposed registration by
the Company of up to $200,000,000 in aggregate principal amount of the Company's
13% Senior Subordinated Notes due 2005, Series B (the "Exchange Notes"),
pursuant to a Registration Statement on Form S-1 (Registration No. 333-3006)
filed with the Securities and Exchange Commission (the "Commission") on March
29, 1996 under the Securities Act of 1933, as amended (the "Act") (such
Registration Statement, as amended or supplemented, is hereinafter referred to
as the "Registration Statement"). We are also acting as special counsel to
Williamhouse of California, Inc., Regency Thermographers, Inc., Regency
Thermographers of California, Inc., Regency Thermographers of Illinois Inc.,
Regency-Sonnell Greetings, Inc., Regency Thermographers of Washington, Inc., the
Precious Collection, Inc. and Stationery House Inc. VIP Division (collectively,
the "Subsidiary Guarantors"), as issuers of guarantees (collectively, the
"Guarantees") of the obligations of the Company under the Exchange Notes. The
Exchange Notes and the Guarantees are to be issued pursuant to the Indenture
(the "Indenture"), dated as of December 1, 1995, among the Company, the
Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as Trustee, in
exchange for and in replacement of the Company's outstanding 13% Senior
Subordinated Notes due 2005, Series A (the "Notes"), of which $200,000,000 in
aggregate principal amount is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have
<PAGE>
KIRKLAND & ELLIS
American Pad & Paper Company
May 22, 1996
Page 2
deemed necessary for the purposes of this opinion, including (i) the Certificate
of Incorporation, as amended, and By-Laws of the Company and each Subsidiary
Guarantor, (ii) minutes and records of the corporate proceedings of the Company
and each Subsidiary Guarantor with respect to the issuance of the Exchange Notes
and the Guarantees, respectively, (iii) the Registration Statement, and (iv)
Registration Rights Agreement, dated December 1, 1995, among the Company,
certain of the Subsidiary Guarantors, BT Securities Corporation and Wasserstein
Perella Securities, Inc.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of
the signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto and the due authorization, execution and delivery of all
documents by the parties thereto other than the Company and each Subsidiary
Guarantor. As to any facts material to the opinions expressed herein which we
have not independently established or verified, we have relied upon statements
and representations of officers and other representatives of the Company and
others.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of New York, the
General Corporation law of the State of Delaware and the federal laws of the
United States of America.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that when (i) the Registration Statement becomes effective, (ii) the Board of
Directors and the appropriate officers of the Company and each Subsidiary
Guarantor have taken all necessary action to fix and approve the terms of the
Exchange Notes and the Guarantees, respectively, (iii) the Indenture has been
duly qualified under the Trust Indenture Act of 1939, as amended and (iv) the
Exchange Notes and the Guarantees have been duly executed and authenticated in
accordance with the provisions of the Indenture and duly delivered to the
purchasers thereof in exchange for the Notes, the Exchange Notes and the
Guarantees will be validly issued obligations of the Company and each Subsidiary
Guarantor, respectively.
<PAGE>
KIRKLAND & ELLIS
American Pad & Paper Company
May 22, 1996
Page 3
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of New York or Delaware or the federal law of the United
States be changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
/s/ KIRKLAND & ELLIS
KIRKLAND & ELLIS
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION NAMES UNDER WHICH SUCH
OF INCORPORATION OR SUBSIDIARY DOES
NAME OF SUBSIDIARY ORGANIZATION BUSINESS
- --------------------------- ------------------- ----------------------
<S> <C> <C>
Stationery House Inc. VIP Delaware (1)
Division
Williamhouse of Colorado (1)
California, Inc.
The Precious Collection, Inc. Texas (1)
Regency Sonnell Greetings, Inc. California (1)
Regency Thermographers, Inc. Delaware (1)
Regency Thermographers of California (1)
California, Inc.
Regency Thermographers of Illinois (1)
Illinois, Inc.
Regency Thermographers of Washington (1)
Washington, Inc.
Notepad Funding Corporation Delaware (1)
- --------------------------- -------- ---
</TABLE>
(1) In addition to their actual names, the subsidiaries may do business under
the following names: Ampad; Regency; Williamhouse and Williamhouse-Regency.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Amendment No. 1 to Form S-1 of our report dated March
19, 1996, relating to the consolidated financial statements of American Pad &
Paper Company of Delaware, Inc. and our report dated March 22, 1996, relating to
the statements of net sales and cost of sales of Globe-Weis, which appear on
page F-2 and page F-59, respectively, in such Prospectus. We also consent to
the references to us under the headings "Experts" in such Prospectus.
/s/ Price Waterhouse
PRICE WATERHOUSE LLP
Dallas, Texas
May 22, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
WR Acquisition, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
May 22, 1996
<PAGE>
Exhibit 25
--------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)_
-------------------
IBJ SCHRODER BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
AMERICAN PAD & PAPER COMPANY OF DELAWARE, INC.
F/N/A WILLIAMHOUSE-REGENCY OF DELAWARE, INC.
(Exact name of obligor as specified in its charter)
See Table of Subsidiary Guarantors on Schedule 1 hereto
Delaware 25-1512956
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
17304 Preston Road, suite 700
Dallas, TX 75252-5613
(Address of principal executive offices) (Zip code)
--------------------
13% Series B Senior Subordinated Notes due 2005
(Title of indenture securities)
--------------------------------------------
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Two Rector Street, New York,
New York
Federal Deposit Insurance Corporation, Washington, D.C.
Federal Reserve Bank of New York Second District,
33 Liberty Street, New York, New York
(b) Whether it is authorized to exercise corporate
trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any
such default.
None
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, or is trustee for more than one outstanding series
of securities under the indenture, state whether there has been a
default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such
default .
None
2
<PAGE>
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as amended
to date. (See Exhibit 1A to Form T-1, Securities and Exchange
Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise corporate trust
powers, as amended to date (See Exhibit 4 to Form T-1, Securities and
Exchange Commission File No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to date (See
Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-
19146).
5. Not Applicable
6. The consent of United States institutional trustee required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
3
<PAGE>
NOTE
----
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligor is not in default under any indenture under which the applicant
is trustee.
4
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 16th day
of May, 1996.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Thomas J. Bogert
--------------------------
Thomas J. Bogert
Assistant Vice President
5
<PAGE>
SCHEDULE I
TABLE OF SUBSIDIARY GUARANTORS
The address and telephone number of the principal executive officers of each of
the Subsidiary Guarantors listed below are the same as set forth for American
Pad & Paper Company of Delaware, Inc. All of such Subsidiary Guarantors are
direct or indirect subsidiaries of American Pad & Paper Company of Delaware,
Inc.
<TABLE>
<CAPTION>
State or Other
Jurisdiction Of I.R.S. Employer
Exact Name of Registrant Incorporation Or Identification
As Specified in Its Charter Organization Number
<S> <C> <C>
Stationery House Inc. VIP Division Delaware 23-2575118
Williamhouse of California, Inc. Colorado 84-0807780
The Precious Collection, Inc. Texas 13-2841515
Regency Sonnell Greetings, Inc. California 95-3887676
Regency Thermographers, Inc. Delaware 13-1960400
Regency Thermographers of California, Inc. California 95-2314024
Regency Thermographers of Illinois, Inc. Illinois 36-2274605
Regency Thermographers of Washington, Inc. Washington 91-0730734
</TABLE>
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the issue by American Pad & Paper
Company of Delaware, Inc. of its 13% Senior Subordinated Notes due 2005, we
hereby consent that reports of examinations by Federal, State, Territorial, or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Thomas J. Bogert
--------------------------
Thomas J. Bogert
Assistant Vice President
Dated: May 16, 1996
8
T-1CT-981
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
----------------
ASSETS
<S> <C> <C>
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin........................ $ 22,187
Interest-bearing balances................................................. $ 160,833
Securities: Held to Maturity................................................ $ 167,109
Available-for-sale.............................................. $ 27,914
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold........................................................ $ 179,394
Securities purchased under agreements to resell........................... $ -0-
Loans and lease financing receivables:
Loans and leases, net of unearned income.................. $ 1,645,286
LESS: Allowance for loan and lease losses................. $ 52,532
LESS: Allocated transfer risk reserve...................... $ -0-
Loans and leases, net of unearned income, allowance, and reserve.......... $1,592,754
Assets held in trading accounts............................................... $ 220
Premises and fixed assets..................................................... $ 7,349
Other real estate owned....................................................... $ 397
Investments in unconsolidated subsidiaries and associated companies........... $ -0-
Customers' liability to this bank on acceptances outstanding.................. $ 684
Intangible assets............................................................. $ -0-
Other assets.................................................................. $ 66,374
TOTAL ASSETS.................................................................. $2,225,215
</TABLE>
