<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
<TABLE>
<C> <S>
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
COMMISSION FILE NUMBER: 0-20646
---------------------
CARAUSTAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NORTH CAROLINA 58-1388387
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3100 WASHINGTON STREET, AUSTELL, GEORGIA 30106
(Address of principal executive offices) (Zip Code)
</TABLE>
(770) 948-3101
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date, May 10, 1999.
<TABLE>
<CAPTION>
COMMON STOCK, $.10 PAR VALUE 24,948,884
---------------------------- ----------
<S> <C>
(Class) (Outstanding)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
CARAUSTAR INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998..................................... 3
Condensed Consolidated Statements of Income for the
three-month periods ended March 31, 1999 and March 31,
1998...................................................... 4
Condensed Consolidated Statements of Cash Flows for the
three-month periods ended March 31, 1999 and March 31,
1998...................................................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the three-month periods
ended March 31, 1999 and March 31, 1998................... 8
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 13
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders......... 14
Item 6. Exhibits and Reports on Form 8-K............................ 14
Signatures.............................................................. 15
Exhibit Index........................................................... 16
</TABLE>
2
<PAGE> 3
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998*
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 12,311 $ 2,610
Receivables, net.......................................... 87,419 76,394
Inventories............................................... 65,039 67,544
Refundable income taxes................................... 0 1,365
Other current assets...................................... 6,714 6,790
--------- ---------
Total current assets............................... 171,483 154,703
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 6,530 6,530
Buildings and improvements................................ 98,487 97,942
Machinery and equipment................................... 423,890 415,653
Furniture and fixtures.................................... 8,582 7,837
--------- ---------
537,489 527,962
Less accumulated depreciation............................. (212,457) (203,492)
--------- ---------
Property, plant and equipment, net........................ 325,032 324,470
--------- ---------
GOODWILL, net............................................... 124,904 120,127
--------- ---------
OTHER ASSETS................................................ 19,533 19,497
--------- ---------
$ 640,952 $ 618,797
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 26,103 $ 26,103
Accounts payable.......................................... 47,963 47,040
Accrued liabilities....................................... 28,050 25,631
Income taxes payable...................................... 2,368 0
Dividends payable......................................... 4,441 4,476
--------- ---------
Total current liabilities.......................... 108,925 103,250
--------- ---------
REVOLVING CREDIT LOANS...................................... 149,000 147,000
--------- ---------
LONG-TERM DEBT, less current maturities..................... 82,853 82,881
--------- ---------
DEFERRED INCOME TAXES....................................... 44,746 43,437
--------- ---------
DEFERRED COMPENSATION....................................... 3,760 3,889
--------- ---------
OTHER LIABILITIES........................................... 4,282 4,375
--------- ---------
MINORITY INTEREST........................................... 706 591
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value; 5,000,000 shares
authorized; none issued................................. 0 0
Common stock, $.10 par value; 60,000,000 shares
authorized, 24,927,632 and 24,681,358 shares issued and
outstanding at March 31, 1999 and December 31, 1998,
respectively............................................ 2,493 2,468
Additional paid-in capital................................ 136,648 130,240
Retained earnings......................................... 110,965 103,991
Accumulated other comprehensive income.................... (3,426) (3,325)
--------- ---------
246,680 233,374
--------- ---------
$ 640,952 $ 618,797
========= =========
</TABLE>
- ---------------
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE> 4
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
SALES....................................................... $197,412 $185,588
FREIGHT..................................................... 9,847 8,717
-------- --------
Net sales......................................... 187,565 176,871
COST OF SALES............................................... 138,789 127,116
-------- --------
Gross profit...................................... 48,776 49,755
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 28,470 24,826
-------- --------
Operating income.................................. 20,306 24,929
OTHER (EXPENSE) INCOME:
Interest expense.......................................... (4,071) (3,699)
Interest income........................................... 119 73
Equity in income of unconsolidated affiliates............. 1,830 578
Other, net................................................ (132) (118)
-------- --------
(2,254) (3,166)
-------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST............ 18,052 21,763
MINORITY INTEREST........................................... (118) (455)
PROVISION FOR INCOME TAXES.................................. 6,519 8,131
-------- --------
NET INCOME.................................................. $ 11,415 $ 13,177
======== ========
BASIC
NET INCOME PER COMMON SHARE................................. $ 0.46 $ 0.52
======== ========
Weighted average number of shares outstanding............... 24,759 25,280
======== ========
DILUTED
NET INCOME PER COMMON SHARE................................. $ 0.46 $ 0.52
======== ========
Diluted weighted average number of shares outstanding....... 24,910 25,512
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of income.
4
<PAGE> 5
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash provided by (used in)
Operating activities:
Net income............................................. $ 11,415 $ 13,177
Adjustments for noncash charges........................ 9,590 9,066
Changes in current assets and liabilities.............. (1,381) 2,244
-------- --------
Net cash provided by operating activities......... 19,624 24,487
-------- --------
Investing activities:
Purchases of property, plant and equipment............. (8,810) (8,512)
Acquisitions of businesses............................. 0 (13,358)
Other.................................................. 1,163 (117)
-------- --------
Net cash used in investing activities............. (7,647) (21,987)
-------- --------
Financing activities:
Proceeds from revolving credit loans................... 14,000 31,000
Repayments of revolving credit loans................... (12,000) (11,000)
Repayments of long-term debt........................... (28) (8,189)
Dividends paid......................................... (4,476) (4,052)
Proceeds from issuances of stock....................... 443 487
Purchases of stock..................................... 0 (2,192)
Distributions to minority interest holder.............. 0 (600)
Other.................................................. (215) (130)
-------- --------
Net cash (used in) provided by financing
activities...................................... (2,276) 5,324
-------- --------
Net increase in cash and cash equivalents................... 9,701 7,824
Cash and cash equivalents at beginning of period............ 2,610 1,391
-------- --------
Cash and cash equivalents at end of period.................. $ 12,311 $ 9,215
======== ========
Supplemental Disclosures:
Cash payments for interest................................ $ 2,089 $ 2,136
======== ========
Cash payments for income taxes............................ $ 1,732 $ 682
======== ========
Stock issued for acquisition.............................. $ 5,991 $ 0
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of cash flows.
5
<PAGE> 6
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 1.
CARAUSTAR INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods. The results of
operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. ACQUISITIONS
Each of the following acquisitions is being accounted for under the
purchase method of accounting, applying the provisions of Accounting
Principles Board Opinion No. 16. As a result, the Company records the
assets and liabilities of the acquired companies at their estimated
fair values with the excess of the purchase price over these amounts
being recorded as goodwill. Actual allocations of goodwill and other
identifiable assets will be based on further studies and may change
during the allocation period, generally one year following the date of
acquisition. These acquisitions are not expected to have a material
impact on the operations of the Company.
In March 1999, the Company acquired 67 percent of the outstanding stock
of Carolina Component Concepts ("CCC") in exchange for 225,000 shares
of the Company's common stock, valued at approximately $6.0 million. As
a result of this transaction, the Company now owns 100 percent of CCC's
common stock. CCC operates a specialty converting facility, located in
Mooresville, North Carolina. Goodwill of approximately $5.1 million was
recorded in connection with the acquisition and is being amortized over
40 years.
In April 1999, subsequent to the first quarter ended March 31, 1999,
the Company acquired all of the assets and business of International
Paper Company's Sprague boxboard mill ("Sprague") for approximately
$103.2 million in cash plus $4.7 million of assumed debt. Sprague,
located in Versailles, Connecticut, produces clay-coated recycled
boxboard used primarily in the manufacture of folding cartons.
NOTE 3. COMPREHENSIVE INCOME
Total comprehensive income, consisting of net income plus other
nonowner changes in equity, for the quarters ended March 31, 1999 and
1998 was $11,314,000 and $13,227,000, respectively.
NOTE 4. NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 established accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives),
and for hedging activities. It also requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS
No. 133 is effective for the Company's fiscal year ending December 31,
2000. Management does not expect SFAS No. 133 to have a significant
impact on the Company's financial statements.
6
<PAGE> 7
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 1.
NOTE 5. SEGMENT INFORMATION
The Company operates principally in three business segments organized
by products. The paperboard segment consists of facilities that
manufacture recycled uncoated and clay-coated paperboard and facilities
that collect recycled paper and broker recycled paper and other paper
rolls. The tube, core and composite container segment is principally
made up of facilities that produce spiral and convolute-wound tubes,
cores and cans. The carton and custom packaging segment consists of
facilities that produce printed and unprinted folding and set-up
cartons and facilities that provide contract manufacturing and contract
packaging services. Intersegment sales are recorded at prices which
approximate market prices. Operating income includes all costs and
expenses directly related to the segment involved. Corporate expenses
include corporate general, administrative and unallocated information
systems expenses.
The following table presents certain business segment information for
the periods indicated (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Net sales (external customers):
Paperboard........................................... $ 75,102 $ 74,303
Tube, core and composite container................... 63,894 62,929
Carton and custom packaging.......................... 48,569 39,639
-------- --------
Total........................................ $187,565 $176,871
======== ========
Net sales (intersegment):
Paperboard........................................... $ 27,683 $ 28,005
Tube, core and composite container................... 664 443
Carton and custom packaging.......................... 70 3
-------- --------
Total........................................ $ 28,417 $ 28,451
======== ========
Operating income:
Paperboard........................................... $ 15,015 $ 20,731
Tube, core and composite container................... 5,275 4,669
Carton and custom packaging.......................... 2,907 2,448
-------- --------
Total........................................ 23,197 27,848
Corporate expense...................................... (2,891) (2,919)
-------- --------
Operating income....................................... 20,306 24,929
Interest expense..................................... (4,071) (3,699)
Interest income...................................... 119 73
Equity in income of unconsolidated affiliates........ 1,830 578
Other (net).......................................... (132) (118)
-------- --------
Income before income taxes and minority
interest................................... $ 18,052 $ 21,763
======== ========
</TABLE>
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation arising in the ordinary
course of business. In the opinion of management, the ultimate
resolution of these matters will not have a material adverse effect on
the Company's financial condition or results of operations.
7
<PAGE> 8
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 2.
CARAUSTAR INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
GENERAL
The Company is a major manufacturer of recycled paperboard and converted
paperboard products, operating principally in three business segments. The
paperboard segment consists of facilities that manufacture recycled uncoated and
clay-coated paperboard and facilities that collect recycled paper and broker
recycled paper and other paper rolls. The tube, core and composite container
segment is principally made up of facilities that produce spiral and
convolute-wound tubes, cores and cans. The carton and custom packaging segment
consists of facilities that produce printed and unprinted folding and set-up
cartons and facilities that provide contract manufacturing and contract
packaging services.
The Company is vertically integrated to the extent that a large portion of its
paperboard production is consumed internally by its converting segments
(approximately 37 percent in the first quarter of 1999). As part of its strategy
to optimize capacity utilization, the Company regularly purchases paperboard
from other manufacturers in an effort to minimize the potential impact of demand
declines on the Company's own mill system. Additionally, each of the Company's
mills can produce recycled paperboard for more than one end-use product market,
which allows it to shift production between mills in response to customer or
market demands. The Company is also the only major manufacturer to serve all
four recycled boxboard end-use markets: tube and core, folding carton, gypsum
wallboard facing paper and other specialty.
Recovered fiber, which is derived from recycled paper stock, is the Company's
only significant raw material. Historically, the cost of recovered fiber has
fluctuated significantly due to market and industry conditions. For example, the
Company's average recovered fiber cost per ton of paperboard produced increased
from $43 per ton in 1993 to $144 per ton in 1995, an increase of 235 percent,
before dropping to $66 per ton in 1996. Recovered fiber cost per ton averaged
$71 during 1998 and $61 during the first quarter of 1999. Although the Company
raises its selling prices in response to increases in raw material costs, it
often is unable to maintain its operating margins in the face of dramatic cost
increases, and it experiences short-term margin shrinkage during all periods of
price increases due to customary time lags in the implementation of price
increases. There can be no assurance that the Company will be able to recoup any
future increases in the cost of recovered fiber by raising the prices of its
products. There also can be no assurance that, even if the Company is able to
recoup such cost increases, its operating margins and results of operations will
not be materially and adversely affected by time delays in the implementation of
price increases.
8
<PAGE> 9
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 2.
QUARTERS ENDED MARCH 31, 1999 AND 1998
The following tables set forth certain operating data regarding the Company's
volume and gross paper margins for the periods indicated. The volume information
shown below includes shipments of unconverted paperboard and converted
paperboard products. Tonnage volumes from the Company's business segments are
combined and presented along end-use market lines. Net sales and operating
income are reported by segment in Note 5 to the consolidated financial
statements as part of Part 1, Item 1 of this report.
<TABLE>
<CAPTION>
QUARTERS ENDED
MARCH 31,
-------------- %
1999 1998 CHANGE CHANGE
----- ----- ------ ------
<S> <C> <C> <C> <C>
Production source of paperboard tons sold (in thousands):
From paperboard mill production......................... 227.8 226.2 1.6 0.7%
Outside purchases....................................... 16.8 23.6 (6.8) -28.8%
----- ----- ----
Total paperboard tonnage........................ 244.6 249.8 (5.2) -2.1%
===== ===== ====
Tons sold by market (in thousands):
Tube, core and can volume
Paperboard (internal)................................ 50.6 48.7 1.9 3.9%
Outside purchases.................................... 4.4 6.9 (2.5) -36.2%
----- ----- ----
Tube, core and can converted products................... 55.0 55.6 (0.6) -1.1%
Unconverted paperboard.................................. 11.6 11.1 0.5 4.5%
----- ----- ----
Tube, core and can volume....................... 66.6 66.7 (0.1) -0.1%
Folding carton volume
Paperboard (internal)................................ 13.8 12.6 1.2 9.5%
Outside purchases.................................... 10.2 8.9 1.3 14.6%
----- ----- ----
Folding cartons......................................... 24.0 21.5 2.5 11.6%
Unconverted paperboard.................................. 48.9 52.3 (3.4) -6.5%
----- ----- ----
Folding carton volume........................... 72.9 73.8 (0.9) -1.2%
Gypsum facing paper volume
Unconverted paperboard............................... 59.0 56.9 2.1 3.7%
Outside purchase (for resale)........................ 0.5 6.2 (5.7) -91.9%
----- ----- ----
Gypsum facing volume............................ 59.5 63.1 (3.6) -5.7%
Other specialty volume
Paperboard (internal)................................ 19.8 18.6 1.2 6.5%
Outside purchases.................................... 1.7 1.6 0.1 6.3%
----- ----- ----
Other specialty converted products...................... 21.5 20.2 1.3 6.4%
Unconverted paperboard.................................. 24.1 26.0 (1.9) -7.3%
----- ----- ----
Other specialty volume.......................... 45.6 46.2 (0.6) -1.3%
----- ----- ----
Total paperboard tonnage........................ 244.6 249.8 (5.2) -2.1%
===== ===== ====
</TABLE>
9
<PAGE> 10
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 2.
<TABLE>
<CAPTION>
QUARTERS ENDED
MARCH 31,
-------------- %
1999 1998 CHANGE CHANGE
----- ----- ------ ------
<S> <C> <C> <C> <C>
Gross paper margins ($/ton):
Paperboard mill:
Average same-mill net selling price.................... $403 $417 $(14) -3.4%
Average same-mill recovered fiber cost................. 61 85 (24) -28.2%
---- ---- ----
Paperboard mill gross paper margin................... $342 $332 $ 10 3.0%
==== ==== ====
Tube and core:
Average net selling price.............................. $711 $748 $(37) -4.9%
Average paperboard cost................................ 382 415 (33) -8.0%
---- ---- ----
Tube and core gross paper margin..................... $329 $333 $ (4) -1.2%
==== ==== ====
</TABLE>
Consolidated net sales for the quarter ended March 31, 1999 increased 6.0
percent to $187.6 million from $176.9 million in 1998. Acquisitions accounted
for $14.6 million of sales during the first quarter of 1999. Excluding
acquisitions, net sales declined 2.2 percent. This decline was due primarily to
lower volume and selling prices in the paperboard segment, partially offset by
higher sales from the tube, core and composite containers and carton and custom
packaging segments.
Total paperboard tonnage for the quarter decreased 2.1 percent to 244.6 thousand
tons from 249.8 thousand tons. Excluding acquisitions, total paperboard tonnage
declined 5.6 percent to 235.8 thousand tons. This decline was the result of
lower shipments of unconverted paperboard to external customers, primarily to
customers in the folding carton and other specialty end-use markets, combined
with lower outside purchases for resale to gypsum facing paper customers.
Excluding acquisitions, outside purchases decreased 43.0 percent to 13.5
thousand tons. Tons sold from paperboard mill production increased 0.7 percent
for the quarter to 227.8 thousand tons compared with 226.2 thousand tons in the
first quarter last year, but declined 1.8 percent excluding the Chesapeake
Paperboard acquisition. Total tonnage converted increased 3.3 percent in the
first quarter of 1999 to 100.5 thousand tons versus 97.3 thousand tons in 1998,
but decreased 0.9 percent excluding acquisitions. Excluding acquisitions,
volumes in the folding carton and other specialty end-use markets decreased 8.6
percent and 8.7 percent, respectively.
Gross margin for the first quarter of 1999 decreased to 26.0 percent of net
sales from 28.1 percent in 1998. This margin decrease was due primarily to the
acquisition of operations with lower margins, as a percent of sales, than the
Company's other operations.
Operating income for the first quarter of 1999 was $20.3 million, a decrease of
$4.6 million, or 18.5 percent from the year-earlier period. Operating income at
comparable facilities declined $3.7 million, or 15.0 percent. This decline was
due primarily to weaker volume and lower operating rates in the paperboard
segment, partially offset by improved results in the tube, core and composite
containers and carton and custom packaging segments. Selling, general and
administrative expenses increased $3.6 million in the first quarter of 1999
versus 1998 due primarily to acquisitions and increased information systems
costs.
Interest expense increased 10.1 percent to $4.1 million for first quarter of
1999 from $3.7 million in 1998 due to higher average borrowings under the
revolving credit facility.
Equity income from unconsolidated affiliates for the first quarter was $1.8
million, up 216.6 percent from 1998 due to improved results for the Company's
gypsum wallboard joint venture with Temple-Inland.
Net income decreased 13.4 percent from $13.2 million in 1998 to $11.4 million.
Diluted net income per common share decreased 11.5 percent to $0.46 for the
first quarter of 1999 from $0.52 in the same period of 1998.
10
<PAGE> 11
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 2.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1999, the Company had loans of $149.0 million outstanding under its
revolving credit facility versus $149.0 million on March 31, 1998 and $147.0
million on December 31, 1998. Loans under the revolving credit facility bear
interest, payable monthly, at the Eurodollar rate plus a margin based upon the
Company's consolidated leverage ratio, as defined in the revolving credit
agreement. For the three months ended March 31, 1999 and 1998 and for the year
ended December 31, 1998, the weighted average borrowings outstanding under the
revolving credit facility during such periods bore interest at 5.37 percent,
5.93 percent and 5.80 percent, respectively. Other long-term debt, less current
maturities, primarily the Company's 7.74 percent senior notes, was $82.9 million
at March 31, 1999 versus $83.2 million and $82.9 million at March 31, 1998 and
December 31, 1998, respectively.
The Company has a $400 million, five-year bank revolving credit facility which
may be increased up to $500 million and its maturity extended by up to three
additional years beyond the second quarter of 2002, subject to certain
conditions and approvals. The Company can use the facility to fund ongoing
working capital needs and for general corporate purposes, including
acquisitions. Interest under the facility is computed using the Company's choice
of: (a) the Eurodollar rate plus a margin; or (b) the higher of the Federal
Funds Rate plus a margin or the bank's prime lending rate. The Company can also
choose the basis for determining the margin above the Eurodollar rate as either:
(a) its consolidated leverage ratio; or (b) its investment grade rating. The
credit agreement contains certain restrictive covenants regarding, among other
matters, the incurrence of additional indebtedness and the maintenance of
certain leverage and interest coverage ratios, as defined in the agreement.
In 1998, the Company registered with the Securities and Exchange Commission a
total of $300 million in public debt securities for issuance in one or more
series and with such specific terms as to be determined from time to time. The
debt securities will be unsecured obligations of the Company. It is currently
anticipated that the proceeds from any sale of these debt securities will be
used for general corporate purposes, including, but not limited to, repayment of
debt, working capital, capital expenditures and acquisitions.
Cash generated from operations was $19.6 million for the three months ended
March 31, 1999 compared with $24.5 million for the same period last year. The
decrease in 1999 compared to the same period last year was due primarily to
unfavorable changes in working capital and lower net income.
Capital expenditures, excluding acquisitions, were $8.8 million in the first
quarter of 1999 versus $8.5 million for the same period last year. Aggregate
capital expenditures of approximately $38.0 million are anticipated for 1999.
In March 1999, the Company acquired 67 percent of the outstanding stock of
Carolina Component Concepts Inc. in exchange 225,000 shares of the Company's
common stock, valued at approximately $6.0 million. As a result of this
transaction, the Company now owns 100 percent of CCC's common stock. CCC
operates a specialty converting facility, located in Mooresville, North
Carolina.
In April 1999, subsequent to the first quarter ended March 31, 1999, the Company
acquired all of the assets and business of International Paper Company's Sprague
boxboard mill for approximately $103.2 million in cash plus $4.7 million of
assumed debt. Sprague, located in Versailles, Connecticut, produces clay-coated
recycled boxboard used primarily in the manufacture of folding cartons.
Cash dividends of $4.5 million were paid in the first quarter of 1999 versus
$4.1 million in the same period last year. The Company's Senior Notes agreement
and its revolving credit agreement contain no specific limitations on the
payment of dividends.
The Company did not purchase any shares of its common stock during the first
quarter of 1999 pursuant to its common stock purchase program. The Company has
cumulatively purchased 3,235,000 shares since January 1996. The Company's board
of directors has authorized purchases of up to 765,000 additional shares, and
the
11
<PAGE> 12
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 2.
Company intends to continue such purchases, subject to market conditions and
availability, but there can be no assurance as to the completion, timing or
prices of such future purchases.
The Company anticipates that it will be able to meet its funding needs for the
possible acquisition of additional facilities, working capital, capital
expenditures and additional stock purchases through internally generated cash
and borrowings under its revolving credit facility and the issuance of debt
securities in the public markets.
YEAR 2000
The Company uses software and related information technologies and other
equipment throughout its businesses that may be affected by the date change in
the year 2000. The use of systems and equipment that cannot correctly interpret
and process dates after 1999 could result in system or equipment failures. Such
failures could cause disruptions of operations including, among other things,
inaccurate processing of financial information and/or temporary inabilities to
process transactions, manufacture products or engage in similar normal business
activities.
The Company has attempted to identify and assess its areas of risk related to
the year 2000 issue. As called for in its overall plan to prepare for the year
2000, the Company has conducted a comprehensive inventory and evaluation of its
information technology ("IT") systems to determine their year 2000 compliance.
The primary financial computer systems were upgraded in December 1997. This
system and the Company's computerized financial software systems are year 2000
compliant. Certain systems at individual operating company sites, primarily
involving order entry, shipping and inventory control are undergoing remediation
or replacement and are expected to be year 2000 compliant by mid-year 1999.
Non-IT electronic equipment, including equipment engaged in manufacturing and
other processes, is being tested and modified or replaced as needed, and the
Company anticipates that this process will be complete by mid-year 1999. Ongoing
efforts are being made to identify third parties that may be unable to become
year 2000 compliant and to make contingency plans. However, the Company has no
means of ensuring that third parties with whom it deals will be year 2000
compliant or that the information obtained from such third parties regarding
year 2000 compliance will prove to be accurate.
The total cost associated with required modifications and replacement of the
Company's systems in response to the year 2000 issue is not expected to
materially affect the Company's financial condition or results of operations.
The estimated total cost of the year 2000 effort is approximately $4.2 million.
This estimate does not include costs to replace or upgrade systems that were
previously planned and not accelerated due to the year 2000 issue. The total
amount expended through the first quarter of 1999 was approximately $2.7
million. The future cost related to the year 2000 is estimated to be
approximately $1.5 million. The Company's year 2000 efforts are funded primarily
from the existing IT budget and have been ongoing since 1997. The total cost of
these efforts represents approximately 20 percent of the total IT budget for the
three-year period 1997-1999.
The Company believes the most reasonably likely worst case year 2000 scenario
would be the failure of key customers or suppliers (e.g., utility providers) to
achieve year 2000 compliance, resulting in lost sales to such key customers or
lost production due to forced shutdowns at one or more mill operations for an
indefinite period of time. Such failures could materially and adversely affect
the Company's financial condition or results of operations. Currently, based on
responses obtained from third parties to date, the Company is not aware of any
material third parties that do not expect to be year 2000 compliant. However,
due to uncertainty surrounding the readiness of third parties, the Company is
unable to presently determine whether the consequences of year 2000 failures
will materially impact the Company's financial condition or results of
operations. Ongoing efforts are expected to significantly reduce this
uncertainty.
The Company has developed contingency plans to address potential material year
2000 issues primarily arising from failures of third party suppliers or
customers to become year 2000 compliant. These contingency plans include plans
to minimize the impact of any lost mill production. The Company normally
schedules downtime for regular maintenance and capital improvements during the
year-end period. To the extent possible, the
12
<PAGE> 13
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART I, ITEM 2.
Company plans to take a more flexible approach to such scheduling to allow
maintenance and capital-improvement downtime to coincide with any year 2000
related forced downtime. In addition, the Company can increase inventory levels
prior to year-end 1999 to mitigate any forced downtime based on assessments made
closer to the end of 1999. The Company also plans to minimize the impact of any
lost mill production by shifting production from any facilities affected by year
2000 failures to unaffected facilities. As mentioned above, the Company is
continuing its efforts to identify third parties who indicate that they may be
unable to become year 2000 compliant and will develop and modify its contingency
plans as needed.
Readers are cautioned that the year 2000 disclosures above contain certain
forward looking statements and should be read in conjunction with "Forward
Looking Information" which follows.
FORWARD-LOOKING INFORMATION
This Report on Form 10-Q, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations," may contain various
"forward-looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934, that are based on management's belief and
assumptions, as well as information currently available to management. When used
in this document, the words "anticipate," "estimate," "expect," and similar
expressions may identify forward-looking statements. Although the Company
believes that the expectations reflected in any such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to be
correct. Any such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the Company's actual financial
results, performance or condition may vary materially from those anticipated,
estimated or expected. Among the key factors that may have a direct bearing on
the Company's actual financial results, performance or condition are
fluctuations in raw material prices and the economy in general, the degree and
nature of competition, demand for the Company's products, changes in government
regulations, the Company's ability to complete acquisitions and integrate the
operations of acquired businesses, the ability of the Company and third parties
with whom the Company deals to achieve year 2000 compliance, as described above,
and other matters discussed in this report and the Company's other filings with
the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For a discussion of certain market risks related to the Company, see Part II,
Item 7A, "Quantitative and Qualitative Disclosures about Market Risk", in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998. There have been no significant developments with respect to the Company's
exposure to interest rate market risk.
13
<PAGE> 14
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
PART II, ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual shareholders' meeting was held on April 21, 1999. The
matters voted upon at the meeting were (1) a proposal to elect three Class I
directors (Thomas V. Brown, Ralph M. Holt, Jr. and Dennis M. Love) and (2) a
proposal to ratify the selection of Arthur Andersen LLP as the Company's
independent public accountants for fiscal 1999. Proposals (1) and (2) were
approved by the following margins:
<TABLE>
<CAPTION>
VOTES AGAINST OR BROKER
PROPOSAL VOTES FOR WITHHELD ABSTENTIONS NONVOTES
- -------- ---------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
Election of Directors
Thomas V. Brown................................ 20,631,765 35,495 -- --
Ralph M. Holt, Jr.............................. 20,633,636 33,624 -- --
Dennis M. Love................................. 20,633,365 33,895 -- --
Ratification of Selection
of Independent Public Accountants.............. 20,603,905 30,145 33,210 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits to this Report on Form 10-Q are listed in the accompanying
Exhibit Index.
(b) Reports on Form 8-K
The Company filed one current report on Form 8-K during the quarter ending
March 31, 1999. The report, filed on March 5, 1999, incorporated the contents of
a press release in which the Company announced a definitive agreement with
International Paper Company to acquire its Sprague recycled boxboard mill
located in Versailles, Connecticut.
14
<PAGE> 15
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARAUSTAR INDUSTRIES, INC.
By: /s/ H. LEE THRASH, III
------------------------------------
H. Lee Thrash, III
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Dated: May 13, 1999
15
<PAGE> 16
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION FILED HEREWITH (*)
- ------- ----------- ------------------
<S> <C> <C>
3.01 Amended and Restated Articles of Incorporation of the
Company (Incorporated by reference -- Exhibit 3.01 to Annual
Report for 1992 on Form 10-K [SEC File No. 0-20646])........
3.02 Second Amended and Restated Bylaws of the Company
(Incorporated by reference -- Exhibit 3.02 to Registration
Statement on Form S-4 [SEC File No. 333-29937]).............
4.01 Specimen Common Stock Certificate (Incorporated by
reference -- Exhibit 4.01 to Registration Statement on Form
S-1 [SEC File No. 33-50582])
4.02 Articles 3 and 4 of the Company's Amended and Restated
Articles of Incorporation (included in Exhibit 3.01)........
4.03 Article II of the Company's Second Amended and Restated
Bylaws (included in Exhibit 3.02)
4.04 Rights Agreement, dated as of April 19, 1995, between
Caraustar Industries, Inc. and The Bank of New York, as
Successor Rights Agent (Incorporated by reference -- Exhibit
1 to Current Report on Form 8-K dated April 19, 1995 [SEC
File No. 0-20646])..........................................
10.01 Note Agreement, dated as of October 1, 1992, between the
Company and the Prudential Insurance Company of America,
regarding the Company's 7.89% Senior Subordinated Notes
(Incorporated by reference -- Exhibit 10.02 to Annual Report
for 1992 on Form 10-K [SEC File No. 0-20646])...............
10.02 Amendment Agreement, dated as of June 2, 1995, between the
Company and the Prudential Insurance Company of America
regarding the Company's 7.89% Senior Subordinated Notes
(Incorporated by reference -- Exhibit 10.03 to Report on
Form 10-Q for the quarter ended September 30, 1995 [SEC File
No. 0-20646])...............................................
10.03 Amendment Agreement, dated as of July 23, 1997, between the
Company and the Prudential Insurance Company of America
regarding the Company's 7.89% Senior Subordinated Notes
(Incorporated by reference -- Exhibit 10.03 to report on
Form 10-Q for the quarter ended June 30, 1997 [SEC File No.
0-20646])...................................................
10.04 Amendment Agreement, dated as of August 12, 1998, between
the Company and the Prudential Insurance Company of America
regarding the Company's 7.89% Senior Subordinated Notes
(Incorporated by reference -- Exhibit 10.04 to report on
Form 10-Q for the quarter ended September 30, 1998 [SEC File
No. 0-20646])...............................................
10.05 Employment Agreement, dated December 31, 1990, between the
Company and Thomas V. Brown (Incorporated by
reference -- Exhibit 10.06 to Registration Statement on Form
S-1 [SEC File No. 33-50582])................................
10.06 Asset Purchase Agreement, dated August 7, 1992, between the
Company and Domtar Gypsum Inc. (Incorporated by
reference -- Exhibit 10.07 to Registration Statement on Form
S-1 [SEC File No. 33-50582])................................
</TABLE>
16
<PAGE> 17
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION FILED HEREWITH (*)
- ------- ----------- ------------------
<S> <C> <C>
10.07 Deferred Compensation Plan, together with copies of existing
individual deferred compensation agreements (Incorporated by
reference -- Exhibit 10.08 to Registration Statement on Form
S-1 [SEC File No. 33-50582])................................
10.08 1987 Executive Stock Option Plan (Incorporated by
reference -- Exhibit 10.09 to Registration Statement on Form
S-1 [SEC File No. 33-50582])................................
10.09 1993 Key Employees' Share Ownership Plan (Incorporated by
reference -- Exhibit 10.10 to Registration Statement on Form
S-1 [SEC File No. 33-50582])................................
10.10 Energy Purchase Agreement, dated December 18, 1989, between
Camden Paperboard Corporation and Camden Cogen, L.P.
(Incorporated by reference -- Exhibit 10.11 to Registration
Statement on Form S-1 [SEC File No. 33-50582])..............
10.11 Incentive Bonus Plan of the Company (Incorporated by
reference -- Exhibit 10.10 to Annual Report for 1993 on Form
10-K [SEC File No. 0-20646])................................
10.12 1996 Director Equity Plan of the Company (Incorporated by
reference -- Exhibit 10.12 to Report on Form 10-Q for the
quarter ended March 31, 1996 [SEC File No. 0-20646])........
10.13 Credit Agreement, dated as of July 23, 1997, by and among
the Company, as Borrower, the banks listed therein, Bankers
Trust Company, as Administrative Agent, NationsBank, N.A.,
as Syndication Agent, SunTrust Bank, Atlanta, as
Documentation Agent, First Union National Bank, as Managing
Agent and each of Credit Lyonnais, The Bank of New York, The
Bank of Nova Scotia, The Bank of Tokyo -- Mitsubishi, Ltd.,
and Wachovia Bank, as Co-Agents (Incorporated by
Reference -- Exhibit 10.13 to Report on Form 10-Q for the
Quarter Ended June 30, 1997 [SEC File No 0-20646])..........
10.14 1998 Key Employee Incentive Compensation Plan (Incorporated
by reference -- Exhibit 10.14 to Annual Report for 1997 on
Form 10-K [SEC File No. 0-20646])...........................
10.15 Amendment No. 1 to Credit Agreement, dated as of October 8,
1997, by and among the Company, as Borrower, the banks
listed therein, Bankers Trust Company, as Administrative
Agent, NationsBank, N.A., as Syndication Agent, SunTrust
Bank, Atlanta, as Documentation Agent, First Union National
Bank, as Managing Agent and each of Credit Lyannais, The
Bank of New York, The Bank of Nova Scotia, The Bank of
Tokyo -- Mitsubishi, Ltd., and Wachovia Bank, as Co-Agents
(Incorporated by reference -- Exhibit 10.15 to report on
Form 10-Q for the quarter ended September 30, 1998 [SEC File
No. 0-20646])...............................................
10.16 Amendment No. 2 to Credit Agreement, dated as of October 30,
1998, by and among the Company, as Borrower, the banks
listed therein, Bankers Trust Company, as Administrative
Agent, NationsBank, N.A., as Syndication Agent, SunTrust
Bank, Atlanta, as Documentation Agent, First Union National
Bank, as Managing Agent and each of Credit Lyannais, The
Bank of New York, The Bank of Nova Scotia, The Bank of
Tokyo -- Mitsubishi, Ltd., and Wachovia Bank, as Co-Agents
(Incorporated by reference -- Exhibit 10.16 to report on
Form 10-Q for the quarter ended September 30, 1998 [SEC File
No. 0-20646])...............................................
</TABLE>
17
<PAGE> 18
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION FILED HEREWITH (*)
- ------- ----------- ------------------
<S> <C> <C>
10.17 Asset Purchase Agreement Between Caraustar Industries, Inc.,
Sprague Paperboard, Inc., and International Paper Company,
dated as of March 4, 1999................................... *
11.01 Computation of Earnings Per Share........................... *
27.01 Financial Data Schedule (For SEC purposes only)............. *
</TABLE>
18
<PAGE> 1
EXHIBIT 10.17
ASSET PURCHASE AGREEMENT
BETWEEN
CARAUSTAR INDUSTRIES, INC.,
SPRAGUE PAPERBOARD, INC.,
AND
INTERNATIONAL PAPER COMPANY
DATED AS OF MARCH 4, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C>
1.1 Definitions..............................................................................................1
1.2 Interpretation...........................................................................................6
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Sale and Purchase of Assets..............................................................................7
2.2 Excluded Assets..........................................................................................8
2.3 Assumption of Liabilities................................................................................8
2.3.1 Assumed Liabilities.............................................................................8
2.3.2 No Other Assumed Liabilities....................................................................9
2.4 Procedures for Assets Not Transferable...................................................................9
2.5 Closing..................................................................................................9
ARTICLE III
BASE PURCHASE PRICE; ADJUSTMENTS AND PAYMENT
3.1 Base Purchase Price.....................................................................................10
3.2 Closing Date Payments...................................................................................10
3.3 Purchase Price Adjustment...............................................................................10
3.4 Closing Balance Sheet...................................................................................10
3.4.1 Delivery of Closing Balance Sheet..............................................................10
3.4.2 Determination of the Purchase Price Adjustment.................................................10
3.5 Post-Closing Purchase Price Adjustment Payment..........................................................11
3.6 Purchase Price Allocation...............................................................................11
3.7 Real Property and Other Expenses; Proration.............................................................11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Seller................................................................12
4.1.1 Existence......................................................................................12
4.1.2 Authorization; Enforceability..................................................................13
4.1.3 No Violation; Consents.........................................................................13
4.1.4 Insurance......................................................................................13
4.1.5 Litigation.....................................................................................13
4.1.6 Governmental Authorizations; Compliance with Laws..............................................13
4.1.7 Tax Matters....................................................................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
4.1.8 Financial Statements...........................................................................14
4.1.9 Liabilities....................................................................................14
4.1.10 No Adverse Change..............................................................................14
4.1.11 Title to Personal Property.....................................................................15
4.1.12 Accounts Receivable............................................................................15
4.1.13 Tangible Purchased Assets......................................................................15
4.1.14 Proprietary Rights.............................................................................16
4.1.15 Contracts......................................................................................16
4.1.16 Employee Benefit Plans.........................................................................16
4.1.17 Labor and Employment Matters...................................................................18
4.1.18 Environmental Matters..........................................................................18
4.1.19 Leased Real Property...........................................................................19
4.1.20 Title to Real Property.........................................................................20
4.1.21 Condition of Real Property.....................................................................20
4.1.22 Customers......................................................................................21
4.1.23 Assets Sufficient for Conduct of Business......................................................21
4.1.24 Accuracy of Statements.........................................................................21
4.2 Representations and Warranties of Buyer and Caraustar...................................................21
4.2.1 Corporate Existence............................................................................21
4.2.2 Authorization; Enforceability..................................................................21
4.2.3 No Violation; Consents.........................................................................22
4.2.4 Litigation.....................................................................................22
4.2.5 Funds..........................................................................................22
4.2.6 Buyer..........................................................................................22
ARTICLE V
CERTAIN COVENANTS
5.1 Access and Information; Confidentiality.................................................................22
5.2 Conduct of Business.....................................................................................23
5.3 Use of Business Name....................................................................................23
5.4 Filings.................................................................................................23
5.5 Employees...............................................................................................24
5.6 Exclusivity.............................................................................................25
5.7 [Intentionally Omitted].................................................................................26
5.8 Environmental Approvals and Compliance..................................................................26
5.8.1 Property Transfers.............................................................................26
5.8.2 Environmental Consent Agreement................................................................26
5.8.3 Compliance Improvements........................................................................26
5.9 Information Regarding the Real Property.................................................................27
5.10 Other Actions...........................................................................................27
5.11 Consummation of Agreement...............................................................................27
5.12 Excluded Liabilities and Failure to Obtain Consent......................................................27
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE VI
CONDITIONS PRECEDENT
<S> <C>
6.1 Conditions to Obligation of Buyer.......................................................................28
6.1.1 Representations; Performance...................................................................28
6.1.2 Paper Supply Agreement.........................................................................28
6.1.3 Sewer Easements................................................................................28
6.1.4 Opinion of Counsel.............................................................................28
6.1.5 Consents.......................................................................................28
6.1.6 No Proceeding or Litigation....................................................................28
6.1.7 No Material Adverse Change.....................................................................28
6.1.8 Purchased Assets and Documents Delivered.......................................................28
6.1.9 HSR Act Filings................................................................................29
6.2 Conditions to Obligation of Seller......................................................................29
6.2.1 Representations; Performance...................................................................29
6.2.2 Opinion of Counsel.............................................................................30
6.2.3 No Proceeding or Litigation....................................................................30
6.2.4 Purchase Price and Documents Delivered.........................................................30
6.2.5 HSR Act Filings................................................................................30
6.2.6 Approval of Board of Directors.................................................................30
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by Seller...............................................................................31
7.1.1 General Indemnification........................................................................31
7.1.2. Indemnification by Seller for Compliance Improvements..........................................31
7.1.3. Limitations and Conditions on Seller's Indemnification Under Section 7.1.2.....................31
7.2 Indemnification by Buyer................................................................................32
7.3 Limitations; Survival...................................................................................33
7.3.1 Limitations....................................................................................33
7.3.2 Survival of Representations and Warranties.....................................................33
7.4 Procedure for Indemnification...........................................................................34
7.4.1 Third Party Claims.............................................................................34
7.4.2 Direct Claims..................................................................................35
7.4.3 Interest.......................................................................................35
7.4.4 Remediation....................................................................................35
ARTICLE VIII
MISCELLANEOUS
8.1 Termination.............................................................................................37
8.2 Default by Buyer........................................................................................37
8.3 Default by Seller.......................................................................................38
8.4 Noncompete..............................................................................................38
8.5 Bulk Sales Law..........................................................................................39
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
8.6 Expenses................................................................................................39
8.7 Commissions.............................................................................................39
8.8 Public Announcements....................................................................................39
8.9 Assignment; Successors..................................................................................39
8.10 Amendment and Modification; Waivers.....................................................................40
8.11 Notices.................................................................................................40
8.12 Further Assurances; Records.............................................................................41
8.13 Tax and Financial Cooperation...........................................................................41
8.14 Submission to Jurisdiction..............................................................................41
8.15 Representations and Warranties; Schedules...............................................................41
8.16 Remedies............................................................................................... 41
8.17 Guaranty............................................................................................... 42
8.18 Entire Agreement; Counterparts; Governing Law...........................................................42
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
A Form of Paper Supply Agreement
B Form of Opinion of Counsel to Seller
C Form of Opinion of Counsel to Buyer
Schedules
- ---------
1.1(a) Leased Real Property
1.1(b) Owned Real Property
2.1(a) Tangible Personal Property
2.1(b) Assumed Contracts
2.1(j) Accounts Receivable
2.2(e) Excluded Assets
3.3 Seller's Investment
3.6 Purchase Price Allocation
4.1.1 Foreign Good Standing Jurisdictions
4.1.3 Consents
4.1.4 Insurance
4.1.5 Litigation
4.1.6 Permits and Orders
4.1.8 Financial Statements
4.1.9 Undisclosed Liabilities
4.1.10 Adverse Changes
4.1.11 Title to Personal Property
4.1.14(a) Proprietary Rights
4.1.14(b) Year 2000
4.1.15(a) Contracts
4.1.15(b) Contract Defaults
4.1.16(a) Employee Benefit Plans
4.1.16(e) Post-Retirement Benefits
4.1.17(a) Labor and Employment Agreements
4.1.17(c) Employee Loans and Obligations
4.1.17(d) Employees
4.1.18 Environmental Matters
4.1.19 Lease Agreements
4.1.20 Exceptions to Title
4.1.21 Condition of Real Property
4.1.22 Customers
5.5(a) Severance Package
</TABLE>
v
<PAGE> 7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of March 4, 1999, is among:
SPRAGUE PAPERBOARD, INC., a Connecticut corporation ("Buyer");
CARAUSTAR INDUSTRIES, INC., a North Carolina corporation
("CARAUSTAR"); and
INTERNATIONAL PAPER COMPANY, a New York corporation ("SELLER").
BACKGROUND STATEMENT
For the consideration and on the terms set forth in this Agreement,
Seller desires to sell, and Buyer desires to purchase from Seller, substantially
all of Seller's assets used in connection with the Business (as defined herein)
and in connection therewith Buyer will assume certain liabilities of Seller as
specified herein and Caraustar will guarantee the obligations of Buyer specified
herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the covenants
made herein and of the mutual benefits to be derived herefrom, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, for their
heirs, successors and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms as used in this Agreement shall
have the following meanings:
"Adjusted Purchase Price" shall have the meaning set forth in SECTION
3.3.
"Adjustment Payment" shall have the meaning set forth in SECTION 3.5.
"Affiliate" shall mean, with reference to a Person, any Person that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with the specified Person. For purposes
of this definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Agreement" shall mean this Agreement, all Exhibits and Schedules
hereto, and all amendments made hereto and thereto by written agreement between
the parties.
"Assumed Contracts" shall have the meaning specified in SECTION 2.1(B).
<PAGE> 8
"Assumed Liabilities" shall have the meaning specified in SECTION
2.3.1.
"Base Purchase Price" shall have the meaning specified in SECTION 3.1.
"Big Five" shall mean and include any of the following independent
certified public accounting firms: Arthur Andersen LLP, PriceWaterhouseCoopers
LLP, Deloitte & Touche LLP, Ernst & Young LLP, KPMG Peat Marwick LLP, and any
combined entity including any 2 or more of such firms.
"Business" shall mean the business of manufacturing, marketing and
selling recycled paperboard conducted at Seller's Sprague paperboard mill in
Versailles, Connecticut.
"Business Day" shall mean a day other than a Saturday, Sunday or day on
which commercial banks in Atlanta, Georgia are generally closed for business.
"Buyer" shall have the meaning specified in the introductory paragraph.
"Caraustar" shall have the meaning specified in the introductory
paragraph.
"Charter Documents" shall have the meaning specified in SECTION 4.1.1.
"Closing" and "Closing Date" shall have the meanings specified in
SECTION 2.5.
"Closing Balance Sheet" shall have the meaning specified in SECTION
3.4.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collective Bargaining Agreement shall mean the collective bargaining
agreement, dated July 10, 1996 between the Baltic Local 1840 and Seller.
"Compliance Improvements" shall have the meaning specified in SECTION
5.8.3.
"Consent" shall have the meaning specified in SECTION 4.1.3.
"Consent Agreement" shall have the meaning specified in SECTION 5.8.2.
"Contracts" shall mean and include all contracts, licenses, leases or
agreements relating to or arising in connection with the Business, whether
written or oral, to which Seller is a party or shall become a party prior to the
Closing Date (other than this Agreement and the agreements executed pursuant
hereto or contemplated hereby), including without limitation all supply and
customer contracts; work and purchase orders; employment and consultancy
contracts; contracts between Seller and any of its Affiliates; labor union
contracts; licenses or other agreements relating to Intellectual Property or
Proprietary Rights; contracts, plans and arrangements regarding any pension,
retirement, deferred compensation, profit-sharing, incentive compensation,
bonus, stock purchase, stock option, welfare, hospitalization or insurance plan
or arrangement or any vacation pay or severance pay or any other employee
benefit arrangement for its officers, employees, consultants or agents;
equipment, capital and real property leases; all commitments and arrangements
pursuant to which Seller has made or will make loans or advances, or has or will
have incurred debts or become a guarantor or surety or pledged its assets or its
credit on or otherwise become responsible with respect to any undertaking of
another (except for the negotiation or collection of negotiable instruments in
transactions in the ordinary course of business); all indentures, credit
agreements, loan agreements, notes, mortgages, security agreements and
agreements for financing; all powers of attorney and
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agency agreements with any Person pursuant to which such Person is granted the
authority to act for or on behalf of Seller; and all property, casualty and
other forms of insurance, excluding, however, such oral contracts and
arrangements which may be terminated at will by Seller (as applicable) without
liability arising from such termination and which termination would not have a
Material Adverse Effect.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" shall have the meaning specified in SECTION
4.1.16(A).
"Employee" shall mean any Person employed by Seller in the Business.
"Environmental Law" shall mean any federal, state or local law,
statute, ordinance, common law, rule, regulation, permit, code, order, decree,
judgment, injunction, notice or demand letter relating to the protection of
safety, human health or the environment, including without limitation laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including without limitation ambient
air, surface water, ground water, land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminates, chemicals
or industrial, toxic or hazardous substances or wastes, and specifically
including the Comprehensive Environmental Response, Compensation, and Liability
Act (42 U.S.C. ss. 9601 et seq.) ("CERCLA"), the Hazardous Material
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. ss. 6901 et seq.) ("RCRA"), the Federal Water Pollution
Control Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401
et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the
Safe Drinking Water Act (42 U.S.C. ss. 300 et seq.) and the Occupational Safety
and Health Act (29 U.S.C. ss. 651 et seq.) ("OSHA"), as such laws and
regulations are or have been in effect on or prior to the Closing Date, and each
similar federal, state or local statute, and each rule and regulation
promulgated under such federal, state and local laws.
"Environmental Matters" shall have the meaning specified in SECTION
7.1.1.
"Environmental Permits" shall have the meaning specified in SECTION
4.1.18(F).
"Excluded Assets" shall have the meaning specified in SECTION 2.2.
"Excluded Liabilities" shall have the meaning specified in SECTION
2.3.2.
"Failure to Obtain Consents" means any failure by Seller to obtain,
prior to Closing, any of (a) the consents set forth on SCHEDULE 4.1.3 or (b) any
other consent required to be obtained by Seller in connection with the execution
and delivery of this Agreement by Seller or the consummation of the transactions
contemplated herein, including, but not limited to, the transfer and assignment
(or re-issuance on identical terms) of any of the Assumed Contracts, Permits or
the transfer of any other property or rights included in the Purchased Assets.
"Financial Statements" shall mean the audited financial statements of
the Business attached hereto as SCHEDULE 4.1.8.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time.
"Hazardous Substance" shall mean and include each substance identified
or designated as such under CERCLA, 42 U.S.C. 9601, et seq., as well as any
other substance or material meeting any one or
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more of the following criteria: (i) it is or contains a substance designated as
a hazardous waste, hazardous substance, hazardous material, pollutant,
contaminant or toxic substance under any Environmental Law; (ii) it is toxic,
reactive, corrosive, ignitable, infectious, radioactive or otherwise hazardous;
or (iii) it is or contains, without limiting the foregoing, petroleum
hydrocarbons.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the regulations thereunder.
"Inactive Employees" shall mean all Employees who are temporarily
absent from active employment by reason of disability, illness, injury, or
workers' compensation and who are receiving or eligible to receive disability or
workers' compensation payments as a result of such disability, illness or
injury, and employees on non-compensated leave of absences, such as pursuant to
the terms of the Family Medical Leave Act.
"Income Tax" or "Income Taxes" shall mean all federal, state or local
income taxes (inclusive of any and all interest and penalties thereon) imposed
on Seller with respect to the assets or operations of Seller and which are based
in whole or in part upon Seller's income, but does not include any other Taxes.
"Inspection Date" shall have the meaning specified in SECTION
4.1.20(B).
"Intellectual Property" shall mean all trademarks, service marks, trade
dress, logos, trade names and all goodwill associated therewith (including
without limitation the use of current names and trade names and all
translations, adaptations, derivations and combinations of the foregoing);
copyrights and copyrightable works; mask works; and all registrations,
applications and renewals for any of the foregoing; trade secrets and
confidential information (including without limitation ideas, formulae,
compositions, know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, financial, business and marketing plans, and
customer, employee, supplier and vendor lists and related information); computer
software (including without limitation data, data bases, systems and related
documentation); patents, patent applications, patent disclosures and inventions
(whether or not patentable and whether or not reduced to practice) and any
reissues, continuations, continuations-in-part, revisions, extensions or
reexaminations thereof; records, correspondence, product literature, designs,
development records and files, technical reports and all other business
documents relating to the operation of the business; other proprietary rights;
and all copies and tangible embodiments of the foregoing (in whatever form or
medium).
"Leased Real Property" shall mean the locations set forth on SCHEDULE
1.1(A), which, except as set forth on SCHEDULE 1.1(A), constitute all of the
real property leased by Seller and used in connection with the Business.
"Lien" shall mean, with respect to any asset, any lien, security
interest, claim, encumbrance, option, lease (or sublease), conditional sales
agreement, title retention agreement, charge, easement or encroachment thereon.
"Limitation Date" shall have the meaning specified in SECTION 7.3.2.
"Material" shall mean any single circumstance or occurrence which has
caused, or which could reasonably be expected to cause, aggregate damages,
losses, diminution of value and expenses to the Business or the Purchased Assets
in excess of $10,000; any combination of circumstances and occurrences which has
caused, or which could reasonably be expected to cause, aggregate damages,
losses, diminution
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of value and expenses in excess of $50,000; or any rights, assets or other
matters (including, without limitation, a Consent or a Permit) necessary to the
lawful operation of the Business in a manner consistent with its operation prior
to Closing.
"Material Adverse Effect" shall mean any effect that is or is
reasonably likely to be materially adverse to the condition (financial or
otherwise), results of operations, business, properties or prospects of the
Business, excepting any and all general industrywide or marketwide conditions
affecting the industry or markets of the Business.
"Owned Real Property" shall mean the real property described on
SCHEDULE 1.1(B), together with any and all improvements thereon and any and all
easements and appurtenances thereto, including, without limitation, any and all
land, buildings, structures and constructions, and any and all rights and
privileges pertaining thereto, and any and all fixtures and component parts
affixed thereto or located thereon, which, except as set forth on SCHEDULE
1.1(B), constitute all of the real property owned by Seller and used in
connection with the Business.
"Paper Supply Agreement" shall have the meaning set forth in SECTION
6.1.2.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permits" shall have the meaning specified in SECTION 4.1.6.
"Permitted Liens" shall mean (a) liens for current Taxes not yet due
and payable, and (b) liens arising in the ordinary course of business for sums
not yet due and payable, but not involving any borrowed money or the deferred
purchase price for property or services.
"Person" shall mean an individual, firm, partnership, association,
unincorporated organization, trust, corporation, or any other entity.
"Plan" shall have the meaning specified in SECTION 4.1.16.
"POTW" shall have the meaning specified in SECTION 5.8.3.
"Proprietary Rights" shall mean all of the Intellectual Property owned
or used by, issued to or licensed to Seller which is used in the Business, along
with all income, royalties, damages and payments due or payable at Closing or
thereafter (including without limitation damages and payments for past or future
infringements or misappropriations thereof), the right to sue and recover for
past infringements or misappropriations thereof and any and all corresponding
rights that now or hereafter may be secured throughout the world; in each case
including without limitation the items set forth on SCHEDULE 4.1.14 attached
hereto.
"Purchase Price Adjustment" shall have the meaning set forth in SECTION
3.3.
"Purchased Assets" shall have the meaning specified in SECTION 2.1.
"Real Property" shall mean, collectively, the Leased Real Property and
Owned Real Property, which, except as set forth in SCHEDULE 1.1(A) or 1.1(B),
constitute all of the real property owned, leased or otherwise used by Seller in
connection with the Business.
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"Securities Act" shall mean the Securities Act of 1933, as amended, and
the regulations thereunder.
"Seller Facilities" shall have the meaning specified in SECTION
4.1.18(B).
"Seller" shall have the meaning specified in the introductory
paragraph.
"Seller's Consent Agreement" shall have the meaning specified in
SECTION 5.8.2.
"Seller's Investment" shall have the meaning specified in SECTION 3.3,
as detailed in SCHEDULE 3.3.
"Sewer Easements" shall have the meaning specified in SECTION 6.1.3.
"Tax" or "Taxes" shall mean federal, state, municipal, local or foreign
taxes, assessments, additions to tax, deficiencies, duties, fees and other
governmental charges or impositions of each and every kind, whether measured by
properties, assets, wages, payroll, withholding, purchases, value added,
payments, sales, use, business, capital stock or surplus income, and including
without limitation all business, occupation, franchise, excise, stamp, leasing,
lease, transfer, severance and employment, income withholding and Social
Security taxes, real and personal property, sales, use and other taxes,
including interest, penalties and additions in connection therewith, arising
from or in connection with the Business prior to the Closing Date, but in all
cases excluding Income Taxes.
"to the knowledge of Seller" (or like phrases) shall mean that (a) an
officer of Seller and/or a managerial Employee of the Business has any actual
knowledge or belief, after reasonable investigation, that the statement made is
incorrect and (b) there is no information available in the books, records and
files of Seller that indicates that the statement made is incorrect.
"Transferred Employees" shall have the meaning specified in SECTION
5.5(A).
"Union Employees" shall mean those Employees the terms of whose
employment is governed by the Collective Bargaining Agreement.
"WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act, as amended from time to time.
1.2 Interpretation. The following provisions shall govern the
interpretation of this Agreement:
(a) "Herein" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section,
subsection, Exhibit or Schedule.
(b) Headings or captions are for convenience of reference only and
shall not affect the construction or interpretation of this Agreement.
(c) Words importing the singular number only shall include the plural
and vice versa and words importing the masculine gender shall include the
feminine and neuter genders and vice versa and words importing individuals shall
include Persons and vice versa.
(d) The calculation of time within which or following which any act is
to be done or step is to be taken pursuant to this Agreement excludes the date
which is the reference day in calculating such period.
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(e) Performance on holidays is not required hereunder. Whenever
anything is required to be done or any action is required to be taken hereunder
on or by a day which is not a Business Day, then such thing may be validly done
and such action may be validly taken on or by the next succeeding day that is a
Business Day.
(f) Unless the context otherwise requires, the term "including" shall
be deemed to mean "including without limitation."
(g) Except as specifically provided otherwise in this Agreement, all
accounting terms used herein that are not specifically defined shall have the
meanings customarily given them in accordance with GAAP.
(h) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Sale and Purchase of Assets. Subject to the terms and conditions of
this Agreement, at the Closing, Seller shall sell, transfer, convey, assign and
deliver to Buyer, and Buyer shall purchase from Seller, for value therefor, as
hereinafter provided, all of the assets, properties, goodwill and rights of
Seller with respect to the Business of every nature, kind and description,
tangible and intangible, wheresoever located and whether or not carried or
reflected on the books and records of Seller (collectively, the "PURCHASED
ASSETS"), except for any Excluded Assets as set forth in SECTION 2.2, and any
assets or systems of Seller not used primarily in connection with the Business,
including without limitation:
(a) All of Seller's tangible personal property related to the Business,
including without limitation machinery, equipment, supplies and inventories,
work in process, vehicles, rolling stock, finished goods, furniture,
furnishings, fixtures, and spare parts, including without limitation the
property listed in SCHEDULE 2.1(A) hereto;
(b) all of Seller's right, title and interest in and to all of the
Contracts set forth on SCHEDULE 2.1(B) (collectively, the "ASSUMED CONTRACTS");
(c) all Owned Real Property, the Sewer Easements, and Seller's right,
title and interest in and to the Leased Real Property;
(d) all prepaid expenses, surety bonds, surety deposits and security
deposits posted by or on behalf of Seller in connection with the operation of
the Business;
(e) all books and records, files and operating data relating to the
Purchased Assets;
(f) all of Seller's right, title and interest in and to the Proprietary
Rights, including without limitation all rights to trade names and trade styles;
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(g) all of Seller's right, title and interest in and to all
licenses, permits, authorizations, franchises, approvals and other governmental
authorizations related to the Business, to the extent the same are transferable;
(h) all of Seller's telephone numbers, telephone directory listings,
advertisements, customer lists and employee lists related to the Business;
(i) all rights, claims, causes of actions, and suits which Seller
has or may have against third parties in connection with the Purchased Assets or
the operation of the Business;
(j) accounts receivable, including without limitation the accounts
receivable listed in SCHEDULE 2.1(J) hereto; and
(k) any assets of Seller to the extent set forth on the Closing
Balance Sheet (including the notes thereto);
and excluding only the Excluded Assets. On the Closing Date, Seller shall convey
to Buyer good and marketable title to the Purchased Assets, free and clear of
all Liens other than Permitted Liens.
2.2 Excluded Assets. Notwithstanding anything to the contrary
contained herein, the Purchased Assets shall not include any of the following
(collectively, the "EXCLUDED ASSETS"):
(a) all cash and cash equivalents of Seller (except to the extent set
forth on the Closing Balance Sheet);
(b) all Contracts to which Seller is a party which are not Assumed
Contracts;
(c) the corporate seals, certificates of incorporation, minute books,
stock books, tax returns, books of account or other records having to do with
the corporate organization of Seller;
(d) any rights of Seller under this Agreement or under any other
agreement between Seller on the one hand and Buyer on the other hand entered
into on or after the date of this Agreement;
(e) the assets listed in SCHEDULE 2.2(E) attached hereto.
2.3 Assumption of Liabilities.
2.3.1 Assumed Liabilities. As of the Closing Date, Buyer shall assume,
and shall thereafter timely pay and perform, the following obligations and
liabilities of Seller existing as of the Closing Date (the "ASSUMED
LIABILITIES"):
(a) the liabilities of Seller to the extent set forth on the Closing
Balance Sheet (including the notes thereto to the extent liabilities are
explicitly quantified therein in a manner consistent with the Financial
Statements, but excluding, without limitation, liabilities set forth on the
Closing Balance Sheet or in the notes thereto under the headings "Deferred
Income Taxes" and "Divisional Control");
(b) the obligations of Seller arising after the Closing Date under
the Assumed Contracts;
but excluding in each case any liabilities or alleged liabilities of Seller
except as expressly assumed pursuant to SECTION 2.3.1(A) above, (i) relating to
any Taxes or Income Taxes; (ii) relating to any breach or
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alleged breach of contract, breach or alleged breach of warranty, tort,
infringement, or violation of law by Seller; (iii) payable from Seller to any
Affiliate of Seller; (iv) subject to Buyer's indemnity obligations set forth in
SECTION 7.2(D), arising under any Environmental Laws, (v) arising from or
relating to the termination of any employee of Seller at any time prior to
Closing; (vi) related to the ownership of the Purchased Assets by any Person
other than Seller; (vii) described in SECTION 2.3.1(A) above that are not fully
and accurately reflected on the Closing Balance Sheet (including the notes
thereto to the extent liabilities are explicitly quantified therein), in a
manner consistent with the Financial Statements; and (viii) arising under any
indebtedness for money borrowed, except to the extent assumed specifically by
Buyer, specifically including, but not limited to, any indebtedness resulting
from the funding or factoring of the accounts receivable of the Business.
2.3.2 No Other Assumed Liabilities. Except as expressly set forth in
SECTION 2.3.1 above, Buyer shall not assume or become liable for the payment or
performance of any liabilities or alleged liabilities of Seller of any nature
whatsoever, whether accrued or unaccrued, known or unknown, fixed or contingent,
and any and all such liabilities shall be deemed to be excluded liabilities (the
"EXCLUDED LIABILITIES"). Seller shall be responsible for all Taxes and Income
Taxes arising from the operation of the Business prior to the Closing and all
Taxes and Income Taxes incurred by Seller in connection with this Agreement, the
sale of the Purchased Assets and the transactions contemplated hereby. Sales and
use taxes, if any, imposed by law in connection with the sale of the Purchased
Assets shall be borne and paid by Seller. Buyer and Seller shall each pay
one-half of all transfer taxes imposed by law in connection with the sale of the
Purchased Assets and the transactions contemplated hereby.
2.4 Procedures for Assets Not Transferable. If any of the Assumed
Contracts constituting real property leases, Material personal property leases
or other Material contracts or any other Material property or rights included in
the Purchased Assets including, without limitation, any Permits, are not
assignable or transferable either by virtue of the provisions thereof or under
applicable law without the consent of some other party or parties, Seller shall
use its best efforts to obtain such consents prior to the Closing Date and shall
notify Buyer on or prior to the Closing Date of any consents not so obtained. If
any such consent cannot be obtained prior to Closing, Buyer may (i) terminate
this Agreement pursuant to SECTION 8.1(B); (ii) elect to defer the Closing for a
period mutually agreed upon by the parties (which election shall act to extend
the date referred to in SECTIONS 8.1(B) and 8.1(C) by the extension period so
elected), during which time the Seller shall remain obligated to observe the
terms of this Agreement and to use its best efforts to obtain all Consents not
theretofore obtained; or (iii) in the exercise of its sole discretion waive such
requirement as a condition to Closing, and in such event, this Agreement, and
the related instruments of transfer shall not constitute an assignment or
transfer thereof and Buyer shall not assume any of Seller's obligations with
respect thereto. Should Buyer waive the obtaining of any Consent as a condition
to Closing, Seller shall use its best efforts to obtain any such Consent as soon
as possible after the Closing Date and thereafter assign such Agreement to Buyer
or otherwise obtain for Buyer the practical benefit of such property or rights.
2.5 Closing. Subject to the satisfaction of the conditions set forth
in Article VI, the closing of the sale and purchase of the Purchased Assets (the
"CLOSING") will take place at the offices of Robinson, Bradshaw & Hinson, P.A.,
located in Charlotte, North Carolina, at 10:00 a.m. (Eastern Time) on the
earlier of (i) the day prior to the effective date of the merger between Seller
and Union Camp Corporation or (ii) April 8, 1999, or at such other place, time
and date as the parties may agree upon in writing (the "CLOSING DATE").
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ARTICLE III
BASE PURCHASE PRICE; ADJUSTMENTS AND PAYMENT
3.1 Base Purchase Price. In consideration of the transfer to Buyer
of the Purchased Assets and subject to the terms and conditions of this
Agreement, Buyer shall pay to Seller the aggregate amount of One Hundred and
Three Million One Hundred and Seventy-Five Thousand Dollars ($103,175,000) (the
"BASE PURCHASE Price"), payable in the form set forth in SECTION 3.2 below,
subject to the Purchase Price Adjustment to be made pursuant to SECTION 3.3
below.
3.2 Closing Date Payments. On the Closing Date, Buyer will pay to
the Seller the Base Purchase Price by wire transfer of immediately available
funds to an account designated by Seller.
3.3 Purchase Price Adjustment. The Base Purchase Price shall be
adjusted as follows (such adjustment being referred to herein as the "PURCHASE
PRICE ADJUSTMENT"):
(a) The Base Purchase Price shall be increased by the dollar amount,
if any, by which the final determination of Seller's investment in the Business
("SELLER'S INVESTMENT"), as attached to the Closing Balance Sheet in a manner
consistent with the preliminary calculation of Seller's Investment as shown on
SCHEDULE 3.3, exceeds Seller's Investment as shown on SCHEDULE 3.3.
(b) The Base Purchase Price shall be decreased by the dollar amount,
if any, by which the final determination of Seller's Investment, as attached to
the Closing Balance Sheet in a manner consistent with the preliminary
calculation of Seller's Investment as shown on SCHEDULE 3.3, is less than
Seller's Investment as shown on SCHEDULE 3.3.
The Base Purchase Price, as adjusted by the Purchase Price Adjustment, shall be
referred to herein as the "ADJUSTED PURCHASE PRICE."
3.4 Closing Balance Sheet.
3.4.1 Delivery of Closing Balance Sheet. Within sixty (60) days after
the Closing Date, Seller shall cause to be prepared and delivered to Buyer a
balance sheet of the Business (the "CLOSING BALANCE SHEET") as of the close of
business on the Closing Date, which shall be subject to review on behalf of
Buyer by Arthur Andersen LLP prior to delivery. The Closing Balance Sheet shall
not include any Excluded Assets or Excluded Liabilities and shall be prepared as
if the Purchased Assets and Assumed Liabilities were at that time assets and
liabilities of Seller rather than having been transferred to Buyer pursuant to
this Agreement. The Closing Balance Sheet shall be prepared in accordance with
GAAP consistent with the manner in which the Financial Statements were prepared
(to the extent consistent with GAAP). In conjunction with delivery of the
Closing Balance Sheet, Arthur Andersen LLP shall compute Seller's Investment as
of the Closing Date and attach a certificate to the Closing Balance Sheet
setting forth its calculation of Seller's Investment as of the Closing Date.
3.4.2 Determination of the Purchase Price Adjustment. If either Buyer,
on the one hand, or Seller, on the other hand, does not accept the Closing
Balance Sheet or the calculation of Seller's Investment as of the Closing Date
as submitted, the objecting party shall give written notice to the other party
within ten (10) days after delivery thereof. Any notice of dispute shall set
forth in detail the basis for the objecting party's objections. If Buyer and
Seller are unable to resolve the disagreement within thirty (30) days after
delivery of the other party's written notice, the parties shall engage a
mutually agreeable
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Big Five independent certified public accounting firm to resolve the issues in
dispute. The accounting firm shall apply GAAP to the issues at hand to the
extent consistent with the bases upon which the Closing Balance Sheet was
prepared, as stated in the Closing Balance Sheet (except that it shall assume
that the Purchased Assets and Assumed Liabilities included in the Closing
Balance Sheet were, as of the end of business on the Closing Date, assets and
liabilities of Seller rather than having been transferred to Buyer pursuant to
this Agreement) and shall not have the power to alter, modify, amend, add to or
subtract from any term or provision of this Agreement. The decision of the
accounting firm shall be rendered within thirty (30) days of the engagement and
shall be binding on the parties. Buyer, on the one hand, and Seller, on the
other, each shall pay one-half of the cost of the accounting firm engaged to
resolve the dispute, and Buyer shall pay all fees and expenses of Arthur
Andersen LLP in reviewing the Closing Balance Sheet and computing Seller's
Investment as provided herein. Buyer, on the one hand, and Seller, on the other
hand, shall be deemed to have accepted the Closing Balance Sheet and the
calculation of Seller's Investment as of the close of business at 5:00 p.m.
Eastern Standard time on the 10th day after delivery thereof if such party has
not by then given the other timely written notice of objection.
3.5 Post-Closing Purchase Price Adjustment Payment. Within three (3)
Business Days of the final determination of the Purchase Price Adjustment
pursuant to SECTION 3.4, an amount shall be payable (the "ADJUSTMENT PAYMENT"),
by wire transfer in immediately available funds to an account or accounts
designated by Seller or Buyer (as applicable), as follows: (i) if the Base
Purchase Price is to be increased by the Purchase Price Adjustment pursuant to
SECTION 3.3(A), Buyer shall pay to Seller the amount of such increase; and (ii)
if the Base Purchase Price is to be decreased by the Purchase Price Adjustment
pursuant to SECTION 3.3(B), Seller will pay to Buyer the amount of such
decrease. Any payments required to be paid pursuant to this SECTION 3.5 shall be
paid by wire transfer of immediately available funds to such account or accounts
as the Buyer or Seller shall designate not less than two (2) Business Days in
advance of the day any such payment is due. Interest shall accrue on all amounts
due under this SECTION 3.5 not paid when due at the per annum prime rate of
interest announced from time to time by Bankers Trust Company (or, if such bank
discontinues its practice of announcing its prime rate, such other institution
approved by Seller and Buyer) as its prime rate of interest, as in effect from
time to time, such interest to be calculated based on the actual number of days
elapsed from the date such amount becomes due and owing until paid in full and
based on a 365-day year. In the event any of the parties to this Agreement shall
bring action to enforce the payment provisions of this SECTION 3.5, the
prevailing party shall be entitled to recover its reasonable attorney's fees
incurred in such action from the unsuccessful party.
3.6 Purchase Price Allocation. An amount equal to the Base Purchase
Price plus the Assumed Liabilities shall be allocated among the Purchased Assets
in accordance with SCHEDULE 3.6 attached hereto. Following the payment of the
Purchase Price Adjustment pursuant to SECTION 3.5, if any, the parties shall
revise such allocations in a fashion consistent with the agreed-upon allocation
set forth on SCHEDULE 3.6. The allocation set forth in such schedule is intended
to comply with the requirements of Section 1060 of the Code. Seller and Buyer
agree to file all Income Tax returns or reports, including without limitation
IRS Form 8594, for their respective taxable years in which the Closing occurs,
to reflect the allocation described in SCHEDULE 3.6 (as such schedule may be
revised in accordance with this SECTION 3.6) and agree not to take any position
inconsistent therewith before any governmental agency charged with the
collection of any Tax or Income Tax or in any judicial proceeding.
3.7 Real Property and Other Expenses; Proration.
(a) Seller shall pay all applicable sales and use taxes on the deeds
conveying the Owned Real Property and the assignments of leases for any Leased
Real Property. Buyer and Seller shall each pay one-half of all real property
transfer taxes on the deeds conveying the Owned Real Property and the assignment
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of leases for any Leased Real Property. Buyer shall pay any recording fees for
such deeds and assignments, and the cost of any title insurance and surveys
obtained by Buyer.
(b) All ad valorem taxes on real and personal property with
respect to the Purchased Assets for the year in which the Closing occurs shall
be prorated per diem on a calendar-year basis up to the Closing Date. If the
amount of any such taxes is not known as of the Closing Date, such pro ration
shall be based on the tax bills for the immediately preceding year, and at
Buyer's request, Seller will remit to Buyer any additional amount due with
respect to Seller's pro rata share of such taxes when the actual amounts for the
year of Closing are known. Seller shall, prior to the Closing Date, pay all
assessments and ad valorem taxes levied with respect to the Purchased Assets in
all periods prior to the year in which the Closing occurs, to the extent such
assessments and taxes are due and payable, or shall accrue therefor such
assessments and taxes on the Closing Balance Sheet.
(c) All other expenses of the Business shall be prorated on a
daily basis between Seller and Buyer as of the Closing Date. Seller agrees to
pay in full on the Closing Date its pro rata share of all expenses of the
Business, provided that if the amount of any such expenses is not known as of
the Closing Date, such pro ration shall be based on the expenses for the most
recently available period, and at Buyer's request, Seller will remit to Buyer
any additional amount due with respect to Seller's pro rata share of expenses
when the actual amounts are known. Seller agrees that all expenses, charges,
bills, or trade accounts maintained or incurred by Seller or its agents in
connection with the management or operation of the Business or otherwise accrued
for the period prior to the Closing Date that are not Assumed Liabilities will
be paid in full on the Closing Date; provided, however, that all such expenses,
charges, bills, or trade accounts that have accrued but have not been billed as
of the Closing Date, that are not Assumed Liabilities, will be paid in full by
Seller at the time Seller receives the bills. Without limiting the generality of
the foregoing, the following items will be adjusted as of the Closing Date:
(i) rent and other charges payable under leases for any
Leased Real Property for the calendar month in which the Closing
occurs;
(ii) water and utility charges and sanitary sewer taxes, if
any;
(iii) charges under service, management or other agreements,
if any, that remain in effect after the Closing Date and are expressly
assumed by Buyer; and
(iv) other operating expenses not covered by any of the
above subparagraphs.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Seller. Seller hereby
represents and warrants to Buyer and Caraustar as follows:
4.1.1 Existence. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has full corporate power and authority to own or lease the
Purchased Assets and to carry on the Business as now conducted. Seller has
delivered to Buyer true and complete copies of its certificate or articles of
incorporation and bylaws or equivalent documents, each as amended to date
(collectively, the "CHARTER DOCUMENTS"). Seller is duly qualified to do business
and in good standing as a foreign corporation in the jurisdictions set forth on
SCHEDULE 4.1.1 attached
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hereto, which are all jurisdictions in which either the ownership or use of its
properties in the Business, or the nature of the activities conducted by the
Business, requires such qualification.
4.1.2 Authorization; Enforceability. Seller has full corporate or other
power, authority and capacity to enter into and perform its obligations under
this Agreement and to consummate the transactions contemplated herein. The
execution, delivery and performance of this Agreement by Seller has been duly
authorized by all requisite corporate action. This Agreement has been duly and
validly executed and delivered by Seller and constitutes the legal, valid and
binding obligation of Seller, enforceable in accordance with its terms, except
as enforceability may be limited by equitable principles or by bankruptcy,
fraudulent conveyance or insolvency laws or other laws affecting creditors'
rights generally.
4.1.3 No Violation; Consents. Neither the execution and delivery by
Seller of, nor the performance by Seller of its obligations under, this
Agreement, nor the consummation of the transactions contemplated herein, will
(a) conflict with, violate or result in a breach of any of the terms or
provisions of, or constitute a default (with the passage of time or giving of
notice or both) or give rise to any right of termination, cancellation or
acceleration under any indenture, mortgage, deed of trust, lease, note, or other
agreement or instrument relating to the Business and to which Seller is a party,
except as disclosed in SCHEDULE 4.1.3, (b) result in the creation or imposition
of any Lien on the Purchased Assets pursuant to any indenture, mortgage, deed of
trust, lease, note, or other agreement or instrument to which Seller is a party,
(c) conflict with any provision of the Charter Documents, or (d) violate any
law, order, judgment, decree, rule or regulation of any court or governmental
authority having jurisdiction over Seller or property of Seller. Except for any
required filing under the HSR Act and as otherwise set forth on SCHEDULE 4.1.3
attached hereto, no consent, approval, authorization, order, filing,
registration or qualification of or with any governmental authority or other
Person (each, a "CONSENT") is required to be obtained by Seller in connection
with the execution and delivery of this Agreement by the Seller or the
consummation of the transactions contemplated herein.
4.1.4 Insurance. SCHEDULE 4.1.4 attached hereto accurately lists all
policies of insurance covering the Purchased Assets and the Business as of the
date hereof, and for each indicates the insurer's name, policy number,
expiration date and amount and type of coverage. A correct and complete copy of
each such policy will be delivered to Buyer upon request. All such policies are
in full force and effect and neither Seller nor any other party thereto is in
breach or default under any such policies (and no event has occurred which, with
the giving of notice or the passage of time, or both, would constitute a breach
or default). No written notice of termination of any such policy has been
received by Seller or any of its Affiliates.
4.1.5 Litigation. Except as set forth on SCHEDULE 4.1.5, there are no
actions, suits, labor disputes or other litigation, proceedings or governmental
investigations pending or, to the knowledge of Seller, threatened against or
affecting Seller in connection with the Business, or relating to the
transactions contemplated by this Agreement that, either individually or in the
aggregate, would have a Material Adverse Effect on the Business or the
transactions contemplated by this Agreement. Except as set forth on SCHEDULE
4.1.5, Seller is not subject to any order, judgment, decree, stipulation or
consent of or with any court, governmental body or agency relating to the
Business.
4.1.6 Governmental Authorizations; Compliance with Laws. Seller holds
the licenses and permits, authorizations, franchises and approvals described on
SCHEDULE 4.1.6 attached hereto (the "PERMITS"), and is subject to the orders
listed on SCHEDULE 4.1.6 attached hereto, and no other orders, licenses,
certificates, permits, authorizations, franchises, approvals or rights issued by
any governmental authority, federal, state, local or foreign, are necessary or
have been issued, for the lawful operation of the
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Business. The Permits are in full force and effect, and no Material violations
of any of the Permits have occurred or, to the knowledge of Seller, have been
alleged to have occurred. Furthermore, no proceedings are pending or, to the
knowledge of Seller, except as set forth in SCHEDULE 4.1.3, threatened, that
would have the effect of revoking or materially limiting or affecting the
transfer or renewal of any of the Permits. The Permits (a) are not subject to
any restrictions or conditions that would limit the Business as presently
conducted except as set forth in SCHEDULE 4.1.3, (b) except as set forth in
SCHEDULE 4.1.3, may be assigned to Buyer without the consent of any Person other
than Seller, and (c) except as set forth in SCHEDULE 4.1.3, shall not cease to
remain in full force and effect as a result of their assignment to Buyer and
shall not be subject to any additional restriction or condition as a result of
their assignment to Buyer. Seller has delivered to Buyer true and complete
copies of each of the Permits. Seller is now and since the date of its most
recent audited financial statements has been in compliance, except as disclosed
in SCHEDULE 4.1.6, with all laws applicable to the operation of the Business and
the ownership of the Purchased Assets and has not received written notice that
it is in violation of or in default under any judgment, order or decree of any
court or administrative agency or any law, rule or regulation applicable to the
Business or the Purchased Assets.
4.1.7 Tax Matters. Seller has not received written notice that the
Internal Revenue Service or any other taxing authority has asserted against
Seller any deficiency or claim for additional Taxes or Income Taxes in
connection with the Business or the Purchased Assets. Seller has not been
granted, nor has been given, any waiver of any statute of limitations with
respect to, or any extension of a period for the assessment or filing of, any
Tax or Income Tax. All monies required to be withheld by Seller (including from
current or former Employees for Income Taxes and social security and other
payroll Taxes) with respect to the Business and the Purchased Assets have been
collected or withheld, and either paid to the respective taxing authorities, set
aside in other accounts for such purpose or will be accrued for on the Closing
Balance Sheet. Seller has paid to the proper authorities all custom duties and
similar or related charges required to be paid by or in connection with respect
to the importation or exportation of products or other goods to or from the Real
Property. There are no tax Liens on the Purchased Assets of Seller, except liens
for Taxes not yet due or imposed, and Seller has paid all such Taxes, rates and
like assessments that have become due and payable which, if not so paid, could
result in a Lien on the Purchased Assets.
4.1.8 Financial Statements. Seller has delivered to Buyer copies of
the Financial Statements. The Financial Statements represent fairly the
financial position as of the periods indicated in conformity with GAAP.
4.1.9 Liabilities. Except for Excluded Liabilities and other than as
set forth in SCHEDULE 4.1.9, to the knowledge of Seller, Seller does not have,
nor will have, with respect to the Business, any liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise and whether due
or to become due, except those: (a) that are accrued or reserved against on the
face of the Financial Statements (including the notes thereto to the extent
liabilities are explicitly quantified therein); or (b) that will be accrued or
reserved against on the Closing Balance Sheet (including the notes thereto to
the extent liabilities are explicitly quantified therein) and are of the same
type and category as shown on the Financial Statements. To the knowledge of
Seller, no facts or circumstances exist that, with or without the passing of
time or the giving of notice or both, might reasonably serve as the basis for
any other liabilities or obligations other than Excluded Liabilities.
4.1.10 No Adverse Change. Since December 31, 1998, except as set forth
on SCHEDULE 4.1.10, there has not been (a) any change in the Business or the
results of operation of the Business, financial or otherwise, that would have a
Material Adverse Effect; (b) any damage, destruction or casualty loss,
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whether covered by insurance or not, Materially and adversely affecting the
Purchased Assets or the Business; (c) (i) any Material increase in the rate or
terms of compensation payable to or to become payable to any employees of the
Business, except increases occurring in accordance with Seller's customary
practices or as required by existing employment agreements or (ii) any Material
modifications in employee benefits to employees of the Business; (d) entry into,
termination of (except by reason of the occurrence of a contractually specified
termination date) or Material amendment to any contract or commitment or license
or permit Material to the Business, except in the ordinary course of business or
as contemplated herein; (e) any creation of or assumption of any mortgage,
pledge, or other lien or encumbrance upon any of the Purchased Assets; (f) any
sale, assignment, lease, transfer or other disposition of any of the Purchased
Assets, except in the ordinary course of business; (g) any imposition or
incurring of any obligation or liability, fixed or contingent, except in the
ordinary course of business; (h) except as otherwise provided in this
subsection, entry into any agreement with respect to the operation of the
Business pursuant to which the aggregate annual financial obligation of the
Buyer may exceed $100,000, or which is not terminable by Buyer without penalty
upon sixty (60) days' notice or less; (i) any commitment to make any purchase
for, or sale of, any inventories relating to the operation of the Business,
except in the ordinary course of business; (j) any separate commitment in excess
of $150,000 for any capital expenditure for which Buyer shall have any financial
obligation to discharge subsequent to Closing; (k) any changes in the accounting
systems, policies or practices of Seller with respect to the Business or the
manner in which it maintains its books and records; (l) any waiver by Seller of
any rights with respect to the Business which have any Material value; (m) any
transaction otherwise relating to the Business not in the ordinary course of
business or (n) any agreement by Seller to do any of the things described in
preceding clauses (a) through (m).
4.1.11 Title to Personal Property. SCHEDULE 2.1(A) lists all Material
tangible personal property owned or leased by Seller and used in connection with
the Business. Except with respect to any leased property or as set forth in
SCHEDULE 4.1.11, Seller owns and has good and valid title to all tangible
personal property that is included in the Purchased Assets, free and clear of
all Material liens and encumbrances, except for liens for taxes not yet due and
payable. Seller has delivered or made available to Buyer true and complete
copies of all leases and other agreements affecting the properties listed in
SCHEDULE 2.1(A), all of which leases are valid and binding on the lessor
thereunder, and with respect to which neither Seller, nor, to the knowledge of
Seller, any other party, is in default.
4.1.12 Accounts Receivable. All accounts, notes and other receivables
of the Business represent valid and bona fide claims, were acquired or arose in
the ordinary course of business, will be reflected on the Closing Balance Sheet
net of any prompt payment discounts allowable by Seller in the ordinary course
of business, and will be fully collectible in the ordinary course of business.
4.1.13 Tangible Purchased Assets. The tangible Purchased Assets are
suitable for use thereof in the conduct of normal operations, and do not require
any maintenance and repairs except for maintenance and repairs that are not
Material in nature and are required in the ordinary course consistent with past
practice of the Business. The inventories of the Business (i) are good,
merchantable and in usable condition, (ii) are reflected on the Financial
Statements in accordance with GAAP and (iii) are of a quality and quantity that
is useable or saleable in the ordinary course of business. The inventory
obsolescence policies of the Business are appropriate for the nature of the
products sold by the Business. All inventories of the Business are located on
the Real Property, except for inventories in transit to customers in the
ordinary course of business or stored in leased facilities identified to Buyer.
Seller will identify in writing to Buyer, prior to the Closing, each item of the
type required to be listed on SCHEDULE 2.1(A) that is acquired between the date
of this Agreement and the Closing and has a market value or book value of
$50,000 or more.
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4.1.14 Proprietary Rights. SCHEDULE 4.1.14(A) attached hereto is an
accurate and complete list of all of the Proprietary Rights. The Proprietary
Rights constitute all Intellectual Property necessary for the operation of the
Business. All Proprietary Rights and Intellectual Property used in the Business
are owned by Seller free and clear of all Liens or have been duly licensed for
use by Seller. None of the Proprietary Rights or Intellectual Property used in
the Business has been or is the subject of any pending adverse claim or, to the
knowledge of Seller, any threatened litigation or claim of infringement.
Seller's conduct of the Business does not infringe any Intellectual Property of
another, and Seller has not received any notice contesting its right to use any
Intellectual Property used by it in connection with the Business or the
operation thereof. Except as set forth on SCHEDULE 4.1.14(A), Seller has not
granted any license in respect of any Intellectual Property or Proprietary
Rights or made any commitment to pay any royalty or license in respect of any
Intellectual Property or Proprietary Rights. SCHEDULE 4.1.14(B) accurately
describes Seller's program and the current status of Seller's program as it
pertains to (x) the computer (hardware and software), information, accounting
and other systems included in the Purchased Assets with respect to Year 2000
compliance issues and (y) to the knowledge of Seller, the computer, information,
accounting and other systems of third parties with which Seller interrelates as
a Material part of the Business with respect to Year 2000 compliance issues.
4.1.15 Contracts. SCHEDULE 4.1.15(A) contains an accurate and complete
list of the Contracts (organized by subject matter categories), (i) which
involve obligations to or by Seller in the future exceeding $50,000; (ii) have a
future term (excluding any portion subject to a cancelable right exercisable
without penalty) of one year or more; (iii) pursuant to which Seller has made
product warranties that continue in effect, (iv) with any employee or other
Seller Affiliate, or (v) which are otherwise Material to the Business, and
identifies and describes each oral Contract of the type described in the
preceding clauses (i) through (iv) to which Seller is a party. Each Contract
(including each Assumed Contract) is valid, binding, in full force and effect.
Seller is not in default under any Contract, nor does there exist any condition
or event which after notice, lapse of time or both would constitute a default by
Seller under any Contract. To the knowledge of Seller, no other party to any
Contract is in default or breach, or alleged to be in default or breach, under
any Contract, nor does there exist any condition or event which, after notice,
lapse of time or both, would constitute a default by any other party to any
Contract. Seller has not received notice that Seller is in default under or in
breach of any Contract or of the election of any party to any Contract to
cancel, terminate or not to renew any such Contract whether in accordance with
the terms of any Contract or otherwise. Seller has not given notice to any other
party to any Contract that such other party is in default thereunder or in
breach thereof or given notice of the termination thereof, except as set forth
in SCHEDULE 4.1.15(B). Except as set forth on SCHEDULE 4.1.3, none of the
Assumed Contracts requires the consent of the other party thereto for the
assignment of such Assumed Contract to Buyer and, upon such assignment at
Closing as contemplated by this Agreement, such Assumed Contract shall remain in
full force and effect.
4.1.16 Employee Benefit Plans
(a) SCHEDULE 4.1.16(A) identifies each employee pension,
retirement, profit sharing, bonus, incentive, deferred compensation,
hospitalization, medical, dental, vacation, insurance, sick pay, disability,
severance or other plan, fund, program, policy, contract or arrangement covering
current or former Employees that are employee welfare benefit plans or employee
pension benefit plans (within the meaning of Section 3 of ERISA and the
regulations issued by the Department of Labor) maintained or contributed to by
Seller or any trade or business, whether or not incorporated (an "ERISA
AFFILIATE"), that is a member of a controlled group of corporations or a trade
or business under common control with any Seller (within the meaning of Sections
414(b), (c), (m) or (o) of the Code, or Section 4001(a)(14) of ERISA) (the
"PLANS"). None of the Plans constitutes a "Multiemployer Plan" (as defined in
Section 4001(a)(3) of
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ERISA). Neither Seller nor any ERISA Affiliate has any formal plan or
commitment, whether legally binding or not, to create any additional Plan or
modify or change any existing Plan that would affect any employee or terminated
employee of Seller or any ERISA Affiliate.
(b) With respect to each of the Plans, Seller has heretofore
delivered to Buyer true and complete copies of each of the following documents:
(i) the Plan (including all amendments thereto);
(ii) the annual report and actuarial report, if required
under ERISA, with respect to each such Plan for the last two years;
(iii) the most recent summary plan description, together with
each summary of material modifications, required under ERISA with
respect to such Plan, and all material written employee communications
relating to such Plan;
(iv) if the Plan is funded through a trust or any third party
funding vehicle, the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof; and
(v) the most recent determination letter received from the
Internal Revenue Service with respect to each Plan that is intended to
be qualified under section 401(a) of the Code.
(c) Each of the Plans has been operated and administered by
Seller or an ERISA Affiliate in all Material respects in accordance with
applicable laws, including without limitation ERISA and the Code. There are no
Material pending or, to the knowledge of Seller, threatened claims by or on
behalf of any of the Plans, by any current or former Employee or beneficiary
covered under any such Plan which allege a violation of ERISA or a breach of any
fiduciary duties which would result in a Material liability on the part of
Seller, any ERISA Affiliate or any Plan.
(d) With respect to each of the Plans which is intended to be
"qualified" within the meaning of section 401(a) of the Code, a favorable
determination letter has been received with respect to all items required to be
included therein.
(e) Except as set forth in SCHEDULE 4.1.16(E), no Plan provides
benefits, including without limitation death or medical benefits (whether or not
insured), with respect to current or former Employees beyond retirement or other
termination of service other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement, termination or disability retirement benefits
under any "employee pension benefit plan," as that term is defined in section
3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the Financial Statements, (iv) benefits payable under any welfare plan to
employees who become disabled while employed, (v) benefits the full cost of
which is borne by the current or former Employee (or his beneficiary), or (vi)
any severance plans maintained by Seller.
(f) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former Employee or officer of
Seller or any ERISA Affiliate to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement, (ii) accelerate
the time of payment or vesting under any Plan, or increase the amount of
compensation due any such employee or officer, (other than an acceleration of
the time of payment or vesting which may occur by operation of law if any or all
of the Plans are terminated) or (iii) result in any prohibited
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transaction described in Section 406 of ERISA or Section 4975 of the Code for
which an exemption is not available.
4.1.17 Labor and Employment Matters.
(a) Seller has delivered to Buyer complete and accurate copies of
each employment, labor, consulting and similar agreement to which Seller is a
party in connection with, all of which are listed on SCHEDULE 4.1.17(A). Except
as disclosed on SCHEDULE 4.1.17(A) and 4.1.16, Seller is not, in connection with
the Business, a party to, nor is bound by, any written agreement, any employment
manual, employment handbook, employment practice or policy constituting a
contractual obligation, or any consent decree, court order, statutory or other
obligation: (i) for the employment of any individual, or the provision of
services by any individual, who is not terminable by Seller without penalty upon
thirty (30) days notice or less; (ii) with any labor union; or (iii) relating to
the payment of any severance or termination payment, bonus or death benefit to
any employee or former Employee or his or her estate or designated beneficiary.
(b) Except as described on SCHEDULE 4.1.17(A), Seller is not a
party to any collective bargaining agreement covering Employees, nor has Seller
recognized or received a demand for recognition of any collective bargaining
representative with respect thereto; there neither are nor have been during the
past three years any labor strikes, labor disputes or work stoppages or
slowdowns and, to the knowledge of Seller, there are no such actions threatened
against Seller.
(c) Except as disclosed on SCHEDULE 4.1.17(C), there are no loans
or other obligations payable or owing to any current or former Employees or
officers of the Business, except salaries, wages, bonuses and salary advances
and reimbursement of expenses incurred and accrued in the ordinary course of
business, nor are any loans or debts payable or owing by any such persons or
their Affiliates to Seller, and Seller has not guaranteed any of their
respective loans or obligations.
(d) SCHEDULE 4.1.17(D) lists the names and current salary or
hourly rates of all Employees, and specifies which Employees are union
Employees. Except as set forth in SCHEDULE 4.1.17(D), (i) the operation of the
Business has complied in all Material respects with all applicable laws and
regulations relating to the employment of labor, including those related to
wages, hours, collective bargaining, WARN Act, the payment of social security or
similar taxes, and discrimination laws; (ii) there are no unfair labor practice
claims or pending charges relating to the Business; (iii) Seller is not a party
to, or otherwise bound by, any consent decree with, or citation by, any
governmental authority relating to current or former Employees or employment
practices of the Business; (iv) Seller is in compliance with all applicable
agreements, contracts, and policies relating to employment, employment
practices, wages, hours, and terms and conditions of employment of Employees;
and (v) Seller has not closed any plant or facility operating in connection with
the Business, effectuated any layoffs of employees or implemented any early
retirement, separation or window program which affected Employees within the
past three years, nor has Seller planned or announced any such action or program
in the future.
(e) There is no controversy pending or, to the knowledge of
Seller, threatened between Seller and any of the present or former supervisory
personnel of the Business or any group of Employees.
4.1.18 Environmental Matters.
(a) Except as set forth in SCHEDULE 4.1.18, Seller in connection
with the Business, (i) is in compliance with all Environmental Laws, (ii) has
not received any communication (written or oral) that alleges that it is not in
such compliance, or has caused exposure of any person or the environment to any
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Hazardous Substance, (iii) has all Material permits and other approvals required
by applicable Environmental Laws for the conduct of the Business, and (iv) knows
of no facts or circumstances that may prevent, or Materially increase the
Business' cost of, compliance with Environmental Laws in the future.
(b) SCHEDULE 4.1.18 identifies all relevant Material
environmental reports, audits or assessments, or occupational health studies in
Seller's possession or known to Seller that relate to the Real Property and the
Purchased Assets (collectively the "SELLER FACILITIES") undertaken by
governmental agencies or other parties, or by the Company, or by any of its
lenders, agents, independent contractors or representatives.
(c) Except as set forth in SCHEDULE 4.1.18, there does not exist,
is not occurring, and Seller has not caused to occur any presence, generation,
storage, treatment, transport, release or disposal of any Hazardous Substance
on, in, under, about, to or from any Seller Facility in violation of any
Environmental Law.
(d) The Seller has heretofore delivered to Buyer true and
complete copies of each of the following documents:
(i) each environmental report, audit, and assessment, and each
occupational health study, identified in SCHEDULE 4.1.18; and
(ii) each Environmental Permit (as defined below).
(e) Except as set forth in SCHEDULE 4.1.18, Seller neither owns
nor operates (nor did it formerly own or operate) any site which, nor to the
knowledge of Seller has it sent any Hazardous Substance generated by the
Business or by or on the Purchased Assets to a site which, pursuant to CERCLA or
any other Environmental Law, (i) has been placed on the "National Priorities
List" or any other list of sites suspected to be contaminated by any Hazardous
Substance, (ii) is or has been subject to a claim, administrative order or other
request to take investigative, removal or remedial action under CERCLA or any
other Environmental Law, or (iii) is otherwise the subject or source of any
federal, state or private investigation, remediation or cost recovery or
contribution effort or claim relating to Environmental Law.
(f) SCHEDULE 4.1.18 sets forth, with respect to each Seller
Facility, all Material environmental licenses, permits, approvals,
authorizations, exemptions, classifications, certificates and registrations
(collectively the "ENVIRONMENTAL PERMITS") and orders made or held by Seller
together with a description of any compliance schedules relating thereto.
(g) SCHEDULE 4.1.18 identifies (i) all on-site locations where
Seller has stored, disposed or arranged for the disposal of Hazardous Substances
or wastes generated by the Business or by or on the Purchased Assets, (ii)
off-site locations for which Seller has received notice of the potential
disposal of Hazardous Substances in connection with the Business, (iii) all
underground storage tanks, and the capacity and contents of such tanks, located
or formerly located on any Purchased Asset, (iv) all asbestos contained in or
forming part of any building, building component, structure or office space
within any Purchased Asset, and (iv) all polychlorinated biphenyls (PCB's) used
or present at any Purchased Asset.
4.1.19 Leased Real Property. SCHEDULE 4.1.19 identifies each lease
agreement with respect to the Leased Real Property, and all amendments thereto,
complete and accurate copies of which have been provided by Seller to Buyer
prior to the date hereof. The Leased Real Property comprises all real property
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leased by Seller and used in connection with the Business. Each lease agreement
set forth on SCHEDULE 4.1.19 is legal, valid, binding, enforceable, and in full
force and effect, and may be assigned to Buyer without consent by the landlord
(or if consent is required, Seller shall obtain such consents in writing prior
to the Closing Date). Neither Seller nor any other party thereto is in default,
violation or breach in any respect under any such lease, and no event has
occurred and is continuing that constitutes or, with notice or the passage of
time or both, would constitute a default, violation or breach in any respect
under any such lease. Each such lease grants the tenant under the lease the
exclusive right to use and occupy the demised premises thereunder. Seller has
good and valid title to the leasehold estate under each such lease to which it
is a party free and clear of all liens, claims and encumbrances other than
Permitted Liens. Seller enjoys peaceful and undisturbed possession under each
such lease of the Leased Real Property.
4.1.20 Title to Real Property.
(a) The Owned Real Property comprises all real property owned by
Seller and used in connection with the Business. Except as set forth in SCHEDULE
4.1.20, Seller has good and marketable fee simple title to all of the Real
Property shown on SCHEDULE 1.1(B) as being owned by it, free and clear of all
liens, mortgages, pledges, restrictions, encumbrances and other exceptions
whatsoever other than real estate taxes not yet due and payable; and easements
for services to the properties that in the aggregate do not materially and
adversely affect or interfere with the use of such properties in the Business.
The Real Property has direct vehicular access to a public street.
(b) On or before the Closing Date (the "INSPECTION DATE"), Buyer
may deliver to Seller a statement of any objections to Seller's title, excluding
the encumbrances permitted under subsection (a) above, and may notify Seller in
writing of the nature of such objections. If objections to title are made as
provided above, Seller shall use reasonable efforts to cure the objections prior
to Closing after receipt of Buyer's statement. If Seller fails to cure the
objections prior to Closing, Buyer may, by delivery of written notice to Seller,
either (i) terminate this Agreement; (ii) elect to consummate the purchase of
the Business in the same manner as if there had been no title objections; or
(iii) cure the title objections at Seller's reasonable expense, not to exceed
$100,000, and treat that expense as a credit against the Base Purchase Price. On
or before the Inspection Date, Buyer may cause to be prepared, at its expense, a
survey of all or some of the Real Property. Buyer's failure to undertake any
such investigation or make any objection shall not waive, invalidate or
otherwise affect any representation, warranty, covenant or other provision
herein or in any deed or other document of Seller. Notwithstanding the
foregoing, Buyer shall not be required to object to any encumbrance that may be
removed solely by the payment of money, such as mortgages or liens, and such
encumbrances shall be satisfied or canceled of record by Seller at Closing.
Seller shall allow no encumbrances to be placed or granted with respect to the
Real Property from the date hereof through the Closing Date without the prior
written consent of Buyer.
4.1.21 Condition of Real Property. Except as set forth in SCHEDULE
4.1.21:
(a) Seller has not received notice of administrative agency
action, litigation, condemnation proceeding, or proceeding of any kind pending
against Seller that relates to or affects any portion of the Real Property,
including any requests for public dedication, nor does Seller know of any basis
for any such action;
(b) All buildings and improvements located on the Real Property
fully conform with all applicable zoning regulations, building codes and
restrictions and similar legal requirements, and are located entirely within the
boundary lines of the Real Property. None of the buildings or improvements
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located on the Real Property are located in a flood hazard area, or are prior,
nonconforming structures under either the applicable zoning regulations or the
applicable building codes.
(c) Real Property may be used for the operation of the Business
as currently operated, and may be conveyed to Buyer, without violating any
federal, state, local, or any other governmental building, zoning, health,
safety, platting, subdivision or other statute, ordinance or regulation, or any
applicable private restriction; such use is not a pre-existing, nonconforming
use; and no notice of the violation of any of the same has been received by
Seller; and
(d) Each parcel of Real Property is currently served by the
following public utility services sufficient for the safe and efficient
operation of such Real Property: electricity, gas, water, sanitary sewer and
telephone. Seller will cooperate with Buyer to assure that those utility
services will continue after the Closing without action by or expense to Buyer,
other than the payment of normal security deposits and the bills for the period
from and after the Closing Date.
4.1.22 Customers. SCHEDULE 4.1.22 attached hereto lists each
customer of the Business since December 31, 1997. Except as set forth on
SCHEDULE 4.1.22, Seller has not received any notice, nor has any reason to
believe, that any such Customer's relationship with Seller or the Business is
being terminated or is being considered for termination, nonrenewal, or Material
reduction. To the knowledge of Seller, no such customer or Material supplier of
the Business has indicated that, as a result of the consummation of this
Agreement, it will terminate or materially reduce its relationship with the
Business.
4.1.23 Assets Sufficient for Conduct of Business. The Purchased
Assets constitute all of the assets, properties and rights used by Seller in,
and required for the continued operation by Buyer of, the Business as it is
presently operated by Seller.
4.1.24 Accuracy of Statements. Neither the subject representations
or warranties in this Agreement (including the Schedules attached thereto) nor
any statement, list, certificate or other information furnished or to be
furnished by or on behalf of Seller to Buyer in connection with this Agreement
or any of the transactions contemplated hereby, contains or will contain any
untrue statement of a material fact regarding Seller, the Purchased Assets or
the Business or omits or will omit to state a material fact necessary to make
the statements regarding Seller, the Purchased Assets or the Business contained
herein or therein, not misleading.
4.2 Representations and Warranties of Buyer and Caraustar. Each
of Buyer and Caraustar represents and warrants to Seller as follows:
4.2.1 Corporate Existence. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Caraustar is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of North Carolina. Each of Buyer
and Caraustar have full corporate power and authority to enter into and perform
this Agreement and to consummate the transactions contemplated herein.
4.2.2 Authorization; Enforceability. The execution, delivery and
performance of this Agreement by each of Buyer and Caraustar and the
consummation of the transactions contemplated herein have been duly authorized
by all requisite corporate action. This Agreement has been duly executed and
delivered by each of Buyer and Caraustar and constitutes the valid, legal and
binding obligation of each of Buyer and Caraustar enforceable in accordance with
its terms, except as enforceability may be limited by equitable
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principles or by bankruptcy, fraudulent conveyance or insolvency laws or other
laws affecting creditors' rights generally.
4.2.3 No Violation; Consents. Neither the execution, delivery and
performance by Buyer and Caraustar of its obligations under this Agreement, nor
the consummation of the transactions contemplated hereby, will conflict with,
violate or result in a breach of any of the terms or provisions of, or
constitute a default (with the passage of time or giving of notice or both)
under, or result in the creation or imposition of any lien on the assets of
Buyer or Caraustar pursuant to, the Charter Documents of Buyer or Caraustar, any
order, judgment, decree, rule or regulation of any court or governmental agency
or body having jurisdiction over Buyer, Caraustar or their properties, or under
any provision of law. Except for any required filing under the HSR Act, no
Consent is required to be obtained by Buyer or Caraustar in connection with the
execution and delivery of this Agreement by Buyer and Caraustar or the
consummation of the transactions contemplated herein.
4.2.4 Litigation. There are no actions, suits, labor disputes or other
litigation, proceedings or governmental investigations pending or, to knowledge
of Buyer, threatened against or affecting Buyer or Caraustar, nor is Buyer or
Caraustar subject to any order, judgment, decree, stipulation or consent of or
with any court, governmental body or agency, which would impair the ability of
Buyer or Caraustar to consummate the transactions contemplated by this
Agreement.
4.2.5 Funds. Buyer has funds sufficient to pay the Base Purchase Price
and any Adjusted Purchase Price.
4.2.6 Buyer. Buyer is a wholly-owned, direct subsidiary of Caraustar.
ARTICLE V
CERTAIN COVENANTS
5.1 Access and Information; Confidentiality. From the date hereof
until the Closing Date or such later date as may be specified below:
(a) Seller will (i) give Buyer and its authorized representatives
reasonable access during normal business hours to the Seller Facilities and to
all books, records, offices and other facilities and properties relating to the
Business; (ii) permit Buyer to make such inspections thereof and perform such
soil and groundwater tests, surveys, environmental assessments and audits, and
other inspections, tests and inquiries as Buyer may desire; (iii) cause its
appropriate officials to furnish Buyer with such financial and operating data
and other information with respect to the Business as Buyer may from time to
time reasonably request; provided, however, that any such investigation by Buyer
shall be conducted in such a manner as not to interfere unreasonably with the
operation of the Business.
(b) Buyer: (i) will hold, and will use its best efforts to cause its
officers, directors, employees, lenders, accountants, representatives, agents,
consultants and advisors to hold, in strict confidence all information (other
than such information as may be publicly available) furnished to Buyer in
connection with the transactions contemplated by this Agreement (collectively,
the "Information"); and (ii) will not, without the prior written consent of
Seller, release or disclose any Information to any other person, except (x) to
Buyer's officers, directors, employees, lenders, attorneys, accountants,
representatives, agents, consultants and advisors who need to know the
Information in connection with the consummation of the transactions contemplated
by this Agreement, who are informed by Buyer of the confidential nature of the
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Information, and who agree to be bound by the terms and conditions of this
SECTION 5.1(B), (y) (i) to the extent any Information is required to be
disclosed by law or by governmental authorities having jurisdiction over Buyer
or (ii) to governmental authorities as necessary to negotiate with such
governmental authorities Seller's Consent Agreement, as defined below, or the
transfer or issuance of any Permits or orders required by any governmental
authority under Environmental Laws, or (z) to the extent necessary for Buyer to
enforce any or all of its rights under this Agreement. In the event Buyer or any
Person to whom Buyer transmits the Information pursuant to this Agreement
becomes legally compelled to disclose any of the Information, Buyer will provide
Seller with prompt notice so that Seller may seek a protective order or other
appropriate remedy or waive compliance with the provisions of this SECTION
5.1(B), or both. If the transactions contemplated by this Agreement are not
consummated, the Information will be returned to Seller immediately upon request
therefor or, at Seller's request, destroyed. Buyer and Seller agree that, as
promptly as practicable upon execution of this Agreement, the parties will
announce the existence of this Agreement. Buyer and Seller will agree on the
timing, form and content of any such announcements prior to release.
5.2 Conduct of Business. Except as otherwise contemplated by the terms
of this Agreement, from the date hereof until the Closing, Seller will: (a) not
enter into any Contract relating to the Business unless such Contract is entered
into in the ordinary course of business and either involves an aggregate
financial obligation on the part of Seller of $150,000 or less or is terminable
upon not more than thirty (30) days' prior notice; (b) not amend, modify or
waive any Material provision of any Assumed Contract or Material Contract; (c)
not mortgage, pledge, sell or transfer any of the Purchased Assets, other than
the sale of inventories in the ordinary course consistent with past practice;
(d) conduct the Business only in the ordinary course (including with respect to
the payment of payables and the collection of receivables) and in substantially
the same manner as heretofore conducted; (e) maintain and keep the Purchased
Assets in good repair, working order and condition, except for ordinary wear and
tear; (f) keep in full force and effect Seller's insurance comparable in amount
and scope of coverage to that now maintained; (g) perform its obligations under
all Contracts; (h) use its best efforts to retain the present Employees and
maintain Seller's relationships with suppliers, customers and others having
business dealings with the Business; (i) maintain books of account and records
of the Business in the usual and regular manner and not make any changes in any
accounting practices of the Business; (j) except to the extent it has disclosed
noncompliance to Buyer in SCHEDULE 4.1.18(A), comply with all laws and
regulations applicable to the Business; (k) use its best efforts to maintain and
protect the Intellectual Property and Proprietary Rights; (l) not make any
change in any Benefit Plan or compensation to any Employees or adopt any new
Benefit Plan without the prior written consent of Buyer; (m) not amend any of
Seller's Charter Documents; (n) not take, or agree in writing or otherwise to
take, any action that would make any of the representations or warranties of
Seller contained in this Agreement untrue or incorrect or would result in any of
the conditions set forth in this Agreement not being satisfied; and (o) not
agree, whether in writing or otherwise, to do any of the foregoing. Without
limiting the foregoing, Seller will consult with Buyer regarding all significant
developments, transactions and proposals relating to the Business or the
Purchased Assets.
5.3 Use of Business Name. From and after the Closing, Seller shall not
use any existing trade names of the Business, except in reference to the
Business as sold, or any acronym or abbreviation or any variations, translations
or combinations thereof or similar names in referring to any business without
the prior written consent of Buyer.
5.4 Filings. Buyer and Seller will make or cause to be made all such
filings and submissions under applicable laws and regulations as may be required
for the consummation of the transactions contemplated hereunder, including
without limitation any filings required under the HSR Act. Buyer and Seller will
cooperate and coordinate with one another in connection with any such filings or
submissions.
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5.5 Employees.
(a) Immediately prior to the Closing Date, Buyer shall offer employment
effective the Closing Date to all Persons who are Union Employees. Each offer of
employment to a Union Employee shall be under the terms of the Collective
Bargaining Agreement, and otherwise at the same compensation rate, position and
place of employment held by such Union Employee immediately prior to the Closing
Date; provided, however, that any Inactive Employee who is absent from active
service on the Closing Date by reason of such Inactive Employee's entitlement to
short-term disability, long-term disability or workers' compensation benefits
shall be offered employment by the Buyer effective upon such Inactive Employee's
availability to return to active service unless otherwise dictated by the
Collective Bargaining Agreement. Buyer shall offer employment on an "at-will
basis" immediately prior to and effective as of the Closing Date to all Persons
who are Employees (other than Union Employees) immediately prior to the Closing
Date; provided, however, that any Inactive Employee who is absent from active
service on the Closing Date by reason of such Inactive Employee's entitlement to
short-term disability, long-term disability or workers' compensation benefits
shall be offered employment by Buyer effective upon such Inactive Employee's
availability to return to active service. Each offer of employment to an
Employee other than a Union Employee shall be at the same base salary or
commission rate, position and place of employment held by such Employee
immediately prior to the Closing Date and upon such other terms and conditions
of employment as provided to similarly situated employees of Buyer; provided,
that each offer of employment to an Employee (other than Union Employees) shall
provide for a severance package meeting the terms set forth on SCHEDULE 5.5(A),
which package shall remain in effect for at least twelve (12) months following
the Closing. All Employees who accept offers of employment with Buyer as of the
Closing Date, shall hereafter be referred to as "TRANSFERRED EMPLOYEES." If for
any reason any of the Employees do not accept Buyer's offer of employment,
Seller hereby agrees, jointly and severally, to indemnify Buyer in accordance
with ARTICLE VII from and against any claim for termination or severance
payment, wrongful dismissal or other such actions and all other costs or
liabilities associated with such Employees, including without limitation, any
obligation or liability with respect to any wages, bonuses, commissions, sick
pay and vacation liabilities and any other amounts or benefits payable or
accrued to such Employees with respect to any period (whether or not payable by
the Closing Date) and any liability for failure to give any required notices
under the WARN Act.
(b) Buyer shall grant all Transferred Employees credit for purposes of
eligibility and vesting (but not benefit accrual) under the Buyer's employee
benefit plans (including vacation and severance) for their service with Seller
prior to the Closing Date, to the same extent such service had been taken into
account under the Plans. Seller shall either pay to Transferred Employees, or
accrue therefor on the Closing Balance Sheet for Buyer's assumption and payment,
any earned vacation that has not been taken by said employees prior to the
Closing Date. Seller's vacation policy provides that employees earn vacation in
the calendar year preceding the year in which it is taken. Employees who were
employed, for example, for all of 1998 will receive vacation benefits in 1999,
commensurate with their years of service, in accordance with Seller's vacation
policy. However, no financial accrual is made in 1999 for payment of vacation to
be taken by employees in the year 2000. Thus, the Financial Statements or
Closing Balance Sheet will reflect accruals only for the portion of 1999
vacation earned in 1998 that has not been taken by Transferred Employees (or
otherwise paid by Seller). At Buyer's option, Seller will pay at closing to
Transferred Employees any and all such 1999 (earned in 1998) vacation. Buyer
shall be solely responsible for payment of vacation earned in 1999, payable in
2000, for Transferred Employees, as well as any and all 1999 vacation (earned in
1998) to the extent accrued for, as stated above, by Seller.
(c) Buyer shall provide a medical plan as of the Closing Date so as to
ensure uninterrupted coverage of Transferred Employees. Such medical plan shall
grant credit for deductibles and co-pays paid
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and any other payments paid by such Transferred Employees during the applicable
plan year (including for purposes of computing any out-of-pocket maximum), up to
the Closing Date, and shall not exclude, to the extent not excluded under
Seller's plans, pre-existing conditions of such Transferred Employee or his or
her covered dependents.
(d) No assets or liabilities with respect to Transferred Employees
shall be transferred as a result of this agreement to any pension plan or
similar arrangement maintained or established by Buyer (or any other employer)
for the benefit of Transferred Employees. Benefits payable to the Transferred
Employees under Seller's pension plans through the Closing Date shall be payable
pursuant to the terms of, and at the time and in the amounts provided under,
such pension plans, based on the compensation received from Seller through the
Closing Date (including periods of employment with any other employer which are
taken into account under Seller's pension plans).
(e) The parties acknowledge and agree that it is the intention of the
parties that all existing contracts of noncompetition between Seller and its
employees who accept employment by Buyer shall be transferred to or assumed by
Buyer as a result of the transactions described herein and that such contracts
shall constitute Assumed Contracts hereunder.
(f) Unless prohibited by law, or unless consent of the Employees is
required and withheld pursuant to Seller's policies, Seller shall make available
to Buyer all personnel records, including without limitation names, Social
Security numbers, dates of hire by Seller, dates of birth, number of hours
worked each calendar year, and salary histories, for all of employees of the
Business. Seller and Buyer shall also cooperate, both before and after the
Closing Date, in exchanging information, including pertinent employment records,
benefit information, salary and compensation records, financial statements and
other data, and in taking other action respecting the interests of employees of
the Business who become employees of Buyer at or shortly following the Closing
Date, and their respective beneficiaries and dependents, in each of the employee
benefit plans of Seller and any plans established by Buyer, so as to secure an
orderly and effective transition of the benefit arrangements for such employees
of Seller and their respective beneficiaries and dependents.
(g) Buyer shall assume the Collective Bargaining Agreement of Seller in
all respects, including any amendments thereto to the extent that they arise out
of bargaining the effects of the assignment to Buyer in conjunction with the
sale of the Business.
5.6 Exclusivity. Without limiting the effect of any other warranty or
representation contained in this Agreement, at no time from the date hereof
through the Closing Date will Seller, directly or through any agents or
representatives, (a) transfer, pledge, hypothecate or otherwise encumber any of
the Purchased Assets or grant to any Person any right to purchase any of the
Purchased Assets other than the rights granted to Buyer hereunder, (b) solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to the acquisition of any interest in the Business or the Purchased
Assets, or any portion, other than the sale of inventories in the ordinary
course of business consistent with past practices (including any acquisition
structured as a merger, consolidation or share exchange) or (c) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. Seller shall notify
Buyer immediately if any Person makes any proposal, offer, inquiry or contact
with respect to any of the foregoing.
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5.7 [INTENTIONALLY OMITTED].
5.8 Environmental Approvals and Compliance.
5.8.1 Property Transfers. Seller shall obtain such approvals and submit
such certifications, as required by applicable state or local Environmental Laws
(including without limitation the Connecticut Transfer Act, CGS Sections
22a-134, et seq.) of a transferor of an interest in real property, or shall have
demonstrated to the satisfaction of Buyer that no such approval is required.
Seller shall give Buyer reasonable notice in advance of all meetings scheduled
between Seller and any agency or authority pertaining to the transfer of real
property, and Buyer and Buyer's representatives shall have the right, without
the obligation, to attend and participate in all such meetings. Such approvals
must not result in any substantial interference with operations (whether
existing or planned) of Buyer or the Purchased Assets. Seller shall promptly
provide to Buyer copies of all documents and correspondence to and from such
governmental authorities relating to such matters.
5.8.2 Environmental Consent Agreement. Prior to Closing, Buyer, with
full assistance and cooperation of Seller, shall make every effort to (1) at
Buyer's option, negotiate and obtain a consent agreement or administrative order
("CONSENT AGREEMENT") covering the Compliance Improvements with the State of
Connecticut, or if permissible, negotiate and obtain consent to assignment to
Buyer of Seller's existing administrative order dated July 3, 1997 ("SELLER'S
CONSENT AGREEMENT") covering the Compliance Improvements with the State of
Connecticut, and (2) obtain all Permits and other authorizations necessary for
Buyer's operation of the Business that cannot be transferred by Seller to Buyer.
If Buyer is unable to obtain a Consent Agreement, or assignment of Seller's
Consent Agreement, covering the Compliance Improvements on terms that are
reasonably satisfactory to Buyer, or is unable to obtain any Material Permit or
other authorization needed in connection with the Business, Buyer may terminate
this Agreement by notice to Seller prior to Closing. Buyer shall perform all
work and pay (except for and subject to Seller's payment and indemnification
obligations as set forth in Article VII below) all fees, costs and expenses
incurred in obtaining and satisfaction of such Consent Agreement or Seller's
Consent Agreement (if assigned to Buyer as provided above), excluding any
obligation of Seller under SECTION 5.8.1 above.
5.8.3 Compliance Improvements. Prior to Closing, there will have been
certain conditions in, on, under and about the Real Property, created by the
Seller or its predecessors, for which the Seller has undertaken some action
pursuant to the Seller's Consent Agreement. Buyer may, either pursuant to the
Consent Agreement or the Seller's Consent Agreement (if assigned to Buyer as
provided above) be required to undertake certain activities in connection
therewith. For the purposes of this Agreement, "COMPLIANCE IMPROVEMENTS" are the
following: (1) work needed to complete the sewer main pipeline by which
wastewater from the treatment facility on the Real Property will be discharged
to the Norwich Publicly Owned Treatment Works ("POTW") prior to December 30,
2000, (2) issuance of a permit from the POTW allowing such discharge prior to
December 30, 2000, (3) any other work needed to comply with such POTW permit or
otherwise provide for discharge of wastewater from the treatment facility at the
Real Property to the POTW prior to December 30, 2000, (4) work needed to secure
and comply with a Title V permit under the Clean Air Act covering air emission
sources at the Real Property, (5) any payments, work or other action needed as a
result of inability to use emission reduction credits as a means of satisfying
limitations on NOx emissions from sources at the Real Property, or as a result
of such credits being unavailable or more costly than during the period prior to
the date of this Agreement, (6) any work needed to satisfy currently applicable
requirements regarding opacity, noise, and odor with respect to air emission
sources at the Real Property, (7) any work needed to assess, monitor, improve,
permit and/or close the landfill located on the Real Property, (8) any work
needed to comply with currently applicable requirements relating to protection
of storm water, groundwater and surface waters with respect to the Real
Property, (9)
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any work needed with respect to waste deposited in the gravel pit
at the Real Property, including without limitation any work needed with respect
to the water supply wells that may have been impacted as a result thereof, and
(10) any other work required under the Consent Agreement (or Seller's Consent
Agreement if transferred to Buyer as provided above). Subject to force majeure,
Buyer shall use its commercially reasonable efforts to undertake, at Buyer's
expense (except for and subject to Seller's payment and indemnification
obligations as set forth in Article VII below) after Closing, the Compliance
Improvements, to the extent required by the Consent Agreement (or Seller's
Consent Agreement if assigned to Buyer as provided above), excluding any
obligation of Seller under SECTION 5.8.1 above.
5.9 Information Regarding the Real Property.
(a) Within five (5) days after the date of execution of this
Agreement, Seller shall deliver to Buyer copies of:
(i) All surveys, plans, specifications, as built drawings,
plans and specifications for mechanical, electrical, plumbing or
security systems, operating manuals, warranties and guarantees, in
Seller's possession or available to Seller covering the Real Property;
(ii) All environmental and assessment reports, in Seller's
possession or available to Seller, regarding the Real Property; and
(iii) All title insurance policies, source deeds and title
opinions relating to the Real Property.
5.10 Other Actions. Seller on the one hand, and Buyer, on the
other, hereby agree that each, at its own expense, shall use its best efforts
and shall cooperate fully with the other in preparing, filing, prosecuting, and
taking any other actions with respect to any applications, requests, or actions
that are or may be reasonable and necessary to obtain the consent of any
governmental instrumentality or any third party or to accomplish the
transactions contemplated by this Agreement.
5.11 Consummation of Agreement. Seller and Buyer will each use
its best efforts to perform or fulfill all conditions and obligations to be
performed or fulfilled by it under this Agreement so that the transactions
contemplated hereby shall be consummated. Except for events that are the subject
of specific provisions of this Agreement, if any event should occur, either
within or outside the control of the parties, that would materially delay or
prevent fulfillment of the conditions upon the obligations of any party hereto
to consummate the transactions contemplated by this Agreement, the parties will
use their respective best, diligent and good faith efforts to cure or minimize
the same as expeditiously as possible.
5.12 Excluded Liabilities and Failure to Obtain Consents. Seller
covenants and agrees to perform, discharge and satisfy all Excluded Liabilities,
and to obtain all Consents required to be obtained hereunder, and forever
indemnify, defend and hold harmless Buyer and each of its shareholders, officers
and directors, Affiliates, agents and employees from and against and in respect
of any and all damages, losses, diminution of value, or expenses suffered or
incurred by any such party whether as a result of third party claims (whether
valid or not), demands, suits, causes of action, proceedings, investigations,
judgments or liabilities or otherwise), including costs of investigation and
defense and reasonable attorneys' fees assessed, incurred or sustained by or
against any of them, with respect to or arising out of (a) any Excluded
Liability (including without limitation any Excluded Liability that becomes, or
is alleged to have become, a liability of Buyer under any applicable bulk sales
law, under any doctrine of de facto merger or successor liability, or otherwise
by operation of law or (b) any Failure to Obtain Consents.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Obligation of Buyer. The obligations of Buyer
under this Agreement to purchase the Purchased Assets and to consummate the
other transactions contemplated by this Agreement is subject to the fulfillment,
at or prior to the Closing, of each of the following conditions, each of which
may be waived in whole or in part by Buyer in its sole discretion:
6.1.1 Representations; Performance. The representations and warranties
of Seller contained herein shall be true and correct on and as of the date
hereof and on and as of the Closing Date with the same effect as though made on
and as of the Closing Date, except as modified by transactions permitted by this
Agreement. Seller shall have duly performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing. The President or a Vice President of Seller shall
have executed and delivered to Buyer a certificate, dated the Closing Date, to
the effect set forth above in this SECTION 6.1.1.
6.1.2 Paper Supply Agreement. Buyer and Seller shall have entered into
a Paper Supply Agreement substantially in the form of EXHIBIT A hereto (the
"PAPER SUPPLY AGREEMENT").
6.1.3 Sewer Easements. Seller shall own and hold valid, recorded,
insurable, enforceable and perpetual easements, permits and/or rights-of-way
(the "SEWER EASEMENTS") allowing the construction, maintenance and use of the
sewer line to the POTW referenced in SECTION 5.8.3, without the requirement of
any Material payment to any party, and without terms, restrictions or provisions
that would substantially interfere with the construction, maintenance and use of
such sewer line. Seller shall have delivered true copies of any Sewer Easements
to Buyer at least five (5) days prior to Closing.
6.1.4 Opinion of Counsel. Buyer shall have received a favorable
opinion, addressed to Buyer and dated the Closing Date, of Mr. John Fonzo,
senior counsel to Seller, in substantially the form attached hereto as EXHIBIT
B.
6.1.5 Consents. All Material Consents required to be obtained by Seller
to consummate the transactions contemplated herein shall have been obtained,
other than any Material Consents where the failure to obtain such Material
Consents has been temporarily waived by Buyer pursuant to SECTION 2.4.
6.1.6 No Proceeding or Litigation. No claim, action, suit, arbitration,
investigation or other formal proceeding shall be pending or threatened on or
before the Closing which (a) seeks to (i) enjoin, restrain or prohibit the
transactions contemplated herein, (ii) impose limitations on the ability of
Buyer to conduct the Business or exercise full rights of ownership of the
Purchased Assets or (iii) require the divestiture by Buyer or its Affiliates of
any of the Purchased Assets or any other assets of Buyer or its Affiliates by
reason of this Agreement, or (b) is reasonably likely to have a Material Adverse
Effect.
6.1.7 No Material Adverse Change. There shall have occurred no Material
adverse change in the condition (financial or otherwise), results of operations,
business, properties or prospects of the Business.
6.1.8 Purchased Assets and Documents Delivered. Buyer shall have
received at the Closing the Purchased Assets (including exclusive possession of
the Real Property) and the following documents required to be delivered to Buyer
by Seller as provided herein:
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(a) corporate and tax certificates of good standing for Seller
issued by the Secretary of State and Department of Revenue (or similar
applicable offices) in Seller's jurisdiction of incorporation and each
jurisdiction where the Business requires Seller to be qualified to do business
as a foreign corporation;
(b) a certificate of the secretary of Seller, certifying and
attaching copies of Seller's Charter Documents (including a copy of the articles
of incorporation or comparable document of Seller certified by the Secretary of
State of the jurisdiction of incorporation of Seller), the resolutions of the
(directors and shareholders, if necessary) of Seller approving the execution and
delivery by Seller of this Agreement and the consummation of the transactions
contemplated hereby, and the incumbency of the officers of Seller executing this
Agreement and all other agreements and instruments to be executed and delivered
by Seller in connection herewith; and
(c) (i) general warranty deeds conveying good and marketable fee
simple title to the Owned Real Property to Buyer, together with any Sewer
Easements and all other easements, privileges and appurtenances thereto
belonging, free and clear of all liens, charges, encumbrances and other
exceptions other than Permitted Liens; (ii) a warranty bill of sale conveying
the Purchased Assets other than the Owned Real Property, free and clear of all
liens, charges, encumbrances and other exceptions other than Permitted Liens;
(iii) assignment and assumption(s) with respect to the Leased Real Property and
the Assumed Contracts with appropriate indemnities for liabilities accrued
through the Closing Date; (iv) an affidavit indicating that, as of the Closing
Date, there are no outstanding unsatisfied judgments, tax liens or bankruptcies
against or involving Seller, and that there are no other unrecorded interests in
the Owned Real Property of any kind; (v) an affidavit stating that Seller is not
a "foreign person" within the meaning of Section 1445(f)(3) of the Code, and all
other documents and affidavits needed to make necessary tax filings; (vi) an
affidavit to Buyer's title insurance company sufficient for Buyer to obtain
title insurance without exception for mechanics' or materialmen's liens; (vii)
all other documents affecting title to and possession of the Purchased Assets
and necessary to transfer and assign the same to Buyer free and clear of all
liens, charges and encumbrances except Permitted Liens, or to allow Buyer to
obtain title insurance; and (viii) such other assignments of title, documents,
certificates of title, and items reasonably requested by Buyer to consummate the
transactions contemplated hereby and effect the transfer of the Purchased Assets
as provided herein.
6.1.9 HSR Act Filings. All filings required by any Person under the
HSR Act with respect to the transactions contemplated hereby shall have been
made, all applicable waiting periods with respect thereto shall have expired or
been terminated and no action shall have been taken or threatened by the United
States Department of Justice or Federal Trade Commission challenging or seeking
to enjoin the transactions contemplated under this Agreement.
6.2 Conditions to Obligation of Seller. The obligations of Seller
under this Agreement to sell the Purchased Assets and to consummate the other
transactions contemplated by this Agreement is subject to the fulfillment, at or
prior to the Closing, of each of the following conditions, each of which may be
waived in whole or in part by Seller in its sole discretion:
6.2.1 Representations; Performance. The representations and warranties
of Buyer and Caraustar contained herein shall be true and correct on and as of
the date hereof and on and as of the Closing Date with the same effect as though
made on and as of the Closing Date, except as modified by transactions permitted
by this Agreement. Buyer shall have duly performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing. The President or a Vice President of
Buyer and Caraustar shall have delivered to Seller a certificate, dated the
Closing Date, to the effect set forth above in this SECTION 6.2.1.
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6.2.2 Opinion of Counsel. Seller shall have received a favorable
opinion, addressed to Seller and dated the Closing Date, of Robinson, Bradshaw
& Hinson, P.A., counsel to Buyer, in substantially the form attached hereto as
EXHIBIT C.
6.2.3 No Proceeding or Litigation. No injunction or order of any court
or administrative agency of competent jurisdiction shall be in effect and no
actions by any public or governmental authority seeking any such injunction or
order shall be pending as of the Closing Date that restrains or prohibits the
purchase and sale of the Purchased Assets or any other action to be taken in
connection herewith.
6.2.4 Purchase Price and Documents Delivered. Seller shall have
received at the Closing the Base Purchase Price as specified in SECTION 3.2,
and the following documents required to be delivered at the Closing as provided
herein:
(a) corporate certificates of good standing for Buyer and Caraustar
issued by the Connecticut Secretary of State and the North Carolina Secretary of
State, respectively;
(b) a certificate of the secretary of Buyer, certifying and
attaching copies of its certificate of incorporation (certified by the Secretary
of State of Connecticut) and bylaws, the resolutions of the directors of Buyer
approving the execution and delivery by Buyer of this Agreement and the
consummation of the transactions contemplated hereby, and the incumbency of the
officers of Buyer executing this Agreement and all other agreements and
instruments to be executed and delivered by Buyer in connection herewith;
(c) a certificate of the secretary of Caraustar, certifying and
attaching copies of its articles of incorporation (certified by the Secretary of
State of North Carolina) and bylaws, the resolutions of the directors of
Caraustar approving the execution and delivery by Caraustar of this Agreement
and the consummation of the transactions contemplated hereby, and the incumbency
of the officers of Caraustar executing this Agreement and all other agreements
and instruments to be executed and delivered by Caraustar in connection
herewith; and
(d) other documents, certificates and items reasonably requested by
Seller to consummate the transactions contemplated hereby.
6.2.5 HSR Act Filings. All filings required by any Person under the HSR
Act with respect to the transfer of the Purchased Assets shall have been made,
all applicable waiting periods with respect thereto shall have expired or been
terminated and no action shall have been taken or threatened by the United
States Department of Justice or Federal Trade Commission challenging or seeking
to enjoin the transactions contemplated under this Agreement.
6.2.6 Approval of Board of Directors. The Board of Directors of Seller
shall have duly approved and adopted this Agreement by appropriate resolutions
in accordance with applicable law and its articles of incorporation.
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ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by Seller.
7.1.1 General Indemnification. Subject to each of the terms, conditions
and limitations set forth in this ARTICLE VII, Seller agrees to indemnify and
hold harmless Buyer and each of its shareholders, officers and directors,
Affiliates, agents and employees from and against and in respect of any and all
damages, losses, diminution of value, or expenses suffered or incurred by any
such party (whether as a result of third party claims (whether valid or not),
demands, suits, causes of action, proceedings, investigations, judgments or
liabilities or otherwise), including costs of investigation and defense and
reasonable attorneys' fees assessed, incurred or sustained by or against any of
them, with respect to or arising out of (a) any breach of the representations or
warranties of Seller set forth herein (with the exception of SECTION 4.1.18
(Environmental Matters)), (b) any breach or other failure to perform any
covenant, agreement or obligation of Seller set forth herein or in any other
agreement or instrument executed by Seller in connection herewith, or (c)(i) any
violation or alleged violation of any Environmental Law with respect to the
Business that first occurs or commences prior to the Closing Date (except to the
extent covered in SECTION 7.1.2), (ii) any presence, generation, treatment,
storage, disposal, transport, release, threatened release or suspected release
of any Hazardous Substance in connection with the Business, or on, in, to or
from the Purchased Assets, Versailles Pond, or Real Property (or any part
thereof including without limitation the soil and groundwater thereunder), that
first occurs or results from activities occurring prior to the Closing (except
to the extent covered in SECTION 7.1.2), (iii) any presence, generation,
treatment, storage, disposal, transport, release, threatened release or
suspected release of any Hazardous Substance by Seller or through any act or
omission of Seller, and/or (iv) any breach of the representations and warranties
set forth in SECTION 4.1.18 (Environmental Matters) (the matters in this
subsection (c) being hereinafter referenced as "ENVIRONMENTAL MATTERS"), in all
cases subject to each of the applicable terms, conditions and limitations set
forth in this ARTICLE VII.
7.1.2 Indemnification by Seller for Compliance Improvements.
Notwithstanding the general indemnification by Seller pursuant to SECTION 7.1.1,
as to the Compliance Improvements, Seller agrees to indemnify and hold harmless
Buyer against Buyer's actual out-of-pocket costs incurred as a result of Buyer's
undertaking the Compliance Improvements. Said costs shall not include any
routine application or permit fees, employee travel expenses or other similar
routine expenses in the nature thereof. Seller's indemnification for Buyer's
costs of undertaking Compliance Improvements shall be further subject to each of
the applicable terms, conditions and limitations set forth in this ARTICLE VII.
7.1.3 Limitations and Conditions on Seller's Indemnification Under
SECTION 7.1.2. (a) Seller's indemnification pursuant to SECTION 7.1.2 for any
particular work in connection with a Compliance Improvement shall be conditioned
upon and subject to the following with respect to the work in question: (i)
except in the event of emergency, reasonable and timely notice to Seller from
Buyer of the undertaking intended to be performed, including an estimate of the
cost thereof, the purpose therefore, the proposed method of undertaking; and the
schedule for commencement and completion of the same, and Buyer covenants and
agrees to give such notice with respect to work for which it intends to seek
indemnity; (ii) the absence of any unreasonable action of the Buyer, other than
the continuance of operation of the Purchased Assets in substantially the manner
operated prior to Closing, the result of which is a Material exacerbation of
conditions known to Buyer existing prior to the Closing, and Buyer covenants and
agrees to use its commercially reasonable efforts to avoid any such action;
(iii) Buyer's failure to mitigate costs and liabilities in failing to reasonably
timely undertake Compliance Improvements that Buyer knows must be
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undertaken on a timely basis, subject to force majeure and delays allowed by
applicable Environmental Laws, orders, Permits or consent agreements, and Buyer
covenants and agrees to use its commercially reasonable efforts to mitigate
costs and liabilities as set forth above, (iv) except in the event of emergency,
Seller's approval, upon receipt of written notice from Buyer, as set forth in
(i) above, which shall be either be provided within ten (10) days of receipt of
such notice (failure of Seller to respond in writing within such ten (10) days
period to constitute deemed approval by Seller); or after a determination as set
forth in subsection (v) following, (v) if Buyer and Seller cannot agree on the
cost, the method, the necessity and timing of any proposed Buyer undertaking,
both parties shall designate an independent, qualified environmental consultant
for the purpose of attempting to settle any dispute as to any item; and, if the
item cannot be settled, said consultants shall mutually agree on a third
independent, qualified consultant, whose determination as to the necessity,
cost, scope and timing of the proposed undertaking shall be final, provided that
under no circumstances may Seller contest any requirement imposed on Buyer in
writing by any Governmental Authority, (vi) that said undertakings are not a
result of any material change in any applicable federal, state or local statute
after Closing, and (vii) standard and usual operators' costs or fees assessed
against a process or a permit issued pursuant thereto are excluded. The failure
of Buyer to comply with any such condition or requirement shall not relieve
Seller of any indemnification obligation hereunder except to the extent Seller
demonstrates actual, material prejudice or loss.
(b) Buyer covenants and agrees, upon Seller's request, promptly to
supply to Seller copies of all material written information (excluding draft
reports and documents subject to attorney-client privilege or work-product
immunity) in its possession relating to Compliance Improvement work by Buyer
that is to be paid for by Seller. Notwithstanding anything to the contrary
herein, Buyer shall not have the right to recover costs of Compliance
Improvements pursuant to a plan of work as to which Seller has objected unless
the work is reasonably necessary to (i) address requirements imposed by a
Governmental Authority, the Consent Agreement or the Seller's Consent Agreement,
(ii) continue operation of the Purchased Assets for the purposes operated as of
the date hereof, (iii) mitigate or prevent a substantial risk to human health,
safety or the environment, or (iv) address or prevent a claim or substantial
potential liability to Buyer or another party indemnified under SECTION 7.1.1.
Imposition of institutional or engineering controls acceptable to all
Governmental Authorities with jurisdiction shall be deemed an acceptable means
of addressing Compliance Improvements for the purposes of this Agreement,
provided that they do not result in any substantial loss, cost, expense, loss of
production or profits, loss of value, interference with operations (whether
existing or planned), or risk of claims or liability of, to or against Buyer or
the Purchased Assets (or any of them).
7.2 Indemnification by Buyer. Subject to each of the terms, conditions
and limitations set forth in this ARTICLE VII, Buyer agrees to indemnify, defend
and hold harmless Seller and its respective officers, directors, employees,
Affiliates and agents from and against and in respect of any and all damages,
losses, diminution of value, or expenses suffered or incurred by any such party
(whether as a result of third party claims (whether valid or not), demands,
suits, causes of action, proceedings, investigations, judgments or liabilities
or otherwise), including costs of investigation and defense and reasonable
attorneys' fees assessed or incurred or sustained by or against any of them,
with respect to or arising out of (a) any breach of the representations or
warranties of Buyer set forth herein, (b) any breach of other failure to perform
any covenant, agreement or obligation of Buyer set forth herein or in any other
agreement or instrument executed by Buyer in connection herewith, (c) any
Assumed Liability or (d) any and all conditions arising solely and directly out
of Buyer's operation of the Business after Closing, whether or not caused by
Buyer, but excluding any Environmental Matter except to the extent that Buyer,
with full knowledge of such Environmental Matter, materially exacerbates such
Environmental Matter through operation of the Purchased Assets in a manner that
differs materially from the manner of operation of the Purchased Assets
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immediately prior to Closing, in all cases subject to each of the applicable
terms, conditions and limitations set forth in this ARTICLE VII.
7.3 Limitations; Survival.
7.3.1 Limitations. Notwithstanding anything contained herein to the
contrary, no Person shall be entitled to indemnification under the provisions of
this ARTICLE VII: (a) unless such party shall have given written notice to the
indemnifying party setting forth its claim for indemnification, or an act,
omission or condition which may constitute the basis for such a claim, in
reasonable detail, on or prior to the close of business on the Limitation Date,
(b) unless and until the amount of any individual item or matter for which
indemnification is claimed exceeds $10,000 in value, (c) (i) unless and until
the aggregate amount of all indemnifiable amounts under SECTION 7.1 or SECTION
7.2, as applicable (excluding indemnifiable amounts under SECTION 7.1.1(C) AND
7.1.2 related to Environmental Matters and Compliance Improvements), shall have
exceeded $250,000, in which event the indemnified person shall be entitled to
indemnification with respect to amounts only in excess of such $250,000
limitation, and (ii) unless and until the aggregate amount of all indemnifiable
amounts under SECTION 7.1.1(C) AND 7.1.2 related to Environmental Matters and
Compliance Improvements shall have exceeded, in the aggregate, $637,486, in
which event the indemnified person shall be entitled to indemnification with
respect to amounts only in excess of such $637,486 limitation; and (d) to the
extent that the aggregate amount of all indemnification liability under SECTION
7.1 or SECTION 7.2, as applicable, exceeds $10,830,000; provided, however, that
the limitations contained in clauses (a), (c) and (d) shall not apply to any
breach of the covenants of any party hereto contained in this Agreement or
Buyer's indemnification obligations under SECTION 7.2(D). Notwithstanding the
foregoing, to the extent that any indemnifying party incurs indemnifiable
amounts hereunder on any date (the "Incurrence Date") prior to the 750th day
following the Closing Date, the payment of any such indemnifiable amounts shall
be automatically deferred until, and shall become due and payable in full upon,
the 750th day following the Closing Date. Any indemnifiable amounts incurred on
an Incurrence Date on or after the 750th day following the Closing Date shall be
payable as and when incurred.
7.3.2 Survival of Representations and Warranties. The representations
and warranties of the parties, as set forth in this Agreement, shall survive the
Closing (undiminished in any respect by any due diligence investigation of any
party to whom such representation and warranties were made) until the first
anniversary of the Closing Date (the "LIMITATION DATE"); provided, however, that
the representations and warranties of the Seller set forth in SECTION 4.1.18
(Environmental Matters) shall survive the Closing until the second anniversary
of the Closing Date and, accordingly, as used with respect to the
representations and warranties of Seller set forth in SECTION 4.1.18 hereof, the
Limitation Date shall mean the second anniversary of the Closing Date; and
provided further, however, that representations and warranties of Seller set
forth in SECTIONS 4.1.7 (Tax Matters), and 4.1.11 (Title to Personal Property),
shall survive the Closing for a period ending upon the expiration of any statute
of limitations applicable to the subject matter of such representation or
warranty and, accordingly, as used with respect to the representations and
warranties of Seller set forth in SECTIONS 4.1.7 and 4.1.11 hereof, the
Limitation Date shall mean the expiration date of the applicable statute of
limitations (including extensions thereof). With respect to any indemnifiable
matter subject to a Limitation Date, an indemnified party is required to provide
notice of a claim, or an act, omission or condition which may constitute the
basis for a claim, for indemnification to the indemnifying party prior to the
Limitation Date in order to claim indemnification hereunder; but if such
notification is provided by the Limitation Date, the indemnified party's
obligation to indemnify with respect to such claims, or any claims arising from
such acts, omissions or conditions, shall survive indefinitely, even if no
actual claim has been made against the indemnified party as of the Limitation
Date. In addition, in order to claim indemnification under SECTION 7.1.1(C) OR
7.1.2 for an Environmental Matter or work for a Compliance Improvement not known
by Seller to exist or be needed as of the Closing Date, Buyer must
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give notice of the Environmental Matter or work to Seller on or prior to the
second anniversary of the Closing Date. Such notice must describe the
Environmental Matter or work in reasonable detail and be based upon actual
evidence of the Environmental Matter or need for the work. If such notification
is provided by the second anniversary of the Closing Date, Seller's obligation
to indemnify with respect to such Environmental Matter or Compliance
Improvement, or any claims arising therefrom, shall survive indefinitely, even
if no actual claim has been made against the indemnified party or work commenced
as of the second anniversary of the Closing Date.
7.4 Procedure for Indemnification.
7.4.1 Third Party Claims.
(a) If any Person shall claim indemnification hereunder arising
from any claim or demand of a third party, the party seeking indemnification
(the "indemnified party") shall promptly notify the party from whom
indemnification is sought (the "indemnifying party") in writing of the basis for
such claim or demand setting forth the nature of the claim or demand in
reasonable detail. The failure of the indemnified party to so notify the
indemnifying party shall not relieve the indemnifying party of any
indemnification obligation hereunder except to the extent the indemnifying party
demonstrates that the defense of such claim or demand is materially prejudiced
by the failure to give such notice.
(b) If any legal proceeding or action is brought by a third party
against an indemnified party and the indemnified party gives notice to the
indemnifying party pursuant to SECTION 7.4.1(A), the indemnifying party will be
entitled to participate in such proceeding and, to the extent that it wishes, to
assume the defense of such proceeding if (i) the indemnifying party provides
written notice to the indemnified party that the indemnifying party intends to
undertake such defense and the indemnifying party will indemnify the indemnified
party against all claims for indemnification resulting from or relating to such
third party claim, (ii) the indemnifying party provides to the indemnified party
evidence acceptable to the indemnified party that the indemnifying party will
have the financial resources to defend against the third party claim and to
fulfill its indemnification obligations hereunder, (iii) the indemnifying party
conducts the defense of the third party claim actively and diligently with
counsel reasonably satisfactory to the indemnified party, and (iv) if the
indemnifying party is a party to the proceeding, the indemnifying party has
determined in good faith that joint representation would not be inappropriate.
The indemnified party shall, in its sole discretion, have the right to employ
separate counsel (who may be selected by the indemnified party in its sole
discretion) in any such action and to participate in the defense thereof, and
the fees and expenses of such counsel shall be paid by such indemnified party.
The indemnified party shall fully cooperate with the indemnifying party and its
counsel in the defense or compromise of such claim or demand, provided that all
out-of-pocket expenses incurred by indemnified party shall be paid by
indemnifying party (except as aforesaid) with respect to separate counsel. If
the indemnifying party assumes the defense of a proceeding, (1) no compromise or
settlement of such claims may be effected by the indemnifying party without the
indemnified party's consent unless (A) there is no finding or admission of any
violation of law or any violation of the rights of any Person and no effect on
any other claims that may be made against the indemnified party, and (B) the
sole relief provided is monetary damages that are paid in full by the
indemnifying party; and (2) the indemnified party will have no liability with
respect to any compromise or settlement of such claims effected without its
consent. Should one or more but not all of the indemnifying parties agree to
defend any such third party claim, the indemnifying party or parties not
participating in the defense of the claim shall be bound by the acts and
agreements of the other or others.
(c) If (i) notice is given to indemnifying party of the
commencement of any proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
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indemnified party of its election to assume the defense of such proceeding, (ii)
any of the conditions set forth in clauses (i)-(iv) of SECTION 7.4.1(B) above
become unsatisfied, or (iii) an indemnified party determines in good faith that
there is a reasonable probability that a proceeding may adversely affect it
other than as a result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party will (upon further
notice to the indemnifying party) have the right to undertake the defense,
compromise or settlement of such claim, provided that the indemnifying party
will reimburse the indemnified party promptly and periodically for the costs of
defending against the third party claim (including reasonable attorneys' fees
and expenses) and the indemnifying party will remain responsible for any
indemnifiable amounts arising from or related to such third party claim to the
fullest extent provided in this ARTICLE VII. The indemnifying party may elect to
participate in such proceedings, negotiations or defense at any time at its own
expense.
7.4.2 Direct Claims. If either party shall claim indemnification
hereunder for any claim other than third party claims, the indemnified party
shall promptly notify the indemnifying party in writing of the basis for such
claim setting forth the nature and amount of the damages resulting from such
claim. The indemnifying party shall give written notice of any disagreement with
such claim within fifteen (15) days following receipt of indemnified party's
notice of the claim, specifying in reasonable detail the nature and extent of
such disagreement. If the indemnifying party and indemnified party are unable to
resolve any disagreement within thirty (30) days following receipt by the
indemnified party of the notice referred to in the preceding sentence, the
disagreement shall be submitted for resolution to an independent person (the
"arbitrator") mutually agreed by the indemnifying party and indemnified party.
If the indemnifying party and indemnified party cannot agree on a single
arbitrator, then the disagreement shall be submitted to a panel of three
arbitrators, one selected by the indemnifying party, one by the indemnified
party and one by the two arbitrators so selected and shall be conducted in
accordance with the Rules of the American Arbitration Association. The
arbitrator(s)' determination shall be made within thirty (30) days of the
submission of the dispute, shall be in accordance with this Agreement, shall be
set forth in a written statement delivered to the indemnifying party and the
indemnified party and shall be final, binding and conclusive. Judgment upon the
decision rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof and may include the award of attorneys' fees and other
costs to the extent provided by this Article. The Person who is prevailed
against in the resolution of such disagreement shall pay the fees and expenses
of the arbitrator(s); and if one Person does not prevail on all issues, the fees
and expenses shall be apportioned in such manner as the arbitrator(s) shall
determine. Any amount owing by any Person as a result of this SECTION 7.4.2
shall be paid within two (2) Business Days after final determination of such
amount.
7.4.3 Interest. Interest shall accrue on the unpaid amount of all
indemnification obligations hereunder at a per annum rate of interest equal to
eight and one-tenth percent (8.1%), such interest to be calculated based on the
actual number of days elapsed from the Incurrence Date for such indemnification
obligation (whether or not such indemnification obligation is then due and
owing) until paid in full and based on a 365-day year.
7.4.4 Remediation. Notwithstanding the foregoing, the following
procedures shall apply with respect to any remediation, as defined below,
covered by an indemnification obligation of Seller other than Seller's
obligation under SECTION 7.1.2.
(i) Prior to the implementation of any plan to remediate any
violation or alleged violation of any Environmental Law or any
Hazardous Substances or other Environmental Matter with respect to
which Buyer has rights of indemnification hereunder, Buyer covenants
and agrees to provide reasonable written notice thereof to Seller
setting forth such remediation plan and the
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estimated costs thereof. Buyer covenants and agrees that it shall
conduct remediation work only through reasonably qualified professional
environmental contracting firms, and any such plan presented to Seller
shall be prepared by such a firm. Seller shall have the right to
approve Buyer's remediation plan, which approval shall not be
unreasonably withheld and shall be deemed given if within fifteen
working days after Seller's receipt of such remediation plan Seller
fails to provide Buyer with written notice of its objection to such
plan, identifying specific reasonable objections. Buyer covenants and
agrees to revise the remediation plan to address any reasonable
objections of Seller. Buyer's failure to provide such notice or plan of
remediation or Buyer's implementation of a plan of remediation as to
which Seller has objected shall not limit in any way Buyer's right to
indemnification as set forth herein, but may give rise to a separate
action by Seller against Buyer for any actual loss caused by a breach
of this SECTION 7.4.4. Notwithstanding the foregoing provisions of this
SECTION 7.4.4, in the event that Buyer reasonably and in good faith
determines that it must act with immediacy to remediate any violation
or alleged violation of any Environmental Law or any Hazardous
Substances or other Environmental Matter, it shall not be required to
provide the notice or a plan of remediation to Seller as set forth in
the first sentence of this SECTION 7.4.4, but shall provide a copy of
its remediation plan to Seller as promptly as is reasonably possible.
In the event Buyer conducts remediation work for which it has rights of
indemnification hereunder pursuant to a plan approved by Seller, Seller
covenants and agrees to reimburse Buyer for the cost of such work. In
the event Buyer conducts remediation work for which it has rights of
indemnification hereunder that is not pursuant to a plan approved by
Seller, Seller shall reimburse Buyer for the reasonable cost of such
work. Buyer covenants and agrees, upon Seller's request, promptly to
supply to Seller copies of all material written information (excluding
draft reports and documents subject to attorney-client privilege or
work-product immunity) in its possession relating to remediation work
by Buyer that is to be paid for by Seller.
(ii) Notwithstanding the above obligations of Buyer or
procedures in connection with Seller's indemnification of Buyer, Seller
may elect, upon receipt from Buyer of Buyer's remediation or Compliance
Improvement work plan or plans, as to any item of work to be performed
pursuant to Compliance Improvements or Environmental Matters, to
undertake such work, or portions thereof, represented by Buyer's
remediation or Compliance Improvement work plan or plans, at Seller's
direct expense. Any direct expense so incurred by Seller shall be
deemed an Excluded Liability. Seller shall notify Buyer of its election
within ten (10) days of receipt from Buyer of Buyer's remediation or
Compliance Improvement work plan or plans, and shall submit Seller's
plan for remediation or Compliance Improvement work for Buyer's review
before undertaking any work to be performed. Seller shall revise its
plan to address any reasonable objections by Buyer. Seller shall
indemnify, defend and hold harmless Buyer from and against any and all
claims, costs and liabilities arising out of Seller's work, and the
obligations of Buyer under this Agreement shall not apply with respect
to work performed by Seller. Seller shall undertake its work in
accordance with applicable legal requirements through qualified
personnel or contractors, with the advance knowledge of Buyer, and at
times reasonably convenient to Buyer. Seller shall not interfere in
Buyer's operation of its business, and shall promptly repair any damage
caused by its work. Seller agrees, upon Buyer's request, promptly to
supply to Buyer copies of all Material written information (excluding
draft reports and documents subject to attorney-client privilege or
work-product immunity) relating to its work.
(iii) For the purposes of this SECTION 7.4.4, (A) the terms
"remediation" or "remediate" shall include investigative, response,
removal, remedial, treatment, cleanup, disposal and other corrective
actions and (B) the term "Governmental Authority" shall include any
nation, province, state or other political subdivision thereof, and any
agency, natural person or other entity
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exercising executive, legislative, regulatory or administrative
functions of or pertaining to government.
(iv) Notwithstanding anything to the contrary herein, Buyer
shall not have the right to recover costs of remediation work pursuant
to a plan of remediation as to which Seller has objected unless the
work is reasonably necessary to (1) address requirements imposed by a
Governmental Authority, (2) continue operation of the Purchased Assets
for the purposes operated as of the date hereof, (3) mitigate or
prevent a substantial risk to human health, safety or the environment,
or (4) address or prevent a claim or substantial potential liability to
Buyer or another party indemnified under SECTION 7.1. Imposition of
institutional or engineering controls acceptable to all Governmental
Authorities with jurisdiction shall be deemed an acceptable means of
remediation for the purposes of this Agreement, provided that they do
not result in any substantial loss, cost, expense, loss of production
or profits, loss of value, interference with operations (whether
existing or planned), or risk of claims or liability of, to or against
Buyer or the Purchased Assets (or any of them).
ARTICLE VIII
MISCELLANEOUS
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual written consent of Buyer and Seller; or
(b) by Buyer by written notice to Seller if any of the conditions set
forth in SECTION 6.1 hereof shall not have been fulfilled on or prior to April
8, 1999 or shall have become incapable of fulfillment, and shall not have been
waived by Buyer; or
(c) by Seller by written notice to Buyer if any of the conditions set
forth in SECTION 6.2 hereof shall not have been fulfilled on or prior to April
8, 1999 or shall have become incapable of fulfillment, and shall not have been
waived by Seller; provided, that if Seller shall terminate this Agreement
pursuant to this SECTION 8.1(C) due to the failure of the condition set forth in
SECTION 6.2.6, Seller shall promptly reimburse Buyer for its reasonable
out-of-pocket expenses incurred in connection with the negotiation and
preparation of this Agreement and the transactions contemplated by this
Agreement, including, without limitation, any HSR Act filing fees and the fees
and expenses of Buyer's outside accountants and legal counsel.
If this Agreement is terminated in accordance with the foregoing provisions, all
further obligations of the parties hereunder shall terminate, except that the
obligations contained in SECTION 5.1(B) and SECTION 8.6 shall survive.
8.2 Default by Buyer. In the event that (a) this Agreement is
terminated by Seller pursuant to SECTION 8.1(C) by reason of the failure of
Buyer to satisfy one or more of the conditions set forth in Section 6.2 and (b)
all of the conditions set forth in SECTION 6.1 have been satisfied or are
offered to be immediately satisfied by Seller to the full extent such conditions
require action by Seller, then Seller shall be entitled to seek any remedy to
which they may be entitled at law or in equity in the event of a material
violation or breach of any agreement, representation or warranty contained in
this Agreement (which remedies shall include, without limitation, an injunction
or injunctions to prevent breaches of or to obtain
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specific performance of any obligation hereunder, without limiting any monetary
damages to which Seller shall be entitled).
8.3 Default by Seller. In the event that (a) this Agreement is
terminated by Buyer pursuant to SECTION 8.1(B) by reason of the failure of
Seller to satisfy one or more of the conditions set forth in SECTION 6.1 and (b)
all of the conditions set forth in SECTION 6.2 have been satisfied or are
offered to be immediately satisfied by Buyer to the full extent such conditions
require action by Buyer, then Buyer shall be entitled to seek any remedy to
which it may be entitled at law or in equity in the event of a material
violation or breach of any agreement, representation or warranty contained in
this Agreement (which remedies shall include, without limitation, an injunction
or injunctions to prevent breaches of, or to obtain specific performance of any
obligation hereunder, without limiting any monetary damages to which Buyer shall
be entitled).
8.4 Noncompete. For a period of two (2) years from the Closing Date,
neither Seller nor any of its Affiliates will, directly or indirectly, either as
principal, agent, employee, manager, member, partner, shareholder, consultant or
otherwise:
(a) Conduct, become associated with, or otherwise interested in any
business operation, whether financially or in any other capacity, if such
business competes in any way whatsoever with Buyer or any Buyer Affiliate in the
manufacture of clay coated, recycled boxboard and uncoated recycled boxboard
within the following geographical areas: (i) each state in which customers of
the Business or Buyer or any Buyer Affiliate are located as of the Closing Date;
(ii) each state in which customers of the Business or Buyer or any Buyer
Affiliate are located at any time after the Closing Date; (iii) each state in
which potential customers of the Business or Buyer or any Buyer Affiliate are
located as of the Closing Date; (iv) each state in which potential customers of
the Business or Buyer or Buyer Affiliate are located after the Closing Date; (v)
the United States of America; and (vi) North America; provided, that this
paragraph (a) shall not prohibit Seller's future acquisition of, or investment
in, a business operation for which the production of clay coated recycled
boxboard and/or uncoated recycled boxboard is not a predominant business.
(b) In any way solicit, appropriate, divert from Buyer or any Buyer
Affiliate (or attempt any of the foregoing with respect to) any customer to
which the Business has provided goods or services during the three (3)-year
period immediately preceding the Closing Date; provided, that this paragraph
8.4(b) shall not apply to sales in connection with the distribution business of
Xpedex consistent with Xpedex's past practice and comparative business volume so
long as such sales are completely independent, from the activities of any other
division of Seller and such sales are not directed at or made to any customer
listed on SCHEDULE 3 to the Paperboard Supply Agreement; or
(c) In any way, induce or attempt to induce any employee of the
Business or Buyer or any Buyer Affiliate as of the Closing Date or as of any
future date to leave his or her position with the Business or Buyer or any Buyer
Affiliate to become associated in any way with a competing business.
Seller and Buyer agree that the geographical areas in subparagraph (a)
above and the other restrictions set forth in this SECTION 8.4 are completely
severable and independent, and any invalidity or unenforceability of this
Agreement with respect to any one restriction in this SECTION 8.4 shall not
render this Agreement unenforceable as applied to one or more of the other areas
or other restrictions herein. If any portion of this SECTION 8.4 is finally
determined by a court of competent jurisdiction to be unenforceable because its
duration is unreasonably long or the geographic scope is unreasonably broad,
Seller agrees and consents to the modification of this SECTION 8.4 such that its
geographic scope is as broad
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and its duration is as long as that which would be enforceable by such court and
such duration and geographic scope shall be deemed to be set forth in this
SECTION 8.4 as if they had been set forth therein originally. Notwithstanding
the foregoing, Seller agrees to honor the terms and restrictions of this
Agreement for the time periods and areas specified herein and not to contest the
enforceability of such periods or areas.
Seller acknowledges both (i) that Buyer will need injunctive relief in
order to adequately enforce its rights under this SECTION 8.4, and (ii) that
Buyer's recovery of any monetary damages for any Seller's breach of this SECTION
8.4 will not by itself be an adequate means with which to redress such breach.
Accordingly, Seller agrees that Buyer will be entitled to enforce this Agreement
by obtaining a preliminary and permanent injunction and any other appropriate
equitable relief in any court of competent jurisdiction. Nothing in this
Agreement shall be construed to prohibit Buyer from pursuing any and all of its
legal remedies for a breach of this SECTION 8.4, including the recovery of
monetary damages.
8.5 Bulk Sales Law. Buyer hereby waives compliance by Seller with the
provisions of any applicable bulk sales law, or other law for the protection of
creditors. Seller agrees to indemnify, defend and hold harmless Buyer hereof
from any liability, claim, loss or expense (including reasonable attorneys'
fees) arising from Seller's noncompliance with such laws.
8.6 Expenses. Except as otherwise provided herein, Seller shall assume
and bear all expenses, costs and fees incurred or assumed by Seller in the
preparation and execution of this Agreement and compliance herewith, and Buyer
shall assume and bear all expenses, costs and fees incurred or assumed by Buyer
in the preparation and the execution of this Agreement and compliance herewith,
in each case whether or not the purchase and sale provided for herein shall be
consummated.
8.7 Commissions. Seller, on the one hand, and Buyer, on the other hand,
each represent and warrant to the other that no broker, finder or other person
is entitled to any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated hereby by reason of any action taken by the
party making such representation except for Credit Suisse First Boston, whose
fees and expenses shall be the sole responsibility of Seller. Seller and Buyer
each will pay or otherwise discharge, and will indemnify and hold the other
harmless from and against, any and all claims or liabilities for all brokerage
fees, commissions and finder's fees incurred by reason of any action taken by
such party.
8.8 Public Announcements. Except to the extent required under
applicable securities laws, or as expressly provided in this Agreement, no party
shall, directly or indirectly, make or cause to be made any public announcement
or issue any notice in any form with respect to this Agreement or the
transactions contemplated herein without the prior written consent of the other
party.
8.9 Assignment; Successors. This Agreement shall not be assigned by any
party without the prior written consent of the other party, which consent shall
not be unreasonably withheld; provided, however, that Buyer may appoint any of
its Affiliates to take title to any or all of the Purchased Assets or to
otherwise perform any of its other obligations hereunder and that Buyer may
assign its rights in this Agreement as collateral security to its lenders. This
Agreement is intended for the exclusive benefit of the parties hereto and their
respective heirs, successors and permitted assigns, and shall not create any
rights in or be enforceable by any other Person whomsoever other than any Person
entitled to indemnification from Seller on the one hand or Buyer on the other
hand pursuant to ARTICLE VII hereof, it being the intention of the parties that
no one shall be deemed to be a third party beneficiary of this Agreement. This
Agreement shall inure to the benefit of, and be binding on and enforceable
against, the successors and permitted assigns of the respective parties. Except
as specifically provided in ARTICLE V, without limiting the
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generality of the foregoing, nothing in this Agreement, express or implied,
shall confer upon any Employees or any other third party any rights or remedies
of any nature or kind, including without limitation any right to employment or
employee benefits, or to continued employment or benefits for any specified
period.
8.10 Amendment and Modification; Waivers. This Agreement or any term
hereof may be changed, waived, discharged or terminated only by an agreement in
writing signed by each of the parties. No waiver by a party of any condition or
of any breach of any term, covenant, representation or warranty contained herein
shall be effective unless in writing, and no waiver in any one or more instances
shall be deemed to be a further or continuing waiver of any such condition or
breach in any other instances or a waiver of any other condition or breach of
any other term, covenant, representation or warranty.
8.11 Notices. All notices, consents, requests, instructions, approvals
and other communications provided for herein and all legal process in regard
shall be validly given, made or served, if in writing and delivered personally
or sent by telecopier, telex, nationally recognized overnight courier or
registered or certified mail, postage prepaid, to the following address:
If to Seller:
International Paper Company
Two Manhattanville Road
Purchase, New York 10577
ATTENTION: C. Cato Ealy - Vice President
Facsimile Number: (914) 397-1505
with a copy of any notice to Seller to:
International Paper Company
6400 Poplar Avenue
Memphis, TN 38157
ATTENTION: John P. Fonzo - Senior Counsel
Facsimile Number: (901) 763-6029
If to Buyer or Caraustar at:
Caraustar Industries, Inc.
3100 Washington Street
Austell, Georgia 30001
ATTENTION: H. Lee Thrash, III
Facsimile Number: (770) 732-3401
With a copy of any notice to Buyer or Caraustar to:
Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
ATTENTION: Patrick S. Bryant
Facsimile Number: (704) 378-4000
or in each case at such other address as may be specified in writing, but no
such change shall be deemed to have been given until it is actually received by
the parties sought to be charged with its contents. All
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notices and other communications given hereunder shall be effective (a) upon
delivery if delivered personally or sent by telecopier with answerback
confirmation or telex, (b) if delivered by overnight courier, one (1) Business
Day after delivery to such courier, and (c) if delivered by registered or
certified mail, three (3) Business Days after mailing.
8.12 Further Assurances; Records. Seller and Buyer shall cooperate and
take such actions, and execute all such further instruments and documents, at or
subsequent to the Closing, as either may reasonably request in order to convey
title to the Purchased Assets to Buyer and otherwise to effect the terms and
purposes of this Agreement. Each party shall provide the other party or parties
with access to all relevant documents and other information pertaining to the
Purchased Assets which are needed by such other party or parties for the
purposes of preparing tax returns or responding to an audit by any governmental
agency or for any other reasonable purpose.
8.13 Tax and Financial Cooperation. After the Closing, Seller and Buyer
agree to cooperate with each other in connection with any official tax inquiry,
tax audit, tax determination or tax-related proceeding affecting tax liability
of Seller or Buyer and to make available to each other party within a reasonable
amount of time, its employees and officers, together with documents,
correspondence, reports, books and records and other materials bearing on such
tax inquiry, audit, examination, proceeding or determination of tax liability or
treatment, provided that each party shall be reimbursed for any out-of-pocket
expenses it incurs in assisting another party hereunder.
8.14 Submission to Jurisdiction. Each of the parties hereto hereby
consents to the jurisdiction of any State or federal court located within the
State of Connecticut and irrevocably agrees that all actions and proceedings
relating to this Agreement or the transactions contemplated hereby may properly
be litigated in such courts. Each of the parties hereto waives any objection
that it may have to the conduct of any action or proceeding in any such court
based on improper venue or forum non conveniens, waives personal service of any
and all process upon it, and consents that all service of process may be made by
mail or courier service directed to it at the address set forth herein and that
service so made shall be deemed to be completed upon the earlier of actual
receipt or ten (10) days after the same shall have been posted. Nothing
contained in this SECTION 8.14 shall affect the right of any party hereto to
serve legal process in any other matter permitted by law or affect the right of
any party hereto to bring any action or proceeding against any other party
hereto or any party's property in the courts in any other jurisdiction.
8.15 Representations and Warranties; Schedules. Nothing in the
Schedules shall be deemed adequate to disclose an exception to a representation
or warranty made herein unless the Schedule identifies the exception with
reasonable particularity and describes the relevant facts in reasonable detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The parties intend that each representation, warranty, and
covenant contained herein shall have independent significance, and any
disclosures in the Schedules apply only to the related Section of this Agreement
(unless reference therein is made to another applicable Section and/or
Schedule).
8.16 Remedies. Except as otherwise provided herein, none of the
remedies provided in this Agreement for any party, including termination of this
Agreement, or specific performance, are the exclusive remedy of either party for
a breach of this Agreement. Except as otherwise provided herein, the party shall
have the right to seek any other remedy in law or equity in lieu of or in
addition to any remedies provided in this Agreement, including an action for
damages for breach of contract.
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8.17 Guaranty. Caraustar hereby irrevocably and unconditionally
guarantees the full and prompt payment and performance of all amounts owing and
other obligations of Buyer under this Agreement, subject to the rights and
defenses of Buyer under this Agreement.
8.18 Entire Agreement; Counterparts; Governing Law. This Agreement,
together with the Exhibits and Schedules attached hereto, constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original, and all of which, together, shall constitute one and the
same instrument. This Agreement shall be governed in all respects by the laws of
the State of North Carolina (without reference to conflict-of-law provisions).
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BUYER:
SPRAGUE PAPERBOARD, INC.
By: /s/ H. Lee Thrash, III
-----------------------------------------
H. Lee Thrash, III
Vice President
BUYER:
CARAUSTAR INDUSTRIES, INC.
By: /s/ H. Lee Thrash, III
-----------------------------------------
H. Lee Thrash, III
Vice President and
Chief Financial Officer
SELLER:
INTERNATIONAL PAPER COMPANY
By: /s/ James W. Guedry
-----------------------------------------
James W. Guedry
Vice President and Secretary
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EXHIBIT A
PAPERBOARD SUPPLY AGREEMENT
AGREEMENT, dated and effective as of the ______ day of _______________,
1999, between CARAUSTAR INDUSTRIES, INC. ("Caraustar"), a North Carolina
corporation having its principal office at 3100 Washington Street, Austell,
Georgia 30001, and INTERNATIONAL PAPER COMPANY ("IP"), a New York corporation
having its principal office at ______________________________________________.
BACKGROUND STATEMENT
Pursuant to an Asset Purchase Agreement, dated as of March __, 1999
(the "Asset Purchase Agreement"), between Caraustar, Sprague Paperboard, Inc., a
Connecticut corporation and a wholly owned subsidiary of Caraustar ("Sprague"),
and IP, Sprague has purchased from IP a recycled paperboard mill located in
Sprague, Connecticut. This mill has previously supplied recycled paperboard for
use in IP's folding carton operations.
Caraustar and IP desire to enter into this Agreement to provide for the
purchase by IP from Caraustar of coated and uncoated recycled paperboard (the
"Products") required by IP for the production of folding cartons in North
America.
NOW, THEREFORE, in consideration of the transactions contemplated by
the Asset Purchase Agreement and the mutual promises contained herein, Caraustar
and IP agree as follows:
1. Sale and Purchase. During the term of this Agreement Caraustar will
sell and deliver to IP, and IP will purchase and accept from Caraustar, the
Products to be used by IP in the production of folding cartons in North America
upon the terms and subject to the conditions hereinafter set forth.
2. Term of Agreement. The term of this Agreement will begin on the
Closing Date (as defined in the Asset Purchase Agreement) and, except as
otherwise provided herein, will end on the date that is 4 1/2 years following
the Closing Date (the "4 1/2 Year Anniversary Date"); provided, however, that
the parties shall negotiate to determine a new price for the Products to
Requirements Customers (as defined in Section 3) for the period beginning the
day after the first anniversary of the Closing Date and ending on the date that
is 2 1/2 years following the Closing Date (the "2 1/2 Year Anniversary"). If the
parties are unable to so agree, this Agreement shall terminate on the 2 1/2 Year
Anniversary Date, and from the period beginning on the first day after the first
anniversary of the Closing Date and ending on the 2 1/2 Year Anniversary Date,
the price for the Products to Requirements Customers shall be the
<PAGE> 51
Sprague Mill Price, subject to adjustment as provided in Section 6(a), and the
quantity requirements described in Section 3 below shall be reduced by 12.5% on
each 3-month anniversary of the first anniversary of the Closing Date. If the
parties do agree on a price for the Products to apply during the period
beginning on the day after the first anniversary of Closing and ending on the 2
1/2 Year Anniversary Date, the parties shall further negotiate with respect to,
and attempt to agree upon, Product price and volume terms for Requirements
Customers to apply during the period beginning on the 2 1/2 Year Anniversary
Date and ending on the 4 1/2 Year Anniversary Date. Any such mutually agreed
terms will apply during the period beginning on the 2 1/2 Year Anniversary Date
and ending on the 4 1/2 Year Anniversary Date. If the parties are unable to so
agree, the prices for the Products to Requirements Customers shall remain those
in effect on the 2 1/2 Year Anniversary Date, subject to adjustment as provided
in Section 6(a), and quantity requirements described in Section 3 below shall be
reduced by 12.5% on each 3-month anniversary of such 2 1/2 Year Anniversary
Date. This Agreement will continue in effect beyond the 4 1/2 Year Anniversary
Date unless, prior to any succeeding anniversary (the "Notice Anniversary Date")
of the 4 1/2 Year Anniversary Date, either party gives notice to the other of
its intent to terminate this Agreement, in which event this Agreement shall
expire two years following such Notice Anniversary Date. In the event such
notice is given, for the period beginning on such Notice Anniversary Date and
ending upon the expiration of this Agreement, the prices for the Products to
Requirements Customers shall remain those in effect on such Notice Anniversary
Date, subject to adjustment as provided in Section 6(a), and the quantity
requirements described in Section 3 below shall be reduced by 12.5% on each
3-month anniversary of such Notice Anniversary Date.
3. Quantity.
(a) The quantity of the Products to be sold and delivered by Caraustar
and to be purchased and accepted by IP shall be one hundred percent (100%) of
IP's requirements for the Products used in the production of folding cartons in
North America sold by IP pursuant to the specific customer accounts and for the
Products listed on Schedule 1 (the "Requirements Customers"); provided, however,
that (i) purchases of Product by IP pursuant to the current terms of the
contract listed on Schedule 2, expiring on September 28, 2001 (the "Current
Contract"), shall not be deemed to violate IP's obligations to purchase Products
from Caraustar pursuant to this Agreement, and (ii) purchases of Products by IP
from other manufacturers at the written request of Requirements Customers of IP,
for use in the products purchased by such Requirements Customers from IP, shall
not be deemed to violate IP's obligations to purchase Products from Caraustar
pursuant to this Agreement. Upon the expiration of the Current Contract, if
Caraustar and IP mutually agree in writing, the quantity obligations set forth
in this Section 3 may be modified to provide for purchases of Products by IP
from other manufacturers not to exceed the quantities purchased by IP under the
terms of the Current Contract.
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(b) Upon IP's identification of any opportunity to provide Products to
customers other than Requirements Customers or to provide Requirements Customers
with Products in product lines other than those identified on Schedule 1
(collectively, the "New Customers"), IP shall notify Caraustar of such potential
opportunity and provide Caraustar with a right of first refusal to supply
Products to such new customers upon price and other terms acceptable to IP. If
IP rejects Caraustar's proposed terms for supplying Products to such New
Customers, IP shall not, during the term of this Agreement, agree with or permit
any party other than Caraustar to supply Products to such New Customers on terms
as or any more favorable than on such terms proposed for such New Customers by
Caraustar.
4. Purchase Orders and Shipments.
(a) On or before the 20th day of each calendar month, IP shall
deliver to Caraustar its purchase order or orders, written or verbal, specifying
the grade, quantity, shipment date or dates, and destination of the Products to
be shipped by Caraustar during the next succeeding calendar month.
(b) Shipments shall be routed from Caraustar's shipment point
as specified by IP in its purchase orders or by telephone instructions delivered
to Caraustar not less than one day prior to the shipment date.
5. Quality Standards; Claims. Caraustar warrants that Products
purchased hereunder shall be of good and merchantable quality and free of
defects and in accordance with the specifications as designated by IP at the
time of order. IP shall inspect and make reasonable tests of the Products upon
delivery or within a reasonable time thereafter and shall promptly notify
Caraustar if any Product has defects that result in faulty manufacturing or is
rejected for failure to conform to specifications. Products that are not
rejected in such inspection and tests will be considered as having been accepted
and as conforming to specifications, except as to defects that would not
normally be discovered by such inspections and tests. Caraustar may check
Products which IP so rejects. Upon verification by Caraustar of nonconformance
to specifications, the rejected Products shall be returned at Caraustar's
expense or otherwise adjusted as the parties may then agree. Caraustar's
liability for defective or nonconforming Products shall be limited to the price
of any nonconforming or otherwise deficient Products furnished by it hereunder
and Caraustar shall not be liable for consequential damages or lost profits.
6. Prices and Terms.
(a) For the period ending on the first anniversary of the
Closing Date, the prices for the Products to Requirements Customers will be
those charged to the Requirements Customers by the Sprague mill as of
___________, 1999 (the "Sprague Mill Price"), as shown on Attachment A, as
adjusted from time to time as provided below. The price for
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Products to Requirements Customers for periods beyond the first anniversary of
the Closing Date shall be as determined pursuant to Section 2.
The prices will be adjusted quarterly based on
changes in the market price (if such price is reported as a range, being the low
value of the range) for "recycled folding box board, 20-pt. clay coated news" as
reported monthly by Pulp & Paper Week; for purposes of this agreement this is
referred to as the "Reported Market Price." The Reported Market Price for March
1, 1999 was $____/ton.
Effective for shipments as of April 1, 1999, and
as of the first day of each calendar quarter thereafter, the prices set forth on
Attachment A will be automatically adjusted by a percentage equal to (a) the
Reported Market Price as of the last day of the preceding calendar quarter,
divided by (b) the Reported Market Price as of the last day of the next
preceding calendar quarter.
If for any reason the Reported Market Price ceases
to be reported by Pulp & Paper Week in the format described above, the parties
will agree on a substitute method for determining changes in market prices.
(b) All sales shall be F.O.B. Caraustar's mill facility.
(c) Caraustar shall render its invoices covering shipments as
soon as practicable after each shipment. Terms of payments are 1% 10, net 30
days after date of invoice.
7. Breach. At any time during the term of this Agreement, if either
Caraustar or IP breaches this Agreement, the non-breaching party may seek remedy
afforded it under Article II of the Uniform Commercial Code; provided, however,
that the non-breaching party may not terminate this Agreement unless the
breaching party fails to bring its performance into compliance with the
agreement within 30 days after written notice of the breach.
8. Force Majeure. Neither Caraustar nor IP shall be liable for any
damages, direct or consequential, arising out of any delay in delivery, or
failure to deliver or accept, any of the Products sold hereunder if such delay
or failure to deliver or accept is due to a cause beyond Caraustar's or IP's
reasonable control, including but not limited to an act of God, explosion,
accident, fire, drought, flood, strike or other labor trouble, insurrection or
riot, war, the public enemy, the acts or orders of a governmental unit, or
freight embargo.
9. Assignment. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their successors and permitted assigns.
This Agreement shall not be assignable in whole or in part by either party
without the written consent of the other, which consent shall not be
unreasonably withheld. In the event that IP sells any facility that has been
obtaining Products hereunder, IP shall be required to obtain the buyer's
agreement to
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enter into an agreement for the facility's purchase of 100% of its requirements
for Products on substantially the same terms as those set forth herein for the
balance of the then-current term.
10. Notices. All orders, notices, requests or other communications
hereunder shall be in writing, addressed to Caraustar or IP at the following
addresses:
Caraustar Industries, Inc.
P. O. Box 115
Austell, Georgia 30001
Attention: Senior Vice President
International Paper Company
---------------------------------
---------------------------------
Attention:
-----------------------
The address of either party may be changed by giving notice in writing at any
time to the other party.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to purchase and sale of the above specified
Products and supersedes all prior written or oral communications or
understandings.
12. Amendment and Modification. This Agreement or any term hereof may
be amended, modified or supplemented by mutual agreement of the parties.
13. Governing Law. This contract is made in and is performable in and
shall be construed and interpreted in accordance with the laws of the State of
Georgia.
5
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
CARAUSTAR INDUSTRIES, INC.
By:
-----------------------------------------
Senior Vice President
INTERNATIONAL PAPER COMPANY
By:
-----------------------------------------
6
<PAGE> 56
EXHIBIT B
FORM OF OPINION OF COUNSEL
TO SELLER
We have participated in the preparation of the Purchase Agreement, the
Paper Supply Agreement, the Bill of Sale and the Assignment and Assumption
Agreement (collectively, the "PURCHASE DOCUMENTS"). Capitalized terms not
defined herein have the meanings given them in the Purchase Agreement.
Based on the foregoing, and subject to the assumptions and
qualifications hereinabove and hereinafter set forth, it is our opinion that:
1. Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the state of New York and has full corporate
power and authority to own or lease the Purchased Assets and to carry on the
Business as presently conducted. Seller is duly qualified to do business and in
good standing as a foreign corporation in the jurisdictions listed on Schedule
4.1.1 to the Purchase Agreement.
2. Seller has full corporate power and authority to enter into and
perform its obligations under each of the Purchase Documents and to consummate
the transactions contemplated thereby. The execution and delivery of, and
performance of its obligations under, each of the Purchase Documents by Seller,
and the consummation of the transactions contemplated thereby, have been duly
authorized by all requisite corporate action on the part of Seller.
3. Each of the Purchase Documents has been duly and validly executed
and delivered by Seller and constitutes the legal, valid and binding obligation
of Seller, enforceable against Seller in accordance with its terms.
4. Neither the execution and delivery by Seller of, nor the performance
by Seller of its obligations under, the Purchase Documents, nor the consummation
of the transactions contemplated thereby, will (a) conflict with, violate or
result in a breach of any of the terms or provisions of, or constitute a default
(with the passage of time or giving of notice or both) or give rise to any right
of termination, cancellation or acceleration under any indenture, mortgage, deed
of trust, lease, note, or other agreement or instrument relating to the Business
and to which Seller is a party, (b) result in the creation or imposition of any
Lien on the Purchased Assets pursuant to any indenture, mortgage, deed of trust,
lease, note, or other agreement or instrument to which Seller is a party, (c)
conflict with any provision of the Charter Documents, or (d) violate any law,
order, judgment, decree, rule or regulation of any court or governmental
authority having jurisdiction over Seller or property of Seller.
5. The Bill of Sale, the Assignment and Assumption Agreement, and the
general warranty deeds are sufficient to convey Seller's entire right, title and
interest in the Purchased Assets to Buyer.
<PAGE> 57
6. Except as set forth on Schedule 4.1.5 to the Purchase Agreement,
there are no actions, suits, labor disputes or other litigation, proceedings or
governmental investigations pending or, to my knowledge, threatened against or
affecting Seller in connection with the Business, or which would impair Seller's
ability to consummate the transactions contemplated by the Purchase Agreement.
Except as set forth on Schedule 4.1.5 to the Purchase Agreement, Seller is not
subject to any order, judgment, decree, stipulation or consent of or with any
court, governmental body or agency relating to the Business, or which would
impair Seller's ability to consummate the transactions contemplated by the
Purchase Agreement.
2
<PAGE> 58
EXHIBIT C
FORM OF OPINION OF COUNSEL TO BUYER
We have participated in the preparation of the Purchase Agreement, the
Paper Supply Agreement, and the Assignment and Assumption Agreement
(collectively, the "PURCHASE DOCUMENTS"). Capitalized terms not otherwise
defined herein shall have the meanings given to them in the Purchase Agreement.
Based on the foregoing, and subject to the assumptions and
qualifications hereinabove and hereinafter set forth, it is our opinion that:
1. Buyer is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Connecticut. Caraustar is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of North Carolina.
2. Each of Buyer and Caraustar has full corporate power and authority
to enter into and perform its obligations under each of the Purchase Documents
to which it is a party and to consummate the transactions contemplated thereby.
The execution and delivery of, and performance of its obligations under, each of
the Purchase Documents to which it is a party, and the consummation of the
transactions contemplated thereby, have been duly authorized by all requisite
corporate action on the part of each of Buyer and Caraustar.
3. Each of Buyer and Caraustar has duly and validly executed and
delivered each of the Purchase Documents to which it is a party, and each such
Purchase Document constitutes the legal, valid and binding obligation of Buyer
and Caraustar, to the extent they are a party thereto, enforceable against Buyer
and Caraustar in accordance with its terms.
4. Neither the execution, delivery and performance by each of Buyer and
Caraustar of its obligations under the Purchase Agreement, nor the consummation
of the transactions contemplated thereby, will conflict with, violate or result
in a breach of any of the terms or provisions of, or constitute a default (with
the passage of time or giving of notice or both) under, or result in the
creation or imposition of any lien on the assets of Buyer or Caraustar pursuant
to, the Charter Documents of Buyer or Caraustar, or, to our knowledge, pursuant
to any order, judgment, decree, rule or regulation of any court or governmental
agency or body having jurisdiction over Buyer or Caraustar or their properties,
or, to our knowledge, under any provision of law.
5. To our knowledge, there are no pending or threatened actions, suits,
labor disputes or other litigation, proceedings or governmental investigations
against or affecting Buyer or Caraustar that would impair its ability to
consummate the transactions contemplated by the Purchase Agreement or perform
its obligations thereunder. To our knowledge, neither Buyer nor Caraustar is
subject to any order, judgment, decree, stipulation or consent of or with any
court, governmental body or agency, which would impair its ability to consummate
the transactions contemplated by the Purchase Agreement.
<PAGE> 59
SCHEDULE 1.1(A)
LEASED REAL PROPERTY
There is no Leased Real Property, except for the following warehouse
agreements for the storage and movement of finished goods, copies of which have
previously been delivered to Buyer:
1. JCT Associates, East Hartford, Connecticut
2. North Carolina Distribution Center, Inc., Wilmington, North
Carolina
3. DSI Network, Illinois
<PAGE> 60
SCHEDULE 1.1 (B)
OWNED REAL PROPERTY
REAL PROPERTY:
<TABLE>
<CAPTION>
Address Town Size Map # Block # Lot #
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. 1 Riverside Drive Sprague 3.9 acres 18 2 2
2. 3 Riverside Drive Sprague 3.6 acres 18 2 1
3. 5 Riverside Drive Sprague 3.2 acres 18 2 3
4. 2 Church Street Sprague 1.1 acres 18 1 4
5. 3 Church Street Sprague 1.8 acres 18 1 18
6. 113 Bushnell Hollow Rd. Sprague 11.5 acres 19 6 1
7. Bushnell Hollow Road Sprague 1.5 acres 19 6 4
8. Inland Road Sprague 2.3 acres 18 3 8
9. Inland Road Sprague 1.8 acres 18 3 7
10. Inland Road Sprague 4.4 acres 19 7 9
11. Inland Road Sprague 7.0 acres 19 7 3
12. 120 Inland Road Sprague 3.2 acres 20 2 7
13. 130 Inland Road Sprague 470.4 acres 20 2 8
14. 240 Papermill Road Lisbon 6.98 acres 5 0 6
15. 264 Papermill Road Lisbon 38.0 acres 5 0 10
</TABLE>
EASEMENTS:
1. Easement Agreement dated January 9, 1995, between Federal Paper Board
Company, Inc., and Oaktree Packaging Corporation, detailing several
easements between the parties thereto.
2. Grant of Permanent Easement between the Providence and Worcester
Railroad Company and International Paper Company for a sanitary sewer
easement, recorded February 13, 1998.
<PAGE> 61
SCHEDULE 2.1(A)
SELLER'S TANGIBLE PERSONAL PROPERTY
A detailed list of Seller's fixed assets as of December 31, 1998, has previously
been furnished Buyer.
<PAGE> 62
SCHEDULE 2.1(B)
ASSUMED CONTRACTS
1. Buyer shall assume the following Contracts, copies of which have been
previously furnished Buyer:
A. City of Norwich, Connecticut-International Paper Agreement for
Industrial Wastewater Treatment Services, date January 16,
1997.
B. Paper Supply (Sales) Agreements:
(1) International Paper-Nabisco, Inc., dated January 1,
1999
(2) International Paper-Universal Packaging Corporation,
dated as of June 18, 1997.
C. Property Services Agreement with Oaktree Packaging
Corporation, pertaining to the carton plant (currently owned
by Buyer, Caraustar Industries, Inc.), to the extent that the
Agreement is applicable, in whole or in part.
D. Guaranty Agreement and Loan Agreement between Seller and the
Town of Sprague, Connecticut, for Environmental Improvement
Revenue Bonds, dated October 1, 1997, having a principal
amount of Four Million Seven Hundred Thousand Dollars
($4,700,000.00).
E. Lease Agreement with Wastequip - Rayfo dated February 28,
1999, for a dewatering press with infeed hopper, having total
rental payments of Seventy Three Thousand One Hundred Sixty
Seven Dollars 84/100:($73,167.84).
F. Miscellaneous Lease Agreements, none of which have a value or
cost of more than Fifty Thousand Dollars ($50,000.00), but
which, in the aggregate, exceed Fifty Thousand Dollars
($50,000.00).
G. Versailles Carton Plant Properties - Separation Action List
which has been previously delivered to Buyer.
H. July 10, 1996, Labor Agreement between International Paper and
Baltic Local No. 1840.
<PAGE> 63
SCHEDULE 2.1(J)
ACCOUNTS RECEIVABLE
A list has previously been delivered to Buyer.
<PAGE> 64
SCHEDULE 2.2 (E)
EXCLUDED ASSETS
1. The amount of Four Hundred Twenty Five Thousand Dollars ($425,000.00)
included in the item titled Divisional Control on the December 31, 1998
Balance Sheet in the Financial Statements attached as Schedule 4.1.8,
representing an accrual for a refund of State sales and use taxes due
to Seller.
<PAGE> 65
SCHEDULE 3.3
SELLER'S INVESTMENT
Seller's Investment shall consist in the aggregate of the following:
The following items on the December 31, 1998 Balance Sheet in
the Financial Statements attached as Schedule 4.1.8:
Divisional Control and Deferred Income Taxes.
<PAGE> 66
SCHEDULE 3.6
PURCHASE PRICE ALLOCATION
The purchase price allocation shall be determined by Arthur Andersen LLP in an
appraisal to be performed at Buyer's cost within sixty (60) days after the
Closing Date.
<PAGE> 67
SCHEDULE 4.1.1
FOREIGN QUALIFICATION
Seller is required to be qualified as a foreign corporation in conjunction with
the Business in the States of Connecticut, New York and New Jersey.
<PAGE> 68
SCHEDULE 4.1.3
CONSENTS
1. The July 3, 1997, Administrative order from the State of Connecticut
Department of Environmental Protection (scheduled in 4.1.6[b]) is not
understood by Seller to be transferable or assignable. To the extent
that Buyer, upon inquiry, determines that said Order may be assigned,
in whole or in part, the consent of the Connecticut Department of
Environmental Protection will be required.
2. Wastequip-Rayfo Lease Agreement for dewatering press, dated February
28, 1999, (listed on schedule 4.1.15). Consent to Assignment is
required.
3. March, 1998, Agreement with the City of Norwich, Connecticut, for
Wastewater (listed on Schedule 4.1.15). Consent to Assignment is
required.
4. Paper Board Supply Agreement with Universal Packaging (listed on
Schedule 4.1.15). Consent to Assignment is required.
5. The Permits listed in Schedule 4.1.6(a) all require consent of the
State of Connecticut Department of Environmental Protection for
transfer or assignment
<PAGE> 69
SCHEDULE 4.1.4
INSURANCE
Attached hereto is a listing of all policies of insurance covering the Purchased
Assets and the Business as of the date of the Asset Purchase Agreement,
including the name of the insurer, policy number, expiration date, amount of
coverage and type of coverage.
<PAGE> 70
INTERNATIONAL PAPER COMPANY
SCHEDULE OF 1999 PROPERTY & CASUALTY INSURANCE
GENERAL & PRODUCTS LIABILITY:
Insurer: Reliance National Indemnity Company
Term: 1/1/1999 - 2000
Policy #: NGB0126249-1
Limits: $5MM Per Occurrence
$15MM General Aggregate (Other than Products)
$5MM General Aggregate - Products & Completed
Operations
$5MM Fire Damage Legal Liability
AUTOMOBILE LIABILITY:
Insurer: Reliance National Indemnity Company
Term: l/l/1999 - 2000
Policy #: NKA0126246-01
Limits: $5MM Per Occurrence
UMBRELLA LIABILITY:
Insurer: Winterthur
Term: 1/1/1999 - 2000
Policy #: Pending
Limits: $20MM xs $5MM Per Occurrence
$40MM Aggregate
Insurer: XL Insurance Company
Term: 1/1/1999 - 2000
Policy #: XLUMB00705
Limits: $75MM xs $25MM
Insurer: Chubb Atlantic
Term: 1/1/1999 - 2000
Policy #: Pending
Limits: $25MM xs $l00MM
Insurer: ACE Insurance Company
Term: 1/1/1999 - 2000
Policy #: IP710-5
Limits: $75MM xs $125MM
<PAGE> 71
WORKER'S COMPENSATION & EMPLOYER'S LIABILITY - CONNECTICUT
Insurer: Liberty Mutual
Term: 1/1/1999 - 2000
Policy #: WP8-62B-004093-079 and EW7-62N-004093-039
Limits: $5,000,000 Excess over Self Insured Retention
PROPERTY INSURANCE
Insurer: Arkwright Mutual Insurance Company
Term: 1/1/1997 - 2000
Policy #: 09020225
Limits: Blanket Limits
Coverages: All Risk including Flood & Earthquake & Boiler &
Machinery
Prepared by: Dana W. Kamp, International Paper Risk Management Department -
(901)763-5963
February 26, 1999
2
<PAGE> 72
SCHEDULE 4.1.5
LITIGATION
1. International Paper vs. Applied Dynamics
Suit was filed in January, 1999, in the Superior court, State of
Connecticut, by International Paper against Applied Dynamics
Corporation. The suit, which claims breach of contract and other
commercial causes of action, seeks damages of approximately $89,000.00
and also seeks declaratory relief to have set aside a payment due
defendant by International Paper of approximately $9,000.00. The
defendant provided certain services to repair and recondition to an
electrical motor during March of 1998, pursuant to a purchase order
issued by International Paper. The case is in the pleading stage and
Plaintiff is represented by the Hartford, Connecticut, firm of Halloran
& Sage LLP (Bruce Raymond, Esquire).
2. Dezardouin vs. International Paper
Audrin Dezardouin is former collective bargaining unit employee of the
Sprague Mill. Plaintiff filed suit in Superior Court, New London,
Connecticut, alleging race and national origin discrimination and
intentional infliction of emotional distress. International Paper is
being defended by Jon Harmon of McGuire, Woods, Battle & Booth. The
case is in the discovery stage and has been moved to Federal Court.
3. Labor Grievances
A. Related to Christmas, 1998, and New Year's, 1999
Employee absences
No. H-1 (1/14/99)
No. H-2 (1/19/99)
No. H-3 (1/19/99)
RP-1 (12/29/98)
RP-2 (12/31/98)
No 303198 (12/31/98 - alleging "harassment" of employee)
Unnumbered (12/31/98 pertaining to an employee suspension)
ORDERS
1. State of Connecticut, Department of Environmental Protection
Administrative Order, dated July 3, 1997, which has previously been
delivered to Buyer.
STIPULATIONS
1. June 4, 1998, Letter of Commitment from International Paper to U.S.
Department of Labor, Employment Standards Administration, Officer of
Federal Contract Compliance Programs, which has previously been
delivered to Buyer.
<PAGE> 73
SCHEDULE 4.1.6(A)
PERMITS
Seller holds the following permits:
1. State of Connecticut Final NPDES/Pretreatment Permit - dated
December 30, 1997
2. State of Connecticut Title V Final Permit Application for
Stationary Sources of Air Pollution - Dated January 22, 1998
3. State of Connecticut Stormwater Pollution Prevention Permit -
dated August 1996
4. State of Connecticut Water Diversion Permit - dated February
13, 1998
5. State of Connecticut - Sprague Mill Landfill - Revised
Operation and Management Plan - dated November 23, 1998
6. State of Connecticut, Department of Transportation, Bureau of
Highways Permit Numbers 2-1458597, issued March 20, 1998, and
2-143356, issued April 15, 1997, pertaining to installation of
the Sprague Mill sewer effluent pipe line.
<PAGE> 74
SCHEDULE 4.1.8
FINANCIAL STATEMENTS
Copies of the Financial Statements have previously been delivered to Buyer.
<PAGE> 75
SCHEDULE 4.1.9
UNDISCLOSED LIABILITIES
None
<PAGE> 76
SCHEDULE 4.1.10
ADVERSE CHANGES
None.
<PAGE> 77
SCHEDULE 4.1.11
No exceptions.
<PAGE> 78
SCHEDULE 4.1.14(A)
PROPRIETARY RIGHTS
1. Trademark - Inverkote(TM), Issued to Federal Paper Board Company, Inc.,
to which Seller is successor by merger.
2. No licenses have been granted by Seller to any Proprietary Rights.
<PAGE> 79
SCHEDULE 4.1.14(B)
YEAR 2000 COMPLIANCE
A copy of Seller's Executive Summary of its Bleached Board Divisions (of which
the Business is a part) progress toward said division's Year 2000 compliance
efforts has previously been delivered to Buyer.
A copy of Seller's Year 2000 Contingency Plan for the Business has previously
been delivered to Buyer.
<PAGE> 80
SCHEDULE 4.1.15(A)
CONTRACTS
The following is the list of the contracts meeting the criteria set forth in
Section 4.1.15, subsections (i) through (v), copies of which have been delivered
to Buyer.
1. City of Norwich, Connecticut-International Paper Agreement for
Industrial Wastewater Treatment Services, dated January 16, 1997.
2. Paper Supply (Sales) Agreements:
A. International Paper - Nabisco, Inc., dated January 1, 1999.
B. International Paper - Universal Packaging Corporation, dated
as of June 18, 1997.
3. Property Services Agreement with Oaktree Packaging Corporation, a copy
of which is attached, pertaining to the carton plant (currently owned
by Buyer, Caraustar Industries, Inc.), to the extent that the Agreement
is applicable, in whole or in part.
4. Guaranty Agreement and Loan Agreement between Seller and the Town of
Sprague, Connecticut, for Environmental Improvement Revenue Bonds,
dated October 1, 1997, having a principal amount of Four Million Seven
Hundred Thousand Dollars ($4,700,000.00).
5. Lease Agreement with Wastequip - Rayfo dated February 28, 1999, for a
dewatering press with infeed hopper, having total rental payments of
Seventy Three Thousand One Hundred Sixty Seven Dollars 84/100
($73,167.84).
6. Miscellaneous Lease Agreements, none of which have a value or cost of
more than Fifty Thousand Dollars ($50,000.00), but which, in the
aggregate, exceed Fifty Thousand Dollars ($50,000.00).
7. Versailles Carton Plant Properties - Separation Action List which has
been previously delivered to Buyer.
<PAGE> 81
SCHEDULE 4.1.15(B)
CONTRACTS - DEFAULT OR BREACH
None.
<PAGE> 82
SCHEDULE 4.1.16(A)
EMPLOYEE BENEFIT PLANS
1. Exempt Salaried Employees Quarterly Incentive Plan, a copy of which has
been previously delivered to Buyer.
2. List of other Plans, copies of which have been previously delivered to
Buyer.
<PAGE> 83
SCHEDULE 4.1.16(E)
POST RETIREMENT AND SEPARATION BENEFITS
Other than as set forth specifically in the Labor Contract (as set forth in
Schedule 4.1.17[c]) and in the Salaried Retirement Plan, there are no other
benefits with respect to current or former employees beyond retirement or
separation.
<PAGE> 84
SCHEDULE 4.1.17(A)
LABOR CONTRACT
1. Labor Contract.
A copy of the July 10, 1996, Labor Agreement between International
Paper and Baltic Local No. 1840 has previously been delivered to Buyer.
2. Severance Policies.
A copy of International Paper's Salaried Employee Severance Program has
previously been delivered to Buyer.
3. Performance and Retention Incentive Plan Agreement between
International Paper and Brian McDonald has previously been delivered to
Buyer.
<PAGE> 85
SCHEDULE 4.1.17(C)
EMPLOYEE LOANS
None
<PAGE> 86
SCHEDULE 4.1.17(D)
EMPLOYEES
A list of all current salary and hourly rates of all Employees, including Union
Employees, has previously been delivered to Buyer.
<PAGE> 87
SCHEDULE 4.1.18
ENVIRONMENTAL MATTERS
4.1.18(a)
Seller's degree of noncompliance as to certain specific Environmental Laws is
set forth in detail in the July 3, 1997, Administration Order of the State of
Connecticut Department of Environmental Protection. Those sixteen conditions,
enumerated on page 2 and 3 of the Administration Order, are subject to an order
to International Paper to undertake certain specific obligations and prescribes
the timetable for undertaking and/or completing those actions ordered.
Seller has been acting under and in accordance with the Administrative Order and
has not been notified of any noncompliance with said Order or of any fines or
penalties stemming therefrom.
4.1.18(b)
A list of all relevant Material environmental reports, audits and studies.
1. URS Greiner Woodward Clyde - Phase I Environmental Assessment of
Environmental Compliance - Report dated December 17, 1998.
2. Radian International - February, 1996, Report - Connecticut Property
Transfer - Site Assessment.
3. September, 1996, Compliance Report for International Paper, submitted
to the State of Connecticut Department of Environmental Protection, by
Rust Environment and Infrastructure.
4. Closure/Investigation Reports - UST Closures
1 - 2,000 gallon gasoline tank
1 - 5,000 gallon No. 2 fuel oil tank
1 - 10,000 gallon diesel fuel tank
1 - 1,000 gallon waste oil tank
UST Investigations
5. No. 6 fuel oil discharge investigation.
6. Versailles Pond and Dam Long Term Monitoring and Management Plan.
<PAGE> 88
4.1.18(f)
The Material Environmental Permits are:
1. State of Connecticut Final NPDES / Pretreatment Permit-dated December
30, 1997
2. State of Connecticut Title V Final Permit Application for Stationary
Sources of Air Pollution - Dated January 22, 1998
3. State of Connecticut Stormwater Pollution Prevention Plan (SWPPP) -
dated August, 1996
4. State of Connecticut Water Diversion Permit - dated February 13, 1998
5. State of Connecticut- Sprague Mill Landfill Revised Operation and
Management Plan - dated November 23, 1998
4.1.18(g)
(i) None
(ii) None
(iii) All tanks have been removed, and are listed above in this
schedule 4.1.18
(iv) None
2
<PAGE> 89
SCHEDULE 4.1.19
LEASED REAL PROPERTY
Leases to International Paper Company
Warehouse Agreements
1. JCT Associates, East Hartford, Connecticut
2. North Carolina Distribution Center, Inc., Wilmington, North Carolina
3. DSI Network, Illinois
Lease From International Paper Company
1. Lease to George and Caroline Osella, dated November 1, 1997, for
premises at 124 Bushnell Hollow Road, Versailles, Connecticut. Term of
twenty (20) years. Rental - Twenty-Five Dollars ($25.00) per month
(copy attached hereto)
2. Lease from Federal Paper Board Company, Inc. (predecessor in merger to
International Paper Company), dated January 1, 1995, of premises at 120
Inland Road, Versailles, Connecticut. Term of five (5) years (copy
attached hereto).
<PAGE> 90
LEASE
THIS LEASE, made as of the 1st day of November 1997 between
INTERNATIONAL PAPER COMPANY, a corporation organized under the laws of the State
of New York, having an office at Two Manhattanville Road, Purchase, New York
10577 (herein referred to as "Lessor"), and GEORGE OSELLA and CAROLINE OSELLA,
adult citizens of the State of Connecticut (herein referred to as "Lessees").
WITNESSETH
WHEREAS, Lessor owns premises situated at 124 Bushnell Hollow Road,
("Premises") Versailles, Connecticut; and
WHEREAS, Lessees desire and are empowered to lease the Premises for use
as a residence; and
WHEREAS, the parties desire to enter into a Lease Agreement to define
their respective rights, duties and liabilities relating to the Premises.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Lessor leases to Lessees, and Lessees hereby lease from Lessor, the
"Premises."
2. The term of this Lease is twenty (20) years, beginning on November
1, 1997, and terminating on October 31, 2017, unless such term shall sooner
terminate as hereinafter provided, or unless the Lease is extended as
hereinafter provided.
3. The rent under this Lease shall be $25.00 per month.
4. Use of Premises. The Space shall be used only as a personal
residence for Lessees only. Lessees shall restrict its use to such purposes, and
shall not use or permit the use of the Premises for any other purpose without
the written consent of Lessor. Lessees shall use the Premises in a manner so as
to comply with all applicable Federal, State and local laws and ordinances.
5. Lessees' Covenants. Lessees shall not use the Premises in any manner
that will increase risks covered by insurance on the Premises, or result in an
increase in the rate of insurance or a cancellation of any insurance policy.
Lessees shall comply with all requirements of the insurer applicable to the
Premises necessary to keep in force fire and liability insurance.
6. Lessees shall not allow any waste or nuisance on the Premises, or
use or allow the Premises to be used for any unlawful or offensive purpose.
7. Lessees shall maintain the Premises and keep them in good repair at
their expense.
<PAGE> 91
8. Lessees shall be responsible for their own personal property
contained in or about the Premises, which shall not be covered by any fire or
liability insurance on the Premises, and Lessor shall have no liability for the
same.
9. Lessees shall not cause the Premises to be vacated for more than
thirty (30) days, without notifying Lessor.
10. Lessees accept the premises "as is", and shall make no alterations
(other than cosmetic decorating or repairs) installations, additions or
improvements in or to the Premises without Lessor's prior written consent, and
then only by contractors or mechanics approved by Lessor. All such work shall
become the property of Lessor and shall remain upon and be surrendered with the
Premises at the end of the term. Lessees shall be required to surrender the
Premises in good condition at the end of the Lease term.
11. Lessors' Right of Entry. Lessor reserves the right to enter the
Premises at reasonable times to inspect it, perform required maintenance and
repairs, or make additions, alterations, or modifications to any part of the
Premises and Lessees shall permit Lessor to do so.
12. Lessees shall pay for all utilities and services to the Premises
including, but not limited to, electric, telephone, sewer, water and refuse, and
fuel oil during the Lease term and any extension.
13. Lessees' Indemnification of Lessor. Lessor shall not be liable for
liability or damage claims for injury to persons or property (including their
own) from any cause relating to the occupancy of the Premises by Lessees, during
the term of this Lease or any extension thereof. Lessees indemnify and hold
harmless Lessor from all liability, loss, or damage claims or obligations
resulting from any injuries or losses of this nature, except for those deemed to
have been caused by Lessor, or due to Lessor's breach of a covenant of this
Lease.
14. Assignment. Lessees may not assign their rights and duties under
this Lease or sublease the Premises, or any part thereof, without the prior
written consent of Lessor.
15. Damages. If Lessor files an action to enforce any agreement
contained in this Lease, or for breach of any covenant or condition, Lessees
shall pay Lessor all costs, including reasonable attorney's fees for the
services of Lessor's attorney in such action.
16. Termination. This Lease shall terminate at the end of the Term. The
Lease shall terminate in the event of Lessee's default, as herein defined, or
upon extension, as herein provided.
17. Extension. This Lease may be extended by mutual written agreement
of the Parties for an additional term of one (1) year, unless earlier terminated
in the same manner and for the same reasons as set forth in Paragraph 16. Rent
for the extension terms shall be at the same rate as during the term.
18. Default. In the event that Lessees fail to perform or breaks any of
its covenants as set forth in this lease, and such covenant continues not to be
performed, or continues to be breached, after fifteen (15) days written notice
by Lessor of such nonperformance or breach, (including failure to pay the rent
or any utility or other service to the Premises) this Lease shall at Lessor's
option terminate.
2
<PAGE> 92
19. Surrender. Upon expiration of the Lease term, or extension, upon
default, or early termination, Lessees shall surrender the Premises in good
condition, broom clean, and all Rent and utilities paid in full and current.
20. Choice of Law. This Lease shall be governed by the laws of the
State of New York and venue shall be in New York.
21. Severability. In the event that any paragraph of this Lease is
declared to be invalid or unenforceable, the remaining paragraphs shall be in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year first above written.
INTERNATIONAL PAPER COMPANY
By:/s/ DON MACDONALD
------------------------------------
Lessor
GEORGE OSELLA
By:/s/ GEORGE OSELLA
------------------------------------
Lessee
CAROLINE OSELLA
By:/s/ CAROLINE OSELLA
------------------------------------
Lessee
3
<PAGE> 93
LEASE
THIS LEASE, made as of the 1st day of January 1995 between FEDERAL
PAPER BOARD COMPANY, INC., a corporation organized under the laws of the State
of New York, having an office at 75 Chestnut Ridge Road, Montvale, New Jersey
07645 (herein referred to as "Lessor"), and FEDCON EMPLOYEES FEDERAL CREDIT
UNION (herein referred to as "Lessee").
WITNESSETH
WHEREAS, Lessor owns a building located at 120 Inland Road, Versailles,
Connecticut; and
WHEREAS, Lessee desires and is empowered to lease such building for use
as an office; and
WHEREAS, the parties desire to enter into a Lease Agreement to define
their respective rights, duties and liabilities relating to the property to be
leased.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. Lessor leases to Lessee, and Lessee hereby leases from Lessor, the
building known as 120 Inland Road, Versailles, Connecticut, together with the
parking area adjacent thereto, all of which is hereinafter referred to as the
"Space", and is further shown outlined in red on Exhibit A annexed hereto (the
"facility").
2. The term of this Lease is five (5) years beginning on January 1,
1995, and terminating on December 31, 1999, unless such term shall sooner
terminate as hereinafter provided.
3. The rent under this Lease shall be $1 per month.
4. The Space shall be used only as a business office. Lessee shall
restrict its use to such purposes, and shall not use or permit the use of the
Space for any other purpose without the written consent of Lessor. At its
expense, Lessee shall secure and comply with all occupancy and other permits
required by law or custom in order for the Space to be used for the purposes
herein specified. Further, Lessee shall not use the Space for any purpose that
would cause Lessor to violate any existing permit on its adjoining premises.
5. Lessee shall not use the Space in any manner that will increase
risks covered by insurance on the Space or on the adjoining premises of Lessor,
or result in an increase in the rate of insurance or a cancellation of any
insurance policy, even if such use may be in furtherance of Lessee's business
purposes. Lessee shall not keep, use, or sell anything prohibited by any policy
of fire insurance covering the Space, or the adjoining premises of Lessor, and
shall comply with all requirements of the insurers applicable to each such
premise necessary to keep in force the fire and liability insurance.
<PAGE> 94
6. Lessee shall not allow any waste or nuisance on the Space, or use
or allow the Space to be used for any unlawful purpose.
7. Lessee shall maintain the Space and keep it in good repair at its
expense, except that the furnace, exterior walls, well, septic system and the
roof will be maintained in good condition by Lessor. Lessee shall maintain and
repair windows, doors, and interior walls.
8. Lessee accepts the premises "as is", and shall make no alterations,
decoration, installations, additions or improvements in or to the Space without
Lessor's prior written consent, and then only by contractors or mechanics
approved by Lessor. All such work shall become the property of Lessor and shall
remain upon and be surrendered with the Space at the end of the term. The Lessee
shall not be required to restore the Space to the original condition at the end
of the Lease term. Before delivery at the conclusion of the term, Lessee shall
remove all business signs placed on the Space by Lessee.
9. Lessor reserves the right to enter on the Space at reasonable times
to inspect it, perform required maintenance and repairs, or make additions,
alterations, or modifications to any part of the Space and Lessee shall permit
Lessor to do so. Lessor may erect scaffolding, fences, and similar structures;
post relevant notices, and place moveable equipment in connection with making
alterations, additions, or repairs, all without incurring liability to Lessee
for disturbance of quiet enjoyment of the Space, or loss of occupancy thereof.
10. Lessor shall not be liable for liability or damage claims for
injury to persons or property from any cause relating to the occupancy of the
Space by Lessee, including those arising out of damages or losses occurring on
sidewalks, the parking lot, and other areas adjacent to the Space during the
term of this Lease or any extension thereof. Lessee shall indemnify Lessor from
all liability, loss, or damage claims or obligations resulting from any injuries
or losses of this nature.
11. Lessee shall procure and maintain in force at its expense during
the term of this Lease and any extension thereof fire and extended coverage.
Lessee shall also procure and maintain public liability insurance with insurers
approved by Lessor. Such coverage shall be adequate to protect against liability
for damage claims through public use of or arising out of accidents occurring in
or around the Space, in a minimum amount of $500,000.00 for each person injured,
$1,000,000.00 for any one accident, and $500,000.00 for property damage. The
insurance policies shall provide coverage for contingent liability of Lessor on
any claims or losses. Evidence of coverage shall be delivered to Lessor on
request. Lessee shall obtain a written obligation from the insurers to notify
Lessor in writing at least thirty (30) days prior to cancellation or refusal to
renew any policy. If the insurance policies are not kept in force during the
entire term of this Lease or any extension thereof, Lessor may procure the
necessary insurance and pay the premium therefor, and the premium shall be
repaid to Lessor as additional rent installment for the month following the date
on which the premiums were paid by Lessor.
12. Lessee shall not assign its rights and duties under this Lease or
sublease the space or any part thereof without the prior written consent of
Lessor.
2
<PAGE> 95
13. If Lessor files an action to enforce any agreement contained in
this Lease for breach of any covenant or condition, Lessee shall pay Lessor
reasonable attorney's fees for the services of Lessor's attorney in the action,
all fees to be fixed by the court.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year first above written.
FEDERAL PAPER BOARD COMPANY, INC.
By:/s/ DONALD M. MCDONALD
------------------------------------
FEDCON EMPLOYEES FEDERAL CREDIT UNION
By:/s/ [Signature illegible]
------------------------------------
3
<PAGE> 96
FEDCON EMPLOYEES FEDERAL CREDIT UNION
1995 OFFICIAL ROSTER
<TABLE>
<CAPTION>
BOARD OF DIRECTORS POSITION TERM
- ------------------ -------- ----
<S> <C> <C>
WILLIAM TRYON PRESIDENT 1
CHARLES OBERMEYER VICE-PRESIDENT 1
WILLIAM GARRITY TREASURER 2
MARIE PHILBRICK SECRETARY 2
JAMES GLAUDE MEMBER 3
FRANK SWAN MEMBER 3
GERALD GOSSELIN MEMBER 2
CREDIT COMMITTEE
- ----------------
KENNETH ROBB CHAIRMAN 2
JOSEPH GILOT SECRETARY 1
HERBERT MCKEE MEMBER 2
PATRICIA COLEDA MEMBER 1
ROBERT BARIL MEMBER 2
LOAN OFFICERS
- -------------
DENNIS ALMEIDA
PAUL HOAR
PAUL GLAUDE
CHERYL LAROUX
ALEXANDER RISAVICH
SUPERVISORY COMMITTEE
- ---------------------
GERALD GOSSELIN CHAIRMAN
HELENE SOBANSKI MEMBER
PETER MANTOVANI MEMBER
SECURITY OFFICER
- ----------------
PAUL MACDONALD
MEMBERSHIP OFFICER
- ------------------
CLAIR DION
EXECUTIVE COMMITTEE
- -------------------
WILLIAM TRYON
WILLIAM GARRITY
CHARLES OBERMEYER
INVESTMENT COMMITTEE
- --------------------
WILLIAM TRYON
CHARLES OBERMEYER
NICOLE SANTERRE
</TABLE>
<PAGE> 97
Internal Correspondence
- --------------------------------------------------------------------------------
DATE: May 13, 1994
TO: Mr. John Flynn
FROM: Mr. Donald M. MacDonald
SUBJECT: Leased Housing (Caroline Osella)
COPIES: W. C. Kirby
I have completed my investigation surrounding the lease of the company
house located at 124 Bushnell Hollow Road in Versailles, CT.
As you know, the responsibility for this property was assumed by
Sprague upon the sale of the Versailles Carton Division to Oak Tree. There was
no transfer of records from that division and, upon inquiring, I was advised
that no records existed covering this lease.
By your direction, I contacted the occupant, Mr. George Osella, and
asked him about his lease with Federal Paper Board. He advised me that no lease
existed and he had absolutely no documentation whatsoever.
He related the following story:
His wife, Caroline, was married to a Mr. Walter Kotsch, who
was Superintendent of the Versailles Carton Division for many
years. The house belonged to Federal and they were living
there rent free.
Mr. Kotsch became very ill and died en route to the Boston
Massachusetts Hospital. Mrs. Kotsch continued to live in the
house rent free until six months after his death. At this
time, she was approached by a Vice President of Federal (he
does not know who) who told her that he was setting the rent
at $25 per month and she had lifetime use of the place at that
rate.
Mr. George Osella married her in 1966. They continue to pay
the same rate.
He claims to have done all the major repairs to the place,
including the replacement of the heating system, well, roof
repairs, etc.
As a result of the severe winter encountered in 1994, the roof on the
detached garage collapsed. He advised the company of this condition and, upon
our investigation, we concluded that the structure should be demolished. This
will be completed within the next few weeks.
I have not been into the house, but was advised that it is in a good
state of repairs. The exterior of the house needs some repairs. It should be
sided and the woodwork needs painting.
<PAGE> 98
I am also told, by the occupant, that the water quality is not fit for
consumption. Mr. Osella brings in drinking water and uses the well water for
bathing and washing of clothes. He claims to have been doing this for years.
John, after reviewing these notes, please call and discuss the
appropriate course of action to be taken.
/s/ DON
-----------------------
Donald M. MacDonald
2
<PAGE> 99
SCHEDULE 4.1.20
No exceptions.
<PAGE> 100
SCHEDULE 4.1.21
CONDITION OF REAL PROPERTY
(a) Seller has been notified by the State of Connecticut, Department of
Environmental Protection, Bureau of Water Quality Management, that
property leased by Seller to George Osella on Bushnell Hollow Road
(listed on Schedule 1.1[a]) has a water well and the water is not
potable. Seller provides bottled drinking water to the Lessees of those
premises.
(b) None of the parcels of Real Property are serviced by municipal water
services, as they are serviced by private water wells.
Process water is accessed from the Little River.
<PAGE> 101
SCHEDULE 4.1.22
CUSTOMERS
Seller has delivered to Buyer a list of customers of the Business since December
31, 1997.
<PAGE> 102
SCHEDULE 5.5(A)
SEVERANCE POLICY
A copy of Seller's Severance Policy has previously been delivered to Buyer.
<PAGE> 1
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 EXHIBIT 11.01
CARAUSTAR INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
COMPUTATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Earnings:
Net income available to common stock...................... $11,415 $13,177
Shares:
Weighted average common shares outstanding................ 24,759 25,280
Dilutive effect of stock options.......................... 151 232
------- -------
Average diluted shares outstanding and equivalent......... 24,910 25,512
Basic earnings per common share:
Net income................................................ $ 0.46 $ 0.52
======= =======
Diluted earnings per common share:
Net income................................................ $ 0.46 $ 0.52
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,311
<SECURITIES> 0
<RECEIVABLES> 87,419<F1>
<ALLOWANCES> 0
<INVENTORY> 65,039
<CURRENT-ASSETS> 171,483
<PP&E> 537,489
<DEPRECIATION> 212,457
<TOTAL-ASSETS> 640,952
<CURRENT-LIABILITIES> 108,925
<BONDS> 231,853<F2>
0
0
<COMMON> 2,493
<OTHER-SE> 244,187
<TOTAL-LIABILITY-AND-EQUITY> 640,952
<SALES> 187,565
<TOTAL-REVENUES> 187,565
<CGS> 138,789
<TOTAL-COSTS> 138,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,071
<INCOME-PRETAX> 18,052
<INCOME-TAX> 6,519
<INCOME-CONTINUING> 11,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,415
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
<FN>
<F1>RECEIVABLES ARE PRESENTED NET OF THE ALLOWANCES FOR DOUBTFUL ACCOUNTS.
<F2>BONDS REPRESENT REVOLVING CREDIT LOANS AND LONG-TERM DEBT, LESS CURRENT
MATURITIES.
</FN>
</TABLE>
